Credit deflation and the reflation cycle to come (part 2)

[Democorruptcy]

On 23/01/2021 at 16:04, Castlevania said:

It doesn’t make sense to ship stuff from France to Ireland and then to the U.K. Unless it was much cheaper.

A bit on the local news again about ferry business being down at Holyhead. It seems like the drop in business is more to do with goods heading to Ireland from Europe via the UK, not goods heading to the UK.

Quote

 

A month into new trading rules with the European Union, freight using Fishguard and Holyhead is "dramatically down".

Rosslare's January traffic to the UK was down 49% on January 2019.

However, its European freight was up 446% as that route allows them stay in the EU and avoid customs documentation.

 

Traditionally, lorries from Europe with goods for Irish customers have taken a short ferry route into the south east of England, driven across the UK and taken another short ferry to Ireland.

Holyhead, Fishguard and Pembroke Dock have all benefited from this traffic.

But since 1 January, lorry drivers taking that route have to go through two sets of border checks in and out of the UK.

By using the longer and more expensive sea route, lorries remain in the EU and do not have to go through customs.

Demand is so high ferry companies have increased sailings and routes - 18 months ago there were three sailings a week between Rosslare and France and Spain, now there are 15.

Mr Carr said it is not so much the hauliers who are individually deciding the routes they take, but industries who want security of their supplies.

"We're seeing a lot of Amazon stuff now coming directly [to Ireland] from Belgium using Dunkirk and straight into Ireland," he added.

"We are seeing 22 trucks a day alone coming in from Amazon on that route, which we would never have seen in Rosslare."

https://www.bbc.co.uk/news/uk-wales-55954524

 

 

[Yadda yadda yadda]

If I was investing in Tesla I'd see this as a bad sign. One and a half billion could build factories, purchase supply chain assets (HZM ) or be otherwise invested in growth. Instead it is being ploughed into what is essentially speculation. Can't the visionary Elon see any hope for faster automotive growth? No R&D?

I like his space investments. These are arguably good for mankind. Tesla has pushed electric vehicles forward. There will be increasing competition and they're all going to be spending billions. That lead could be pissed away.

[Harley]

14 minutes ago, Cattle Prod said:

Telsa and BTC are looking like they could do BK on their own, and leave the rest of us alone. There'll shortly be 2 trillion dollars in those two just waiting to get blown up.

BTC does seem overbought, if such a term exists.  I've been waiting for a correction!

[Harley]

4 minutes ago, Yadda yadda yadda said:

If I was investing in Tesla I'd see this as a bad sign. One and a half billion could build factories, purchase supply chain assets (HZM ) or be otherwise invested in growth. Instead it is being ploughed into what is essentially speculation. Can't the visionary Elon see any hope for faster automotive growth? No R&D?

I like his space investments. These are arguably good for mankind. Tesla has pushed electric vehicles forward. There will be increasing competition and they're all going to be spending billions. That lead could be pissed away.

More money in BTC than those cars!

[Sasquatch]

I've just put up an interesting anecdotal in the bitcoin thread.

[Harley]

Sick of waiting for good prices in value plays and hearing again this is an activist (trader) market versus passive (plus some saying this is a risky period) so moved from nibbles to full on trader mode.  Sticking to weeklies for now as too old and busy for anything faster.  Nice to be back!  Hope to scoop up some more value plays in the process.  Will run down my old FTSE income portfolio as prices improve and retain the real value plays.  Interactive Brokers are a trader's dream for prices and functionality.

PS:. Actual bagged a few PM miners out of quite a few candidates so will be interesting to see any sustainable trend (PM miner ETFs up today).

[Errol]

Elon also looking to buy gold as well. Not mentioned so much because everyone got blinded by the Bitcoin. The below is from the SEC filings:

 

[Loki]

5 minutes ago, Errol said:

Elon also looking to buy gold as well. Not mentioned so much because everyone got blinded by the Bitcoin. The below is from the SEC filings:

 

great to know, cheers 

[Harley]

43 minutes ago, Vendetta said:

BTC was down (corrected) about 25% around the 27th January from its ATH. 
 

I only look at GBP, my currency of spend.  Bit worried I'm not seeing the falls. Up 14% in Jan and 30% so far in Feb on the monthly candles.  Could easily go higher technically but I'm worried any gains now could get wiped in a correction.

[JREWING]

BP Wind Farm

The energy giant and its German partner will pay £924m for the option to develop two sites - but the price may concern investors.

In the first auction of offshore wind licences to be carried out by the Crown Estate since 2010, BP and its German partner, Energie Baden-Wuerttemberg (EnBW), agreed to pay £924m for the option to develop two sites in the Irish Sea around 30km (18 miles) off the coast of North West England and Wales.

[ThoughtCriminal]

'When the whole world is running towards a cliff, he who is running in the opposite direction appears to have lost his mind.' ~ C.S. Lewis.

 

Quite pertinent given the journey we're all on. 

[arrow]

It looks like BP has upset a fair few people in “overpaying” for the wind assets
The Times, followed by Sky, have run articles on it, quoting unnamed sources.

 

From the Times,
“The oil major and joint venture partner EnBW were revealed as the winning bidders behind two Irish Sea leases at prices that were met with incredulity by established players.
BP said that it expected to pay the fee for four years and said it was confident it could make a return of at least 8 to 10 per cent on developing the projects.
However, the prices have been described as “ridiculous” by established offshore wind players. A senior executive at one developer told The Times: “They will be lucky if they can even make 2 per cent”.”

 

From Bloomberg,

This from the Economist

 

But, I think the incumbent renewable players are a little scared of both BP and Total.

From the Economist last year,
“European electric utilities have lately emerged as the world’s top developers of wind and solar projects outside China (see chart). These offer growth and, in an era of ultra-low interest rates, stable returns thanks to long-term contracts.
A decade ago excess capacity, the financial meltdown and competition from renewables firms imperilled Europe’s traditional power companies. Faced with the falling value of their coal and gas assets, many took the shift to cleaner energy seriously, says Deepa Venkateswaran of Bernstein, a research firm. Orsted has turned itself from an ailing state enterprise into the world’s largest developer of offshore wind. This year RWE and E.ON, another German firm, swapped assets, with E.ON concentrating on grids and RWE on generating clean power. Iberdrola, EDP and Italy’s Enel have invested in wind and solar projects in Europe and beyond.
Henrik Poulsen, Orsted’s outgoing boss, argues that building an offshore wind turbine is not the same as building an oil platform. “We have much more experience and we have stronger procurement,” he contends.”

 

 

BP and Enbw have paid more for their leases. 

BP says the leases are good value as,
“Advantaged leases due to distance from shore, lower grid cost, synergies from scale, and faster cycle time
Projects expected to meet bp’s 8-10% returns aim, delivering attractive and stable returns and integrating with trading, mobility, and other opportunities”

Enbw says they
“ secured two large areas in the Irish Sea that are estimated to be the highest-value areas in the first auction of offshore wind rights in England and Wales for ten years. EnBW and bp plan to build two offshore wind farms there with a combined capacity of three gigawatts, that is enough to power the equivalent of 3.4 million households.”
“Our bids prevailed for the most attractive areas in the auction that stand out for above average wind conditions and favourable prospects in terms of approval,” added Dirk Güsewell, head of renewable energy portfolio development at EnBW. “We have already been able to put in an advance grid connection application. The combination of the two areas right next to each other also means wide-ranging synergies in planning, construction and operation going forward. All of these factors have a positive impact on the asset value of the planned wind farms.”

 

And then there's this from Bloomberg and other media,

"The auction results will be a major loss for incumbent players such as Orsted AS, Iberdrola SA, Equinor ASA and SSE Plc that have previously dominated the offshore wind sector in the U.K."

“These huge upfront costs will put up barriers to entry for utilities and oil and gas companies without very deep pockets,” Barclays Plc analysts led by Dominic Nash said in a note."

 

I think Nash is right. BP is raising barriers to entry and upsetting the incumbents. It wants a slice of this market and its income and is prepared to freeze out other players.

[arrow]

51 minutes ago, Cattle Prod said:

I'm not sure. I really dont think they are overpaying just to shut others out. If they are the top 4 bids, paying 50% over is horrendous. You have to have better market intelligence than that, even if blind auctions are a nightmare. When we do this, we are more nervous about the first underbid than what we offered. If the gap is wide it's "money left on the table" and the CEO gets pissed off. The closer we are the more we look like geniuses. Last one we got the winning bid at about 8% over (on ~ $50m) with far more unknowns than the future price of wind. BP would want to cop on and poach someone from Orsted, they don't have the deepest pockets in oil and gas. They were long regarded as arrogant, XOM avoided working with them where possible, this smacks a bit of that.

About turbines being different to oil and gas platforms? Yeah, sure. Oil and gas platforms are a hell of a lot more complex. The engineers won't have any problems adapting (Orsted did it themselves ffs, dumb comment by the ceo), those turbine jackets upthread looked exactly like platform jackets. The economists need a kicking though 

You could be right CP. The Bloomberg data isn't that helpful. It appears to be from winning bids from different leases. They appear only to list winning bids and not all bids for a particular lease. So, it is hard to compare. But, the other bidders do appear to be upset, as "unnamed sources".

Either BP/enbw overpaid or they didn't.

If they didn't, then the leases must have substantially more value than the other leases.

If they did, then either it's a miscalculation on BP/enbw's part or a deliberate strategy of some kind.

Nash believes it is a strategy. I'm hoping that BPs management either see more value in the lease or that it is some strategy. If not, then they've screwed up. I'm hoping it isn't arrogance.

[DurhamBorn]

BP have pulled out of a lot of schemes as they couldnt make the money they wanted.I think they want this one for strategic reasons.Its a shot across the bows of other players to make them all bid higher on other projects to get them.I think BP are looking at producing hydrogen from the power when prices drop.Watch to see what they do with hydrogen.

Remember as well.Utilities have to fund from debt mostly,big oil with Brent at $60 or above can fund from free cash.Free cash has zero coupons.

BP forcing up the price makes raising debt to compete harder for other players.You can argue on if it is the best use of shareholder capital,but i think it is.

[Viceroy]

@DurhamBorn - what % of your total portfolio is allocated to energy (big oil/gas/etc)?

Was it 20% but as you're not selling, only adding that has now grown?

I remember your advice back in the day was approx 20% big oil and 4-5% max per stock.  Thx!

[Shamone]

10 hours ago, Democorruptcy said:

Upping the pension age to 70 would keep a lot of people working and paying tax. Then they contribute instead of drawing pensions. It only hits the little people because the "faces" will still retire earlier anyway. I think due to technology and automation more people will become unemployable. They just need enough aspirational hamsters running their wheels and signing up to 40 and 50 year mortgages. One of the main drivers behind their house price props is to keep people working longer to pay for a shelter. RM ought to display the number of hours of the average salary required to buy it, alongside the price.

How realistic is working at 70, though? 

[DurhamBorn]

13 minutes ago, Viceroy said:

@DurhamBorn - what % of your total portfolio is allocated to energy (big oil/gas/etc)?

Was it 20% but as you're not selling, only adding that has now grown?

I remember your advice back in the day was approx 20% big oil and 4-5% max per stock.  Thx!

Its 22%,but there are the likes of DRAX and SSE in there as well in smaller amounts.I have sold some DRAX down as it was up 150% though still own a decent holding.My whole portfolio has risen by a very decent amount since last March mostly thanks to some big holdings in several 200%+ increases in areas like potash and silver so my oilies holdings have gone up a lot in cash terms but not in percentage terms.Iv actually been adding BAT,Imperial and GSK lately from divis flowing in because i didnt want to increase percentages in other areas.Iv also built up 6 years of cash so i can get to SIPP access age without a penny coming in if needed.Oil ,and more gas is now competing with physical silver for divi flow as im nearly full again on my old tobacco stocks.

If i was 25 again id be happy to take the risk and be bigger in energy.

[dgul]

3 hours ago, Errol said:

Elon also looking to buy gold as well. Not mentioned so much because everyone got blinded by the Bitcoin. The below is from the SEC filings:

 

What's the betting that he'll buy silver instead?

[Hancock]

19 minutes ago, DurhamBorn said:

Iv actually been adding GSK lately 

Why GSK, bought £1200 worth back in March; is one of the few i bought around this time that is worth less.

[DurhamBorn]

1 minute ago, Hancock said:

Why GSK, bought £1200 worth back in March; is one of the few i bought around this time that is worth less.

I worked for them for a decade and sold all my share options when i left 20 years ago at £20 and havent owned since.I think once split in two value will surface over time.Nothing exciting,but building a stake below £13.I wouldnt want to pay much over that though.

[Hancock]

1 minute ago, DurhamBorn said:

I worked for them for a decade and sold all my share options when i left 20 years ago at £20 and havent owned since.I think once split in two value will surface over time.Nothing exciting,but building a stake below £13.I wouldnt want to pay much over that though.

Anything you're seeing mid/long term, or just another divvy payer.

[Sasquatch]

24 minutes ago, dgul said:

What's the betting that he'll buy silver instead?

He can have mine for $500/oz.

[Democorruptcy]

3 hours ago, arrow said:

It looks like BP has upset a fair few people in “overpaying” for the wind assets
The Times, followed by Sky, have run articles on it, quoting unnamed sources.

 

From the Times,
“The oil major and joint venture partner EnBW were revealed as the winning bidders behind two Irish Sea leases at prices that were met with incredulity by established players.
BP said that it expected to pay the fee for four years and said it was confident it could make a return of at least 8 to 10 per cent on developing the projects.
However, the prices have been described as “ridiculous” by established offshore wind players. A senior executive at one developer told The Times: “They will be lucky if they can even make 2 per cent”.”

 

From Bloomberg,

This from the Economist

 

But, I think the incumbent renewable players are a little scared of both BP and Total.

From the Economist last year,
“European electric utilities have lately emerged as the world’s top developers of wind and solar projects outside China (see chart). These offer growth and, in an era of ultra-low interest rates, stable returns thanks to long-term contracts.
A decade ago excess capacity, the financial meltdown and competition from renewables firms imperilled Europe’s traditional power companies. Faced with the falling value of their coal and gas assets, many took the shift to cleaner energy seriously, says Deepa Venkateswaran of Bernstein, a research firm. Orsted has turned itself from an ailing state enterprise into the world’s largest developer of offshore wind. This year RWE and E.ON, another German firm, swapped assets, with E.ON concentrating on grids and RWE on generating clean power. Iberdrola, EDP and Italy’s Enel have invested in wind and solar projects in Europe and beyond.
Henrik Poulsen, Orsted’s outgoing boss, argues that building an offshore wind turbine is not the same as building an oil platform. “We have much more experience and we have stronger procurement,” he contends.”

 

 

BP and Enbw have paid more for their leases. 

BP says the leases are good value as,
“Advantaged leases due to distance from shore, lower grid cost, synergies from scale, and faster cycle time
Projects expected to meet bp’s 8-10% returns aim, delivering attractive and stable returns and integrating with trading, mobility, and other opportunities”

Enbw says they
“ secured two large areas in the Irish Sea that are estimated to be the highest-value areas in the first auction of offshore wind rights in England and Wales for ten years. EnBW and bp plan to build two offshore wind farms there with a combined capacity of three gigawatts, that is enough to power the equivalent of 3.4 million households.”
“Our bids prevailed for the most attractive areas in the auction that stand out for above average wind conditions and favourable prospects in terms of approval,” added Dirk Güsewell, head of renewable energy portfolio development at EnBW. “We have already been able to put in an advance grid connection application. The combination of the two areas right next to each other also means wide-ranging synergies in planning, construction and operation going forward. All of these factors have a positive impact on the asset value of the planned wind farms.”

And then there's this from Bloomberg and other media,

"The auction results will be a major loss for incumbent players such as Orsted AS, Iberdrola SA, Equinor ASA and SSE Plc that have previously dominated the offshore wind sector in the U.K."

“These huge upfront costs will put up barriers to entry for utilities and oil and gas companies without very deep pockets,” Barclays Plc analysts led by Dominic Nash said in a note."

 

I think Nash is right. BP is raising barriers to entry and upsetting the incumbents. It wants a slice of this market and its income and is prepared to freeze out other players.

Why is it a loss for them? Their assets have just become more valuable.

[Mapper]

Harr Dent has a ticket on the BK Express. It arrives in April apparently. All aboard!

 

[DurhamBorn]

5 hours ago, Democorruptcy said:

Why is it a loss for them? Their assets have just become more valuable.

Well exactly if its true what they say.As soon as i read that CEO from Orsted saying wind turbines were more complex than oil platforms i knew it was guff.Looking at the way they fund they take on outside investors,who no doubt want a fixed coupon,so half of their investments will be paying inflation linked coupons i expect and they will be arbing the other 3%/4%.A lot of their debt is inflation linkers as well.

Once cost of capital increases big oil will have an even bigger advantage.