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

[planit]

@DurhamBorn

You are correct, my calculations show me that if the share price stays where it is and BP buy back $7bn of their shares each year, I will own 100% of BP in 10 years.

Bring it on!

 

Clicking on the cheers icon and looking at the lovely sunshine outside just pisses me off, I want to buy you all a real pint in a real pub garden.

Cheers 

[BurntBread]

2 hours ago, DurhamBorn said:

I think the $75 area is certain on oil, but mid $80s could easily land then its a case of how far it falls back before its run up to over $200 a barrel. The longer term is likely to see oil around $55,maybe $50 but the industry will see lower costs.

DB, that last bit is a very striking call, which I have not seen mentioned here before.

I think you and David Hunter are broadly in agreement over the next few years, that oil will have a run up from now, to $70+, followed by a fall in the BK (DH mentions sub-$20), then a bumpy ride up to $200+ towards the end of the decade.

By "long-term", do you mean post 2030? If so, then a few things puzzle me: I think we are expecting oil demand to still be drifting up at this point (albeit gas will be taking a much bigger share of the total world energy budget), so I'm puzzled to see a figure so low as $50. Next, I think you entertain holding big oil for 30 years, so would it be fair to say that is much more on the strength of gas and green energy investments, which is why you're not fazed by a low (in my view) oil price? Lastly, and more profoundly, we are anticipating questions about the persistence of the dollar as a global reserve currency beyond 2030. Does a call in dollars even make sense after a systemic shift of that kind? Even if the dollar persists in its current status, you are suggesting a dalliance with hyper-inflation before the end of the super-cycle, and perhaps a real and destructive deflation through it, followed by who knows what in the immediate aftermath. I guess I'm just saying that it's not clear to me currently what "a dollar" means, post 2030.

[Lightscribe]

16 hours ago, DurhamBorn said:

"youve heard a thrush many a day,you just stopped listening you silly cunt and its about time you started listening again"

Damn right,when you stop listening your out of the game.

Thanks DB that was a poignant post which I can relate to.

Having grown up in a very downtrodden area, the schools were shit and chaos reigned (luckily my brothers reputation allowed me to blag my way through the rough stuff) but the quality of teaching was far worse.

At high school I made the decision to teach myself from Letts books as I was always either sent out or on report and learnt little in class anyway. I walked away from school with several A* grades and all the rest A-Cs. One of my highest grades was in history which I hadn’t attended in months as the teacher didn’t want me in his class. His dumbfounded face, when I got the highest grade in the year instead of any of his favourite students, was a sight to behold. But then again that need to turn the system on its head has always been my driving force. Judgements based on my background or the way I talk, has followed me into my work career. All my peers are privately educated, very middle class and have phds.  I’ve got to that same level through pure grind with the self-taught knowledge, skills and experience along the way. 

Studies supposedly say that people make up their minds about you in 1/10th of second. Social class structure, preconceived opinions and subconscious bias is something I’ve had to contend with my whole adult life, but I never really let that hold me back. I accepted from a young man that’s the way it will always be. ‘If it is to be its up to me’ as my mum would always say. Some people get a leg up others don’t. Being from a rough background doesn’t score you a tick in any boxes and I’m not quite sure my privilege ever got out the starting block.

The point I’m getting to with all this, is that the system is designed to keep us within our preconceived boxes, indebted all our lives paying ever growing mortgages we’ll never finish paying, or interest on stuff we don’t really want or need, paying tax on what we earn, what we buy, on what we own and when we die. The debt based system would collapse without it.

I’m sure I speak for most here, that we all know that something is drastically wrong at we’re at a tipping point. I’m supposedly in the top 9% of earners in the country, yet I can’t afford a small house anywhere where I grew up on paper. By that metric alone it suggests something isn’t quite right. We all know what’s coming, its just navigating through to whatever awaits the other side that matters.

But I think the most important key is from DB’s dad there. We could spend our entire lives being angry at the system and at the irrational decisions those in charge supposedly make for ‘our own good’.

I sat for an hour last weekend, enjoying the air and sunshine at a the beach while my daughter played and paddled in the sea. I found myself staring at an intricately shaped sea-worn pebble. That pebble was probably around to see empires come and go and will be around long after me.

Life’s gone in a blink of an eye, it’s so easy to get dragged along with it all. I have to remind myself sometimes to stop every so often to just appreciate the beauty of life itself along the way.

[Mr X]

18 minutes ago, Lightscribe said:

Thanks DB that was a poignant post which I can relate to.

Having grown up in a very downtrodden area, the schools were shit and chaos reigned (luckily my brothers reputation allowed me to blag my way through the rough stuff) but the quality of teaching was far worse.

At high school I made the decision to teach myself from Letts books as I always either sent out or on report and learnt little in class anyway. I walked away from school with several A* grades and all the rest A-Cs. One of my highest grades was in history which I hadn’t attended in months as the teacher didn’t want me in his class. His dumbfounded face, when I got the highest grade in the year instead of any of his favourite students, was a sight to behold. But then again that need to turn the system on its head has always been my driving force. Judgements based on my background or the way I talk, has followed me into my work career. All my peers are privately educated, very middle class and have phds.  I’ve got to that same level through pure grind with the self-taught knowledge, skills and experience along the way. 

Studies supposedly say that people make up their minds about you in 1/10th of second. Social class structure, preconceived opinions and subconscious bias is something I’ve had to contend with my whole adult life, but I never really let that hold me back. I accepted from a young man that’s the way it will always be. ‘If it is to be its up to me’ as my mum would always say. Some people get a leg up others don’t. Being from a rough background doesn’t score you a tick in any boxes and I’m not quite sure my privilege ever got out the starting block.

The point I’m getting to with all this, is that the system is designed to keep us within our preconceived boxes, indebted all our lives paying ever growing mortgages we’ll never finish paying, or interest on stuff we don’t really want or need, paying tax on what we earn, what we buy, on what we own and when we die. The debt based system would collapse without it.

I’m sure I speak for most here, that we all know that something is drastically wrong at we’re at a tipping point. I’m supposedly in the top 9% of earners in the country and on paper, yet I can’t afford a small house anywhere where I grew up. By that metric alone it suggests something isn’t quite right. We all know what’s coming, its just navigating  through to whatever awaits the other side that matters.

But I think the most important key is from DB’s dad there. We could spend our entire lives being angry at the system and at the irrational decisions those in charge supposedly make for ‘our own good’.

I sat for an hour last weekend, enjoying the air and sunshine at a the beach while my daughter played and paddled in the sea. I found myself staring at an intricately shaped sea-worn pebble. That pebble was probably around to see empires come and go and will be around long after me.

Life’s gone in a blink of an eye, it’s so easy to get dragged along with it all. I have to remind myself sometimes to stop every so often to just appreciate the beauty of life itself along the way.

Blimey, that's blinking well-written!

[feed]

So is that the commonality here, growing up somewhere shit.  

You hate it and you'll know you have to leave. 

 

[Noallegiance]

56 minutes ago, Mr X said:

Blimey, that's blinking well-written!

So was that!

[Noallegiance]

46 minutes ago, feed said:

So is that the commonality here, growing up somewhere shit.  

You hate it and you'll know you have to leave. 

 

No I'm middle class conservative raised bubble-wrapped uselessness with mental health problems until I hit 30 and started to educate myself when me and the wife couldn't afford a two bedroom bungalow as two full time professionals.

Years later I'm more stable and a better man.

This thread has been part of that development.

[Noallegiance]

On 21/04/2021 at 15:42, Noallegiance said:

Will they attempt to replace handouts with government infrastructure jobs, d'ya think?

Boris answered:

https://www.bbc.co.uk/news/uk-politics-56843367

[dnb24]

4 hours ago, DurhamBorn said:

At the moment heavy machinery companies are going bangbusters,there is huge demand landing on their order books and its obvious everyone is going for construction

 

2 hours ago, planit said:

. In that case it isn't really the level oil gets to, its whatever causes the price shock that counts.

 

In my mind this is the link that may cause the dislocation later in the year. Already I’m hearing people saying they are having work done on houses, construction companies half way through contracts and getting big bumps in bills and talking about cutting back elsewhere. If the fed tighten, as oil prices hit a mark which cuts into bottom lines, this is going to exacerbate a problem which is bubbling at the surface- once people/companies start to cut back on purchases on top of tightening and increasing bottom lines I think things could unwind very swiftly.

[invalid]

5 hours ago, Hancock said:

That is the workers playing their hand ... but the companies card up their sleeve will be getting rid of those who they had to watch for 8 hours, and any staff whose work can be offshored.

Whilst it may not apply directly to your company, it will to many others.

After seeing how lazy and incompetent people who WFH have been in the last year, i'd prefer to deal with an Indian who fears getting the sack for being incompetent, as opposed to a Brit who believes no matter how useless they are, that they've a job for life.

(this is an extract of what i emailed a bureaucrat in the police yesterday, i need a simple yes or no answer but its gone on for almost 4 months), "I am tired of talking to your colleague who no matter what day i call will say you are away until Monday, and then when i call on Monday you do not answer".

 

I've had similar with Council officials - constantly off sick, 'out on site', in a meeting, on leave etc. 

I called one once and after a lot of rings (direct dial number) someone else picks up the phone. I say can I speak to Mr Jones? They say, sorry he is in a meeting for the rest of day. So I say I'll call back later in the week.

I wait 2 minutes and call again, this time using 141 to with hold my number. Hello Mr Jones....

[MrXxxx]

5 hours ago, Hancock said:

a large quantity who have bought their qualification certificates at Mumbai market.

And you think that's any different to what we have in the UK now?...at least those Indians who did that know they aren't up to the standards, unlike the UK ones who having `bought` their degree from the University of Toytown believe they are.

[DurhamBorn]

2 hours ago, BurntBread said:

DB, that last bit is a very striking call, which I have not seen mentioned here before.

I think you and David Hunter are broadly in agreement over the next few years, that oil will have a run up from now, to $70+, followed by a fall in the BK (DH mentions sub-$20), then a bumpy ride up to $200+ towards the end of the decade.

By "long-term", do you mean post 2030? If so, then a few things puzzle me: I think we are expecting oil demand to still be drifting up at this point (albeit gas will be taking a much bigger share of the total world energy budget), so I'm puzzled to see a figure so low as $50. Next, I think you entertain holding big oil for 30 years, so would it be fair to say that is much more on the strength of gas and green energy investments, which is why you're not fazed by a low (in my view) oil price? Lastly, and more profoundly, we are anticipating questions about the persistence of the dollar as a global reserve currency beyond 2030. Does a call in dollars even make sense after a systemic shift of that kind? Even if the dollar persists in its current status, you are suggesting a dalliance with hyper-inflation before the end of the super-cycle, and perhaps a real and destructive deflation through it, followed by who knows what in the immediate aftermath. I guess I'm just saying that it's not clear to me currently what "a dollar" means, post 2030.

I think oil demand will flatline soon,not grow,then drift lower very slowly.Profits will hold though as they will be spending less.Gas will keep growing and LNG explode up.Those $50 are long term calls based on only a few data points.The $200 call is firm though,thats minimum as well.We have a long way to go before the end of this new cycle,plenty of time to consider it down the road.

[sancho panza]

3 hours ago, planit said:

Thanks again @sancho panza.

I get that the spikes seem to correlate with recessions but between 2011-2014 oil prices averaged $95 which would translate to $117 at today's prices (using 3% inflation).  I can remember at the time commentators saying that oil prices had decoupled from the economy because we are now a technology and service economy. At the least there is less dependence on oil. 

2000 spike is far ahead and since the bust was dotcom probably not useful here. 

1990 the spike does coincide with the recession but it is a bit quick for it to have caused it.

2008 seems closer to our current situation. 

Overall perhaps the things that cause oil spikes also cause economic problems which I suppose is what you are alluding to. In that case it isn't really the level oil gets to, its whatever causes the price shock that counts.

 

I agree that if we suddenly see $80 soon there is something serious going on which will not be good and is likely to also result in a downturn.

But I also feel when people start to realise OPEC+ have maxed out, prices will inevitably go over $80 and this will not cause a recession. But not this year.

My apologies,I didn't really spend much time on my earlier reply and looking back it wasn't particualrly full or pertinent in some respects.Just roughly to give you and idea of where I'm coming from I'll outline my thoughts and where they come from.Feel free to question them as I'm trading off some of the stuff I'm talking about and every day is a learning day for me and questions above have got the old cogs whirring.Obviously,oil isn't the whole economy,but the search for me,is to find tradeable signals,so I'm not claiming a 50% rise in oil prices causes a recession but I am saying they are a factor.

The Recessions referred to on those charts are two quarters of negative nominal declines on the bounce.

Personally,I don't set too much store by the exact date of the start/end of the technical recession as I can't really make any money off it or move asset classes on the back of it.What I can try and trade is market tops/bottoms.I psoted the chart as a reference point I suppose.

Also,GDP data is heavily gameable,eg imputed rents which are around 8% of USA GDP and are effectievly an accounting fiction.They would have been lower back in the early 90's but the point needs considering.

GDP also is rarely quoted per capita but it should be imho,as we'd have a very different outlook on our national wealth if we did.

The inflation data is also game able depending which measure they use eg CPI/CPIH/RPI and when it comes to real GDP which deflator they use and what it excludes.

Here are some charts for the recessions concerned using Real GDP measures.You can see that sometimes a quarter or two before the technical recession begins,the weakness is apparent.The crucial aspect in terms of Real GDP is that the implied price deflator used excludes imports which means that it's not particualrly reliable

https://www.bea.gov/data/prices-inflation/gdp-price-deflator

A lot of the following is from a previous post

1990

You can see that in Q4 1989,there was already a likely negative GDP print in real terms or at least sever weakness economically.

Oct 1988 Oil bottoms monthly close $13.58,intraday $12.28

Jan 1990 WTI at $24.20 intraday peak a 78% rise from Oct 1988

Jan 90 S&P 500 first attempt at 360 intraday

May 90 S&P 500 peaks around 360

July 1990  US recession starts with oil at $20.69

Sept 1990 oil peaks at monthly close $39.51

Oct 1990 oil intraday peak $41.15

Oct 1990 S&P 500 bottoms

March 1991 US recession ends with oil at $19.63

https://www.macrotrends.net/countries/USA/united-states/gdp-gross-domestic-product

 

2000

Dec 1998  Oil bottoms at $10.35,turns up

Mar 2000 S&P 500 Intraday peak

Aug 2000 S&P500 monthly peak

Sep 2000 Intraday oil peak at $37.80

Jul-Sept 2000 Real GDP 0.53%-possible start of US recession not using real world view of economy.

Nov 2000 Oil peaks on monthlies at $33.82

Mar 2001 US recession begins

Nov 2001 US recession ends.

Aug 2002 S&P bottoms on the monthlies

 

2008

Jan 2007 Oil bottoms on the monthlies at $58.14

Oct 2007 S&P peaks on monthlies at 1550

Dec 2007 US enters recession with Oil at $95.98

June 2008 Oil peaks at $140-monthlies

Feb 2009 S&P bottoms around 730 on the monthlies

June 2009 US recession ends with oil at $69.89

 

 

Obviously with any of this you have to apply your own judgement.It's been interesting for me to run back over this stuff from last year.There are obviously many other factors involved in the deciosn to move to cash,UST's or go short.

 

[sancho panza]

4 hours ago, planit said:

Thanks again @sancho panza.

I get that the spikes seem to correlate with recessions but between 2011-2014 oil prices averaged $95 which would translate to $117 at today's prices (using 3% inflation).  I can remember at the time commentators saying that oil prices had decoupled from the economy because we are now a technology and service economy. At the least there is less dependence on oil. 

 

This is one of those times when you have to take a view,and it probably explains why the move to short has to include a much broader analysis besides oil price.

Oil hadn't decoupled from the economy,rather Central Banks had decoupled the economy from the oil price.That timeframe saw the introduction of Zirp,QE,Op Twist,lowered mortgage rates etc to the extent that the average consumer felt wealthier because even though consumers out of pocket costs were rising,it was compensated for by their mortgage payments getting cheaper,cheap loans etc.

This time around,I suspect mortgages won't be getting cheaper,food and fuel price rises are going to hurt a lot of people.If the price rises coincide witha credit deflation,then it'll be the worst of both worlds and as has been said on here by a few,CB's will run out of pritning room at 3% CPI.

Time will tell I guess.But an oil price above $80 on the monthlies will tick a box on my checklist.

 

[AWW]

4 hours ago, feed said:

So is that the commonality here, growing up somewhere shit.  

You hate it and you'll know you have to leave. 

Shittiness is in the eye of the beholder.

I grew up "somewhere shit", but I find myself missing the place nowadays. Normal, grounded people who judge you on what you're like, not which school you managed to get your kids into or which cafe you buy your coffee at.

[sancho panza]

5 hours ago, Cattle Prod said:

Here's a nice bit of data to support what we've been theorising about over the last year. We said commentary is Western centric, demand growth is in Asia, they are taking up the slack etc. Here is China:

These numbers are even higher than I expected, they are carrying on as if nothing ever happened (which if you believe the idea about the CCP propaganda with people dropping dead in the streets, then opening the city a month later, makes perfect sense). What I see in this table:

- Their production is more or less flat as I said. They are in the same position as Saudi: massaging a few giant old fields.

- Imports increased in 2020 over 2019 - they bought up the cheap oil as discussed.

- Significantly, 2021 imports are up again, so they didn't get enough cheap oil last year.

- Exports are virtually nil. Bears in the MSM keep saying that the reason China need so much oil their cunning plan is to build out refining capacity and then flood the international market with products. No evidence of that yet. Simpler explanation is that they are consuming it, and unless their population wants to stay at their present standards of living, they have to. The western mind seems unable to comprehend this, I find it bizzare.

So imports are up 1.2m barrels over 2019, I think I was pretty close with my prediction on that. Think about that number. As I kept saying "if world demand returns to normal there will be problems". Let's say western govts stop the chicken little routine (maybe because inflation ticks up and handing out cheques has to stop. It's gone on far longer than I thought it would...) and we all get back to work, flying, etc. Where is that 1.2m barrels going to come from? It's new demand. It'll keep increasing too. China will need to import ~2m barrels over 2019 next year. Maybe 3.5m in 2023. That's more than the full export capacity of Iran, in 3 years. As in, a new Iran, not including the stuff they are already supplying. What has happened on the supply side since 2019? Did we invest while things are cheap to cover the inevitable snapback? Did we manage to find a new Iran anywhere? Oh I forgot, the industry is dead and univestible.

I've put graphs up here that shows demand as a ruler straight linear relationship for 40 years, with a 3 year blip for the GFC, and maybe a 2 year blip for this one. This is going to continue, and crash headlong into an industry that is drilling half the wells it needs to be. It's that simple.

Oil stocks are lagging because they always do, this is not the precious metals sector. And sentiment is the worst it's ever been. But they will catch up.

@sancho panza I'm glad my geo aside on why you need to be gentle with mature fields helped you understand the Saudi problem, I didn't think people would be interested so I dont add much of that stuff, but if you think it useful to the conversation just ask me any of those kind of questions you have.

@DurhamBorn I enjoyed you post last night and can relate to a lot of it, though it's been a good while since I put anyone across a bar! You old man's son is a bit of a legend too.

Mind blowing numbers there CP.I think this thread has been talking about the issue of the commenterati looking West when they should be looking East for some time.These number sreally do confirm that.

One aside,how does the maths for the implied crude oil demand being 1.7mn bpd higher work.I can do the maths on improts from the chart.

ref the geo stuff,I've learned so much over the last year or two,can't thank you enough.From the bottle of fizzy coke explanation for declining wells,to the exaplantion of the treadmill in US shale expalining why there's such a high rig count needed to maintain proiduction,I've lsitened and remembered them all.So much becomes clearer when you understand the issues the drillers might be facing.That expalantion on the saudi wells finally got me to understand why you're always saying they can only go full tilt for short time periods.

It's more when you offer the lesson I realsie the import of it to be honest CP.I generally wouldn't even have the udnerstanding to realsie the question I need to ask.

[jamtomorrow]

17 hours ago, Hancock said:

But at least they'll turn up, which is more than can be said for those WFH in Britain.

It's nothing to do with WFH.

Show me a Brit whose builders always turn up or who never had shite service eating out or who never got screwed over by a garage, and I'll show you a liar.

The culture of incompetence and doing-the-bare-minimum is alive and well in every walk of life in the UK, and the exceptions can seem like minor miracles.

[wherebee]

1 hour ago, jamtomorrow said:

It's nothing to do with WFH.

Show me a Brit whose builders always turn up or who never had shite service eating out or who never got screwed over by a garage, and I'll show you a liar.

The culture of incompetence and doing-the-bare-minimum is alive and well in every walk of life in the UK, and the exceptions can seem like minor miracles.

To be fair, having lived in 4 continents, that is the human condition.  Do the minimum in most situations.

The only place that it wasn't common was some asian countries, and only because they either wanted a huge tip or were monitored by bosses.

[Hancock]

1 hour ago, jamtomorrow said:

It's nothing to do with WFH.

It is, because prior to March 2020 the public sector was just bad, now its so unbelievably incompetent its truly beyond belief.

As for builders most are self employed, if they put in a poor performance or don't turn up they don't get paid, and/or lose future work.

[jamtomorrow]

8 minutes ago, Hancock said:

As for builders most are self employed, if they put in a poor performance or don't turn up they don't get paid, and/or lose future work.

If only that were true. Plenty of useless feckless shite-arse builders round here still in business having been useless feckless shite-arses their entire working lives.

Public sector might well be even worse, but private sector in UK isn't the vibrant beacon of hope some would have you believe. The national malaise runs through everything.

17 minutes ago, wherebee said:

The only place that it wasn't common was some asian countries, and only because they either wanted a huge tip or were monitored by bosses.

Parts of the states are decent. Back when I used to travel to the states for work, it was always a shock coming back to the shire and re-adjusting to the mediocrity we put up with in this country, day in and day out.

[Noallegiance]

10 minutes ago, jamtomorrow said:

If only that were true. Plenty of useless feckless shite-arse builders round here still in business having been useless feckless shite-arses their entire working lives.

Public sector might well be even worse, but private sector in UK isn't the vibrant beacon of hope some would have you believe. The national malaise runs through everything.

 

I wonder if that would change if the handouts were dramatically cut and folk actually had to do things of quality to earn.

[Hancock]

1 minute ago, jamtomorrow said:

Public sector might well be even worse, but private sector in UK isn't the vibrant beacon of hope some would have you believe. The national malaise runs through everything.

From my experience there is the "private sector" with companies such as National Grid where they hire as many people to do non-jobs as the actual public sector, maybe even more.

Then there is the "real private sector" with people who get paid for the work they do, whether they be builders, butchers or candlestick makers. This lot will do the job to the best of their ability; builders or anyone who doesn't turn up sound more like chancers to me.

But the one big difference is if someone i hire a builder, hairdresser or whatever to do a job and they're useless i can get rid of them, this isn't the case when dealing with the public sector. it's just an endless banging of ones head against the wall.

[wherebee]

6 minutes ago, Hancock said:

But the one big difference is if someone i hire a builder, hairdresser or whatever to do a job and they're useless i can get rid of them, this isn't the case when dealing with the public sector. it's just an endless banging of ones head against the wall.

I'm dealing with a local council planning department right now and fuck me are they useless.  No incentive to actually make any decisions, as there is no way of going to a competitor and no way of withholding payment.

 

[Bricormortis]

posted in error, cant seem to edit it out

 

 

 

 

[Bobthebuilder]

8 minutes ago, Bricormortis said:

error cant delete this anyone got any suggestions

@spunko