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

[sancho panza]

9 hours ago, HousePriceMania said:

 

Inflation ?

you need some longer term context there imho

[sancho panza]

23 hours ago, Transistor Man said:

Lyn Alden on Energy. 

Very good, well worth a read.

https://seekingalpha.com/amp/article/4436929-the-case-for-a-longer-term-oil-and-gas-bull-market?__twitter_impression=true

 

Super read.It very much comes across as the summation of what @Cattle Prod @DurhamBorn and Dr Tim Morgan have been discussing for the last year or two.

It's got virtually every theme discussed on here by those above over the last few years.Some grat graphs that deserve singling out

9 hours ago, planit said:

I wanted to illustrate the current situation and where we are heading with regards to oil balances.

Section A in the chart of US oil stocks below is the last 3 months. The grey shadow is the average inventory for the last 5 years.

From the chart it is not very obvious how fast stockpiles are declining compared to the 'normal' for this time of year so I have extrapolated forwards.

For both the last 3 months (A) and the next 3 months (B) I have drawn in the 5 year average range boundaries. From this I can work out the 3 months drop from this 'expected' value. Then I apply the same drop on top of the average range  movement for the next 3 months. At current rate of shortfall of supply we end up at point X.

 

 

Now this clearly is a crude (pun intended) analysis mainly because I am using the range movement rather than the average movement.

The biggest reason I can see for the drop is oil transport has not shifted enough to make up for the drop in shale production. With the US self sufficient under Trump, there was no need to transport much oil to US. Now world oil flows will have to rebalance to address where the oil is needed and supply everywhere is tight (article).

The change in policy with Biden compared to Trump has also not helped and they seem to have their heads buried in the sand and be helping Russia and OPEC+. The balance of power has shifted towards OPEC and Russia for both oil and gas, Germany is as bad as the US. 

OPEC will keep oil supplies tight, they are quietly leading the world in the current situation and the squeeze is going to show up in the best location for them as the chart above predicts. This situation can't turn around quickly (like an oil tanker LOL) because we are already in the draw down season, shale is not ramping up and Biden is shutting oil down. There is no line of oil tankers on it's way to the US.

If everyone keeps ignoring the issue (hard to address 'dirty' oil and gas), I doubt the battered industry are going to come to the rescue (as they have a 'you deserve this' attitude) so in 4-6 weeks we should see the result.

  

 

Nice work on that chart planit.As @Cattle Prod has oft said,it's the perception of supply rather than the supply that drives the excesses and your point shows that the point of maximum panic/price disclocation is probably some months away

[Innkeeper]

3 hours ago, Option5 said:

Lambs, slaughter are the words that spring to mind.

Now those at the top have got all the big money they start sifting through the dregs until they have everything. 

It has always struck me that this has now become the plan with crypto. 

However this is not a conversation that goes down well in crypto-land...

[Barnsey]

11 hours ago, Hancock said:

Sunak is a 

"So, about those Swedish/Danish/Russian/American/Korean/Canadian/German/Dutch stamp duty holidays..."

[sancho panza]

5 hours ago, Cattle Prod said:

Really good chart here from @crudeoildigest on what is happening in the WTI world:

 

- Why did the $ weaken from Feb 06 to Jul 08?

- Did it stay weak to 2014 because of post GFC Fed policies like QE?

(DXY is candles, WTI in green)

- And I'm guessing DXY strengthened again in mid 2014 because the Fed stopped buying treasuries?!

It's a very striking correlation in mid 2014 between Fed stops growing its balance sheet, DXY immediately strengthens, WTI craters. The shale oil supply thing happened around then too, but it looks to me like if it was cheap enough in dollar terms, the rest of the world would have bought it. There was never that much of an oversupply, a % or two, and I've always said the shale vs. Saudi thing was a media construct. Looks like dollar has been too high for the ROW for the last 7 years. 

- Why would the yanks want this? What advantage does a higher dollar give them?

- How does this fit with your pre recession oil price spike analysis, @sancho panza?

- What happens next? Looking at current progress on the Fed balance sheet, I'm surprised the dollar isn't well down in the 80s already, and I (finally) totally get where @DurhamBorn and David Hunter are coming from with that call. 

Edit: Zoom to the key 2014 inflection point for clarity. DXY in green is flattened due to scal bar, but it went from 93 to 109 in 8 months from early July 2014, while WTI went from 106 to 44 (the second leg down to 27 in 2016 was shale supply ontop).

Interesting psot there CP.

My first instinct is that correlation doesn't equal causation.If we take a couple of those periods up close(and at the moment I'm using a lot of charts from peak and troughs to reduce noise and highlight trends) it seems to me that oil doesn't appear to have a fixed ratio of response to changes in DXY.Hence also worht considering gold moved into a Baer in April 2011

Sure DXY is a factor but it's not the only one.Speculative momentum likely played a far greater run up in 2008 than anything else.

In terms of why DXY weakend into the peak in )08 then I remember Bob Janjuah always taklking about risk on risk off phases.That rise into the bubbble was a risk off phase wehn the dollar got sold because people were specualting in other currnecies.The poop hits the fan and people risk off back into the dollar.

This is one of the reasons I'm wit @DurhamBorn seeing more 'risk on' at the minute than risk off.But then we're in a very differnt space in terms of the fed balance sheet as you say.

All in all,I suspect the scale of the moves in oil reflected the fact that there was specualtive participation until there wasn't if you get my drift.There werent any major imbalances in supply demand that would hvae jsutified the ,moves that we're tlaking about.Worth noting oil moved either side of the DXY line more than gold did.

 

[Hancock]

1 hour ago, Barnsey said:

"So, about those Swedish/Danish/Russian/American/Korean/Canadian/German/Dutch stamp duty holidays..."

Apart from Canada in the nations with double digit inflation, i don't believe the property bubbles of the other nations started from such absurd levels as the UK

Worrying non the less.

[AWW]

4 hours ago, Democorruptcy said:

There must be some good IFA's about but a lot are chancers.

I can believe it - this guy was an estate agent.

[JMD]

10 hours ago, sancho panza said:

Weinstein is really worht a watch and was recently interviewed by Joe Rogan I believe.

He has a great interview with Dr Robert Malone who ivented mRNA vaccine technology here

He has a great explanation about why PCR test results published without cycle counts are questionable at best,a blatant misrepresentation at worst here.

It's a rabbit warren going into this stuff.Prof John Ioannidis wrote a great piece here in 17/3/2020 regarding his prediction for the IFR which was 0.125% based on the Diamond Princess Cruise ship here

 

I think there are issues with vaccine safety and there are some very educated opinions on that not least from Dr Robert Malone himself,made in conjunction with Bret Weinstein and also a guy called Steve Hirsch in the video I put up first.

My own experience at work has very much reinforced my vaccine hesitancy.The other night I diagnosed two patients with new onset Atrial Fibrillation(and they were symptomatic with it).I normally see one case every three months maybe...key thing is that it's mainly treated with .........blood thinners because there's a clotting risk that the blood thinners reduce.

On taking the second one to hospital,I had a chat with the A&E sister and she said that they were getting a lot of new onset AF of late in older patients of late.

 

 

Thanks SP, I shall certainly look into those links you provide. As you say the topic is 'down the rabbit hole' stuff. I agree, but I said last April time that I thought Covid would be more impactful than climate change for Joe Public, and (obviously so far) it's turned out to be that way. I admit I had no evidence for saying that at the time - and perhaps it is just confirmation bias for me to stick with my Covid skepticism. However I shall mention just one alarming aspect, which is that the Covid (clerics!) scientists are fully embedded into government, whereas their climate scientist countrrparts were always more secular and distant. There was even much public pushback against global warming (particularly the XR zealots), and personal dissent was also even allowed, however in contrast everything Covid related has become almost sacrosanct, and where you either believe or else you are labelled a heritic!?                                                                                                                        Ok I might be overdoing the religious symbolism bit...  but my main point is that the required government control measures have been successfully put into place. Now we repeatedly hear of how we must 'learn to live with covid'. Is that just more sinister yet simplistic sloganeering? Or what other risks might we now expect to happen to us  - and to our wealth?... initially, personal id's, (virus) tracking, travel restrictions are baked in I guess, but then what?... One thing's for sure, with all the political parties plus the police/legal/media institutions all singing from their same 'keep safe' hymn sheets, it should prove extra easy for our new class of political puritans to implement their plan-demic part-deaux distopea... What me paranoid?, never used to be, but you bet I am now!!

[RickyBacker]

5 hours ago, Hancock said:

Apart from Canada in the nations with double digit inflation, i don't believe the property bubbles of the other nations started from such absurd levels as the UK

Worrying non the less.

I wouldn't be so sure. I can't back up with actual data at the moment, but I've lived in Taiwan for almost ten years and house prices over here have been, and still are, even more absurd than the UK. There isn't even the 'lack of supply' argument as they are building apartment blocks hand over fist to meet the needs of a declining population.
That picture is a view from my apartment, and this is taking place across the entire country. Insanity.

[Hancock]

5 hours ago, RickyBacker said:

I wouldn't be so sure. I can't back up with actual data at the moment, but I've lived in Taiwan for almost ten years and house prices over here have been, and still are, even more absurd than the UK. There isn't even the 'lack of supply' argument as they are building apartment blocks hand over fist to meet the needs of a declining population.
That picture is a view from my apartment, and this is taking place across the entire country. Insanity.

Presumably they're used as safety deposit boxes for the Chinese to hide their money?

Wont be too long until those houses below are flattened.

[RickyBacker]

1 hour ago, Hancock said:

Presumably they're used as safety deposit boxes for the Chinese to hide their money?

Wont be too long until those houses below are flattened.

The houses in the foreground are fine, the Government can't/wont take your property as they do in China. A year ago it was just fields and wasteland. Then, a Costco got planning permission. The council started to build roads and infrastructure, and then the apartment blocks started springing up. Rich people with lots of cash and no where else to get a return on it. They just buy the land and build. A basic three bedroom apartment in one of those will cost at least 200K pounds equivalent (minimum). Every time I stop at the traffic lights they thrust flyers into my hand ... way more supply than demand and an average wage that is much lower than the UK.

[Majorpain]

1 hour ago, Cattle Prod said:

From Jewson this morning:

 

Who thinks they'll put prices back down when supply eventually increases?

Problem with timber is its limited by the number of trees and growth rate, so there is always a natural limit to how much you can actually produce, in addition to things like sawmill capacity.  If the central banks keep printing out the wazoo, supply stands no chance of keeping up with demand.

UK construction have run out of steel and concrete, and now its looks like they are going to run out of wood as well!

[harp]

So no chance of property prices going down with input/ labour prices going up? 

[Barnsey]

58 minutes ago, harp said:

So no chance of property prices going down with input/ labour prices going up? 

The market is hot no doubt, but this isn't pre GFC madness, look at the collapse of high LTV lending.

Banks are being careful, house building was shut down for months and slowly being brought back in the face of labour and commodity constraints (when did that happen last, WWII?) .

Don't fall for the stamp duty holiday bollocks as this phenomenon is global, a s**t ton of people have a f**kload of enforced savings they've used as a deposit as they reassess their priorities. Be careful with the comparisons to 2008.

From John Auther's daily email:

[Barnsey]

56 minutes ago, Majorpain said:

Problem with timber is its limited by the number of trees and growth rate, so there is always a natural limit to how much you can actually produce, in addition to things like sawmill capacity.  If the central banks keep printing out the wazoo, supply stands no chance of keeping up with demand.

UK construction have run out of steel and concrete, and now its looks like they are going to run out of wood as well!

Interesting dynamic going on as timber prices in the U.S. are reverting back down to long term trend.

In other news:

 

[Hancock]

1 hour ago, Barnsey said:

 

Don't fall for the stamp duty holiday bollocks as this phenomenon is global, a s**t ton of people have a f**kload of enforced savings they've used as a deposit as they reassess their priorities. Be careful with the comparisons to 2008.

 

SDLT holiday has encouraged people to buy ... but what happens when those with vast savings which has to be a limited amount of people run out.

The difference with 2008 is they could drop interest rates, in 2021 if inflation is rampant then the only way for interest rates it up.

 

[Nomad]

Have households really saved that much money to make an impact on the decision to invest in a new/larger property? Personally I have saved commuting costs, about 4k, but no way would that constitute enough to change my property plans.

[Harley]

4 hours ago, Cattle Prod said:

From Jewson this morning:

 

Who thinks they'll put prices back down when supply eventually increases?

I'm just back from from the merchants.  Went to buy 2x1.  Out of stock with no replenishment date.  2x1 FFS.  Will try a mill but may just rip what I've got.

The worst part was I was replenishing the pile I bought back in Mar 20 in anticipation of shortages which have only just happened!  Not that I've been a keen buyer lately but my pile is now low and any jobs may have to be put on hold. 

I've already repurposed a lot of used wood which was nice to do, although won't last as long.

[Harley]

3 hours ago, Cattle Prod said:

From Jewson this morning:

 

Who thinks they'll put prices back down when supply eventually increases?

Lumber has already retraced c.50% and looks a bit weak but the old prices need to flow through the system, if they are ever to go down, a bit.  Also time of year.  But they are high, even at the local mills who source locally!

[JMD]

1 hour ago, Barnsey said:

Interesting dynamic going on as timber prices in the U.S. are reverting back down to long term trend.

In other news:

 

Lyn Alden wrote recently that US lumber price increases were due to mill/supply chain issues... i sometimes ask myself is there nothing she doesn't know!

[Harley]

1 minute ago, JMD said:

Lyn Alden wrote recently that US lumber price increases were due to mill/supply chain issues... i sometimes ask myself is there nothing she doesn't know!

Same issue for cement, etc.  A lot of these processes only make money at (massive) full scale given the fixed costs (furnace start up and running, etc) which is risky if you lose staff, transport, or customers.  Also takes time to bring plant back on line (e.g. furnaces).

[Boon]

2 hours ago, Nomad said:

Have households really saved that much money to make an impact on the decision to invest in a new/larger property? Personally I have saved commuting costs, about 4k, but no way would that constitute enough to change my property plans.

Thing is, prices are set by the marginal buyers, so it doesn't really need to tally with an average experience.

For instance, I think a lot of people will be like yourself - only saving commuting and dining out costs, maybe a bit more because it was actually hard to spend money on anything. A modest amount.

But there are also significant amounts of people who did very well out of it. The people that got grants, basically a lump sum of cash with minimal checks. The people that were furloughed but then also used their time on their side gigs, effectively doubling their income as they too had reduced expenditure.

IMO outside of London a relatively small amount of money, say £50k would be enough to upgrade to something bigger.

I too think there is a lot of excess saving hanging around, trouble is most of that will be concentrated in the top 50%.  If you were struggling before the pandemic financially, chances are you are no richer now. But if you had a reasonable level of investment in almost anything apart from cash, it must be quite hard to be poorer. Those would could average down into the dip will be a lot better off.

[Majorpain]

2 hours ago, Harley said:

I'm just back from from the merchants.  Went to buy 2x1.  Out of stock with no replenishment date.  2x1 FFS.  Will try a mill but may just rip what I've got.

Sheet of UK made MDF was going for £21 Oct 20, this month £31.  The only redeeming feature is its the only thing available in quantity!

[Barnsey]

2 hours ago, Boon said:

Thing is, prices are set by the marginal buyers, so it doesn't really need to tally with an average experience.

For instance, I think a lot of people will be like yourself - only saving commuting and dining out costs, maybe a bit more because it was actually hard to spend money on anything. A modest amount.

But there are also significant amounts of people who did very well out of it. The people that got grants, basically a lump sum of cash with minimal checks. The people that were furloughed but then also used their time on their side gigs, effectively doubling their income as they too had reduced expenditure.

IMO outside of London a relatively small amount of money, say £50k would be enough to upgrade to something bigger.

I too think there is a lot of excess saving hanging around, trouble is most of that will be concentrated in the top 50%.  If you were struggling before the pandemic financially, chances are you are no richer now. But if you had a reasonable level of investment in almost anything apart from cash, it must be quite hard to be poorer. Those would could average down into the dip will be a lot better off.

65% of British households own outright or have a mortgage, with much more equity sloshing around now. Just think of the 400,000 British families who've missed out on 2 annual summer holidays to Disney World, £15k right there?

[Democorruptcy]

11 minutes ago, Barnsey said:

65% of British households own outright or have a mortgage, with much more equity sloshing around now. Just think of the 400,000 British families who've missed out on 2 annual summer holidays to Disney World, £15k right there?

We know you are a property owner now Barnsey but there's no need to get carried away.