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

[JMD]

14 hours ago, Noallegiance said:

 

 

3 hours ago, BoSon said:

If the world catches a cold when the USA sneezes, what happens when China is hospitalised? 

Say this snake-flu closes down China commercially for more than a few weeks (Chinese New Year apparently means factories close for a few weeks anyway, conveniently), what would the knock on effect be in terms of supplied to the rest of the world?

If we add in panic buying in the UK when the first cases are reported and the supermarket shelves are emptied and in the meantime international trade is suspended (non-urgent flights grounded) so the supermarkets can't get more produce in stock.

What will it take to crash the stock markets?

What opportunities are there for cashing in?

Good question and scary if one considers it will take 6-months/year to develop the vaccine. Could China really be quarantined for this long, or will this turn out to be just another very containable 'scare story'?

My own thinking is changing because over recent times these potential pandemics/bacterial resistance stories are getting more regular

So something for us all to carefully consider I think? What - if any - conclusions/planning are others drawing/taking from these type of viral/medical events?     

 

[Transistor Man]

2019 report from the report by the Institution of Engineering and Technology (IET): "Transitioning to hydrogen".

https://www.theiet.org/media/4094/transitioning-to-hydrogen-flyer.pdf

Full report:

https://www.theiet.org/media/4095/transitioning-to-hydrogen.pdf

 

[Noallegiance]

Am I the only one confused this morning?

Why would a virus affect stock markets and oil?

I'm thinking it's a nicely timed scapegoat rather than a catalyst. Markets have gone almost straight up for months. We must be due a propping tweet soon.

[Loki]

3 minutes ago, Noallegiance said:

Am I the only one confused this morning?

Why would a virus affect stock markets and oil?

 

People unable to work, or unwilling to travel, supply chains breaking down, all a potential hit on the economy

[DurhamBorn]

11 minutes ago, Noallegiance said:

Am I the only one confused this morning?

Why would a virus affect stock markets and oil?

I'm thinking it's a nicely timed scapegoat rather than a catalyst. Markets have gone almost straight up for months. We must be due a propping tweet soon.

Over the medium term zero affect.The markets are due a pull back,likely then they will go on one last run higher as CBs move to easing strongly.Most of the liquidity in the next cycle though will flow much closer to home in all economies.For instance in the UK extra spending wont be going into consumer consumption,but investment.I think the biggest falls will be in companies that rely on global discretionary spending and also very highly rated growth shares.Later in the cycle bonds will be really hit hard.I think the key takeaway is that equity markets will have a much smaller band of winners,and they might at best flat line as the market cap going up doesnt make up for the falls elsewhere.Very very fuzzy but i can see bonds going down 7% a year over the next cycle minimum,with equity returns perhaps 1% including dividends and an inflation average of 6%+.I think in that scenario a draw down pension in say 70/30 or 80/20 in a passive with 5% draw down will empty over 7 to 9 years.I dont think people understand how badly postioned they are if inflation does return.

[NogintheNog]

1 hour ago, sleepwello'nights said:

What did you find scary about it.

I did chuckle when he talked about American inventions. Edison with the light bulb. Puzzled though when he said an America invented the wheel.

When he was talking about negative rate bunds (german bonds), "I need to find these people" with respect to the buyers of said bonds, presumably to get them to buy negative yielding US debt at a future point.

Germany a country with trade surpluses, you could see why buyers may buy. The USA, a country with growing trade deficits, why would anyone buy their bonds if they were negative???

There will be buyers of course, it will be the federal reserve! With the next round of QE.

Personally I think he's full of shit! But then so are most politicians.

[reformed nice guy]

4 hours ago, BoSon said:

What should we be looking into buying now or keeping an eye on in preparation to pile in?

I think the best thing to do in this situation is to keep a clear head and continue buying any ladders that you have previously identified. Leave the panicking to the professionals!

[Barnsey]

Fed Officials Weigh New Recession-Fighting Tool: Capping Treasury Yields

https://www.wsj.com/articles/fed-officials-weigh-new-recession-fighting-tool-capping-treasury-yields-11580050800?mod=e2twcb

Quote

“The Bank of Japan has basically gotten it right,” said Adam Posen, president of the Peterson Institute for International Economics in Washington. The costs “are less than were first thought.”

Here’s how it might work. If the Fed cut rates to zero and concluded it was likely to hold rates at that level for at least two years, it could enhance this commitment by capping yields on every Treasury security that matures before January 2022.

“It has some appeal as a way to reinforce forward guidance. You’re going to keep rates lower for a long time, and ‘you really mean it,’ ” said William English, a former senior Fed economist who now teaches at Yale University.

To drive down longer-term yields, the Fed could pair such an approach with additional purchases of longer-dated securities with traditional QE.

 

[Talking Monkey]

3 hours ago, DurhamBorn said:

The China affect will be zero.Nothing,a rounding error probably.

Liquidity drives things and the cost of money.If anything things like this create short term demand spikes.

What does happen though is people look for simple reasons in the markets.

Oil is now down to $52.Almost every big bank and broker said it was going up at $60.They need some excuse to say why they were wrong.It happens time and time and time again.

The lags in oil were there in full view.The only question i have now is if the swift fall means my $43 target is now too low as the velocity fall has been quicker than i expected and the road map might turn early.

Remember as well,oil falls like this are deflationary.In 6 months they will feed into the inflation indexes and the CBs will see outright deflation risk flashing and they will act accordingly.

Il give you an example of how this sort of thinking above though hits investors.

They buy a mask maker at a higher price because demand has gone up for 5 weeks out of the norm.

They sell companies to pay for it whos demand will go down for 5 weeks out of the norm.

 

 

DB just to get my understanding straight on the $43 target is that the target before the major debt deflation really takes hold, during that I think you said you expect oil to go sub $20

[DoINeedOne]

Billions Are Being Spent To Ensure The Future Is Filled With Plastic

Everyone has seen the pictures of the ocean riddled with plastic waste. There has been a push in recent years to eliminate plastic waste through such solutions as replacing plastic straws with paper ones that turn soggy or replacing plastic bags with reusable bags.

However, as good as using these non-plastic items may make some people feel, plastic is here to stay and it's not going anywhere. As a matter of fact, some of the world's largest companies are investing billions of dollars to make sure plastic doesn't become a thing of the past.

Companies such as ExxonMobil, Shell, and Saudi Aramco are hedging the anticipated decline of fossil fuels—driven by the debate over climate change, by increasing plastic output. The International Energy Agency predicts that petrochemicals, which is the category that includes plastic, will drive half of the demand for oil by 2050. For context, petrochemicals' current use of oil is approximately 14%.

"In the context of a world trying to shift off of fossil fuels as an energy source, this is where [oil and gas companies] see the growth," Steven Feit, a staff attorney at the Center for International Environmental Law, said.

The World Economic Forum (WEF) predicted in 2016 that plastic use will double in the next 20 years. The WEF pointed out that plastic production increased from 15 million tonnes in 1964 to 311 million tonnes in 2014. Plastic packaging accounts for approximately 26% of the total volume of plastics used, with only 14% of it collected for recycling.

An unlikely result of the fracking boom and depressed natural gas prices in the United States has been an increased supply of plastic feedstock ethane. Fracking operators, in order to offset the depressed natural gas prices, are increasingly selling the ethane they get as a byproduct.

Since 2010, more than $200 billion has been invested in 333 plastic and other chemical projects in the U.S., according to the American Chemistry Council. "They’re looking for a way to monetize it," Feit said. "You can think of plastic as a kind of subsidy for fracking."

With many of these facilities in the permitting process, Beyond Plastics—an organization whose mission is to "end plastic pollution," believes it's close to being too late. "If even a quarter of these ethane cracking facilities are built, it’s locking us into a plastic future that is going to be hard to recover from," Beyond Plastics founder Judith Enck, who is a former director of the U.S. Environmental Protection Agency, said.

Those in support of plastics cite benefits such as making cars lighter and more efficient, insulating homes, extending food’s life and keeping medical supplies sanitary. Keith Christman, managing director of plastic markets at the American Chemistry Council, asked "If you aren’t going to use plastics, what are you going to use instead?"

Despite plenty of companies attempting to phase out plastic, not everyone is fully on board. The Coca-Cola Company, one of the largest contributors to plastic waste in the world, is standing by its plastic bottles as consumers prefer them. "Business won’t be in business if we don’t accommodate consumers," Bea Perez, Head of Sustainability at Coca-Cola, said last week at the WEF. The company will use other methods such as using recycled plastic and improving recycling collection to meet its pledge to use a minimum of 50% recycled materials in its packaging by 2030.

So while it may feel like you're changing the world the next time you pull out that metal straw or bring your groceries home in a reusable bag, the reality is the largest companies in the world are putting their money in a future filled with plastic. 

 

[CVG]

29 minutes ago, reformed nice guy said:

I think the best thing to do in this situation is to keep a clear head and continue buying any ladders that you have previously identified. Leave the panicking to the professionals!

Spot on. Terrific day for buying today. Be greedy when others are fearful. I just managed to buy back in my last BT ladder having previously sold them for a 20% profit a few months ago.

[Barnsey]

1 hour ago, Loki said:

People unable to work, or unwilling to travel, supply chains breaking down, all a potential hit on the economy

Exactly, you have the 2nd biggest economy in the World shutting down for an extended period of time, with many unknowns to come. Wuhan itself home to 9 car factories, including PSA & Honda.

[TheCountOfNowhere]

Anyone invested in any start ups? 

What's the best way to go about it? 

The way I see it, it all this free cash is going to be thrown at infrastructure projects there must be some new companies we'll placed to hover up that cash 

[Democorruptcy]

4 hours ago, NogintheNog said:

It's a fair point. To me wealth is also about liquidity, and houses don't seem very liquid to me! If you sell out into cash, yes you are liquid. But you are probably up-sizing or downsizing, so the liquid money goes back into property. There's a lot of people with housing and other debt, and very little liquidity!

I didn't mean houses in particular. The stock market etc have all shot up since QE. The profits people have taken on the way up are real. What might turn out to be paper wealth is if things change and people trying to sell can't manage it!

[Loki]

15 minutes ago, TheCountOfNowhere said:

Anyone invested in any start ups? 

What's the best way to go about it? 

The way I see it, it all this free cash is going to be thrown at infrastructure projects there must be some new companies we'll placed to hover up that cash 

If there's not an app for it, it will be old companies I reckon.  There's plenty of civil engineering firms, I don't think being a startup would add benefit.  You can either dig tranches and lay ducts, or not. 

[DurhamBorn]

1 hour ago, Talking Monkey said:

DB just to get my understanding straight on the $43 target is that the target before the major debt deflation really takes hold, during that I think you said you expect oil to go sub $20

Iv got a road map on oil based on present liquidity flows and cross market work on GDP etc,its that one that says oil could bottom at $43,the road map pointed down at $60.The road maps very rarely get the bottoms right,they are designed for inflection points and direction.So the road map called 40% of the direction move so far,i would rate that a success,but not a fantastic one unless it goes to say 55%,so oil around $49.

The other road map is based on more guess work and on maybe events.I expect them,but they still contain more assumptions of A+B+C=D, D+E+F=G sort of thing.

If the debt deflation hits as a crisis then i expect sub $20 oil in the paper market for a very short period.If the debt deflation carries on like it is now by knocking down sector by sector then we could bottom in oil during the next 3 months (or even today).

Its a very tricky one.For myself iv simply been buying the stocks i want,and ladders set in them all.If i get full allocation then oil probably did go below $30,if i get half+ allocation oil probably bottomed between $43 and $47,if it bottoms now il end up with about 35% allocation.If that happened id be under what i wanted and view my ladders sets flawed,but acceptable.

[Democorruptcy]

3 hours ago, Noallegiance said:

Am I the only one confused this morning?

Why would a virus affect stock markets and oil?

I'm thinking it's a nicely timed scapegoat rather than a catalyst. Markets have gone almost straight up for months. We must be due a propping tweet soon.

If people die they stop spending (insert lots of tickers for firms not making a profit from them again) but their insurance company has to pay out (PRU). If people think they might die from a virus they stop doing discretionary travel, less oil used (RDSB, BP), flights (IAG, EZJ), Cruises (CCL), hotels (IHG). Less activity ripples across the economy. FTSE Heatmap

A few investors have thought "I'm going to panic first just in case it is a pandemic". 

Come on media.... whip up a mega panic* and get more sellers, drive ALL the prices down!

* Obviously we don't want deaths just a media frenzy

[Craig]

46 minutes ago, TheCountOfNowhere said:

Anyone invested in any start ups? 

What's the best way to go about it? 

The way I see it, it all this free cash is going to be thrown at infrastructure projects there must be some new companies we'll placed to hover up that cash 

Intuitively, I'd imagine it'd be older companies who've lobbied government over many years who stand to benefit. Possibly startups set up by established friends of government might benefit too, at a push.

[Talking Monkey]

2 hours ago, DurhamBorn said:

Iv got a road map on oil based on present liquidity flows and cross market work on GDP etc,its that one that says oil could bottom at $43,the road map pointed down at $60.The road maps very rarely get the bottoms right,they are designed for inflection points and direction.So the road map called 40% of the direction move so far,i would rate that a success,but not a fantastic one unless it goes to say 55%,so oil around $49.

The other road map is based on more guess work and on maybe events.I expect them,but they still contain more assumptions of A+B+C=D, D+E+F=G sort of thing.

If the debt deflation hits as a crisis then i expect sub $20 oil in the paper market for a very short period.If the debt deflation carries on like it is now by knocking down sector by sector then we could bottom in oil during the next 3 months (or even today).

Its a very tricky one.For myself iv simply been buying the stocks i want,and ladders set in them all.If i get full allocation then oil probably did go below $30,if i get half+ allocation oil probably bottomed between $43 and $47,if it bottoms now il end up with about 35% allocation.If that happened id be under what i wanted and view my ladders sets flawed,but acceptable.

Thank you DB

[Loki]

2 hours ago, DurhamBorn said:

Iv got a road map on oil based on present liquidity flows and cross market work on GDP etc,its that one that says oil could bottom at $43,the road map pointed down at $60.The road maps very rarely get the bottoms right,they are designed for inflection points and direction.So the road map called 40% of the direction move so far,i would rate that a success,but not a fantastic one unless it goes to say 55%,so oil around $49.

The other road map is based on more guess work and on maybe events.I expect them,but they still contain more assumptions of A+B+C=D, D+E+F=G sort of thing.

If the debt deflation hits as a crisis then i expect sub $20 oil in the paper market for a very short period.If the debt deflation carries on like it is now by knocking down sector by sector then we could bottom in oil during the next 3 months (or even today).

Its a very tricky one.For myself iv simply been buying the stocks i want,and ladders set in them all.If i get full allocation then oil probably did go below $30,if i get half+ allocation oil probably bottomed between $43 and $47,if it bottoms now il end up with about 35% allocation.If that happened id be under what i wanted and view my ladders sets flawed,but acceptable.

Would you buy oil ETFs?

[Bobthebuilder]

6 hours ago, JMD said:

Bobthebuilder, that's interesting - are there any small or big suppliers/manufacturers you know who are good in this area? 

I think WorcesterBosch was mentioned recently. 

They are talking about using hydrogen boilers in new build from 2025, the current gas dosmestic market will probably stay for a while longer yet.

[JMD]

On 25/01/2020 at 11:51, Harley said:

 

The one above covers a hell of a lot more (like the potential issue with trackers/ETFs I and others have mentioned).  

Harley, are they discussing/warning here exclusively about the 'synthetic etf's'? e.g. them not holding the actual shares, etc.

 

[Agent ZigZag]

22 minutes ago, Bobthebuilder said:

They are talking about using hydrogen boilers in new build from 2025, the current gas dosmestic market will probably stay for a while longer yet.

Just installed a Baxi 36Kw - I just hope it will be compatable

[JMD]

18 minutes ago, Bobthebuilder said:

They are talking about using hydrogen boilers in new build from 2025, the current gas dosmestic market will probably stay for a while longer yet.

I can envisage new government regulation coming in - very much sooner? - to ensure that all new replacement boilers must be hydrogen compatible. After all, Its an easy win for government so they at least look good for the 2050 co2 target.

Surely this type of measure and other such policy initiatives can be rolled out very easily across many gov. depts. I'm assuming these will be sensible and practical ideas!? But predicting where these policies will land might help us to spot early potential investment ideas. There has been mention here of hydrogen specifically recently but just wondering if anyone has any similar trending ideas? 

 

[Bobthebuilder]

2 minutes ago, JMD said:

I can envisage new government regulation coming in - very much sooner? - to ensure that all new replacement boilers must be hydrogen compatible. After all, Its an easy win for government so they at least look good for the 2050 co2 target.

Surely this type of measure and other such policy initiatives can be rolled out very easily across many gov. depts. I'm assuming these will be sensible and practical ideas!? But predicting where these policies will land might help us to spot early potential investment ideas. There has been mention here of hydrogen specifically recently but just wondering if anyone has any similar trending ideas? 

 

It is exactley that, it will be illegal to fit a natural gas boiler in a new build from 2025. Current gas properties will remain NG beyound that. Mind you, the goverment has proposed to ban gas boilers before, first time deadline was 2004.