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


spunko

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So it's done. I've transferred my measly private pensions to a SIPP. I've started looking at funds and stocks and is like I actually know what I'm looking at thanks to many sources including this site.

Whether or not I make a success of it isn't the first measure for me. Understanding what happens over the next decade will prove invaluable for when my young family had to begin to understand money. 

#empowered

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18 hours ago, sancho panza said:

Yeah,I had some left field hopes for Powell but he's proven to be no real difference to those that went before him.Worth noting that napier said on his Macro Voices podcast that the Fed no longer has the options that Volcker did due to the fact that they've blwon IRs that low that people/govts couldn't afford the slightest rise in rates.

Today,I've got some space and no kids.Just rerunning voer the PM portfolio and looking to add some more before things get hectic.There's not oodles of value knocking around as you'd expect.

large:BVN/OR/NCM?even contemplating adding to Barrick Holding/HOCMstill looking cheap/

Mid/Small:had a pluck through SILJ for some leverage to silver price.?Hudbay/EXK/AXUFortuna/Sierra/Goro/BCM

If you have the time MP have a listen to that Napier podcast.Talks about Gold after 47 minutes or so.Well worth a listen from someone(Napier) who thinks we're headed for strong USD territory due to deeper real negative rates,calling for a 30 year bull in gold.

IMO the crash needed three things to work for Powell/Trump, it needs to be a controlled burn (not an explosion), they needed someone else to blame and the UK needed to be severed from the EU.  The Coronavirus out of China is the first time that all those criteria are going to be met IMO.

I levered my exposure to silver with some of the little names from profits, its going to still sting if we are wrong but profits are less of an issue than capital!  Copper should be heading for a downturn, since the majority of silver comes from byproducts this is potentially very positive for it, im a big believer that silver has been malleted over the years due to copper being too valuable due to Chinese malinvestment demand.  

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Democorruptcy
1 hour ago, Majorpain said:

Yeah......

But im not sure that having 50% of your previous wealth is worse than not doing anything and have 10%.  He also assumes that the government will get away with a 50% capital gains tax without people getting upset about having their money robbed in an inflationary scenario, see UK Inheritance tax that cost TM the 2017 election!

He does compare it with doing nothing which is obviously worse. The point for us is to try make sure your biggest gains, where possible, are inside a tax wrapper. 

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Had 15k sat as cash in my Shares ISA.

Just spent it.

Bought £3000 of HSBC , BP , Shell , Bluefield Solar and Wynnstay.  All shares which i previously  owned and wanted to add to my position. Might have shot my load a bit too early but these are forever shares , hopefully.

18  extra better dividends throughout the year is how i look at it. Should just about pay my council tax.

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4 hours ago, Noallegiance said:

So it's done. I've transferred my measly private pensions to a SIPP. I've started looking at funds and stocks and is like I actually know what I'm looking at thanks to many sources including this site.

Whether or not I make a success of it isn't the first measure for me. Understanding what happens over the next decade will prove invaluable for when my young family had to begin to understand money. 

#empowered

Exactly,so you are already ahead of around 99% of people.Crucial things are keep diverse,and keep your head.Compounding dividends up and keeping the fees low are the two big ones.

If you look at how long will my capital last calculators and change the expected annual growth from 7% to 6% over 30 years its incredible the difference.

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Well, precious little good news for me lately but I’ve just got a promotion. A pretty big one too. Although it’s only what I should have already been getting paid for the last 4 years if I wasn’t such a loyal sucker. They’ll still have me by the short and curlies timewise but maybe not forever now.

But anyway, it’s credit to this thread that I’m most excited about how much more I can now save and invest. Very little interest in changing my lifestyle. I can save more for a house sure but also I can change my mindset a bit from gambling on miners to divi payers and the long term.

Thank you to literally everyone who contributes here

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13 minutes ago, DoINeedOne said:

I plan on starting to buy oil stocks next week going spend the weekend reading etc... something i read the other day got me thinking about @DurhamBorn thoughts on oil

 


 

1549018826_Screenshot2020-01-31at16_28_23.png.93e62b3bcf492fe65c0dfd3f1c32aaee.png

 

That's the same sort of thing @DurhamBorn mentioned with Imperial Brands.

I guess my question is...How?  How do these companies zig when they should be zagging?

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On 30/01/2020 at 11:29, sancho panza said:

https://www.macrovoices.com/773-macrovoices-203-russell-napier-the-coming-credit-crisis-will-be-outside-the-u-s

Well worth listening to.He basically starts talking about systemic banking crises being inbound but the US is NOT one of them.He uses a scoring system.He talks about a run into UST's and US corporate bonds.Capital flight in Europe is the issue.Of the countries with serious risk of banking crisis a good few are in the Eurozone and crucially EU has new banking legislation meaning depositors will get a haircut over E100,000

Basic Thesis-possible capital flight already ongoing from EU,post 2008 US banks shrank their balance sheets,huge potential chasm at centre of the EU-France  Debt to GDP 329% Germany 181% Debt to GDP and yet they have the same intertest rate.

Enjoyed listening to that thanks, a slightly different perspective on how individual countries are going to fare.  Reinforces that the EU/Euro is still up shit creek and why the UK needs to get some distance, although im very surprised that Australia didn't make his list for banking crises, they haven't had a recession since 1991 so there must be at least some malinvestments to be purged.

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6 hours ago, headrow said:

Bought £3000 of HSBC , BP , Shell , Bluefield Solar and Wynnstay. 

With hindsight, I bought into Wynnstay too early and now have a full allocation. Coincidentally it just popped up on my Stockopeadia screen for High Value High Quality stocks (they also have to have high Piotroski F-Score, Altman Z-Score and a Quick Ratio greater than 1). There are only 15 of these in my screen. Others include Go-Ahead Group and my new addition - Castings (LSE:CGS).

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Democorruptcy

Latest Hussman downdate:

Quote

 

Amidst an “everything bubble” that has touched every asset class, I don’t believe that investors should imagine that there is some broadly appropriate investment that promises a satisfactory return despite such broad extremes. Even international stocks tend to lose significant value when U.S. stocks decline, regardless of their valuations. Yes, there may be niches that could be useful for diversification, but the primary “alternative” that investors have here, in my view, is cash, patience, and hedged investment exposure.

...

If you want my opinion, that opinion is that current hypervalued extremes are likely to be followed by market losses on the order of two-thirds of value of the S&P 500, with negative S&P 500 nominal total returns on both a 10-year and a 12-year horizon. We don’t rely on that outcome, and we don’t require historically normal valuations as a precondition to embracing market exposure (particularly in periods when market internals are favorable), but that’s honestly what I expect.

https://www.hussmanfunds.com/comment/mc200130/

 

 

 

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Bricks & Mortar

Jim Cramer today. 

Cramer has an hour-long financial show on CNBC, airing most weekdays since 2005.  He's probably the most viewed English-language financial commentator on the planet.

"This is the other side of Tesla."  

I think the kids say "Okay Boomer".
 

 

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12 minutes ago, Bricks & Mortar said:

Jim Cramer today. 

Cramer has an hour-long financial show on CNBC, airing most weekdays since 2005.  He's probably the most viewed English-language financial commentator on the planet.

"This is the other side of Tesla."  

I think the kids say "Okay Boomer".
 

 

Fantastic seeing that.His record is terrible.The lack of understanding about cycles is incredible.

The rid count is falling like a brick in US shale and production will fall soon.Schlumberger have closed half their rigs etc and are instead looking to deep water basins elsewhere.I think a year out crude should be around $80,$130 within a few years,$200 by 2025 and maybe $300 by 2027.

I still see $43 on the downside as max target but we might not hit because sentiment is so bad now its gone past the macro situation.

Iv ladders set and im happy to be buying the falls.Road map is pretty clear.

I very much doubt electric is the the future of cars,hydrogen is just as likely,and big oil will control that.Its great that CNBC are selling the narrative oil is finished.The public selling,insitutions selling.

 

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9 minutes ago, DurhamBorn said:

I think a year out crude should be around $80,$130 within a few years,$200 by 2025 and maybe $300 by 2027.

Thanks for this, i understand you are hesitant to give dates and prices with the way your system works

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30 minutes ago, Loki said:

Thanks for this, i understand you are hesitant to give dates and prices with the way your system works

Love the way Cramer says oil is tobacco.Lets hope so.£5k in BAT made me more than my house cost.

Heres the thing.Oil has no future long term.Between now and that date BP will probably make £400 billion+ in free cash flow.Its likely half of that will go on building hydrogen plants and other green energy.Towards the end of oils life the companies will stop investment and return the cash instead to shareholders.

My prediction against Cramer.A ladder buy in BP from today with 2 more ladders at 7% drops will outperform Tesla by 1000% by 2028 including dividends.At least.

 

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1 minute ago, DurhamBorn said:

Love the way Cramer says oil is tobacco.Lets hope so.£5k in BAT made me more than my house cost.

 

xDxD What a difference perspective makes!

Quote

 

Heres the thing.Oil has no future long term.Between now and that date BP will probably make half a £400 billion+ in free cash flow.Its likely half of that will go on building hydrogen plants and other green energy.Towards the end of oils life the companies will stop investment and return the cash instead to shareholders.

My prediction against Cramer.A ladder buy in BP from today with 2 more ladders at 7% drops will outperform Tesla by 1000% by 2028 including dividends.At least.

 

I don't think I've ever seen you make such a specific prediction! My BP is currently down, I bought a small amount recently - the great thing about what I've learned here is that rather than a momentary instinctive twinge, rather than panic I see a buying opportunity 

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1 hour ago, Bricks & Mortar said:

Jim Cramer today. 

Cramer has an hour-long financial show on CNBC, airing most weekdays since 2005.  He's probably the most viewed English-language financial commentator on the planet.

"This is the other side of Tesla."  

I think the kids say "Okay Boomer".
 

 

His bit about “this is Tobacco” makes me want to load up the truck.

Edit: @DurhamBornbeat me to it

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Seeking Alpha article on US shale oil and the reset of oil prices (pretty much agrees with @DurhamBorn's earlier posts).

https://seekingalpha.com/article/4320190-abrupt-reversal-of-shale-oils-fortunes-points-to-radical-reset-of-oil-prices?utm_medium=email&utm_source=seeking_alpha

Summary

The Reuters’ 2013 poll predicted $100 Brent. It went to $50. The 2020 poll predicts $65. If history is a guide, it will go to 2 x $65 = $130.

The second shale oil boom was due to 500 frac spreads paid for in the first; now only 300 are left, and 200 were sold for scrap. No one is buying new.

The prediction of a 900,000 bbl/day surge in production in 2020 is physically impossible; when the market finds that out, there will be a reset in oil prices.

From replacement cost, assuming plentiful supplies of cheap shale oil, back to the traditional pricing dictated by parasite economics.

Schlumberger and Halliburton have given up on fracking; they are headed offshore. That's where the action will be in 2020.

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On 30/01/2020 at 15:37, JMD said:

SP, for silver leverage what do you think of Australian silvie South32. Or for gold how about the gold jnr trans Siberian gold, it pays 5% divi.

I steer clear of one company plays as I'm an awful stock picker.But neither particularly rings alarm bells based purely on th stats but I've only heard ot the Siberian one before.You'd need someone with a keener eye on individual stocks within the broader market eg @Majorpain @kibuc @DurhamBorn to give a reasonable opinion.

I've been bitten on a few individual stocks hence why I'm a confimred 'spray n pray' er ref PM stocks.

On 30/01/2020 at 17:40, Democorruptcy said:

I wasn't expecting the Brexit deal to go through so expected an election. I didn't expect the Tories to do so well, so could only see more downside than upside. I sold 6 around then and only the old dog CNA  has let me down +18%, RDSB -15%, RMG -6%, SGC -9%, VOD -8%, BT -21%. I know I'm supposed to hold but the gambler in me won't allow it! I've missed some divis but overall those shares are down -8% so I have some to play with to buy back in. I expect the UK to do quite well and all those will spring back quickly once this coronavirus scare dies down.

Sort of surreal to se CNA running up isn't it? RDSB £20 or so today.We picked up some more.

On 30/01/2020 at 19:22, DurhamBorn said:

I have lists of all equities in each sector im interested in.Iv bought a few because  they are number 2 on my rubber band list for gas producers in the US and i think gas is within 3 months of a bottom.Rubber band stocks have a lot of energy when they turn and provide big returns.They also inflict lots of pain if the downturn continues.I usually only buy rubber band stocks in two tranches,not my usual four or five.I also  buy a few companies because there is a big risk some can go under if the sector doesnt turn.My PM stocks last May provided superb returns from the rubber band list.Not all of them of course.

Another $10 and Exxon is 50% off peak.We pciked up some more today.Along side some BP/RDSB/Total/Repsol.Reading the following article looks like a doomed trade for dip buyers according to the seeking alpha piece below.

For me Exxon is making the right decision to invest.Second SA article below sums up my reasoning.First article focuses on why oil is doomed.Personally can't see renewables competing for some time.Oil industry looks nothing like coal industry.But i could be wrong.OPutting it up for any comments.

 

image.png.3bd3ed481d2b14829ef2a2bf978b769c.png

https://seekingalpha.com/article/4320532-exxon-mobil-10-year-low-is-not-investment-signal

Exxon Mobil closes at $64.11 and the “buy” articles start.

The “buy” recommendations invariably focus on the price of oil as the reason the share price is down, with an assumption that it will go back up.

Two major negatives for Exxon Mobil currently are competition from renewables and new focus on the climate emergency.

Investors might think hard before they assume that the 10-year low for XOM share price is where the slide stops.

Having tracked the demise of the coal industry, I can see the signs here for the oil and gas industry. Exxon Mobil (NYSE:XOM) is the standout because CEO Darren Woods has decided that there is a big future for oil and gas while others panic. And so, just like management of Peabody Energy (NYSE:BTU), which closed at $6.92 today against a 52-week high $37.37) did in the past, XOM management is doubling down with massive new investment in exploration based on their view that the industry still has decades to run and they are the best at what they do. I’m writing this brief article because the predicted wave of “buy now” articles is starting to appear. I urge investors to consider the whole picture and to look before they leap.

 

The two reasons for caution

XOM is faced with not one, but two dramatic and game-changing events that are rapidly unfolding.

Oil and gas are becoming uncompetitive

Investors who don’t pay close attention to what is happening in the energy space can be forgiven for not being aware of massive changes happening under the radar. Major industry influence groups and the oil and gas majors themselves have essentially been in denial about massive changes in both capacity and cost of renewable energy in recent years. A case in point is the US Energy Information Administration (EIA) that has previously had an avowedly optimistic view about the future of the fossil fuel industry, especially gas. Indeed last year, the EIA predicted that natural gas would dominate US electricity in 2050. In its 2020 Annual Energy Outlook, the EIA projects renewables to become dominant rising from 19% today to 39% in 2050, while natural gas stays static at 36% (a slight decline in 2019 of 37%).

The electrification of transport is a similar story with the major information groups and oil and gas majors beginning to acknowledge that the shift is on and it is unstoppable. For example, between 2017 and 2019, BP’s Energy Outlook increased estimated penetration of electric cars from 4.5% to 12% by 2035. The UK Government is considering banning the sale of new ICE cars by 2040 (with calls to bring this forward to 2030). Fleet managers are considering more aggressive targets, such as National Grid considering 100% of its fleet being zero emissions by 2030. Similar things are happening all over the world.

There is a climate emergency and need to decarbonize

I’ve covered the increased awareness of the climate emergency in a recent article. The science is clear that this is an emergency, the Australian fires have made people aware that there are consequences to not addressing climate change, and the world’s largest fund manager BlackRock has publicly positioned for exit from fossil fuels. Perhaps readers are not aware how seriously BlackRock views this issue and how dramatic the changes that they are implementing are. An article from IEEFA today covers these issues in a commentary of traditional investment views versus the new dialogue. They mention 6 points that sit underneath how BlackRock is acting going forward.

 

This is worthy of a whole article but a few highlights suffice :

1) The traditional view is that sustainable investment harms financial performance. BlackRock's view is unambiguous “Our investment conviction is that sustainability-integrated portfolios can provide better risk-adjusted returns to investors.”

2) The traditional view is that quantitative analysis of past performance and extrapolation is a sufficient basis for investing. In times of dramatic change this isn't adequate and qualitative analysis is needed in relation to the climate.

3) The traditional view is that environmental (climate) considerations are not financial. Today's view is that environmental considerations drive liability directly and indirectly. In today's world, it is credit positive to close a coal plant.

4) The traditional view is that markets price in risk. In today's world it is understood that the market ignores some risks and misprices others. This has huge implications for the fossil fuel industry.

5) The traditional view is that what a company does is all that matters to shareholders. Investor returns are increasingly tied to the overall market and a narrow view of corporate responsibility is challenged.

6. The traditional view is that a company's legal team's role is to downplay and contest legal compliance. BlackRock's view is that environmental risk and legal compliance are value opportunities. This is why it has joined Climate 100+.

This is chilling stuff for XOM management to consider today (not in the future), and this is just about how the world's largest fund manager is thinking and acting.

Underpinning BlackRock's (and others) changed position is a massive amount of science that can't be ignored. The fact that President Trump's efforts to expand fossil fuels, attack renewable energy and wind back environmental laws has not prevented progress in all of those areas, shows that the facts are winning. And the science is increasingly easy for even lay readers to understand, partly through their lived experience. (I know about this from personal experience of facing a 70 km-long fire front recently).

 

I don’t think that it is credible to ignore the above issues in addressing why the XOM share price is damaged. These factors are not going away and so the changes in investor views of XOM (leading to the falling share price) are not short term.

Risks/challenges

In the above discussion, I've introduced two kinds of issues. Firstly, I've considered what most analysis addresses, which is all about the oil price as this clearly has a major influence on XOM (although I have shown that the Brent crude price and price of XOM shares is poorly correlated). Secondly, I've addressed challenges to XOM's business as a result of massive disruption caused by technology innovation as energy and transport get decarbonized due to the rise of renewable energy, energy storage and flexible demand management. Related to this change is the need to decarbonize due to the climate emergency.

Most analysts acknowledge that trying to predict the oil and gas price is fraught with challenges due to politics (especially of the Middle East, but also Russia and less politically stable areas such as Africa, South America). However, the basis for optimism about XOM is that oil prices are cyclical and that they will go up at some time. Hence, the buy recommendations.

The second group of issues (renewable energy and climate) are dismissed as either unable to reach scale sufficiently to challenge fossil fuels, unable to be price competitive, and in the case of climate off in the never-never. And so they don't even get discussed.

My reading suggests that complacency about the rise of renewable energy is misplaced and one just needs to read the daily news to see coal, oil and gas threatened in competitive bids for energy supply and in the emergence of electric vehicles. This is a near-term problem for XOM investors and I argue that is why the share price is falling consistently now (not some time in the future).

The climate emergency has come into new focus with the catastrophic Australian bushfires that have been predicted by the climate scientists. This is today's problem and it is why groups like BlackRock have dramatically changed their position. It is important to mention that climate change isn't just about the Australian fires. Any one of a huge number of similar climate disasters could have been sufficient to highlight the issue (e.g. Californian fires, floods in central US last year, floods in Europe, extreme weather everywhere).

 

And it is important to note that scientists are increasingly strident about the immediate danger, saying that this decade will decide whether humanity copes with limiting the extent of the catastrophe or whether it gets completely out of control. These are strong issues and they require immediate action.

I am wrong about my thesis that the rise of renewable energy and climate change are massive problems for XOM now, if suddenly the switch to renewable energy and electrification of transport slows and humanity continues to ignore the climate issues. There is a risk that this might happen (especially on the climate front since the oil and gas majors led by XOM are resolute that they plan to expand their oil and gas production). My view is that we have reached a point where the seriousness of the situation is acknowledged, meaning that this is an urgent problem for now, not some time in the future.

 

 

https://seekingalpha.com/news/3536996-dismal-results-from-exxon-chevron-add-to-oil-and-gas-sector-gloom

Exxon Mobil (XOM -4.3%) and Chevron (CVX -4.4%) shares sink to multiyear lows - a near-decade nadir for Exxon - after the two biggest U.S. oil producers posted their weakest results in years.

Exxon's FY 2019 profit of $14.3B fell 31% from $20.8B in the previous year - and the company's third lowest this century - while capital spending climbed 20% to $31B from nearly $26B in 2018 and revenues slid 9% to $265B last year from $290B the year before.

Chevron recorded its steepest loss in a decade after writing down the value of North American natural gas fields and returns plunged from overseas refining and oil production.

Exxon CEO Darren Woods told today's earnings conference call that while the industry faces "extremely challenging market conditions," his company would not cut its spending because it is focused on long-term supply and demand. "We believe strongly that investing in the trough of this cycle has some real advantages."

Unlike Chevron, which has responded to Wall Street's calls for austerity, Exxon is "marching to its own drum," Adams Funds chief executive Mark Stoeckle tells WSJ.

Woods has pledged to raise Exxon's production from the typical ~4M bbl/day to 5M bbl/day by increasing annual spending $4B-$6B to top $30B and focusing on a handful of key projects such as Guyana and the Permian Basin.

"Even though it appears the market has said 'we don't want you to outspend, we want you to do dividends, we want you to do buybacks,' Exxon is saying 'we take a longer view than anybody, if you don't like it, then sell the stock," Stoeckle said - exactly what is happening today.

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2 hours ago, DurhamBorn said:

Love the way Cramer says oil is tobacco.Lets hope so.£5k in BAT made me more than my house cost.

Heres the thing.Oil has no future long term.Between now and that date BP will probably make £400 billion+ in free cash flow.Its likely half of that will go on building hydrogen plants and other green energy.Towards the end of oils life the companies will stop investment and return the cash instead to shareholders.

My prediction against Cramer.A ladder buy in BP from today with 2 more ladders at 7% drops will outperform Tesla by 1000% by 2028 including dividends.At least.

 

I'm confused and warmed by the power of the universe to bring people like you into the lives of people like me.

It really is quite bizarre. But then, so is sitting on a rock speeding around a star at 76,000mph. So nothing should surprise me, really.

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Democorruptcy
15 minutes ago, sancho panza said:

Sort of surreal to se CNA running up isn't it? RDSB £20 or so today.We picked up some more.

I felt a bit guilty after my post calling CNA an old dog! I'd always timed her OK before and had made 9% when selling.

Got any virulent shorts in mind?

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