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

[Bricormortis]

The Resolution Foundation https://www.msn.com/en-gb/news/uknews/uk-public-spending-to-top-£1tn-a-year-thinktank-forecasts/ar-BB10iXNJ?ocid=spartanntp  forecast Govt spending to return to 1970's levels, circa 40% of GDP. From msn / Guardian.

 

[sleepwello'nights]

50 minutes ago, CVG said:

It's a bind. It's impossible to time the markets and so laddering in makes most sense.

Yep oil shares it will be. RDSB, BP and XOM down further today. Another benefit if the oil price keeps falling as a result of lower demand means that peak oil will be delayed. 

Shall I buy the fuel guzzler instead of an electric vehicle?

[Sugarlips]

3 hours ago, DurhamBorn said:

 

We should see credit lines start to be cut now as well.If you havent sorted out your balance sheet by now to more long dated maturity then it will be a real struggle for finance.

 

DB do you see scenarios in the next 24 months where this is extended to household balance sheets as well eg variable mortgage rates leap?

Are long fixed rates best for those in the market to buy or refi?

[DurhamBorn]

1 hour ago, sleepwello'nights said:

Yep oil shares it will be. RDSB, BP and XOM down further today. Another benefit if the oil price keeps falling as a result of lower demand means that peak oil will be delayed. 

Shall I buy the fuel guzzler instead of an electric vehicle?

Dont forget Repsol and Drax .Oil is in a perfect storm.Production is still ahead of where economies are and sentiment is that oil is finished etc.If the reflation figures are even close we should see oil above $160,and more likely above $250.

Im not sure electric vehicles have much future.I think hydrogen might win out.Equinor and Drax are looking to build a plant together and i expect they will use the Dogger Bank wind farms and bring the power onshore  at the Creyke Beck substation.SSE will probably own those fields.We will probably see big hydrogen plants on Teeside as well linking the Lackenby substation.

Im fully loaded nearly on SSE as i got 3 of 4 ladders in (tagged the bottom on last one),but want more Drax and Equinor.

[DurhamBorn]

2 minutes ago, Sugarlips said:

DB do you see scenarios in the next 24 months where this is extended to household balance sheets as well eg variable mortgage rates leap?

Are long fixed rates best for those in the market to buy or refi?

No,not on rates,they wont rise for maybe 2+ years and then only slightly,The big increases should come 2026 to 2028 as they lose control of inflation.Road map says 9% to 12% rates by 28.

My son is looking to buy now and he is going to fix for 10 years with 10% over payments allowed.Should mean they can clear over half the mortgage and they have a silver investment that will cover the other half,if inflation does run.If buying over the next 12 months id take those 10 year fixes that allow over payments.Up here though 3 bed semis are £130k so not the risk of huge drops the south has.

[BearyBear]

13 hours ago, Bricks & Mortar said:

Endeavour Silver have their results tomorrow...  *fingers crossed*

Silver did better than gold last week, in % terms.  Not at previous highs yet, but to me, that just means it's yet to get that boost when it does.  Couple more weeks like last one, and we'll be there.  (decl -  heavy on silver miners)

https://www.edrsilver.com/English/news/default.aspx#2020#Endeavour-Silver-Reports-Financial-Results-for-the-Fourth-Quarter-and-2019-Full-Year

Not looking good!

[onlyme]

3 hours ago, DurhamBorn said:

Remember its not a virus causing the falls,its where we are in the cycle.Something is always blamed,but it comes down to debt being too high.If you owe nothing and have cash in the bank you get through,if you have debts (and remember most have dollar debts and falling currency) you dont.These are the times when you focus on where the next cycle is going.Its crucial to stick to ladders,Oil companies are hitting second ladders today mostly, so after today il be getting close to 40% of what i want so hopefully they can keep falling)

At some point the money taps are going to get turned on full speed.When that happens we should see the start of a big sector rotation as reflation stocks start to turn and consumer/growth stocks stay down or continue down.

We should see credit lines start to be cut now as well.If you havent sorted out your balance sheet by now to more long dated maturity then it will be a real struggle for finance.

It will be interesting to see if the Fed pump to help Asia and Europe,or instead decide to just wait a little while until the damage knocks countries like China back 20 years.

 

Yes there will always be a trigger, but look at the stocks in above listed  direct relationship with the heavy fallers and the repercussions of  flu virus. They most certainly will turn on the money taps, again, but at some point  that surely has to rebound in a negative way that pushes up inflation in the stuff the economy in general doesn't doesn't fare so well by, thinking food mainly here. Credit lines being cut, yes, large falls in sectors of bank portfolios will reduce lending capability/willingness across other sectors. Letting China skid down the tracks, definitely.

[Sugarlips]

Interesting take on where we are and what happens next:

https://gnseconomics.com/en_US/2020/02/10/the-stages-of-the-collapse/

edit to add Roubini’s take (as at17/2):

https://www.project-syndicate.org/commentary/white-swan-risks-2020-by-nouriel-roubini-2020-02

He seems to think the virus will cause an escalation in US -China tensions, potentially so much that China becomes a forced seller of its Gold reserves as it moves away (by choice or otherwise) from the massive US treasury arrangement.

This theory could align with DB’s opinion that Gold will correct substantially after this current run up concludes (whenever that might be)

[Alifelessbinary]

I helped my sister remortgage on a 10 year fixed last year and she got a good rate (2%). I explained that while rates might drop 0.5%, it was more likely that they would rise in the long term. The main thing was to ensure that she was protected from rates shooting up to 5%+.

Initially she was more concerned about not missing out if rates fell, but I showed her the bigger risk was not hedging against rate rises. 

It’s going to be painful to watch if rates shoot up, as a lot of people are going to really struggle.

 

[JMD]

2 hours ago, Bricormortis said:

The Resolution Foundation https://www.msn.com/en-gb/news/uknews/uk-public-spending-to-top-£1tn-a-year-thinktank-forecasts/ar-BB10iXNJ?ocid=spartanntp  forecast Govt spending to return to 1970's levels, circa 40% of GDP.

£1Tn in 5 years time sounds big, but in reality government spending was 700bn 10 years ago and is £850bn today - so that predicted increase would in effect only be at twice the current rate of 'austerity' spending increases.

However, the thing is I think it might just be accurate - but only because I believe it will be logistically/physically difficult to actually spend huge amounts very quickly. e.g. HS2 is 100bn - but crucially that is over 20+ years.

 

My thinking is... spending on infrastructure - yes certainly - but where else? e.g. More NHS spending - and crucially, might this also involve expanding the private supplier element? Not necessarily a bad thing as the NHS seems too inefficient at present - but from the perspective of this blog it would also create investment opportunities. So where else might this similar government strategy - that of expanding the private sector - occur, and what investment opportunities might follow/be created?             

...Or would government spending mostly take the form of subsidies for selected industries, e.g. environmental sector, forestry, others?

...Or will putative 'spending' be in the form of tax incentives such as the 'free ports' idea?    

A combination of all the above probably. But discussion about this would help us to invest in the right sectors - i.e. those sectors that will be massively 'pumped/expanded' by government spending and/or subsidies/incentives. I suppose the upcoming budget might begin to answer how 'inventive' our policy makers might become in the next cycle, but then again maybe too early for them to show their hand. 

Predictions regarding future energy/retail/transport trends are discussed here - but what about government spending in the short/long term, and the effects of this on the macro economy? I don't think I am merely reframing these same questions, or am I? What is others thinking here?   

 

[kibuc]

Somehow, Endeavour Silver managed to lose money in Q4. Quite a lot of it, in fact.

 

Q4 AISC of $23.20 net of gold credits.

 

Probably won't matter as it has "silver" in its name, but that's a disastrous quarter given the current price environemnt.

[BearyBear]

7 minutes ago, kibuc said:

Somehow, Endeavour Silver managed to lose money in Q4. Quite a lot of it, in fact.

 

Q4 AISC of $23.20 net of gold credits.

 

Probably won't matter as it has "silver" in its name, but that's a disastrous quarter given the current price environemnt.

I can hope New Gold will also go up for a similar reason so all my miners will move into positive theritory  

[Bear Hug]

39 minutes ago, kibuc said:

Somehow, Endeavour Silver managed to lose money in Q4. Quite a lot of it, in fact.

 

Q4 AISC of $23.20 net of gold credits.

 

Probably won't matter as it has "silver" in its name, but that's a disastrous quarter given the current price environemnt.

It's going up pre-market. I was considering getting a small amount if it dropped

[kibuc]

1 minute ago, Bear Hug said:

It's going up pre-market.

Of course it is  They guided for $17-18 AISC in 2020 so truly wonderful leverage to silver breaking above $18, but I'm not sure how they intend to achieve it when Q4 costs were up 10% QoQ. If there's a turnaround happening, you'd expect the costs to have started going the other way.

[janch]

Interesting item on "You and Yours"  BBC about Centrica pilot project in Cornwall linking batteries in 100 homes generating renewable energy to create a "virtual power plant".  They can sell the know-how/software to others.  I'm hoping there's more of this type of innovation to come in the energy companies: 

https://www.centrica.com/media-centre/news/2019/a-virtual-power-plant-for-every-home/

[nirvana]

TULLOW OIL down 10%

Like I said last week I'm a buyer of RDBS at 1350p.....

Good luck to all the players!!!  Critical week for the markets methinks.......It's FEAR VS THE FED, nowt to do with cycles if you ask me....Virus headgear on.... 

 

 

 

[nirvana]

1 hour ago, janch said:

Interesting item on "You and Yours"  BBC about Centrica pilot project in Cornwall linking batteries in 100 homes generating renewable energy to create a "virtual power plant".  They can sell the know-how/software to others.  I'm hoping there's more of this type of innovation to come in the energy companies: 

https://www.centrica.com/media-centre/news/2019/a-virtual-power-plant-for-every-home/

that just looks like a 'powerwall' to me.....loads o folk building them now with recycled 18650 batteries.....get some solar panels and DIY......fk giving back your energy to corporate robbers, especially Centrica 

[Harley]

OK everyone, just back from prepping on the slooooow supermarket website and see it's game on.

@DurhamBorn, No p*ssing around with that "it's a roadmap, not a timeline" talk.  I need a tradeable macro roadmap through this mess. Now!

@sancho panza, I want the five best shorts that gonna make us some real money.  Position 'em hard me son, nice and 'ard.

@Cattle Prod, it's a go on energy so a trading plan now that gets us big into the game.

@sleepwello'nights and @confused, keep an eye on CP in case he goes native on us.  He's got our nest egg.

@janch, media, bring me the media and how to play 'em.

@Bear Hug, eff the small talk, get some big ones, and tell us where to drop 'em.  @BearyBear, hard hat on and wade in there me son!

@JMD, I want gravy, nice thick gravy.  Find out where the government's gravy's going and let's get on board.

@Sugarlips, here's a wodge.  Take Roubini out somewhere "nice" (eff the Compliance dept) and get the inside track.

@CVG, get us the biggest effing ladder you can find.

What's the rest of you sitting around for? Tea break and back in 60 mins with smart ideas to make real money.......or don't come back!

Me, I'm off to smooch some civi servants and polos to make more moooney than you motlies combined (plus get the keys to my NZ bolt hole).

Let's kill it before this nancy virus does!

[onlyme]

7 minutes ago, confused said:

that just looks like a 'powerwall' to me.....loads o folk building them now with recycled 18650 batteries.....get some solar panels and DIY......fk giving back your energy to corporate robbers, especially Centrica 

Yes, nothing that couldn't be done by individual with appropriate software and battery system, feed in and out according to tariff. Can see why corporates would want to be the go-between though and no doubt make their cut, they'd have a predictable additional source of energy and play the market more.

[nirvana]

On 22/02/2020 at 20:01, Loki said:

Wish I'd stocked up a bit more at £940/oz.  

With hindsight we'd all be rich and happy, don't go down the 'woulda, coulda, shoulda' road....always another bus along.....as long as covid19 doesn't kill all the bus drivers 

 

[DurhamBorn]

@Harley you dont ask for much 

Ok,i dont usually go specific because a road map is never a buy/sell indicator BUT.

On the big oilies my road map says the sentiment from this virus on a lag runs another 3 weeks.My liquidity indicator runs another 5 weeks,and my production indicator crosses my liquidity indicator in 7 weeks.My sentiment indicator it stretched into rubber band zone,so i half the lag.Normal lag on this call would be around 9 weeks,however all the cross market work indicates a medium term bottom will be in on the oilies in 4 weeks.The down pull from all the above points to another 8% to 12% among the big oilies,then a turn.Iv ladders in place,but anyone else should consider buying on another 3% down on the big oilies,then two extra ladders at 4% drops,3 ladders split not four.There is a risk of a snap back though,so long term holders should consider opening ladders now and setting 4.

The service companies chart is a mess,but iv been tracking Schlumberger,i bought a small ladder just above todays price,but im buying 2 ladders at once at $29.12 if it hits,

For big oil id suggest Bp,Repsol and Shell B as the best plays and a higher risk/reward Occidental Petroleum.

For service id stick to Schlumberger below $30,

Other energy plays i suggest 2 ladders in Drax,one now and one when their results are out on the 27th.

Potash should be bought now but with 3 ladders set at 8% down points ,expect a knockdown followed by a very strong recovery.

My ladders are set for what i see in the next cycle and im positioning rather than worrying about drawdowns,but that is what i see if i had a gun to my head.

[Loki]

45 minutes ago, confused said:

With hindsight we'd all be rich and happy, don't go down the 'woulda, coulda, shoulda' road....always another bus along.....as long as covid19 doesn't kill all the bus drivers 

 

Very true there's always an opportunity somewhere in the markets!

[nirvana]

44 minutes ago, Tdog said:

 

dude not a fkin cat in hells chance for a very long time imho....the Fed did that in 2018 then promptly did a U turn.....it's CTRL P, printy printy EVEN MORE money.....

Plus covid19 is probably gonna totally fuck the economy due to supply chain issues, that's even before all the dead bodies..... 

Edit: quote didn't work so edit to say that's my view on interest rates

PLUS this is why I'm not convinced by @DurhamBorn view on rising rates.......reported inflation is a load of BS! if they'd had some fking morals and used the rate of money supply and/or the most important rate of inflation in the UK ie HOUSE PRICES, interest rates would have been 10% for the last decade!

It's all smoke, mirrors n lies!! That's why you never trust an Economist 

PLUS whilst I'm having a go lol, this austerity thing! I was never convinced of it, cutbacks in some areas but the overall debt was going parabolic! Even years ago it was increasing at £500million a day in the UK! Somebody prove me wrong re austerity, show me an honest graph, dare you!! 

[Iamcynical]

1 hour ago, DurhamBorn said:

@Harley you dont ask for much 

Ok,i dont usually go specific because a road map is never a buy/sell indicator BUT.

On the big oilies my road map says the sentiment from this virus on a lag runs another 3 weeks.My liquidity indicator runs another 5 weeks,and my production indicator crosses my liquidity indicator in 7 weeks.My sentiment indicator it stretched into rubber band zone,so i half the lag.Normal lag on this call would be around 9 weeks,however all the cross market work indicates a medium term bottom will be in on the oilies in 4 weeks.The down pull from all the above points to another 8% to 12% among the big oilies,then a turn.Iv ladders in place,but anyone else should consider buying on another 3% down on the big oilies,then two extra ladders at 4% drops,3 ladders split not four.There is a risk of a snap back though,so long term holders should consider opening ladders now and setting 4.

The service companies chart is a mess,but iv been tracking Schlumberger,i bought a small ladder just above todays price,but im buying 2 ladders at once at $29.12 if it hits,

For big oil id suggest Bp,Repsol and Shell B as the best plays and a higher risk/reward Occidental Petroleum.

For service id stick to Schlumberger below $30,

Other energy plays i suggest 2 ladders in Drax,one now and one when their results are out on the 27th.

Potash should be bought now but with 3 ladders set at 8% down points ,expect a knockdown followed by a very strong recovery.

My ladders are set for what i see in the next cycle and im positioning rather than worrying about drawdowns,but that is what i see if i had a gun to my head.

Do you all buy the shares and take the hit on the 0.5% stamp duty ?  Or do you sometimes go the CFD route ?  From reading it seems you still get a share of the divi with a CFD and avoid the stamp, but the feeling I get is that owning the shares is best for medium term.

Please help a novice 

[Harley]

57 minutes ago, DurhamBorn said:

@Harley you dont ask for much......

Well done me son, I knew you just needed a bit of encouragement!  What colour do ya want your bonus in?  Right, now back to the back office for you and let the big d*cks get on and play!

Been looking at a few charts between dances while out with me govt friends.  A cooler head would point out the markets have only given up recentish gains (e.g. 2020 for the FTSE) so early days.  But the technicals are still a bit elevated so plenty of opportunity for further falls.  Totally agree that ATM this virus is more of an accelerator of current trends than a driver.  Of course that could change.  Production issues are my major concern.  I also ran a scan to see what had done well technically in the US and UK today but little came up, there was no theme, and those that did were often a bit fake.  Need to run the screener again at the close.

100% on the oilies, and the laddering given the volatility, plus the need to use this time to start positioning for the end state (energy sector and beyond).  Just bought heating oil at 40% less than a few weeks ago.  The driver said they were awash with it but defo did not expect this to last.  Talked a fair bit about the impact of the virus, which as others have pointed out is not something most people talk about (they're still talking Brexit).  On the rest of the energy complex, DRAX is something I'm looking to ladder some more into (soon?) and the solar companies are beginning to show some weakness after their long exponential rises.

Fertlizers look fair, which makes me more confident about a focus on the primary (resource) sectors, although I got a bit caned today on GLEN, BHP, etc.  But I still have limited exposure to these other sectors (despite previous chats) so maybe a time to move soon.  My equity focus now is best characterised by retrenchment back to mostly the core basic material sectors once they have had a final wash out.  I would certainly avoid anything requiring lots of people, unless remote working.

Apart from equity, I'm scared about PMs.  Gold in GBP has had a good run but the monthly MACD has only just started on the up.  I'm scared because we could be back to Jun09 with a long profitable wall of worry ahead.  Would be lovely if silver kicked off!  Bitcoin actually down today!  The US long bond ETF chart looks a bit similar to the GBP gold one so maybe somewhere to hide out until the equity space clears if worried about cash balances, which I am.  Regulation taking over from now impotent monetary policy has been a long standing fear of mine and maybe this virus is the catalyst.  For example, the MSM have been saying how we could never go China lockdown here, and then we see how quickly Italy went in that direction.  We are defo working through the Kuber-Ross stages of grief here (currently in "denial"?).  

I guess the key point is to stay on course with roadmap and use such times as this as best we can.  And maybe many elements of the roadmap are indeed consistent with quite a bad virus experience.  Anyways, just initial impressions at the start of what I expect to be some broadly (stock markets and beyond) volatile two weeks or so.  That denial phase (the virus and the markets prior to that) needs a shake out. 

Interestingly, my recent priorities have been on non-financial stuff and I have no regrets on that.  I've talked before about the true meaning of assets and value and the need to look wider than pure money.  Never has this been more true.  Virus on not, I have used the time to really get up to speed on a lot of equally important stuff and invested in a whole host of real things.