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

[Don Coglione]

4 minutes ago, sleepwello'nights said:

Yes I understand and don't mean to sound heartless. There is a limit to how much the government can hand out, and I'm sure that stories will emerge of those who didn't get any aid together with stories of those who took advantage. 

Even if a citizens income was brought in it wouldn't be perfect.

Why should the government pay for a (presumably fairly flash) car loan/PCP?

Cunts.

[SillyBilly]

Had an interesting chat today with our contact at Shell, he leads their UK bitumen sales. We buy about 150 metric tonnes of bitumen a month so I know the market pretty well. Basically we discussed the severe dislocations happening for the oilies particularly with reference to the United Kingdom. Some points that may be of interest:

- We have been buying penetration bitumen from Total for decades up until last month. It came from their Lindsey oil refinery. In Feb they notified us that they would not be supplying bitumen to any customer not under contract (i.e. most apart from the biggest buyers like Tarmac) until further notice. 

- International Maritime Organisation’s (IMO) 0.5pc (from 3.5%) sulphur cap for marine fuels kicked in in Jan. Demand for HSFO (high sulphur fuel oil) falling as a result. This affects bitumen pricing/supply indirectly, it comes from sour grade crude.

- Was advised $5-6 a barrel on Kerosene is what UK refineries typically make out with. c. $2 a barrel loss on bitumen. So why process when planes are grounded (demand fell off a cliff) to sell the stuff which makes a loss? 

- Nynas are in "dire straits". To be fair this has been fairly common knowledge since the back end of last year but apparently  they are asking customers to pay upfront to allow them to purchase the feedstock. Openly advertising for immediate investment (a.k.a rescue). They are 50% owned by Venezuelan oil company PDVSA...obviously that is creating problems in itself.

- Nynas have a 50:50 JV with Shell with the Eastham refinery that produces 700,000 mt of bitumen a year. Rumour is Shell could be picking up the other half for a quid in the next few weeks.

https://www.spglobal.com/platts/en/market-insights/podcasts/crude/032320-price-collapse-fragile-us-shale

I think Shell are positioned to make most of this when the market turns. Supposedly they've took a lot of business from Total in recent weeks due to lower output from the Lindsey refinery output. Flush the weaker hands out and then up prices when the time is right.

[Democorruptcy]

1 hour ago, DurhamBorn said:

Short term oil movements should be ignored,as should their stocks,they should be being bought in ladders and Shell last hit £9.30 and BP £2.24 so well above bottom ladders bought.

Oil target on WTI is $34 by mid summer,maybe $39 .Big oil will go up 400% from here into the end of the cycle.Watching movements now should be avoided apart from to execute buy ladders.Its time to let the cycle play out.

I know you are not supposed to depend on one company but I wish I'd put the lot in Shell now. I'm already top heavy with it, plus some BP, so if/when it rises it lifts the portfolio overall but I'm bored with the others 

[spunko]

1 hour ago, Ponty Mython said:

Why should the government pay for a (presumably fairly flash) car loan/PCP?

Cunts.

The problem is much more simple than that. Some people will get help, and others won't. If you are in the latter group then you are going to be mightily pissed off, and look at ways to recoup it by under-declaring for the next few years and/or taking other chances to get back at "the system". That's exactly what I would be doing personally, you cannot give generously to one group but then refuse the other because of some self-imposed cut off and just tell them to "lump it".

[Agent ZigZag]

With retirement 3 months away I have put in place to fully take advantage of the system. Their rules so I will play by them. Whilst working most benefits we were not eligible for. Now I can get chid benefit even got a pip and to double down carers allowance. Should have done this a long time ago.

[Clueless Imbecile]

12 minutes ago, spunko said:

 you cannot give generously to one group but then refuse the other because of some self-imposed cut off and just tell them to "lump it".

Sadly it does happen.

In the late 90s I was a contractor on a good hourly rate. The government brought in IR35 and I was paying tax & NI at a marginal rate of about 50 percent. Then when the dot com bubble burst I ended up out of work for a long time. The government would not pay me any benefits because I had more than 8K in savings (money which I had worked hard for and paid a huge amount of tax on). I had to live off my hard earned savings. Then when I bought anything that was subject to standard rate VAT (17.5 percent in those days), that was another big chunk of my earnings they were taking. Consider the maths:

£100 earned gross
minus £50 tax & NI
result: £50 net

Spent £50 to buy goods or services
part of that was the 17.5 percent tax

£50 = gross = ((100+17.5)/100) * net)
therefore net = (100/117.5) * gross = (100/117.5) * 50 = 42.55 (approx)

Therefore I only actually got £42.55 of value per £100 I earned gross.

(this assumes I've got the maths correct!)

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

[Clueless Imbecile]

I've heard it said that:

"The Fed can control rates at the short end but they cannot control rates at the long end. The market sets rates at the long end".

Initially I thought that this must be because long dated bonds (e.g. 30 year) have been on sale for years and there must be a lot of them out there owned by companies and individuals, (even if they currently only have, say 25 years left until maturity), and I assumed that there must be simply too many for the Fed to buy to drive the bond price up (and thereby drive the yield down, thus lowering the long rate). However, what's to say the Fed can't print whatever amount it takes to bid up the price of long bonds and therefore control long term rates and short term rates?

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.
 

[DurhamBorn]

1 hour ago, SillyBilly said:

Had an interesting chat today with our contact at Shell, he leads their UK bitumen sales. We buy about 150 metric tonnes of bitumen a month so I know the market pretty well. Basically we discussed the severe dislocations happening for the oilies particularly with reference to the United Kingdom. Some points that may be of interest:

- We have been buying penetration bitumen from Total for decades up until last month. It came from their Lindsey oil refinery. In Feb they notified us that they would not be supplying bitumen to any customer not under contract (i.e. most apart from the biggest buyers like Tarmac) until further notice. 

- International Maritime Organisation’s (IMO) 0.5pc (from 3.5%) sulphur cap for marine fuels kicked in in Jan. Demand for HSFO (high sulphur fuel oil) falling as a result. This affects bitumen pricing/supply indirectly, it comes from sour grade crude.

- Was advised $5-6 a barrel on Kerosene is what UK refineries typically make out with. c. $2 a barrel loss on bitumen. So why process when planes are grounded (demand fell off a cliff) to sell the stuff which makes a loss? 

- Nynas are in "dire straits". To be fair this has been fairly common knowledge since the back end of last year but apparently  they are asking customers to pay upfront to allow them to purchase the feedstock. Openly advertising for immediate investment (a.k.a rescue). They are 50% owned by Venezuelan oil company PDVSA...obviously that is creating problems in itself.

- Nynas have a 50:50 JV with Shell with the Eastham refinery that produces 700,000 mt of bitumen a year. Rumour is Shell could be picking up the other half for a quid in the next few weeks.

https://www.spglobal.com/platts/en/market-insights/podcasts/crude/032320-price-collapse-fragile-us-shale

I think Shell are positioned to make most of this when the market turns. Supposedly they've took a lot of business from Total in recent weeks due to lower output from the Lindsey refinery output. Flush the weaker hands out and then up prices when the time is right.

Fantastic info thankyou.I think thats exactly what will happen,and of course is always what does happen.The areas being hit now are the very areas that will see big demand growth in the next cycle.The macro picture is as clear as it could be.The consumer is dead for a cycle,the recovery has to be industrial,there is no choice.People thinking what the government is doing now is short term,but its not,they will be pumping into the economy.

Some things i expect are the UK building new steel works,probably arc furnaces.Supply chains coming back etc.

[Lavalas]

On 26/03/2020 at 15:29, JMD said:

As the hated right wing Ayn Rand said, 'You can ignore reality, but you cant ignore the consequences of ignoring reality'.

My god that is such a good quote. I would have done a lot of things very differently if I’d had that imprinted on my brain from an early age.

[Clueless Imbecile]

8 minutes ago, DurhamBorn said:

Fantastic info thankyou.I think thats exactly what will happen,and of course is always what does happen.The areas being hit now are the very areas that will see big demand growth in the next cycle.The macro picture is as clear as it could be.The consumer is dead for a cycle,the recovery has to be industrial,there is no choice.People thinking what the government is doing now is short term,but its not,they will be pumping into the economy.

Some things i expect are the UK building new steel works,probably arc furnaces.Supply chains coming back etc.

Hi DurhamBorn.

Just wondering: have you read "Contrarian Investment Strategies" by David Dreman?

I bought a copy of it after seeing David Hunter (@DaveHcontrarian) mention "Contrarian Investment Strategy" by David Dreman (presumably an earlier version of the book above?) on his Twitter. I only started reading it recently.

I also bought another book he mentioned ("Winning The Loser's Game" by Charles D. Ellis). I finished reading that one recently. Considering DaveHcontrarian's tweets about the economy & markets that I've read over the past few months, which seem similar to what you have expressed (although maybe with some differences), I was quite surprised that he mentioned "Winning The Loser's Game" because the book goes to some lengths to advocate low-cost passive equity index-tracker fund investing. In fact that seemed to be the main theme of the book, in my opinion.

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

[Loki]

9 minutes ago, Lavalas said:

My god that is such a good quote. I would have done a lot of things very differently if I’d had that imprinted on my brain from an early age.

But a bit like the old 'socialise the losses, capitalise the gains' meme, it's the plebs who get the consequences while the higher ups got to ignore reality.  (Provided we are still talking about Big Economy of course)

I know durhamborn isn't one for central bank 'conspiracy theories' but I am very aware that if I had not seen his excellent posts I would be no better off than the next man in the street to prepare for the cycle ahead.

It might well be benign what they do, but it does affect people.

[SillyBilly]

7 minutes ago, DurhamBorn said:

Fantastic info thankyou.I think thats exactly what will happen,and of course is always what does happen.The areas being hit now are the very areas that will see big demand growth in the next cycle.The macro picture is as clear as it could be.The consumer is dead for a cycle,the recovery has to be industrial,there is no choice.People thinking what the government is doing now is short term,but its not,they will be pumping into the economy.

Some things i expect are the UK building new steel works,probably arc furnaces.Supply chains coming back etc.

We've been in bitumen for years, it gets written off every year as a dying business and product but never fails to deliver. The "plastic roads concept" from MacRebur is about the best they've come up and widely acknowledged to be a gimmick beyond the environmental virtue signalling. And even then to make a half decent surface you can only have c. 6% w/w recycled plastic, the rest has to be the good stuff (virgin bitumen). The world will need a lot of bitumen for a long time. Lots more roads to lay in the developing world.

One of the reasons I like Shell is their lead in technologies such as GTL fuels (gas to liquid). They have a massive GTL plant in Qatar, this is stuff they are pushing hard. This is part of the link between where we are now and where we ultimately get to (electric or hydrogen). We have sampled the GTL diesel recently as a substitute for some wood coatings we manufacture (a lot of coatings still contain diesel/gas oil/kerosene/white spirit as the solvent). Aqueous fairly naff despite the hype so the traditionalists like the good stuff. It is genuinely superb. Almost as colourless as water, very low odour, all the same properties of your usual solvents (good solvency) and no hazard classification (vs. standard diesel which is classified as "may cause cancer"). Lots of interest to start subbing out the nastier stuff for this halfway house. On my to-do-the list later this year to get it off the ground and I have lots of buyers. We will be looking to sell 8-12 no. 25,000 litre tankers a month of it and we're pretty small fry. Shell way ahead than the others in this area.

[DurhamBorn]

11 minutes ago, SillyBilly said:

We've been in bitumen for years, it gets written off every year as a dying business and product but never fails to deliver. The "plastic roads concept" from MacRebur is about the best they've come up and widely acknowledged to be a gimmick beyond the environmental virtue signalling. And even then to make a half decent surface you can only have c. 6% w/w recycled plastic, the rest has to be the good stuff (virgin bitumen). The world will need a lot of bitumen for a long time. Lots more roads to lay in the developing world.

One of the reasons I like Shell is their lead in technologies such as GTL fuels (gas to liquid). They have a massive GTL plant in Qatar, this is stuff they are pushing hard. This is part of the link between where we are now and where we ultimately get to (electric or hydrogen). We have sampled the GTL diesel recently as a substitute for some wood coatings we manufacture (a lot of coatings still contain diesel/gas oil/kerosene/white spirit as the solvent). Aqueous fairly naff despite the hype so the traditionalists like the good stuff. It is genuinely superb. Almost as colourless as water, very low odour, all the same properties of your usual solvents (good solvency) and no hazard classification (vs. standard diesel which is classified as "may cause cancer"). Lots of interest to start subbing out the nastier stuff for this halfway house. On my to-do-the list later this year to get it off the ground and I have lots of buyers. We will be looking to sell 8-12 no. 25,000 litre tankers a month of it and we're pretty small fry. Shell way ahead than the others in this area.

Yes its incredible the position they are in.We could see a situation where most commercial transport moves over to GTL fuels.I know its already big in Germany.People forget that Shell are actually a huge tech company,they dont just drill holes.The uses in the next cycle will expand by huge amounts.Posts like yours are what makes this thread great.It helps to show people why they should be watching daily swings in the shares.They should be looking into the next cycle and seeing that maybe a price lower than 1995 might be quite a good long term buy.

I think gas has a huge future for lots of reasons.Its why i also like Repsol as they are really big in gas.Notice yesterday they said they were holding their dividend,that might change of course if brent stays below $35 for long.

[SillyBilly]

2 minutes ago, DurhamBorn said:

Yes its incredible the position they are in.We could see a situation where most commercial transport moves over to GTL fuels.I know its already big in Germany.People forget that Shell are actually a huge tech company,they dont just drill holes.The uses in the next cycle will expand by huge amounts.Posts like yours are what makes this thread great.It helps to show people why they should be watching daily swings in the shares.They should be looking into the next cycle and seeing that maybe a price lower than 1995 might be quite a good long term buy.

I think gas has a huge future for lots of reasons.Its why i also like Repsol as they are really big in gas.Notice yesterday they said they were holding their dividend,that might change of course if brent stays below $35 for long.

Yes, a lot of the world's best chemists and material scientists work at these companies.

The market is already moving and they are responding to the changes that industry/society is asking for. The push in our sector is slowly toward dearomatized solvents, higher flash solvents etc. These more "speciality solvents" are higher margin products for the refiners. This market isn't going anywhere for a long time; every time a EU regulation comes out the industry quickly falls into step and the product mix evolves. As you say GTL fuel could be there tomorrow if the government has a will to do it. If they cared about the environment that much they could drop fuel duty from 57.25p to 27.25p and we could buy GTL diesel for the same price at the pumps. No more diesel particulates and sulphur compounds... This stuff eliminates 90% of the pollution when burned...Sure our councils wouldn't like that..can't put their diesel taxes on then!

[Alifelessbinary]

The thing that has surprised me the last few weeks was that I always thought the next bear market would largely revolve around the collapse of FAANG stocks. I’ve watch in amazement as good quality companies have collapsed 50-75% while the tech stocks have remained fairly resilient.

The big meltdown can’t happen while these tech stocks still operate on colossal PEs, although CV has driven a lot of business their way.

I've been ill this week, so missed a few opportunities but managed to load up on BP and Shell at prices I never thought I’d see. Even though part of my portfolio got smashed I’ve been able to be much more stoic, as I know I’ve managed to grab some fantastic shares.

DB and SP have been voices of calm when most commentators are screaming. When this all blows over I’ll owe you a few beers.

 

[DurhamBorn]

56 minutes ago, Clueless Imbecile said:

Hi DurhamBorn.

Just wondering: have you read "Contrarian Investment Strategies" by David Dreman?

I bought a copy of it after seeing David Hunter (@DaveHcontrarian) mention "Contrarian Investment Strategy" by David Dreman (presumably an earlier version of the book above?) on his Twitter. I only started reading it recently.

I also bought another book he mentioned ("Winning The Loser's Game" by Charles D. Ellis). I finished reading that one recently. Considering DaveHcontrarian's tweets about the economy & markets that I've read over the past few months, which seem similar to what you have expressed (although maybe with some differences), I was quite surprised that he mentioned "Winning The Loser's Game" because the book goes to some lengths to advocate low-cost passive equity index-tracker fund investing. In fact that seemed to be the main theme of the book, in my opinion.

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

Iv read most of those books and they are a good base for learning the basics.However iv found reading about past cycles by people who lived through them is a much better way.They show how inflation and deflation worked.

For instance this is a great book on the 70s inflation.

https://cdn.mises.org/The Inflation Crisis, and How To Resolve It_3.pdf

 

[Lavalas]

1 hour ago, SillyBilly said:

Yes, a lot of the world's best chemists and material scientists work at these companies.

The market is already moving and they are responding to the changes that industry/society is asking for. The push in our sector is slowly toward dearomatized solvents, higher flash solvents etc. These more "speciality solvents" are higher margin products for the refiners. This market isn't going anywhere for a long time; every time a EU regulation comes out the industry quickly falls into step and the product mix evolves. As you say GTL fuel could be there tomorrow if the government has a will to do it. If they cared about the environment that much they could drop fuel duty from 57.25p to 27.25p and we could buy GTL diesel for the same price at the pumps. No more diesel particulates and sulphur compounds... This stuff eliminates 90% of the pollution when burned...Sure our councils wouldn't like that..can't put their diesel taxes on then!

I know that Highways England with DfT and Defra have done studies into Shell GTL with a view to solving the Air Quality problem. They did trials around the North West where it gets piped in but they ended with the belief that it’s AQ benefits are overstated. Of course they could be wrong but there are no plans for it currently.

[sancho panza]

3 hours ago, DurhamBorn said:

Fantastic info thankyou.I think thats exactly what will happen,and of course is always what does happen.The areas being hit now are the very areas that will see big demand growth in the next cycle.The macro picture is as clear as it could be.The consumer is dead for a cycle,the recovery has to be industrial,there is no choice.People thinking what the government is doing now is short term,but its not,they will be pumping into the economy.

Some things i expect are the UK building new steel works,probably arc furnaces.Supply chains coming back etc.

I think the effects of govt policy response to COvid have been udnerestimated.I think the Westminster mob think they can jsut switch the consumer back on in 3 months but I think there are some generational lessons being learned by a lot of people under 40 who've never known a high unemployment labour market in the UK.

AS we've discussed there are people who are out of work for the first time in their lives,with their company facing administration and all of a sudden that £400 am onth PCPcar looking like a millstone not a trophy.

ANd that's before we do the credit card bills and foreign holidays.

I think there's been a sea change in attitudes in jsut one week of lock down.It's dawned on a lot of conssumers how exposed they are.

Life in the UK won't be the same in the AC(after Corona) world

 

1 hour ago, SillyBilly said:

Yes, a lot of the world's best chemists and material scientists work at these companies.

The market is already moving and they are responding to the changes that industry/society is asking for. The push in our sector is slowly toward dearomatized solvents, higher flash solvents etc. These more "speciality solvents" are higher margin products for the refiners. This market isn't going anywhere for a long time; every time a EU regulation comes out the industry quickly falls into step and the product mix evolves. As you say GTL fuel could be there tomorrow if the government has a will to do it. If they cared about the environment that much they could drop fuel duty from 57.25p to 27.25p and we could buy GTL diesel for the same price at the pumps. No more diesel particulates and sulphur compounds... This stuff eliminates 90% of the pollution when burned...Sure our councils wouldn't like that..can't put their diesel taxes on then!

Fascinating insights SB,the science is way beyond me but I love it when people with deep industry knowledge share it freely.I'd love to respond with a question that made me look intelligent but I only understand the buy Shell bit.

[Loki]

I certainly feel much better about being so debt averse.  

[sancho panza]

[sancho panza]

Some detail on the DDM tweet

[gibbon]

3 hours ago, Clueless Imbecile said:

Sadly it does happen.

In the late 90s I was a contractor on a good hourly rate. The government brought in IR35 and I was paying tax & NI at a marginal rate of about 50 percent. Then when the dot com bubble burst I ended up out of work for a long time. The government would not pay me any benefits because I had more than 8K in savings (money which I had worked hard for and paid a huge amount of tax on). I had to live off my hard earned savings. Then when I bought anything that was subject to standard rate VAT (17.5 percent in those days), that was another big chunk of my earnings they were taking. Consider the maths:

£100 earned gross
minus £50 tax & NI
result: £50 net

Spent £50 to buy goods or services
part of that was the 17.5 percent tax

£50 = gross = ((100+17.5)/100) * net)
therefore net = (100/117.5) * gross = (100/117.5) * 50 = 42.55 (approx)

Therefore I only actually got £42.55 of value per £100 I earned gross.

(this assumes I've got the maths correct!)

17.5% VAT on £100 would be £17.50, so just half it right if you're working out VAT on £50 so £8.75 VAT. £50 - £8.75 = £41.25 right? 

Then again your maths looks fancy so I'm probably wrong. Can someone who can add up please tell us the real answer?

[sancho panza]

couple of anecdotals after chatting to a mate last night.He's a delivery driver for the co op.

was saying he went into the agency yesterday at 0500 and as he went in there were five blokes waiting to see if any drivers didn't turn up so they coud get the shift.Went back some time in the afternoon and those same blokes were still there....

at the co op depot,there's been fights breaking out.He didn't know why,jsut said they did an announcmenet over the tannoy for calm and 'trying to work together' etc etc

also was saying that in his block of flats(where I grew up till I was 5),there are homeless people sleeping in the corridors at night now.COuncil have been called and they jsut bought some tents(there's a large grassy area outside)

This is getting very real,very quickly.

 

[Calcutta]

Not detail any further but I think then is to get everybody Signe up to universal credit, it's done thru HMRC if you earn over the limit you don't get any money from them, that limit will eventually go up a bit and they never sign you off. They'll bring in a card and them government has control over what UC is spent on and can change the amounts and purchases as they see fit. It'll be helicopter money they can change monthly. 

[sancho panza]

this is getting very real.very quickly.

https://www.theguardian.com/world/2020/mar/26/universal-credit-claims-almost-impossible-as-more-than-500000-apply

Workers attempting to apply for universal credit after being laid off during the coronavirus crisis have described how it is almost impossible to complete a claim.

More than 500,000 people have applied for the vital payments in the last nine days, the Department for Work and Pensions revealed on Wednesday.

However, benefits experts have warned that only a fraction of them will have succeeded because the service is swamped and it is currently almost impossible to talk to anyone at the DWP.

First-time claimants have described calling the service between 80 and 100 times to no avail. The Guardian has been trying over the last two days, and has been unable to get through. At one stage yesterday there were queues of 145,000 people waiting to log on to the website, where all claims must start.

All those making a first application for universal credit would usually attend a meeting at their local job centre. However, since the Covid-19 crisis began, applicants have to call an 0800 number to make a phone appointment, but it is impossible, say applicants.

Anna Stevenson, a welfare and benefits expert at the financial charity Turn2Us, said claimants had been contacting the charity to report the problem, fearful that this will hold up the payments they are due.

 

 

9 minutes ago, Calcutta said:

Not detail any further but I think then is to get everybody Signe up to universal credit, it's done thru HMRC if you earn over the limit you don't get any money from them, that limit will eventually go up a bit and they never sign you off. They'll bring in a card and them government has control over what UC is spent on and can change the amounts and purchases as they see fit. It'll be helicopter money they can change monthly. 

was jsut psoting the above as you wrote.....spooky...