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

[MrXxxx]

9 hours ago, Democorruptcy said:

Forgive me father for I have sinned (again), 36p this time. I don't want to mention the ticker, for fear of making people wince.

You filthy beast, it even begins with the same letter as the C word!...Coronavirus!

[Loki]

13 minutes ago, MrXxxx said:

You filthy beast, it even begins with the same letter as the C word!...Coronavirus!

No...way 

It's a bold strategy let's see if it pays off

[kibuc]

Well, I've just been furloughed so expect to see a lot less of me in the coming weeks. Time to catch up with my family life

[sancho panza]

On 29/03/2020 at 14:05, DurhamBorn said:

People will ignore it within 8 weeks.The reason they are locking down is because they made massive mistakes.No testing,letting infected people arrive.The answer is to test like crazy and lock down areas where they get an infection.London should of been locked down,instead they simply let millions in and out every day.Id say the way they have handled it has been a disaster.Each day they should be putting up the number of deaths compared to the same week last year.Its pointless saying 1000 a week died of corona if the death rate has only increased by 100.Its obvious to anyone who thinks this through many many more will die of other reasons going forward thanks to the lock down.

Its brutal,but at some point people will ask why a young family should have their lives ruined to give someone who is 80 and smoked all their lives,drank heavily,eaten crap etc live an extra 3 months.Almost everyone who dies in hospital dies of an infection,its just what finishes most people off who are dieing.

When the government pushes out the few younger who dont have any medical history it seems fishy as well.Previous good health?,what does that mean.One i saw looked very over weight for instance.How many have had terrible diets and low immune systems?.I reckon most will have low Vit D as well,as is always the case at the end of winter in the UK who dont supplement (5000 a day and vitamin K2)

The UK economy is service based mostly,and then small companies,the idea you can cut off 100% of cashflow and they will somehow survive is insane.

Interesting times.

 

Absolutely.

Absolutely.

There are trade offs in medicine and society.It's very hard to have the sort of discussions of the points you make without people caling you callous.But death is one of life's certainties.

On 29/03/2020 at 14:57, Errol said:

She was in the morbidly obese category. That is a massive 'underlying health issue'.

Obesity causes a number of other issues if left unchecked,respiratory,cardiovascular and endocrine eg Diabetes

On 29/03/2020 at 17:42, Democorruptcy said:

Well if cross contamination occurs because people fail to change frequently enough can it be assumed it would happen by bare hand anyway? I think gloves are a good idea to remind you not to touch your face, rather than stop contamination. I don't see any downside of wearing them shopping and disposing of them outside the shop. 

Mrs P assures there's research into the phenomenon.

 

[sancho panza]

On 29/03/2020 at 12:03, Errol said:

UK Government warning this morning that lockdown will last a significant period.

We'll be lucky if it doesn't carry on until July/August.

I'm hearing rumorus UK govt will double down on it's quarantine then test sporadically policy rather beginning to test and then quarantine like Singapore and South Korea.Rumours are saying June.

[Iamcynical]

1 hour ago, kibuc said:

Well, I've just been furloughed so expect to see a lot less of me in the coming weeks. Time to catch up with my family life

Commiserations.  Are you upset or OK about it? 

I walked out of my job 9 months ago a day still haven't got another.  Its not the work, but the colossal wankers and bullshit of the jobs that I can't cope with. 

I presume you'll be on 80% for a while? 

[sancho panza]

On 29/03/2020 at 20:36, Majorpain said:

Of course, but the British Government currently has an unlimited printing press and the Saudi's and Russians are giving it away for a limited time only.  

Thats the one i was looking at, although like it the majority of the military fuel infrastructure went post 1991, and it was bunker fuel so no idea if it will store the modern stuff.  There is still quite  a lot of capacity to fill if it could be, even down to making sure all ships are topped up.

Interesting to note that today whilst WTI dipped 5% to a $20 handle,the big Oilies went up.

 

If that's not a bottoming sign,I'm not sure what is? Maybe I'm being naieve.

[sancho panza]

12 hours ago, TheCountOfNowhere said:

Oil price sinks and FTSE 100 drops as coronavirus recession hits demand - business live

 

Brent crude back to 2002 prices.

 

Brent crude falls below $23

The selloff in the oil price is now accelerating, driving Brent crude below $23 per barrel for the first time since November 2002.

[DurhamBorn]

 

1 hour ago, kibuc said:

Well, I've just been furloughed so expect to see a lot less of me in the coming weeks. Time to catch up with my family life

Iv been furloughed many times in my life,from employers,partners etc.Every time im ended up happier.Im sure you will too kibuc.

[TheCountOfNowhere]

5 minutes ago, sancho panza said:

Makes no sense except all that qe cash has to go somewhere!!!! 

 

Its crooked 

[sancho panza]

11 hours ago, Democorruptcy said:

Forgive me father for I have sinned (again), 36p this time. I don't want to mention the ticker, for fear of making people wince.

LOlzzz.Made me laugh out loud.

11 hours ago, Democorruptcy said:

Maybe I should send an email to Shell/BP and suggest they buy them out for 99p. A bit of psychological pricing goes a long way. Actually all the adverts these days spread the price for something over a long period. I could say "less than 2p a week for a year"?

Yeah quite,someone is going to pick them up for nothing a la Sirius,we could maybe form our own Dosbods team and have a bash ourselves

11 hours ago, Ponty Mython said:

With a market cap of just over £2bn, they must be on a number of radars?

Gotta be.That's some cheap access to 28 million homes.

 

8 hours ago, Eventually Right said:

Lots of moving parts to that equation:

How long a shut down is already discounted by the market?

If gold were to shoot up to $1800+ how big a positive force for the share price is that, to counter the negatives of a month or two of mine closure?  ie the ounces in the ground are valued higher.

The market will anticipate re-opening the mines, as soon as the case rate growth starts slowing in that country, could be a hell of a rally when that happens.

Not saying it's the wrong course of action...especially if gold sells off, but there are risks of selling, as well as holding.

I sort of view shut downs as forcing up the price of physical.Key is to be spread enough not to get whacked.

[BearyBear]

Worth listening I think!

[sancho panza]

5 hours ago, Cattle Prod said:

The cure for low oil prices, is low oil prices. Goldman (I know, I know, but if they are talking their book here they are long a few months out) courtesy of HFI research:

It's quite insightful, for Goldman. Must have hired ex industry types. Short version: we are baking in a price spike, and the more severe the shut in gets, the higher prices we will get. Folks who you hear say "you can't shut in oil" are right in terms of the cash cow fields, but not the marginal ones. And the all add up. It's already started in the UK:

$200 a barrel won't bring those barrels back, they are gone, for good.

The other thing you won't hear about is natural decline. It's about 4 or 5 % a year, or 4-5m barrels a day world wide. A lot of money has to be spent to replace those barrels. Some of it new developments, alot of working over existing fields to keeping them going. At these prices, the vast majority of non essential work will just stop. These supply barrels will be lost too, and will be hard to recover. If you don't work a field over at the right time, you can lose the barrels for good.

There is a lot of talk about overflowing supply, but to my knowledge, world storage has never been fully filled up. The oil industry is not entirely stupid (though Saudi is doing it's best to be the dunce), and demand will curtail supply. That will bake in a price shock, sure as eggs are eggs.

So effectively,the lower the price goes,the more marginal fields gets shut,the higher the eventual price spike will be?

I was jsut syaing to the count that whilst today we saw WTI hit $20,the big oiies didn't folow but went up.Is that a bottoming sign in your experience?

1 hour ago, kibuc said:

Well, I've just been furloughed so expect to see a lot less of me in the coming weeks. Time to catch up with my family life

Sorry ot hear it K.You gonna be looking for another job?

[UnconventionalWisdom]

Coininvest have Britannias back in stock but are asking for more than 23 quid a piece. Gold.co.uk have them at around 16 quid. 

Coininvest have been good in the past but that's quite some premium. Anyone used gold.co.uk before?

[DurhamBorn]

28 minutes ago, UnconventionalWisdom said:

Coininvest have Britannias back in stock but are asking for more than 23 quid a piece. Gold.co.uk have them at around 16 quid. 

Coininvest have been good in the past but that's quite some premium. Anyone used gold.co.uk before?

You cant check your stash as the coppers will ask you what your doing wandering around an ancient monument.The reason is that The National Trust scatter thousands and thousands of ball bearings on the land to stop metal detectors so they are perfect places to hide a stash,that and the old lead mines up Weardale,metal detectors dont work there,as there is that much metal,so iv heard of course etc 

[DurhamBorn]

@Cattle Prod and on top of that we have the next cycle being industrial and the energy needed to move to a lower carbon world will be huge.Would these wells shuttering have any affect on gas going forward?.Or is most LNG coming from fields that wont be shuttered?.I did have some numbers where i thought LNG would be balanced now,but not in a couple of years.

Iv only bought the big oilies (integrated) as i simply didnt want the risk of the smaller plays.You can never say never,but the fact they can make a profit in refining (and gas) should see them all through this ok.

[headrow]

StockMarketWire.com - Royal Dutch Shell warned it expected to post net impairment charges in the range of $400m-to-$800m in the first quarter following a slump in oil prices caused by the Covid-19 pandemic and a price war between Russia and Saudi Arabia.

The company said the impairment guidance was based on changes to its oil price outlook for 2020.

'As a result of Covid-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products,' Shell said.

'Furthermore, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets.'

'The impact of the dynamically evolving business environment on first quarter results is being primarily reflected in March with a relatively minor impact in the first two months.'

'We expect to provide further updates about the impact on our outlook in the first quarter results announcement.'

In updated first-quarter guidance, the company said it expected upstream production for the three months through March of between 2.65bn and 2.72bn barrels of oil equivalent per day.

Upstream margins were impacted by the weak macro environment, Shell said.

'Upstream results, excluding identified items, are also negatively impacted by the effects of a weak Brazilian Real on taxation, a non-cash item,' it added.

In the oil products business, refining margins were expected to be weaker compared with the fourth quarter 2019.

Marketing margins, however, were expected to remain strong 'as the impact on demand from Covid-19 is not expected to be significant at the Shell Group level in the first quarter,' Shell said.

Shell said its liquidity remained 'strong' and included a new $12bn revolving credit facility commitment in addition to a $10bn credit facility signed in December 2019.

Together with cash and cash equivalents of around $20bn, available liquidity would rise from $30bn to more than $40bn.

'In addition, the Shell Group has access to extensive commercial paper programmes,' the company said.

StockMarketWire.com - Tobacco giant Imperial Brands said it had secured a new €3.5bn multi-currency credit facility in a bid to boost its liquidity amid the Covid-19 pandemic. The company also said there had been no material impact on its performance to date and current trading remained in-line with expectations. 

The revolving credit facility included an initial 3- year term and rolling, automatic, bi-annual extensions. 

'Our outstanding bonds have a staggered maturity profile out to 2032 with limited maturities falling due in any one year,' Imperial Brands said.

[MrXxxx]

7 hours ago, Cattle Prod said:

Shut ins very rarely happen widely, and usually presage a long bull (1998). There are many reasons for a crashing oil market (another one not being discussed is hedge funds having to cover producers hedges into a falling market), but shut in production is a feature of the worst. An oil field is not like a tank in your attic, from where you can turn the tap on and off and get a stream of water. They operate under high pressure, which is what pushes the oil kilometres to the surface. In an old oil field, particularly, the pressure is low, and if you shut it in, the oil will never come out again the same way. It has to be carefully managed in old age, the oil just kind of settles back and refuses to come out. Sometimes, producers suck harder before shutting in, "blowing down the reservoir" in a desperate grab for cash. This soon pulls water into the wellbore, meaning the oil can't get to it any more, this is "reservoir damage". The well is now worthless. In general, about half of the oil present in a good quality field (can be as low 10%) can ever be extracted, so these financially driven decisions simply increase that %. And old marginal fields, doing a couple of thousand barrels a day or whatever, will never come back, like those two Enquest has just dumped.

Lets say ... 2% of world supply gets shut in, never to return. A figure off the top of my head, but it's a small percentage. (Edit: I've qualified that a bit. Enquest revised down production guidance by 4000 barrels a day, so my guess was right that they do a couple of thousand barrels a day each. So the 2% figure could be just 1000 of these old fields, worldwide. Or 250 of them, with 1.5m lost from US shale, which is probably going to be conservative). Then lets say only 2% of the 5% of worldwide natural decline gets replaced this year - who is going to invest? That's 5m bbl a day done from the supply side, or over half a Saudi Arabia. It'll take time to work through stock builds due to demand loss, but they will be worked through, as they always do. Time to accumulate stocks before the supply shock hits  Then, one day, the oil will not be there to be supplied. Back to the tank in your attic - you cannot turn that tap on,  and it will take years to build a new tank. 

There you have the cyclicity of oil markets: the are inherently boom and bust.

And I guarantee you won' t find a half a Saudi Arabia again on this planet. Furthermore, we have already had a soft run of this from 2014-2019. Money was not spent building new tanks, just on shale and sweating the crap out of old fields. I genuinely believe supply is teetering medium term, which seems like a crazy thing to say now. I wonder has Saudi/Russia just decided to kick the legs out from under it, once and for all? All the elements are there for a massive bull run, once this is through. The curse and the opportunity now is to try and decide who will survive, which is why I have only ever recommended big oilies on this thread. There will be casualties, which is the whole point, of course. As much as it pains me to say it.

I don't really know if that's why the big oilies held up: I'd be interested to see current insider buying/selling numbers. Boomers still make up the largest cohort in those companies, are all loaded, insured with final salary pensions, and have been through these troughs a few times before. Also as has been pointed out recently - the big integrated companies can make money with cheap oil too. 

Interesting post, I feel I've really learnt something here. So what are the relative strengths/weaknesses with shale (is this the same as tar sands?), and what % of the worlds oil do they account for?

[kibuc]

10 hours ago, sancho panza said:

Sorry ot hear it K.You gonna be looking for another job?

It's a paid leave for absence so no, at least for now. They are using the Retention Scheme and topping it up quite generously for higher earners, so I'm only 20% net worse-off. It balances itself out with the season ticket and the babysitter, neither of which I need at the moment.

I was feeling burned out and considering an unpaid leave for a month or two, so suddenly getting a paid one actually makes me happy. Only my ego keeps nagging me that I'm not considered essential enough to keep at work  In our Tech department they kept all leads and some (most?) seniors.

The scheme runs until end of May and I'd expect them to take advantage of that, so it'll probably be two months in the end. I'd be gutted if I got a boot after that as I really like it there, but emloyment-wise it should be fine, offers for senior devs are aplenty.

[Harley]

Sancho, chemicals, better late than never!

DYOR, not advice, data may be iffy, blah, blah....

I've used criteria drawn from a liquidators mindset!  What do you use?

How do the high scorers match up to yours?

Notes:

. List is based on the largest market caps on the exchanges I can access

. Ignores ADRs, pink sheet stocks, incorrect industry assignments, etc

. Based on FT.com industry assignment of stocks

. Used a KISS small set of criteria!

. Green is good and is above/below average for the listed 15

. Score is the number of greens for a company (top 3 marked in green)

. "OCF +ve" is number of the last 5 years where OCF has been positive

. "OCF Growth" is number of the last 5 years OCF has grown YOY

. "Div Cover" is number of the last 5 years div covered by OCF

I then do a deep dive on the top ones, looking at charts, PE ratios, etc.

[Loki]

Blimey well done Harley.  The hydrogen economy also looks good for some of those, to me

[Sasquatch]

Just come off an email exchange with a senior construction lawyer specialist. Apparently governments are not printing money and there are no inflationary concerns in the world economy.

You heard it here first!   

 

[DurhamBorn]

On 30/03/2020 at 00:38, Thorn said:

DB you’re a Gentleman. Down a bit right now and I Do Not Give A f**k because I’m learning so much now myself with your incredible (DYOR) guidance and my own digging  every day.
 

I've learnt more in this thread than I could ever have dreamed. Thanks to yourself.
 

I am still watching the pm space at the moment and find myself almost laughing at some of the news and politics stories trying to keep up with the Macro. 
 

So I want to say thanks so much man Keep It Up. 

I never expected to be sitting on Oilies and PM stocks and even also in some of the URA stuff waiting to see what might happen. 
 

Owe you Several Pints...and the odd rabbit.

Looking forward to meeting you at some stage. 

 

 

 

Where most people go wrong Thorn is they worry too much about day to day movements instead of letting the cycle play out.They concentrate on things the wrong way around.Take BP.At £2.30 was it more likely in 8 years it would be £5,or bust (likely £10).Thats the question.Not what price will it be tomorrow or next month.This virus of course is a curve ball,no doubt about that and im pretty sure i might see one or two holdings go bankrupt,or get taken out at very low prices.However i dont care,because im also pretty certain i have a good few 5x or 10x stocks now.We got the cycle call right so far,and if the next cycle is industrial as expected then we will do very well indeed.

Im now trying to keep up with how much liquidity is being added,because thats the key to the longer term road maps.

In the broader market some good companies are  stopping dividends.Thats good in the longer term as they will come back with them from a lower base.WPP for instance was going to pay 60p,but likely when they resume it will be 40p,or even 30p.Not nice if you were buying at £12,but at £4.77p your probably getting at the start of the cycle.

Most CEOs will use this chance to reset divis and cut debts.They divert cash and is one of the big drivers of a debt deflation.

Of course thats another reason why government has to step in and pump.

[TheCountOfNowhere]

My BP shares are in profit today :-)

Nothing else is tho :-(

Took a punt on Easyjet as I expect a LARGE bailout of airlines.

Anyone any thoughts on Purple Bricks  ?  Down about 92% from peak

[DurhamBorn]

@Harley good to see BASF top rated,iv been buying them for their position for the next cycle,so nice to see your work on them.They are a fantastic company.Pretty much the only bits we bought in for engines and didnt make ourselves came from them.The other in the sector i like not on your list is Solvay SA.