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

[TheCountOfNowhere]

38 minutes ago, headrow said:

So a network of hydrogen pipelines would have to built from the hydrogen production centre at Drax? Would these pipelines be sent to the big industrial sites along the Humber?

I presume they would build the hydrogen facility at the North End of the Drax site , huge amount of spare land available.

Would they be terrorist targets? 

[Transistor Man]

6 hours ago, Bobthebuilder said:

For electrons moving at the speed of light, 40 miles isnt to far.

The “signal” .... energy out, after closing a switch .....yes,  that can approach the speed of light. 

The electrons themselves move along a lot slower than that. Much less than micrometer per second.

In an systemAC system, they never really get anywhere.

Slight correction..... I wish I hadn’t written this now. Thermal velocity of the electrons must be very high.

[Loki]

3 minutes ago, TheCountOfNowhere said:

Would they be terrorist targets? 

We gave up a lot of freedom to be kept safe from Terrrrrrsts so yeah probably  Or a good old false flag

[Bobthebuilder]

12 minutes ago, Transistor Man said:

The “signal” .... energy out, after closing a switch .....yes,  that can approach the speed of light. 

The electrons themselves move along a lot slower than that. Much less than micrometer per second.

In an systemAC system, they never really get anywhere.

Ta, you get my point though i expect.

Off topic but with your name i must say i find capicitor discharge units really interesting and electronics in general.

[Transistor Man]

15 minutes ago, Bobthebuilder said:

Ta, you get my point though i expect.

Yes, I get your point. The delay between energy in and out, that’s going to be ~ speed of light.

[sancho panza]

12 hours ago, Castlevania said:

Mainly hype. Since the financial crisis there’s been a load of legislation that have made derivatives far safer. Most derivative contracts now require daily posting of collateral. For uncollateralised derivatives you have to hold a load more capital which disincentives writing them and all the big banks have derivative counterparty exposure trading desks that hedge their uncollateralised derivative risks. In addition when dealing with other banks all the contracts have to go through central clearing houses which mitigates a lot of the risk.

Derivatives played a big part in the financial crisis, this time around I don’t think it’s a problem. The place to look is at the loan books of said banks, there’s a lot of money that’s been lent that will never be paid back.

Have you any idea where the big derivatives exposures are...commodities,forex,CDS etc?There are so many.

Interesting to lookat what were once the royal blue blood banks and wonder what went wrong.I'm with you here CV,I think there are a lot of debts that wil default.Hopefully in an orderly fashion

[sancho panza]

8 hours ago, Talking Monkey said:

With the consumer dead I wonder what the high street/retail will evolve to over the next few years. I'm guessing we will see an ever increasing number of empty units. The huge number of takeaways and restaurants we see in every town and city will shrink back. I'm guessing a lot of retail at the medium to high end will go.

AT the right price those units will get used agoain.The problem for the LL's and the banks that have loans on them is that the new pricing will be way south of where their loans sit.

I can see small shops making money but only if they're paying next to no rent.Next to no rent is better than no rent.

8 hours ago, Democorruptcy said:

How does the governbankment pull off all this unlimited spending without a lot of it going into wages to get the things done? If it goes into wages why are consumers dead? Workers spend their wages?

AS I've written previously,the refaltion psot 08 was done by forcing lending throughthe systemThe problem for the banks was that the poeple who stepped up to borrow more and spend more weren;'tthe people the CB's were after.Driving rates low was meant to get savers spending.Instead it genereally had the effect of encourging those whowill likely never pay laons back to borrow more.

Wrong sort of eaves on the line etc.

51 minutes ago, Transistor Man said:

The “signal” .... energy out, after closing a switch .....yes,  that can approach the speed of light. 

The electrons themselves move along a lot slower than that. Much less than micrometer per second.

In an systemAC system, they never really get anywhere.

Slight correction..... I wish I hadn’t written this now. Thermal velocity of the electrons must be very high.

Even thouhg I don't understand more than the odd word,tat psot still made me laugh

[Barnsey]

As we continue to witness WTI in a death spiral (futures closed gap down within first few minutes tonight), how far out in years can bus and rail operators hedge fuel costs?

[Bear Hug]

2 hours ago, Barnsey said:

As we continue to witness WTI in a death spiral (futures closed gap down within first few minutes tonight), how far out in years can bus and rail operators hedge fuel costs?

$16.77 !!!

Edit: $14.55 now

Is this some sort of derivative event?!

 

 

Tomorrow could be my "big" BP/Shell buy in LISA at this rate.

[Castlevania]

6 hours ago, sancho panza said:

Have you any idea where the big derivatives exposures are...commodities,forex,CDS etc?There are so many.

Interesting to lookat what were once the royal blue blood banks and wonder what went wrong.I'm with you here CV,I think there are a lot of debts that wil default.Hopefully in an orderly fashion

There are a few things to consider with derivatives in that if collateral is posted daily to the present value then almost all the counterparty credit risk is mitigated.

Derivatives are simply contracts to exchange cash flows. You then present value those future cash flows which gives you a value for the derivative, a MTM.

You only have an exposure if that derivative is likely to have a positive MTM to you in the future. If that derivative has a negative MTM and the counterparty defaults, then you just tear up the contract and hand over the MTM to the defaulted counterparty.

So as a general rule the longer the time until the derivatives matures then the bigger the potential exposure, due to the number of future cash flows. So due to the fact they can have a long duration the biggest exposures are likely to be in interest rate derivatives and due to exchanging notionals at the outset which leaves a large cash flow at maturity in cross currency swaps.

[Bricks & Mortar]

Comment deleted.  What I said had already been said in the above comments.

[Bear Hug]

42 minutes ago, Cattle Prod said:

Front month contract expiry is today.

Thanks. That's very interesting - huge move but no impact on share prices so far. 

[TNS]

15 minutes ago, Bear Hug said:

Thanks. That's very interesting - huge move but no impact on share prices so far. 

Indeed, I was expecting a big shell and bp drop but amazingly both are up!

[Loki]

@Cattle Prod thanks a lot for explaining that, I can remember reading the posts where oil would hit a very low price but only for a short time. 

[Loki]

20 minutes ago, Cattle Prod said:

I can't remember the exact target in the teens he had

I believe it was $18, I actually have it written down on a post it 

>$280 next...

[Democorruptcy]

7 hours ago, Bear Hug said:

$16.77 !!!

Edit: $14.55 now

Is this some sort of derivative event?!

 

 

Tomorrow could be my "big" BP/Shell buy in LISA at this rate.

DB said $14

[DurhamBorn]

57 minutes ago, Cattle Prod said:

I'm no expert, I'm sure @MvR could explain it much better. But my read is that most people are out of the current contract, and there are no buyers, no one wants to be in it, so it drops like a stone in a super contango situation like we have today. The contracts a few months ahead probably better represent what the market thinks the price should be, so Shell et al are not getting dumped. Of course if this continues, the same thing will happen next month.

When discussing this with @DurhamBorn as a possibility, I recall him saying "if it hits x (I can't remember the exact target in the teens he had) it will be in the front month contract only, and then only for a short time, days or weeks". That might well be coming to pass now. Of course this has happened before, like in 2016, but the options expiry is hidden in weekly/monthly candles as a spike low.

Edit, contract expires tomorrow, not today.

My target (when oil was $61) on the deflation road map was $15.60 with an outlier of $11.So its hit target and gone under by a buck.It would be driven by the paper market fronting it.Thats come to pass.Incredible call if i say so myself.Road map is now saying $33+ on WTI by late summer.

The interesting thing is i think this is the low for oil until the economy stops using it in high quantities so probably 2050/60 with another big dip down from the $200/$300+ levels in 28/29.That outlier of $11 is there still,but not buy signal areas.

The drivers should see oil higher than target by the end of the cycle.The way this has played out is even better for the integrated oilies.Mainly because they can at least keep pumping and push through their own downstream outlets.E+P companies have nowhere to send the oil and will be removed from the market.

Id expect the integrated to hold up ok from here,unless oil stays this low for over 6 months.Gas could prove very interesting in the US next winter as production might drop from the shale oil regions.

[DurhamBorn]

10 hours ago, Barnsey said:

As we continue to witness WTI in a death spiral (futures closed gap down within first few minutes tonight), how far out in years can bus and rail operators hedge fuel costs?

4 usually,but remember it will be rolling usually.The hedges will be hurting at the moment though.

[TheCountOfNowhere]

https://twitter.com/premnsikka/status/1251851133905182720?s=20

[MvR]

11 hours ago, Barnsey said:

As we continue to witness WTI in a death spiral (futures closed gap down within first few minutes tonight), how far out in years can bus and rail operators hedge fuel costs?

You can trade the futures out to 2029, but the market is extremely illiquid.  In practice I assume they'd use some combination of nearer month futures and options and roll these over month by month as DB suggests, though I don't know the exact strategy they'd use. 

Edit:  This guy, Pete Mulmat has a good futures education show on TastyTrade every day around 5pm UK time. I've really only dabbled with futures so far so I'm far from an expert, but this guy is great at explaining the intricacies and dynamics of the futures market. This particular show from Friday focuses on oil. ( from about 33 minutes onwards ). 

https://www.tastytrade.com/tt/shows/splash-into-futures-with-pete-mulmat?_sp=6f683744-e525-4bbe-9d92-8dd89adef054.1587374896450

[DurhamBorn]

Its to be remembered oil isnt down there because people dont want it,its because they cant store it.People cant take delivery,so the market smells blood and forces  them to sell at any old price.If you could store it you would be buying heavy.

Its actually showing the dislocation that we expected across many areas,and why dislocation leads to inflation later.

[DurhamBorn]

15 minutes ago, TheCountOfNowhere said:

https://twitter.com/premnsikka/status/1251851133905182720?s=20

Just a whining champagne socialist Count.What he calls for would be the worst thing ever to hit the bottom half of society.Look at his tweets,just an idiot.

Morals can be argued mid cycle,at this stage its pump or collapse.

[Noallegiance]

Oil $13 handle!

DB, to watch your calls play out time after time is really a privilege to witness.

Well done.

[Talking Monkey]

1 hour ago, DurhamBorn said:

Its to be remembered oil isnt down there because people dont want it,its because they cant store it.People cant take delivery,so the market smells blood and forces  them to sell at any old price.If you could store it you would be buying heavy.

Its actually showing the dislocation that we expected across many areas,and why dislocation leads to inflation later.

DB looking at the increasing clamor to come out of lockdown around the globe as more and more people realize the huge long term damage being done the longer we stay locked down, I get the impression the low teens price of oil is going to be very short lived, so back up to over 20 in a couple of weeks as the pace of the economy restarting picks up, then a slower rise up to 33+ by late summer

[TheCountOfNowhere]

Jesus....11.45  ( that's the oil price, not the time ).

Buy more oil today or at the end of the week ?