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

[sancho panza]

12 hours ago, DurhamBorn said:

Since when was cheap oil bad for an economy?.It is the Fed holding the markets up,but thats exactly how they work.They first inject into the capital markets,and that then enters the real economy.This time they also have government injecting massive fiscal amounts.The equity markets do still look very expensive given where we are,but there are very cheap areas within the market.There are big falls to come,but markets arent linear.Once they see the cycle ahead will be industrial they will pivot.There is lots of dislocation to come,but not all equity based.Southern house prices and bonds will take a lot of the pain .

Remember the basis of this thread was credit for companies is going to become expensive and not available for many.Pricing power is coming back,surviving this stage is key of course.

 

S&P market cap roughly $22trillion

Apple $1.2tn,

MSFT $1.3tn

AMZN $1.2tn

Google $835bn

FB $500bn

Loads of S&P stocks are on the floor as you say.

 

 

2 hours ago, Majorpain said:

Friend just posted this on FB, TUI desperately clinging to what cash it has in the bank!  I can see this paper promise business getting nasty in all sectors.

Any friends who do business with Countryiwde or another chain EA? Can't be long before they feautre in the collapse thread.

1 hour ago, DurhamBorn said:

You have to feel for these companies though,governments forcing them to lose all their equity.I was thinking earlier.I own a few Card Factory.They are forced to close,Tesco over the road and Home Bargains both sell cards but are open.How can the government justify that?.They are in affect coming to my house stealing my capital and giving it to Tesco.There will be lots of angry people out there for lot of different reasons,but mostly it comes down to the government getting the virus action all wrong.Still flying in from New York yet Tui cant sell a holiday to Benidorm.

Absolutely.They'll be picking apart the govt's policy response to this crisis for years in clinical terms ie shutting hospitals to non covid patients who need treatment and economically ie costs associated with economic dislocation.

Imperial College paper that changed govt policy will be an interesting read.See graph above.

 

50 minutes ago, Bricks & Mortar said:

Have Card Factory actually been forced to close?  Sure, we had government ministers SAYING "all non-essential shops". 
But, as far as I can see, no changes were made to the The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020.  At least, as printed on http://www.legislation.gov.uk/uksi/2020/350/contents/made
That legislation only forced cafes, hairdressers, pubs etc to close.

Are we so far down the road that police are enforcing the whim of government ministers, without an actual law to back it up?

A lot of businesses closed because they would have had no customers or staff.It was a fait accompli.

I,personally, think the police went too far during this,particularly cracking down on people minding their own business on public parks trying to get a break from their flats.

[sancho panza]

5 minutes ago, Cattle Prod said:

Just on that lot Sancho, EQT and CNX are two of the biggest risers over the last month. This is because they are Marcellus focussed shale gas players, and as I suggested a few weeks back, a shale oil shut in and/or production cut is extremely bullish for natural gas in the United States. Probably too late for an entry, but these could easily double or triple by the autumn. The shale oil production cut is going to be far i excess of the ~1.9mbpd I last calculated - the rig count decline is extremely steep, and the legacy production decline is far, far higher than in 2016. This is just natural decline from not drilling wells, shut ins will be ontop of this. Could easily see a 4m bpd production drop in the US this year.

They've doubled or tripled since March 20......wow.This all goes back to your 'cure for cheap oil is cheap oil' quote.Your prediction coming true....

I sold these two along with a raft of oil service plays in early feb,cut my company count in oilies/services from about 30 to 9.I broke even on the trades overall and was able to plug that into RDSB etc at the bottom.

 

I'm looking to up our exposure to a broader cross section of the sector but going to use call options.Tried getting XOM last night but the prices were higher than last week ....

Have you a view on Devon,Parsley,Concho,Continetal? Ovintiv?

By the way,was looking at OXY/SLB and the calls are pricey.Noon'es givning much away here.

[Bricks & Mortar]

44 minutes ago, Talking Monkey said:

Not sure why Ex BP CEO is saying what he is saying. With the supply destruction taking place and the inevitable return to regular economic activity, the tightrope of supply/demand balance will reappear at a  much lower pricepoint than before the lockdown/slowdown. The worlds capacity to add green energy sources to replace oil is a multi decade endeavor. 

Maybe when they roll out folks to opine on shit the desire to conform and go along with the prevailing narrative is huge, along with the fact trying to explain a contrarian position to a most likely feeble minded journalist would be a non starter so the easy option of going along with the prevailing narrative is taken

I don't think a return to regular economic activity is inevitable, or even likely, until we get a vaccine, or herd immunity.  The population seems intent on avoiding the virus, so herd immunity could be a while.  They've been working on an HIV/AIDS vaccine since 1981.
Government could end the lockdown soon enough.  But the public will stay BA Baracus about air travel for a long time.
Who commutes a couple hours each way for a job?  It's your office workers.  Manual work is typically lower paid, and more physically demanding, so your manual worker lives closer to the work.  A lot of office workers are going to be requesting home work after this, and the bosses will comply because the ones going back want the magic 2 metres.
That's before we get to the millions of jobs that just aren't coming back.
International trade looks set to be curtailed, with tariffs, and 'bringing jobs home'.

For me, it's all adding up to structurally lower demand for oil, going forward.  And of course, lunatic governments organising bailouts for oil companies isn't going to help.
I mean, sure, eventually, there'll be an oil shortage.  I'm saying I think the after-effects of coronavirus are pushing that time point out into the future.

[Majorpain]

29 minutes ago, Democorruptcy said:

On the BBC today they did a piece with a travel "expert" chap from Which and 2 Tui customers wanting refunds. The chap said the governbankment should create a fund to give customers all their money back. 

Have I got that right? My taxes are supposed to bail out a travel firm with HQ in Germany and hotels in such as Spain and Greece etc. OK Tui employ some staff in the UK and reps abroad but redeploy them in staycations in this country and the holidaymakers would be boosting our economy not Spain, Greece etc. Thomas Cook wasn't much of an advert for a taxpayers propping up holiday firms.

Yes, its a s**t sandwich alright and its a matter of if the Government or holidaymakers are going to take a bite.  I dont think ATOL have anywhere near enough to cover this type of damage.

*edit

ATOL is actually government run, i think we have found out who the patsy is going to be.  Taxpayer to the rescue!

[Bricks & Mortar]

Searching, on Ebay, for a fuel tanker.  I was intrigued by suggestions someone might try to get one or more of these contracts and just store the oil in their yard or something.  The difference in these two searches is quite something.

UK
https://www.ebay.co.uk/sch/i.html?_from=R40&_nkw=fuel+tanker&_sacat=0&_sop=16

USA
https://www.ebay.com/sch/i.html?_from=R40&_nkw=fuel+tanker&_sacat=0&_sop=16

[sancho panza]

41 minutes ago, Cattle Prod said:

Just on that lot Sancho, EQT and CNX are two of the biggest risers over the last month. This is because they are Marcellus focussed shale gas players, and as I suggested a few weeks back, a shale oil shut in and/or production cut is extremely bullish for natural gas in the United States. Probably too late for an entry, but these could easily double or triple by the autumn. The shale oil production cut is going to be far i excess of the ~1.9mbpd I last calculated - the rig count decline is extremely steep, and the legacy production decline is far, far higher than in 2016. This is just natural decline from not drilling wells, shut ins will be ontop of this. Could easily see a 4m bpd production drop in the US this year.

Just had a reread of thsi CP because I was obviously thinking of my investmetns first

We've discussed the shale patch a lot and the fact that the legacy decline can be quite steep and also once shut they're nopt easy to reopen.SOunds like carnage up there.4mn bpd cut is -to my untrained eye-extremely bullish for oil non?

What per centage of shale production is 4mn?

Will there be much left worht having?

[Transistor Man]

33 minutes ago, Bricks & Mortar said:

Searching, on Ebay, for a fuel tanker. ........ The difference in these two searches is quite something

Is it a naming difference, I wonder?

[DurhamBorn]

3

23 minutes ago, Cattle Prod said:

Not quite Sancho, the three I mentioned are pure gas players. You get gas by drilling for it, or by drilling for oil and getting gas as a by product (associated gas, or ass gas as its fondly known...). The huge increase in shale oil production, (which increasingly becomes gassier), and its associated gas, has been depressing the pure gas players in Appalachia. That process is now being reversed, sharply. I first posted about this the day of the first big capitulation in oil, when I noticed gas was up on the day. I bought call options shortly after which are doing well, but I didn't think to buy the pure gas players which would have been nice to have tax free in my ISA.

The names you mention are shale oil heavy, and not for me. They will bounce hard for sure, but may not be long term winners/survivors.

I bought Southwestern and its up 70%.I had another ladder hit and i failed to buy it so only have a small holding.I would of had a bigger holding but put extra in Shell and BP at the time.The reason i bought Southwestern is because Ray Dalio had bought a lot in his fund so i picked it as a gas play.

[DurhamBorn]

14 minutes ago, Cattle Prod said:

Good post, B&M, certainly possible. Question I'm asking myself is "what are China and India going to do?" If they do what you outline above, I'd agree with structurally lower demand, as that is where most demand growth is going to come from. EU/USA were declining demand already. One challenge to your thesis is that onshoring, rebuilding infrastructure, more intensive agriculture and rebooting manufacturing are massively oil and gas intensive. I think this will offset reduced car journeys in the West, for this cycle at least.

That said, John Browne is 72, and I am pretty much screening out comments from those in the 'high risk' group for Bat Flu. I'm increasingly thinking that the reaction to this thing and future plans for it are being driven by self preservation and fear of death among the decision makers of the world. A final parting gift from the Baby Boomers, destroy the place on the way out, why don't you? I'm early 40s, fit etc so I'm trying to mentally put myself 30 years forward: I see that all my behaviours and attitudes to the virus and the lockdown would change. I think this explains a lot of the disconnect between my generation, who still need to work and accumulate, and the one above, who are largely making the decisions, and want to shut up shop. Whatever about money, in the face of death, the survival instinct can make the best of people sociopathic nutters. They don't give two shites about the deaths of despair, stunted education and skills, or missed hospital treatments for the generations below them.

Both BP and Shell have done big gas deals with China in the last week.Industrial cycles drive massive demand growth for energy.Less car journeys will be a drag,but small compared to the massive industrial investment coming.

I think as well the people driving policy mostly have state pensions and state wages.They dont care about other people.In fact they can use their certain income to buy up assets of people in the private sector.Them and the welfare class dont care at all.They will though as the cycle they are helping create gets going.

[janch]

3 hours ago, DurhamBorn said:

I own a few Card Factory.They are forced to close,Tesco over the road and Home Bargains both sell cards but are open.How can the government justify that?.

Yes, I've been thinkingthe same and it applies to other goods too  eg plants/seeds are available in Wilkos yet the garden centres are closed.  Here Card Factory is in a small shopping mall which has closed completely. so no business.

Luckily I have shares in Tescos as well

[sancho panza]

 

40 minutes ago, Cattle Prod said:

Not quite Sancho, the three I mentioned are pure gas players. You get gas by drilling for it, or by drilling for oil and getting gas as a by product (associated gas, or ass gas as its fondly known...). The huge increase in shale oil production, (which increasingly becomes gassier), and its associated gas, has been depressing the pure gas players in Appalachia. That process is now being reversed, sharply. I first posted about this the day of the first big capitulation in oil, when I noticed gas was up on the day. I bought call options shortly after which are doing well, but I didn't think to buy the pure gas players which would have been nice to have tax free in my ISA.

The names you mention are shale oil heavy, and not for me. They will bounce hard for sure, but may not be long term winners/survivors.

Informative CP.It's one of the reasons I sold up our XOP/FCG/OIH plays back in Feb, very fractured markets where a couple of characteristics can make the difference between ten bagging and going bust.I jsut felt I didn't have the knowledge or udnerstandign to paly those games and was out of my depth.I preffered to load up on the big oilies-possibly a risk in itself-as the way of steering us through.

 

Interestingly,jsut had the following from my dad who used to work in the chemicals side of XOM.

'ExxonMobil (unlike BP, Shell and others) still has a chemical arm. That runs counter cyclical to the oil as fuel business. Low feedstock costs (because of low oil prices) mean huge profits selling stuff such as polyethylene. '

and I was jsut sat here deciding where to try and put our last 1% into the oil markets.........

[MrXxxx]

3 hours ago, Majorpain said:

Friend just posted this on FB, TUI desperately clinging to what cash it has in the bank!  I can see this paper promise business getting nasty in all sectors.

When will people learn to make these purchases with a credit card, that way until the `product` is delivered its their money and not yours...you can be guaranteed that TUI wouldn't be able to give Visa/Mastercard the runaround like this and got away with it.

[Option5]

For the those of you wanting a sensible view of the oil market I recommend you hop over to Malcy's blog.

https://www.malcysblog.com/2020/04/oil-price-petrotal-dgo/

[sancho panza]

42 minutes ago, Cattle Prod said:

Good post, B&M, certainly possible. Question I'm asking myself is "what are China and India going to do?" If they do what you outline above, I'd agree with structurally lower demand, as that is where most demand growth is going to come from. EU/USA were declining demand already. One challenge to your thesis is that onshoring, rebuilding infrastructure, more intensive agriculture and rebooting manufacturing are massively oil and gas intensive. I think this will offset reduced car journeys in the West, for this cycle at least.

That said, John Browne is 72, and I am pretty much screening out comments from those in the 'high risk' group for Bat Flu. I'm increasingly thinking that the reaction to this thing and future plans for it are being driven by self preservation and fear of death among the decision makers of the world. A final parting gift from the Baby Boomers, destroy the place on the way out, why don't you? I'm early 40s, fit etc so I'm trying to mentally put myself 30 years forward: I see that all my behaviours and attitudes to the virus and the lockdown would change. I think this explains a lot of the disconnect between my generation, who still need to work and accumulate, and the one above, who are largely making the decisions, and want to shut up shop. Whatever about money, in the face of death, the survival instinct can make the best of people sociopathic nutters. They don't give two shites about the deaths of despair, stunted education and skills, or missed hospital treatments for the generations below them.

Picture paints a 1000 words.I repost it,because I think it put things in perpsective.How many millions have been affected mentally or health/wealthwise by the shut down?

In a year or more,there is a chance that the annual death rate may appear to have been within normal parameters .

 

[DurhamBorn]

1 hour ago, sancho panza said:

 

Informative CP.It's one of the reasons I sold up our XOP/FCG/OIH plays back in Feb, very fractured markets where a couple of characteristics can make the difference between ten bagging and going bust.I jsut felt I didn't have the knowledge or udnerstandign to paly those games and was out of my depth.I preffered to load up on the big oilies-possibly a risk in itself-as the way of steering us through.

 

Interestingly,jsut had the following from my dad who used to work in the chemicals side of XOM.

'ExxonMobil (unlike BP, Shell and others) still has a chemical arm. That runs counter cyclical to the oil as fuel business. Low feedstock costs (because of low oil prices) mean huge profits selling stuff such as polyethylene. '

and I was jsut sat here deciding where to try and put our last 1% into the oil markets.........

https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-new-technology-to-enable-circularity-for-unrecyclable-pet-plastic-waste.html

BP interesting in the above.

BP also expanding PTA and just signed another big deal and invested into the company in China as well,

https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-deepens-partnership-with-chinese-pet-producer-crc-seeking-opportunities-for-closer-cooperation.html

[Bricks & Mortar]

2 hours ago, Transistor Man said:

Is it a naming difference, I wonder?

I thought that was reasonable.  And I went off to try several other words, like 'bowser', 'gasoline' 'trailer' etc.  I noted, on the link I supplied, there were all kinds of scale models and toys, all described as 'fuel tanker', so I think that's what they're calling them.

I don't suppose it matters much, really.  They may have a dedicated platform the trade uses instead of ebay.

But I'll be looking out for pollution incidents over next few weeks though.  Oil spills into streams, or filling up of underground cave systems...

 

[Transistor Man]

4 minutes ago, Bricks & Mortar said:

I thought that was reasonable.  And I went off to try several other words, like 'bowser', 'gasoline' 'trailer' etc.  I noted, on the link I supplied, there were all kinds of scale models and toys, all described as 'fuel tanker', so I think that's what they're calling them.

I don't suppose it matters much, really.  They may have a dedicated platform the trade uses instead of ebay.

But I'll be looking out for pollution incidents over next few weeks though.  Oil spills into streams, or filling up of underground cave systems...

 

I would guess Buffett and the BNSF oil trains are full.

[JMD]

5 hours ago, DurhamBorn said:

You have to feel for these companies though,governments forcing them to lose all their equity.I was thinking earlier.I own a few Card Factory.They are forced to close,Tesco over the road and Home Bargains both sell cards but are open.How can the government justify that?.They are in affect coming to my house stealing my capital and giving it to Tesco.There will be lots of angry people out there for lot of different reasons,but mostly it comes down to the government getting the virus action all wrong.Still flying in from New York yet Tui cant sell a holiday to Benidorm.

Yep. And some are calling (jokingly of course, after all we don't want to scare the horses) Covid-19 the 'Plan'demic!

I guess it might simply be an example of - never let a crisis... etc, etc... but still quiet dispiriting, and to me rather frightening - because if this is what's really happening then nobody(?) appears to have noticed.

[JMD]

On 21/04/2020 at 16:08, Transistor Man said:

From the perspective of the electronic properties of graphene, Id take a look at TSMC, if you haven’t already. No bargain, as they’re the world’s number 1 foundry.

But they are excellent at introducing the technology boosters, at the right time, and in a low risk way. With Apple paying for it.

Graphene and other 2D materials are on their near term technology roadmaps.

Intel too, but they’ve lost a bit of their manufacturing touch recently. 

Good discussion about graphene here recently. And some good individual companies mentioned. But for me probably too risky to try to select small pioneer type companies as I don't understand enough about the graphene industry. 

So i've been looking into a less risky approach to getting some exposure to graphene. Apparently tech companies - Samsung, Nokia, IBM, have done lots of research into graphene and have many patents. My thinking is that if there is a future big market correction I will attempt to buy these shares if they get cheaper.

Does anyone have comments about doing this strategy, or perhaps alternative ideas, re. getting graphene exposure without buying startup companies? 

[JMD]

On 18/04/2020 at 15:19, DurhamBorn said:

Yes there is a risk,though i think its more if the Fed doesnt do enough.They have un-limited ability to print and the government have un-limited ability to spend.

The consumer is finished so there is no need for a strong currency to aid in keeping import prices down.The spending will be from government and that will kick in inflation.

We should see spending/debt shoot higher from govenrments,CBs keep monetizing,capital markets sniff inflation so start to push prices up of real assets,that then makes the market allocate the liquidity to industrial areas and feed the inflation.

Very difficult given the nature of how the cycle ended, though in lots of ways much better, because governments have been handed a once in a lifetime chance to inject massive amounts, pull back supply chains etc

DB, a weak currency is good for exports, but I meant to ask earlier, is it also beneficial for the US to 'remove the US dollar' from being the world's reserve currency? It used to be beneficial politically/economically for America to operate the reserve currency, but is that still the case?

Do you have thoughts on the requirement for having a replacement reserve currency (if the US dollar is indeed 'downgraded'), i.e. does the modern global trading world today even need a reserve currency, if for example the global oil trade is not as important in future (oil trade wont evaporate overnight of course), and where domestic energy production is instead increasingly focused on the renewables/nuclear? 

[Democorruptcy]

3 hours ago, janch said:

Yes, I've been thinkingthe same and it applies to other goods too  eg plants/seeds are available in Wilkos yet the garden centres are closed.  Here Card Factory is in a small shopping mall which has closed completely. so no business.

Luckily I have shares in Tescos as well

Wilko sell some food but I thought it was largely confectionary? Maybe their pet food also counts for them to stay open?

Market stall traders will be losing customers long term to Home Bargains and B&M.

[Democorruptcy]

4 hours ago, Majorpain said:

Yes, its a s**t sandwich alright and its a matter of if the Government or holidaymakers are going to take a bite.  I dont think ATOL have anywhere near enough to cover this type of damage.

*edit

ATOL is actually government run, i think we have found out who the patsy is going to be.  Taxpayer to the rescue!

ATOL holders pay a fee of £2.50 for each traveller. The fund won't be big enough but that should be used first? Then increase the fee, which presumably will be added to the holiday cost, so travellers pay, instead of everybody?

[sancho panza]

40 minutes ago, Cattle Prod said:

It's a great point - I think XOMs chemicals unit, if hived off, would be one of the biggest chemicals companies in the world! I have to confess I blind myself to the downstream operations, as upstream is my job. I need to pay more attention now that I am fully invested.

Does it maybe hint at bumoer years looming for the chemical companies @Harley was talking about some pages back? I bought oru first BASF not long after.I'll ask my Dad who the big players worth watching are but he's been retired for ten years so may be a little off the pace.

[Jesus Wept]

1 hour ago, JMD said:

DB, a weak currency is good for exports, but I meant to ask earlier, is it also beneficial for the US to 'remove the US dollar' from being the world's reserve currency?

Anyone have any thoughts on Evraz? 

[Errol]

GDX at 5yr+ highs.

GDX and GDXJ are going to be insane when gold is $5000+.