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


spunko

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10 hours ago, sancho panza said:

Rolls Royce situation deterirorating as they've contracted work out to subbies they're going to have to pay over next few years no matter what.

1500 of the best jobs in Derby gone,6000 out of 9000 worldwide going be in UK.

The impact of these job losses will be felt across the Mids.

https://www.theguardian.com/business/2020/jun/03/rolls-royce-locations-uk-job-losses-derby-redundancy

The Rolls-Royce chief executive, Warren East, suggested last month that about two-thirds of the 9,000 job cuts would fall in the UK, with another 3,000 redundancies expected in 2021.

Before the job cuts were announced, Rolls-Royce employed 52,000 staff globally. As well as making and servicing commercial jet engines, it also makes fighter jet and ship engines in addition to reactors for nuclear submarines. However, it said there would be no job losses at its defence business.

Rolls will be fine in the long run, they have too much cutting edge tech in the right areas for the government to let them go without a fight.  Its getting that tech into a marketable product that has historically been the UK's weak spot.

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jamtomorrow
17 minutes ago, Majorpain said:

Rolls will be fine in the long run, they have too much cutting edge tech in the right areas for the government to let them go without a fight.  Its getting that tech into a marketable product that has historically been the UK's weak spot.

Will be interesting to see how small-scale nuclear pans out for them: https://www.newcivilengineer.com/latest/plan-for-small-nuclear-reactors-in-uk-this-decade-28-01-2020/

Entirely logical step for Rolls, given their position in nukes for marine propulsion.

Government look ready to get behind it with policy if it has legs: https://www.gov.uk/government/publications/advanced-nuclear-technologies/advanced-nuclear-technologies

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16 minutes ago, ThoughtCriminal said:

BP expecting low oil prices for 30 years. 

 

https://www.bbc.co.uk/news/business-53047894

As the BBC never link their sources:

https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-revises-long-term-price-assumptions.html

BP forecasting an average price of $55 a barrel for 2021-2050. That's some telescope they are using to look into the future. The 2050 timescale is just because that fits in with the target to be carbon neutral by then. 

 

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Fully Detached
1 hour ago, MrXxxx said:

People always have money, its what they choose to spend it on...if its through direct taxation they won't have a choice.

I'm not so sure. I guess they could jack up council tax or something of that nature, but we live in a world where many people decide how much debt to take on based on the affordability of the monthly payments. Those probably aren't people who can afford an extra £500 a year taxation at the same time as the cost of living is going up and their job security or real earnings are evaporating.

At the very least they'll bitch and whine so vocally that the govt will go after softer targets.

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ThoughtCriminal
41 minutes ago, Wheeler said:

As the BBC never link their sources:

https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-revises-long-term-price-assumptions.html

BP forecasting an average price of $55 a barrel for 2021-2050. That's some telescope they are using to look into the future. The 2050 timescale is just because that fits in with the target to be carbon neutral by then. 

 

Yeah. And I’d say $55 average is VERY low given we’re expecting to see brutal inflation over the next decade.

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Talking Monkey
9 minutes ago, ThoughtCriminal said:

Yeah. And I’d say $55 average is VERY low given we’re expecting to see brutal inflation over the next decade.

Any idea why they putting stuff like this, they must know inflation will rocket in coming years

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1 hour ago, Wheeler said:

As the BBC never link their sources:

https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-revises-long-term-price-assumptions.html

BP forecasting an average price of $55 a barrel for 2021-2050. That's some telescope they are using to look into the future. The 2050 timescale is just because that fits in with the target to be carbon neutral by then. 

 

"Everyone rush out and buy another ICE car, cheap fuel for all!"

Until it isn't...

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1 hour ago, AlfredTheLittle said:

Is that why they paid the full dividend? They seem to be a bit of a mess

They will probably cut the dividend,but i cant speak for anyone else,but the price i paid for them a 50% divi cut i priced in.My aim over the cycle is to outpace inflation,1% would be fine,3% compounded fantastic.My road map says inflation over the cycle will be around 80%,it could be 65%,or 120% on outliers.I bought BP on average at £2.66.If they cut the divi in half thats still 6.5% a year to me on my purchase price.Compounding if the shares were the same price and the divi remained at the new level would return me 87% over the cycle.If they can increase the cut in half divi by just 1% a year my return increases to 106%.If the shares also increase by an average of 1% a year then BP return me 126% return,

So if BP cut the divi in half,then manage to increase it by just 1% a year for 10 years and the shares also go up 1% a year for ten years my investment goes up 126% while my road maps outlier for inflation is 120%

My portfolio is tilted to companies who will follow that pattern,because i fully expect them to outperform my numbers,if we do indeed get a reflation cycle.

Solid cash flow companies who cut the dividend,but their massive share price falls have already priced it in are probably the best areas to be buying at cycle turns.

There is also the fact the big oilies would very much like to cut off the finance to smaller frac companies etc.Its a bit like when i used to import Firepits.If anyone also importing asked my did they sell well ,good profit etc,i used to tell them,they used to,but not now,hardly any profit,i probably wont import any after iv sold these etc.If iv a product to sell and an area im invested in i dont want capital coming in,i want it left to me who already has the invested capital,because that way my return on capital rises with the inflation.

 

 

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1 minute ago, Craig said:

"Everyone rush out and buy another ICE car, cheap fuel for all!"

Until it isn't...

Big oil will use a lot of the profits coming to peg down electric,own the producing assets anyway,and also invest in getting hydrogen as the main transport energy.

I get all excited when the MSM and almost everyone gets stuck on a narrative and have zero understanding of where the macro situation is pointing.Gas,but also oil will be one of the best performing assets of the cycle ahead.A big part of my oil road map relies on governments investing in green projects etc,because building them all is going to take a massive amount of energy.

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22 minutes ago, DurhamBorn said:

Solid cash flow companies who cut the dividend,but their massive share price falls have already priced it in are probably the best areas to be buying at cycle turns.

Been screening them yesterday and today!  Looking for good operating cash flow record and good dividend coverage (history of dividends payable out of operating cash flow).  Need then to look at any dividend cuts.

As an aside, noticed quite a change in quick ratios and debt to capital ratios.  I would expect the latter to increase with lower equity values but some have gone the other way and the quick ratios have risen. Will do a deep dive.    

PS:  And on cue, just looked at Kraft, the third largest Food Producer in the stock markets I can access.  Dividends only covered by operating cash flow in 2 of the last 5 years!  Maybe the repayment of capital from divestment though.

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Talking Monkey
23 minutes ago, DurhamBorn said:

They will probably cut the dividend,but i cant speak for anyone else,but the price i paid for them a 50% divi cut i priced in.My aim over the cycle is to outpace inflation,1% would be fine,3% compounded fantastic.My road map says inflation over the cycle will be around 80%,it could be 65%,or 120% on outliers.I bought BP on average at £2.66.If they cut the divi in half thats still 6.5% a year to me on my purchase price.Compounding if the shares were the same price and the divi remained at the new level would return me 87% over the cycle.If they can increase the cut in half divi by just 1% a year my return increases to 106%.If the shares also increase by an average of 1% a year then BP return me 126% return,

So if BP cut the divi in half,then manage to increase it by just 1% a year for 10 years and the shares also go up 1% a year for ten years my investment goes up 126% while my road maps outlier for inflation is 120%

My portfolio is tilted to companies who will follow that pattern,because i fully expect them to outperform my numbers,if we do indeed get a reflation cycle.

Solid cash flow companies who cut the dividend,but their massive share price falls have already priced it in are probably the best areas to be buying at cycle turns.

There is also the fact the big oilies would very much like to cut off the finance to smaller frac companies etc.Its a bit like when i used to import Firepits.If anyone also importing asked my did they sell well ,good profit etc,i used to tell them,they used to,but not now,hardly any profit,i probably wont import any after iv sold these etc.If iv a product to sell and an area im invested in i dont want capital coming in,i want it left to me who already has the invested capital,because that way my return on capital rises with the inflation.

 

 

Great post DB that 120% top end inflation over the next 10 years, that is going to be horrific for the average person. In a basket of goods measuring that inflation would the food component  more or less hit that 120% percentage or would the food part far exceed it. I'm trying to conceptualise how that rise in inflation would be seen in day to day life through the years. If say electrical goods go insane well no big thing one can forgo the big new telly, or new electric car etc.

On the BP thing it defo feels they're talking it down to cut of financing to smaller competitors

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16 minutes ago, Talking Monkey said:

Great post DB that 120% top end inflation over the next 10 years, that is going to be horrific for the average person. In a basket of goods measuring that inflation would the food component  more or less hit that 120% percentage or would the food part far exceed it. I'm trying to conceptualise how that rise in inflation would be seen in day to day life through the years. If say electrical goods go insane well no big thing one can forgo the big new telly, or new electric car etc.

On the BP thing it defo feels they're talking it down to cut of financing to smaller competitors

The 120% is the outlier,im expecting around 70% to 80% as the most likely.The outlier takes in inflation hitting 24% in 2028 or 29.

Iv just actually worked out my average cycle oil price.So from now until June 30.BP say $55,i say average $114,mostly tilted to the back end of the cycle of course.

I notice BP didnt mention gas prices,;)

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22 minutes ago, DurhamBorn said:

The 120% is the outlier,im expecting around 70% to 80% as the most likely.The outlier takes in inflation hitting 24% in 2028 or 29.

Iv just actually worked out my average cycle oil price.So from now until June 30.BP say $55,i say average $114,mostly tilted to the back end of the cycle of course.

I notice BP didnt mention gas prices,;)

Actually they did - from the press release:

"bp’s revised investment appraisal long-term price assumptions are now an average of around $55/bbl for Brent and $2.90 per mmBtu for Henry Hub gas ($2020 real), from 2021-2050."

Though I don't know how they compare to their previous estimates!

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https://www.lay-z-spa.co.uk/inflatable-hot-tubs.html

Hot tub website so busy they have had to put a traffic limiter on it, not the first time i've heard about wild hot tub demand so i'm going to take an educated guess that most of the UK's furlough money is not being spent on essentials!  Made in China obviously....

Thankfully its a Swedish bank that's doing the 0% financing, another countries problem when it all goes bang and the redundancies hit later this year.

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1 hour ago, Wheeler said:

Actually they did - from the press release:

"bp’s revised investment appraisal long-term price assumptions are now an average of around $55/bbl for Brent and $2.90 per mmBtu for Henry Hub gas ($2020 real), from 2021-2050."

Though I don't know how they compare to their previous estimates!

Well on gas i think we will see easily double that on average.I see gas going over $10 late in the cycle.

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1 hour ago, Majorpain said:

https://www.lay-z-spa.co.uk/inflatable-hot-tubs.html

Hot tub website so busy they have had to put a traffic limiter on it, not the first time i've heard about wild hot tub demand so i'm going to take an educated guess that most of the UK's furlough money is not being spent on essentials!  Made in China obviously....

Thankfully its a Swedish bank that's doing the 0% financing, another countries problem when it all goes bang and the redundancies hit later this year.

My daughter has four friends on tax credits/DLA kids on for ADHD etc and they have all bought hot tubs in the last few months,plus gazebo's to go over them.I dont know anyone working/furloughed but job who has though.

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2 minutes ago, DurhamBorn said:

My daughter has four friends on tax credits/DLA kids on for ADHD etc and they have all bought hot tubs in the last few months,plus gazebo's to go over them.I dont know anyone working/furloughed but job who has though.

The poor neglected trampolines 

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