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

[sancho panza]

19 minutes ago, DurhamBorn said:

@Democorruptcy nuts,what is their Finance director doing? why would you index link over that period.The only reason they would is if they expect long term deflation.

jsut realsied you're talking about UU.Need to read all the thread first.

[DurhamBorn]

4 minutes ago, sancho panza said:

can you explain DB?I thought those are nominal sums not index linked?

Looks like coupon is index linked,

[Democorruptcy]

I've only gone and caused some chaos!

RDSB = Fixed

UU = Index linked then next Fixed

[Democorruptcy]

12 minutes ago, sancho panza said:

I jsut wouldn't come across this type of newsflow in my daily reading so much appreciate the heads up.When you piece it all together and below ref the debt profile.The investment picture jsut gets better and better.

SImply stunning.I remember it was a psot of your a year or two back that first got me looking through Vodafone debt profile.

It's beyond incredible that they're floating 32 year bonds off at 1.75% with CPI(I know,I know) at 1.6%........................when infaltion gets to 5%+ which it going to at some point they'll be buying that back for 40% of face value if they don't let it run further down which is what I'd do.

I didn't bother posting links because if you have an account at HL you can set email alerts about individual companies and get company news or when they go ex-dividend. These 'final terms' for debt are emailed as company news. They are also listed on the HL company page in their 'News' tab e.g. RDSB

Re the long dated debt, it's good, depending on what they do with it. I'd like them to buy some assets that are income producing in the future. Not use it for more share buybacks!

[Democorruptcy]

39 minutes ago, DurhamBorn said:

@Democorruptcy nuts,what is their Finance director doing? why would you index link over that period.The only reason they would is if they expect long term deflation.

UU's reply went along the lines of OFWAT allows them to increase prices if inflation rises. Therefore they allocate half their debt to index linked terms. If they went all fixed rate they see it as gambling on which way rates would go and their investors want secure returns rather then something based on speculation. The current magnitude of a 0.1% base rate seemed lost on them. It's throwing money away to me but maybe they think if they make too much profit it would be taken in a governbankment windfall tax?

[Majorpain]

Quote

Meanwhile, here is something to study. China has announced it plans to boost its strategic commodities reserves to assuage anxiety over energy and food security. Starting in 2021, it will make what Bloomberg calls “mammoth” purchases of crude, strategic materials, and farm goods, officials apparently say. This is being done to ensure China can ride out any repeat of this year’s supply disruptions, or a deterioration in trade relations with the US, for example. This is apparently part of the shift to “internal circulation”, or greater self-reliance, which is already being flagged, and which will kick in for the five year plan 2021-25.

Actually, those in the know know that this has already been happening across the board for some time: China has been swallowing up raw materials and strategic goods far in advance of what the economy needs right now. That means the drop in other imports --which are still down y/y overall even including this commodity surge-- is even larger. (And why aren’t FX reserves rising even as the trade surplus soars…? Mmmm.)

Here’s the understudy way to study this: go long commodities! - because obviously China buying in vast quantities for years to come, right? Expect lots of stories like that.

Looks like the Chinese have nailed their colours to the mast, commodity wise the reflation cycle is heading in the right direction for us.  Nice to see a "G Brown" is advising them on telling the market what your going to do in advance as well.

[Chewing Grass]

3 minutes ago, Majorpain said:

Looks like the Chinese have nailed their colours to the mast, commodity wise the reflation cycle is heading in the right direction for us.  Nice to see a "G Brown" is advising them on telling the market what your going to do in advance as well.

Sounds more like they are stocking up for war.

[Majorpain]

3 minutes ago, Chewing Grass said:

Sounds more like they are stocking up for war.

Not necessarily, and even if they are its not worth losing sleep over if you cant do anything about it.

[DurhamBorn]

56 minutes ago, Cattle Prod said:

Either way, they'll be very aware that oil is what brought Japan into the WW2, the reason for their invading Indonesia, was their Achilles heel throughout, and ultimately their downfall. Zeros were running on refined pine needles toward the end, if memory serves ("The Prize", D. Yergin). Poor trees.

Plus the fact they could end up in a border war with India,with the west proxy helping India.

[Errol]

2 hours ago, Chewing Grass said:

Sounds more like they are stocking up for war.

If they stock up enough, they could also suspend buying certain items from particular nations for a year or so. Interesting tool to have at your disposal.

[Castlevania]

13 hours ago, Democorruptcy said:

1.75% for 32 years maybe they should open a residential mortgage lending arm?

I have some UU and had a moan at them about this one in July. Why index link debt for 20 years while rates are so low?

Their August one was fixed rate.

 

All the water companies inflation link their debt because their revenues are tied to inflation. 

[wherebee]

7 minutes ago, Castlevania said:

All the water companies inflation link their debt because their revenues are tied to inflation. 

yes, when rates are high, fine, but if you can fix at 2%, ties to inflation, or 3% fixed for 40 years, I refuse to believe under any circumstances the latter is not better.

[Castlevania]

35 minutes ago, wherebee said:

yes, when rates are high, fine, but if you can fix at 2%, ties to inflation, or 3% fixed for 40 years, I refuse to believe under any circumstances the latter is not better.

Then you risk becoming an outlier and being “too profitable”. Far easier to do as your rivals do and keep your cushy well paid job.

[Democorruptcy]

2 minutes ago, Castlevania said:

Then you risk becoming an outlier and being “too profitable”. Far easier to do as your rivals do and keep your cushy well paid job.

As I posted later I think the "too profitable" and a fear of a windfall tax (or nationalisation) must be the reason. I suppose 50/50 is as far as they dare go. If they know OFWAT will let them raise prices to offset inflation having cheaper debt is free money. They could have cut customer prices to offset some profit or just not put them up as much.

[Castlevania]

20 minutes ago, Democorruptcy said:

As I posted later I think the "too profitable" and a fear of a windfall tax (or nationalisation) must be the reason. I suppose 50/50 is as far as they dare go. If they know OFWAT will let them raise prices to offset inflation having cheaper debt is free money. They could have cut customer prices to offset some profit or just not put them up as much.

Yeah there’s the risk of the government via the regulator deciding they’re too profitable and doing the let’s save £2 a month on your water bill trick, whilst your council tax goes up by 5% a year.

It should be noted that the water utilities are quite active in the swaps market, so they can and do to an extent synthetically convert their interest payments as they see fit.

[Lightscribe]

12 hours ago, DurhamBorn said:

Plus the fact they could end up in a border war with India,with the west proxy helping India.

Great, so king of the south vs king of the north, biblical prophecy unfolds, next stop Armageddon. There was me just wanting silver to get to the previous $50 ATH. 

[DurhamBorn]

1 hour ago, Castlevania said:

Yeah there’s the risk of the government via the regulator deciding they’re too profitable and doing the let’s save £2 a month on your water bill trick, whilst your council tax goes up by 5% a year.

It should be noted that the water utilities are quite active in the swaps market, so they can and do to an extent synthetically convert their interest payments as they see fit.

Its incredible isnt it how governments have almost destroyed some industries forcing down a few quid a month while letting council tax explode.Of course most of the damage on council tax was done under Blair and Brown,massive increases.My partner is a nurse in the community and works for the council,all her bosses etc are "working" from home.They are in fact doing next to nothing on full pay,yet you dont notice much out in the community.Councils could be stripped down by a minimum of 50% i think.The big problem though especially in Labour councils is they see government paying peoples council tax through benefit so see no reason to keep it down.My home town has the lowest house prices in the UK,yet one of the highest council taxes.Someone on the minimum wage in my hometown pays 8% of their gross pay on council tax alone.Amazon paid 2% total tax on their gross.

[DurhamBorn]

Germany's Hydrogen strategy.

https://www.cleanenergywire.org/factsheets/germanys-national-hydrogen-strategy

This is the interesting part for me,Shell are sealing up the big wind off The Netherlands and of course Repsol is involved in solar .

"The EU has high-yield sites for wind energy in the North Sea in particular, and in Southern Europe there is great potential for photovoltaics and wind. These potentials can represent a great opportunity for the production of renewable hydrogen in the long term. The well-developed European gas infrastructure can also offer points of contact for the transport of hydrogen."

[jamtomorrow]

On 08/09/2020 at 22:32, Loki said:

Fascinating that - the last time I looked at Nikola they were a vapourware firm with no product, no sales, but a stock market symbol.  So Cummins see them as a competitor now? 

Shame the truck is called the 'Badger' and has one of those massive daft touchscreens or I'd quite fancy one

Blimey @Loki, that's quite some timing there. Less than 24h later and Hindenberg dropped their expose/hatchet-job*

(* delete as appropriate per your preferred conspiracy)

https://hindenburgresearch.com/nikola/

Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America

(I won't paste anything other than the title, since this one has litigation written all over it)

[DoINeedOne]

1 hour ago, DurhamBorn said:

The well-developed European gas infrastructure can also offer points of contact for the transport of hydrogen.

 

[DurhamBorn]

10 minutes ago, DoINeedOne said:

 

How to play this is the bit we need to get right isnt it.At the moment iv been buying the big oilies as i think they offer massive potential due to the cash they will throw off during the cycle,but there will be other ways as well on top.Is there a way to play that pipeline model?.

Energas controls Spains gas grid and Spain is likely to be a big producer of Hydrogen through Repsol because of their solar potential,but also wind.They need quite a big pipeline putting in though to link up to Lyon in France,but the Bordeaux route is much smaller and storage Aquifer's are close.

Iv just bought a few Energas to open a position.

Gasunie would be the other that really interests me as it is placed to carry hydrogen from Shell etc,but its owned by the government and we cant invest.

Others are similar.Can anyone spot a way to buy any of the others mentioned?

[DoINeedOne]

18 minutes ago, DurhamBorn said:

How to play this is the bit we need to get right isnt it.At the moment iv been buying the big oilies as i think they offer massive potential due to the cash they will throw off during the cycle,but there will be other ways as well on top.Is there a way to play that pipeline model?.

Energas controls Spains gas grid and Spain is likely to be a big producer of Hydrogen through Repsol because of their solar potential,but also wind.They need quite a big pipeline putting in though to link up to Lyon in France,but the Bordeaux route is much smaller and storage Aquifer's are close.

Iv just bought a few Energas to open a position.

Gasunie would be the other that really interests me as it is placed to carry hydrogen from Shell etc,but its owned by the government and we cant invest.

Others are similar.Can anyone spot a way to buy any of the others mentioned?

It was the PDF i found interesting "Who Owns All The Pipelines"

https://corporateeurope.org/sites/default/files/2019-09/1_English_TSO web.pdf

Enagás (Spain), Fluxys (Belgium), GRTgaz (France) and Snam (Italy) are Europe’s four biggest gas transporters (TSOs), owning infrastructure across the continent and beyond. Together they own more than half of the EU’s LNG terminals and over 100,000km of pipeline, with new projects planned: 6,200km of pipeline and at least one more LNG terminal are under construction.

Need to sit down this weekend and read up some more on this

[DurhamBorn]

The question is of course these gas pipeline companies might simply replace gas for hydrogen (or more likely a mix),so be no more profitable than now.However the market is probably pricing them as in slow decline so the fact they might be able to not be in decline,but in fact gain inflation increases in charging on a high value fixed asset is the key.While unlikely to provide big profits,they could easily return a compounding 12% once inflation kicks in (divi+ share increases) and thats likely double the cycle inflation rate.

[stoobs]

If NG pipeline networks were to switch to Hydrogen at some point, I assume that would have to happen all at once.

I'm confused how that will mesh with the consumer end which will be ramping from 100% NG to 100% Hydrogen over a period of maybe a decade.

[wherebee]

Well, just bought a load of Shell.  It's dipped to the lowest it's been since 1995.  I was going to sit on the sidelines with my cash but I could not resist it.  

I'll either be very happy, or having to explain to the family in ten years why it is spam again for tea.