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

[Harley]

5 minutes ago, Popuplights said:

ExxonMobil calling....

?

[wherebee]

So - I'm about to get a tax refund from a nice overseas government.

I think some more Shell will be in order.

In for a penny, in for a pound.  I would have gone BP but that wokeness squared video recently didn't exactly please my thoughts on the quality of management.

[Majorpain]

7 hours ago, sancho panza said:

I get what youre saying there MP but I think there's I think the markets looking the worng way here and for me it looks like an opportunity that comes along once in a blue moon.

Assuming demand sticks to the EIA curve below(I'd tend to bet on over rather than under shoot),I don't think markets are factoring in the extent of US decline which is what @Cattle Prod might have been referring to earlier.

100% agree, I got lucky and sold PM for RDSB/BP/Repsol this week, the risk/reward at these levels was too good to miss.  Hopefully the dividends over the next 10 years will pay for all my car expenses!

[MrXxxx]

5 hours ago, Popuplights said:

I know, the thought of those poor bastards smoking themselves to death cheers me up no end.

No the Coronavirus will get them first being smokers!

[DurhamBorn]

42 minutes ago, Cattle Prod said:

Sentiment, in my view. Like most markets, but oil is very sentiment driven. And in terms of the paper market, the traders I've met don't really understand oil or energy in the example I gave and have never worked in the industry. The physical traders understand it much better. The stocks like XOM, BP, Shell don't have the 'coalface' physical traders supporting them, and are also subject to retail sentiment.

Plus the ESG attack on there companies is real, alot of the green noise you hear from them is in response to big funds divesting from fossil fuel stocks. Its a real concern at board level. It'll all go away when funds want some of the growing cashflows, of course.

Exactly and sentiment is about as bad as you can get.Its a huge part of macro contrarian investing.People simply project something they hear as facts.The irony is its usually a fantastic time to own something when its in slow decline,as long as you kee ahead of the bottom end of the curve.

When kerosene was discovered everyone stopped investing in whaling boats etc,new ones.Yet even though supply slowly fell the price of whale oil actually shot up and remained higher for 20 years.

The key to the sector for people buying now is that the companies will probably through off 3 times their worth over the cycle in cash flow.The question is really only if that capital is miss-allocated.Some will be,some green projects will be low return.

Big oil is going to find itself doing deals with other big companies to supply their energy needs.Shell has just done one with Microsoft.

My inflation target for the cycle is around 69% with the risk of two years at the end on 10%+.From these levels the big integrated oilies only need to stay where they are and hold their cut in half (or two thirds for Shell) dividends to just about cover that.

[DurhamBorn]

One part of the inflation call,maybe the biggest part was always the thought that the debt deflation when it arrived would make governments fear unemployment more than inflation.I hadnt seen that said anywhere outside of this thread,and it would of been seen as ludicrous in western capitalist countries.However it has proved true,and government are now walking down the line that delivered the 70s reflation.There have been a lot of people coming onto the thread worrying about small draw downs when macro strategy isnt about getting timing perfect,its about getting the direction of travel in the dis-inflation/inflation timeline right.

https://www.msn.com/en-gb/money/news/chancellor-to-launch-a-winter-economy-plan-to-prevent-a-tsunami-of-job-losses/ar-BB19mxwv?li=BBoPWjQ&ocid=mailsignout

And the source added: "What remains true is that our priority is one word: jobs."

[Harley]

Something about the UK Budget cancelled or postponed.  Why?

PS:. Government seems to prefer statutory instruments to debates and votes in the house!

[Harley]

46 minutes ago, DurhamBorn said:

There have been a lot of people coming onto the thread worrying about small draw downs when macro strategy isnt about getting timing perfect,its about getting the direction of travel in the dis-inflation/inflation timeline right.

Not small and not reflation stocks, but no worried either!

[JMD]

1 hour ago, DurhamBorn said:

Exactly and sentiment is about as bad as you can get.Its a huge part of macro contrarian investing.People simply project something they hear as facts.The irony is its usually a fantastic time to own something when its in slow decline,as long as you kee ahead of the bottom end of the curve.

When kerosene was discovered everyone stopped investing in whaling boats etc,new ones.Yet even though supply slowly fell the price of whale oil actually shot up and remained higher for 20 years.

The key to the sector for people buying now is that the companies will probably through off 3 times their worth over the cycle in cash flow. The question is really only if that capital is miss-allocated. Some will be, some green projects will be low return.

Big oil is going to find itself doing deals with other big companies to supply their energy needs. Shell has just done one with Microsoft.

DB, you asked recently about energy co's gas reserves, and in terms of 'finding an edge' to future potential return that is def. something i consider. The other component, that in my opinion might be even more important, is what you state above relating to how the energy co's invest their capital.

I think you and others have mentioned this aspect before. But do you have say a 'top 5' list of co's that are/most likely to make the right strategic 'green investment' decisions?

...Actually, this got me thinking, are there any other metrics people here use to weight their allocation to individual energy stocks?

[DurhamBorn]

44 minutes ago, Harley said:

Something about the UK Budget cancelled or postponed.  Why?

PS:. Government seems to prefer statutory instruments to debates and votes in the house!

I think the BOE will of told them they will monetize the debt to be issued.Fed have told the US exactly that,though the US seem to be too busy fighting over everything but.Taxes wont do what is needed anyway,its way past that now,only inflation will help repair the damage,of course that will create its own disasters.

CBs fill the pipes,government then spend,free market then allocates where that liquidity goes after the first actor.

I think the structural deficit is heading over £150 billion.

UK net worth is maybe £11 trillion,government need to inflate above trend by around 4% to cover that deficit pa over the cycle.

[DurhamBorn]

3 minutes ago, JMD said:

DB, you asked recently about energy co's gas reserves, and in terms of 'finding an edge' to future potential return that is def. something i consider. The other component, that in my opinion might be even more important, is what you state above relating to how the energy co's invest their capital.

I think you and others have mentioned this aspect before. But do you have say a 'top 5' list of co's that are/most likely to make the right strategic 'green investment' decisions?

...Actually, this got me thinking, are there any other metrics people here use to weight their allocation to individual energy stocks?

I tend to follow a similar pattern to @sancho panza in that i spray and pray.Iv tried to spread across areas/countries though.Repsol because they have great access to South America ,large natural gas and a good sized renewables business already.Shell because i think they should do very well with gas,and also hydrogen if it takes off.

BP im a bit torn,sometimes i like the plan,sometimes i dont.Im a bit worried that they will use share buy backs when the shares are much higher and im worried they will sell off good assets too early.However i also really like their positioning and as i think oil and gas will go parabolic at some stage in the cycle less shares should see bigger gains and exit points for us.

At the moment im putting all divis coming in into the sector as long as brent is under $45.

 

 

[JMD]

2 hours ago, DurhamBorn said:

One part of the inflation call,maybe the biggest part was always the thought that the debt deflation when it arrived would make governments fear unemployment more than inflation.I hadnt seen that said anywhere outside of this thread,and it would of been seen as ludicrous in western capitalist countries.However it has proved true,and government are now walking down the line that delivered the 70s reflation.There have been a lot of people coming onto the thread worrying about small draw downs when macro strategy isnt about getting timing perfect,its about getting the direction of travel in the dis-inflation/inflation timeline right.

https://www.msn.com/en-gb/money/news/chancellor-to-launch-a-winter-economy-plan-to-prevent-a-tsunami-of-job-losses/ar-BB19mxwv?li=BBoPWjQ&ocid=mailsignout

And the source added: "What remains true is that our priority is one word: jobs."

But is today's 'Winter Economy Plan' temporary or will it become permanent, with its major component part - the job protection policy - becoming a virtual UBI?

I have said here before that i thought workers would 'eventually' (the covid response has accelerated all kinds of changes) be encouraged to go part-time with government topping up their income via UBI payments; this would have the additional benefit of spreading the increasingly rare jobs of the future around. And todays policy announcement (with its encouragement for p/t, other bells/whistles) looks suspiciously like this will happen... Different/interesting times? 

 

DB, not sure if you agree with my above conclusion? But if this was instigated across all work sectors (high and low paying jobs?), with the 3-million furloughed being only the first tranche of workers affected - would this be inflationary or deflationary?   

 

[DurhamBorn]

Just now, JMD said:

But is today's 'Winter Economy Plan' temporary or will it become permanent, with its major part - the job protection policy - becoming a virtual UBI?

I have said here before that i thought workers would 'eventually' (the covid response has accelerated all kinds of changes) be encouraged to go part-time with government topping up their income via UBI payments; this would have the additional benefit of spreading the increasingly rare jobs of the future around. And todays policy announcement (with its encouragement for p/t, other bells/whistles) looks suspiciously like this will happen... Different/interesting times? 

 

DB, not sure if you agree with my above conclusion? But if this was instigated across all work sectors (high and low paying jobs?), with the 3-million furloughed being only the first tranche of workers affected - would this be inflationary or deflationary?   

 

I think a UBI is certain and needed the problem is it would be much lower than what large parts of the country get now in benefits.Selling it because of that will be very difficult.It would be inflationary because there would be much more liquidity in the system.

I think the government are making a disaster of covid,probably the biggest disaster since Suez,but their fiscal response is actually pretty good if dis-jointed.

[JMD]

11 minutes ago, DurhamBorn said:

I tend to follow a similar pattern to @sancho panza in that i spray and pray.Iv tried to spread across areas/countries though.Repsol because they have great access to South America ,large natural gas and a good sized renewables business already.Shell because i think they should do very well with gas,and also hydrogen if it takes off.

BP im a bit torn,sometimes i like the plan,sometimes i dont.Im a bit worried that they will use share buy backs when the shares are much higher and im worried they will sell off good assets too early.However i also really like their positioning and as i think oil and gas will go parabolic at some stage in the cycle less shares should see bigger gains and exit points for us.

At the moment im putting all divis coming in into the sector as long as brent is under $45.

Thanks DB, thats useful. As per your earlier comment about market price movements in this sector, they don't particularly bother me because it is the late 2020's i'm 'looking toward' (though not necessarily 'looking forward to', if things do unwind as some say they will?!). But i do find it helpful to periodically sanity check what i'm doing with the oil stocks, because they are by far my biggest sector holding (though maybe equal to my PM's perhaps). In fact as other sectors look so expensive i find i am slowly buying more and more. 

I am well diversified in the energy stocks but some intelligent tweaking(?) i think is worth considering. For example I assume we will have the opportunity and scope, during early cycle, to sell/reduce one oil major and swop for another (especially if this didn't entail capitol loss, wishful thinking perhaps), if say an oil company was investing into the 'wrong green assets' - as i believe for the next couple years most financial commentators and/or institutional investors(the big money) will still be looking the wrong way concerning the energy co's?

[Castlevania]

The new wage subsidy is a lot less generous than the furlough scheme. I expect a lot of job losses.

[Democorruptcy]

28 minutes ago, Castlevania said:

The new wage subsidy is a lot less generous than the furlough scheme. I expect a lot of job losses.

It seems to be aimed at creating lots of part time workers instead of say sacking one worker and keeping one on. Instead of an employer paying all of a full time person's wage, they want them to use 2 or 3 subsidised workers. Largely aimed at keeping unemployment figures down.

[Castlevania]

1 minute ago, Democorruptcy said:

It seems to be aimed at creating lots of part time workers instead of say sacking one worker and keeping one on. Instead of an employer paying all of a full time person's wage, they want them to use 2 or 3 subsidised workers. Largely aimed at keeping unemployment figures down.

However. The employer has to pay a worker in 1/3 of the time 55% of his salary. With the government topping up a further 22%.

I’d keep on one worker full time and make two redundant.

[Democorruptcy]

4 minutes ago, Castlevania said:

However. The employer has to pay a worker in 1/3 of the time 55% of his salary. With the government topping up a further 22%.

I’d keep on one worker full time and make two redundant.

I would employ just one person if I could persuade them to do the work of three. The problem is there are a lot of hours to fill during the week, to keep a place open

Say an employer pays £19,500 for 39 hours, that's it for one worker

The governbankment want them to use 3 for 13 hours. Each costs £6,500 for hours worked and £4,290 as a subsidy. Governbankment also pays each £4,290 so employee gets £15,080 or 77%

The employer has to pay £32,370 for the 39 hours.

This excludes national insurance etc.

 

[DoINeedOne]

10 minutes ago, Cattle Prod said:

That's amazing. I must read The Prize again to try and understand why people kept paying for whale oil. 

If you prefer video documentary 

[Popuplights]

9 hours ago, Harley said:

?

Sorry, was a bit pissed last night. What I mean was that EM are borrowing to pay the divi.

[Castlevania]

20 minutes ago, Democorruptcy said:

I would employ just one person if I could persuade them to do the work of three. The problem is there are a lot of hours to fill during the week, to keep a place open

Say an employer pays £19,500 for 39 hours, that's it for one worker

The governbankment want them to use 3 for 13 hours. Each costs £6,500 for hours worked and £4,290 as a subsidy. Governbankment also pays each £4,290 so employee gets £15,080 or 77%

The employer has to pay £32,370 for the 39 hours.

This excludes national insurance etc.

 

That’s almost £13k more than sacking two and keeping one person.

Alternatively if one person would struggle to do the work of three working a third of the time, then having two people work 50% of the time is a cheaper alternative than keeping three people hired.

 

[Democorruptcy]

Just now, Castlevania said:

That’s almost £13k more than sacking two and keeping one person.

Yes, I was agreeing with what you said and providing the figures, if an employer could get away with just one employee there's no incentive to keep 3 on. It depends how many workers they need to keep a place open and how viable the business is longer term.

 

[wherebee]

well after watching the oilies slide down again I nearly doubled my shell and XON.  beans or beefsteak?!

[reformed nice guy]

Gold staying around 1870is, silver at 22.5 which is down another 2% or so

Yet PM miners seem to be holding steady.... thats interesting

[DoINeedOne]

Ex BT, Vodafone and others advising the government via a taskforce

https://telecoms.com/506622/ex-bt-ceo-to-chair-uk-governments-anti-huawei-taskforce/