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

[Democorruptcy]

15 minutes ago, NogintheNog said:

Out of interest just checked this out in my AJ Bell SIPP. Looks like their systems are set up to know what your original investment has actually cost you with all fees included. I started this SIPP after a transfer back in March and have two tranches of GSK, all in costs were £2019.91 and £4015.53. As you can see this tallies up!

Not so impressed with having no access yesterday, but saying that my ships had already sailed

That would also show up correctly at HL because it's just buys. The share P/L and so portfolio value, is not correct when you have both bought and sold the same share. The price they then use to calculate the "cost" column is not a true reflection of what that share actually cost you.

[jamtomorrow]

Was listening to Tian Yang on one of the recent MacroVoices pods, talking about energy and commodities in the coming reflation.

I *loved* the Spotter's Guide to investing opportunities, especially the clarity with which he highlighted opportunity to focus on sectors with long lags between price stimulus and supply response (because the longer the lag, the longer the incumbents get to cream FCF at supply-constrained prices).

We've covered that concept at some length for oilies, but I got to wondering what other sectors have that same characteristic. 

Nuclear is an obvious one, typically decades from policy ideation to generation. But I'm finding it hard to identify incumbents that own enough nuke generating capacity to qualify as a "nuke" play.

What about distillates, and petrochemical products more generally? World's gonna want a lot of plastics when this reflation gets going. What's the price stimulus -> supply response lag like for, say, plastics production?

From my ignorant outsider vantage point, refinery and petrochemical production capacity doesn't seem the sort of thing you throw together in the space of a few months.

[Yellow_Reduced_Sticker]

20 hours ago, Loki said:

"No money back, no guarantee"

 

SORRY ...But I couldn't resist, but when you posted that statement above i could ONLY think of 1 thing...my OLD time FAV comedy program Only Fools and Horses!

 

 

AnyHOO, I know full well what HL are like when there's market volatility, and ya can't trade, HL are utter hopeless ***ts especially to the replies to ya complaining emails!

 

Don't WORRY some things happen for a reason, and for SURE this time next year we'll ALL be Millionaires!!!  (in other words 2028!)

 

[Lightscribe]

Picked up my full allocation of Rolls Royce at 32p, happy enough there.

PMs gradually averaging in on CEY, suffered a sizeable drop a month or so back and the drop in PMs will send it further so happy to get back in there after selling profits for oil stocks. Eurasia still holding up there, awaiting the sale, Impact didn’t do so bad either, but temporarily out  of that for the moment. I’ll see how low the pullback goes to add in on FRES.

I think the hype of the vaccine will be short lived with the logistics and actually getting people to take it. With the political upheaval and unrest going forward  I imagine these will spring back up.

Now blue in Repsol, and Shell and BP in some accounts. XOM still behind 15-20% there but all in good time. 

I’ve done pretty well in BTC obviously but that’s not to be touched. The ‘alt season’ will be upon soon (ETH, Chainlink, XMR) will start to move up to match BTC ratio which always leads. 

All in all a good year for me. But all I’m really interested in is generating enough capital so I can be financially free of this corrupt system as soon as possible in an increasingly anti self-reliant economic future. I see it as a race against time before they pull the rug from under everyones feet, raid pensions/savings and move goalposts to impossible levels.

 

[Bobthebuilder]

Sorry to keep banging on about Hydrogen, but received an email from gas safe today stating Hydrogen mixed with natural gas at 20% is going to be trailed in Winlaton area of Gateshead, 668 homes from early 2021.

Its happening quick.

[AWW]

9 minutes ago, Bobthebuilder said:

Its happening quick.

Yep. Greening is now mainstream. This can only be a good thing. It means that the Marxists who've used greening as an excuse to implement Communism aren't at the controls anymore - business is. And businesses that want to make money will find pragmatic ways of becoming greener.

[sancho panza]

22 hours ago, JMD said:

So what your saying is SP: the 'health warning' on the packet applies to the company as well as their products? ...Next thing you'll be telling me is that my strategy of only buying companies 'too big to fail' is not failsafe!!!

I remember when RBS had a market cap of £70bn....................................people laughed at me selling up at £4 down from £5.

Didn't stop me piling into the Scottish play with first ladder at £2.That's where the Sancho Coma Scale was born...

Fwiw,I lead the table on here for highest price for the Scottish play.,

21 hours ago, DurhamBorn said:

I think we might see a massive credit event,maybe derivative driven that smashes the market lower,but some of the prices UK and European shares went and still are lower than i thought they would be even after a massive crash.There isnt enough liquidity yet to ensure a full on reflation,but i expect lots more to come yet.It is possible we get a sector rotation,but there is still massive exposure to bad debts coming in the financial sector.

It's always worth pointing out during these discussions for newer readers that there are some sectors and/or shares that actually prosper and rise during a market wide 70%drop.

21 hours ago, JMD said:

Thanks very much SP for the information. I went through my telecoms the other day and realised that i didn't have enough exposure to the US, so i'll go back and have another look see.   

I'd be careful with US telecoms.There's only 3 big mobile operators AT&T,Verizon,T-Mobile(chart very toppy)

Small regional telecoms might be a few too pick through.As I understand it,a lot of their network infrastructure is old.But I could be wrong.

[sancho panza]

1 hour ago, Bobthebuilder said:

Sorry to keep banging on about Hydrogen, but received an email from gas safe today stating Hydrogen mixed with natural gas at 20% is going to be trailed in Winlaton area of Gateshead, 668 homes from early 2021.

Its happening quick.

COuld the issue be more about teh large scale production of H rather than the technology for using it?Genuinely asking the question here if anyone knows.How far are we from large sale production?

[Wahoo]

1 hour ago, Sideysid said:

 

I’ve done pretty well in BTC obviously but that’s not to be touched. The ‘alt season’ will be upon soon (ETH, Chainlink, XMR) will start to move up to match BTC ratio which always leads. 

 

Agreed but I reckon ETH is facing big difficulties again. The DeFi market is going to shift away from ETH because the cost of gas is getting too high and transaction times are sluggish.

MATIC is interesting. Layer 2 DeFi under-development. Basically highly scalable, instant transactions and cheap. It's a hard-fork off ETH using PoS checks.

If you're looking for a possible big earner, find a Layer 2 Defi project.

Just now, Wahoo said:

Agreed but I reckon ETH is facing big difficulties again. The DeFi market is going to shift away from ETH because the cost of gas is getting too high and transaction times are sluggish.

MATIC is interesting. Layer 2 DeFi under-development. Basically highly scalable, instant transactions and cheap. It's a hard-fork off ETH using PoS checks.

If you're looking for a possible big earner, find a Layer 2 Defi project.

And one using Chainlink as the Oracle.

[Wahoo]

7 minutes ago, sancho panza said:

COuld the issue be more about teh large scale production of H rather than the technology for using it?Genuinely asking the question here if anyone knows.How far are we from large sale production?

You've got two possibilities. 

1. Pass natural gas (methane) over hot china catalyst

2. Produce from electrolysis of water using platinum electrodes.

1 is cheap....but what's the point?  You might just as well just burn the methane.

2. Is  expensive but doable with solar I guess.

Hydrogen is a very problematic gas. 

[sancho panza]

20 hours ago, Cattle Prod said:

I think it's just what DB said - stretched like rubber bands, beyond all logical reason. It's an interesting ratio to watch though, as the stocks can lag the price a little, as they are paying out dividends while cashflow has to catch up, and sentiment can take a while to turn. Your question set me thinking (which is why I enjoy posting here):

This is the XLE ETF, to represent large integrated oil companies as a % of the Brent price (most of their sales are in Brent world), compared to Brent price (teal). What I think I see is that the crosses (circled red) mark the start of a bull market. (you can squeeze the scales to make another red circle in 2009, but this gives you a false signal in 2015. This is cleaner I think, the 2009 low was a short lived liquidity driven event). This is logical: during oil price crashes, the large integrated companies share price rise relative to the price as they can still make money refining, retail etc. They soften the extremes of the price crash, like in 2002, 2016, or 2020. When the XLE/Brent ratio crosses back under Brent price, the bull run begins. 

During a bull run like 2009-2015, the XLE/Brent ratio is broadly flat: i.e. the companies track the oil price up. That didn't happen in the mini-bull from 2017-2019, so shares in XLE companies lagged price during those years. Maybe shareholders didn't quite like the macro narrative: back to the perception of infinite shale supply. We are now back down to the long term average ratio (red line, roughly), so I don't see much more room for negative sentiment. What I want to see from here is this ratio running flat as price increases. I notice that the ratio turns up in 2014 into 2015, maybe shareholders are getting greedy, worrying about peak oil and ignoring the coming 2015 wave of supply. Could be a leading indicator to watch for at the end of this cycle too. Also note that XLE lagged price from 2007 to 2009, as DB said we want a slow grind up rather than a spike. Shareholders didn't really buy the 2007-2009 spike, and XLE went from a price of 20% less than Brent ($60) to 40% less than Brent ($90) during that time. 

The last time the ratio was at this level, at this price, was Sept 04. Nearly hit it at the 2009 lows, but not quite. So oil stocks are still cheap relative to price, and I think we are somewhere around 2003/2004 in this bull run.

Note as well the period Mar 02 to Mar 03: price rose and stocks first fell at first during that period, just as they have for the last 6 months.Then XLE stayed flat, remarkaby, through a sharp 32% price correction, and even gained a little. The all time low for XLE was in July 2002, marking this switchover. And most economists think we are rational!

Just some thoughts, DYODD etc

Interesting chart CP.I lawyas remember when someone (DB??) posted the futures chart for gold in 2018 showing commercials were net long.First time I'd seen it.

and the historical perpsective shows how rare that was.Key pooint is that some of these rarely looked at charts give some amazing signals.

We've had a couple from you in the regasrd of late

1) brent/wti.Which I need to study more

2) backwardation versus contango-which I need to study more but it looks like it calls the dtart of a bull as backwardation begins

3) and then the above.

We know from the data that the last three recessions have all been preceded by 50% plus rises in oil price.Problem we have here is sorting out a sensisble bottom(I realsie some will say well march was the bottom but you pays yer money and I'm not putting mine on at that price.I'm looking at Brent Oil and saying maybe $35-$40.Giving an approximate target of $60 for me.I suspect it will shoot higher.previous recessions have seen the following.piccies at the link

Early 90's recession

Oct 1998 Oil bottoms monthly close $13.58,intraday $12.28

July 1990  US recession starts with oil at $20.69

Tech Bubble bursting

Dec 1998  Oil bottoms at $10.35,turns up

Mar 2000  US recession starts with Oil at $26.90

2008 Recession

Jan 2007 Oil bottoms on the monthlies at $58.14

Oct 2007 S&P peaks on monthlies

Dec 2007 US enters recession with Oil at $95.98

 

 

I need to get to grips with Trading view so I can have a closer look,but that XLE chart versus Brent seems to show a clear buy moment a couple of months back and currently.

teh one I would offer back is Brent versus XOM/BP.Have you had a closer look at historic backwardation trends?

[JMD]

2 hours ago, Bobthebuilder said:

Sorry to keep banging on about Hydrogen, but received an email from gas safe today stating Hydrogen mixed with natural gas at 20% is going to be trailed in Winlaton area of Gateshead, 668 homes from early 2021.

Its happening quick.

...And today i also saw TV news report about Rolls Royce wanting 200m from government to begin implementation of their mini-reactors.

I think i will buy more RR tomorrow.

[Bobthebuilder]

1 hour ago, sancho panza said:

COuld the issue be more about teh large scale production of H rather than the technology for using it?Genuinely asking the question here if anyone knows.How far are we from large sale production?

I would be interested to know that, also who are the other players in the Hydrogen industries apart from the big oillies?

Edit to add.

Yes Hydrogen is expensive to produce but the fact that it can be added to the existing gas network, meters and appliances with no need for an upgrade makes it a bargain right?

[leonardratso]

20 minutes ago, JMD said:

...And today i also saw TV news report about Rolls Royce wanting 200m from government to begin implementation of their mini-reactors.

I think i will buy more RR tomorrow.

yers they had a team in czech republic? selling them or collaborating, i didnt read it too closely cos it was on my fav grot mag daily mail.

[JMD]

1 hour ago, sancho panza said:

I'd be careful with US telecoms.There's only 3 big mobile operators AT&T,Verizon,T-Mobile(chart very toppy)

Small regional telecoms might be a few too pick through.As I understand it,a lot of their network infrastructure is old.But I could be wrong.

Yes, i looked again stateside but there is nothing for me there (already had at&t). Tbh i cant see the wood for the trees - their telecom market is far too fragmented and i don't want to hold lots of small co's. Plus i'm also looking for decent divi payers so that the stocks pay me to hold them!

Talking of dividends, I have probably missed the boat - after the recent market rise - on the utilities (water, energy, etc). They are the sector that i have neglected in the search for decent divi payers (the other sectors being: oil/telecoms/ciggies/pharma). Does anyone know of other good sectors, or maybe perhaps their fav. stock, that historically has paid reliable dividends?  

[JMD]

1 hour ago, sancho panza said:

COuld the issue be more about teh large scale production of H rather than the technology for using it?Genuinely asking the question here if anyone knows.How far are we from large sale production?

Wasn't there an article posted on here a couple months back about the Repsol/Spanish hydrogen plant, their owners said it wouldn't be in full production until at least 2026 i think... i am bit vague on the details, but perhaps the original poster can repost? 

[CVG]

13 minutes ago, JMD said:

.... the search for decent divi payers (the other sectors being: oil/telecoms/ciggies/pharma). Does anyone know of other good sectors, or maybe perhaps their fav. stock, that historically has paid reliable dividends?  

I like Glaxo for their reliable quarterly dividends (around 5%).

[DurhamBorn]

5 hours ago, jamtomorrow said:

Was listening to Tian Yang on one of the recent MacroVoices pods, talking about energy and commodities in the coming reflation.

I *loved* the Spotter's Guide to investing opportunities, especially the clarity with which he highlighted opportunity to focus on sectors with long lags between price stimulus and supply response (because the longer the lag, the longer the incumbents get to cream FCF at supply-constrained prices).

We've covered that concept at some length for oilies, but I got to wondering what other sectors have that same characteristic. 

Nuclear is an obvious one, typically decades from policy ideation to generation. But I'm finding it hard to identify incumbents that own enough nuke generating capacity to qualify as a "nuke" play.

What about distillates, and petrochemical products more generally? World's gonna want a lot of plastics when this reflation gets going. What's the price stimulus -> supply response lag like for, say, plastics production?

From my ignorant outsider vantage point, refinery and petrochemical production capacity doesn't seem the sort of thing you throw together in the space of a few months.

Iv worked on chemical plants and they tend to work 24/7 already including xmas day,you cant simply knock them off on a friday tea time,so an increase in demand you cant hugely increase production.

[DurhamBorn]

2 hours ago, sancho panza said:

COuld the issue be more about teh large scale production of H rather than the technology for using it?Genuinely asking the question here if anyone knows.How far are we from large sale production?

A few years i think,BP are going to build a big hydrogen plant on Teesside.Repsol,Shell and BP are all building plants to produce,green hydrogen,but blue hydrogen from gas is likely especially where they can carbon capture so Teesside might be blue and green.

[BurntBread]

Just heard the tail-end a few words on the radio: recommendation has been give to the gov to double capital gains tax.

[Bobthebuilder]

14 minutes ago, BurntBread said:

Just heard the tail-end a few words on the radio: recommendation has been give to the gov to double capital gains tax.

Yep Rishi is on about bringing it in line with income tax 20% - 40% double current rates.

Use those SIPPs and ISAs folks.

[M S E Refugee]

6 hours ago, jamtomorrow said:

Nuclear is an obvious one, typically decades from policy ideation to generation. But I'm finding it hard to identify incumbents that own enough nuke generating capacity to qualify as a "nuke" play.

https://www.hl.co.uk/shares/shares-search-results/f/fortum-eur3.40

https://www.fortum.com/products-and-services/power-plant-services/nuclear-services/nuclear-newbuild-and-upgrades-services

I own a little bit of Fortum which has decent exposure to Nuclear.

[AWW]

Brits of any metal and sovs also CGT exempt.

[Bobthebuilder]

37 minutes ago, AWW said:

Brits of any metal and sovs also CGT exempt.

That's wonderful, its almost like they want you to own their minted PMs.

[BWW]

1 hour ago, BurntBread said:

Just heard the tail-end a few words on the radio: recommendation has been give to the gov to double capital gains tax.

 

1 hour ago, Bobthebuilder said:

Yep Rishi is on about bringing it in line with income tax 20% - 40% double current rates.

Use those SIPPs and ISAs folks.

Would not be unreasonable if they allowed inflation to be taken into account. Even then RPI is hugely less than real world inflation of essential [since they love that adjective] spending.

I'm guessing bonus may be a whole host of asset liquidation this year to get the lower rate. Although given the duplicious lieing bunch of crooks in charge it's reasonably likely they are hoping to achieve that with a few words now and then do nothing.