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

[DurhamBorn]

On oil and gas,the most likely outcome is nature based solutions.I expect the east will go down this route once the west gets itself in a mess.There is an environmental crisis in the fact we are seeing mass species and animal loss.The renewables stitch up is miss-allocating capital and doing nothing for that.

BP is ahead of the game on this.Oil use will be only around 8% less by 2050 than today on my roadmap and gas use will be at least treble.

Of course those numbers could be slightly lower if prices spike higher than i expect.

Politicians will be in a corner soon enough and will realise they are stuck and nature based solutions are their ticket out of it.

[sancho panza]

7 hours ago, Cattle Prod said:

As I said a few months back BP actually got rid of their exploration department, Equinor is doing the same, thereby guaranteeing they won't be able to join in when needed. Currently exploring well: Total, ENI

So short answer is that it's linked to oil price, and your intuition is good that backwardation may influence it, causing conpanies to focus on existing reserves. Look for the reserves:production (RP) ratios dropping, though. You want to be over 9. If you start dropping to 7 or 6 investors are going to start screaming anyway. Rock and hard place.

All this just accentuates the boom/bust nature of the industry. Project lead times are too long to respond to price, so this savage downcycle has guaranteed a savage upcycle.

I msut say,as we progress and I learn more about the industry,BP's move does seem very short sighted.We're currently ligther on ENI/Total then we are the otehr big majors but will bear your comments in mind as the basket kicks off divi's for reinvestment.

Thanks for the mention of the Reserves:production ratio.Didn't even know it existed but makes a lot of sense.

 

6 hours ago, DurhamBorn said:

Banks have too much liquidity and are really struggling to find assets to get a positive return so are handing back the cash in exchange to the Fed for treasuries.

The banks are struggling to lend it.The reason is likely lack of collateral,ie not enough solvent entities to soak up all that liquidity in loans.The banks are swapping cash for treasuries.

Treasuries already on the Feds balance sheet.

Market is flooded with cash but not enough solvent entities to lend it to or invest it in.Governments need to increase spending and will.Private sector is saying we cant make a return big enough for the risk.

 

The real issue it seems is one of demand for credit.The purpose of QE is to create invesment and spending in the broader economy.It becomes useless if all banks do is sit on the money.

Hence the reasons they sit on the money are pertinent and perhaps allude to the question @Cattle Prod of why they're reverse repoing.Whats the point of giving moeny to the banks if they are unable to ledn it into the economy?

This hints that the big problem the fed faces is waning demand for credit from the proles.This is the stuff of the behavioural economist @Harley and goes right back to the excellnet discussion on thread ref velocity and how expanding the money supply is pointless if velocity collapses.

And this is the thesis you've been talking about since day one of the thread DB,govts being forced to channel spending fiscally because consumer demand drops.It's taken me a couple of years to get there but I've finally arrived

5 hours ago, Cattle Prod said:

Thanks DB. So do you think this means they are more or less likely to taper asset purchases? If the market is flooded with cash, but they not have to buy even more bonds to give to banks?! And that runs against your comment of fed having to taper soon because of inflation.

I suppose this is the definition of boxed in, just which way will they break...

I think it raises the question of whats the purpose of asset purchases,if it's to recpaitalsie banks then they'll carry on if it's to create economic growth then QE is getting beyond it's sell by date.

The issue of infaltion and tapering is possibly related to the fed needing to rein in commodity inflation.The moeny-QE/reserves will find a home somewhere and the Fed doesn't want it parked in commodities.tapering/reverse repo solves one problem ie poor credit growth and also nips inflation in the bud as well .....they hope

Like you say,tehy boxed in.They've QEed to infinity and watched velocity drop,now it's moving the last thing they'll want to do is reinforce the upward spiral in commodity prices.

[Harley]

GDX has been my own personal widow maker for many years now.  Mainly because it does not follow my technical signals.  But taking a look at the actual monthly price chart alone and it's a work of beauty.  It's got it all:  Head and Shoulders followed by the current potential cup and handle (have we just completed the handle?), multiple turns at key fib levels, etc all backed up by some stonking cash flows and balance sheets.  DYOR but adopting a BAN approach and looking for sector ETFs not yet overbought (so ready to maybe catch a rotation), it's a worthy look?

[Harley]

56 minutes ago, ThoughtCriminal said:

Does it make any difference who you get your SIPP with? Or all much the same? 

If you want to trade internationally (properly, not via CDIs, etc) and hold currencies rather than pay a forex charge each trade then yes, very much yes!

[ThoughtCriminal]

1 minute ago, Harley said:

If you want to trade internationally (properly, not via CDIs, etc) and hold currencies rather than pay a forex charge each trade then yes, very much yes!

Cheers Harley 👍

 

Guess I'd better shop around 

[Harley]

13 minutes ago, sancho panza said:

@Harley and goes right back to the excellnet discussion on thread ref velocity and how expanding the money supply is pointless if velocity collapses.

Yep, they read it and realised giving money to rich people with a low marginal propensity to spend (a component of velocity) may save the day but won't get things moving.  Or maybe they knew that and kept it in their back pocket for now.  That interview with the BoE guy way back blabbering on about the (by then) late stage wealth effect suggests cluelessness.  Not surprising if only one third of your PPE degree is spent on Economics.  That would just about cover A level!  UBI, blah, blah, plus an inflationary expectation kicked off by supply chain issues, well, a new game is that. 

[Harley]

8 minutes ago, ThoughtCriminal said:

Cheers Harley 👍

 

Guess I'd better shop around 

No recommendation but Interactive Investor and Saxo (?) are two offering straight forward SIPPs.  You can apparently link a SIPP to an Interactive Brokers account for a cost/hassle.  I have a soft spot for Hargreaves and their support in running a SIPP (including the drawdown process) with lost of good info and tools, but they have a relatively limited set of functions (e.g. forex on every trade, limited market access, etc).  Anyone know of any others?  IG?

[Talking Monkey]

34 minutes ago, Harley said:

If you want to trade internationally (properly, not via CDIs, etc) and hold currencies rather than pay a forex charge each trade then yes, very much yes!

Are there any providers who offer this Harley

 

Just saw the post above cheers

[nirvana]

19 minutes ago, Harley said:

Anyone know of any others?

have a look at tradestation......you've just reminded me I was half way through opening an account with them

the yankees are much better than europe in terms of 'cheap transaction fees' but most of em won't accept bloody foreigners...

I think tradestation is owned by the Japs

Trying to redeem myself for being silly earlier 

[Castlevania]

28 minutes ago, Harley said:

Yep, they read it and realised giving money to rich people with a low marginal propensity to spend (a component of velocity) may save the day but won't get things moving.  Or maybe they knew that and kept it in their back pocket for now.  That interview with the BoE guy way back blabbering on about the (by then) late stage wealth effect suggests cluelessness.  Not surprising if only one third of your PPE degree is spent on Economics.  That would just about cover A level!  UBI, blah, blah, plus an inflationary expectation kicked off by supply chain issues, well, a new game is that. 

Economic history is good and vital for such a policy maker to have knowledge of. Economics as a subject? Waste of time.

[Harley]

1 hour ago, Castlevania said:

Agreed on Shell. I don’t really understand their strategy.

Nor their price chart.  Things have stalled price wise these last two months with a bias to the downside, although momentum is staying positive.  Currently at long term support/resistance (Jan 2016, etc) like BP.  But BP has a cleaner chart.  Keep this up and it could be a rubber band stock versus it's cohort! 

PS:  I'm fully allocated on RDSB and BP and buying further from home but may have to up my allocation rule for them, after some clarity from the current price zone.  Actually maybe no given their fundamentals, especially BP's!

[Harley]

4 minutes ago, Castlevania said:

Economic history is good and vital for such a policy maker to have knowledge of. Economics as a subject? Waste of time.

I studied it at length and got a lot out of it which proved very useful later in many disparate walks of life, but more as a way of thinking (and some useful tools) than much of the actual subject matter.  Baby and bathwater.  I would have preferred PPE but the rest came later anyway.  True about econ history though (like history generally).  Top of the list if you get it.

[Starsend]

2 hours ago, Cattle Prod said:

Which product was it? CRUD? I don't think that is leveraged, but you still can't compare prices back to the past, as you have all the underlying futures decay coming out of the price since then. It's not going to leverage the price going forward, though it should track it or even exceed it slightly as we are currently backwardated.

Thanks cp. Guess that's the problem with many of these things - they're not holding the underlying. I'll have to do some research I think and see how well it's tracked the price historically. I seem to recall reading something once that mentioned that it didn't track great over time.

Think some of them, such as baskets of commodities. track the Bloomberg commodity index. Maybe these will be a better bet for a longer term hold. Wonder how tracking an index compares to the etfs that use futures to track oil/copper!

[Harley]

13 minutes ago, Starsend said:

Thanks cp. Guess that's the problem with many of these things - they're not holding the underlying. I'll have to do some research I think and see how well it's tracked the price historically. I seem to recall reading something once that mentioned that it didn't track great over time.

Think some of them, such as baskets of commodities. track the Bloomberg commodity index. Maybe these will be a better bet for a longer term hold. Wonder how tracking an index compares to the etfs that use futures to track oil/copper!

They should have tracking data on their website or other sites should.  The problem with the Wisdom Tree ones (the only ones here in Europe?) is how thinly traded they can be so the charts are a bit empty of data.  Regarding which index to follow, there are discussions on the web and the last conclusion was the Bloomberg index had performed (and would continue to) the best.  My choice would be equity in producers and options on the commodity itself.  I did regularly track all the Wisdom Tree stuff, but once looked away and by the time I returned they had hit the roof.  A classic case of right idea, wrong timing.  Lesson learnt, again!  Good things never happen fast enough.

PS: Note the Wisdom Tree ETFs do the individual commodities but also various sub totals too (like grains and then agriculture and then all).  Yes, maybe better results at a higher level of summation, say for a general SIPP holding which is what I'm thinking of, post a pull back, to go into my hard asset portfolio allocation.  But mainly equities and their divs.

[jamtomorrow]

3 hours ago, nirvana said:

that is really blooming dangerous man! the loons are already bombed out with loons......I don't agree with this 'more drugs' analogy.....we can nay handle it captain 

This is the stability problem in a nutshell.

Sure, there's a good chance the car will head left again if they yank the wheel in that direction, but the "steering" activity is becoming increasingly frantic and I'm not convinced the back wheels are all that interested in following the front wheels any more.

[Don Coglione]

3 hours ago, Cattle Prod said:

Which product was it? CRUD? I don't think that is leveraged, but you still can't compare prices back to the past, as you have all the underlying futures decay coming out of the price since then. It's not going to leverage the price going forward, though it should track it or even exceed it slightly as we are currently backwardated.

That is how CRUD has performed in the time that I have held it, which has suited me just fine, as someone with a limited understanding of the mechanisms of various financial instruments. I am trying to understand options, but, in the meantime, I wanted something that was pretty directly exposed to, and tracked closely, WTI and always had (have) a plan to sell when WTI hits my target level (which is close!). I never invest in something that I don't understand (so have avoided crypto!).

My gains in CRUD have far exceeded those in the oil majors; can't say fairer than that.

[Lightscribe]

1 hour ago, Harley said:

GDX has been my own personal widow maker for many years now.  Mainly because it does not follow my technical signals.  But taking a look at the actual monthly price chart alone and it's a work of beauty.  It's got it all:  Head and Shoulders followed by the current potential cup and handle (have we just completed the handle?), multiple turns at key fib levels, etc all backed up by some stonking cash flows and balance sheets.  DYOR but adopting a BAN approach and looking for sector ETFs not yet overbought (so ready to maybe catch a rotation), it's a worthy look?

Basel III next month will make physical PM anything and miners fly on top on rising inflation fears. 

It won’t be a cup and handle it’ll be a cup and ladle. 

https://www.google.co.uk/amp/s/amp.ft.com/content/04ed8422-e16a-4d53-b597-690e4c9c99b9

[Starsend]

25 minutes ago, Don Coglione said:

That is how CRUD has performed in the time that I have held it, which has suited me just fine, as someone with a limited understanding of the mechanisms of various financial instruments. I am trying to understand options, but, in the meantime, I wanted something that was pretty directly exposed to, and tracked closely, WTI and always had (have) a plan to sell when WTI hits my target level (which is close!). I never invest in something that I don't understand (so have avoided crypto!).

My gains in CRUD have far exceeded those in the oil majors; can't say fairer than that.

What kind of time periods have you held it over? And has it more or less tracked the oil price?

[Don Coglione]

31 minutes ago, Starsend said:

What kind of time periods have you held it over? And has it more or less tracked the oil price?

Held since April 2020.

I couldn't get married charts, as I am a dunce, but in answer to your question:

[Loki]

18 minutes ago, PrincessDrac said:

So we have all three on their asses prior to Basell 3.

Coincidence or manipulation.

I like the way you think

[MrXxxx]

10 hours ago, Loki said:

Apologies if i mention it often but i keep an eye on it as it's one of the few indicators that i understand

Like to explain it to me then?..I understand its the value of the US$ against a basket of currencies but don't appreciate much more than that! :-)

[Loki]

15 minutes ago, MrXxxx said:

Like to explain it to me then?..I understand its the value of the US$ against a basket of currencies but don't appreciate much more than that! :-)

That's about my level of understanding too

That's why i like it

But it makes sense how it needs to fall to show the fed are issuing enough liquidity and while it isn't, the liquidity is "stuck in the pipes"

[Bricormortis]

My assumption right or wrong is that if DXY goes low, dollars start getting exchanged for assets, particularly hard assets.

[MrXxxx]

30 minutes ago, Loki said:

That's about my level of understanding too

That's why i like it

But it makes sense how it needs to fall to show the fed are issuing enough liquidity and while it isn't, the liquidity is "stuck in the pipes"

Blind leading the blind then! :-)

[DurhamBorn]

US core inflation,higher than expected,

Yields fall though,Fed active at the short end.

https://www.reuters.com/article/usa-bonds/treasuries-u-s-yields-fall-on-month-end-impact-investors-shrug-off-inflation-rise-idUSL2N2NF1ZC