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

[leonardratso]

34 minutes ago, M S E Refugee said:

We have just had our Car Park resurfaced last month and now they are going to rip some of it up to put these charging points in.

.

 

[Chewing Grass]

7 hours ago, JMD said:

The other interesting bit are the rates, £213/week/person, children £120/week.

Give me & Mrs Chewy £213 per week each and that's early retirement sorted now, private pension will go further as long as they don't renege on my 41 years of full state-pension contributions via NI.

[Phil]

43 minutes ago, M S E Refugee said:

We have just had our Car Park resurfaced last month and now they are going to rip some of it up to put these charging points in.

Doing a 534 new car park in the midlands  for the guy going to space in a penis. 28 charging points. 

[Wheeler]

17 minutes ago, Chewing Grass said:

Give me & Mrs Chewy £213 per week each and that's early retirement sorted now, private pension will go further as long as they don't renege on my 41 years of full state-pension contributions via NI.

UBI will replace the state pension won’t it? At least that’s my understanding.

[Chewing Grass]

27 minutes ago, Wheeler said:

UBI will replace the state pension won’t it? At least that’s my understanding.

So there is no point in paying Mrs Chewy's up as she is 5 years short of full then.

[reformed nice guy]

1 hour ago, Wheeler said:

UBI will replace the state pension won’t it? At least that’s my understanding.

Probably not. Its Universal Basic Income only in name.

It wont be universal as disabled people would get more, single morthers will probably get more, etc.

It wont be basic in one sense of the word because it wont cover housing costs for large parts of the country.

Probably shouldnt even be called an income since it requires no work, service or investment. Dole would be more appropriate replacement word.

Its just a widening of means tested benefits with a "trendy" sounding name.

[JMD]

Ignore the misleading bitcoin title, instead this is an interesting alternative future narrative for our oilies. Talk on thread recently about lack of competing ideas so thought this might stimulate some debate.                                                         Marin Katusa's thesis is that oil company loan funding will be pulled for esg reasons, a moral/financial diktat that he says will come to dominate in future years. @DurhamBornrefuted this when I asked about this late last year (macro voices podcast), because (DB please correct me if I'm wrong?) the big oil companies won't actually need the loan types Katusa says theorises they will be denied (because oil will generate plenty of its own fcf). I have posted this interview because Katusa elaborates more this time.                                                             Katusa is a gold/uranium/commod investor, not just a commentator, so has skin in the game. He used to like oil, but has he now gone rogue by favoring carbon credits?!? He sees them as a safe bond/politically ramped trend and predicts 4x return this decade and much higher over an expected 30 year term. Be good to hear what the experts and others of course on here think. And if Katusa is part correct how might we mitigate oilie investment risk, maybe stick to the large cap players? Can Katusa's views be dismissed out of hand, or is he saying something interesting... ie should we be prepared to snap up etf carbon credit funds in future (if they ever do these)?                                                  

 

 

[JMD]

47 minutes ago, reformed nice guy said:

Probably not. Its Universal Basic Income only in name.

It wont be universal as disabled people would get more, single morthers will probably get more, etc.

It wont be basic in one sense of the word because it wont cover housing costs for large parts of the country.

Probably shouldnt even be called an income since it requires no work, service or investment. Dole would be more appropriate replacement word.

Its just a widening of means tested benefits with a "trendy" sounding name.

'In name only' you say? R its only a pilot, though curiously ambitiously scoped for this country I think? But I kinda agree with you, however that's the beauty of it all - it's all things to all men/women/LGBTQ+++. As for it being trendy, well so long as the millennials like the sound of it then it will be waved on through, along with MMT, plus all kinds of other dubious socialist claptrap.

[Lightscribe]

4 hours ago, reformed nice guy said:

Probably not. Its Universal Basic Income only in name.

It wont be universal as disabled people would get more, single morthers will probably get more, etc.

It wont be basic in one sense of the word because it wont cover housing costs for large parts of the country.

Probably shouldnt even be called an income since it requires no work, service or investment. Dole would be more appropriate replacement word.

Its just a widening of means tested benefits with a "trendy" sounding name.

This is when they’ll start the introduction of digital IDs. Business will start to fail now, into further lockdowns for the rest of the year. They’ll withdraw furlough and this is when reality bites. It maybe another ‘March 2020 style’ dip come later this year as that Simon Hunter said in that video or the start of the BK. 

https://committees.parliament.uk/writtenevidence/6355/pdf/
 

https://www.gov.uk/government/publications/the-uk-digital-identity-and-attributes-trust-framework

UBI will vary amongst the population and will eventually (with the introduction of central bank crypto currency within the next couple of years) be weighted too.

I should imagine it would be no more than the JSA equivalent to begin with the appropriate add ons for DLA, child tax credits etc. With inflation, people will start to struggle massively. They’ll gladly accept a digital ID for government support. 2022 is going to be a very hairy ride.

Luckily Time magazine gave us an article in October 2020. It predicted the presidential election, vaccine and supposedly protests for this month (could make sense announcing further lockdowns) and it looks a fairly accurate timeframe to 2023.

https://time.com/collection/great-reset/5900739/fix-economy-by-2023/

 

[Loki]

6 hours ago, JMD said:

Ignore the misleading bitcoin title, instead this is an interesting alternative future narrative for our oilies. Talk on thread recently about lack of competing ideas so thought this might stimulate some debate.                                                         Marin Katusa's thesis is that oil company loan funding will be pulled for esg reasons, a moral/financial diktat that he says will come to dominate in future years. @DurhamBornrefuted this when I asked about this late last year (macro voices podcast), because (DB please correct me if I'm wrong?) the big oil companies won't actually need the loan types Katusa says theorises they will be denied (because oil will generate plenty of its own fcf). I have posted this interview because Katusa elaborates more this time.                                                             Katusa is a gold/uranium/commod investor, not just a commentator, so has skin in the game. He used to like oil, but has he now gone rogue by favoring carbon credits?!? He sees them as a safe bond/politically ramped trend and predicts 4x return this decade and much higher over an expected 30 year term. Be good to hear what the experts and others of course on here think. And if Katusa is part correct how might we mitigate oilie investment risk, maybe stick to the large cap players? Can Katusa's views be dismissed out of hand, or is he saying something interesting... ie should we be prepared to snap up etf carbon credit funds in future (if they ever do these)?                                                  

 

I think he might be onto something. They were on about climate lockdowns. If they want an industrial cycle that's not feasible, so carbon credits would be one way of green washing.

[Sugarlips]

16 hours ago, JMD said:

 £213/week/person, children £120/week. That is a serious amount for a family

In today’s money, let’s see what it’ll buy them in 2 years time... 

[StrugglingMillennial]

It looks like the party is starting to end

 https://www.dailymail.co.uk/news/article-9682605/Rishi-Sunak-rejects-pleas-businesses-extend-furlough-scheme.html

 

[M S E Refugee]

1 hour ago, Loki said:

I think he might be onto something. They were on about climate lockdowns. If they want an industrial cycle that's not feasible, so carbon credits would be one way of green washing.

I am only investing in Russian Oil Companies as it looks like the West is determined to destroy itself.

The Russians and Chinese will continue to use Oil and Gas and there is fuck all that Klaus and his assorted weirdo's can do about it.

 

[AlfredTheLittle]

29 minutes ago, StrugglingMillennial said:

It looks like the party is starting to end

 https://www.dailymail.co.uk/news/article-9682605/Rishi-Sunak-rejects-pleas-businesses-extend-furlough-scheme.html

 

Until he changes his mind....

[AWW]

The Carney stuff won't happen. Last time I checked, the West was still largely democratic. The sort of policies Carney advocates would see any government out on their ear. Governments tend not to like losing elections.

Younger generations might well be on board with AGW theories today. They won't be if life becomes appreciably less Instagrammable.

[Wheeler]

11 hours ago, Chewing Grass said:

So there is no point in paying Mrs Chewy's up as she is 5 years short of full then.

One of the unintended consequences. If they have a true universal system that doesn't depend on contributions then there will be no incentive to make any contributions.

 

9 hours ago, reformed nice guy said:

Probably not. Its Universal Basic Income only in name.

It wont be universal as disabled people would get more, single morthers will probably get more, etc.

It wont be basic in one sense of the word because it wont cover housing costs for large parts of the country.

Probably shouldnt even be called an income since it requires no work, service or investment. Dole would be more appropriate replacement word.

Its just a widening of means tested benefits with a "trendy" sounding name.

I suspect this is the more likely design. It will have the "advantage" of requiring more public sector administrators.

 

[DurhamBorn]

On oil funding,its a dream come true for big oil.If smaller companies cant borrow,then less oil is found,its simple.Its a bit like banning horse breeding in 1880 because cars were coming along a few decades later.

As a contrarian all this says to me is they know oil use wont stop unless they get it to be very expensive so that is what they will aim for.

I think most of this isnt to do with climate,thats just a cover.Its really because the west knows oil is going to get very tight and expensive,so they need to get their economies onto the path of needing less of it.

The real bull for big oil though is gas.Banning coal is the real big carbon gain and gas the winner there.I also think nature based solutions will end up doing most of the lifting.BP is already in this sector and its going to be huge.

[Underwhelmed]

1 hour ago, M S E Refugee said:

I am only investing in Russian Oil Companies as it looks like the West is determined to destroy itself.

The Russians and Chinese will continue to use Oil and Gas and there is fuck all that Klaus and his assorted weirdo's can do about it.

 

which ones? Is there an ETF?

[M S E Refugee]

12 minutes ago, Underwhelmed said:

which ones? Is there an ETF?

ishares have a Russia ETF and a Eastern Europe ETF and there is a JPM Morgan Russian Securities Investment Trust.

Whilst none of these Funds invest exclusively in Oil and Gas they do have decent exposure to those sectors. 

[wherebee]

1 hour ago, AWW said:

The Carney stuff won't happen. Last time I checked, the West was still largely democratic. The sort of policies Carney advocates would see any government out on their ear. Governments tend not to like losing elections.

Younger generations might well be on board with AGW theories today. They won't be if life becomes appreciably less Instagrammable.

If any of my kids go greenie, they lose their internet and phones, and they get no aircon in the summer.  I've already decided that's a good way to show them that choices have consequences.

[Mapper]

16 hours ago, Chewing Grass said:

You gotta watch this piece, big 'investors' like Blackrock are snapping up whole neighbourhoods and turning them into rentals, house prices up 30% across the board over the last few months with 25% of all sales in Houston going to 'institutional' investors.

Laura Roberts

15 hours ago

 

Lots of folks are going to be hurting bad when the market crashes again...

 

Great little polemic by the guest!

"...fuelling another speculative bubble that if and when it bursts, the same people that they've priced out of homes will end up subsidising the bailout..."

[sancho panza]

16 hours ago, Chewing Grass said:

You gotta watch this piece, big 'investors' like Blackrock are snapping up whole neighbourhoods and turning them into rentals, house prices up 30% across the board over the last few months with 25% of all sales in Houston going to 'institutional' investors.

 

via kaplan

The crash looms....

https://www.stlouisfed.org/on-the-economy/2021/may/housing-prices-surpass-bubble-peak-measure-value

By William R. Emmons, Lead Economist in Supervision

The nationwide house price-to-rent ratio, a widely used measure of housing valuation that is analogous to the price-to-dividend ratio for the stock market, is at its highest level since at least 1975, as shown in the figure below. Rapid house price appreciation since last May, combined with a slowdown in rent growth, resulted in a surge in this ratio. By February 2021, the national house price-to-rent ratio had surpassed the previous peak reached in January 2006; in March 2021, the ratio was 1% higher than its level at the peak of the housing bubble. This suggests the average house now sells for quite a bit more than its “fair value,” as explained below.

 

Measuring House Prices …

There are many different house price indexes for the nation as a whole as well as for particular regions, states, counties and metropolitan areas.³ There is no perfect house price index, so I constructed one for this article by combining two high-quality indexes: (1) the Federal Housing Finance Agency (FHFA) Purchase-Only House Price Index for the United States, and (2) the Freddie Mac House Price Index. The FHFA index is methodologically superior to many other indexes but it has a relatively short history of about 30 years. The Freddie Mac index is similar methodologically but draws from a smaller sample each month. Its primary advantage is a longer data history (about 46 years). More details on the indexes are in the appendix.

… and Rents

I used the shelter component of the consumer price index for all urban consumers (CPI-U) to measure the imputed rent paid for owner-occupied housing. Owners’-equivalent rent of residences (OER), a subcomponent of the shelter index, is a closer match to what I want to measure, but its data history is not as long as that of the shelter index. As detailed in the appendix, the shelter and OER indexes produce nearly identical conclusions, so I used the longer data series.

With these data, we can calculate a ratio of house prices to rent; with the earlier assumptions, we can also point to a ratio indicative of fair value for housing. During the entire 46-year period shown in the earlier figure, the average value of the ratio is about 78. As of March, the nationwide house price index was about 30% higher than the estimate of fair value produced by this approach.

And about Those Assumptions

If an analyst considers unreasonable any of the assumptions I made above—namely, constant housing preferences, discount rates and connection to income—she will reject the conclusion of overvaluation that I draw from the figure. Indeed, these assumptions remain somewhat controversial among economists.⁴

Will This Time Be Different?

Are we experiencing another housing bubble? Should we expect housing to play an important role in the next downturn? The risks facing households, the financial system and the economy appear less serious now than they were in 2006. Most importantly, homeowners today have greater home equity and less mortgage debt, on average, than they did then. But the elevated level of the house price-to-rent ratio surely merits caution and further study.

[sancho panza]

3 hours ago, StrugglingMillennial said:

It looks like the party is starting to end

 https://www.dailymail.co.uk/news/article-9682605/Rishi-Sunak-rejects-pleas-businesses-extend-furlough-scheme.html

 

Corss post from Sceptics thread.

No wonder Rishi is getting nervous.....reality beginning to dawn.

https://www.dailymail.co.uk/news/article-9682829/Company-closures-spark-fears-surge-Covid-loans-fraud.html

Fears are growing that thousands of Covid loans were fraudulently claimed and will never be returned to the taxpayer.

Experts issued the warning after the number of companies being shut down rocketed.

Figures show that in the first three months of this year almost 40,000 firms were 'struck off', a rise of 743 per cent on the same period of last year.

Many legitimate firms have been forced to close during the pandemic, particularly smaller ones.

But there are now worries that thousands of others deliberately stopped trading so they could be struck off and avoid repaying their loans.

This could add millions of pounds of bad loans to banks' books.

Around £22billion is estimated to have been handed out through the BBLS, which was thought to be the most vulnerable scheme.

It provided up to £50,000 to small firms, with most cash going to companies with fewer than ten employees. The Government has underwritten 80 per cent of all CBILS loans and 100 per cent of BBLS lending – though banks will probably need to exhaust all their options before asking the taxpayer.

[JMD]

1 hour ago, Wheeler said:

One of the unintended consequences. If they have a true universal system that doesn't depend on contributions then there will be no incentive to make any contributions.

I am very cynical about any Contribution based Benefit, surely pretty much a busted flush?... rather like having a cohesive nation state or patriotism, these (outdated?) concepts have been flushed away, currently residing in the U-bend of history... blame our fabulous(!) bunch of presiding leaders.     

ps ignore me, i'm having a difficult day... though on a brighter note GBNews started yesterday, hopefully now we can look forward to a refreshing alternative news agenda.

[sancho panza]

27 minutes ago, Cattle Prod said:

I think Eric Nutall has set up an ETF based on his fund, you would't go too far wrong with those (check his record since the 2020 lows).

Appreciate the heads up,jsut reading his twitter feed now.

 

Edit to add:this huge run off cashflow discusssed below is what @DurhamBorn has been talking about from oil/telco's.

 

https://financialpost.com/commodities/energy/oil-gas/eric-nuttall-why-investors-arent-late-to-the-oil-party

Obscured in the fog of energy ignorance is a generational investment opportunity. Divested, shunned, and largely ignored, oil and gas stocks have fallen to valuations previously unheard of. With the backdrop of a multi-year oil bull market and an industry maniacally focused on returning capital to shareholders, I believe oil and gas stocks represent tremendous value with the potential to more than double over the coming years.

As an oil bull I have up until recently felt like someone who accidentally showed up to a party an hour early, expecting to come upon a rager, instead to be met with a host still warming the hors d’oeuvre and chilling the champagne. Only in recent months have other guests started to show up with the music getting turned on and conversation of increasingly bullish oil targets getting louder and louder. The guest of honour, however, the generalist institutional investor, has yet to show up. While usually one to arrive an hour fashionably late, generalists importantly represent a significant amount of latent buying power necessary to allow for a rerating of currently depressed valuations.

What will it take then to get them to show up to the party?

Generalist investors have been conditioned to believe that oil and gas stocks are irrelevant and that any gains will be short lived, given oil and gas companies’ reputation of being chronic growth-chasing value destroyers and dulled by the enormous volatility over the past several years.

This thinking fails to recognize that the road we are on today is very different from the one we have been stuck on for the past 5+ years. Denied of short-cycle hyper U.S. shale growth in a world of recovering oil demand, supply has become increasingly inelastic to a rising oil price.

Couple this with soon-to-be exhausted OPEC spare capacity and a multi-year stagnation of global offshore production and you suddenly have an oil cycle with longevity.

Further, energy companies have pivoted from seeking growth to returns, allowing for the generation of meaningful free cash flow. While obviously good for the macro (less supply and tighter markets) this shift critically allows energy companies to better compete with other industries on a return of capital basis thereby attracting funds flow back to the sector. At US$60 West Texas Intermediate, the amount of free cash flow being generated by the energy industry is egregious and with balance sheets nearly repaired from the damage inflicted in 2020, I believe we are on the cusp of companies returning most of their free cash flow back to investors in the form of dividends and share buybacks.

This imminent wave of share buybacks and dividend increases could easily be the antidote to the still high level of apathy towards the space. This catalyst combined with building “fear of missing out” performance pressure will inevitably drag generalists back to the sector, willingly or not.

Be warned: if you are new to the energy sector and decide to pull up a random one-year stock chart it would be easy to think that you’ve “missed it.” Energy has been the best performing sub-index year-to-date in both the TSX and S&P500 and many stocks are up 300 per cent or more from their 2020 lows.

Despite this huge rally just how cheap are energy stocks still?

Irrespective of many having risen sharply, company valuations remain extremely compelling and the only reason why they have rallied so much is the extent of the pummelling they endured in 2020 when peak uncertainty around COVID’s impact on oil demand led to many oil stocks falling by 60 per cent or more. Hence, much of the recent rally has only taken them back to pre-COVID levels yet the macro backdrop now is significantly more bullish than back then. Look not to where energy stocks have been but where they are going.

At US$60 West Texas Intermediate, the average company I follow could buy back all its outstanding shares and pay off all its bank debt in just eight years from free cashflow. This shrinks to an average of 5.5 years in a slightly more optimistic US$70 environment which is my forecast for 2022 and I’m joined by several research firms that are predicting US$70 in the coming quarters.

Imagine then a company that could pay a 15 per cent to 30 per cent dividend while keeping its production flat for several years or who could privatize itself in just four years using its free cashflow.  That is how cheap energy stocks are today.

With many trading at two to three times their enterprise value to their cashflow versus a historical range of seven to eight times and being on the cusp of returning egregious levels of free cash flow back to investors the energy party has just begun. Given the prospect of both a higher oil price in the years ahead as well as a trading multiple expansion the potential upside in my opinion is extremely attractive with many small to midcap energy stocks offering multi-bagger potential.

Eric Nuttall is a partner and senior portfolio manager with Ninepoint Partners LP.