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

[Hancock]

1 hour ago, dnb24 said:

This is what I fear, the consensus in the young seems to follow this thought process- i really think we’ve got to think economic communism is a very real threat to individual freedoms over the next decade or so.

This is why the young are voting for economic communism.
https://www.telegraph.co.uk/property/house-prices/now-hardest-time-history-get-property-ladder/

Read the article if you wish, but the first comment tells the mindset of a generation.

I wish David Michael would also share with us what his wage inflation was in the run up to the spike in interest rates, and what this wage inflation done to his borrowing. What a thick f'en wanker!

[Bobthebuilder]

19 minutes ago, jamtomorrow said:

1GW to 2GW sounds like a lot (and it *is* a lot), but it's not a huge amount in terms of national energy policy. UK demand has drifted down by 6GW or so just in the last decade.

"Marty, I'm sorry, but the only power source capable of generating 1.21 gigawatts of electricity is a bolt of lightning. "

[Harley]

Wind and solar farm equipment has a relatively short working life.  About 25 years for solar and then declining efficiency?  Wind?  Decomissioning and re-installation costs?  How well has all this been factored into valuations, discounted cash flows, etc?  You can depreciate but that's not at replacement cost.  Will the current players last?

[reformed nice guy]

1 hour ago, BurntBread said:

Interesting; do you have a link? That's essentially the definition of "deep state".

https://www.express.co.uk/news/politics/1441611/brexit-news-boris-johnson-eu-withdrawal-agreement-civil-service-coup-dominic-cummings

[Bilbo]

1 hour ago, jamtomorrow said:

My estimate is 6GW *ammortized* (it's based on total annual UK passenger car miles and typical EV efficiency - so not many assumptions needed at all).

How that 6GW actually shows up in demand is the devil in the detail, like you say. Existing overnight excess capacity would take care of 4 to 5GW of it (e.g. 9GW for 11h).

Leaves something like 1GW to 2GW to find in the daytime, which probably dovetails pretty well with how people are likely to use rapids once 350kW setups are widespread.

1GW to 2GW sounds like a lot (and it *is* a lot), but it's not a huge amount in terms of national energy policy. UK demand has drifted down by 6GW or so just in the last decade.

I'm having problems with these mathematics!

RAC foundation says 360 Billion miles driven each year (not last year due to pandemic).

Average 4 miles per kWh for electric car.

So 25,000GW needed each year.

Extra 78GW per day?

 

[JMD]

More 'deep macro' from Gavekal. Ok it is confirmation bias for many of us here on this thread, however Gaveka are money managers and stake their reputation by advising their clients to invest using their themes and analysis. So have real skin in the game. I think they provide source data whereas many/most podcasters simply piggyback/plagueris - and hype - the data. I'm also a fan because they provide interesting insights - significantly from a European perspective, not the tired American one we usually hear.                        https://blog.evergreengavekal.com/china-is-for-bonds-the-us-is-for-stocks-the-new-60-40/

[invalid]

1 hour ago, Bilbo said:

I'm having problems with these mathematics!

RAC foundation says 360 Billion miles driven each year (not last year due to pandemic).

Average 4 miles per kWh for electric car.

So 25,000GW needed each year.

Extra 78GW per day?

 

360 Billion div by 4 = 90 billion kWh per year

div by 365 = 246 million kWh per day

div by 24 = 10.2GW

Not a million miles from the 6GW and if you allow for not being 100% EVs then I think 6GW is in the ballpark.

[jamtomorrow]

1 hour ago, Bilbo said:

I'm having problems with these mathematics!

RAC foundation says 360 Billion miles driven each year (not last year due to pandemic).

Average 4 miles per kWh for electric car.

So 25,000GW needed each year.

Extra 78GW per day?

 

~ 31m cars registered in UK. RAC Foundation says average miles per car 7400 (source: https://www.racfoundation.org/motoring-faqs/mobility#a26)

Makes 220bn miles per annum for passenger cars. 4 miles per kwh -> 55bn kwh per annum -> 6.3m kwh per hour, also known as 6.3GW.

So where did you get 360bn miles from?

Edit to add: ah, maybe the 360bn includes transports and other non-passenger-car miles?

Further edit to add: ha, Q28 on the same page! So yeah, the higher figure does include lorry miles and such-like.

[Bilbo]

I'm sure you know this website,;

"National Grid: Live Status" https://grid.iamkate.com

6GW is a lot to find especially as it's an average. Remember gas boilers are being phased out from 2025. How much will that add to the electrical infrastructure.

Was surprised how much we get from France ( nuclear) and a bit from Netherlands (coal).

[ThoughtCriminal]

12 hours ago, MvR said:

I wonder how cars parked on the road will charge?  Most residential streets without drives are chock full of parked cars. There would need to be a charging point for every space...

Come now, dont be spoiling his fantasies by injecting facts into the arena. 

 

He thinks theres capacity for over 40 million EVs in the UK. Comedy gold. 

[Bobthebuilder]

1 hour ago, Bilbo said:

Remember gas boilers are being phased out from 2025

That is going to be really funny, can't wait.

[sancho panza]

On 23/06/2021 at 12:07, Cattle Prod said:

Secular bull market in oil and gas in one chart:

In other words, capex has not responded to price since 2016. I saw the gap widening in 2018 which is I think when I started posting about it on here. It is simply staggering that not along did capex not respond, it actually took another leg down due to Covid. As we've said, supply problems are now baked in. We have now used up the last of the projects invested in the pre-2015 period (e.g. Guyana and Johan Sverdrup), and if we suddenly started investing tomorrow, and found some new ones, it would take 4-7 years to get them up and running. OPEC knows this of course, they have been playing the long game fairly patiently (MbS hissy fits aside), while large listed oil companies have set about castrating themselves. 

Enjoy the run.

I know this chart is a few days old on us now,but each time I head up or down the M1 and I see the traffic comingtheother way,it's potency grows.

14 hours ago, jamtomorrow said:

Generation and distribution infrastructure for overnight charging is already there, in the form of excess overnight capacity. *Almost* a no-brainer to take advantage of that - some structural changes to the generating market, some changes to the maintenance and duty-cycle assumptions for gas generation, more nuclear in the long term (perfect for steadier demand with smaller night/day cycles).

It's the last 100 yards where the problems are today. There simply aren't enough qualified chargepoint installers. 2 close friends recently got their first EVs, and have now been waiting months for a home chargepoint (one has already melted the plug on their granny cable).

Ordinarily, you'd expect Mr. Market to work his magic and drag a generation of school leavers into the game through price signals. But these are not ordinary times.

The situation with rapids is definitely improving in fits and starts, although it's patchy. There are now several rapids within 5 minutes of the sleepy Midlands village where I live. Morrisons have got one. You can even get a rapid charge on up at the driving range.

Still patchy nationally. Mid-Wales is a complete dead loss. But gaps are being filled all the time e.g. https://www.autocar.co.uk/car-news/industry-news-environment/electric-highways-opens-uk’s-largest-ev-motorway-charging-station

350kW is incredible - that'll charge in excess of 1000mph for most EVs, which is getting *much* closer to ballpark of dinofuelling rates.

All this to say: to my mind the generation and distribution infrastructure is a non-issue (edit to add: although I do agree the existing infrastructure will have to generate more leccy overall, mostly from gas initially). And the local infrastructure looks like it's tracking the adoption curve, more or less. Except for this installer shortage, which is *definitely* "different".

Even if the UK could manage  the transition to EV's,the reality is that 95% of the world will tkae a lot,lot longer.

This theme has come up before in our collective discsuiions in terms of too many people are loking West not East.India hasn't got a hope in hell of this infrastruture being in place by 2035/40 and the bulk of marginal demand growth is coming from non Western countires.

Add in some supply side issues and the biiggest issue economically will still be oil prices rather than charge times.

Decl:oil bull.

11 hours ago, DurhamBorn said:

Those windfarms as a group have very long periods of producing nothing.The Irish sea is the only area with a less correlated production.I think thats why BP bid more for those leases.

Of course the main drivers of the gas price will be Asia.Im more concerned with how many Indians get a fridge etc than if the UK goes EV in 10 years or 20.

My roadmap says renewables only ever reach max 50% of needs by 2050 and the pulling of coal and growth makes up for that.Gas use will be higher by 2050,unless the price gets so high (10x rather than 4x) that it speeds a lot more investment in nuclear etc.Nuclear is the gas hedge for me.

nail on the head right there.

[sancho panza]

https://wolfstreet.com/2021/06/24/central-banks-did-it-wont-admit-it-top-oecd-housing-bubbles-are-1-new-zealand-2-canada-7-usa/

Five indicators go into the Bubble Ranking, according to Bloomberg Economics. In addition to two price growth measures (home price gains adjusted and not adjusted for inflation), it uses two measures (price-to-rent and price-to-income) to assess if these price gains are sustainable:

• Price-to-Rent Ratio
• Price-to-Income Ratio
• Real Price Growth (year-over-year price growth adjusted for inflation)
• Nominal Price Growth (year-over-year price growth not adjusted for inflation)
• Annual Credit Growth.

Based on this method, New Zealand and Canada occupy the top two spots of the “Bubble Ranking.” And there has long been no doubt about this.

The US is in 7th place, as the price-to-rent and price-to-income ratios are not as red-hot as in some of the other countries. But the US is #2 in real price growth, behind only New Zealand, and #3 in nominal price growth, behind New Zealand and Sweden, but ahead of Canada.

Here are the top 15 most splendid housing bubbles of the OECD, as per Bloomberg Economics Bubble Ranking. The red fields show the top three per indicator:

Some individual central bankers, including in the US, have now come out and referred to the housing market as a “bubble,” or have referred to it being called a bubble by others, and have stopped denying it.

[jamtomorrow]

8 hours ago, Bilbo said:

I'm sure you know this website,;

"National Grid: Live Status" https://grid.iamkate.com

6GW is a lot to find especially as it's an average. Remember gas boilers are being phased out from 2025. How much will that add to the electrical infrastructure.

Was surprised how much we get from France ( nuclear) and a bit from Netherlands (coal).

Cracking resource that.

Remenber the 6GW doesn't all need to (and won't) come in at the daily peak. There's typically 10GW of diurnal demand variation, so approx 4GW to 5GW of spare capacity averaged over the day (with fossils doing a lot of the up & down work) e.g. last 24h demand ...

But it's only generation and distribution *capacity* that's available - the extra energy will still need to be "found" (it'll be gas/nuclear in UK).

Same situation crops up the world over - anywhere there's a grid, there's a daily demand pattern and EVs slot in pretty neatly capacity-wise. If anything the UK is a mild example because of our temperate climate.

So if India build up their grid for fridges or TVs or air-con or whatever, they'll get a similar daily cycle and a similar opportunity for EVs to drop onto the spare capacity. And yes, they will also need a f***-load more energy, quite probably gas.

Edit to add: gas boiler 2025 policy in UK is indeed an altogether different level of nuts, makes no sense, and should be reversed at the earliest opportunity

[jamtomorrow]

7 hours ago, ThoughtCriminal said:

Come now, dont be spoiling his fantasies by injecting facts into the arena. 

 

He thinks theres capacity for over 40 million EVs in the UK. Comedy gold. 

Come off it @ThoughtCriminal, we all know you already drive a Tesla

[Onsamui]

What is expected to be Germany’s last new coal-fired power plant has commenced operation. The 1,100-MW Datteln 4 plant in North Rhine-Westphalia region has been more than a decade in planning and construction – at a cost of €1.5 billion/US$1.65 billion – and was allowed to open by the regional government in return for the closure of four other older coal-fired units – meaning an environmental improvement overall.  The hypocrisy of Merkel, who said Germany would be coal free by 2035, there is no way they will shut this down.

[planit]

3 hours ago, jamtomorrow said:

Cracking resource that.

Remenber the 6GW doesn't all need to (and won't) come in at the daily peak. There's typically 10GW of diurnal demand variation, so approx 4GW to 5GW of spare capacity averaged over the day (with fossils doing a lot of the up & down work) e.g. last 24h demand ...

But it's only generation and distribution *capacity* that's available - the extra energy will still need to be "found" (it'll be gas/nuclear in UK).

Same situation crops up the world over - anywhere there's a grid, there's a daily demand pattern and EVs slot in pretty neatly capacity-wise. If anything the UK is a mild example because of our temperate climate.

So if India build up their grid for fridges or TVs or air-con or whatever, they'll get a similar daily cycle and a similar opportunity for EVs to drop onto the spare capacity. And yes, they will also need a f***-load more energy, quite probably gas.

Edit to add: gas boiler 2025 policy in UK is indeed an altogether different level of nuts, makes no sense, and should be reversed at the earliest opportunity

I agree that some of the spare capacity during the night will be used but this isn't going to be the reality for everyone.

People live during the day, lots of people might not have access to charging points at night, people travel during the day. As pointed out upthread, the supermarkets and petrol stations will have charging points. 

Is there any current information as to the percentage charged night/day*?

 

The government should be exploring the idea of using the battery power of vehicles to even out grid loads. Most peoples' cars are either at home or at work. If they were plugged in all this time there is huge spare battery capacity [in the future] that it would be madness not to use. Using the existing batteries more fully would be very green, I know Tesla wants to do this.

 

* It will be worse in future as current EV owners have nice big houses with garages but in the future they are expected to be tower block or terrace dwellers. Also for long journeys EV owners might be using their other vehicle at the moment.

 

[AlfredTheLittle]

32 minutes ago, planit said:

I agree that some of the spare capacity during the night will be used but this isn't going to be the reality for everyone.

People live during the day, lots of people might not have access to charging points at night, people travel during the day. As pointed out upthread, the supermarkets and petrol stations will have charging points. 

Is there any current information as to the percentage charged night/day*?

 

The government should be exploring the idea of using the battery power of vehicles to even out grid loads. Most peoples' cars are either at home or at work. If they were plugged in all this time there is huge spare battery capacity [in the future] that it would be madness not to use. Using the existing batteries more fully would be very green, I know Tesla wants to do this.

 

* It will be worse in future as current EV owners have nice big houses with garages but in the future they are expected to be tower block or terrace dwellers. Also for long journeys EV owners might be using their other vehicle at the moment.

 

The future will be leased batteries; rather than everyone charging their own you just go to a charging station and your battery is replaced with a fully charged one in a couple of minutes. Already happens in China apparently.

[ThoughtCriminal]

3 hours ago, jamtomorrow said:

Come off it @ThoughtCriminal, we all know you already drive a Tesla

If this country ever converts like for like to EVs, and if renewables doesnt turn into the biggest fucking disaster in this country's peacetime history, i will show my arse in the shop window of your choice. 

 

The days of everyone owning a car are over. The covid pantomime is about imposing a new world order (in the west) that they couldn't have got away with in a million years otherwise. 

 

Just look at the raw materials required for EVs. Then look at supply. Then the penny drops. 

[planit]

1 hour ago, AlfredTheLittle said:

The future will be leased batteries; rather than everyone charging their own you just go to a charging station and your battery is replaced with a fully charged one in a couple of minutes. Already happens in China apparently.

We don't have conformity with anything to allow this to happen. For example bottles should all be one size so they can be reused.

Batteries are complicated and are designed for the individual vehicle weight, power type, range, quality etc etc.

I realise one company is trying to do this in China but there is no chance it will happen everywhere. It would need government legislation to work.

 

Sharing cars would be much easier and might work eventually with self drive.

[jamtomorrow]

2 hours ago, ThoughtCriminal said:

If this country ever converts like for like to EVs, and if renewables doesnt turn into the biggest fucking disaster in this country's peacetime history, i will show my arse in the shop window of your choice. 

Tempted by the EV "cheek" of that bet. Renewables will have to go through a crisis before they do the right thing (and build some nukes) - no bet to be had there.

[Animal Spirits]

Two UK Commercial Real Estate Funds Shut Permanently, Investors Trapped, as Sector-Wide Exodus Intensifies

https://wolfstreet.com/2021/06/26/two-uk-commercial-real-estate-funds-shut-permanently-investors-trapped-as-sector-wide-exodus-intensifies/

"Aegon AM has decided to take steps to close the funds and return the proceeds to investors as quickly as possible, in a fair and orderly manner"...Potentially big haircuts for those with money locked in.

You can view the portfolio on this interactive map, exposed to retail and office space:

https://www.aegonam.com/en/strategies--funds/property/property-income-fund/

[planit]

Bubble status

I am constantly updating my roadmap for market movements over the next few years so I can plan investment strategies. After reading a post further up about selling out of an ESG fund it prompted me to relook at the ESG side.

A quick outline of some asset statuses

Housing market - prices to high, they have been for a long time supported by government and low interest rates

Bonds - artificially low interest rates has pushed gov bonds too high and also the spread between gov and junk is too low. Games by governments have removed price discovery.

Tech/EV's - big investment cycle has caused a more conventional bubble, valuations are made compared to each other rather then fundamentals, risk is under priced.

 

ESG - this is the interesting one. A quick search on Google gives the following

This shows the bullshit, ESG - Environmental and Social Governance, is being marketed as a profit centre and investment strategy in it's own right. I am unsure how a company makes money out of social governance. For the purposes of this post we will take it to mean green investing.

I see this as different from the other bubbles listed above as people with a lot of money and resources, including the government are using it as a way to reduce guilt. It's very easy to convince oneself that there is an investment case whilst 'doing the right thing', it also allows you to write off losses as 'at least it was a good cause'.

People are also going to be making money as more people pile in, chasing a very small pool of decent assets. The whole sector is ripe for fraud, just make up a fund or a company based on nothing and market it. If cryptos can NFT's can be so successful with no substance, then think what ESG can do with a great cause, the whole world and governments behind it (and the woke religion). It could be like all the other bubbles above added together.

 

Fossil fuels.

I am a bull on this sector because of the reasons discussed to death on here but this sector is inter-related with the ESG one. Currently depressed by being on the wrong side of the ESG coin but they are also being mandated to be 40% green by 2030. This makes them big players in the ESG energy sector but only for quality ESG that can produce lots of energy (otherwise their investment doesn't help get closer to the 40% CO2 free target).

So the oil companies will be competing hard for a subsection of the ESG assets and these companies will have different value projections than the ESG investment companies.

Differing value projections

My theory here is that ESG investors believe in pink unicorns. They imagine a world with cheap, plentiful green energy. The oil companies are more pragmatic and they are projecting using more conventional tools which show an increase in energy costs and most likely an energy shortage pushing prices even higher. It is these differences that lead to BP 'overpaying' for the wind farm lease a few months ago. I hope this difference continues as it enables the oil companies to buy the assets they need without being affected too much by the ESG bubble.

 

ESG Bubble Innovation

So the ESG people might be drawn to a similar type of asset to the tech bubble - fast growing, high risk long shots and technology that can change the world. There will be billions chucked at lost causes, the amount involved will be eye-watering. But there should also be some lovely new technology that comes out of it. This technology could generate power, reuse power, store power, capture carbon, make hydrogen out of waste plastic etc etc. Nearly all of it won't be worth the development money put in or the valuation during the cycle. But as the cycle develops this tech will suddenly be available at a fair price once that is known. It is my hope that this will hep society and other asset companies including the oil companies that can buy the IP or asset at a fair price.

 

Making money on both sides

As you can see, I hope the oil companies can make money from every stage of this cycle and end up in 2030 as diversified Energy giants that keep planes running whether it's kerosene or hydrogen. They will efficiently manage and sit in the middle of the whole energy cycle. They might sit in the middle of the power grid buying electric out of peoples car batteries to make up for a lack of wind.

But I also don't really want to sit out of a gigantic ESG bubble. I believe money will be thrown in all directions so it probably doesn't matter what I invest in early in the cycle. ESG bond holders could lose it all, they are the ones providing incredibly low cost finance for high risk projects so bond funds are obviously out. 

I am thinking of picking a few ESG funds so does anyone have comments on the above and any ways to play this bubble that are more interesting?

 

 

[RickyBacker]

2 hours ago, planit said:

We don't have conformity with anything to allow this to happen. For example bottles should all be one size so they can be reused.

Batteries are complicated and are designed for the individual vehicle weight, power type, range, quality etc etc.

I realise one company is trying to do this in China but there is no chance it will happen everywhere. It would need government legislation to work.

 

Sharing cars would be much easier and might work eventually with self drive.

Very true. In Taiwan everyone rides scooters and there is a company called 'Gogoro' that has developed an electric scooter. Most petrol stations now also have a 'Gogoro' battery station on the forecourt. Owners pay a standard monthly fee and can change batteries any time they're running low on power. At the moment they are the only company (I believe) that offer this service. I can't see this model working with car batteries due to the size of the battery, and as you point out, there is no 'standard' battery.

[AlfredTheLittle]

7 minutes ago, RickyBacker said:

Very true. In Taiwan everyone rides scooters and there is a company called 'Gogoro' that has developed an electric scooter. Most petrol stations now also have a 'Gogoro' battery station on the forecourt. Owners pay a standard monthly fee and can change batteries any time they're running low on power. At the moment they are the only company (I believe) that offer this service. I can't see this model working with car batteries due to the size of the battery, and as you point out, there is no 'standard' battery.

It solves so many of the problems with EVs that I think it has to happen. It's either this or, as others have said, a huge fall in car ownership.