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

[MrXxxx]

1 hour ago, DurhamBorn said:

You havent posted a fit woman for ages by the way 

:-))))...don't encourage him otherwise he will only get 'told off' again! :-)))

[planit]

This is a good short interview which confirms some of the thoughts discussed here. It's nice to get some figures on the current situation.

Goldman’s Jeff Currie on expectations for the July OPEC+ meeting

 

Summary

Current oil demand - 97.5mbpd which is up from 95mbpd a few weeks ago from fast demand growth

Pre-covid was 100mbpd 

He sees $80 average oil price in Q3 with upside shock risk.

 

Current deficit is $2.2mbpd, shale will give a maximum of $300kbpd by end year

Demand could also surge by $2.2mbpd more by end of year so planned increases are not enough to cover this and the current deficit.

There is more on the lack of investment leading to supply being difficult to ramp up much more from other countries and Saudi getting to $9.5mbpd by early next year. 

 

 

 

[sancho panza]

2 hours ago, DurhamBorn said:

Not in goods it hasnt.Thats how they have managed to disguise it until now.The middle class are the victims yes,or more actually the children of the middle class.However the real victims are the working working class.Those who actually go to work and dont have parents with capital or state final salary pensions etc.Its them who have had the lower rung houses removed from them,pensions,wages increasing with RPI+ etc.

The public keep voting for change, but are ignored.Lets see what happens over the next few years as CBs have no choice but to pull back.

Funnily enough,saw my big sister yesterday.She's a very successful in her clincial field-Fellow of the Royal College etc-and for the first time,she started telling me how she felt sorry for her kids generation-student loans,hosue prices,DC pensions,poor job prospects etc..........couldn't get my breath as she's never really mentioned it before.

More and more people are starting to understand and it's dawning on them,how are younger people have been utterly shafted.

I've said before,I think a political revolution is imminent in the UK.FPTP hides all manner of structural weaknesses in the two main parties.At the moment I can't see that threat in England but look at Scotland,I remember when people laughed at the SNP....................

Our political classes are asleep in so many wasy

1 hour ago, No One said:

Can some one give me an overview of the Centrica meme? I've been here for a while but back then I didn't have an investment account, fortunately it seems.

 

Did centrica it's called it the' Scottish play' round here for a variety of reasons,the mere mention of the name can bring allergic rashes to some long term posters incl myself-stock go to shit?

 

1 hour ago, leonardratso said:

kept getting sacked down disproportionately by tariff caps, seemed to happen every time the govt announced a new one, i suspect it was more than that though, BG went thru a period of being the worst supplier - they seemed to be following the M&S or Boots model of retailing, being the most expensive for exactly the same product as the rest and trying to cater to a higher class of customer, either thst or they were just behind the times and werent into the cut throat squeezed margin game.

they were also up against a lot of small suppliers who were losing moeny yoy..........a lot of whom have now gone bust.

Also, @DurhamBorn said sometime back,once the govt get scared that the framework will collapse,then all manner of price hikes will get shoved through.Look at telecoms.A year ago BT was looking doomed,then the political class wanted Broadband/5G etc and all of a suddent theyve double.d

Decl:I will likely never make a proift on the scottish play,but it did give birth to the Coma Scores,which have served me well.

[sancho panza]

not sure if we've had this

https://www.shell.com/media/news-and-media-releases/2021/shell-starts-up-europes-largest-pem-green-hydrogen-electrolyser.html

Shell starts up Europe’s largest PEM green hydrogen electrolyser

Europe’s largest PEM hydrogen electrolyser^*, today began operations at Shell’s Energy and Chemicals Park Rheinland, producing green hydrogen.

As part of the Refhyne European consortium and with European Commission funding through the Fuel Cells and Hydrogen Joint Undertaking (FCH JU), the fully operational plant is the first to use this technology at such a large scale in a refinery.

Plans are under way to expand capacity of the electrolyser from 10 megawatts to 100 megawatts at the Rheinland site, near Cologne, where Shell also intends to produce sustainable aviation fuel (SAF) using renewable power and biomass in the future. A plant for liquefied renewable natural gas (bio-LNG) is also in development.

 “This project demonstrates a new kind of energy future and a model of lower-carbon energy production that can be replicated worldwide,” Shell’s Downstream Director, Huibert Vigeveno, said at today’s official opening ceremony.

“Shell wants to become a leading supplier of green hydrogen for industrial and transport customers in Germany,” he added. “We will be involved in the whole process — from power generation, using offshore wind, to hydrogen production and distribution across sectors. We want to be the partner of choice for our customers as we help them decarbonise.”

Shell has a target to become a net-zero-emissions energy business by 2050, in step with society. As part of its Powering Progress strategy, Shell plans to transform its refinery footprint to five core energy and chemicals parks. This means Shell will reduce the production of traditional fuels by 55% by 2030.

The Rheinland electrolyser will use renewable electricity to produce up to 1,300 tonnes of green hydrogen a year. This will initially be used to produce fuels with lower carbon intensity. The green hydrogen will also be used to help decarbonise other industries.

The European consortium backing the project consists of Shell, ITM Power, research organisation SINTEF, consultants Sphera and Element Energy. The electrolyser was manufactured by ITM power in Sheffield, UK, and includes parts made in Italy, Sweden, Spain and Germany.

[Noallegiance]

 

[Barnsey]

Julien chiming in on China, don't think the ROW will be able to offset so I'll be continuing to average in through this next year or so.

 

[Harley]

3 hours ago, ThoughtCriminal said:

I can't escape the feeling that things are about to go tits up in a spectacular way. 

I don't know about that by nuffing much from my (admittedly conservative) weekly review of the monthlies.  Frustrating having cash on the side getting burnt but I've got no time to trade.  Across all my asset classes.

On stocks, I liked one Finnish, one Italian, one Russian, four Hong Kong and two Japanese.  But I might already own several so more a question if I want to add which is unlikely.

Some stocks on my screen are either in downtrends or wobbling at overbought levels so may have some more (crazy) upside.   Some good yields on offer but the stocks look overbought. 

Bonds might be strengthening for a buy signal but the one than has gone looks like a fake one so I'm expecting a reversal.  Gold is strengthening but the technicals are messy so it could muck around a bit more.  Commodities continue to run but are overbought.  Interestingly agriculture signaled a pullback but that then reversed. 

Just my observations on what I look at.  DYOR.

[sancho panza]

Just looking at the last proper BK ie credit deflation.Some of the oilies price action is interesting.

RDSB started the June peak at £20, in Oct 08 got as low as £12.20,but never had a monthly close below £14.44.So roughly peak to trough of 30%.

I'm reappraising my intention to sell the oilies ahead of a BK if I can identify the wave(that's a big IF).They appear to have some defensive qualities.

BP similar story,drop from £6 to £4.40 using monthlies ie 26.6% June to Mar 09

Worth noting as well that you could have picked up BP at £5.10 in  March 08.

 

 

[sancho panza]

On 04/07/2021 at 10:08, BurntBread said:

I also don't remember a detailed discussion on nuclear energy, which has a pretty high EROEI.

Overall, I'm guessing we might avoid their dire prediction of discretionary income falling to zero in the mid 2030's ... but I can certainly recognise the broad thesis of average prosperity falling from now on.

One thing that's lacking in a lot of analysis is breaking down these headline figures by income decile.It's the same sort of critiscism I'd lever at inflation figures ie for people who don't buy cars,their inclusion in the inflation data is rather meaningless.

I think for bottom income deciles I would say Dr Tim is possibly being optimistic.This is the sort of ground that saw the far right rise in Germany in the 1930's,the Arab Spring back in 2011,French revolution etc etc.

For a society to remain stable,it's continued stability has to be in the interests of a majority of it's members.When you dispossess a portion of the middle class either via cost inflation and/or declining real wages
,you have to stand by.It doesn't takemore than a couple of years of food/fuel price rises at 20% with no wage increases before the bottom two income deciles are out of spare capacity to absorb any more losses.

More and more people are questioning why they should work when the rewards for doing so are declining sharply.

[ThoughtCriminal]

4 hours ago, MrXxxx said:

But surely to be meaningful those values need to be standardized for the amount of money within the economy as a whole? i.e. if there is now twice as much money than 20 years ago the apparent $ value would be much less, and by extension portray a far less dramatic scenario.

When 1 year has 50% more than the previous 20 years combined then i dont see any context in which that isn't dramatic. 

 

Then theres 21 compared to every single other year. There's no nuance there, its a sledgehammer. 

[ThoughtCriminal]

I think Michael Burry summarises it best. 

[BurntBread]

6 hours ago, MrXxxx said:

All caused by moving away from the gold standard.

I'm reading Quigley's "Tragedy and hope" (getting on for a third of the way through - I'm a slow reader), and one of many things he has opened my eyes to is the nature of the gold standard. It was subtle, oddly fragile, and not really as I had imagined it.

First, to state the obvious, it was not an alternative to fractional reserve banking: it operated completely in tandem with FRB, but served the two functions of providing a limit to credit expansion, and also keeping foreign exchange rates steady. It did the latter because if they got out of sync beyond the "gold points" (distance away from par sufficient to pay for transporting gold), then gold would flow from one country to another, causing a deflation in one (leveraged up by the FRB), and allowing price inflation in the other. A kind of leveraged negative-feedback.

The fragility came from the fact that it required a lot of political things to be in place across many countries, including zero-cost conversion of notes to gold, free trade, and no extra controls on foreign exchange. As soon as countries needed to run large deficits, or wanted to play games with the gold flows as a diplomatic weapon, then it was bound to cause political strife and ultimately fail.

What really screwed it over was the first world war, which led to all the major powers leaving the gold standard, and inflating, or incurring enormous debts. When they tried to get back on it after 1918, the amounts of gold in different countries were way out of whack compared to the money supply, and all kinds of other obligations had been incurred. There was simply no way back, and the problems in the system manifested themselves in myriad different ways (prices, exchange rates, export/import imbalances, unemployment, too much war-related industries, pensions, debts, reparations, unprofitability of farming etc.), that different players had no idea which to tackle first, nor how. Quigley paints the inter-war years (and probably everything since) as being in the shadow of the gold standard, and attempts to come to terms with it no longer being possible.

As an aside, WWI was the war which broke the trust of the people in the government, because it was the first time in modern history that mass propaganda had been used by governments on their own people, and this caused a lot of anger when some of it was revealed afterwards. It's probably a period that bears reflection on for the present day.

Anyway, what I found most interesting was that the main people driving to get back on the gold standard were the bankers, and for a very sensible reason. They have the license to print money out of thin air, provided they lend it out at interest ... but they want the money that gets paid back to be of full value. As creditors, they would suffer from inflation. Of course, their actions, through FRB were inflationary (compared to the base money supply), but they always used to have a deflationary preference. I'm interested to learn now why, how and when the transition was made to an inflationary preference by central banks. I am guessing it's all tied up with the doomed struggles to right the ship of international finance after 1913. 

[DurhamBorn]

CBs became agents of inflation when the governments introduced welfare states mostly.

[spygirl]

7 hours ago, nirvana said:

ONLY cos the CORPORATE NEOLIBERAL CUNTS outsourced all their jobs to wee chinaman!!

And who helped em? those BANKER CUNTS AGAIN! 

Not really.

The CCP helped the, waving nocost labour and free land.

All they had to do was take a minority stake in a CCP joint venture and share their IP ... think of the cost savings..... oh course, the joint venture will honour the IP.

Few years later, an entirely different CCP is making something using the same IP.

Theres a bloke near me who designed s plastic gadget, supplied to an obsessive bloke activity.

Hes made millions from it. Production is done locally and stuff shipped from a large garden shed.

I'm sure that some MBA would have told him to move production Chinkland in late 90s- think of labour cost savings...

If he had, hed have been out of business in 5 years.

Germans n Italians are finding this.

 

[Hancock]

5 hours ago, Noallegiance said:

 

So what are these low growth, low value stocks he talks of??

Of the 150k SIPP + 250K formerly set aside for a house .... i'm 27% stocks 73% cash.

Tempted to be the one with big bollocks to stay this way for the BIG KAHUNA.

As presumably if it happens, i can then retire

[Noallegiance]

8 minutes ago, Hancock said:

So what are these low growth, low value stocks he talks of??

Of the 150k SIPP + 250K formerly set aside for a house .... i'm 27% stocks 73% cash.

Tempted to be the one with big bollocks to stay this way for the BIG KAHUNA.

As presumably if it happens, i can then retire

I know as much as is given in the interview, so divi-paying stocks in developing nations.

[Noallegiance]

OPEC+ Talks Abandoned Without a Deal, Sending Oil Prices Higher By Bloomberg (investing.com)

[ThoughtCriminal]

7 hours ago, No One said:

Jesus christ, how did they manage to do that?

Slowly at first, then all of a sudden........... 

[DurhamBorn]

1 hour ago, Hancock said:

So what are these low growth, low value stocks he talks of??

Of the 150k SIPP + 250K formerly set aside for a house .... i'm 27% stocks 73% cash.

Tempted to be the one with big bollocks to stay this way for the BIG KAHUNA.

As presumably if it happens, i can then retire

Pretty much a lot of what we have been buying i suspect,for instance Telefonica Brasil,TIM SA etc back to nice range to ladder buy.Iv been buying Henderson Far East Income Ltd the investment trust for more Asian exposure.They sold down their chip stocks and have increased Chinese banks,but some nice value stocks mixed in.

Iv also been buying a few Takeda Pharma ,TAK ,big Jap pharma company.They have a nice spread of new drugs and they are paying down debt to a nicer range.3.2x by year end,then lower quite quickly i suspect.Our own market still has good pockets of value and as the private equity bids flowing in shows under invested from the big yank funds.

The big question is if we get a BK does the massive amount of liquidity in certain areas and bonds flow into value areas.The main risk i see for value is if counterparties fail hugely in debt derivatives.That could take down almost everything ,systemic failure.

 

[Dogtania]

On 04/07/2021 at 16:35, JMD said:

Yes, energy-information economy sounds far more descriptive. It is also very useful term because it helps highlight the fact that we don't own our own data. That is to say that many huge online companies survive - and gain more and more power - by using our data to sell products and 'influence' us,  yet we don't have any say or understanding of what's happening. We have become online serfs - anyone not appreciating this is seriously in denial. (Ie even ex-presidents can be silenced)                                                                                                                         Jamtorrow please could you elaborate more on what you mean by 'entropy economy'? I kinda understand that extracting fossil fuels increases entropy. But for the information/digital economy my - very basic understanding - is that If say a company move online... profits usually increase/marginal costs decrease so I assume that overall company utility has increased, therefore a more 'effective' company means that entropy has decreased?                                                                                                                                                                          I guess I'm using loose terminology above, however I note that many commentators in the crypto space have begun talking about entropy and tbh it turns me off a bit because the topic sounds pretentious, but perhaps maybe that's just my bad because I don't understand it?

I do agree that data and it's ubiquity and the clever manipulation of thus far seems to be a big part of the economy and order.  But I'm also thinking this has maybe run its course.  Of course all the data and advertising is primarily added value by basically selling us tat and getting more efficient at doing so.

But like this thread sets out that model, the consumer cycle is coming to an end.

One could argue that this is happening in the West but frontier or growth regions are still in play.  I'm not sure if that's true if this is a truly macro global move, which it probably will be.

Data as oil analogy etc has some merit but in the way it's been used massively has really been about servicing and drawing out the consumer economy I think(?).  Also obviously data on its own is useless it's the ability to sift through and use, and finally this data is surely infinite in nature or has the potential to be so, hence where the analogue breaks down.

Maybe I've been unduly influenced by a recent book I read that set out the decline of the US (and basically our civilization as we know it - similar say to end of Roman empire).  The author has a pretty bleak prognosis and sees the decline -which has already started- being very steep and sudden.  

https://www.goodreads.com/book/show/28818590-dark-age-america

Going back to my initial point I just don't know how useful all this information and data economy will be when we leave the consumer cycle behind (and their tapped dry).  Totally agree with the serfdom aspect (I would guess the author of the book I mentioned would say they were the lucky ones, his thesis is that more and more are living outside society now, non-players, and once this reaches a critical threshold it really starts to fall apart).

What use is there in influencing us to buy things we can't afford and don't need (it's food shelter and medicine they need not plastic tat).  Idk maybe it's all one last hurrah before lights out.

[Noallegiance]

8 minutes ago, DurhamBorn said:

The big question is if we get a BK does the massive amount of liquidity in certain areas and bonds flow into value areas.The main risk i see for value is if counterparties fail hugely in debt derivatives.That could take down almost everything ,systemic failure.

 

I've gone back and forth with this.

I'm going to be selling profit but leaving the majority of initial investment as the current market melts up and gradually sell a bit more if it stays crazy long enough.

If I miss-time it then so be it as the areas I'm in will run with the cycle anyway. What gets taken out I'll put back in after what I see as being an inevitable correction (at a minimum).

Not quite a win/win but I get more sleep that way!

KISS

[Barnsey]

3 minutes ago, Noallegiance said:

I've gone back and forth with this.

I'm going to be selling profit but leaving the majority of initial investment as the current market melts up and gradually sell a bit more if it stays crazy long enough.

If I miss-time it then so be it as the areas I'm in will run with the cycle anyway. What gets taken out I'll put back in after what I see as being an inevitable correction (at a minimum).

Not quite a win/win but I get more sleep that way!

KISS

If we know about derivatives and leverage you can bet your bottom $ the central banks do too. China already clamping down, Fed doing stealth QT for a couple months now, might be too extreme to suggest an engineered crash of sorts but seems to be underway.

[Hancock]

42 minutes ago, DurhamBorn said:

Pretty much a lot of what we have been buying i suspect,for instance Telefonica Brasil,TIM SA etc back to nice range to ladder buy.Iv been buying Henderson Far East Income Ltd the investment trust for more Asian exposure.They sold down their chip stocks and have increased Chinese banks,but some nice value stocks mixed in.

Iv also been buying a few Takeda Pharma ,TAK ,big Jap pharma company.They have a nice spread of new drugs and they are paying down debt to a nicer range.3.2x by year end,then lower quite quickly i suspect.Our own market still has good pockets of value and as the private equity bids flowing in shows under invested from the big yank funds.

The big question is if we get a BK does the massive amount of liquidity in certain areas and bonds flow into value areas.The main risk i see for value is if counterparties fail hugely in debt derivatives.That could take down almost everything ,systemic failure.

 

So you're getting out of cash or building it up for a BK?

Prior to March 2020 my intentions were to be 100% cash, then hoy it all into silver/gold mining shares ... somewhere along the line i lost my bottle and was about 60% cash .... worried it was going to get inflated away.

Thinking this time maybe i'll hold my nerve on the presumption things will crash once QT, raising interest rates happens. I know there is a crash round the corner, its just having the balls to back up what i think i know!

Edit - see you're talking about laddering again, term not used much since March 2020.

[reformed nice guy]

Saw this today https://www.smmt.co.uk/vehicle-data/car-registrations/

2017 was the peak for car sales and population continues to increase by 600,000+ per year

 

[JMD]

2 hours ago, Dogtania said:

I do agree that data and it's ubiquity and the clever manipulation of thus far seems to be a big part of the economy and order.  But I'm also thinking this has maybe run its course.  Of course all the data and advertising is primarily added value by basically selling us tat and getting more efficient at doing so.

But like this thread sets out that model, the consumer cycle is coming to an end.

One could argue that this is happening in the West but frontier or growth regions are still in play.  I'm not sure if that's true if this is a truly macro global move, which it probably will be.

Data as oil analogy etc has some merit but in the way it's been used massively has really been about servicing and drawing out the consumer economy I think(?).  Also obviously data on its own is useless it's the ability to sift through and use, and finally this data is surely infinite in nature or has the potential to be so, hence where the analogue breaks down.

Maybe I've been unduly influenced by a recent book I read that set out the decline of the US (and basically our civilization as we know it - similar say to end of Roman empire).  The author has a pretty bleak prognosis and sees the decline -which has already started- being very steep and sudden.  

https://www.goodreads.com/book/show/28818590-dark-age-america

Going back to my initial point I just don't know how useful all this information and data economy will be when we leave the consumer cycle behind (and their tapped dry).  Totally agree with the serfdom aspect (I would guess the author of the book I mentioned would say they were the lucky ones, his thesis is that more and more are living outside society now, non-players, and once this reaches a critical threshold it really starts to fall apart).

What use is there in influencing us to buy things we can't afford and don't need (it's food shelter and medicine they need not plastic tat).  Idk maybe it's all one last hurrah before lights out.

Good question. My answer would be that yes consumerism will certainly become a smaller part of the global economy, however the consumerism that prevails will be mostly transacted online, so the few monopolistic platforms operating in that space will become even more dominant and powerful. Plus it's not only online purchasing I was thinking about, ie social media is even more corrosive. It is responsible for radicalising opinion and tribalising communities. And then there is the data sharing between government depts, and the anticipated cbdc's. Centralising all this data without discussion is worrying to say the very least. And my data once online becomes a tradeable commodity, which is why I refered to a state of 'online serfdom'...  However, I'm not all doom and gloom as personally I think a solution will be found, maybe with automatic copyright ownership of all our personal data and which we can selectively choose to sell to others, implemented via blockchain tech. of course!!