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


spunko
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4 hours ago, Innkeeper said:

BP, Shell, minor oilies, services all powering ahead this morning.  

I’ve noticed the term ‘Energy Transition’ creeping in to corporate speak more often and I wonder if this will start to provide a convenient label for the pension funds and investment vehicles, who have been declaring they’re out of fossil fuels, to start investing again......

Watch Larry Fink. I said he'd be back to chase the cash flows from a crisis he partly created. "Natural gas is a necessary bridge fuel" or some shite. Institutional money will follow him.

Edited by Cattle Prod
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10 hours ago, sancho panza said:

But people buy junior PM miners to try and hedge CB incompetence and maintain their spending power.Seems perfectly reasonable and logical to me to try and give yourrself some leverage to the gold price if you think currncies could crash hard.

Interesting discussion SP, and exactly right, but can also expand this out i think, beyond the purely financial... 

After all, this thread is all about the Hedge, hedge, hedging (plus leveraging, if want to be pedantic). Moreover, unless i've got @DurhamBorn wrong, he frequently drops hints/anecdotes about how he repeatedly does this (hedging/leveraging) in his personal life - including for example his own joke? about his partner being a carer... for just in case he needs personal care later in life! (DB i hope i'm not maligning you or your better half - you have joked and written about this haven't you!?).

Perhaps i'm over thinking this... But the thread thesis - as i understand and appreciate it - is that employing a 'hedge fund' mentality to life is a practical and powerful strategy. I'm using the hedge fund metaphor in its 'traditional' macro-market/containment-of-risk sense. I don't of course mean operating an actual investment hedge fund. Instead, its more about how to achieve a successful/fulfilling/meaningful approach to life - perhaps think 'Zen and the Art of Hedge Fund Maintenance'. 

(I think there's a book in this stuff DB, please do consider writing one, gotta be a next-cycle best-seller!!)

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30 minutes ago, TheNickos said:

If shell hits 18 I’ll be tempted to offload a few :D

I have done that at £15.20, then bought back BP a few weeks later. Was only a £1000 profit from my lowest ladder last year and I also bought some more of the City of London investment trust with the proceeds and some other ISA cash sitting there earning sweet FA!

That's the problem if you crystallise the gain where do you put it, unless of course you think the BK is very close....

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4 hours ago, Hancock said:

I can accept people buying metals as a hedge, but these junior minors have as much chance of 20 bagging over the long term as they do of going bust or nationalised.

If there is a crash i'll jump in and buy a chunk of junior miners, but in my situation thats for making quick easy money, which could go some way towards buying a "simple fucken house", that the money i've got should have been able to buy ... its not a hedge.

 

'Everything in moderation' is what the Greeks told us. In essence getting a portfolio balance 'correct' is key, but this topic is as much personal/psychological as it is financial. 

So for example, i've always thought my Junior PM Miners as being a 'lower risk/higher reward' Lottery Ticket... a speculative hedge, you might say compared to outright gambling!! Am i (can i be!) wrong to think like this?

Edited by JMD
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1 hour ago, BadAlchemy said:

Damn, missed it again. What goes up must come down with a thud!

 

20210928_111310.jpg

Just as well I didn't double down to reduce the current loss prior to an exit.

1 hour ago, Barnsey said:

Lost Southeastern franchise as someone was a tad naughty with £25 million :ph34r:

Any chance of a special div? :)

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5 minutes ago, JMD said:

'Everything in moderation' is what the Greeks told us. In essence getting a portfolio balance 'correct' is key, but this topic is as much personal/psychological as it is financial. 

So for example, i've always thought my Junior PM Miners as being a 'lower risk/higher reward' Lottery Ticket... a speculative hedge, you might say compared to outright gambling!! Am i (can i be!) wrong to think like this?

That ones ended now, i was merely highlighting how people on here were looking to make easy money thus profit from someone elses labour.

Jamtomorrow put it in context-

 

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3 hours ago, DurhamBorn said:

It has it all.Doesnt want to support mining or fossil fuel while using everything those things produce.I love the advice about use an ethical building society account,ethical is stealing her saved labour with rates below inflation?.If she wants to help the planet maybe she could eat less?,where do the BBC find these losers?

https://www.bbc.co.uk/news/business-58544966

 

I think they are related to most of them!!

Yes they are 'losers', both figuratively and financially, but i suppose their type of 'noise' can be ignored. But i also note that the film maker Richard Curtis is mentioned in the article. And he favors all pensions being forced to buy 'green bonds'!! (20% i've heard him talk about) I bet he and his media friends (fiends?) are planning all kinds of 'drip-drip' media propaganda to help get his dogma across to the public.           

 

 

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3 hours ago, geordie_lurch said:

I have a feeling this winter is going to be the darkest any of us have faced in our lifetimes due to shortages of energy, health, decent healthcare and empathy :(

 

One in the DT where some middle aged man wants to potato peal a car driver to death.

Its a pity the driver didn't run this cunt down, then got off on the grounds of self defence.

https://www.telegraph.co.uk/news/2021/09/28/driver-pulls-knife-forecourt-row-motorists-resort-filling-wrong/

The video then shows the car ramming into the alleged knifeman

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4 hours ago, Hancock said:

They've been brainwashed for their entire life, my daughter was telling me there are 11/12 year old kids in her year group who are in tears after lessons on "man made" climate change.

And it seems schools/govt are ratcheting up the mind control to another level.

Yes, and so many new-age 'truths' to be taught to the young and impressionable... i.e. past historical Western crimes of Empire and of shame; current-day critical-race-theory and other 'isms; and of course the future existential threat of climate collapse - no wonder mental illness is increasing!!

(social media 'negative algorithms' also to blame)

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2 minutes ago, JMD said:

Yes, and so many new-age 'truths' to be taught to the young and impressionable... i.e. past historical Western crimes of Empire and of shame; current-day critical-race-theory and other 'isms; and of course the future existential threat of climate collapse - no wonder mental illness is increasing!!

(social media 'negative algorithms' also to blame)

And they will grow up to be your leaders and administrators of tomorrow.  It's already here, but I assume each batch just gets worse.

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Doombrose has cashed in his chips and is waiting for a crash.

image.png.9494b66ad2f4f0cfebf8b983b3ff967c.png

The time-honoured cure for high energy prices is high energy prices. Demand wilts.

It is happening in front of our eyes with breath-taking speed in China, the elephant in the global energy boat.

Chinese coal stocks are down to 18 days’ cover, deemed dangerously low by Beijing. It has long been the nightmare of Communist Party planners that the US might weaponise China’s dependency on fuel imports in a crisis.  

State-run China Energy News said thermal coal inventories at power plants are critically low. “We are looking for coal everywhere, but no matter how high the price is, it is not easy to find,” said one utility. 

Plants cannot pass on the surging cost - hitting $300 a tonne in places, up fourfold in a year - and are losing money on a systemic scale. One producer said his plant is losing a dime on every kilowatt of power. Banks are pulling credit lines.

Regions accounting for 70pc of Chinese GDP are rationing power to industrial users, and in some cases have halted operations altogether. 

Large parts of north-east China are facing power cuts for several hours each day, hitting traffic lights and cell phone masts. Yicai Global warned of power outages and water shortages until next March.

Guangdong in the south is to halt the use of lifts in office blocks below the third floor. Air conditioners should not be set lower than 26 degrees at businesses and households. Electricity is being rationed for cranes at the port of Tianjin.

Dozens of plants processing soybeans, feed and vegetable oil have been suspended. The steel, cement, aluminium and chemical sectors are under restrictive orders to varying degrees, facing staggered production to avoid peak hours.

Several large firms in the Zhejiang textile hub have been shut until the end of this month. Others are facing de facto triage based on relative energy use.

“With market attention now laser-focused on Evergrande and Beijing’s unprecedented curbs on the property sector, another major supply-side shock may have been underestimated or even missed,” said Ting Lu, China strategist at Nomura.

The Japanese bank expects China’s economy to contract by 0.2pc this quarter and barely eke out any growth over the rest of the year. That is a double-dip recession with Chinese characteristics.

It is puzzling that global markets have been so insouciant about a power crisis in Asia’s anchor economy. The slowdown is happening just as fiscal stimulus fades in Europe and America, and as Western central banks start to tighten in the face of incipient stagflation and a rapidly rising misery index.

What can possibly go wrong in global equity markets still at nosebleed P/E ratios? 

While this column does not give investment advice, as a personal precaution I have liquidated most of my modest salaryman’s portfolio and intend to ride out the early autumn with 80pc in cash until risk and reward come back into plausible alignment.

Nor am I buying Anglo-Saxon or eurozone “safe-haven” bonds, given rising structural deficits and the imminent retreat of the chief buyers amid so much debt issuance. The auction of two-year US Treasuries last night was a shocker, the worst cover ratio since December 2008.

Talk of a Chinese “Lehman Moment” as developer Evergrande collapses with $309bn of debts has obscured the greater danger. Xi Jinping has deliberately precipitated a crunch in China’s encephalitic property sector via his Three Red Lines, deeming a purge necessary to safeguard social order and prevent the further misallocation of resources. 

Construction accounts for a quarter of Chinese GDP and half of the world’s diggers, cranes, and cement mixing. It diverts funds from the green, hi-tech, robotics, AI, cloud computing, and advanced semiconductors sectors, where the struggle for superpower mastery is really taking place.

“Beijing’s determination to suppress the whole property sector, not the fallout of Evergrande, is what represents the major near-term risk to China’s growth and financial stability,” said Ting Lu. Land sales were down 64pc in August from a year earlier. They are the leading indicator of the building industry.

You could say that Xi has brought forward a denouement bound to happen because China’s workforce is shrinking by three million a year, marriages have fallen by a third in seven years, household formation has slowed, and rural migration has all but ended.

Buyers will be progressively scarcer, rendering the developer model of pre-selling homes to cover past costs a slow-motion Ponzi scheme.

The property squeeze is compounded by a parallel squeeze on carbon. Xi has promised peak CO2 emissions by 2030, a 25pc cut per unit of GDP by 2025, and a 3pc cut in energy intensity this year.

He knows that China is paying a high credibility price for foot-dragging as Europe and the US launch green deals (nobody can hide behind Trump any longer), and may soon face a carbon border tax in its top markets if it is not careful. 

Energy-saving edicts are raining down. Party cadres have been mobilised to pursue CO2 crimes, and are reportedly doing so with the zeal of the Cultural Revolution. The state planner (NDRC) says 20 Chinese provinces have failed to meet this year’s goals on cutting energy intensity.

Nomura says nine have received “Level 1 warnings”, including Guangdong and Jiangsu, 35pc of China’s economy between them. Woe betide the Party officials responsible.

The steel, cement, and aluminium industries face production caps by the industry ministry (MIIT). They stole part of their allowance over the first half, and must cut back this half to compensate. That means drastic falls in steel output. It has already begun and is hammering iron ore prices, along with miners such as Vale and BHP Billiton.

China’s energy crunch is happening for much the same reasons as in Europe. Covid upset the rhythms of the global fuel market. The weather was extreme: drought hit hydro-power, and the hot summer boosted air conditioning. The result was an explosion in demand for coal and gas. 

The cost of liquefied natural gas in Shanghai reached $26 MBBtu, luring away shipments that would otherwise have gone to Europe to replenish depleted inventories. China is now the world’s biggest LNG importer.

In August it bought 6.4m tonnes, compared to 4.9m in Europe and Turkey combined (ICIS data). Put another way, Britain’s gas crisis is a function of China’s industrial cycle.

Yuriy Vitrenko, Ukraine’s gas and pipeline chief, told me over the weekend that demand destruction is already working its brutal cure and that global gas prices have probably peaked. That might seem hard to believe with storage so perilously low. The futures market for UK contracts show prices continuing to rise in seasonal contango, hitting 187p per therm in January.  

But markets roll over when you least expect. I don’t wish to pick on Goldman Sachs, and agree that depressed investment in upstream oil and gas implies a fossil supercycle in the early 2020s. But I watch with a jaundiced eye as the bank raises its crude oil forecast to $90 this year, in part citing gas to oil switching for power plants.

Goldman issued its infamous $200 call for crude in 2008 at the exact top of the price spike. We now know that core Europe was already in recession by then and that America’s subprime debacle was nearing its climax, with giant pillars of Fannie Mae and Freddie Mac already crumbling. 

If China is slowing as hard as doubters suspect, it will do the world a big favour and head off a political crisis in Europe and the UK this winter. No elected government can easily survive loss of control over energy security. Nor should it. 

It may also head off a backlash against net zero policies at a delicate moment in the transition, before the benefits of cheaper post-fossil energy become self-evident, and there is no looking back. So unless you are a climate denialist, raise a glass to Xi Jinping.

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12 minutes ago, Hancock said:

One in the DT where some middle aged man wants to potato peal a car driver to death.

Its a pity the driver didn't run this cunt down, then got off on the grounds of self defence.

https://www.telegraph.co.uk/news/2021/09/28/driver-pulls-knife-forecourt-row-motorists-resort-filling-wrong/

The video then shows the car ramming into the alleged knifeman

I don't know why people suggest the media is ramping this fuel story.  I personally found the link below the article to this article to be most informative....

https://www.telegraph.co.uk/food-and-drink/features/eight-things-supermarket-might-have-secretly-run/?li_source=LI&li_medium=liftigniter-rhr

Our media performs a valuable public service.

Clap......clap......clap.

 

Edited by Harley
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ThoughtCriminal
52 minutes ago, Cattle Prod said:

Food first for sure. Exercise second. What has gone alongside my investment journey over the last few years has been a barbell. I'm not a gym type but when my body started to creak in my late 30s I wanted to strengthen it up before I got too old. Best investment I ever made, that investment in my body. I'm not 'gym fit' but I'm far stronger physically, and mentally than I have ever been. I know for sure it helped me keep my cool in March 2020. Why?

Because it's just me and a rusty old barbell in the back garden. No one is making me do it, except me. And it's bloody hard! Yesterday was squats, and my last set was 5 x 140kg. And the thing is, when you stand up from a squat position with ~300lb on your back, you know nothing you have to face the next day will be that hard.

It's taken me about 4 years to get to that, I could barely squat 50kg when I started, my back was incredibly weak and I didn't know it. On the slippery slope to immobility. I'm well off thread now, but if anyone is interested, just buy "Starting Strength" by Mark Rippetoe. Easy to start, minimal investment, about 90 mins a week.

First of all well done. 

 

Second, dont sell yourself short. Ive been a meathead gym bro for 30 years and most people dont even train legs, let alone get to 140kg squat. 

 

Last but not least, i cant agree enough about Starting Strength. Absolute masterpiece. 

 

Anyone on here thinking about getting into lifting, youre not too old, too fat, too anything. Buy SS and you'll never look back. 

 

Well off topic but its CPs fault. 😂

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19 minutes ago, Harley said:

I don't know why people suggest the media is ramping this fuel story. 

Up here in Yorkiebarland there doesn't seem to be any problems getting fuel, could be because its shite here and no one wants to go out.

Certainly not worth going out for Quorn veggie fish fingers or a £20 Sainsburys free range chicken. Truly is the land of 1st world problems when not being able to get such things is national news.

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