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

[onlyme]

21 minutes ago, Iamcynical said:

My thoughts exactly - the desperate flyers will now be prepared to pay much more than they were when they took the flybe fares for granted.  Customers who always choose on price need to be careful what they wish for, and businesses that base their entire business model on simply being the cheapest, also need to be careful what they wish for !

I wonder how long the hierarchy, at Southampton airport in particular, sat on their hands whilst the stark warnings were all around regarding flybe's demise ?  I guess they'll be ok as they should have plenty of money in the bank, but the people working the bags, security, coffee shops etc are presumably going to be really struggling now.

Airports will be under the cosh, less footfall less money into concessions - some will either close or will want cheaper rent, car park charges will drop so another revenue stream drop for the airport if they own land for that. Any local maintenance/repair/overhall facilities renting on airport grounds will likely shut and be servicing done from existing carriers' MRO facilities.

[DurhamBorn]

1 hour ago, JMD said:

DurhamBorn, I believe that Flybe had a £100m market cap, but had £200m debts, so was always kinda untenable as a business, and debt deflation caught up with it in the end.

However, isn't the more interesting thing - as per the ideas of this blog - that their low price ticket offerings will now no longer be available, and which ever airline does take on their former routes will put fares up - i.e. massive inflation in air fares, and part of the reflation cycle in action?       

Happy to be corrected if I've go this wrong and this isn't what happened to FlyBe. 

Exactly and thats why a debt deflation leads to inflation.This time we will have the added fuel of mass printing.More money,less places for it to go.

[sancho panza]

4 hours ago, DurhamBorn said:

Yes a couple hit my ladders so im about 60% in them now of what id have if all hit.I havent got a big allocation to the sector due to lack of targets.Iv also started to ladder into aluminium sector,Norsk Hyrdo main one but also Alcoa,bought first ladders last night in Alcoa.Norsk produce a lot of their own energy,so should get a big advantage once energy prices rocket.I noticed a MSM article yesterday somewhere saying "Energy is dead" ,i love those sort of things in the mainstream.

Yeah,I only mention it because Mosaic and K+S are looking like they're ready for another ladder.My only problem is that we're pouring the cash into oil at the mo.Bought more RDSB/BP this am,then this afternoon more XOM/EQNR,weighing whether to add a bit of Total/Repsol as well(our weightings in those are much smaller than the big four)

Also yellow stuff looking good.Added BVN/NCM/MAG/OR/AU/SAND monday.Just really struggling to invest in anythign but gold/oil at the mo.

Appreciate the heads up on Norsk Hydro/Alcoa.I'll take a butcher's.

Correspondingly you much knowledge ref steel companies/onshoring.

US Steel-incredibly only a billion dollar MC now(probably worth more in 1920.Runs well on a weak dollar previously.

https://uk.investing.com/equities/us-steel-corp

 

great piece below on a couple of oilies talked about on here.Decl:we hold both. @Cattle Prod

https://seekingalpha.com/article/4329138-you-regretted-not-investing-in-2008-invest-in-oil-now?ifp=1&utm_medium=email&utm_source=seeking_alpha&mail_subject=if-you-regretted-not-investing-more-in-2008-invest-in-oil-now

Starting with ExxonMobil (NYSE: XOM), the company has been punished heavily for the oil crash, reaching lows not seen since the early-2000s. This is despite a 50+ year history of increasing dividends. The current dividend yield of more than 6.5% is higher than the expected S&P 500 growth, not counting any appreciation.

ExxonMobil Earnings Potential - ExxonMobil Investor Presentation

ExxonMobil is in a high investment period. The $180 billion it plans to invest in its business from 2020-2025 is near its present market capitalization of $220 billion. The returning will be significant, and the company's Permian Basin and Guyana investment (Phase 2 Guyana breakeven is a mere $25 / barrel) will support the upside.

As a result, by 2025, the company is anticipating earnings reaching almost $40 billion. Even in a $40 / barrel environment (almost 30% below today's prices in our current COVID-19 fear environment) earnings will reach almost $30 billion (40% growth). As an investor, you're buying a share of a $220 billion company, that pays out $14 billion / year in dividends.

You collect that 6.5% dividend to wait. And by 2025, you'll own a stock, that based on your cost basis, even if oil prices drop 30% between now and then, will have a P/E ratio of <8. It doesn't get much better than that.

 

Occidental Petroleum (NYSE: OXY) is another name that's been punished heavily by the markets, especially after investor fears over debts from its Anadarko Petroleum acquisition (and financing plan with Warren Buffett). Here the results are even more astounding as the company's dividends have been pushed to >9%.

Occidental Petroleum Shareholder Returns - Occidental Petroleum Investor Presentation

This is in-spite of a company with a long history of returning cash to shareholders. Since 2002, the company has returned more than its current market capitalization to shareholders. More importantly, it has continued to pay and grow its dividend through difficult time periods (2008). The company has indicated its dividend is important and doesn't intend to cut it.

The company has layered its portfolio so that its dividend is long-term sustainable at $40 WTI. The company underwent a "cost-less" hedging program that limited oil price upside to ~$74 / barrel but provided it with basically + $10 / barrel on current oil prices in its sales for 2020-2021 (enough to cover the dividend and debt).

WTI prices would need to fall another near 25% for things to start getting concerning. And they'd need to stay there. There is some risk to the dividend if oil prices do drop and remain low, along with the company not being able to undertake asset sales. However, this risk is low, even with all the recent COVID-19 fears, oil prices are well above this.

Additionally, a 50% dividend cut, which would save more than $1 billion / year, would still provide investors with a near 5% yield.

 

 

3 hours ago, Democorruptcy said:

Have you got a chart on that to hand?

I agree these are not usual times and we are now in the 2nd decade of them 

I'll vote with kibuc.Key thing when using G+S ratio is also to include an assessment of what DXY was doing.I think DXY is weakening here.So imho no point using stretch of G+S ratio chart when DXY was getting stronger.

[janch]

https://notayesmanseconomics.wordpress.com/

SP usually posts this but I am also a follower and today he uses the phrase I've heard here before from DB:  "The Fed have lost control"

Maybe he reads thsi blog!

[sancho panza]

 

2 hours ago, Agent ZigZag said:

Possibly . Speaking with alot of traders and fund managers of late. The City appears very bullish. The general consensus is that central banks have their backs and are providing the necessary liquidity. This thread is about it being to little and too late to change the course of direction. At a guess I am ignoring the day to day doom and gloom and consider the market to correct back up.

I'm bullish on the sectors we're currently in-which isn't many tbh.I'm extremely bullish on RDSB.I think the CB's have one more round of QEing until they can't then it's game on.Where the wider market will bounce from hereI have no idea and don't care.We have plenty spare to hopefully catch the bottom on our oilies.

Congrats on the transfer,be nice if you could get a payout from them as well.

1 hour ago, Barnsey said:

Most of what I own is heavily in the red, but I just see them on sale and want to buy more, yet can’t really as house purchase in months to come must take priority. My K+S is down 30% and I thought it was cheap when I bought it!

We're down 20% on first K+S....I fondly remember our Goldfields punt going down from $3 to near $2 in 2018.......didn't buy a second ladder until $4.80....head hits table.

[kibuc]

10Y bonds are 0.696%! When did that happen?

 

(I guess the answer is: slowly, then all at once)

[DoINeedOne]

[Majorpain]

9 minutes ago, kibuc said:

10Y bonds are 0.696%! When did that happen?

(I guess the answer is: slowly, then all at once)

Black bat has caused a right kerfuffle.

(Banker)Pity those people with those barbarous pet rocks gold and silver that yield nothing, look i can lend my fiat money for 10 years for 0.7%! (/Banker)

Wonder if it will go negative and properly put the cat amongst the pigeons?

[BearyBear]

EURCHF has just hit multi year lows... flight to safety?

[nirvana]

GUYS THE BIG KAHUNA IS HERE! THE BOND MARKET IS SCREAMING WE ARE ON THE PRECIPICE OF A FINANCIAL DISASTER!

SELL EVERYTHING NOW AND RUN FOR THE HILLS!!!

 

We Are Staring At The Abyss Of A Credit Crunch, The Bond Market Is Basically Confirming A Lot Of Death Coming

https://www.investmentwatchblog.com/we-are-staring-at-the-abyss-of-a-credit-crunch-the-bond-market-is-basically-confirming-a-lot-of-death-coming/

[nirvana]

This is it! The party is over. The world is now facing the gravest economic and social downturn in Modern Times (18th century). We are now entering a period of global crisis that will change the world for a very long time to come. This should come as no surprise to the people who have studied history and also read my articles for the last few years. Many others have also warned about the same thing. But since MSM never talks about the excesses in the world or the risks, 99.9% of people are totally unprepared for what is coming next.

https://goldswitzerland.com/this-is-it/

[nirvana]

US OIL JUST SPIKED UNDER 43$ 

GET IN JUST HIT MY 42.5$ TARGET 

[BearyBear]

3 minutes ago, confused said:

US OIL JUST SPIKED UNDER 43$ 

Russia says NO to production cuts...

[nirvana]

If you need any evidence of how fked up and stupid the media and the plebs have become....

 

[DurhamBorn]

22 minutes ago, confused said:

GUYS THE BIG KAHUNA IS HERE! THE BOND MARKET IS SCREAMING WE ARE ON THE PRECIPICE OF A FINANCIAL DISASTER!

SELL EVERYTHING NOW AND RUN FOR THE HILLS!!!

 

We Are Staring At The Abyss Of A Credit Crunch, The Bond Market Is Basically Confirming A Lot Of Death Coming

https://www.investmentwatchblog.com/we-are-staring-at-the-abyss-of-a-credit-crunch-the-bond-market-is-basically-confirming-a-lot-of-death-coming/

That is exactly what this thread is about and has been from day one.Markets arent linear though.Iv been selling my TLT and my IBTL because they have hit targets,30%+ on a bond investment in less than two years.Bonds likely have a bit of life,but im leaving that for the next man.

The markets have been saying this for 2 years that the CBs should be printing.They are now,but not enough.Its crucial to have the correct sectors and slowly buy in ladders.People following the oil call should only be down a couple of % in the oilies at the minute.Laddering from here should prove rewarding 5 years out.

The world economy is on the edge of a reflation cycle.The death throws of this last cycle are and will be painful.When you have a large portfolio though you need to position slowly .

I think what will catch people out is first getting whacked down in index funds now that dont recover,then getting whacked down on the bond side for a cycle.

 

[DurhamBorn]

@sancho panza on steel i bought   SSAB (Svenskt Stal) AB Ser B NPV but sold them again when they went up 20%.They have today fallen back down to within 4% of my first ladder buy point and if that hits il start buying them again.

22 minutes ago, BearyBear said:

Russia says NO to production cuts...

Maybe they want to make sure all that US mal-investment in shale goes down the pan ,play the longer game.

[Noallegiance]

Biden 2020!

[nirvana]

25 minutes ago, DurhamBorn said:

The world economy is on the edge of a reflation cycle

I don't think they WILL reflate the PONZI this time!

CORONAVIRUS IS NOT THE CAUSE BUT THE CATALYST

The CBs shouldn't have bailed the bankers out in 2008, it's all been about giving the Cocaine addicts more coke ever since......

3 days ago the FED cut interest rates 50 bps, normally this 'saves the market' BUT THIS TIME IT IS DIFFERENT!!!

We're going down captain! Stock markets could plunge 75% and they'll take the decent companies down with them!

Good luck to us all! We'll need it 

11 minutes ago, Noallegiance said:

Biden 2020!

Bollocks! They should have chosen Bernie Sanders last time! 

[nirvana]

Last observation for today lol

Look at the the Gold chart! Perfect double top from last month then it shits its pants again!!! BLOODY RIGGED MARKET 

PRICES GO UP TO FIND SELLERS AND THEY GO DOWN TO FIND BUYERS!!! And if there are no buyers they'll keep going down....

I remember something else somebody said around 2008, what's the value of something with no buyers? Nobody knows but it could be nothing 

[Noallegiance]

38 minutes ago, confused said:

Last observation for today lol

Look at the the Gold chart! Perfect double top from last month then it shits its pants again!!! BLOODY RIGGED MARKET 

PRICES GO UP TO FIND SELLERS AND THEY GO DOWN TO FIND BUYERS!!! And if there are no buyers they'll keep going down....

I remember something else somebody said around 2008, what's the value of something with no buyers? Nobody knows but it could be nothing 

You're excitable!

The theory I like is that money is flooding out of stocks into bonds to be safe which will last until the $ continues its nosedive. Then it moves to gold.

For now I agree with the thought that it's a repeat of last Friday's margin calls pushing down metals.

[nirvana]

26 minutes ago, Noallegiance said:

You're excitable!

The theory I like is that money is flooding out of stocks into bonds to be safe which will last until the $ continues its nosedive. Then it moves to gold.

For now I agree with the thought that it's a repeat of last Friday's margin calls pushing down metals.

Most exciting markets I've seen in years! 

Money isn't flooding into Bonds though, they're getting fooked too! 

EDIT: I must admit I don't totally understand Bonds, looks like money is flowing into bonds but the yields are getting fooked!

Either way, I'll stick with my overall view that covid19 is a black swan and we're fucked! Some more than others 

[kibuc]

16 minutes ago, confused said:

EDIT: I must admit I don't totally understand Bonds, looks like money is flowing into bonds but the yields are getting fooked!

Precisely. The price of a bond is inversely correlated with it's price. When yields go down, it means the price went up (bonds got more expensive). If you had bought at higher yields (=lower price), you're in the money.

Supply and demand dictates that if the demand for bonds is high, their price goes up, ergo their yields go down (as is happening right now). Or, in other words, due to high demand the issuer can offer lower yields and still find buyers.

[Democorruptcy]

I saw a funny interview on Bloomberg.

Interviewer to Larry Kudlow - "Now come on I know you have a policy lined up but are just waiting to pull the trigger, why are you waiting?

Kudlow replied "We cannot rush in, we have to think hard before we spend $300bn or $400bn to give every american some money"

Interviewer "I was talking about tariffs with China!"

[TheCountOfNowhere]

2 hours ago, confused said:

This is it! The party is over. The world is now facing the gravest economic and social downturn in Modern Times (18th century). We are now entering a period of global crisis that will change the world for a very long time to come. This should come as no surprise to the people who have studied history and also read my articles for the last few years. Many others have also warned about the same thing. But since MSM never talks about the excesses in the world or the risks, 99.9% of people are totally unprepared for what is coming next.

https://goldswitzerland.com/this-is-it/

I did try and warn people 😊

No one wants to listen to a looney

1 hour ago, confused said:

I don't think they WILL reflate the PONZI this time!

CORONAVIRUS IS NOT THE CAUSE BUT THE CATALYST

The CBs shouldn't have bailed the bankers out in 2008, it's all been about giving the Cocaine addicts more coke ever since......

3 days ago the FED cut interest rates 50 bps, normally this 'saves the market' BUT THIS TIME IT IS DIFFERENT!!!

We're going down captain! Stock markets could plunge 75% and they'll take the decent companies down with them!

Good luck to us all! We'll need it 

Bollocks! They should have chosen Bernie Sanders last time! 

@DurhamBornhave you considered the possibility they won't print? 

[onlyme]

8 minutes ago, sam1994 said:

Does the London Stock Exchange have clear circuit breaker rules, i.e. suspend trading for X after Y drop in FTSE100 etc? I couldn't see any hard written rules like the NYSE has. 

IIRC didn't  they protect banks and alike by stopping/curtailing shorting last time? No such luck for the other companies the banks another traders were shorting though,