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

[Barnsey]

Good job I only bought a snack size bag of popcorn, took a couple minutes, we’re witnessing history tonight folks.

[Barnsey]

Futures looking terrible, bitcoin dropping, Gold above $1700, £ strengthens 

[Noallegiance]

Are stock futures open at 11?

[sleepwello'nights]

Wow.

[Noallegiance]

Just now, sleepwello'nights said:

Wow.

And that's not even the real price!

[BearyBear]

8 minutes ago, Noallegiance said:

Are stock futures open at 11?

Already open on Spread Betting... a few % down.

[dgul]

10 minutes ago, Noallegiance said:

Are stock futures open at 11?

USA is now in Summer Time.  All USA times will be an hour out until we go Summer Time in 3 weeks.

[Barnsey]

If this drop in oil holds it’ll be the biggest daily drop since 1991!

[Majorpain]

5 minutes ago, Barnsey said:

If this drop in oil holds it’ll be the biggest daily drop since 1991!

I'm starting to suspect people are rapidly loosing faith in central banks ability to weasel their way out of this one.....

[DurhamBorn]

https://www.investing.com/indices/indices-futures

All on there,commods to the right ,

It will be interesting to see how big the falls in commod stocks,10% maybe,expect Carnival etc to fall even more.

[Barnsey]

1 minute ago, Majorpain said:

I'm starting to suspect people are rapidly loosing faith in central banks ability to weasel their way out of this one.....

With US futures down 4% yet again I don’t think we’ll be waiting long for a cut straight to the zero bound

[Sugarlips]

2 minutes ago, DurhamBorn said:

https://www.investing.com/indices/indices-futures

All on there,commods to the right ,

It will be interesting to see how big the falls in commod stocks,10% maybe,expect Carnival etc to fall even more.

Still sticking to the ladders or are all bets off right now?

[TheCountOfNowhere]

6 minutes ago, Majorpain said:

I'm starting to suspect people are rapidly loosing faith in central banks ability to weasel their way out of this one.....

Bout bloody time 

[BearyBear]

[leonardratso]

hmm looks like a flat line @ $32

[sancho panza]

 

On 07/03/2020 at 22:34, Cattle Prod said:

That Gail Tverberg graph isn't making sense to me, I'm not sure her inflation assumption is correct. Today's dollars are worth less than 2008 dollars so it would take more of them to buy a barrel of crude at the peak. I've made an attempt to do my own by inflation adjusting WTI by US CPI and I get $173 dollars in today''s money. 

 

@Harley or others please do tell me what chart crimes I am committing! I don't see why a commodity shouldn't be inflation adjusted when comparing prices over time. What comes out is to me pretty interesting.  First; the average is not $30bbl, it's more like $55/$60.

You see a strong upper trend line since 2008, with at least 5 touches. Markets do not want to pay more than this, and is challenging the producers to go back and have a think about it. I missed the 2018 touch of the line,  I was sitting there wondering why it didn't turn at upper resistance, but it didn't touch on a non inflation adjusted chart. I see three lower long term supports, and I see them in my simplistic way like this:

Green is clearly a broken support that became resistance. This is shale supply. A couple of times the industry said "this is shite", the markets said "nah, we think there's plenty. Back in your box.

Blue is a potential support, not broken on a monthly close. This is a price discovery excursion, testing if we really do have enough supply for $40 a barrel. It may well go beyond this, especially for less than a month. We're there now.

Yellow is where prices goes when the market thinks the oil industry is over (look at the Economist covers and commentary around these dates). It may go there, but I will be surprised.

So the picture is of a huge consolidation to me, which will be resolved one way or another soon enough. I can't see it resolving lower, as we won't have a replacement for oil in the next two years.

The other point to this is that $200+ prices that @DurhamBorn and I have put out here are not that crazy sounding when you adjust for inflation (edit: on cue the man himself appears above with that number :-)). We've already had $173 in today's money. I'm very interested in how much cash the majors will have at those prices, especially if they keep their cost base under control. Many of them have break evens ~$35.

Thanks for your replies here CP,very thought provoking

I like the notion of onflation adjsuting commodities jsut for perpsective if nothing else as  @Harley says,there are weaknessess with the measures of inflation but that's splitting hairs as we jsut need a rough idea of where oil would be if infaltion adjusted.Reality is that oil is dirt cheap by any measure

I'm timing this crisis off the panic I see in some of the people around me including the wonderful Mrs P who's properly worried about la coruna.I'm comparing that with the calm I see at work where people are dying every day through natural causes(sad but it's one of life's certainties I'm afraid).Part of the resaon for the calm is that a) a lot of hospital staff are used to life threatening crises most days b) a lot of clincial staff see the data behind the headlines for what it is.

As Ive said,Wuhan had the virues unchecked for possibly two months in a city of 11 mn people getting on the tube and buses.Even allowing for a shocking testing regime and some govt denial,the infection rate is relatively low so quite where the 60% being bandied about comes from,I jsut dont know.

 

 

7 hours ago, Cattle Prod said:

There is indeed a long lag when exploration is cut, we are seeing the effects of a cut in exploration spending from 2014-2017 now. There is very little spare capacity in the world, it'll be very interesting if Saudi's spare capacity, pumping for a limited time, becomes offset by reductions in US output, which will be for an unlimited time.

Agree with you on big oil, from the very start here I recommended staying away from small-medium (>$5bn market cap) companies. It's not a small company game, and you can't trust them. Look what happened to Tullow since I said that -overegged their production forecast, and  had the market destroy their value. That's all it takes. I have one or two small company inverstments, but I know them very well, either having worked for them or closely with them.

We had a nice run up in our small oilies but took a small loss in the end to free up the capital.I was unnerved by the disparity of theri performance which made me realsie that the relative safer route was via the bigger players.Lower returns too but less stress for me.

I'm tempted to buy some OIH if I can get some on Saxo,even FCG.But a likely better strategy here would be to buy Gazprom and then buy KMI,SLB leaving US gas producers alone

7 hours ago, DurhamBorn said:

Iv avoided the service companies mostly though nibbling at Schlum and own only a couple of smaller oil/gas plays for small stakes.They both ran through ladders 2 and 3 but i ignored and havent bought.IF i was 30 id of bought in the smaller companies as the ladders hit,but im not chasing capital gains,im chasing income that can hold above inflation by 2028 and the big companies are more likely to get through things.My oil target was $43 and i havent done any work on it because i cant really price sentiment at the moment,its off the scale.Iv looked back through calls on commods and the worst over shoot down was on the big miners in 2016 where they ran down another 30% from first ladder buy.If that was repeated it would signal Shell at around £12.50.My longer term oil call still says below $20 and even below $15 for a very short spike,that couple be a few days,or even a few minutes.

Im starting to think the oil sector is where tobacco was when Clinton got in.Everyone said the industry was finished.However the companies delivered 1000%+ profits after that.Countries will have no choice but to invest like crazy soon and instead of them talking about the Paris accord,they will be talking about how to counter Chinese warships in the Pacific,and securing energy supplies when their currency is shot.

 

Agreed,I've psoted before about how Broken Hill and Billiton went up during the Tech stock market crash,tehre was aquite a few others.

I've said before,we'll try and time dollar turn for the big kahuna but with the average rpice we're in to RDSB,BP,XOM,EQNR we may jsut keep em

 

5 hours ago, Barnsey said:

Holy shit grab the popcorn

 

Our accoutns are prepped.There's a lot of flapping ref the virus at the mo.Which is a sign in itself.

[DurhamBorn]

13 minutes ago, Sugarlips said:

Still sticking to the ladders or are all bets off right now?

Ladders in place and will be very pleased if they hit,if they do il be buying Shell B at 50% down.Dollar should go below 90 before the end of summer and that will see oil go back above $45.The lags will see lots of buying of oil forwards as currencies go up against the dollar.If Shell did go to £13 i expect that to be a PE ratio of 2.0 based on free cash profits on my road map in 2028.From those levels id expect a 500% increase through the cycle before dividends.

 

[Loki]

One to watch

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

[sancho panza]

2 hours ago, TheCountOfNowhere said:

Maybe they see a situation where millions of people sit in the house for months 

People will get bored when the infection  rate doesn't live up to the hype they've used to sell adspace on sky news.

We live in an age when many people have lost the ability to self medicate with paracetamol for even mild pain.I can't see them sustaining interest when they're tripping voer toilet roll on their way to the larder.

2 hours ago, BearyBear said:

Junk bonds in trouble because of Oil price collapsing...

https://www.ft.com/content/c048d870-6138-11ea-a6cd-df28cc3c6a68

 

This could get very intresting.Dimartino Booth has been rasing this issue very elowuently for some time.

[leonardratso]

zero hedge will be loving this, vindicating itself that it predicted all all 100 of the last 5 market crashes correctly.

Even a broken watch is right twice a day.

[sancho panza]

 

15 minutes ago, Tdog said:

https://www.bloomberg.com/energy

Crikey timed buying those XOM, SLB and BP share rather well last week!

It's about whre the share will be in two years rather than two weeks.whole point of laddering ratehr than one of lumpry trades that it help you capture the bottom.

Incredible times,this is reminsicent of the tech bubble is soem respects in terms of the virus mania

[DurhamBorn]

2 minutes ago, Tdog said:

Do you not see the possibility of the mass printing and infrastructure spending being brought forward due to this virus.

 

Maybe,but governments will have other concerns for now.The printing we get wont be enough to stop whats coming.It will be about 5% of what we get later.This virus isnt the cause.A massive over leveraged world economy is the problem.As we have always said,its ok having massive debts at 1% when you have cash flow,if you dont then 1% and losing the way to roll it over sinks you.

[sancho panza]

16 minutes ago, DurhamBorn said:

Ladders in place and will be very pleased if they hit,if they do il be buying Shell B at 50% down.Dollar should go below 90 before the end of summer and that will see oil go back above $45.The lags will see lots of buying of oil forwards as currencies go up against the dollar.If Shell did go to £13 i expect that to be a PE ratio of 2.0 based on free cash profits on my road map in 2028.From those levels id expect a 500% increase through the cycle before dividends.

 

It's incerdible to see so many people selling jsut as the dollar is breaking.............those who fail to learn the elssons of history etc..

RDSB at £12 and we'll be all in,although it may take some times to get some NS&I accoutns freed up.I'll take my chances in life.Bit of a gamble that this virus is what I think it is but I see a lot of people with no clinical background panicing and I see a lot of Drs not panicing.

RDSB at £12,BP at£3.50,XOM at $30 etc and my retirement moves forward to the next couple fo years.

[sancho panza]

13 minutes ago, Tdog said:

Do you not see the possibility of the mass printing and infrastructure spending being brought forward due to this virus.

 

That will only weaken the dollar.People will need food,fuel for cars etc etc they'll jsut be paying more for msot commodities.The dollar is worth watching like a hawk here,not so much the oil price imho.Oil price is pure panic,$ is where the trade two months down the line is at.

6 minutes ago, DurhamBorn said:

Maybe,but governments will have other concerns for now.The printing we get wont be enough to stop whats coming.It will be about 5% of what we get later.This virus isnt the cause.A massive over leveraged world economy is the problem.As we have always said,its ok having massive debts at 1% when you have cash flow,if you dont then 1% and losing the way to roll it over sinks you.

Exactly.

[Barnsey]

Oh FFS! I think I’m going to get some sleep, too much for one evening (turns out it was 3 projectiles)