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

[Loki]

Just now, DurhamBorn said:

Longer it stays over 100 the more systemic risk.My road map says its going to 91,thats based on what i think the Fed will do even though they dont know it yet 

 

Is there a chance they are going to allow a systemic lockup to happen in order to do a 'hard reset'?

I've idly wondered about it in the past, but with the arrival of the SuperDeadlyKiller virus it would be a perfect excuse to not follow the map and go off-roading 

I know that by definition your system wouldn't cover that eventuality, just interested in your thoughts

[DurhamBorn]

Just now, Loki said:

Is there a chance they are going to allow a systemic lockup to happen in order to do a 'hard reset'?

I've idly wondered about it in the past, but with the arrival of the SuperDeadlyKiller virus it would be a perfect excuse to not follow the map and go off-roading 

I know that by definition your system wouldn't cover that eventuality, just interested in your thoughts

Not by choice no,a CB would never do that.Where we are on the edge of a massive deflation a policy error though could mean the worst financial disaster in history x 10.The market needs liquidity,massive amounts,and then deal with the inflation later.Liquidity wont stop over indebted failing,it will just allow the market time to liquidate them while other companies grow.

 

[Loki]

Just now, DurhamBorn said:

Not by choice no,a CB would never do that.Where we are on the edge of a massive deflation a policy error though could mean the worst financial disaster in history x 10.The market needs liquidity,massive amounts,and then deal with the inflation later.Liquidity wont stop over indebted failing,it will just allow the market time to liquidate them while other companies grow.

 

I guess that also includes policy timing as well as content?  In the context of 20 trillion they've barely done a thing!  Is there a calendar/routine to financial events where we would be more likely to get an announcement?

Bit in bold is good.  The way it should be.

 

 

[Talking Monkey]

1 hour ago, DurhamBorn said:

Not by choice no,a CB would never do that.Where we are on the edge of a massive deflation a policy error though could mean the worst financial disaster in history x 10.The market needs liquidity,massive amounts,and then deal with the inflation later.Liquidity wont stop over indebted failing,it will just allow the market time to liquidate them while other companies grow.

 

It is worrying though that they haven't increased the liquidity yet, each day of delay is causing huge damage as the system stays in the stress zone 

[sancho panza]

22 hours ago, DurhamBorn said:

Our new governor of the BOE said in the Financial Times today the BOE wouldnt be printing any money as it wasnt consistent with 2% inflation.The man is a complete idiot,as he was at the FCA.We are in the teeth of the biggest deflation since the Viking invasion,a systemic crash risk and he is worrying about over shooting a target that has no meaning.Luckily he has no say in matters,the Fed will be printing,the ECB will be printing and he will be swept along with events.

From a macro strategy point of view he was about as far away from where we need to be in his views.Frightening.

The good news though is he is talking complete bollocks.They have already expanded the balance sheet by £200 billion,and him saying there will be no more is rubbish.Before things are right sized he will be printing £400 billion more probably.

The clowns in the CBs have an eye on inflation,when inflation is exactly what the system needs right now.Deflation is about to consume most sectors and will cause far more damage and financial dislocation than some inflation.

Ignore him.They will print,and the answer is to increase rates to 1.5% 18 months later and keep increasing to 4%.

Instead he will say they wont,then be forced to,then be too late raising rates.

Dear Mr Bailey,

you have no say in matters,

yours,

US Long Bond.

 

I should add.One of the things i learned was that one of the triggers of the 70s inflation was when policy makers feared the costs of unemployment over the costs of some inflation.That is exactly what will slam them in the face now as well.

I psoted this exceelent nick corbishley piece from WOfl st in the collapse thread.

Long story short,msot CRE loans are going to come unstuck-whether your Intu or the local LL used tolivng off £10k p.a. for crappy retail space in low pay zones like leicester

https://wolfstreet.com/2020/04/05/lockdown-hits-uk-commercial-real-estate-retail-landlords-their-investors-most-property-mutual-funds-suddenly-gated/

LOng

[sancho panza]

11 hours ago, DurhamBorn said:

The US long bond controls rates,not CBs.They can control the short end,but the long end they cant,not for any length of time.Why would anyone lend to Susan the nail technician at 2% when they can lent to Uncle Sam at 4%,5%,6% etc.?

The consumer is dead,and once the cycle gets underway capital will flow into industrial areas.Countries are going to re-build the backbones of their economies.

Leveraged BTL and the over leveraged consumer will be roughly bottom and close to bottom of the pecking order.

 

I can hear the tears of hardened doom mongers like spygirl,DM and the count, hitting the floor as I wirte.....

 

14 hours ago, Ponty Mython said:

Probably wishful thinking, but I reckon the fresh punter money has a lot to do with it (although other markets are up as well).

Look at the movement in Carnival - ships docked indefinitely, oldies realising that they are floating Petri dishes, that will be denied entry to every port at the first sign of a sniffle. So let's all lump on and give the share price a 13% kick today.

Remember, kids - just because a share has dropped 90% doesn't mean it represents good value (see our old friend for details...).

 

14 hours ago, Democorruptcy said:

A couple of snippets from the Surplus Energy Economics latest.

 

Well worth the full read from the master of the decomplex trade

 

'For those who like their conclusions up front, the single most important takeaway from what follows is that the crisis caused by the coronavirus pandemic has triggered two fundamental changes that were, in reality, due to happen anyway.

One of these is a systemic financial crisis, and the other is the realisation that an era of increasingly-cosmetic economic “growth” has come to a decisive end.

[sancho panza]

11 hours ago, Cattle Prod said:

To some extent, but there is a whole different decline at play. Shale production declines around 90% over 2 years:

In a big conventional oil field this typically takes 20 years, up to 100 years+ in the case of the small number giants that really support our way of life. Let that sink in, and I say that to myself too as a reminder.

This is why you need constant drilling in the shale patch, to try and keep production up and make money. Very hard to do. Its why people watch the rig count closely. So it's not just existing wells will be turned off, its that new wells will not be drilled. This means thst all the wells drilled up to now will be 90% depleted in 2 years, and that production not replaced. It's millions of bpd.

Then you have all the wells drilled from 2012 - 2018, chugging along at 5-50 bpd a piece. Are they making money now? Probably not. Some will be shut in and turned back on in better times but there is a cost and liability to shutting in a well. I'd say many of the oldest, lowest producing wells will be abandoned. This means pouring cement down the hole, goodbye.

I haven't worked out the % of shale that is swing production, turn on and off-able, but you are going to lose a bunch at the top end (no new wells, best recent wells collapsing 90%) a a bunch of at the low end. This has been an inevitability to me (and many in the industry) for a couple of years now  once the money hose was turned off. Its QE and Wall Street chasing yield after 2016 that caused this.

I learned a shedload from thsi psot.Great graphs.Cheers CP

[DurhamBorn]

35 minutes ago, Talking Monkey said:

It is worrying though that they haven't increased the liquidity yet, each day of delay is causing huge damage as the system stays in the stress zone 

They caught up during the equity falls,but needed to keep going.They will have to though.In macro terms these things are certain,the only question is when and how much.Anyone who sees a leak in a dam and leaves it ends up having to buy more concrete.They have to fix the hole,wait, it just costs more,and of course the real risk is that the whole thing can collapse.

Unemployment will spur them along.

I think what will be interesting going forward is that the cycle has been jolted to a distribution cycle from several areas.Dividends cut means shares need to be sold for income.Bonds falling soon from almost zero rates again means some need to be sold ,again to provide income.BTL will end up on higher rates,and likely at best for most people go cash neutral,for a lot negative.

You really dont want to be a leveraged consumer going forward.

[sancho panza]

Tavi costa twitter

[Noallegiance]

6 minutes ago, DurhamBorn said:

 

You really dont want to be a leveraged consumer going forward.

Is this not at least a decent part of the lives of the vast majority of westerners, as handed down for decades? It's all they know. Borrow to consume.

This is a massive shift. In ways that we cannot yet fathom.

[sancho panza]

and soem words of wisodm for mere mortals like me

[Festival]

7 hours ago, Cattle Prod said:

ExxonMobil have almost said that out loud. "No enforced cuts, we believe in free markets". These guys always buy up cheap at cyclical lows. How long does a decline take - look at the shape of the curves I posted earlier - rapid monthly declines. There is also a 'legacy production change' published by the EIA. I just plugged the latest rig count into it:

so the Permian (the only area of growth in shale) is in decline as of this week. I need to check frac spreads as well. It is assumed by the EIA that these wells will be completed (fracced), but they may well not be, and left sit there as DUCs. So the decline will be greater, and will accelerate from here. Think I worked out a 19% decline with @DurhamBorn before, still sounds reasonable. About. 1.8m bbl/day for 2020.

Thanks CP very informative.

So for ExxonMobil this crash is an opportunity to cherry pick the best assets from the over leveraged albeit recognising the decline curves this won’t be that much working capacity given how quickly it will shut down at these WTI prices. 

Given the shale decline rates and the amount of debt used to produce it sounds like this will move the dial quicker for OPEC plus than I had originally thought. Maybe we will get a sizeable production cut this week after all particularly given how quick demand for oil is falling atm.

[TheCountOfNowhere]

Was that it ?

Was that the crash ?

2 weeks of falls , $8Trillion in Hand outs, then it's up up up ?

[MrXxxx]

8 hours ago, DurhamBorn said:

Dividends cut means shares need to be sold for income.Bonds falling soon from almost zero rates again means some need to be sold ,again to provide income.BTL will end up on higher rates,and likely at best for most people go cash neutral,for a lot negative

I found this bit interesting...so with stocks the increase in sales volume should equal a reduction in price and so a second dip/bottoming out, as suggested by several posters on here I.e Count et al....

....but would a similar scenario be seen in housing as unlike stocks, the market is fixed/manipulated by government initiatives I.e. HtB

[MrXxxx]

8 hours ago, Noallegiance said:

Is this not at least a decent part of the lives of the vast majority of westerners, as handed down for decades? It's all they know. Borrow to consume.

This is a massive shift. In ways that we cannot yet fathom.

What if the oft repeated mantra on here?..."The market hurts the most people"

[TheCountOfNowhere]

Cineworld Group plc

LON: CINE

Follow

 

50.82 GBX +11.21 (28.31%)

 

I mean, WTF !!!

[TheCountOfNowhere]

6 minutes ago, MrXxxx said:

I found this bit interesting...so with stocks the increase in sales volume should equal a reduction in price and so a second dip/bottoming out, as suggested by several posters on here I.e Count et al....

....but would a similar scenario be seen in housing as unlike stocks, the market is fixed/manipulated by government initiatives I.e. HtB

I'm now starting to think, that was it, the BOE are pumping £4bn a day into the system, it has to go somewhere.

There is no free market.

When the bankers have your back you seemingly cannot lose.

I watched the So-Called BBC trying to set housing market expectations today, i.e. dont worry it's just a freeze it will be okay. You know what they're going to do....

The bankers and the rich will not stop.  I've always said this, it is collapse or nothing for them.  They hold the assets so it has little effect on them.

 

[Democorruptcy]

12 hours ago, Cattle Prod said:

ExxonMobil have almost said that out loud. "No enforced cuts, we believe in free markets". These guys always buy up cheap at cyclical lows. How long does a decline take - look at the shape of the curves I posted earlier - rapid monthly declines. There is also a 'legacy production change' published by the EIA. I just plugged the latest rig count into it:

so the Permian (the only area of growth in shale) is in decline as of this week. I need to check frac spreads as well. It is assumed by the EIA that these wells will be completed (fracced), but they may well not be, and left sit there as DUCs. So the decline will be greater, and will accelerate from here. Think I worked out a 19% decline with @DurhamBorn before, still sounds reasonable. About. 1.8m bbl/day for 2020.

Why has the rig count lost 51 rigs?

[Barnsey]

10 minutes ago, TheCountOfNowhere said:

Cineworld Group plc

LON: CINE

Follow

 

50.82 GBX +11.21 (28.31%)

 

I mean, WTF !!!

Stock market is generally forward looking a few months, so as the daily death toll now starting to level off here and elsewhere, combined with the huge liquidity injections, means they’re seeing some light at the end of the COVID tunnel. Not going to be the case of course but just how it goes for now, complete detachment from economic reality.

[TheCountOfNowhere]

Things must be bad

Centrica

32.80 GBX +1.32 (4.20%)

 

[Democorruptcy]

10 minutes ago, Cattle Prod said:

Because they have been shut down and stacked rather than put to work at $25 a barrel.

Obviously you know a lot more about it than me but I didn't think it was that easy to switch them off so quickly?

[Democorruptcy]

10 minutes ago, TheCountOfNowhere said:

Things must be bad

Centrica

32.80 GBX +1.32 (4.20%)

 

I've tapped the side of my monitor and looked at it upside down but the figures still look green? 

[Bricks & Mortar]

37 minutes ago, TheCountOfNowhere said:

I'm now starting to think, that was it, the BOE are pumping £4bn a day into the system, it has to go somewhere.

There is no free market.

When the bankers have your back you seemingly cannot lose.

I watched the So-Called BBC trying to set housing market expectations today, i.e. dont worry it's just a freeze it will be okay. You know what they're going to do....

The bankers and the rich will not stop.  I've always said this, it is collapse or nothing for them.  They hold the assets so it has little effect on them.

They're pumping while singing the Beegees Stayin' Alive, but out in the real economy, there's no sign of a pulse.  The £4bn drug doesn't seem to be getting to where it's needed.  The patient is being prevented from helping themselves.
I'm thinking they can keep the patient alive as long as they keep pumping.  But that's all they're doing.
I'm thinking the chances of a collapse, (deflation of the patients lungs, to keep the analogy going), at some later point, are growing by the day.

[Majorpain]

18 minutes ago, Bricks & Mortar said:

They're pumping while singing the Beegees Stayin' Alive, but out in the real economy, there's no sign of a pulse.  The £4bn drug doesn't seem to be getting to where it's needed.  The patient is being prevented from helping themselves.
I'm thinking they can keep the patient alive as long as they keep pumping.  But that's all they're doing.
I'm thinking the chances of a collapse, (deflation of the patients lungs, to keep the analogy going), at some later point, are growing by the day.

People and companies with cash in the bank and no debt will survive, those who are begging the banks for loans within a week were in trouble to begin with.  The virus is therefore also targeting weak companies, not just people!

The 80% for three weeks scheme is doing the majority of the work at the minute, so its most definitely getting to where its needed IMO.

[NogintheNog]

59 minutes ago, Democorruptcy said:

1 hour ago, Cattle Prod said:

Because they have been shut down and stacked rather than put to work at $25 a barrel.

Obviously you know a lot more about it than me but I didn't think it was that easy to switch them off so quickly?

Thanks for your insight CP. I was aware that the production decline rates were steep but the graphs put that into a visual context. Presumably in answer to Democorruptcy these rigs were the ones probably at the low end of that production rate that have been taken out of service and just not re-sited?

http://energyfuse.org/from-high-to-low-could-u-s-shale-production-stall-in-2020/