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spunko

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

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1 hour ago, DoINeedOne said:

bp today announced that it has agreed to sell its global petrochemicals business to INEOS for a total consideration of $5 billion, subject to customary adjustments. The agreed sale, the next strategic step in reinventing bp, will further strengthen bp’s balance sheet and delivers its target for agreed divestments a year earlier than originally scheduled. 

#Thoughts seems to be getting mixed opinions

 

Share price up nicely.  Depends what they're going to do with the cash (what and how).  I'm going to hold, maybe add a bit, to be along with the ride.

Edited by Harley

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On 24/06/2020 at 12:08, DurhamBorn said:

Maybe Cummings reads this thread,after all his family live near me.Political cycle is flashing red and has been for a while.Parties of the left dont understand it at all,but some people and parties on the right do start to get it.I think Cummings is one.BJ spent a lot of political capital to keep him,and rightly so,because it was Cummings who told the Tories exactly what people were feeling in working class areas.While the left was calling everyone who voted for Brexit (pretty much everyone up here outside of students and government workers) racists,all the guys i worked with in a factory were voting Tory,a lot for the first time ever,and one of the reasons is as they all used to say,"i like that Priti Patel,shes one of us",,.So people the left were calling racist were voting for the Tories because they wanted Priti in government,and seeing her as "one of us".A complete miss-read from the left.Not one of those guys gave a toss about the colour of Priti's skin,or her heritage,as far as they were concerned she understood them and was one of them.

The economy has lots of business cycles inside a longer cycle,but the real key inflection points are when the long sweep of deflation (really dis-inflation) and inflation (often more re-flation) turn.In political terms the left is looking the wrong way at a key turn.

 

 

Not wanting to derail the thread, you are spot on about Pritti and its why the left hate her so much ( a sign she must be doing something right). The left expected her to be like them because of her skin colour (the irony is lost on them).

Back on topic, I see oil prices are starting to pick back up and round my way the traffic levels are almost back to pre Covid19 levels. Still lots of people working from home, I wonder if their increased energy useage balances out the energy savings from the offices? I guess it depends on which is more efficient per capita. If lots of people still working from home by winter but enough people back in the office to mean it needs the heating fired up there could be a high demand for energy.

Recently a chat with the owner of small high street indy restuarant. They don't really get the Covid19 rules. Totally not practical for their kitchens or premises, no outside areas to set up as on a high street with narrow pavement. If they can reopen, with the reduced number of tables they would be at a loss even if they filled every table. They don't know if anyone will come back even if they do open, lot of the customers are local retirees. Sadly, I think they are going to go bust.

 

Although things are starting to get head towards normal (a journey we may never complete), the inefficencies and therefore cost to the economy must be huge. I'm seeing lots of extra steps in processes, extra costs for equipment, higher staff requirements.

 

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37 minutes ago, invalid said:

the inefficencies and therefore cost to the economy must be huge. I'm seeing lots of extra steps in processes, extra costs for equipment, higher staff requirements.

This part is not being picked up by a lot of people. If you are a small business such as a pub or barbers then your revenue producing ability already has hard boundaries. Number of seats in a barbers limits haircuts per hour. Throw in these extra restrictions and the only option is to up prices... which leads to..... inflation!

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2 hours ago, reformed nice guy said:

This part is not being picked up by a lot of people. If you are a small business such as a pub or barbers then your revenue producing ability already has hard boundaries. Number of seats in a barbers limits haircuts per hour. Throw in these extra restrictions and the only option is to up prices... which leads to..... inflation!

So we're back to a consumer services inflation economy. Great. xD

It's not even 'organic' inflation, it's all contrived by the COVID scamdemic.

 

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I started receiving this newsletter (after someone linked to it previously on here) from Lyn Alden which mostly chimes with @DurhamBorn and I can mostly understand it! Plus she shows the detail of her investments:

"The stock market has been bid-up by the combination of fiscal and monetary policy response, while the raw economic indicators remain in a troubled state."

https://www.lynalden.com/june-2020-newsletter/

 

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4 hours ago, JMD said:

thanks TransistorMan, excellent info. on the companies. I've been looking into the sector and did have my eye on Wood Goup. But i think John Laing is now Laing O'Rourk, and the company has been taken private so not for the likes of us!! (a real pity as i think it would have made a great buy)

Is Jacobs you mention the US one - Jacobs Engineering Group (nyse:J)?  Excuse my follow up question, only i am looking to buy into some of these if/when we get another market correction. 

 

Yes, I think Wood group didn’t want the nuclear stuff. 

its mostly oil and gas services, but also minining, paper pulp, cement, process consultancy etc.

Yes, it’s the American Jacobs Engineering. 

Laing o rourke is private, looks like a great business.

Their partner or Sizewell C and HPC is Bouygues S.A.  In the CAC 40.

 

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https://www.zerohedge.com/markets/fed-chair-powell-says-full-recovery-unlikely-until-people-feel-safe

Quote

 

Fed Chair Jay Powell has released his prepared remarks for his testimony before the House Financial Services Committee tomorrow (with U.S. Treasury Secretary Steven Mnuchin).

”We have entered an important new phase and have done so sooner than expected,” Powell noted.

“While this bounceback in economic activity is welcome, it also presents new challenges—notably, the need to keep the virus in check.”

While noting the push to lift restrictions on commercial activity, Powell critically expressed the need to contain the virus, noting that "a full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities."

 

So there it is.  Take your vaccine or the puppy gets it.

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13 hours ago, Cattle Prod said:

More on infrastructure, I suspect @DurhamBorn might get his arc furnace ;-) 

Screenshot_20200629-100921_Twitter.thumb.jpg.7cb8b169c0120eb01bba017805d7bf61.jpg

(And of course they have the money. It's just going to come with a massive dose of inflation)

Only problem with Goves paln is as you allude

https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287

image.png.e94df6f4a9b9855f19d78736e0538e3b.png

image.png.3bf1138557a734e8f86be21f00c99bfc.png

image.png.417c04ebb7da8404283a72af9c91a625.png

image.png.2efd867c4f85d3ee8ffb9dd7dfaee9f7.png

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19 minutes ago, Errol said:

There won't be an effective vaccine.

My old workmates are putting machines in now at GSK Barnard Castle and they are running so they can produce ajuvant for the vaccine they already have with Sanofi.Its novel,so they need to boost the immune response to have an affect and thats what the ajuvant will do.Vaccine alone wont do it.

 

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On 28/06/2020 at 08:25, jamtomorrow said:

Pleasure. Although I'm currently finding EROI/EROEI fascinating and infuriating in equal measure.

As as an engineer, energy economics seems to me to be self-evidently a useful and important perspective for energy policy - it's just a pity the methodologies aren't similarly self-evident and therefore consistent. Example: the study I linked implies an upper EROI of 86 for wind, but I've also seen single-digit values mentioned elsewhere - that doesn't even qualify as a Fermi estimate, never mind allowing different technologies to be compared reliably.

Luis de Sousa sums it up nicely to Euan Mearns here: https://euanmearns.com/eroei-for-beginners/

"On the grand scheme of things: PV ERoEI estimates range from 30 down to 0.8. Before asking the IEA (or whomever) to start using ERoEI, the community producing these estimates must come down to a common, accepted methodology for its assessment. As it stands now, EROEI is not far from useless to energy policy."

Same link also discusses the "net energy cliff" (i.e. "why we *should* care about EROI"):

If only the analyst community could convince us they knew how to estimate/measure EROI!!

Ye olde surplus energy site @Democorruptcy introduced me to has given me some education on this topic.HAdntre ally thought of it before.it sjut sort of explained everything CP had been on about in that there was nothing to repalce oil in the near future.

I think with renewables there'll be two sets of data,the real ones and then the ones they want people to see.

 

 

11 hours ago, DurhamBorn said:

This is where good macro strategy is crucial.Most people have no understanding of macro cycles,inflection points and the interaction between CBs and government.People have this idea that the CBs can do as they please,and that governments have no control.They couldnt be more wrong.Governments drive cycles,the CBs simply adjust to it with leads and lags.That is their job.As this (and the last) thread said from page one,the economic backbone of the country cannot sustain the demands on it.For all we read in the MSM and fringe websites the UK and the west in general are not some banana republic.The Tories see belief in capitalism at risk,as do the republicans in the US.In such times they need to show the population better times.

Its laughable when everyone thinks the government have no money,when the CB will print whatever they need 100% certain.Complete lack of understanding of our system.

The problem is that western govts aren;t in the same space as the 1929+ crisis in terms of debt to gdp.Like you I see the govts driving the spending.How much room theyve got before curencies crash I'm not sure??

And if currncies crash will we see the mother of all PM bulls?

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1 hour ago, sancho panza said:

Ye olde surplus energy site @Democorruptcy introduced me to has given me some education on this topic.HAdntre ally thought of it before.it sjut sort of explained everything CP had been on about in that there was nothing to repalce oil in the near future.

I think with renewables there'll be two sets of data,the real ones and then the ones they want people to see.

 

 

The problem is that western govts aren;t in the same space as the 1929+ crisis in terms of debt to gdp.Like you I see the govts driving the spending.How much room theyve got before curencies crash I'm not sure??

And if currncies crash will we see the mother of all PM bulls?

No currency crash this cycle.The key is the fact we are in dis-inflation.Currency cant become worthless when it can buy more over time.The problems for currency come later in an inflation cycle.UK government debt for instance will be around half of the stated figures after BOE printing,because half will be sat on the CBs balance sheet,never to be paid back.The market has got itself into the situation where it is saying to governments spend what you want and pay us 1% a year in coupon.Its crazy,but thats where we are.The irony is the government will be paying around 0.5%,because the BOE will hand back the government the interest.

The MSM and the markets need to understand the only way to deal with the size of the debt is to inflate the economy faster than the coupons on the debts.That is exactly what is coming.

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16 hours ago, Castlevania said:

Yes. I’ve effectively already recovered the cost of the clippers I bought.

Been doing it monthly for decades.  Clippers, scissors, and those thinning type scissors. Could buy the barbers!  "Nobody got rich by wasting money"!  Plenty of other low hanging fruit out there.  YRS?

Edited by Harley

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7 hours ago, DurhamBorn said:

No currency crash this cycle.The key is the fact we are in dis-inflation.Currency cant become worthless when it can buy more over time.The problems for currency come later in an inflation cycle.UK government debt for instance will be around half of the stated figures after BOE printing,because half will be sat on the CBs balance sheet,never to be paid back.The market has got itself into the situation where it is saying to governments spend what you want and pay us 1% a year in coupon.Its crazy,but thats where we are.The irony is the government will be paying around 0.5%,because the BOE will hand back the government the interest.

The MSM and the markets need to understand the only way to deal with the size of the debt is to inflate the economy faster than the coupons on the debts.That is exactly what is coming.

I agree currency crash not imminent .However the balancing act needed to run the inflation stably is beyond the competence of teh polticians/CB's who allowed us to get into this mess.There are a lot of variable factors out there.

Interestingly,someone was telling me yesterday that Russell Napier-who's been Macro Voiced- was saying how he'd gone from being a deflationist to a stagflationist.A transition much like my ownas we follow the newfsflow.My own conversion has also seen me becoem a confiremd gold bug.

It's going to be fascinating watching how the CB@s deal with maturing Gilts on their balance sheet.Once upon a time this would have been considered a default but no more.

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Perhaps a little off-topic, but does anyone know if there's such a thing as a monthly trend in prices? I ask as I've got a HL account which I drip-feed cash into once I've been paid at the end of the month, and it always seems like prices are a touch higher when I go to buy around the start of the new month.

Is it possible that traders pump shares to get their end-of-month bonuses, or am I just being paranoid?

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DRAX doubled now from the lows so another really big profit even if people missed the bottom and got in a big higher.Interesting rumours about people sniffing about to buy the company.Iv top sliced today even though i think it is still cheap,as again i had a very big holding and already above the minimum wanted return over the cycle of 65% in 3 months.Im adding that to areas of the potash sector.Iv also sold a ladder in Standard Life that was up 48%.Again i like them for the cycle,but the holding became heavier than id like.That old dog Eldorado coming good i see,i was under 50% on that at one point and didnt buy the last ladders,mistake that was,but really glad they have come good.Not on as much at the moment as im working on a project.The dollar is nudging the area where the Fed will engage again i think.

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28 minutes ago, sancho panza said:

anyone holding Eldorado?

@kibuc

image.png.e74cbfe2f0d5f57d0e545f3ebcfaca76.png

 

 

Yes - I think about £1,000 to £1,500 worth (I'd have to check as I've stocks on multiple platforms). Not been performing too well to date. However, like most of our stocks, they've been bought to hold and wait. I'm doing very little selling/top slicing. Mrs S has the main holding as she liked the hopelessly optimistic name of the company :D

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1 hour ago, Craig said:

Perhaps a little off-topic, but does anyone know if there's such a thing as a monthly trend in prices? I ask as I've got a HL account which I drip-feed cash into once I've been paid at the end of the month, and it always seems like prices are a touch higher when I go to buy around the start of the new month.

Is it possible that traders pump shares to get their end-of-month bonuses, or am I just being paranoid?

There’s an unproven theory that prices are a little higher at the end of the month as that’s when most people get paid and thus when their pension schemes receive their monthly pension contributions.

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14 hours ago, sancho panza said:

Ye olde surplus energy site @Democorruptcy introduced me to has given me some education on this topic.HAdntre ally thought of it before.it sjut sort of explained everything CP had been on about in that there was nothing to repalce oil in the near future.

I think with renewables there'll be two sets of data,the real ones and then the ones they want people to see.

I remember some of that EROEI debates from the 2007-2010 period, it's a compelling metric. I wasn't working in the oil industry then, but trust me, when you see the scale of the operation needed to get this stuff out of the ground for yourself, you can believe it. As with gold mining, one of the biggest drilling costs is diesel. 

I can't recall the numbers exactly, but I believe on a big conventional field, you can get an EROEI of 30-50x. On a typical shale well, I think it's less than 2, i.e. an utter waste of time (which Chesapeake has just found out). A little known fact is that most fluid produced from the shale patch is waste water. Can be 10 barrels of water for every barrel of oil produced. Which has to be treated, it's often a brine, and has to be trucked and disposed of. You also have to drill 6 or more long wells, pumping in millions of pounds of sand and water to frac it. Every bit of it hauled in an out on trucks. Huge diesel gennies on site. Cementing up the whole lot afterwards. And all this to get out maybe 800k barrels of oil. Waste of time.

Edited by Cattle Prod

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12 hours ago, DurhamBorn said:

The market has got itself into the situation where it is saying to governments spend what you want and pay us 1% a year in coupon.Its crazy,but thats where we are.The irony is the government will be paying around 0.5%,because the BOE will hand back the government the interest

That's a very interesting point, hadn't twigged that. One the day Boris rolls out his infrastructure-ganza.Massive credit due, this is exactly what you said would happen. How long will it take the rest of the market to wake up and flood into the infrastructure loving stocks we have positioned ourselves in for months? Should be fun.

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