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

[MrXxxx]

Had `skin in the game` for six months now and looking at my extensive portfolio [12 stocks :-) ] only one of them has stayed consistently in the green (& +10%), and paid dividends...any ideas?.....one of the FAANGS? (No chance!)...that dirty old dog that is BATS....so much for being `last years` stock.

[sancho panza]

On 03/09/2020 at 14:47, Democorruptcy said:

In the link I posted it says 1%

It's just Wales so far but with cross party support I thought it was worth mentioning, after you said stepping in on the LL's side would be politically untenable.

fair play DM,I haven't seen the detail as yet and we'll see what the uptake is.My hunch is,especially given how long evictions are taking-is that it'll be low.

Looks like they'll be funding the scheme through credit unions which seems rather strange.

On 03/09/2020 at 16:35, JMD said:

... Wealth, like energy, cannot be destroyed, only transferred. Energy is a fundamental building block of the universe, and wealth is a fundamental building block of society.   

I find the subject interesting?! But I shan't bang on. If the following quote intrigues you, you might like to use the below link to read more (copy it into browser). 

'Wealth is that which mediates what is valuable now to what is anticipated as valuable in the future...'

https://www.tandfonline.com/doi/full/10.1080/02757206.2018.1460600?scroll=top&needAccess=true

 

In my view there are two sorts of money.1) base money-cash,reserves at central bank 2) credit moeny

Base money gets destroyed by CB's as per @DurhamBorn previous steatement.Credit moeny gets stored in assets and those assets see huge swings in value.

As per previous example of 10 hosues on an estate all bought for £100,000.Marginal hosue sells for £200,000,then technically, £1 million of credit moeny has been created.vice versa too.

[sancho panza]

On 03/09/2020 at 17:53, DurhamBorn said:

Yes the S+P is at Davids old target now.Im never one for shorting as i never ever use margin.The markets are so unbalanced now i dont see any worth is top out figures on indexes,though they will be huge on sentiment of course as most people are now in passives that mostly track the index.

I'm presuming this call by David is based ona a further weakening dollar?Has he made any calls on that lately?

I ask out of self interest natch:-)

On 03/09/2020 at 17:47, Cattle Prod said:

That's very compelling and clear, thanks Sancho. It's interesting that the oil price didn't peak till 2-6 months into all three recessions, and that oil bottoms were c.18 months before start of recession. 

Low oil prices are a direct stimulus to the economy, as it is woven through every part of it. I fancy that the oil bottoms give the final push to economies and stock markets till even that stimulus is used up and they roll over, with oil charging on a while longer till demand loss becomes evident.

Of course we have Fed stimulus on top nowadays too, so it's all supercharged. The difference between $20 oil and $100 oil is a $240bn a month stimulus to the world economy.  Doesn't seem like much compared to Fed numbers, but it's very much direct to the real economy, and I think has real effects. Under non pandemic circumstances it hugely stimulates demand (bust to boom). It'll be really interesting to see what happens once these nonsensical restrictions are gone.

At sustained high oil prices, like from 2011-2014 you are transferring ~ $2-3 trillion a year out of productive economies into moribund oil producing countries who are increasingly hoarding it (and a small slice to our favourite oil companies of course). I suspect that may be what finally breaks the system toward the end of the decade (could be a $5 Tn a year transfer at that point), especially if the Fed can't print due to inflation. The world cannot afford expensive oil, and yet I can't see where the supply is going to come from to make it cheap again. There will also be a run on dollars to pay for the oil, but Luke Gromen tells that idea better than I.

I was surprised by the correlation.Obviously the stock market moves either side of the recessions(GDP calcualtions are opaque at atimes) but the relationship has been plain to see for the last 3 .....as you say,intriguing that it runs up and then peaks mid recession..

this is the classic leads and lags DB talks about isn't it?

as you say the real difference here is that it goes into peoples pockets and the real economy unlike the hotchpotch of CB interventions which grease the wheels in the square mile.

on that latter point in bold,it's becoming increasingly obvious to those of us late to the party that this is the case.The art berman article you quoted says it as does the Tim Morgan-surplus enrgy blog.

 

 

[sancho panza]

On 03/09/2020 at 18:25, Cattle Prod said:

But the man knows how a shale well declines, and what it takes to drill another one. I'm trying to see how he's wrong, as it seems crazy. Can you imagine the headlines with the USA back at 6mbpd?! The only thing I can think of is Canada getting new pipelines, but I don't think they'll be ready for next year. There is no way around shale decline, it's a very measurable thing (we have to do it all the time to model cashflow), and an unstoppable natural phenomenon. The well drilling treadmill has flung the shale companies across the room, and stopped working. Schlumberger decided it couldn't be arsed with treadmills anymore and sold and scrapped theirs. And  that's where the vast majority of world supply growth has been from for the last decade. 

Thanks for posting CP,I need some time to fully go through that art psot.I think I'm finally beginning to link the key themes together.

On 03/09/2020 at 19:40, DurhamBorn said:

@Cattle Prod my macro road maps show oil demand growing,not falling,growing from the level before the crisis,i know thats hugely contrarian,but i trust the call.Almost everyone is looking at things from the position of a dis-inflation cycle,but that has ended,or is ending.Huge world blocks are in a scramble for position,a new cold war is under way,the west is bringing back manufacturing.Everything that is a big user of energy/oil is going to grow.

There is no question the world is moving to green energy,its 100% certain,but the only countries who will get there in decent shape are the ones with access to oil and gas during the transition.

Imagine when you can stop paying to look for something,but you already have a lot of it,and prices and going to go parabolic.The cash flow will be incredible.

Hopefully oil can stay down a while longer or retreat 15% to finish shale off.The integrated oil companies can survive at $40 oil.My exact cycle high target on oil is $247 Brent,maybe $300+.Im not in a rush to see it as il be heading towards 60 years old.

Oh the irony....

7 bn on the planet and no real prospect of the green enrgies replacing oil.I can see why shale getting killed off will effectively create a 'band 'effect on the oil price

[kibuc]

15 hours ago, Panda said:

My partner has just gone to self investment on her Q Super....

Not a huge pot circa €37k 

Been looking at the oilies and gold miners down under listed on the ASX.

Anybody holding any stocks listed on the ASX.

Anything I should be looking at. Good value and a good potential uplift.

 

For a long term hold, I'd probably look at Adriatic Metals. Still in explorer phase so lot's of risks, but the deposit so far looks very interesting. 

[DurhamBorn]

2 hours ago, MrXxxx said:

Had `skin in the game` for six months now and looking at my extensive portfolio [12 stocks :-) ] only one of them has stayed consistently in the green (& +10%), and paid dividends...any ideas?.....one of the FAANGS? (No chance!)...that dirty old dog that is BATS....so much for being `last years` stock.

Iv been buying back my beloved BAT around the £25 mark and im back to a good sized holding (6th biggest in my portfolio).When i sold them above £50 after holding for nearly 3 decades i actually missed them.The ones iv bought back will never be sold,il take the divis the rest of my life now.Below £23 those divis would go back into BAT shares,at the moment they are going into BP ,Repsol and the Telcos as are all other divis.Iv gone back to work/employment on an important project and one reason was so i can invest all dividends across all accounts rather than take any.

[JMD]

On 03/09/2020 at 18:25, Cattle Prod said:

Art Berman put out another essay today.

If demand picks up does, @sancho panza will get his price spike to trigger BK, for sure. He now has US production halved by July next year to less than 6mbpd. Have a read for yourself:

https://www.artberman.com/2020/09/03/stop-expecting-oil-and-the-economy-to-recover/

It's a long article, but I'll post it in entirety so as my bias doesn't come into it, though I'll bold key bits for the skim readers. I'd be interested to hear thoughts on the demand side.

My view:

He's a natural pessimist I think (definitely doesnt work in exploration!), and was very chicken little about the Covid thing, so I'm not sure he's on such firm ground on the demand side, seems a biit more arm wavy. He may be a little severe on the supply loss side, but not by much. And in fairness he calls it a thought experiment. He knows what he's talking about on the supply side, he is an active pertroleum geologist working in the US, and I'd believe what he says about leads and lags for shale to respond to price (short answer: 1 year). I had it about 9 months. So he's even more bearish than I am on supply loss for next year. I have no idea what way demand will go, but I don't agree that the 4 years it took to pick up after the GFC is a valid comparison. This is not (yet) a typical recession, the demand loss has been mandated by decree. I think all the lockdown,, BLM, riots, etc etc in the US anyway is being let happen because of the election, Republicans and Democrats are trying to make each other look bad to the electorate. I suspect once the election is over, it will all be knocked on the head pretty quick. National Guards into the cities, and vaccines out the wazoo. I do wonder it demand will pick up fairly quickly...

"Energy is the economy. Money is a call on energy. Debt is a lien on future energy. What is happening to oil markets and to the global economy is not because of a virus. The virus greatly accelerated what was already happening. Things won’t go back to normal when the virus ends. The expansion of energy and debt have been leading toward some sort of reckoning for at least the last fifty years. That day of reckoning has been brought forward by coronavirus economic closures."

Requote this bit. I think he's right about the reckoning, but wrong about the timing. He's not factoring all the disinflation to be printed back now, to allow a few more years of can-kicking. I think you can apply what he said to when the Fed can't print anymore. And he doesn't seem to relate the current massive credit impulse on his graph with past oil price spikes!

But the man knows how a shale well declines, and what it takes to drill another one. I'm trying to see how he's wrong, as it seems crazy. Can you imagine the headlines with the USA back at 6mbpd?! The only thing I can think of is Canada getting new pipelines, but I don't think they'll be ready for next year. There is no way around shale decline, it's a very measurable thing (we have to do it all the time to model cashflow), and an unstoppable natural phenomenon. The well drilling treadmill has flung the shale companies across the room, and stopped working. Schlumberger decided it couldn't be arsed with treadmills anymore and sold and scrapped theirs. And  that's where the vast majority of world supply growth has been from for the last decade. 

CP, thanks for the more great analysis... it lead me to Art's webpage to view more of his content etc., but was struck by his homepage statement: 

'Oil and gas markets fascinate me. I am a working petroleum geologist.  I also have a degree in Middle Eastern history. That gives me a completely different perspective than other analysts.' I love unraveling the complex factors that drive markets and prices. I look at everything but comparative inventory is the cornerstone of my approach. That’s a real difference from my peers. It’s also why I get oil and gas markets right more often than most. Work with me and I’ll help you make better investment decisions based on realistic price calls.

CP, you have spoken candidly about your own experiences regarding Middle East 'leadership', such as it is. And i think regional/current affairs etc, is relevant. Combined with production capacity/oil reserves, gives a true 360. But i wonder what Art Berman means by the highlighted bit. For clarity, I haven't cherrypicked, not attempting to smear him (as much of the media do these days) that is his full 'personal - who am i - intro.' text from his homepage... I am just intrigued by what the historical perspective/expertise is that he is alluding to?

[JMD]

6 hours ago, kibuc said:

For a long term hold, I'd probably look at Adriatic Metals. Still in explorer phase so lot's of risks, but the deposit so far looks very interesting. 

Kibuc, didn't you recently talk about Impact Minerals? I ask because Panda was enquiring about Aussie miners and that is one, has Turkey/Africa mines also. I think its mainly gold, but also a useful uranium/platinum play.

I haven't bought it, but it is on my watch list - so did also want to check incase i have got this wrong? (please 'don't panic' Kibuc!, i wouldn't buy because of your recommendation alone, great as you info/insights are, i do further research, etc) 

[JMD]

22 hours ago, MvR said:

Just a trader's observation and definitely NOT an investment call.. but this pull-back has seen the S&P500 perfectly kiss the blue Kijun-Sen on my 18-52-104 Ichimoko chart.  This chart from IG's spreadbetting data, which copies /ES.. the S&P e-mini contract which is the most liquid, and probably the most relevant instrument to watch TA-wise.

This move could just be a re-test of the pre-covid all time high, which we are now back above as I write this.  If we do carry on falling, a rapid drop to the top of the cloud around 3100 could be possible without breaking the melt-up to 4500 thesis. 

MvR, that's really interesting because i notice that Dave Hunter is sticking with his SP500 melt-up/4500 call. He changed it from 4000 to 4500 only very recently i believe(?) - and i do wonder what drove him to that change - it would be fascinating to know why? Does anyone have thoughts on this?

As an aside, does anyone know what DH's personal portfolio looks like, does he publish it?

Anyway, if the SP500 goes over 4000, i will sell lot of my holdings, though how many of my oil/pm's i'll sell, i haven't decided yet. Might sound like i'm 'fence sitting', but my excuse is i'm a mere long term investor, not a trader!

 

[DurhamBorn]

2 minutes ago, JMD said:

MvR, that's really interesting because i notice that Dave Hunter is sticking with his SP500 melt-up/4500 call. He changed it from 4000 to 4500 only very recently i believe(?) - and i do wonder what drove him to that change - it would be fascinating to know why? Does anyone have thoughts on this?

As an aside, does anyone know what DH's personal portfolio looks like, does he publish it?

Anyway, if the SP500 goes over 4000, i will sell lot of my holdings, though how many of my oil/pm's i'll sell, i haven't decided yet. Might sound like i'm 'fence sitting', but my excuse is i'm a mere long term investor, not a trader!

 

David is basing it on lots of cross market work and liquidity.He would never put his portfolio up i doubt because he is a macro strategist and doesnt make trading calls really.I expect he would of been buying energy though,as he will be seeing the same lag and the same $ signals.What i would say though is id be pretty sure he is now leaning investments to inflation assets.I expect he is seeing the same policy mistakes as the mid to late 1960s,that then meant the 70s saw inflation.Most people who even consider the 70s inflation dont know it was actually the 60s that caused it as thats when the Fed and government started to change things that later allowed deficit spending etc.I suspect David sees the reaction after 08 as the same as what happened after around 65 and that where we are now is pretty much where we were in 71,72.

The government used the changes in the 60s in the 70s when they were fighting an enemy (Vietnam) and unemployment,very similar to now.

[kibuc]

2 hours ago, JMD said:

Kibuc, didn't you recently talk about Impact Minerals? I ask because Panda was enquiring about Aussie miners and that is one, has Turkey/Africa mines also. I think its mainly gold, but also a useful uranium/platinum play.

I haven't bought it, but it is on my watch list - so did also want to check incase i have got this wrong? (please 'don't panic' Kibuc!, i wouldn't buy because of your recommendation alone, great as you info/insights are, i do further research, etc) 

Never came across this name, the Impact I'm holding (and occasionally talk about) is Impact Silver, a Canadian silver miner with properties in Mexico, listed in Canada (IPT) and US (ISVLF). 

[Lightscribe]

10 minutes ago, kibuc said:

Never came across this name, the Impact I'm holding (and occasionally talk about) is Impact Silver, a Canadian silver miner with properties in Mexico, listed in Canada (IPT) and US (ISVLF). 

I’ve been doing a bit of looking into at Impact after hearing about it on other forums. Need to do a bit more research but maybe one to consider.

[Noallegiance]

Right on cue:

 

[Loki]

@Noallegiance love a bit of Hunter. Cheers

[JMD]

4 hours ago, kibuc said:

Never came across this name, the Impact I'm holding (and occasionally talk about) is Impact Silver, a Canadian silver miner with properties in Mexico, listed in Canada (IPT) and US (ISVLF). 

Oops sorry Kibuc my mistake. 

[JMD]

4 hours ago, Sideysid said:

I’ve been doing a bit of looking into at Impact after hearing about it on other forums. Need to do a bit more research but maybe one to consider.

Sideysid, if you do find anything interesting about Impact Minerals I'd appreciate you posting and telling us. I can't remember where I heard about them originally but did have them noted down as a possible, but for what reasons - I rather carelessly - lost in the midst of time.

[JMD]

6 hours ago, Cattle Prod said:

I don't know, but I'd guess he's inferring he has a more rounded view than most scientists. Science used to be taught with philosophy, and I think it still should. Personally I did a broad natural science degree, looking at everything from advanced calculus, dinosaur evolution, dissecting a rat and sketching rocks all in the same day. Most guys in the UK do pure geology from day 1, or even at A level, and I think thats a bit narrow. I also did an MSc in science communication part time which I think helps me explain myself, most scientists struggle to convey their ideas, so I'm glad I did that too. I think you need to have a broad mind to make connections others dont, perhaps thats what Art is referring to. I like that he has a degree in Middle East history. I don't see him straying into a special understanding of ME politics though, it was probably just for fun. He probably worked there, and got interested.

Thanks CP, agree with your speciality of learning point, and the type of silo thinking it creates. It reminds me of a SF short story I read long time ago (title escapes me), where in the future medical knowledge had become so extensive that doctors were required to specialise in either the left or the right nostril! 

[DurhamBorn]

@sancho panza David answered your dollar question in the video above,looks like he now sees 85 (im sure he had 78 before).

I thought it was very interesting how he thinks solvency of companies is going to be the big thing going forward.Here in the UK we probably have an even bigger problem as it seems most government workers/council workers,bennie claims and a big chunk of office workers have decided they dont want to go to work and want paying for doing nothing,or at best a lot less than they used to do.

Cash flow problems must be very broad based now.I also saw today a document from the treasury that said interest rates going to 1% would increase government debt payments by £40 billion.The UK is close to bust,and the even more reason to think of hard assets as two things.One part hard assets in this country,houses,land etc,but also hard assets outside of sterling,gold,silver of course,but also oil,gas,potash etc as we do.

I dont think rates are going anywhere near the 20% David expects,but i think double figures is likely chasing inflation at say 14%.

Really good towards the end to hear him mention how bad tracker type investments and bond investments will be and that we might see a secular top that stands for decades and decades.That will cause massive damage to peoples pensions.Rates above 5% stopped equity release and pensions falling 80%+ in real terms before any draw down.

Harley is right to fear how we allocate through this,and its a hard truth that we cant be certain at all we dont take a lot of damage along the way.So far the knocks are much smaller than the gains,sustaining that isnt going to be easy.

 

[wherebee]

26 minutes ago, DurhamBorn said:

@sancho panza David answered your dollar question in the video above,looks like he now sees 85 (im sure he had 78 before).

I thought it was very interesting how he thinks solvency of companies is going to be the big thing going forward.Here in the UK we probably have an even bigger problem as it seems most government workers/council workers,bennie claims and a big chunk of office workers have decided they dont want to go to work and want paying for doing nothing,or at best a lot less than they used to do.

Cash flow problems must be very broad based now.I also saw today a document from the treasury that said interest rates going to 1% would increase government debt payments by £40 billion.The UK is close to bust,and the even more reason to think of hard assets as two things.One part hard assets in this country,houses,land etc,but also hard assets outside of sterling,gold,silver of course,but also oil,gas,potash etc as we do.

I dont think rates are going anywhere near the 20% David expects,but i think double figures is likely chasing inflation at say 14%.

Really good towards the end to hear him mention how bad tracker type investments and bond investments will be and that we might see a secular top that stands for decades and decades.That will cause massive damage to peoples pensions.Rates above 5% stopped equity release and pensions falling 80%+ in real terms before any draw down.

Harley is right to fear how we allocate through this,and its a hard truth that we cant be certain at all we dont take a lot of damage along the way.So far the knocks are much smaller than the gains,sustaining that isnt going to be easy.

 

If I had a pension in the UK I'd be moving it all to commodities sector, and if not that then cash.

[Talking Monkey]

4 hours ago, Noallegiance said:

Right on cue:

 

That was one bleak picture he paints of the 2030s and 40s, kin hell, I'm going to try and enjoy miself for the next decade before it all turns to total shiyte

[MrXxxx]

6 hours ago, wherebee said:

If I had a pension in the UK I'd be moving it all to commodities sector, and if not that then cash.

Interesting, this is a discussion point I posed about a week ago on this very same thread :-)...the problem is how long you do it for, as you have cost of being out of the market vs cost of assets price between high (now) and low (crash).....I suppose a haff way house would be a mix of cash derivatives and quality bonds.

[MrXxxx]

4 hours ago, Talking Monkey said:

That was one bleak picture he paints of the 2030s and 40s, kin hell, I'm going to try and enjoy miself for the next decade before it all turns to total shiyte

Lets be honest, in the 40s I will probably be sitting there dribbling into my cardigan, and so will be oblivious to it all...what we have to look forward to eh?!

[DurhamBorn]

 

5 hours ago, Talking Monkey said:

That was one bleak picture he paints of the 2030s and 40s, kin hell, I'm going to try and enjoy miself for the next decade before it all turns to total shiyte

 David is looking at the collapse of Fiat and the debt system at the end of the inflation cycle,but thats a long way out and a lot can change.We could see a new Bretton Woods,or some kind of drawing rights with the central banks all linking so no currency can collapse and start a chain reaction.

The main problem is that governments are now structured to simply give out more and more free money.This crisis has shown that as clear as day,and how the bennie class and government/council workers mostly get to sit at home on full money (councils claiming to be working as hard at home is bullshit) and that means debt is exploding higher,and its structural.It looks like the government has zero stomach to actually do whats needed and the left seem to of infiltrated the whole of government,the media,all of education,councils etc etc.

However our worry for now is if,when and how a big collapse works through.Will everything come down,or a huge sector rotation? 

 

[leonardratso]

hmm, obviously buying and holding assumes a sector rotation, selling out completely would mean assuming total collapse.

decisions decisions.

Anyways, ive decided to cut down paying into the mutuals and index funds, time next week to start removing from them i think, dont want to be in them when/if they are shuttered or are in free fall - i remember from march how the pension at work fell 25% and i only just managed to convert it to cash @ -12%, fall was quick and i probably didnt even start until it was already -8-10%.

 

[jamtomorrow]

1 hour ago, DurhamBorn said:

 

 David is looking at the collapse of Fiat and the debt system at the end of the inflation cycle,but thats a long way out and a lot can change.We could see a new Bretton Woods,or some kind of drawing rights with the central banks all linking so no currency can collapse and start a chain reaction.

The main problem is that governments are now structured to simply give out more and more free money.This crisis has shown that as clear as day,and how the bennie class and government/council workers mostly get to sit at home on full money (councils claiming to be working as hard at home is bullshit) and that means debt is exploding higher,and its structural.It looks like the government has zero stomach to actually do whats needed and the left seem to of infiltrated the whole of government,the media,all of education,councils etc etc.

However our worry for now is if,when and how a big collapse works through.Will everything come down,or a huge sector rotation? 

 

It's sometimes tempting to think the reds are under the bed again, but it's not a problem confined to the left - the whole country is gripped by every kind of corruption you can imagine. And the Government won't do anything because they're too busy working their own flankers. We're witnessing a complete national moral collapse.

Some of the pork barrel land deals going on round here - public money being spaffed straight into the pockets of "associates" of Tory councillors - have to be seen to be believed.

At the national level, they're not even bothering to cover it up, let alone do it discreetly: https://bylinetimes.com/2020/09/02/government-awards-43-8-million-ppe-deal-to-dormant-firm/