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

[JMD]

28 minutes ago, DurhamBorn said:

India will be getting a lot of oil from BP,and gas.Thats why BP have got a big joint venture going with Reliance Industries the largest company in India.They are expanding hugely their join petrol station venture etc and also deep water gas.

Yes, but my point was not about who India would buy from (BP joint venture), but more about how those supply routes were secured (and whether this would force India closer to Japan). But I was assuming most supplies would be coming from the ME/Saudi. However, that 'deep water gas' project you mention appears to be located off the coast of India, so perhaps blowing my theory out the water (so to speak)?

[Bricks & Mortar]

5 minutes ago, Sasquatch said:

Definitely market town for us. Perhaps 2,000 to 5,000 people. Hopefully on the edge in a quiet spot. Ideally within walking distance (say 1 mile max), a decent general shop/small supermarket, dentist, doctor, post office, baker/greengrocer/butcher, pub. Anything beyond this would be a bonus. Access to a traditional garage as well would be useful for car repairs.

We have 2 or 3 places in mind. Will be waiting for the right property to appear on the market. 

Agree with all, except for being on the edge in a quiet spot.  I much prefer being on the main street, with many near neighbours whose windows directly over look me, and my vehicles when they're parked on the street.
I think this lends me security.  And the opportunity to make a living out of my front room or garage if it should become necessary.

[DurhamBorn]

2 minutes ago, JMD said:

Yes, but my point was not about who India would buy from (BP joint venture), but more about how those supply routes were secured (and whether this would force India closer to Japan). But I was assuming most supplies would be coming from the ME/Saudi. However, that 'deep water gas' project you mention appears to be located off the coast of India, so perhaps blowing my theory out the water (so to speak)?

Yanks,Royal Navy,Australian Navy and Japan will secure the shipping lanes.If Bozo Boris gets his act together countries will be crying out for UK arms,including subs and surface ships.Irag and Saudi would supply most i guess,but maybe growing from UAE.

@Cattle Prod might be able to give us some knowledge on Iragi oil,decline rates,spare capacity etc.

[Democorruptcy]

6 hours ago, Harley said:

You must be Mr Vodafone of the housing market!  Expect them to say similar in their future reports?

Rates dropped due to covid?

[Democorruptcy]

28 minutes ago, Sasquatch said:

Definitely market town for us. Perhaps 2,000 to 5,000 people. Hopefully on the edge in a quiet spot. Ideally within walking distance (say 1 mile max), a decent general shop/small supermarket, dentist, doctor, post office, baker/greengrocer/butcher, pub. Anything beyond this would be a bonus. Access to a traditional garage as well would be useful for car repairs.

We have 2 or 3 places in mind. Will be waiting for the right property to appear on the market. 

Enjoy the quiet or the retail places there while you can. Either you will need more people or the retail places will all go bust due to lack of footfall.

[JMD]

35 minutes ago, Cattle Prod said:

The question of "does the US need ME oil" is turning out to be more important than I thought. Short answer is not right now. But I'm thinking now yes it will again, soon.

I went back to my production charts and stuck on consumption (all to end 2019, so pre covid). It's often far more useful to look at the net between production and consumption. In big producing countries, it gives you the amount availabe for export. I mentioned he was wrong about Mexico, I'll come back to that. For consuming countries, it gives you the imports needed. Consumption is blue, production is tan. Here is India:

 

You can see the problem there?! 4.4m bbl day imports, growing exponentially. China, over 10m a day:

Here is Mexico:

That area between the curves is oil that Mexico exported since 1970, mostly to the USA. Their production is crashing (due to the peculiarity of their big reservoirs) and it looks like it's crushing the economy too. The "Export Land Model" is a concept where a once steady exporter goes to zero exports as they need it all themselves. It happened to Indonesia a while back, a long time exporter, now a big importer:

 

I could go on, but you get the picture. Looking at regions, Europe is flat, it's consumption is declining with production and needs around 11mb a day:

 

And here is Asia (inc India, Asia, Japan):

 

Holy moly. Almost 28mb a day, and increased by 10 over the last 9 years. This is world growth, this is what i's all about. And will they fight over their shares? I think for sure, if supply is tight. 

Where does it come from? Well CIS inc. Russia almost covers Europe:

 

North America covers itself, or at least did in 2019:

South America used to be a large exporter, but is soon to become a net importer. I didn't know this, and was a bit shocked when I look at the consumption in Brazil and Arg. Colombia is the biggest exporter there, which explains the friendly relations with the Gringos lately.

So back to the Monroe doctine: the whole of the western hemisphere is just about covering itself. Who is covering all the mad growth in Asia though? There is only the Middle East and Africa left:

 

About 25mb export capacity. You'll note that growth for the ME is slow over the last 10 years, and growth for Africa is negative. In aggregate,they are flat growth for the decade. They also exported around 25mb in 2009. So hang on, what happened? How did Asia grow?

Well because MEA exports that were going to the USA in 2009, went to Asia over the last ten years as North America increased its own supply. 

And now that the USAs domestic supply has finally been bombed out by Covid, they are going to have to bid for MEA oil again as soon as Covid clears. This obviously has major geopolitical implications. The USA, China and India are by far the biggest consumers of oil in the world, and I think it's no coincidence that a) The Covid debacle has centred on two of them and b) all three of them are squaring up in one way or another.

In summary: export capacity is flat, and has been for the last ten years at least. Consumption growth was possible because the USA displaced its imports with its own oil, and left the imports for Asia. The USA is going to be back in the market before long bidding for physical oil, against the Asian growth economies in an environment where supply can't grow to meet any of the demand.

They're just the big ones. It was mentioned upthread about Australia whinging about their oil situation, they were self suficient in 2000, and now need 700k a day. And they are included in the Asia figure! I have no idea about timelines, but if you look carefully at the China plot, you'll see 2 yrs of flat demand in 2008-2009. That a good a guess as any. 

Last point:

I was wrong about jet fuel. I was quoting USA numbers, it's about 7.5m globally, so with ~3mb of that lost for the forseeable, there will be a real drag on demand untill Covid is sorted out.

Thanks again CP. Lots of interesting information in your post. I think it will take me a little while to absorb it properly. 

Some might see this as idle musing. But for any here who are heavily invested in the oilies i think it important to have a 10 year view on the main drivers being slapped upon the 'new-normal' oil industry - renewable energy pivot/increasing China-India demand/'cold-war'-regional security of supply. 

For example China and Russia may not like each other (btw, they don't), but it seems Russian oil companies will benefit greatly from their next door neighbour's increasing demand for oil/gas, especially if/when China's ME/S. American supply taps begin to dwindle/are turned off. Might this be probable? - seems to me it would be a natural successor to the east-west 'trade wars' that are already being openly talked about.  

[TNS]

Last minute shell and bp falls, must resist. Could be the greatest investment in a decade or the financial #$&% up of it.

[JREWING]

10 minutes ago, TheNickos said:

Last minute shell and bp falls, must resist. Could be the greatest investment in a decade or the financial #$&% up of it.

If I had any bullet's left in my pistolier I'd hold fire. 

Last minute falls before stratospheric lifts to 10 and yonder. See you on the 19th. For a coldy and a bag of saltys all on the Oilies.

[Don Coglione]

1 hour ago, Bricks & Mortar said:

Agree with all, except for being on the edge in a quiet spot.  I much prefer being on the main street, with many near neighbours whose windows directly over look me, and my vehicles when they're parked on the street.
I think this lends me security.  And the opportunity to make a living out of my front room or garage if it should become necessary.

I have found Nirvana (but I ain't sharing it...).

[Errol]

It’s Time To Get Greedy In The Energy Sector, Part Deux

https://thefelderreport.com/2020/09/30/its-time-to-get-greedy-in-the-energy-sector-part-deux/

[Errol]

BP now same price as it was in April 1995 ...

[Majorpain]

Just now, Errol said:

BP now same price as it was in April 1995 ...

Gut feel Shell going to hit 800, BP 190.  IMO nothing is coming next few weeks to change the narrative so slide should continue for now.

 Wu Flu hysteria is at the very least giving some excellent entry points.

[sancho panza]

22 hours ago, DurhamBorn said:

Its incredible how exposed we are in the UK.China sent us containers and we exchanged them for a terraced house in London.Most people will feel the pain when rates move higher and that will remove the house is my pension option.That will whack huge swathes of people in the south.Then inflation and fees will see pensions only provide 10 years of draw down instead of 25.That will mean people having to work right up to state pension age.Its a pincer movement

 

The future looks quite stark for a lot of people and that's before sterling starts tanking on the exchanges.

HPI has in mnay ways been a double edged sword for many in terms of future pension provison because hosue prices have gone up so much for so long,a lot of people have let other forms of savings drop off their radar.

The itonry is that the banks are now so leveraged that they're withdrwaing high LTV ratio mortgages that it virtually guarantees the vicious circle of house price drops begetting credit creation drops begetting hosue price drops.

When January comes and quarterly rrents are due and govt support for employees finishes,it could be a bloodbath potentially.Glad I have little skin in the game.

[sancho panza]

20 hours ago, Cattle Prod said:

@sancho panza I checked my facts on India vs Jet fuel since you mentioned it, as something niggled me. I read the 500k growth figure in the Platts article and saw roughly the same off a chart for jet fuel. On closer inspection, jet fuel is down about 650 a day, so I'm a little off.

However Indias consumption is about 5.5m, so a 500k increase, if it happens, is huge. I can see why they might say that  though. They currently consume ~ 9mbpd less than China. If they want the same standard of living as their highly populated peer, the world is going to have to find another 9mbpd of supply from somewhere. 

It's just not there. We just don't have it. I'm a bit shocked, I'd not looked at India closely before, apart from looking for oil there (there is very little as it's largely a young landmass).

Here is the pre Covid consumption curve, steepening from linear to exponential:

If I was India, I'd be building strategic reserves right now and importing it hand over fist.

I think we do tend to forget that emerging markets growth has underpinned the commodity super cycle.I'm nowhere near as well informed as you but to me it looks like we're splitting hairs talking about 150 bpd between air fuel and India.

As you alluded when people talk about demand side they're primarily focused on USA,Europe and struggle seeing through the mist to the trending charts that's really matter.

The more I research this the more the oilies have the feel of Broken Hill and Billiton 20 years ago.

 

[sancho panza]

17 hours ago, wherebee said:

the Australian today arguing for more oil and gas exploration in oz, not less:

"In light of Australia’s looming gas shortages and the threat they pose to manufacturing and jobs, especially in the current parlous economic climate, it makes more sense that a gas superpower such as Australia use its reserves to cut power prices and industry costs and play a role in the transition to cleaner energy. This is why The Australian has argued consistently in favour of the states unlocking their restrictions on gas exploration and production. A move by the Victorian government earlier this year to lift a ban on onshore exploration, while welcome, will not come into effect until July next year, meaning any supply from sources such as the Otway Basin are unlikely to be developed in time to ease the looming crisis."

Any good Aussie companies worth running the slide rule over?

11 hours ago, MrXxxx said:

None of my business but this seems like putting `everything on black`[excuse pun!] type investing...you may like to investigate `Diversification`, and I don't mean `Buy some BP instead` :-) :-) :-)

It's not putting everything on black.Gambling has binary outcomes,buying shares doesn't.There are a range of otehrs eg capital growth,dividend growth,or capital loss.

 

[sancho panza]

10 hours ago, Harley said:

Ta.  I thought you "owned" Investing,com!  Do you screen?  Was my stuff any good?  Should I bother posting such stuff?  I often hold back, until triggered.

PS:  The Investing.com screener is, like them all, a tricky one.  Should work in one way, but often "works" in another way.  Really hard to debug issues as no audit trail.  If you have any questions......

You'll laugh at this.I bascially look at the ETF holdings for a sector I'm interested in and then start looking at those.Now I've seen this screener,I will start using it.

I think with these psots you bring a lot of your marekt experience to bear so you're introducing concepts to people experienced/inexperienced alike and you're also introducing some fresh ideas in terms of possivble sectors.I hadn't thought about forestry since we talked about 100's pages back.

10 hours ago, DurhamBorn said:

Recessions always see death rates go up and suicides,just like the BP bloke above,who by the looks of hit had left his family,married someone else,was trying to re-mortgage etc then got the shove.Covid will save a lot of pension schemes money as well.Not killing people itself,but the fact hospitals are hardly treating anyone anymore and huge amounts of people will die early due to other illness.

Absolutely.This govt's incompetence will be harshly judged by history.Numerous curative procedures cancelled so they could empty the hospitals for all the covid patients that never appeared.Even now,they're dragging their feet.By the end of it-I think 100,000's of people will have had their lives shortened for a variety of reasons that are nothing to do with Covid the illness itself but ratherr the govt bumbling response to it.

10 hours ago, DurhamBorn said:

Market towns where people know each other.Youd get the odd smack rat trying it on but they would be dealt with very quickly.In my home town for instance if law and order broke down i wouldnt worry for the 10k people who live there,id worry for the burglars and smack heads because they get it for certain.

People often forget but the English seem to all have a spark inside where they can quite easily turn to extreme violence,especially when their family,friends or home is threatened.

My longer term plan is to keep renting and move us to a market town like Market Harborough when the kids need a secondary school.Big cities like Leicester will break down along socio/religious lines and anyone with young kids won't want to be anywhere near it.

Lets wait and see what the joblessness in the new year brings.

9 hours ago, Barnsey said:

100% agreed, Barclays have just announced they're even removing 75% LTV mortgages now because of "demand" (the narrative of which I'm not buying), whilst Henry Pryor is now suggesting his estate agent contacts are seeing quite the cooling off in sales this month along with increased inventory.

History rhyming and all that, for me I'm looking for a stabilisation of the unemployment rate (which we're 6 months away from at least?) and noticeable increase of higher LTV mortgages coming to market. There's also the possibility of a slight dip into negative rates in November along with substantial £££ being pumped into banks to get them to lend again. I appreciate this is a very different scenario where the rich appear to have become richer but funnily enough I'm not looking at the kind of houses they are.

The one risk is that the stamp duty holiday is extended because the fear is so great of a cliff edge in April, but even if it is I think the urgency will deteriorate Vs this frenzy we've seen.

Then of course there's the end of mortgage forbearance early next year for many, not huge numbers but certainly a steady stream of properties to dilute the market.

Going to be a f***ing bleak winter, that I'm sure of.

 

I agree on the follow the moeny section.The banks know what's coming,I even know estate agents who are admitting it.It's a tough choice,get a mortgage while you can or wait for substantive drops-although as we've discussed places like the ME prob won't see much downside as theyve collapsed already.

Talkign to a friend today,he was saying that come new year,retail will be going bust having sold stock over christmas and having taken the govt loans for keeping people on.

I was out with middle panza shopping this morning and I think sports direct will be shutting most of it's branches.M&S too.Smaller than that and you're toast imho unless you're in a niche like Dunelm.In the 15 minutes,Sports direct took £30 off me for some shoes.Must have had 6/7 staff on.Fubar.

[JREWING]

51 minutes ago, Majorpain said:

Gut feel Shell going to hit 800, BP 190.  IMO nothing is coming next few weeks to change the narrative so slide should continue for now.

 Wu Flu hysteria is at the very least giving some excellent entry points.

Just a thought.

Divis Dec....

Qualification day around early November...

Won't that offer a floor. I mean 5% plus and 7% is a hell of a carrot...

Gotta admit a part of me thinks who's shorting these two Oilies....

Don't think I've ever seen such a big red number in my HL portal...

What's worse sat here in the boozer. It's like Orwellian 1984...The world's gone mad...

[JREWING]

1 minute ago, Cattle Prod said:

I bought Shell today with this months pension contribution. I wish I could buy others thru my SIPP, but its just Shell and BP for the big boys.

I'm tempted to whack £50k on the cards. If it goes south she'll leave me.

Umm now there's a thought. .

[sancho panza]

3 hours ago, Cattle Prod said:

The question of "does the US need ME oil" is turning out to be more important than I thought. Short answer is not right now. But I'm thinking now yes it will again, soon.

I went back to my production charts and stuck on consumption (all to end 2019, so pre covid). It's often far more useful to look at the net between production and consumption. In big producing countries, it gives you the amount availabe for export. I mentioned he was wrong about Mexico, I'll come back to that. For consuming countries, it gives you the imports needed. Consumption is blue, production is tan. Here is India:

 

You can see the problem there?! 4.4m bbl day imports, growing exponentially. China, over 10m a day:

Here is Mexico:

That area between the curves is oil that Mexico exported since 1970, mostly to the USA. Their production is crashing (due to the peculiarity of their big reservoirs) and it looks like it's crushing the economy too. The "Export Land Model" is a concept where a once steady exporter goes to zero exports as they need it all themselves. It happened to Indonesia a while back, a long time exporter, now a big importer:

 

I could go on, but you get the picture. Looking at regions, Europe is flat, it's consumption is declining with production and needs around 11mb a day:

 

And here is Asia (inc India, Asia, Japan):

 

Holy moly. Almost 28mb a day, and increased by 10 over the last 9 years. This is world growth, this is what i's all about. And will they fight over their shares? I think for sure, if supply is tight. 

Where does it come from? Well CIS inc. Russia almost covers Europe:

 

North America covers itself, or at least did in 2019:

South America used to be a large exporter, but is soon to become a net importer. I didn't know this, and was a bit shocked when I look at the consumption in Brazil and Arg. Colombia is the biggest exporter there, which explains the friendly relations with the Gringos lately. It covers itself, for now, with negligble net exports. Guyana will help keep this going a bit longer:

So back to the Monroe doctine: the whole of the western hemisphere is just about covering itself. Who is covering all the mad growth in Asia though? There is only the Middle East and Africa left:

 

About 25mb export capacity. You'll note that growth for the ME is slow over the last 10 years, and growth for Africa is negative. In aggregate,they are flat growth for the decade: they also exported around 25mb in 2009. So hang on, what happened? How did Asia grow?

Well because MEA exports that were going to the USA in 2009, went to Asia over the last ten years as North America increased its own supply. 

And now that the USAs domestic supply has finally been bombed out by Covid, they are going to have to bid for MEA oil again as soon as Covid clears. This obviously has major geopolitical implications. The USA, China and India are by far the biggest consumers of oil in the world, and I think it's no coincidence that a) The Covid debacle has centred on two of them and b) all three of them are squaring up in one way or another.

In summary: export capacity is flat, and has been for the last ten years at least. Consumption growth (almost all in Asia) was possible because the USA displaced its imports with its own oil, and left them for Asia. The USA is going to be back in the market before long bidding for physical oil, against the Asian growth economies in an environment where supply can't grow to meet any of the demand.

They're just the big ones. It was mentioned upthread about Australia whinging about their oil situation, they were self suficient in 2000, and now need 700k a day. And they are included in the Asia figure! 

I have no idea about timelines, but if you look carefully at the Asia plot, you'll see 2 yrs of flat demand in 2008-2009. That a good a guess as any. But I see a clear situation where either Asia decides it's ok to stop growing, or price has to go significantly higher to both stimulate production, and kill demand in poorer places.

Last point:

I was wrong about jet fuel. I was quoting USA numbers, it's about 7.5m globally, so with ~3mb of that lost for the forseeable, there will be a real drag on demand untill Covid is sorted out.

Thanks for sharing your work there CP.Absolutely incredible looking charts.The price of the black sutff is only going one way.I can't believe the Mexico story and then to see how US shale alleviated the ME p[roblem but as it goes offlinewill leave the US comepting with China and India for it...........

I set some options with XOM at $35 and BP £2.5,RDSB at £9.50 with some double or quits money with a view to laddering in again XOM at $30,BP £2,RDSB £8.00.The extremes in value as I pereicve them fascinate me now as much as they did in the tech bubble 20 years ago.One of the reasons I love this thread because I know I'm not the only sat there thinking this is insane value.I've had to reproduce @Errol Felder report in full becaue it needs preserving on thread in terms of contrarian indicators

 

 

[Harley]

3 hours ago, JMD said:

Harley, i think those metrics combined provide a very good indication of the financial health of a company. Must say I'm amazed at how quickly you competed that table! (and there was me posting recently that work-place productivity was dead!! (well sort-off)).

The only comment i'd have is what are your thoughts on evaluating the 'fair value' of a company? Is it worth doing, or is this mostly crystal-ball staring, i.e. discounted future cash flows, and other highly suspect imponderables? Personally, I plan to buy my watch-list after a BK event, so for me my 'fair-value' price would be the company stock price at its lowest point in March 2020.   

Thanks.  I used the opportunity to do a walk-through test of things I have set up.  Must be on my fifth iteration and now feel comfortable.  Now to point my bazooka at several industries!  Quite exciting really!  I'm buying before the BK, but just initial stakes.  This is to get them into my system, be ready to run hard at the right time, and to also to mitigate the risk of no BK. 

As much as I like looking at such metrics, I'm also very aware of not going too deep and anorak.  And I'm saying that as someone who has a lot of such knowledge/capability.  I like a light touch combined with risk control.  So no, not fair value.  Especially as I once asked an accountant who specialised in valuing companies and he told me when asked, he looked at car number plates on the way into a meeting to decide on a number!  That way it sounded considered and therefore valid.

I keep it simple, deal in cash, ignore the stories, and look under floorboards for nasties.  All I'm trying to do is play macro sector themes and avoid using ETFs, etc by buying the sane big players in the industry.  I'm not trying to out alpha that macro focus with "hot" stocks.  I may do that later but that would be a different process, with a different risk management process, and a different amount of allocated capital.

The most important lesson I've learnt is to decide precisely what you are aiming for and stick to it.  Selection and maintenance of aim.  No drift.  If I want to try something different fine, but treat it separately and differently (appropriately).  Many people seem to be "confused" like teenagers on a hormonal high.  They ask if the should do "x" with no reference to what they are trying to do, circumstances, etc.  That's a random walk and raises a red flag.  

More bad weather due and a work injury (due to some wonker of a plumber) so more screens likely!

[Popuplights]

2 hours ago, TheNickos said:

Last minute shell and bp falls, must resist. Could be the greatest investment in a decade or the financial #$&% up of it.

https://oilprice.com/Latest-Energy-News/World-News/Exxon-Set-For-Another-Loss-In-Q3.html

XOM headed sub 30 dollars I should think....

[sancho panza]

1 hour ago, Errol said:

It’s Time To Get Greedy In The Energy Sector, Part Deux

https://thefelderreport.com/2020/09/30/its-time-to-get-greedy-in-the-energy-sector-part-deux/

That is too good to be hid behind a link for psoterity.Really does make me laugh.It's amking me think about breaking my 40% rule(only introduced when our oilies hit 45% of intial invesment).Or selling some goldies and shifting that in.The end game of holding goldies for me was always to buy yield.And I'm looking a decade of good yields right in the eye imho.

 

https://thefelderreport.com/2020/09/30/its-time-to-get-greedy-in-the-energy-sector-part-deux/

The contrarian case for buying energy stocks just keeps getting stronger and stronger. Exxon, after getting booted from the Dow Jones Industrial Average, just experienced its worst 30-day stretch of stock price performance in at least 40 years, according to SentimenTrader. And it’s not just this sector flagship; energy stocks now represent the most hated stock market sector of all time according to the firm. To top it all off, The Economist recently proclaimed the death of oil (once again: see 1999 and 2003).

It’s gotten to the point, that even Justin Bieber is using the oil industry in his latest music video as a metaphor for pain and suffering. To be very clear, these are precisely the sorts of things you eventually look back on and realize were screaming buy signals at the time. Like the Wall Street Journal calling gold a “pet rock” in 2015.

Or like Gisele Bundchen and Jay-Z publicly dumping dollars for euros in late-2007. You just don’t get these sorts of extremes in sentiment very often. And when you do, you better take advantage of them because if you don’t you’ll be kicking yourself later on for missing something so obvious.

[sancho panza]

ANy views anyone? @Transistor Man

I remember buying them with a 1 handle back in the tech bubble

[Bobthebuilder]

3 hours ago, Knickerless Turgid said:

I have found Nirvana (but I ain't sharing it...).

Peckham?

[Jesus Wept]

13 minutes ago, sancho panza said:

ANy views anyone? @Transistor Man

I have a ‘vested’ interest and connections within Rolls Royce. 

All is not well within RR. 

My buy point is 93p... ladders at 83p and 73p.