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

[Loki]

@Cattle Prod is one (of several) posters on this thread that give me a little dopamine hit when I see a new post of theirs. 

 

[Sasquatch]

Inflation anecdotal. 

We're packing for our move and I've just popped out to the local open all hours type store. The sort of place that stocks all manner of random items.

Rolls of packing tape now £1.29 each. 99p pre covid. 30% uplift. Ouch!

[DurhamBorn]

1 hour ago, ONC said:

Hello all, 

long time lurker on TOS/Dosbods and this thread in particular (read it every day). I am nearly 50 but this thread is an education, hence I Am mainly Happy to read and learn. 

interesting article in FT, NextEra surpasses market cap of ExxonMobil (previous employer briefly). NextEra CEO dismisses Big Oil as a future competitor in renewables. Let’s hope he is very wrong

Clean Energy Group NextEra Surpasses ExxonMobil in marketcap

https://www.ft.com/content/39a70458-d4d1-4a6e-aca6-1d5670bade11

may need to paste link  or article title into google

Like most here getting heavily into big oil (Exxon, bp,  shell, slb), just wish I had more money  to invest this week!!!

From all the other  quiet lurkers, thanks again to all, and please keep up this fantastic  thread.

 

Welcome ONC.Looks like NextEra has net debt of around $44 billion and a turnover of $19 billion.Quick scan it would take around 50 years to pay off debt and market cap in dividends.Thats in a company that isnt really cyclical.They have expanded their bond debt hugely in the last couple of years.That will all need refinancing unless payments include capital as some of these types do.Big oil will crush these type of companies later in the cycle.They will be trying to raise finance at 7% coupons while big oil will be using free cash flow.I would suspect big oil will out perform them by 300%+ over the cycle.

[Bricks & Mortar]

 

1 hour ago, Bobthebuilder said:

gas industry is currently re-training for Hydrogen

Question:  If hydrogen is made from wind power electricity, and assuming the process isn't 100% efficient;  Will it be more expensive than electricity on a KWh basis by the time it gets to my house? 

[ONC]

Quote

13 minutes ago, DurhamBorn said:

Welcome ONC.Looks like NextEra has net debt of around $44 billion and a turnover of $19 billion.Quick scan it would take around 50 years to pay off debt and market cap in dividends.Thats in a company that isnt really cyclical.They have expanded their bond debt hugely in the last couple of years.That will all need refinancing unless payments include capital as some of these types do.Big oil will crush these type of companies later in the cycle.They will be trying to raise finance at 7% coupons while big oil will be using free cash flow.I would suspect big oil will out perform them by 300%+ over the cycle.

 

Hi DB.  Those figures really show how crazy the market is at present. They just will not be able to compete at 7% coupons. 

It will be fascinating to watch this all evolve in slow motion over the next decade. 
 

 

[Bobthebuilder]

5 minutes ago, Bricks & Mortar said:

 

Question:  If hydrogen is made from wind power electricity, and assuming the process isn't 100% efficient;  Will it be more expensive than electricity on a KWh basis by the time it gets to my house? 

They will mix it with current Methane gas first, probably 80% gas to 20% H.

It is really expensive to heat water with electricity and maybe would work well with heat source pumps in a individual setting, but no use to flats and commercial use such as hotels etc.

A standard 25kw gas combi boiler electrical output equivalent is 110 amps, thats bigger than your main house fuse, they would have to rewire the whole country electric infrastructure. Or as a customer of mine remarked once to me, they would need a power station at the end of every road.

I am starting to get customers asking when Hydrogen boilers will be available and they will wait until then for a replacement boiler. Not many asking that at the moment.

[JMD]

3 hours ago, DoINeedOne said:

What are peoples thoughts on gold royalty companies like Sandstorm?

I currently own a couple of miners outside of a ISA, 2 of which are due to bring the mines into production in Q1 2021 MKO.V & MAI.V

My thinking is rather than be exposed to any issues from just a couple of miners, An idea is come April new tax year new ISA allocation to a royalty companies longe-term

Royalty companies are a good lower risk play I think. I like Wheaton precious metals, it is also the largest silver mine royalty co.

[Harley]

2 hours ago, 5min OCD speculator said:

Right that's me done, off to talk to the plants

I thought you lived in a castle, sir!

[MrXxxx]

5 hours ago, Harley said:

Sounds like @Bobthebuilder best get his old van back on Monday!  Move if it costs too much in metro land as tbh, it's a bit girlie as far as vans go!  May be OK down in southern metro wokeland with their sandals and lattes but real blokes live up north who need vans to match the size of their hands and cajones.  If it can't take plasterboard, OSB or a mattress (depending on jobs and relationships!) it ain't real.  Plus no good as a campervan later in life, although there is a conversion video on YouTube.

Disclosure:   Me mate the handyman has one and it works well for him but he's trying to keep his head down and can't lift heavy things without breaking them.

 

4 hours ago, DoINeedOne said:

What are peoples thoughts on gold royalty companies like Sandstorm?

I currently own a couple of miners outside of a ISA, 2 of which are due to bring the mines into production in Q1 2021 MKO.V & MAI.V

My thinking is rather than be exposed to any issues from just a couple of miners, An idea is come April new tax year new ISA allocation to a royalty companies longe-term

This is where I am thinking f investing my PM money. At the moment most are only available on Canadian exchange with a few on NYSE. You can also get partial exposure through Van Eck PM ETF miners and VE junior PM ETF but if you wait a while second largest (Wharton) is coming to LSE.

[SpectrumFX]

54 minutes ago, Bobthebuilder said:

They will mix it with current Methane gas first, probably 80% gas to 20% H.

It is really expensive to heat water with electricity and maybe would work well with heat source pumps in a individual setting, but no use to flats and commercial use such as hotels etc.

A standard 25kw gas combi boiler electrical output equivalent is 110 amps, thats bigger than your main house fuse, they would have to rewire the whole country electric infrastructure. Or as a customer of mine remarked once to me, they would need a power station at the end of every road.

I am starting to get customers asking when Hydrogen boilers will be available and they will wait until then for a replacement boiler. Not many asking that at the moment.

A hydrogen boiler in my house?

I have some reservations.

 

 

 

[UnconventionalWisdom]

On 02/10/2020 at 17:02, JMD said:

They look very cheap. Also, for me they are the type of home grown engineering firm that the government will love to support/subsidise (surely just matter of time before good ol' Boris calls them a domestic godess!). Supplier to military and possible nuclear play also. And believe they are into hydrogen power systems, but TransistorMan will know more i think.

I have no idea, but surely they are too big to fail. Exporting aerospace parts is one of the things british engineering/manufacturing firms are known for. Has to be part of the brexit strategy. Things are bad for aerospace now but they will turn. 

[leonardratso]

1 minute ago, SpectrumFX said:

A hydrogen boiler in my house?

I have some reservations.

 

 

 

course good old natural gas is completely inert.

[Harley]

2 hours ago, Bobthebuilder said:

Dont get involved in any of that energy saving stuff, leave that for the plumbers with beards.I have heard good results but not my field.

Generally when in a group of heating guys such as college exams or gas safe meetings the overall opinion is that stuff is just not very good.

I am on topic for once as everyone is saying heat source pumps are the future while the gas industry is currently re-training for Hydrogen. Its not a if, its happening right now.

I may need an update but I looked into all this for a stone cottage I was renovating.  I spent a year at it and in that time saw the market pull back from its outlandish claims.  I would be dead in the water without the instant BTUs oil provides.  I, in my situation, dodged a bullet.  And the install costs were similar - i .e. the alternatives had been premium priced.  I went for a log burner as an alternative.  I am thinking of an air to air ASHP for a family room which is well insulated and used most of the time.  Quick and relatively cheap to install but in my situation any more would still be risky.  Insulation, that's the primary focus of my investment ATM and the place to start.  But needs to be done carefully.  And back to this thread, that's why I remain bullish for big oil and gas.

[Bobthebuilder]

7 minutes ago, Harley said:

I may need an update but I looked into all this for a stone cottage I was renovating.  I spent a year at it and in that time saw the market pull back from its outlandish claims.  I would be dead in the water without the instant BTUs oil provides.  I, in my situation, dodged a bullet.  And the install costs were similar - i .e. the alternatives had been premium priced.  I went for a log burner as an alternative.  I am thinking of an air to air ASHP for a family room which is well insulated and used most of the time.  Quick and relatively cheap to install but in my situation any more would still be risky.  Insulation, that's the primary focus of my investment ATM and the place to start.  But needs to be done carefully.  And back to this thread, that's why I remain bullish for big oil and gas.

I presume you have a small holding type set up. Air source pumps etc probably ideal for you. Get a back burner in that wood fire, i would.

[Bobthebuilder]

26 minutes ago, SpectrumFX said:

A hydrogen boiler in my house?

I have some reservations.

 

 

 

Unvented cylinder incorrectly installed, no gas or Hydrogen just water.

 

[Harley]

3 hours ago, 5min OCD speculator said:

I feel obliged to comment on this as I'm having a 'mental dilemma' myself....

I very nearly fell for the 'van life' fad, in fact I had a brand new Trafic at one stage with very impressive biturbo engine...

Anyway as I see it...

Toilet - bollocks, who wants to have a smelly sh!te in an enclosed space?

Shower - bollocks, especially for most fatties, even skinny blokes like me have trouble washing their arses...

Cooking - ok if it's pishing it down out but wouldn't you rather cook in the open?

Lights - bollocks, get some poratable LEDs at pennies a shot

Electricity - mainly bollocks cos you can get 'power packs' that cost fook all AND charge your toys on the move!!

Bed - aha, that's useful for sleeping and shagging but if you get a 2 second pop up tent that covers that one.......if you're shagging a frustrated married women just remember some extra socks to muffle the groans of delight 

Van heater - yeah that's useful in the cold but to be fair if you're 'camping in the cold' it's not a lot of fun and you're probably best off saving your £20-50k and putting it towards airbnb/hotel etc

'Sitting in a van' - get a life you boring old c0ck! 

Right that's me done, off to talk to the plants 

 

Sorry, totally off topic but this is my thing, like cars and pizza is for a lot of you!  The best van conversion video I've seen is one which accepted it was just a van, part of something bigger, and worked with that constraint.  It understood the use case, no loo or indoor shower, etc but what it had was top stuff.  A bit like successful investing!

[Harley]

24 minutes ago, Bobthebuilder said:

I presume you have a small holding type set up. Air source pumps etc probably ideal for you. Get a back burner in that wood fire, i would.

Yes!  Is the back burner for hot water, even central heating?  I looked into it but the install logistics for such a small space was an issue and the water would draw off a lot of the heat.  Now a wood Rayburn type set up, all integrated......!

[Bobthebuilder]

3 minutes ago, Harley said:

Yes!  Is the back burner for hot water, even central heating?  I looked into it but the install logistics for such a small space was an issue and the water would draw off a lot of the heat.  Now a wood Rayburn type set up, all integrated......!

If you have the log burner on most the time through the winter connected to a back burner that would probably be enough for most, no need to use oil.

One of my gas inspectors has this set up, says he doesnt use the gas boiler in the winter with the fire on.

[Harley]

1 hour ago, Bobthebuilder said:

If you have the log burner on most the time through the winter connected to a back burner that would probably be enough for most, no need to use oil.

One of my gas inspectors has this set up, says he doesnt use the gas boiler in the winter with the fire on.

I'm trying to major on the log burner this year.  A nice Charwood Island II.  Alas, inserted in an old fireplace so loses some effectiveness.  Just swept the chimney, etc.  Alas have some work to do on the surround first so the cheap(!) oil's on for now.  Replacing the shower but when that's done the small hot water store in the boiler will suffice if it's set to come on twice a day.  One added benefit of air-to-air ASHP is their ability to purify and dehumidify air.  Useful in an old building.  Maybe we need a separate thread but not sure what to call it ("bit and bobs" or that "I'm not sure where to post this" thread?).  Or we can have fun making out each of these posts are on topic.  Like how I just mentioned cheap oil prices and the limitations of renewables in the big macro energy investing picture!  I'll also put this on account as I have reviewed a few more (energy) industries like I did for "Forestry & Paper products" but have to hold back until Monday to front run things, given the seemingly millions of thread lurkers out there!

[Harley]

1 minute ago, Harley said:

I'm trying to major on the log burner this year.  A nice Charwood Island II.  Alas, inserted in an old fireplace so loses some effectiveness.  Just swept the chimney, etc.  Alas have some work to do on the surround first so the cheap(!) oil's on for now.  Replacing the shower but when that's done the small hot water store in the boiler will suffice if it's set to come on twice a day.  One added benefit of air-to-air ASHP is their ability to purify and dehumidify air.  Useful in an old building.  Maybe we need a separate thread but not sure what to call it ("bit and bobs" or that "I'm not sure where to post this" thread?).  Or we can have fun making out each of these posts are on topic.  Like how I just mentioned cheap oil prices and the limitations of renewables in the big macro energy investing picture!  I'll also put this on account as I have reviewed a few more (energy) industries like I did for "Forestry & Paper products" but have to hold back until Monday to front run things, given the seemingly millions of thread lurkers out there!

PS: Anyways time for a steak pie, chips and a larger, all without a mask or app, plus a good film (if they still exist).  Many thanks for today Bob.  Top stuff.

[sancho panza]

10 hours ago, Cattle Prod said:

Just to let you know there is a good debate on oil supply and demand on this weeks Macrovoices between Eric and Art Berman. Itd be good to know what the hive mind thinks so I won't bias it with my summary.

I've jsut listened and as ever,Art was super.So please take what I'm going to say in that context.The slide deck as @MrXxxx says, is brilliant and well worth a deep dive.

When it comes to supply,I think noone really beats Art(except CP) as it's what he does.So generally,his point about the oil rig count being current 143 versus 730 Nov 2019 really hits home hard and back this up with other stuff hes published regarding 83% of new oil 2009-2019  being US shale and anyone can see the problem.

He aslo makes a good point about diesel being at 60% of previosu demand as an indicator.

Where I start to be more cuatious with Art is when he strays from what he's good at and well respected for and delves into other areas where maybe he doesn't have the depth of understadning that he does on oil supply.

Having lsitened to the podcast,I feel that Art isn't necessarily looking at the whole picture when it comes to the demand side.The following points are made with the greatest respect.

1) In that forty minute interview,he never mentioned the value of the dollar once(unless I missed it).He never mentioned Fed policy either and I think you're playing with fire if you proceed on the basis that the value of the dollar and the direction of Fed policy will have no effect on the demand for oil internaitonally.

2) On a similar vein he talks about the end of a long debt cycle(50 yr).Now I'm with him there but timing is everything.On macro matters,I think it best to stick with people who've been right on macro matters before eg David Hunter,DB and that lay out the logic of their prediction.Given how he talks about a ramp up in Q3Q4 2021 oil price,you'll come unstuck if we get a weak dollar phase,huge rise in oil price then credit deflation end Q2 2021(which is my best guess for the BK at the mo)

3) Whilst he mentioned demand for diesel being 63% showing industrial and trade demand was low,he failed to reference some evidence that might undermine his conclusions.Now I'm not saying copper and oil demand are a function of each otehr,but what I am saying if industry is on it's back side then the price for iron ore and copper will be low

Looking at these cahrts,they're telling us something different to Art's 60% diesel usage,could be that we see a big upswing once all the copper,aluminium and iron ore get made into something.

4) He also takes little real account of stimulus measures that other countires-particualrly CHina- could introduce espcially in a weak dollar environement.But then we're Western centrics on here too.It's human to not see/want to see the rise of a new world order without us in it..

6) AB also doesn't really have a clinicians understanding of covid.My Dad was in the oil industry for years with Exxon(scientist/lawyer) but he's the same age as Art and has been scared into hiding at home.AB seems to think that the population will wait for a vaccine before resuming normal behaviour.Again a dangerous assumption if the roads in Leicester are anything to go by and/or the amount of people shopping at the local coop without masks is a sign.I think there's a chance that many lockdown govts have jsut got this plain worng and whilst it's possible to fool some of the people some of the time,you can't fool all of them.People are jsut waking up to what a dog poo sandwich many govts have made of it.

7) this leads me onto a broader point.AB sees covid as antoher event  and that consumer behaviour will return to normal once a vaccine is found.WHat if he's wrong? What if consumers jsut adapt their behaviour.For example he talks about people not flying till there's a vaccine.But what if they jsut drive more and do more local trips..?

 

ALl in all,the podcast really made me reassess my postion on where I see demand and the suppy side stuff was bang on as ever.

 

Decl.,I hold a good few April calls on big oil and also copper plays.We also have a large chunk of portfolio value in oilies.

[sancho panza]

8 hours ago, Bobthebuilder said:

I am to old for all that crap, i fix boilers for a part time living. I only need room for a couple of screw drivers and a multi meter.

To bring it a little bit back on topic (sorry). I am thinking of buying new and try to get it to last this next cycle. Gives me a debt free option through the mess that looks like its heading towards us.Prbably better than sitting in cash in the bank.

Have you considered an estate car Bob.Silly question but when you put the back seats down you can get loads in.

7 hours ago, DoINeedOne said:

What are peoples thoughts on gold royalty companies like Sandstorm?

I currently own a couple of miners outside of a ISA, 2 of which are due to bring the mines into production in Q1 2021 MKO.V & MAI.V

My thinking is rather than be exposed to any issues from just a couple of miners, An idea is come April new tax year new ISA allocation to a royalty companies longe-term

I like royalty cos but they are pricey comapred to vanilla miners.

Osisko have a 20% stake in MAI iirc.

We won Sand but a lot lower,I wouldn't buy more now as Sand have doubled but OR look hafl easonable

Decl-own both SAND and OR

[Loki]

11 minutes ago, sancho panza said:

till there's a vaccine

I was also a bit concerned about how blithely the host mentioned a vaccine.  This whole "The economy will recover when there's a vaccine" is all a bit...putting the economy before people. What if I don't want a vaccine?

I see this more in financial type content and can't help but think they've lost sight of anything but numbers.

 

 

[sancho panza]

4 hours ago, Bobthebuilder said:

They will mix it with current Methane gas first, probably 80% gas to 20% H.

It is really expensive to heat water with electricity and maybe would work well with heat source pumps in a individual setting, but no use to flats and commercial use such as hotels etc.

A standard 25kw gas combi boiler electrical output equivalent is 110 amps, thats bigger than your main house fuse, they would have to rewire the whole country electric infrastructure. Or as a customer of mine remarked once to me, they would need a power station at the end of every road.

I am starting to get customers asking when Hydrogen boilers will be available and they will wait until then for a replacement boiler. Not many asking that at the moment.

Bob,question here.When we're tlaking electric vehicles and green enrgy,what you're syaing(please in laymans terms) is that if we went to electric for everyhthing in the hosue,we'd need a shedload more pwoer stations and that the current i nfrastructure can handle it.

5 hours ago, Cattle Prod said:

Here's a map to remember for the coming commodity cycle. Not just oil, but gas, gold, silver, potash, irom, copper, beef, wheat etc. Where are the producers, and where are the consumers?

I note that the red doesn't even include Indonesia, which at 273m people is world's 4th most populous country.

 

that is a cahrt to remember.wary ye the western centric as per my Art post.

[Loki]

1 minute ago, sancho panza said:

if we went to electric for everyhthing in the hosue,we'd need a shedload more pwoer stations and that the current i nfrastructure can handle it.

The grid was already in the orange in the Beast from the East

http://www.gridwatch.templar.co.uk/