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

[Popuplights]

5 minutes ago, Yadda yadda yadda said:

Exchange rate?

Magic?

[AWW]

4 minutes ago, Yadda yadda yadda said:

Exchange rate?

FX markets are closed. It's not income either. Bit of a head-scratcher.

[Chewing Grass]

34 minutes ago, AWW said:

Anyone know why my HL balance is up £600 since yesterday evening? There are only European and US/Canada equities in it.

Smartmatic by Dominion Systems have taken over running the balance sheet.

[Yadda yadda yadda]

32 minutes ago, AWW said:

FX markets are closed. It's not income either. Bit of a head-scratcher.

Those sly dogs in New Zealand are trading right now. Not sure if they were when you checked your account.

[MrXxxx]

6 hours ago, sancho panza said:

No Vod have taken guarantee that they can sell X amount of dollars at a certain price,if their counterarty goes bust,Vod still have the dollars.May actually work in their favour depending on the $.May not.

The party that writes the forex call carries the bulk of the risk unless Vod is runnign a strategy that unevenly exposes them to risk in a currency eg their Swiss taking out a dollar loan in Switzerland.But there's no reason for vodafone to do that.

But are they not paying a premium for the option?...and when they want to sell the dollars (and cant) and its not to their advantage are they not further `out of pocket`?

[wherebee]

5 hours ago, planit said:

I can't see a crash too soon.

Currently the markets want good news so much they are going to ignore bad news (and there isn't much of it around at the moment)

Companies and people are hording cash due to uncertainty and there it not much incentive to put it to work earning 0.1% interest somewhere (reason for M1/M2 divergence?).

Governments only need to vaccinate a small percentage of the population to have a big effect on mortality rates (healthcare workers spreading virus to vulnerable people and very small percentage of the population at high risk). This will drive people to believe Covid is over quicker than they currently expect.

Markets are split, I can't see tech stocks falling immediately whilst everything else has room to rise (some by a lot)

So a crazy run up to March, much higher than people expect is very possible as everyone ends up delusional about the future (and ignores the risks/warnings) and jumps on the band wagon.

It will take a while for a crazy buying splurge to show up in inflation figures [energy driven?] so what could happen between March/April and end of next year is a complete blank to me. 

 

I am looking for a reason stocks will do badly between now and March so can anyone put out the opposite view?

 

Read the Biden/Trump election thread.

 

If - and it is a big if - there was massive election fraud and Trump starts to prove it, it'll be like a bomb going off in the US psyche.  Certainly the media and social tech stocks will get hammered; Facebook is already in the firing line in some lawsuits due to Zuck donating heavily to dem areas (claimed to be in breach of election funding laws).

If it is as bad as some pointers indicate, you could see mass arrests of household names in industry and politics.  Do you think the market might just go down a bit?

[Loki]

The Trump economy IS the stock market. 

[JMD]

4 hours ago, Cattle Prod said:

If they can survive cash wise till project sanction. Nothing wring with the project, reservoirs are good, tons of oil, it's just a bit expensive to develop (for example Johan Sverdrup is in shallower water, has a power cable and pipelines to shore). So it needs higher prices, and then it'll get sanctioned. 

As a rule I don't invest in or recommend small companies, but I will say there is no doubt about a large amount of oil being there, and it won't stay idle when prices are high. 

Thanks CP, Rockhopper for me was a high speculation stock which I bought 10 years ago, I got burnt by them so I made no further oil investments until this year when I have bought a huge amount of the oilies, so it would be sweet if they were to participate in the coming global clamour for energy and I got to (belatedly) benefit. CP, do you know if the regional politics has changed any, Argentina were (perhaps still are?) making claims to the oil there. Also a technical question if I can ask, I guess there is no option but to pipe ashore, or could they build a floating platform for oil tankers?

[Viceroy]

this is a 30min excerpt from Armstrongs online conference that was held this weekend.  https://onedrive.live.com/?authkey=!AJjKn5FbsBB6hiM&cid=B811911890CF6532&id=B811911890CF6532!92556&parId=B811911890CF6532!89554&o=OneUp

-possibility of a Jan/Feb '21 correction, turn down for a few months, then slingshot back up.

-2021 will be hair-raising and test everyone. Good trading opportunities but not a real runaway market - lots of choppiness with some consolidation until 2022.

-2022 is a big turning point in a lot of different markets.

-May (German elections/possibly postponed) and July/Aug '21 (traditional time for war declaration/civil?/revolutions)

[MrXxxx]

19 hours ago, DurhamBorn said:

Exactly and the companies havent had their fair share of the cake.As  @sancho panza  says they could do a BAT.BT would be asset stripped unless the shares treble.Ofcom would have some explaining to do to government.

Pot is interesting as it opens up a massive market for big tobacco.Imperial have invested in Auxly Cannabis,whose shares are on their backsides but perked up lately.Imperial might fancy taking them out by slowly getting the equity through cash injections.

Next year or the year after ,after they cut the debt the new CEO will have £600 mill a year to play with of free cash.Buybacks or growth in new areas.They could buy Auxly of course with 30% cash,the rest stock,or even all stock.

Big tobacco are masters at their game,cannabis is a simple move for them,and they are probably the only companies with the cash who wont give a monkeys about ethics,all the woke funds dumped the shares over the last 5 years.

 

 

 

Is BATS into pot at the moment?

[Boon]

Lots of property-related shares down sharply today. It must be the Brexit talks turning out pear-shaped, but I thought other sectors might have been worse hit. Is going out of the EU adverse for mortgages or something?

[Castlevania]

44 minutes ago, Cattle Prod said:

Arg are still making claim to the islands, so that includes the oil, but they are still a self governing British overseas territory defended by Typhoons and a Type 42 destroyer! I don't think it makes much difference apart from making operations more expensive, as you can't use South American ports. The sensible thing to do would be for Arg national oil company farm into the project, but that would be a tacit acknowledgement of FI independence I suppose. It would be developed with FPSOs (floating production storage and offloading) units, as you see in places in the North Sea or Brazil, and shuttle tankers would come to pick the oil up and ship it to market. It's not particularly difficult engineering wise, just a bit more expensive due to logistics, having to ship everything in from the UK/South Africa.

I know someone who worked on one of the oil and gas projects in the Falkland Islands. Had to fly there with the RAF.

He’s also apparently on an Argentine list of enemies of the people.

[JMD]

14 hours ago, Yadda yadda yadda said:

It amuses me that my utilities provider claims to use 100% green electricity. What the hell is keeping my lights on now then? Not bothered because they are comparatively cheap. However, how do they get away with it? If they claimed to use green electricity when available that would be fine.

But that must mean you signed up to a (usually more expensive) green tarriff deal from your supplier? Ok, I get it that you want to do your bit. But the thing is that the more customers that opt for such deals, the more woke our oil company investments become!!!                                                                                                Anyway, as you obviously can't control what type of electricity comes out of your sockets from the NG - the way it works is that if your supplier can't produce 100% renewable energy itself, it must effectively use the income it receives from its green tarriff customers to buy renewable energy from renewable energy producers, equivalent to the amount of energy said customers use on a monthly/quarterly or whatever basis. 

[Yadda yadda yadda]

3 minutes ago, JMD said:

But that must mean you signed up to a (usually more expensive) green tarriff deal from your supplier? Ok, I get it that you want to do your bit. But the thing is that the more customers that opt for such deals, the more woke our oil company investments become!!!                                                                                                Anyway, as you obviously can't control what type of electricity comes out of your sockets from the NG - the way it works is that if your supplier can't produce 100% renewable energy itself, it must effectively use the income it receives from its green tarriff customers to buy renewable energy from renewable energy producers, equivalent to the amount of energy said customers use on a monthly/quarterly or whatever basis. 

The supplier I have is supposedly green only and was the cheapest at the time of sign up four or five months ago. The previous one was green only too. I presume they only buy green electricity but there must be some sort of scam to allow them to supply 24/7 even though they don't buy 24/7. They don't have a non-green tarriff.

[sancho panza]

 

19 hours ago, Chewing Grass said:

I have just done a screenshot as there is no wind today and it is a Sunday so less electricity being used by industry.

So Wind is effectively Zero GW and current demand (off peak daylight hours) is 40GW.

Gas 30GW
Nuclear 6GW
Biomass 3GW
Coal 2GW
Hydro 1GW

So assuming all those are available (not broke) and can work flat out we have.

42GW

Everything else is imported from the continent.

If we have a really cold spell below zero for an extended period and no wind we are fucked and Ireland is too.

Fascinating stuff CG,when you see it in black and white you really do wonder how many cold showers/cold cups of chai latte it'll take before extinction rebellion wind their necks in.

The reliance on fossilfuels is simply breath taking given all the nosie we hear about renewables and no diesel cars by 2030.

15 hours ago, Cattle Prod said:

If they can survive cash wise till project sanction. Nothing wring with the project, reservoirs are good, tons of oil, it's just a bit expensive to develop (for example Johan Sverdrup is in shallower water, has a power cable and pipelines to shore). So it needs higher prices, and then it'll get sanctioned. 

As a rule I don't invest in or recommend small companies, but I will say there is no doubt about a large amount of oil being there, and it won't stay idle when prices are high. 

Besides Rockhopper are there any other small companies UK based in a similar position.

Obviously this is DYOR stuff,but I'm a great believer in running some riskier leveraged trades from profits that stem form the core portfolio.Once those divi's start flowing again in oil,it's going to be too late possibly.

I've had a butcher's at Rockhopper balance sheet and there's a huge intangibles tally but I presume that's the mineral rights without looking closely-which I will.

These are serious multibagger/go bust opportunities imho.

@JMD thanks for the heads up.If there are any more oil exploreco's with a decent shout of production you know of,can you psot them if you feel disposeed too.

[JMD]

58 minutes ago, Cattle Prod said:

Arg are still making claim to the islands, so that includes the oil, but they are still a self governing British overseas territory defended by Typhoons and a Type 42 destroyer! I don't think it makes much difference apart from making operations more expensive, as you can't use South American ports. The sensible thing to do would be for Arg national oil company farm into the project, but that would be a tacit acknowledgement of FI independence I suppose. It would be developed with FPSOs (floating production storage and offloading) units, as you see in places in the North Sea or Brazil, and shuttle tankers would come to pick the oil up and ship it to market. It's not particularly difficult engineering wise, just a bit more expensive due to logistics, having to ship everything in from the UK/South Africa.

Thanks CP, the other reason I asked was because the Falkland/Argentine conflict scenario (if it were to happen) reminded me of the discussion here a few months back about the South China seas with China and Japan squabbling, or worse, over limited oil supplies coming from the ME. The UK has 2 large aircraft carriers.... with aircraft - which was a nice to have late addition!! But apparently we don't yet have the supply vessels to support the carriers. The cynic in me says this won't materially matter because the whole project was planned in a just-in-time very modern logistical way! And the navy will get their supply boats around 2023, 'just in time' for increasing tensions with Argentina. Hope I'm wrong, but war is another one of those political ploys that divert attention/increase domestic support for governments, and useful in times of economic crises. 

[Chewing Grass]

3 minutes ago, sancho panza said:

Fascinating stuff CG,when you see it in black and white you really do wonder how many cold showers/cold cups of chai latte it'll take before extinction rebellion wind their necks in.

The reliance on fossilfuels is simply breath taking given all the nosie we hear about renewables and no diesel cars by 2030.

Picking up from where I left off yesterday, its now Monday morning, industry and commerce is up an running and we are already touching amber with the Open Cycle Gas Turbines producing expensive power because there is little wind.

Interestingly they are currently using pumped storage to the tune of 1.6GW to make up the shortfall which only normally comes online of an evening.

[sancho panza]

13 hours ago, wherebee said:

Read the Biden/Trump election thread.

 

If - and it is a big if - there was massive election fraud and Trump starts to prove it, it'll be like a bomb going off in the US psyche.  Certainly the media and social tech stocks will get hammered; Facebook is already in the firing line in some lawsuits due to Zuck donating heavily to dem areas (claimed to be in breach of election funding laws).

If it is as bad as some pointers indicate, you could see mass arrests of household names in industry and politics.  Do you think the market might just go down a bit?

As per what CP said I think there's going to be a huge consumer splurge in the here and now.But if there's one fly in the ointment it's election uncertainty.

There after the leverage in the banking system and corporate debt markets will reassert themeselves and we'll get the BK that we deserve for our collective failures post 2008 as per David Hunter's thesis imho.

1 hour ago, Boon said:

Lots of property-related shares down sharply today. It must be the Brexit talks turning out pear-shaped, but I thought other sectors might have been worse hit. Is going out of the EU adverse for mortgages or something?

I've been at a loss to explain a Berkely share of £47 when Hammerson/Intu/Countrywide are at varying stages of the insolvency process..The delusion runs strong in the British public but gravity is already reasserting itself in the property market and will do so with a vengeance next year when the scale of this govt's bumbling over the panicdemic becomes clear.

Near us there are fields of half built houses with £400k/500k off plan price tags.

When the furlough ends-and it will- and when the £15,000 per household increase in govt debt for this year becomes clear,we could see the beginning of the end in the property insanity.

As we discussed recently,may be best to take those ten year fixes while you can.

[sancho panza]

2 minutes ago, Chewing Grass said:

Picking up from where I left off yesterday, its now Monday morning, industry and commerce is up an running and we are already touching amber with the Open Cycle Gas Turbines producing expensive power because there is little wind.

Interestingly they are currently using pumped storage to the tune of 1.6GW to make up the shortfall which only normally comes online of an evening.

If it wasn't for your recent posts I'd have no idea how clsoe to max we were.

Interesting as well that @Transistor Man expalantion as to the back up being diesel generators..#Boris2030

[JMD]

22 minutes ago, Yadda yadda yadda said:

The supplier I have is supposedly green only and was the cheapest at the time of sign up four or five months ago. The previous one was green only too. I presume they only buy green electricity but there must be some sort of scam to allow them to supply 24/7 even though they don't buy 24/7. They don't have a non-green tarriff.

I understand your query about how this might work in a 24/7 energy delivery sense. It's all government regulated and might even be international, but it's based on green-certificates that themselves can be traded (of course). A renewable energy producer sells their certificates by the gigawatt of energy produced, on the basis that they have already supplied this energy onto the grid. Your supplier need only buy enough of those certificates to cover the sum total of the energy they will sell on to all of their own customers.... Not sure why you think this might be a scam, Gretta T., David Att., along with other modern day saints have all ordained it to be acceptable!?!

[sancho panza]

20 hours ago, DurhamBorn said:

Im convinced M1 is so high because entities are waiting to invest it in real assets/capital assets.Iv tried to put it through a few things,but i havent much to work with on the lead/lag on M1/velocity because iv never seen this sized expansion before and it usually moves into M2 in an orderly manner.

So iv used my usual M2//GDP lag and done a 1.5 speed up on it to try to compensate for size and i think velocity will start to move early spring,so around early March.This assumes no BK before then.

You have to think the market will want to whipsaw people out of inflation assets though.Market might remove the tech/bubble profits in a few days though to stop anyone re-allocating in time.We might see inflation stocks go down 15% as bubble stocks go down 70%+ over a few days/weeks then the inflation stocks start a long decade bull run as people buy the techs/bubble stocks waiting for a recovery that never arrives.

 

Apologies for the bombardment to follow but your psot got me thinking.

I'd agree on your thesis that the rise in M1 and lack of feed through into M2 is down to Companies/consumers harboruing cash.I'd hesitate to plump it's being held back for investment as I think there's alos a good case for keeping cash on hand given the unpredicatble nature of the current ciris.Doesn't really matter in the here and now ,as the main thing is there's no filter through to M2.

Like you say DB,there's jsut no precedent for where we are.None at all although our data only goes back 50 years or so.

To start with a couple of psots from Twatter that highlight this thread isn't the only place that's noticed hattip  @Cattle Prod for initiating our recent coverage

I'm not sure which DB Holger is referring to...

Some St Louis charts for thoughts

M2 and GDP on the verge of kissing.The Fed is increasingly getting less bang for it's buck with each round of printing.This will only end one way if they carry on.

M1/M2 %age change from a year ago.Now they either need to start sterilising the injections of liquidity or this could get nasty once GDP gets back to parity.

[geordie_lurch]

16 minutes ago, sancho panza said:

As we discussed recently,may be best to take those ten year fixes while you can.

Yes I keep flip flopping on this myself but I just can't quite justify paying the prices locally even with the 'security' of a 10 year fix when I really feel we will see prices fall 30% from where they are now within 5 years due to everything that's gone on this year

 

[sancho panza]

We have had periods before where higher growth in M1 didn't translate into corresponding growth in M2

and then presented with CPI index

[sancho panza]

12 minutes ago, geordie_lurch said:

Yes I keep flip flopping on this myself but I just can't quite justify paying the prices locally even with the 'security' of a 10 year fix when I really feel we will see prices fall 30% from where they are now within 5 years due to everything that's gone on this year

 

We rent,same quandary,same conclusion.

In Leicester I think 30% off in nominal terms will be lucky.Average wages around here heavily subsidized by HMG.Losses in real terms could be eye watering but nothing compared to what's facing Londinium.

[geordie_lurch]

27 minutes ago, Cattle Prod said:

I'd layer inflation over that, Geordie. Disc - I have a 10 year fix, maybe 7 years left, and inflation was the main reason. I personally don't care about what it's currently worth, and a 30% drop suits me fine (I might invest if yields became good enough). The only numbers I watch are my outstanding mortgage balance, and how my static repayment amount is faring relative to my income and also rents in the area. 

30% off within 5 years sounds good, but is that inflation adjusted? You could be looking at smaller drops nominal, and be facing a 5% mortgage rather 2.5%. If you're a cash buyer, that's slightly different. I justified prices to myself by deflating what I paid by the RPI back to pre bubble prices, and checked against sale prices in say 2002. Gives you a sense of how frothy it is/isnt.

That said, you have to think about what could happen to prices with much higher rates - a 30% drop might be conservative.

Yes some good pints there @Cattle Prod - thanks!

I've owned several homes in the past and done well on each of them but I'm currently renting on my own so this next place is extremely important as a base to probably see out the next 10 years or more. However even just using basic fag packet calculations - 10 years of renting at £700 per month VS fixing for 10 years at 2.5% on a repayment mortgage of similar and possibly overpaying as and when I want seems to steer me to buying a basic place as a base to hedge against things we all see coming in addition to the shares I've bough recently