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

[Seacrest]

There are as far as i can see for BP no plans to increase the dividend but instead to initiate buybacks when debt falls to $35b     end of this year  or  Q1 2022     that is based on divestment's and Brent trading $45 -$50 this year.  The expectation being its worth 40 cents per share at that point. 

Perhaps the market sees the current yield appropriate for the risk ?  but with each $1 on a rule of thumb being worth $340m and   Q1  to date at $55  the discount to me seems too great on fundamentals.

 

[DurhamBorn]

1 hour ago, Castlevania said:

Thanks for posting this. It was a very enjoyable podcast. I knew Raoul Pal is very bullish on bitcoin, but interesting to see him being very bullish on Emerging Markets. It’s an area I need to revisit. The Brazilian investment trust I was invested in got wound up. I have a fair bit of exposure to South America indirectly through the likes of Repsol and Telefonica and more directly through the likes of Telecom Argentina and Cresud. If the currencies rise should be good for the likes of BAT too. However I think I should revisit Africa (I own Airtel Africa which covers some of this) and Asia and try and get some more direct exposure.

BAT also has very large investments in India and its a really big focus for BP.Imperial Brands has 8% of profits from Africa and is market leader or 2nd in a good few markets there.I expect them to really push that going forward.Repsol are a fantastic investment for South America like you say and TEF should be once they sort out their debt.They are doing a good job getting it down,but a bit more to go yet.Vivo Energy are interesting for Africa for a small punt.

I think a lot of UK stocks that are hated are some of the ones who should gain from emerging market disposable income growth.Of course the biggest gains from income growth will be energy.

 

[Democorruptcy]

2 hours ago, Castlevania said:

Thanks for posting this. It was a very enjoyable podcast. I knew Raoul Pal is very bullish on bitcoin, but interesting to see him being very bullish on Emerging Markets. It’s an area I need to revisit. The Brazilian investment trust I was invested in got wound up. I have a fair bit of exposure to South America indirectly through the likes of Repsol and Telefonica and more directly through the likes of Telecom Argentina and Cresud. If the currencies rise should be good for the likes of BAT too. However I think I should revisit Africa (I own Airtel Africa which covers some of this) and Asia and try and get some more direct exposure.

Grantham was also suggesting EMs

https://www.bloomberg.com/news/videos/2021-01-22/why-grantham-says-the-next-crash-will-rival-1929-2000-video

[DurhamBorn]

12 minutes ago, Seacrest said:

There are as far as i can see for BP no plans to increase the dividend but instead to initiate buybacks when debt falls to $35b     end of this year  or  Q1 2022     that is based on divestment's and Brent trading $45 -$50 this year.  The expectation being its worth 40 cents per share at that point. 

Perhaps the market sees the current yield appropriate for the risk ?  but with each $1 on a rule of thumb being worth $340m and   Q1  to date at $55  the discount to me seems too great on fundamentals.

 

Im glad BP has its policy set to buy back shares.I wish they would start now and stop paying down debt though.I also think they should then move to a policy like Imperial Brands are once debt is in range.That is a slowly growing dividend,and each year buy backs,or special dividends depending on conditions,ie the share price.I like that approach.On Imperial id expect share buy backs below £21 a share,above £21 a share special divs and maybe a small cut in debt.Id also expect a split between special/buy backs once they have bought back 20% of shares IF operating profits can flatline.They might also do some M&A some years with their spare £1.2 billion a year.

At $60 Brent BP will also have 4% of spare cash on top of their policy.I expect at first they will do higher buy backs and maybe slowly drift the debt down.Mid cycle i expect they will move to a similar policy as Imperial.Buy backs or special divs.

 

 

[Democorruptcy]

18 minutes ago, Seacrest said:

There are as far as i can see for BP no plans to increase the dividend but instead to initiate buybacks when debt falls to $35b     end of this year  or  Q1 2022     that is based on divestment's and Brent trading $45 -$50 this year.  The expectation being its worth 40 cents per share at that point. 

Perhaps the market sees the current yield appropriate for the risk ?  but with each $1 on a rule of thumb being worth $340m and   Q1  to date at $55  the discount to me seems too great on fundamentals.

 

Maybe some are short because rather than looking at the usual oil fundamentals they are taking a punt on the covid vaccinations not proving as useful as hoped. More lockdowns, less travel etc.

Going forward could the prices of oil firms that are sounding more wokey, be less correlated to the oil price? If we said the correlation now is 1, what will it be in 20 years? There was an article that suggested BP had practically stopped looking for new oil, 700 staff cut to 100.

[DurhamBorn]

17 minutes ago, Democorruptcy said:

Maybe some are short because rather than looking at the usual oil fundamentals they are taking a punt on the covid vaccinations not proving as useful as hoped. More lockdowns, less travel etc.

Going forward could the prices of oil firms that are sounding more wokey, be less correlated to the oil price? If we said the correlation now is 1, what will it be in 20 years? There was an article that suggested BP had practically stopped looking for new oil, 700 staff cut to 100.

Stopped looking for oil outside of basins they already understand.They can tie in for around 40 years yet just from their present fields and of course always the option to buy out smaller players,or more likely mergers at some point.Big oil is funny because really it should do a tobacco and consolidate down to a few players and churn out cash,but governments dont like their oil producers ending up in foreign hands.Given the woke noise now though it would be interesting for a couple of big players to try it and play the hymn sheet that its so they can invest more into the transition,call governments bluff a bit.Telcos are now doing that with governments and i expect them to buckle,especially the EU where TEF,VOD and DT are close to having them over a barrel at last.

[Seacrest]

The presentation eludes to fewer projects at greater returns, but recognises its bread and butter stuff at present till 2025 or so.  IF 40 cents is accepted given the low Brent range cited  that sends the "yield" back into double digits by year end.  I am old so get the widows and orphans funds that  "used" to hold, it seems new money is a parabolic share chart  not yield.  maybe a 250 - 300 trading range    248 is the 50% retrace of oct low to jan high 

[sancho panza]

 

6 hours ago, Yadda yadda yadda said:

How up-to-date is the data on BP shorts? Could be that they have been closing them since the results.

Alternatively they could have a nefarious plan.

I don't think shorts data isnthat up to date,fortnightly/monthly.happy to be corrected.It's drawn from regulatory filings iirc.

 

4 hours ago, AlfredTheLittle said:

Wouldn't the dividend cuts explain why BP and RDSB have been tracking Brent at a lower level? 

Not really,given they outran Brent on the run up from the oct low snd have now pulled back.Interesting to see XOM/REP going against the grain.

Obviously these charts can alter depending on the start date but the point is relevant imho.I can't see rhyme nor reason to the cahnges which means as you say brent runs down or BP/RDSB run up.I think if we were going to get a decent pull back it would have been post run up from $39 to $59.Some of the big players pulled back but not B as yet.

3 hours ago, DurhamBorn said:

BAT also has very large investments in India and its a really big focus for BP.Imperial Brands has 8% of profits from Africa and is market leader or 2nd in a good few markets there.I expect them to really push that going forward.Repsol are a fantastic investment for South America like you say and TEF should be once they sort out their debt.They are doing a good job getting it down,but a bit more to go yet.Vivo Energy are interesting for Africa for a small punt.

I think a lot of UK stocks that are hated are some of the ones who should gain from emerging market disposable income growth.Of course the biggest gains from income growth will be energy.

 

Bought a first ladder in BAT's the other day.First baccy co since we bought ye olde Gallaher back in the millenium.Incredible to look at would have been had we stayed in baccy(and aslo Billiton past 2007).Incredible to see the BATs divi as what you were paying for the shares back in the tech buble.

Like you say these big integrated co.s offer a great way to gain EM exposure without all the risk of buying country specific ETF's which carry some right dodgy banking stocks

[sancho panza]

3 hours ago, Democorruptcy said:

Grantham was also suggesting EMs

https://www.bloomberg.com/news/videos/2021-01-22/why-grantham-says-the-next-crash-will-rival-1929-2000-video

I'm on shoft for a couple of nights but that'll be one to watch when I get time.75% top to bottom in S&P would be within historical norms in terms of P/E multiples.This has en end of cycle feel to it much like 1929.We didn't realy get the credit deflation in 00 due to it mainly being stock market that caught the cold.

[Democorruptcy]

There might be a bit of deflation in the bookmaker head offices at 4:30pm

Quote

All eyes are on Musselburgh and the third leg of a gambled-on big-priced treble after the first two won to leave bookmakers facing potentially significant payouts

The final leg of the treble is the Daragh Bourke-trained Gallahers Cross in the concluding 2m6f handicap hurdle (4.25) at Musselburgh. The eight-year-old opened at as big as 40-1 with some firms but is now as short as 8-13 to pick up a first win for his trainer.

Blowing Dixie landed the second leg of a gambled-on big-priced treble with a comprehensive success in the 1m4f handicap at Southwell.

Trained and owned by Iain Jardine, Blowing Dixie was sent off the 4-6 favourite having opened at 9-1 on Saturday.

That victory came after Fire Away landed the first leg of the gamble in the opening 2m4½f novice handicap chase at Musselburgh.

Fire Away was a general 22-1 when markets opened on Saturday, but was soon trimmed into 6-4 before being sent off the even money favourite at Musselburgh.

BetVictor head of trading Chris Poole said before racing: "We've taken a lot of multiple bets on three horses, all at very big prices and all at roughly the same time last night.

"That's our worst nightmare because there's nothing we can do about these liabilities.  We're stuck with it and we'll lose quite a lot of money. I can't go into figures."

Paddy Power spokesman Paul Binfield added: "It's fair to say we do have some liabilities and they're not inconsiderable."

On his first start for trainer Laura Morgan having left Bourke earlier this month, the eight-year-old Fire Away obliged by 19 lengths.

Morgan said: "We've only had the horse for 11 days, having bought him from Daragh Bourke. He had a couple of horses for sale and I bought him.

"I did actually go to buy the other lad, but we bought him instead. I definitely got a good buy and fingers crossed, he'll win a few more.

"I got told there was big money coming from Ireland, but I wouldn't have a clue to be honest. One of my bumper horses got smashed here and he got stuffed."

At the request of the BHA's integrity department, the connections of Fire Away were interviewed by the raceday stewards before the race.

They were asked to provide information regarding the selection of the race, their expectations for Sunday, and the riding instructions given. Their comments were noted.

Last horse got beat.

[BurntBread]

What's the feeling here about satellite constellations (like Starlink) undermining the value of more traditional telco operators like BT & VOD?

I see that, as of this week, Musk's Starlink has ten thousand users in the US, at $99 per month; has permission to expand this to one million, and is seeking to extend this permission to 5 million. Those are currently tiny numbers, and the service is relatively expensive for a mass-appeal product. However, according to Wikipedia, in 2017 they were projecting revenues of $30 billion by 2025. I guess even if fees fall to $300 per user per annum, to become competitive with cellular broadband, that is still only 100 million customers, compared to a few billion people with cellphones.

Also in the wikipedia article is a mention that Samsung made a proposal in 2015 for a 4600 satellite network with enough capacity to provide 200Gb/month to 5 billion people, so these type of satellite systems sound like they have the technical capacity to eat more than a chunk of the cellular broadband market.

The satellites are not going to be direct to cellphones, so I guess even in the worst case, VOD still has a business model. Is this going to be another case where Starlink reduces the incentive to invest in terrestrial networks, and so the current incumbents clean up in a gradually declining market, as there is less competition? I'm thinking of DB's famous examples of whale oil and big tobacco. Or, am I reading this wrongly, and satellites are a serious risk to the telcoms infrastructure sector?

[Hunty]

6 hours ago, Yadda yadda yadda said:

How up-to-date is the data on BP shorts? Could be that they have been closing them since the results.

Friday Short Link

Dropped off a lot Friday.

Earlier in the week volumes were double. Possible shakeout.

Good for averaging down though.

[Hancock]

Some bloke called Anna-Marie who wears a red dress, from the ruling junta makes putting up peoples fuel/energy bills and decimating oil/gas jobs her priority.

https://www.telegraph.co.uk/business/2021/02/07/switch-away-oil-gas-top-to-do-list-says-anne-marie-trevelyan/

 

[Loki]

1 minute ago, Hancock said:

Some bloke called Anna-Marie who wears a red dress, from the ruling junta makes putting up peoples fuel/energy bills and decimating oil/gas jobs her priority.

https://www.telegraph.co.uk/business/2021/02/07/switch-away-oil-gas-top-to-do-list-says-anne-marie-trevelyan/

 

 

Fake News mate. I've been reliably informed by the climate change/Greta threads that energy prices won't go up and I'm an idiot. 

[AWW]

It's hilarious that she genuinely thinks she can make that happen using willpower and speeches.

[Hancock]

1 minute ago, AWW said:

It's hilarious that she genuinely thinks she can make that happen using willpower and speeches.

Its a bloke, but he and Boris can certainly come up with policy to end jobs and make bills more expensive.

The only problem is most the rest of the world couldn't care less about such bollocks, and will use whatever fuel is cheapest.

[Castlevania]

Sell all your oil shares the Observer has spoken.

https://www.theguardian.com/business/2021/feb/07/massive-losses-should-be-a-warning-to-big-oil-that-its-bonanza-is-over

Strange article that seems to ignore heating our homes.

[JMD]

1 hour ago, sancho panza said:

I'm on shoft for a couple of nights but that'll be one to watch when I get time.75% top to bottom in S&P would be within historical norms in terms of P/E multiples.This has en end of cycle feel to it much like 1929.We didn't realy get the credit deflation in 00 due to it mainly being stock market that caught the cold.

Perhaps also don't forget to watch the Real Vision Lyn Alden/Hugh Hendry video (sorry can't attach link at moment, but easy to google) - you posted recently the Twitter spat between them, and the video shows further what a total arse Hendry is (not that I had any dought about that aspect!!). Hendry's exasperated view was that Alden's ideas added little of consequence to what's looming ahead of us, perhaps he is right there(?), though rather tellingly Hendry doesnt offer any counter narrative himself.                                                                                                                                                                                              ...Hendry states that no longer running a hedge fund allows him to think more clearly, but in this (and other videos) I notice he seems to always start complaining of tiredness or headaches... I shan't dwell on the man's obvious problems, but me thinks the man 'is not well in himself'?!? (nb The bit at end where he mentions having to stop interview to dash off to airport (where he will probably get into arguments with authorities) to fly to London, to buy a Christmas tree is priceless).

[Loki]

20 minutes ago, Castlevania said:

Sell all your oil shares the Observer has spoken.

https://www.theguardian.com/business/2021/feb/07/massive-losses-should-be-a-warning-to-big-oil-that-its-bonanza-is-over

Strange article that seems to ignore heating our homes.

"big oil"

They always neglect to mention "Big Gov" behind the green agenda though

Just another Guardian hate-read for me. 

Quote

For further proof, if it were needed, that the low-carbon race is advancing apace, turn your attention to the US comedy star Will Ferrell. 

 

[Jesus Wept]

57 minutes ago, BurntBread said:

What's the feeling here about satellite constellations (like Starlink) undermining the value of more traditional telco operators like BT & VOD?

I see that, as of this week, Musk's Starlink has ten thousand users in the US, at $99 per month; has permission to expand this to one million, and is seeking to extend this permission to 5 million. Those are currently tiny numbers, and the service is relatively expensive for a mass-appeal product. However, according to Wikipedia, in 2017 they were projecting revenues of $30 billion by 2025. I guess even if fees fall to $300 per user per annum, to become competitive with cellular broadband, that is still only 100 million customers, compared to a few billion people with cellphones.

Also in the wikipedia article is a mention that Samsung made a proposal in 2015 for a 4600 satellite network with enough capacity to provide 200Gb/month to 5 billion people, so these type of satellite systems sound like they have the technical capacity to eat more than a chunk of the cellular broadband market.

The satellites are not going to be direct to cellphones, so I guess even in the worst case, VOD still has a business model. Is this going to be another case where Starlink reduces the incentive to invest in terrestrial networks, and so the current incumbents clean up in a gradually declining market, as there is less competition? I'm thinking of DB's famous examples of whale oil and big tobacco. Or, am I reading this wrongly, and satellites are a serious risk to the telcoms infrastructure sector?

I was going to pose the same question?

What will be the impact of Musks STARLINK satellite system on the business models and share price of established telcos like Vodaphone and BT ?

[JMD]

26 minutes ago, AWW said:

It's hilarious that she genuinely thinks she can make that happen using willpower and speeches.

Hate to say it, but wasn't that how lockdown across the West was achieved? ...Well perhaps not the willpower bit, but alarmist diatribes and a few iffy stats seemed to do the trick.

[Loki]

8 minutes ago, JMD said:

Hate to say it, but wasn't that how lockdown across the West was achieved? ...Well perhaps not the willpower bit, but alarmist diatribes and a few iffy stats seemed to do the trick.

You can't magic up energy like you can compliance though, and the two are quite correlated 

[Yadda yadda yadda]

14 minutes ago, Vendetta said:

I was going to pose the same question?

What will be the impact of Musks STARLINK satellite system on the business models and share price of established telcos like Vodaphone and BT ?

No need to try to get fibre broadband to every remote hamlet if starlink can supply them albeit at a price.

[NogintheNog]

45 minutes ago, Castlevania said:

Sell all your oil shares the Observer has spoken.

https://www.theguardian.com/business/2021/feb/07/massive-losses-should-be-a-warning-to-big-oil-that-its-bonanza-is-over

Strange article that seems to ignore heating our homes.

Yes, how many GWhrs would be needed to be added to the Grid to heat homes in Britain instead of Gas??? A total BS article Still, cant complain it'll keep the shares down a bit longer!

Quote

A green transport future is arriving faster than even the most optimistic environmentalists had hoped, and fossil fuel executives had feared.

The real trick to guarding against the risky future for fossil fuel production is to stop producing fossil fuels  

Managers have a choice: they can view the 2020 collapse as an unprecedented event in the history of the industry, or a grim foreshadowing of its value in a world that no longer needs fossil fuels. Both are valid viewpoints, of course. But unless oil companies prepare today for a greener future, they face an indefinite number of dire financial years.

Yeah, like all my friends have got electric cars now, I feel so yesterday NOT! (None of them have by the way...)

A world that no longer needs fossil fuels??? Pretty well everything we buy from the far East was probably produced from Coal fired power generation.

More mainstream media journo crap!!

[dgul]

1 hour ago, BurntBread said:

What's the feeling here about satellite constellations (like Starlink) undermining the value of more traditional telco operators like BT & VOD?

I see that, as of this week, Musk's Starlink has ten thousand users in the US, at $99 per month; has permission to expand this to one million, and is seeking to extend this permission to 5 million. Those are currently tiny numbers, and the service is relatively expensive for a mass-appeal product. However, according to Wikipedia, in 2017 they were projecting revenues of $30 billion by 2025. I guess even if fees fall to $300 per user per annum, to become competitive with cellular broadband, that is still only 100 million customers, compared to a few billion people with cellphones.

Also in the wikipedia article is a mention that Samsung made a proposal in 2015 for a 4600 satellite network with enough capacity to provide 200Gb/month to 5 billion people, so these type of satellite systems sound like they have the technical capacity to eat more than a chunk of the cellular broadband market.

The satellites are not going to be direct to cellphones, so I guess even in the worst case, VOD still has a business model. Is this going to be another case where Starlink reduces the incentive to invest in terrestrial networks, and so the current incumbents clean up in a gradually declining market, as there is less competition? I'm thinking of DB's famous examples of whale oil and big tobacco. Or, am I reading this wrongly, and satellites are a serious risk to the telcoms infrastructure sector?

Each Starlink satellite has a total bandwidth of about 20Gbps.  Sure, there'll be 12,000 satellites (or whatever), but the Earth has an area of 500 million km2, so, allowing for the fact that Starlink doesn't cover very northern or southern latitudes, that's going to be about 30,000km2 per satellite, or an area the size of Wales.  Wales has an internet peak bandwidth of about a Tbps, so while Starlink might help isolated houses, it isn't going to replace internet infrastructure for most people, and that's for today's internet usage -- it'll presumably only get greater, whereas Starlink is expensive to scale.

This can be quite nicely compared with 5G, which is about 20Gbps per cell -- given the massive numbers of cells in a city (for eg) compared with Starlink's 20Gbps to cover an area including several cities, it is clear to me that 5G is the greater threat to wired internet, not Starlink.

[in reality the satellites have overlapping beam footprints (each beam footprint covers a greater area than 30,000km2), but the sums still work out as '20gbps per 30,000km2 area' -- there's only so much bandwidth]