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

[Loki]

Is there an easy way of finding out if a company has historically issued more shares? Take Intrepid for example, at one point in the past they were $300 a share, but if they have issued more shares would that make it less likely they could reach that price again?

[JMD]

10 minutes ago, Hancock said:

Not sure what the economic shift has to do with British govts of all colour pricing out its natives from buying a house.

Thats just spiteful and not Chinas fault imho.

Not sure I understand. I was agreeing with Lightscribe about this cycle being a very long term super cycle, not just a 40 year business type cycle. So many moving parts, which I believe was his point.                      And I didn't blame China, but the regime is pretty dispicable come any measure wouldn't you agree? Spite doesn't come into it, but China's attempt to morph the worst of the West's capitalism with the worst of Marxism is truly deranged.

[sancho panza]

On 07/02/2021 at 22:11, Cattle Prod said:

More on disbelief. Oil stocks don't track the underlying very well, they are hugely sentiment driven, and disbelief is a big part of it I think. Don't expect your holdings to track the oil price, but in the medium term, they will catch up. Perhaps sometimes it takes the new quarterly report to convince stock buyers, so they tend to lag in both directions. A case of the stock market being dumber than the physical market, maybe, almost like the bond market. Consider this:

That's XLE in candles (Heiken Aski, h/t @Harley), brent in orange. I've tried to fit the curves without bias, it's a reasonable fit i think. So you see that stocks didn't follow all the way up to the 2007 peak, they lagged 38%. Sensible, with hindsight. Then in the green box, they lagged price for almost 5 years, but eventually, like jaws closing into the the hype of 2014, they finally believed we were on a $100 plateau and caught up. When Brent promptly bombed, they disbelieved that too, rightly, and didn't follow it to the bottom in 2016 (purple box). Price eventually caught up by 2019, and this time, interestingly, XLE followed price tightly down: sentiment first, then corona-geddon. Now it's lagging price again, and who knows how long it'll take to catch up. That said, I've picked some percentage lags there, and the big gaps seem to be around 30-40% (this will depend on your fit, which is why I tried to do it unbiased). There is one gap to 58% in March 2012, I wonder what was happening then. We're at 37% now, so that could mean there is not much more lag left in the stocks, and they'll either track price, or catch up like in the early stages of the bull in 2005 or so. Also note that in 2007, when prices corrected hard, stocks didn't.

Caveat: This is not dividend adjusted XLE, it doesn't work for me for some reason.

Dyodd, this is not intended to stoke bullish fires, but to show that stocks lagging price is perfectly normal, and if you're in it for the medium to long term, it doesn't really matter.

Edit: I just noticed that XLE was still above price in the first bounce out of the hole last summer. It only went into lag after that spike. Double bottom did it's job and knocked a bunch of people out of the market, can't have them all benefiting, eh...just like the sovereign wealth fund of Norway, selling us their shares cheap. Almost like the brutal sentiment in chart form.

 

CP.A very thought provoking post...If I could offer a slightly different view (essentially agreeing the long term correlation with medium term dissaociations) and jsut based on my own experience.Using monthlies,Ive taken some snapshots of charts.Intersting that your point of maximum correlation coincides with teh end of the flat market.

Also,you raise the important issue of bringing in divis to the calcs.Even allowing a 5% compunded for four years gives a return from divis of 21.5%.This will be pertinent given teh levels many on here have bought at over the last year,.

Conclusion:as I think you've psoted before,oilies outperfrom oil in flat and bear markets,oil outperforms in bulls.Key thing I'm seeing is tight correaltion in the weeklies in terms of up/down moves.Doesn't necesarily correpsond with matching moves in %age terms but the medium term is tradeable.This discussion has made me consider looking at trading some complex options trades as per @MvR has discussed,ie long the underlying,less long the oilies etc.

Context

 

Bottom 1/1/02->Peak June 08->Bottom Jan 09->Top April 11 whereupon it was flat to June 14->bottom Jan 16 ->top Sept 18->bottom march 2020

Jan 02-June 08 bull:Brent outperfoms Brent +560%,XLE +233%

 

 

 

 

June 08 toJan 09 Bear:Brent undershoots to the downside.XLE outperforms

 

 

Jan 09 to Apr 11 bull:tight correlation in terms of moves in the weeklies ie when Brent moves up XLE does...but  Brent outperforms.Brent +172% XLE +70%

 

 

 

Flat period April 11 to June 14:you'll see the disparaty you identified in march 2012 disappears from view if you only started using the cycle peak.You can see by the end of this phase that XLE is +23% vs Brent -10% .Including Divi's outperformance would be substantial

The corraltion in the early phase here was quite tight.

 

June 14 bear to the Bottom Jan 16:XLE -41% vs Brent -69%.

 

Jan 16 to Sept 18 bull:Brent handily outperforms +120% XLE+23%

Sept 18 Bear to March 20:XLE -60% Brent -70%.Extrmemely tight correlation in the moves.

 

March 20 bull to now:Brent +179% XLE +50%

 

[Democorruptcy]

Is the $80 doable with how holiday travel doesn't seem to be opening up much, at least in Europe? Our lot are even negative on domestic holidays so the jet fuel isn't replaced by car fuel demand!

Quote

 

Crude oil prices rose today after the Energy Information Administration reported a crude oil inventory draw of 6.6 million barrels for the week to February 5. Gasoline and middle distillate inventories were mixed again.

The report came a day after the American Petroleum Institute depressed oil traders by reporting a sizeable inventory build in gasoline, dashing hopes of a quick recovery in fuel demand.

Analysts had expected the EIA to report a build in crude oil inventories, at 1.34 million barrels.

A week earlier, the authority had estimated a crude oil inventory draw of 1 million barrels.

In gasoline, the EIA reported an inventory increase of 4.3 million barrels for the reporting period, versus a hefty rise of 4.5 million barrels reported for the previous week.

Gasoline production averaged 8.7 million bpd last week, up from 8.4 million bpd a week earlier.

In middle distillates, the EIA reported an inventory draw of 1.7 million barrels for the week to February 5, with production averaging 4.7 million bpd.

This compared with no change in inventories a week earlier, leaving them about 8 percent higher than the seasonal five-year average. Production in the last week of January averaged 4.6 million bpd.

The EIA earlier this week revised upwards its price projections for both Brent crude and West Texas Intermediate, saying it now expected them to this year average $53.20 a barrel and $50.21 a barrel, respectively. The benchmarks would rise further, albeit modestly in 2022, according to the authority.

Both Brent and WTI are already trading higher than their forecast average for the year, pushed higher by Covid-19 vaccinations and tighter supply, with some analysts and hedge fund managers expecting prices to go much higher before this year’s end, with the number mentioned ranging from $70-80 to over $100, the latter seen as possible next year.

Brent crude was trading at $61.10 a barrel at the time of writing, and West Texas Intermediate changed hands at $58.24 a barrel.

https://oilprice.com/Energy/Crude-Oil/Major-Crude-Draw-Sends-Oil-Prices-Higher.html

 

 

[DurhamBorn]

8 hours ago, Talking Monkey said:

DB when you say labor is going to get more of the pie is that from a UK or global perspective. With the headwind of tech and automation I do wonder is that a sustained increase or just a blip over the next say 3 to 5 years then the downward pressure is exerted as automation gathers pace.

Global,but western mostly.Likely a decade long rise,but it could be they fall inflation adjusted.Its a distribution cycle where assets become income rather than income becoming assets.

[JMD]

6 hours ago, planit said:

Regarding Bitcoin

I listened to a podcast today which talked about digital currencies being competition to Bitcoin. This is obviously a stupid comparison as a digital currency for a country is the same as a normal currency in behaviour - the government have control over how many in circulation and it's exchange rate. In fact the main difference I can see is the accountability and tracking which is obviously why China is so interested.

 

The big point here is you need to turn this inside out - Bitcoin is just another currency outside the control of central banks, like a gold backed currency invented by industrial oligarchs. I can't believe this has never been tried before, and if it was then the governments would just shut it down (please would one of the geniuses on here point me towards some kind of Rothchild/East India currency).

Governments NEED control of their currency (they wouldn't if they had been more responsible but we are way past that) and they will not put up with a new global currency outside their control with no inflation problems. The only reason Bitcoin has been allowed up to now is because it is not a big enough threat. But once corporations start using it as a store of value because governments are printing too much money (like Tesla) it becomes a big threat to their own currencies.

Even with current levels of printing everyone would be stupid not to dump their own money to transfer into Bitcoin (if everyone was given the choice worldwide on the same day). Every currency around the world would become worthless overnight. As we all know with fiat currencies, they all rely on trust of their intrinsic value.

 

I sold a couple of ETH the other day that I had held since 2017, I am not completely against crypto but the ironic thing about it is it's downfall would be guaranteed by it's success. Central banks can't afford a 'fair' currency outside their control, especially at the moment.

 

I did think this was a way off but Tesla buying bought forward the risk considerably.

 

Iin answer to your private currency question many us banks used to issue their own local bank notes. It used to happen all over, if there is trust within the community it works. And today and closer to home see the Totnes pound.

[DurhamBorn]

3 hours ago, Noallegiance said:

Meanwhile back a little more toward the tangible: Intrepid Potash Inc might be my new favourite stock! Up 15% yesterday and confidently busting $30 from a low of $7 a year ago.

Among all the noise potash has outperformed almost all tech since last March and made us on here really fantastic profits.Ironic,but i thought oilies would run first then potash so i was slightly lower than i wanted in the sector waiting to move some oil profits,but no complaints as most have ran much higher than i hope for.

[ThoughtCriminal]

Look who's bottom of the pile. 

 

Unloved as DB would say............ 

[sancho panza]

On 08/02/2021 at 10:21, DurhamBorn said:

The other very sad thing is the Tories take all those seats,yet have zero understanding why they won them.

It's quite surreal to lsiten to Tory acquanintances detailing Bozza's/Cummings electoral genius in Dec 19.They're heads are genuinely that far up the back sides of C suite marekteers who make millions out of them that they can't see the light.

As I've said several times in this thread,our electoral system makes it hard to dislodge the elite,but it also means that when it does occur it will be quick.You only need 25% of the vote in the right places.

I analysed swing seats in 2019 and the reality is that the Tory vote didn't rise much but labour collapsed.Labour might have collapsed even if Farage hadn't stood his troops down(the real reason the Tories got 50 seats).

[Sasquatch]

1 hour ago, geordie_lurch said:

For those still looking at getting some cash into property somewhere Barclays have just reduced their 7 year fixed rate mortgage from 1.62% to 1.49% + £999 fees for new customers or £749 fees for existing customers

I am in the final stages of applying for their 10 year fix at 1.99% but I'm looking to overpay up to the 10% allowed per year with these but might actually swap my application to this one

 

 

We have a phone appointment with them tomorrow. Just finished uploading the copius amounts of paperwork required to their online IT thing. That 7 year rate is amazing. We'll be asking for that one. Nice to see the small rate drop. Can't really get any lower tbh.

[Don Coglione]

10 minutes ago, Sasquatch said:

We have a phone appointment with them tomorrow. Just finished uploading the copies amounts of paperwork required to their online IT thing. That 7 year rate is amazing. We'll be asking for that one. Nice to see the small rate drop. Can't really get any lower tbh.

I wouldn't be so sure about that!

[sancho panza]

On 09/02/2021 at 06:37, Mapper said:

Harr Dent has a ticket on the BK Express. It arrives in April apparently. All aboard!

 

Dent was forecasting Dow 3800 in 2011 apparently.He has form for being very worng(he'd likely say he's right early).

 

From 2011

https://www.barrons.com/articles/SB50001424052702303392404576566841665679146

Dent is as comfortable calling for Dow 35,000, as he did 13 years ago, as he is forecasting Dow 3800 now.

[sancho panza]

9 minutes ago, Cattle Prod said:

Looking at that, I think it's better to break into sections like you have. Too much give in trying to fit a curve. I hadn't thought of the options trade you mention... hmmm... food for thought. Thanks for the feedback.

No worries,your psot got me thinking hence the shorter timeframes.Intriguing how using the peaks and troughs as starting points paints a different picture.Surprising hopw consitstent the bull/bear moves are in oil vs XLE....

If you can think of a way of trading oil here that involves limtied liability I'd be grateful if you'd let me know.Don't want to mess with futures,way out of my league.

[JMD]

6 hours ago, Lightscribe said:

I’m up regardless (original investment withdrawn) so it means no odds to me. If BTC hits a 100k then great, I’ll buy a house outright with no mortgage. If it gets to a million then I buy a house, another for my daughter and retire early. 

It’s just one asset class of many that I’m hedging against inflation with - so I have to win one way or the other right? 

But all that aside, when you do have the likes of PayPal, Tesla (yes Elon co-started PayPal) and hedge funds like Greyscale with some serious money behind them, dismissing it all may be unwise. Remember there are some big tax gains that the governments will be happy to take from.

One thing for certain is that digital currency is the future, and blockchain involvement, smart contracts and AI goes hand in hand with that. With the implementation of ISO 2022 the whole SWIFT payment system will be changing. Crypto technology will be part of that.

https://www.swift.com/standards/iso-20022

 

https://cib.db.com/docs_new/UltimateGuide-EN-Bottom.pdf

Yes I found this astounding when I first read about these impending bank payment changes - ie how little it has been discussed, given the UK goes live with these things next year. The banks will be able to streamline and save costs so it will help them survive, or at least limp on.                                                                                                                However, some financial institutions will disappear completly. Really looking forward to the roll out of 'digital bearer assets', enabling stocks for example to be bought and sold directly between buyer and seller without an intermediary... Bye bye the likes of Hargreaves and it's lucklustre effort at providing us with divi information!! Oh, and for those on here that joke about having picked up another poster's shares that they have sold - that will actually become a reality in the near future!!

[Don Coglione]

10 minutes ago, sancho panza said:

No worries,your psot got me thinking hence the shorter timeframes.Intriguing how using the peaks and troughs as starting points paints a different picture.Surprising hopw consitstent the bull/bear moves are in oil vs XLE....

If you can think of a way of trading oil here that involves limtied liability I'd be grateful if you'd let me know.Don't want to mess with futures,way out of my league.

CRUD?

[AlfredTheLittle]

26 minutes ago, Cattle Prod said:

We are small beer in the grand scheme of things, look at Asia. 

Just some comments on that US stock report:

- It's extremely bullish, we are in the middle of stock build season, and this week last year, stocks rose by over 7 mbpd.

- Total stocks are now just 25m bbl above this time last year.

- Products supplied are a demand proxy, and speak to your point: 

Total products supplied jumped last week, America is opening up. Difference now is 782k bbl, or 96% of demand this time last year, up 650kpbd in a week. Jet fuel jumped as part of that, I must try and find flight tracking data. Gasoline is not increasing, down 401k on last year, but diesel is up on 488k. A lot of car journeys are being taken up via diesel (trucks and trains). All I see is fuel substitution in an efficient market. The UK and Europe to a lesser extent may have lunatics in charge who want to restrict us (illegally) for a while yet, but the rest of the world is going to get on with life. Israel is opening up restriction free travel corridors thank God and Yaweh so they can show up the lockdown fanatics.

All the while in the background the money is not being spent on replacing the natural decline of production. Tick tock, tick tock...

$80 is my target, no idea if it'll go that far. It may crater the economy before reaching that, or maybe all the stimmy money means it won't destroy demand, and continue on.

Edit: I note that oil sold off on that news, as it sometimes does. Could be shorts covering. I would.

Flights don't look like they're down all that much compared to 2019, around 130,000 per day now compared to 160,000 in 2019:

https://www.flightradar24.com/data/statistics

 

[Chewing Grass]

They are everywhere except the USA.

Above Heathrow its like a ghost town.

[Lightscribe]

7 hours ago, Noallegiance said:

There will be no uprising. Just the next set of controls.

I’ll make it clear what I meant by uprising in my previous comment. I don’t mean pitchforks at dawn and Fed heads on sticks.

I meant by banning crypto through regulations ‘for your own protection’ will cause lots of animosity in the younger generation.

They don’t feel that they need to be ‘saved’ through restrictions. The current financial system has nothing to offer them. They’d rather gamble what they have on all or nothing. One browse through the Reddit and Biz forums, and you’ll see some have no intention of ever cashing out to fiat.

So by banning it, that animosity (with lots of crypto gain money behind it) will filter out to cause havoc in the mainstream financial system like GME in return. It could be labelled as ‘financial terrorism’. Pumps and dumps, coordinated running against shorts and generally causing volatility. 

But to think that BTC/crypto will fizzle out without a trace like tulip mania is in itself naive in my opinion. Pandora’s box has been opened.

[Don Coglione]

Just now, Lightscribe said:

They don’t feel that they need to be ‘saved’ through restrictions. The current financial system has nothing to offer them. They’d rather gamble what they have on all or nothing. One browse through the Reddit and Biz forums, and you’ll see some have no intention of ever cashing out to fiat.

What is their plan, then?

[Lightscribe]

Just now, Knickerless Turgid said:

What is their plan, then?

Defi. Cashless payments between users that has no involvement from any financial institutions and fiat.

That is what the governments will ban, not BTC through centralised exchanges where they can rake in tax revenues.

[Don Coglione]

2 minutes ago, Lightscribe said:

Defi. Cashless payments between users that has no involvement from any financial institutions and fiat.

That is what the governments will ban, not BTC through centralised exchanges where they can rake in tax revenues.

So they are fucked?

[Democorruptcy]

1 hour ago, Cattle Prod said:

Gasoline is not increasing, down 401k on last year, but diesel is up on 488k. A lot of car journeys are being taken up via diesel (trucks and trains). All I see is fuel substitution in an efficient market.

Maybe partly people staying at home due to lockdowns (or successful fear mongering) and not going out in the car. Instead they order online and have stuff delivered by couriers etc using diesel vans.

[Hardhat]

24 minutes ago, Knickerless Turgid said:

So they are fucked?

Unless you can take down the distributed ledger, which you can't, or crack the ledger, which you maybe can with a quantum computer, you could never actually ban crypto. You could make it very very hard to use (as it was in the very early days), but it wouldn't be possible to destroy it.

[Lightscribe]

21 minutes ago, Knickerless Turgid said:

So they are fucked?

Defi as well as staking, running nodes to get rewarded more crypto etc. Theres options basically, how much of which the government will allow through future regulations and what they can do about it all we shall see. 

Thats why I think we’ll see worldwide censorship of the internet eventually modelling ourselves on China. Problem is it just drives it all underground, privates networks etc. They either work with it, or make it incredibly harder for themselves to track everything. Whichever they choose, we’ll find out one way or the other in the coming years.

[Don Coglione]

6 minutes ago, Hardhat said:

Unless you can take down the distributed ledger, which you can't, or crack the ledger, which you maybe can with a quantum computer, you could never actually ban crypto. You could make it very very hard to use (as it was in the very early days), but it wouldn't be possible to destroy it.

No need to ban or destroy anything, simply make all crypto transactions illegal.