Credit deflation and the reflation cycle to come (part 3)

[sancho panza]

20 hours ago, Cattle Prod said:

Couple of comments there on lead times to new oil and gas, so worth saying again. And journos, just go ask any of your industry contacts and they'll tell you the same thing. It's really important to get out there and into thicko politician heads.

Lead time to new oil and gas projects is 5-10 years. 7 is a good rule of thumb. The odd one gets done in less than 5 years, if they are simple (the North sea isn't simple). Many run over ten years. 

This process cannot be speeded up with cutting paperwork, it's all about gathering information by drilling to meet investment metrics in a stable fiscal environment. So the UK North sea is effectively dead, thanks to the windfall tax. Managed decline.

Globally, we have about one more year to trigger another oil and gas investment cycle. Were almost at 7 years now of severe underinvestment, i.e. the average time for a new project from exploration. Which means weve run out of the last cycles projects.

There is currently no discernible uptick in exploration worldwide. It takes about three years of decent prices to convince people to invest in exploration, which kicks off the new project cycle. It's understandable, as you have a good 70% chance of losing your money. But you have to do it - no exploration, no new projects. About a year to go....

But I'm starting to think that won't happen this time. Shareholders want their money, and the skillset in the industry has been devastated. Exploration in particular takes high end teams, and they are mostly gone after 7 years of cuts and redundancy. They're not sitting on the shelf, they go stale after a year or two out anyway. As for the ones hanging on in the industry, there are few young people with new ideas and few old gits with the experience of how not to make stupid mistakes. They are mostly mid career. Even if investment suddenly starts pouring in, there aren't the people to do it anymore. Bad wells will be drilled, blowouts will happen. 

All that's going on really,globally, is managed decline of existing assets. 

If that doesn't do a sharp 180, what that means is an end to growth (as we are witnessing) and in turn the blowup of debt based monetary system, which requires constant growth (I.e. constant cheap energy). Even if we found a new superior energy source, we needed fossil fuels to transition to it. They're still there, but it'd take years to skill up again and trigger the next wave of projects. The university masters courses in petroleum geology and engineering, which were a basic qualification for industry entry (and pretty much guaranteed you a high paying job if you could get in) don't really exist anymore. Companies stopped hiring grads, and grads wanted renewable/ESG stuff anyway. Believe me, I went out and talked to them, and saw the ideology creeping in. The universities rebranded them as 'MSc in sustainable energy' or similar. Aberdeen still has theirs going in fairness, but that's the capital of managed decline now. BP didn't consider one of these graduates fully trained till they had around ten years experience. They literally had grad->early career training programmes for ten years. They produced superb professionals, eventually...

Can you see where I'm going with this lead time to new projects?

A point on UK gas for the journos to ask their contacts about: there are 30-50 small gas accumulations already discovered but undeveloped in the UK which were uncommercial but would make money now and help get us over this hump. But no one wants to commit to them. Get the govt to underwrite the sales price at half of current prices, say 125p a therm and they will get developed in 2-5years. The lead time is shorter as we already know where the are and they already have wells in them (information).

Edit:

Equinor is the exception wrt grad hiring, and exploration in Norway, mainly because you could claim back a cash credit for most of a failed exploration well. So they drilled lots. Problem is that the process is not very rigorous if you know the well is only going to cost you $5m instead of $30m, and so they are not very good at it outside Norway.

I know you've stated that North Sea investment is dead for some time,is that across all companies you know about or jsut one or two?

BP's Looney has stated it wouldn't affect their invesment in the UK but I can't see how it won't.As I understand,UK North Sea producers were already paying higher levels of tax even before the windfall tax.Is that correct (40% iirc as opposed to 20%).Why bother with the risk?

Also from an investment perpsective,I wee Wood Group trading back at £1.50 are they a decent way to trade the next invesment cycle,PFC at £1.20 too?Dyor natch.I'm alreayd in both of thsoe as well as a couple of explorecos

Interesting to see the price moves today in Euro area oilies desptie all round weakenss and a mild uptick in Brent

[nirvana]

1 hour ago, Plan-b said:

In context it's fine on a day where most things are down

good eyes squire, it's called a bear market......I did try and point this out on friday, n'est ce pas?

 

[sancho panza]

6 minutes ago, moneyscam said:

Whilst my stocks are taking a bath at least my hedge is the gift that keeps giving.

Have you got a view MS on the possiblity of a sterling crisis before end 2023(sterling crisis defined as cable<1).

Also have you got a take on where UK IR's will need to go to get infaltion under control and whtehr they will be succesful.No pressure jsut interested in yor take.

This mess is unfolding quicker than I expected UK wise and I'm pretty releived we've alreayd moved our allotments into USD/PM exposure/Oilies before now.I'd hate to be selling cable at $1.18 but it might be better than parity in 6 months

also @baffledbyzirp

[HousePriceMania]

1 minute ago, sancho panza said:

Have you got a view MS on the possiblity of a sterling crisis before end 2023 2022 (sterling crisis defined as cable<1).

Also have you got a take on where UK IR's will need to go to get infaltion under control and whtehr they will be succesful.No pressure jsut interested in yor take.

This mess is unfolding quicker than I expected UK wise and I'm pretty releived we've alreayd moved our allotments into USD/PM exposure/Oilies before now.I'd hate to be selling cable at $1.18 but it might be better than parity in 6 months

also @baffledbyzirp

FTFY 

[nirvana]

love the smell of burning bulls on a monday......

 

[Democorruptcy]

The Don't Pay your energy bill campaign now up to 110,855...

https://dontpay.uk/

Was it an idea by a banker, so debtors can still afford to pay their mortgages?

[moneyscam]

8 minutes ago, sancho panza said:

Have you got a view MS on the possiblity of a sterling crisis before end 2023(sterling crisis defined as cable<1).

Also have you got a take on where UK IR's will need to go to get infaltion under control and whtehr they will be succesful.No pressure jsut interested in yor take.

This mess is unfolding quicker than I expected UK wise and I'm pretty releived we've alreayd moved our allotments into USD/PM exposure/Oilies before now.I'd hate to be selling cable at $1.18 but it might be better than parity in 6 months

also @baffledbyzirp

Hey SP. I would be guessing as much as anyone else even if it's an educated guess. Bear in mind that as far as fiat fx goes it's a relative game of who is the least ugly. Can cable go below parity? Absolutely because of massive balance of payments deficit and increasing budget deficits - the dreaded twin deficits that only the US can sustain (for a time) as USD is reserve currency. It is because of this reserve currency status that as things break down further I can see further flows to the USD and thus cable being pulled below parity. End of 2023 is a realistic scenario but I wouldn't bet the house on it as there are a lot of things that can happen between now and then.

As for interest rates, normally I would argue you need positive real rates so way above where we are now. However I think the inflationary shock which leads to demand destruction and reduction of aggregate demand will do most of the heavy lifting and so rates will not need to go above current inflation to achieve this outcome.

[DurhamBorn]

49 minutes ago, Cattle Prod said:

One for you, @DurhamBorn those brickies should be ashamed of themselves. It's really not hard to use twine and lay a straight row of bricks, not a flying fuck is given by the trade, the builder or whoever sets the spec. Maybe they're hacked off at their neighbours on bennies getting the same money for doing nothing. Those photos are a snapshot of the country right now.

 

 

Its directly related to bennies and boomers pensions because there is simply little reward for work.New estates got 20% social housing on them,plus BTL bought some as well,so likely 30%.So you move in with you both working long hours with a big mortgage only to find out your neighbours arrived 5 weeks ago on a boat and or on bennies.Other side are a Brit bennie family with 3 kids out in the tiny garden pissed every night.

 

[sancho panza]

1 minute ago, Cattle Prod said:

When I say dead I mean production growth, new fields. There will still be the usual annual investment in existing fields, trying to squeeze out as much as you can. That's what Looney is talking about, those plans are unaffected. But it amounts to managed decline for the UKCS as a whole. Just look at the overall production curve, the massive investments in 2009-2015 barely arrested it. The windfall tax ensures it.

Thanks for that clairifcation CP.

Frogive me being cheeky,any industry chatter on how the divesment of BP/Shell Russian assets is going? Any chance they'll get to keep them in the end?

Also futures cruve backwardated substanially.If you go out to 2030,it's saying $60(although I'm not a futures trader don't know how liquid something that far out would be?),point is,the cash marekt is not seeing what you're saying.It's really quite lgoical that after two years of absurd rules when exploring was nigh on impossible and supply chains disrupted,that even aside from the natural decline,this alone would create a preice squeeze up.Maybe it's a Ukraine thing.

and that's before we factor in USD inflation

PS-jsut like to echo @ThoughtCriminal sentiments a few pages back about how much some of us have learned from you.I was at a barbie yesterday and Mrs P's eyes started rolling over (she's got a special look for me when I mention fractional reserve lending/oil supply side) when I briefly explained the issue of coning in conventional wells prohibiting sustained production ramps from Saudi.....bless her.

She laughs and takes the piss but I tell you this ,she's aslo well aware that her oil investments are currently on track to pay her more than her final salary pension even before reinvemesnt for next twenty years

 

[Democorruptcy]

25 minutes ago, Noallegiance said:

Jezuz fucking christ

It's entirely logical. Carney and his cronies have invested lots of money in the climate change stuff, if some of the big money loses faith in it and bails, the value of the climate change stuff could fall. Then Carney and his cronies would be left in the shit. They have to try keep the money flowing one way, to protect theirs.

[Starsend]

48 minutes ago, ThoughtCriminal said:

When the Russians want to jail me for my tweets, incorrect use of pronouns and tell me a man can become a woman then I'll be sure to despise them.

 

As it is I'd happily hang almost every politician and journo in this country.

It's not a binary thing imo. I would also happily hang every politician in this country but I'd also happily hang Putin. Just because they haven't lost their minds to wokeness doesn't mean they're not cunts in other ways.

[HousePriceMania]

Anyone fancy a gamble on the banker establishment being in charge of all things democratic ?

[Starsend]

41 minutes ago, sancho panza said:

Picture,1000 words etc.

Simply incredible.but it's that old Hemingway quote again isn't it?

''How did you go bankrupt?''

''Gradually at first,then suddenly.''

What's deeply disturbing to me is that that is the chart of the world's reserve currency(for now).

There's no getting off that train once the politicans are on it.

We should have kept some.Strategically,the UK's had a shocking 30 years of mismanagement.First duty of any govt is to preotect it's people-that means economic/physical/cultural security.

Now we're heading for bankruptcy,wide open to invasion/external control,cold winters and cultural dilution.And yet to sort it out we have the people who created the crisis and didn't see it coming.

Don't worry we'll have mums in fighter jets soon patrolling Britain's borders (except during the Summer holidays).

[Harley]

Re. OXY and Buffet's big stake, a good question on the Market Huddle podcast, taking it private?

[sancho panza]

6 minutes ago, moneyscam said:

Hey SP. I would be guessing as much as anyone else even if it's an educated guess. Bear in mind that as far as fiat fx goes it's a relative game of who is the least ugly. Can cable go below parity? Absolutely because of massive balance of payments deficit and increasing budget deficits - the dreaded twin deficits that only the US can sustain (for a time) as USD is reserve currency. It is because of this reserve currency status that as things break down further I can see further flows to the USD and thus cable being pulled below parity. End of 2023 is a realistic scenario but I wouldn't bet the house on it as there are a lot of things that can happen between now and then.

As for interest rates, normally I would argue you need positive real rates so way above where we are now. However I think the inflationary shock which leads to demand destruction and reduction of aggregate demand will do most of the heavy lifting and so rates will not need to go above current inflation to achieve this outcome.

Thanks for the reply MS.Agreed ti's not one to bet the hosue on but interesting to see that you think it's realistically possilbe. UK politicains tend to forget why the US can run twin defictis and we shouldn't make a habit of it.Does look to me as if after 30 years the Punch bowl has been taken away.

I think @DurhamBorn made an excellent point a week or so back,that rasing IR's by 1% here is effectively a 50% increase which will have a huge effect on aggregate demand especially in a situation where so many consumers are leveraged heavily in terms of their disposable income.I think the UK is in uncharted waters in terms of levels of pirvate debt to GDP,let alone the twin deficits we;ve been running since the early 90's.

The corollary to that demand destruction is that it will have a potentially  disruptive effect in some asset markets-particualrly UK real estate which then in their tunrs could reinforce a downward debt deflationary spiral as people pay down loans/default

[Option5]

23 minutes ago, Starsend said:

It's not a binary thing imo. I would also happily hang every politician in this country but I'd also happily hang Putin. Just because they haven't lost their minds to wokeness doesn't mean they're not cunts in other ways.

 

[ThoughtCriminal]

23 minutes ago, Starsend said:

It's not a binary thing imo. I would also happily hang every politician in this country but I'd also happily hang Putin. Just because they haven't lost their minds to wokeness doesn't mean they're not cunts in other ways.

There's no comparison. Putin acts logically, in the interests of his nation.

 

Ours sell us down the river at every opportunity.

 

Putin hasn't even scratched the surface of what the UK and US have done over the years, and continue to do now.

[Plan-b]

51 minutes ago, nirvana said:

good eyes squire, it's called a bear market......I did try and point this out on friday, n'est ce pas?

 

If it is in a bear then it has a long way to fall to upset the long game holders. In fact the yellow metal has done better than even UK house prices bought with sterling over the last 20 years in quite a lot of the UK. Each to their own 'Innit' 

It's the pound that's fuct not gold 

 

[Harley]

3 hours ago, Errol said:

Dugin had nothing to do with Putin anyway. In Russia he is an irrelevance. It was the West that played him up and made him into some kind of important figure. Similar to Navalny, in that respect.

All part of the West's hoped for ramp down in Ukraine?  Gotta have a victory while dissing Zelensky in the establishment US press, etc, etc? 

[Errol]

1 hour ago, nirvana said:

good eyes squire, it's called a bear market......I did try and point this out on friday, n'est ce pas?

Gold in GBP isn't

[Harley]

1 hour ago, M S E Refugee said:

All I see is Russia acting in a logical manner and the West acting illogically.

For me it's got to the point where I can no longer believe anything the West says as I have been lied to and gaslighted too many times.

IMO, the West is not so much at "war" with Russia, etc but more it's own people as they lean against Russia and co to achieve it.  And that war is a money/resources share war as it ultimately always is.

[Starsend]

13 minutes ago, ThoughtCriminal said:

There's no comparison. Putin acts logically, in the interests of his nation.

 

Ours sell us down the river at every opportunity.

 

Putin hasn't even scratched the surface of what the UK and US have done over the years, and continue to do now.

Putin and his mates stole billions from the Russian people.

He's a cunt. Our cunts are even bigger cunts. I don't see your point in comparing really. They're all cunts to me in different ways.

[Pip321]

35 minutes ago, DurhamBorn said:

Its directly related to bennies and boomers pensions because there is simply little reward for work.New estates got 20% social housing on them,plus BTL bought some as well,so likely 30%.So you move in with you both working long hours with a big mortgage only to find out your neighbours arrived 5 weeks ago on a boat and or on bennies.Other side are a Brit bennie family with 3 kids out in the tiny garden pissed every night.

 

This might be just a good educated guess on something you ‘think’ is probably the case. Or maybe you have seen it. 

However, to confirm I know someone who has moved into a 4 bed detached new build home £400k in Jan 2021 and this is exactly the case. As an aside they bought comparatively well (some paying £475k for the same house)

The Alsatian and the very loud guy on the mobile from 6am at the rear speaking polish (we think), the parties (ok, occasional) across the street and the smell of weed have meant enough is enough. All benefits or working benefits and this new build estate is awful. But it looks lovely at first glance. 

Listed their house and sold subject to contract it £495k (with a couple of others on at £540k)….selling quickly and moving out of dodge first to get something in a more ‘established area’. They will happily exchange and rent for a short period rather than rush to buy because so little on….I will look for stuff for them, winter is a normally better buying season. 

[Axeman123]

45 minutes ago, Democorruptcy said:

It's entirely logical. Carney and his cronies have invested lots of money in the climate change stuff, if some of the big money loses faith in it and bails, the value of the climate change stuff could fall. Then Carney and his cronies would be left in the shit. They have to try keep the money flowing one way, to protect theirs.

Thing is though, all of that implies the flow is now against net zero and they are fighting a rear guard action. I will take that as a good sign.

[Funn3r]

2 hours ago, M S E Refugee said:

Thank goodness I have bought more Florins and Half Crowns off ebay over the weekend.

I can see Nationwide accepting them as payment for my Mortgage by next year.

How does this work exactly? Sounded so interesting that I started reading on ebay, and seems like 

SILVER FLORIN GEORGE V COINS 

SILVER CONTENT:
1911 TO 1919 IS 0.925 SILVER
1920 TO 1936 ARE 50% SILVER

So I looked at a 1915 coin which the seller is offering for £12.99 - the weight is not specified but wikipedia puts it at 11.3 grams if I read that right. Say that's 0.4 of an ounce assuming that the worn condition of the coin has not reduced that.  

So you're paying over 30 quid/ounce for .925 silver. Why is this better than to buy modern .999 Britiannia even though it's got VAT?