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


spunko

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2 hours ago, jamtomorrow said:

Mempool says this halving's bull ended in May:

Seems like a really good indicator, and certainly looks like the bull is ended for this halving. How does it compare on mempool to previous halvings?

My own (unsophisticated) yardstick was looking at the colours (indicating months until next halving) on this:

Image

Both preceding cycles peaked on orange and was well into the decline by yellow, where we now find ourselves.

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19 hours ago, Axeman123 said:

I heard a very convincing case made on a podcast that it was the bailout of Long Term Capital Management in 1998 where the real rot first set in.

Jim Rickards? Two years ago.  I made a few notes on it at the time.

 

 

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26 minutes ago, Axeman123 said:

How does it compare on mempool to previous halvings?

Compared with 2016 halving, it looks like "same but 9 months earlier", mempool pressure peaking in March of the following year rather than December.

I'll try and post a screenie of the full series when I'm near a desktop.

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1 minute ago, Heart's Ease said:

Jim Rickards? Two years ago.  I made a few notes on it at the time.

Actually this one:

(I will have a look at your notes though)

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2 minutes ago, jamtomorrow said:

Compared with 2016 halving, it looks like "same but 9 months earlier", mempool pressure peaking in March of the following year rather than December.

Cheers for that, it rather fits with my impression that it all started too early and then burned out this time around.

I am sure the proliferation of Alt-pumps etc also dispersed the buying too widely to push BTC up as much as previous cycles.

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2 hours ago, HousePriceMania said:

The Government came out with a comment along the lines that they might block a foreign takeover.

 

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1 minute ago, Castlevania said:

The Government came out with a comment along the lines that they might block a foreign takeover.

Kind of ticks off another waypoint on the thread roadmap, good to see our government on the ball.

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JimmyTheBruce
12 hours ago, sancho panza said:

Is there some sort of cut off looming,forgive my ignorance ref SIPPS

The cut off is the BK!!

I've been hassling my work to allow me to transfer out of their awful scheme to my SIPP since before Covid brought on the previous round of bargain basement sales.  I don't want to miss out again.

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HousePriceMania
1 hour ago, Castlevania said:

The Government came out with a comment along the lines that they might block a foreign takeover.

 

Like the blocked all the others!!!!

More corruption.

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JimmyTheBruce
5 hours ago, spygirl said:



The return of inflation: crunch time for the European Central Bank The ECB has sounded more dovish than most central banks. But rising prices and Covid are putting it under growing pressure

https://www.ft.com/content/e01ce60c-f602-4110-bb64-7fd60689b099

As Christine Lagarde unveiled plans last week to redesign euro banknotes for the first time since their launch two decades ago, the European Central Bank president said they were “a tangible and visible symbol that we stand together in Europe, particularly in times of crisis”.

Talk about fiddling whilst Rome burns.

Or just making up pointless make-work work.

ddbfebfc-1a09-4497-8b79-3a1947726496.jpg

Like the way her wrinkly scarf camouflages itself into her wrinkly face.

 

 

3d5f1bf0-christine-lagarde-convicted-criminal-.jpg.f08a697a82995854a51622f83125150b.jpg

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4 hours ago, Cattle Prod said:

Sorry Sancho, what do you mean by this?! I'll have a scan of the Covid thread and see what the latest is

Just talking to colleagues at work.I'm quite open about my non compliance with the covid mandate compared to many who are keeping their heads down.Some are literally scared of having the shot due toi their understanding combined with what they or may not have seen

But then I take the view if I get sacked I have alternatives,am financially secure etc,if I can't speak up then who can/will.

Over the weekend I had a few conversations at work and I think the vaccine/lockdown scepticism is growing in terms of both the threat to persoanl freedoms and also the fact that there are clear safety issues that have been covered over.Amongst the people I spoke to there is already a deep seated distruct of the role the MSM have played in stoking fear.

In terms of the general public,more and more people are relating that someone they know has had an adverse effect-eg stroke/cardiac issue post vaxx.Each round of boosters carries a mathematical probability that adverse reactions occur(as far as I can see there's no reduction on your third jab but I'm happy to be corrected on this if anyone knows of some research they can post).

In terms of the whistleblower,I post below from the BMJ.It's a sketchy picture as yet,but Big Pharma has some form when it comes to playing with trial data.

First para in bold for skim readers

https://www.bmj.com/content/375/bmj.n2635

Covid-19: Researcher blows the whistle on data integrity issues in Pfizer’s vaccine trial

BMJ 2021; 375 doi: https://doi.org/10.1136/bmj.n2635 (Published 02 November 2021)Cite this as: BMJ 2021;375:n2635

In autumn 2020 Pfizer’s chairman and chief executive, Albert Bourla, released an open letter to the billions of people around the world who were investing their hopes in a safe and effective covid-19 vaccine to end the pandemic. “As I’ve said before, we are operating at the speed of science,” Bourla wrote, explaining to the public when they could expect a Pfizer vaccine to be authorised in the United States.1

But, for researchers who were testing Pfizer’s vaccine at several sites in Texas during that autumn, speed may have come at the cost of data integrity and patient safety. A regional director who was employed at the research organisation Ventavia Research Group has told The BMJ that the company falsified data, unblinded patients, employed inadequately trained vaccinators, and was slow to follow up on adverse events reported in Pfizer’s pivotal phase III trial. Staff who conducted quality control checks were overwhelmed by the volume of problems they were finding. After repeatedly notifying Ventavia of these problems, the regional director, Brook Jackson, emailed a complaint to the US Food and Drug Administration (FDA). Ventavia fired her later the same day. Jackson has provided The BMJ with dozens of internal company documents, photos, audio recordings, and emails.

Poor laboratory management

On its website Ventavia calls itself the largest privately owned clinical research company in Texas and lists many awards it has won for its contract work.2 But Jackson has told The BMJ that, during the two weeks she was employed at Ventavia in September 2020, she repeatedly informed her superiors of poor laboratory management, patient safety concerns, and data integrity issues. Jackson was a trained clinical trial auditor who previously held a director of operations position and came to Ventavia with more than 15 years’ experience in clinical research coordination and management. Exasperated that Ventavia was not dealing with the problems, Jackson documented several matters late one night, taking photos on her mobile phone. One photo, provided to The BMJ, showed needles discarded in a plastic biohazard bag instead of a sharps container box. Another showed vaccine packaging materials with trial participants’ identification numbers written on them left out in the open, potentially unblinding participants. Ventavia executives later questioned Jackson for taking the photos.

Early and inadvertent unblinding may have occurred on a far wider scale. According to the trial’s design, unblinded staff were responsible for preparing and administering the study drug (Pfizer’s vaccine or a placebo). This was to be done to preserve the blinding of trial participants and all other site staff, including the principal investigator. However, at Ventavia, Jackson told The BMJ that drug assignment confirmation printouts were being left in participants’ charts, accessible to blinded personnel. As a corrective action taken in September, two months into trial recruitment and with around 1000 participants already enrolled, quality assurance checklists were updated with instructions for staff to remove drug assignments from charts.

In a recording of a meeting in late September2020 between Jackson and two directors a Ventavia executive can be heard explaining that the company wasn’t able to quantify the types and number of errors they were finding when examining the trial paperwork for quality control. “In my mind, it’s something new every day,” a Ventavia executive says. “We know that it’s significant.”

Ventavia was not keeping up with data entry queries, shows an email sent by ICON, the contract research organisation with which Pfizer partnered on the trial. ICON reminded Ventavia in a September 2020 email: “The expectation for this study is that all queries are addressed within 24hrs.” ICON then highlighted over 100 outstanding queries older than three days in yellow. Examples included two individuals for which “Subject has reported with Severe symptoms/reactions … Per protocol, subjects experiencing Grade 3 local reactions should be contacted. Please confirm if an UNPLANNED CONTACT was made and update the corresponding form as appropriate.” According to the trial protocol a telephone contact should have occurred “to ascertain further details and determine whether a site visit is clinically indicated.”

Worries over FDA inspection

Documents show that problems had been going on for weeks. In a list of “action items” circulated among Ventavia leaders in early August 2020, shortly after the trial began and before Jackson’s hiring, a Ventavia executive identified three site staff members with whom to “Go over e-diary issue/falsifying data, etc.” One of them was “verbally counseled for changing data and not noting late entry,” a note indicates.

At several points during the late September meeting Jackson and the Ventavia executives discussed the possibility of the FDA showing up for an inspection (box 1). “We’re going to get some kind of letter of information at least, when the FDA gets here . . . know it,” an executive stated.

Box 1

A history of lax oversight

When it comes to the FDA and clinical trials, Elizabeth Woeckner, president of Citizens for Responsible Care and Research Incorporated (CIRCARE),3 says the agency’s oversight capacity is severely under-resourced. If the FDA receives a complaint about a clinical trial, she says the agency rarely has the staff available to show up and inspect. And sometimes oversight occurs too late.

In one example CIRCARE and the US consumer advocacy organisation Public Citizen, along with dozens of public health experts, filed a detailed complaint in July 2018 with the FDA about a clinical trial that failed to comply with regulations for the protection of human participants.4 Nine months later, in April 2019, an FDA investigator inspected the clinical site. In May this year the FDA sent the triallist a warning letter that substantiated many of the claims in the complaints. It said, “t appears that you did not adhere to the applicable statutory requirements and FDA regulations governing the conduct of clinical investigations and the protection of human subjects.”5

“There’s just a complete lack of oversight of contract research organisations and independent clinical research facilities,” says Jill Fisher, professor of social medicine at the University of North Carolina School of Medicine and author of Medical Research for Hire: The Political Economy of Pharmaceutical Clinical Trials.

Ventavia and the FDA

A former Ventavia employee told The BMJ that the company was nervous and expecting a federal audit of its Pfizer vaccine trial.

“People working in clinical research are terrified of FDA audits,” Jill Fisher told The BMJ, but added that the agency rarely does anything other than inspect paperwork, usually months after a trial has ended. “I don’t know why they’re so afraid of them,” she said. But she said she was surprised that the agency failed to inspect Ventavia after an employee had filed a complaint. “You would think if there’s a specific and credible complaint that they would have to investigate that,” Fisher said.

In 2007 the Department of Health and Human Services’ Office of the Inspector General released a report on FDA’s oversight of clinical trials conducted between 2000 and 2005. The report found that the FDA inspected only 1% of clinical trial sites.6 Inspections carried out by the FDA’s vaccines and biologics branch have been decreasing in recent years, with just 50 conducted in the 2020 fiscal year.7

RETURN TO TEXT

The next morning, 25 September 2020, Jackson called the FDA to warn about unsound practices in Pfizer’s clinical trial at Ventavia. She then reported her concerns in an email to the agency. In the afternoon Ventavia fired Jackson—deemed “not a good fit,” according to her separation letter.

Jackson told The BMJ it was the first time she had been fired in her 20 year career in research.

Concerns raised

In her 25 September email to the FDA Jackson wrote that Ventavia had enrolled more than 1000 participants at three sites. The full trial (registered under NCT04368728) enrolled around 44 000 participants across 153 sites that included numerous commercial companies and academic centres. She then listed a dozen concerns she had witnessed, including:

Participants placed in a hallway after injection and not being monitored by clinical staff

Lack of timely follow-up of patients who experienced adverse events

Protocol deviations not being reported

Vaccines not being stored at proper temperatures

Mislabelled laboratory specimens, and

Targeting of Ventavia staff for reporting these types of problems.

Within hours Jackson received an email from the FDA thanking her for her concerns and notifying her that the FDA could not comment on any investigation that might result. A few days later Jackson received a call from an FDA inspector to discuss her report but was told that no further information could be provided. She heard nothing further in relation to her report.

In Pfizer’s briefing document submitted to an FDA advisory committee meeting held on 10 December 2020 to discuss Pfizer’s application for emergency use authorisation of its covid-19 vaccine, the company made no mention of problems at the Ventavia site. The next day the FDA issued the authorisation of the vaccine.8

In August this year, after the full approval of Pfizer’s vaccine, the FDA published a summary of its inspections of the company’s pivotal trial. Nine of the trial’s 153 sites were inspected. Ventavia’s sites were not listed among the nine, and no inspections of sites where adults were recruited took place in the eight months after the December 2020 emergency authorisation. The FDA’s inspection officer noted: “The data integrity and verification portion of the BIMO [bioresearch monitoring] inspections were limited because the study was ongoing, and the data required for verification and comparison were not yet available to the IND [investigational new drug].”

Other employees’ accounts

In recent months Jackson has reconnected with several former Ventavia employees who all left or were fired from the company. One of them was one of the officials who had taken part in the late September meeting. In a text message sent in June the former official apologised, saying that “everything that you complained about was spot on.”

Two former Ventavia employees spoke to The BMJ anonymously for fear of reprisal and loss of job prospects in the tightly knit research community. Both confirmed broad aspects of Jackson’s complaint. One said that she had worked on over four dozen clinical trials in her career, including many large trials, but had never experienced such a “helter skelter” work environment as with Ventavia on Pfizer’s trial.

“I’ve never had to do what they were asking me to do, ever,” she told The BMJ. “It just seemed like something a little different from normal—the things that were allowed and expected.”

She added that during her time at Ventavia the company expected a federal audit but that this never came.

After Jackson left the company problems persisted at Ventavia, this employee said. In several cases Ventavia lacked enough employees to swab all trial participants who reported covid-like symptoms, to test for infection. Laboratory confirmed symptomatic covid-19 was the trial’s primary endpoint, the employee noted. (An FDA review memorandum released in August this year states that across the full trial swabs were not taken from 477 people with suspected cases of symptomatic covid-19.)

“I don’t think it was good clean data,” the employee said of the data Ventavia generated for the Pfizer trial. “It’s a crazy mess.”

A second employee also described an environment at Ventavia unlike any she had experienced in her 20 years doing research. She told The BMJ that, shortly after Ventavia fired Jackson, Pfizer was notified of problems at Ventavia with the vaccine trial and that an audit took place.

Since Jackson reported problems with Ventavia to the FDA in September 2020, Pfizer has hired Ventavia as a research subcontractor on four other vaccine clinical trials (covid-19 vaccine in children and young adults, pregnant women, and a booster dose, as well an RSV vaccine trial; NCT04816643, NCT04754594, NCT04955626, NCT05035212). The advisory committee for the Centers for Disease Control and Prevention is set to discuss the covid-19 paediatric vaccine trial on 2 November.

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reformed nice guy
6 hours ago, spygirl said:



The return of inflation: crunch time for the European Central Bank The ECB has sounded more dovish than most central banks. But rising prices and Covid are putting it under growing pressure

https://www.ft.com/content/e01ce60c-f602-4110-bb64-7fd60689b099

As Christine Lagarde unveiled plans last week to redesign euro banknotes for the first time since their launch two decades ago, the European Central Bank president said they were “a tangible and visible symbol that we stand together in Europe, particularly in times of crisis”.

Talk about fiddling whilst Rome burns.

Or just making up pointless make-work work.

ddbfebfc-1a09-4497-8b79-3a1947726496.jpg

Like the way her wrinkly scarf camouflages itself into her wrinkly face.

 

 

https://i.4cdn.org/pol/1639480686145.jpg

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HousePriceMania

Sold out some more of my holdings again today, took some profits took a couple of losses.

I just cant see how we can get through the next 6 months without some sort of a correction.

Have people seen the inflation figures coming out at the mo, it's gone properly beserk, it's a self fulfilling prophecy now.

 

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ThoughtCriminal

I don't want to thread derail so please nobody respond to this.

 

I STRONGLY urge everyone interested in covid to watch this 90 second clip from Joe Rogan featuring Dr Peter McCullough. He's the guy who came up with the covid treatment protocol that's having great success.

 

He outlines how the curious lack of treatments offered for covid were actually part of the plan to get everyone to take the vaccine. Most explosive of all, he says the covid vaccine was being developed BEFORE the outbreak.

 

He's not a nut job, he cites papers and sources for everything, more thorough than anyone I've seen.

 

Again, please don't reply and apologies to anyone not interested, I just felt very strongly about this. Can't urge enough that you watch the full episode.

 

Him and Rogan need to check their car brakes. 

 

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15 minutes ago, ThoughtCriminal said:

I don't want to thread derail so please nobody respond to this.

 

I STRONGLY urge everyone interested in covid to watch this 90 second clip from Joe Rogan featuring Dr Peter McCullough. He's the guy who came up with the covid treatment protocol that's having great success.

 

He outlines how the curious lack of treatments offered for covid were actually part of the plan to get everyone to take the vaccine. Most explosive of all, he says the covid vaccine was being developed BEFORE the outbreak.

 

He's not a nut job, he cites papers and sources for everything, more thorough than anyone I've seen.

 

Again, please don't reply and apologies to anyone not interested, I just felt very strongly about this. Can't urge enough that you watch the full episode.

 

Him and Rogan need to check their car brakes. 

 

worth noting he's a consultant cardiologist,so obviously he'll need fact checking by a 25 year old BBC journo with a media studies degree.

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Looks like Lyn's been basement dwelling.

https://www.lynalden.com/december-2021-newsletter/

 

December 2021 Newsletter: The Fifth Age of Oil

December 12, 2021

Market Overview

Recent Articles:

This newsletter examines the history and current state of the global oil market, and makes the case for decent performance from oil and gas stocks during the 2020s decade.

It’s not a trading call, in the sense that all sorts of variables such as virus variants and government policies and OPEC+ decisions can affect any given 6-12 month period. But rather, it’s a look into the structure of the market itself with a view over a multi-year commodity cycle.

The Central Importance of Oil

For better or worse, it’s hard to overstate how important oil, gas, and coal are for the world’s energy mix:

Energy Consumption

Chart Source: Our World in Data

Together, fossil fuels represent about 79% of global energy consumption. Wind turbines and solar panels together are only about 3% (and are made using fossil fuels). The rest consists of biomass, hydro, nuclear, and other forms of energy, which we mostly build using construction vehicles that run on fossil fuels and that were manufactured using fossil fuels.

What makes fossil fuels so powerful is that they have high energy density and a high energy return on investment, since they represent stored-up solar energy from ages long past.

Nuclear, hydroelectric, geothermal, and fossil fuels use stored-up and/or concentrated energy in various ways, either atomic, gravitational, or chemical. Most other types of power production, such as wind and solar, instead try to harness nature’s current work flow rather than letting nature present it in a denser form, which is why they have challenges related to intermittency, as well as high costs (including additional environmental costs) when you take into account the storage that is needed to reduce that intermittency.

I wrote a public research piece about this in June 2021 and since then we’ve seen energy crises in Europe and China faster than I would have guessed.

Europe, for example, has had major issues getting enough natural gas lately, resulting in a massive and relatively persistent price spike:

Europe Natural Gas

Chart Source: Trading Economics

Tapping into dense forms of energy is what allowed for a period of exponential technological gain, average human lifespan extension, and global poverty reduction.

With vehicles, we could travel far distances and mechanize our agriculture so that ten people could harvest enough food to feed a thousand people, which freed the other 990 people to be productive elsewhere and create new things. With pumps, we could provide most people with clean water and sanitation, which vastly reduced disease transmission. With electricity, we could power our homes with all sorts of machines that keep our food cold, wash our clothes, and provide us with light during the night, as well as power factories that produce complex things very cheaply. With natural gas we could heat our homes in the winter months, and generate electricity to cool our homes in the summer months.

Plus, petrochemicals are used for a surprising number of materials we interact with:

Petrochemical Usage

Chart Source: Enterprise Products Partners 3Q 2021 Presentation

This chart shows that global GDP (which is adjusted for inflation) broke out basically along the same trend as our fossil fuel use, when humanity began using coal and oil:

Global GDP

Chart Source: Our World in Data

For many centuries to the extent that data can be estimated, economies grew rather slowly. And then like a light switch turning on, humans figured out how to find and harness the power of these dense energy sources, and economic growth has been exponential ever since.

Each individual barrel of oil literally contains years of human labor, when you break it down quantitatively.

Specifically, a barrel of oil can be used to send a medium-sized car 280 miles, plus send a large truck 50 miles, plus power a home for a couple days, plus make a huge variety of products with the rest of it.

If we simplify that list and think in terms of purely how many joules of energy are in a barrel of oil, rather than the actual refining breakdown into all of those parts (gasoline, diesel, propane, petrochemicals, and so forth), a barrel of oil contains enough energy to send a small car close to 1,000 miles. Imagine how many human labor hours it would take for a group of people to push a car 1,000 miles.

The average American consumes over 20 barrels of oil per year in various ways, plus even more than that from other forms of energy combined like gas, oil, hydroelectric, and more. The average American therefore has an unfathomable amount of human labor equivalents helping them in their lives, like enough labor to push a small vehicle around the circumference of the Earth once or twice each year. All of this labor is mostly in machine form and so we don’t necessarily realize how much work is being done for us. The numbers vary by country but even in many developing countries, people have a tremendous amount of work being done for them due to fossil fuels.

This comes with major costs, of course. Coal emits particulates, which contribute to smog, oceanic mercury, and other environmental problems. Gasoline-powered vehicles emit particulates in densely-crowded cities. Coal, oil, and gas all emit CO2 into the atmosphere, and atmospheric levels of CO2 have broken out to more than a million-year high, which is above any normal cycle. We have to go back a lot further to find levels this elevated:

Atmospheric C02 Levels

Chart Source: NASA

Plastics made from petrochemicals are spilling into our oceans at an alarming rate. Fertilizers, vehicles, and other modern agriculture techniques powered from petrochemicals are resulting in big monocrop fields, thin soil, and oceanic dead zones.

All together, the world is experiencing a rapid reduction in biodiversity, which is a polite way of saying we may be in the sixth mass extinction event in terms of the percentage of total species that are going extinct over a rather compressed time period by evolutionary standards. Not all of that is related to fossil fuels but these fuels certainly increase our power by orders of magnitude to impact global life, which can circle back to supporting or not supporting our own lives if we don’t wield that power well.

Basically, humanity has relied on high-time-preference thinking for many decades now, which means we have aggressively discounted the future in favor of the present. However, even for recent attempts to shift towards “renewables”, it’s often more like greenwashing or Kabuki theater, meaning the efforts are more about looking green than building truly sustainable systems. Solar, wind, and associated power storage systems still have a ton of shortcomings and we have often deployed them into regions that they are not ideally suited for in order to score “green points”.

The worst case scenario is that this huge boom in the quantity and quality of human flourishing over the past two centuries enabled by fossil fuels all ends up being just an ephemeral spike, and that the full costs come back to slam us over the next two centuries.

A moderate case scenario is that humanity’s ability to tap into dense forms of energy eventually hits a plateau for one reason or another (e.g. we run into peak fossil fuel production, and don’t get better energy technologies online fast enough). For the past two centuries, humans have had a rapidly growing energy/resource pie and still managed to find things to fight wars over. Imagine how conflicts could escalate if that pie stops growing and energy/resources become a zero-sum geopolitical game.

So, humans may have a challenging road ahead with energy. Fossil fuels support billions of human lives, but do come with costs. Some of those costs are immediate but non-existential (e.g. city atmosphere pollution), some costs are intermediate-term and global (e.g. oceanic mercury), and other costs are long-term but may cause potentially exponential problems (e.g. we might not want to hit 1,000+ CO2 parts per million in the atmosphere, and aren’t sure of the full consequences for what exactly that means if we do since some of the run-off effects are challenging to model).

The replacements for fossil fuels are not as efficient as often described, when you take into account intermittency and storage and how much battery metals are required for those types of solutions (for which the mines are generally environmentally damaging, and are dug up and then manufactured using equipment that runs on fossil fuels). As a former electrical engineer, I wish these solutions were more efficient, but they simply aren’t due to lack of energy density unless we have some major breakthroughs in material science. Instead, they are mainly ideal around the margins for complementing our more stable base load power, and can be a bigger percentage of power production in certain ideal regions.

New forms of nuclear energy have promise, as do some other forms of power generation. The key thing in common is that they tap into a dense energy source that is reliable. And although it’s not yet widely understood, if the Bitcoin network continues to be successful, bitcoin mining equipment can be integrated into stranded and intermittent energy sources more closely to improve the economics of those energy sources, as I described here. In some areas, that’s already happening.

I also think the study of carbon will continue to advance. A lot of emphasis is placed on reducing carbon emissions but perhaps not enough emphasis is placed on improving carbon sinks. The world’s soil, for example, contains 3x as much carbon as the atmosphere, and anything we can do to improve soil depth (basically the opposite of modern, industrialized, monocrop, annual farming techniques) may be able to sequester quite a bit of carbon over the long run.

So, the ideal case scenario is that humanity continues to harness new forms of dense energy, shifts to longer-term thinking, and starts doing things in more sustainable ways.

The Five Ages of Oil

From 1870 until 1911 when it was broken up, Standard Oil was the dominant oil producer. This can be considered the first age of oil.

Then there were the world wars, after which emerged the second age of oil where the “Seven Sisters” controlled the majority of the world’s oil reserves. The term “Seven Sisters” was a reference to the mythological daughters of the titan Atlas, and consisted of the seven largest American and British global oil companies, many of which were remnants of Standard Oil. They acquired oil reserves internationally, and this period lasted until the 1970s.

In 1970, US oil production structurally peaked for the next four decades:

US Oil Production

We then entered the third age of oil, which was the rise of OPEC, which went from the 1970s through the 2000s. State-owned oil companies in the Middle East and elsewhere began to play the dominant role in global oil markets. The US structured its petrodollar system around that focus, and since then countless military conflicts have occurred throughout the Middle East, some of which certainly influenced by oil and the associated geopolitics around that oil.

For the fourth age of oil, starting in the early 2010s, cheap money and technology advancements allowed previously uneconomic oil to be recovered. The US resurrected its oil industry in the form of “shale oil”. This by no means became the dominant source of global oil, but it was enough to tip the balance and temporarily interfere with OPEC’s control over global oil.

However, most of that shale oil was never truly profitable. Shale oil companies were often not free cash flow positive despite making all of this new production; they were issuing debt and equity to drill for oil, and then not recouping their full expenses. And because interest rates were so low, pensions and investment banks were happy to keep giving them capital. Plus, shale oil wells come online quicker but then also deplete quicker. With shale oil, the producer has to constantly inject capital to maintain the same level of production, let alone grow it.

I contend that we’re entering a fifth age of oil, where shale oil will be more restrained (and profitable) and where OPEC+ (including Russia now) is gaining some dominance again, but not really growing and not making massive new discoveries either. Various research organizations place the maximum realistic US oil production level at 13-18 million barrels per day before it starts entering a structural decline. It’s possible that prior highs of about 13 million were already the peak, but it’s also possible that we’ll reach somewhere in that higher range if high energy prices call for it.

Meanwhile, various ESG mandates are preventing large pools of capital from investing in oil and gas companies. Many pensions, sovereign wealth funds, and other pools of capital are divesting from oil and gas companies or have already done so.

This is making oil and gas companies more prudent with drilling. Unlike the 2010s decade where they kept lighting money on fire to drill unprofitably, now many companies are very disciplined with their capital. Their incentives from shareholders are now to be as self-sufficient as possible, meaning that new capital expenditures come out of their profitable drilling activities. Rather than wanting to rely on external financing, these companies want to pay down debt, buy back shares, and pay out dividends to shareholders.

EOG Resources Example

I often like to use EOG Resources (EOG) as an example because it was one of the best-performing shale companies in terms of being disciplined with drilling and avoiding too much shareholder capital destruction.

And yet during the shale boom of the 2010s decade, EOG still took on billions of dollars in net debt:

EOG Net Debt

And produced negative free cash flow:

EOG Free Cash Flow

In recent years, however, we can see that it’s a very different story. Their drilling discipline is much higher, they rapidly paid down debt, and are focusing on being free cash flow positive. They are harvesting from years of investment rather than plowing more and more money into the ground at any price. A lot of the money is going towards dividends now.

And this is the case with most significant oil and gas companies around. Their newer approaches are mostly about restraining production growth, strengthening their balance sheets, giving capital back to shareholders, and in some cases getting into other lines of business like wind turbines and electric charging stations.

Despite record free cash flow and dividend payouts currently, and that they are doing a good job of replacing their reserves, EOG’s share price is lower than it was 7 years ago. And that’s better than many energy stocks that are below their highs from 13 years ago.

EOG Price

The Takeaway

Considering the fact that valuations in the oil and gas sector remain cheap globally, I view the 2020s decade as likely being a decent decade for oil and gas stocks. Demand growth isn’t particularly rapid, but it’s the supply side that is interesting. A decade of unprofitable shale oil growth threw energy markets out of balance towards excess supply for a long time, but I believe they are getting back into balance, and if anything, potentially a lack of balance towards high prices and shortages.

This is not a trading call; I have no idea how the Omicron virus variant, OPEC+ decisions, economic contractions, or any other variable could affect demand over a given 6-12 month period. Instead, it’s a secular view about the full decade.

The oil sector today looks a lot like the tobacco industry of the 1990s. I hate tobacco stocks because unlike energy, they don’t actually serve a public good. All tobacco products do is kill, whereas the energy sector comes with environmental downsides but also enables human flourishing.

Back in the 1990s, smoking was on the downtrend, and people assumed that tobacco stocks would underperform going forward. They were super cheap. What happened? Tobacco stocks went on to outperform over the next few decades. Being cheap made their share repurchases and dividend reinvestments more impactful. They compounded value at a fast rate despite secular stagnation, and their prices went up from lack of competition.

I see a similar outcome for oil and gas stocks. I don’t expect raging supply or demand growth, but I expect relatively tight supply, along with a lot of capital returns.

Here’s the chart of the Nasdaq 100, priced in barrels of oil:

Nasdaq to Oil Ratio

And here’s the log version of the chart that is more clear:

Nasdaq to Oil Ratio (Log)

We see over time that the Nasdaq outperforms, as tech equities are able to compound value while a commodity cannot. However, it goes in big cycles. The 1970s were very commodity-inflationary, while the 1980s and 1990s were commodity-deflationary. And then the 2000s were commodity-inflationary again, and the 2010s were commodity-deflationary again.

Here’s a chart of the S&P energy sector total return index vs the S&P 500 total return index. When it’s going up that means energy stocks are outperforming, and when it’s going down that means energy stocks are underperforming:

Energy vs S&P 500

In the 1990s, the energy sector lagged as Japan and emerging markets ran into growth headwinds.

In the 2000s, the US dollar weakened and emerging markets had a growth boom, which resulted in a big increase in oil demand.

In the 2010s, many countries went through a private sector deleveraging, the dollar strengthened, emerging market growth slowed, and unprofitable US shale oil flooded the market.

For the 2020s, the book is not written yet, but my base case is towards tighter oil supply and decent energy sector performance. It might not be a “boom” like in the 2000s, but rather a long grind from low valuations with high dividend payouts accumulating over time while higher-valuation stocks sag a bit.

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On 12/12/2021 at 19:56, Harley said:

I'm currently looking at my weekly screen for potentially technically attractive value stocks with good fundamentals.  198 international stocks to look at.  I'll provide an analysis if interested.  Of note though is just how many of the stocks have retraced a large part of their Mar20 moves.  OK, a bit self selecting as I'm bottom feeding but these aren't all bad companies.

Many continue to be at their support levels so could go either way.  But here is one I have been watching which decided to break it's support trend line on the monthly in the classic fashion (break, kiss from below, and then continue down).  Goes to show what could happen with the others, or not(!).

Capture.thumb.PNG.05027d51301dbb5b8a8c338117ab2182.PNG

PS:  An approximate 120% gain from the Mar20 low but now only about 25% up.  This pattern is not just limited to this sector.

Interested

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