Credit deflation and the reflation cycle to come (part 6)

[Chewing Grass]

1 hour ago, Cattle Prod said:

I don't really know JT, but there is a lot of news coming out about copper supply problems, particularly in Chile. I don't follow copper production too closely, but there are two big things in common with oil and gas: 1) It takes about ten years to get a big new project going, 2) Copper production will follow the same normal distribution any other resource does. And apparently the large legacy mines have dropping production, as do the large copper miners. Declining ore grades is the same thing as the oil industry going for shale (which is exactly the same as a poor quality ore grade), except you can't frack copper and make it flow out of the ground.

One other thing in common I suppose is a political assumption that it's just 'there' and you can have as much of it as you want. 

It doesn't work like that.

I was scanning this list for financials, but I noticed most of them had declining production.

https://finance.yahoo.com/news/15-biggest-copper-companies-world-132108207.html

Gorozen also has a good piece on copper in this quarters newsletter.

https://info.gorozen.com/2023-q1-hubberts-peak-is-here

Snippet:

Comments welcome, especially from our transmission system experts. How much copper will be needed to transmit 50 GW of wind power into the grid, and how on earth do you balance it and stop the grid blowing out?! 

400kV lines need 2000mm2 cables max, so assuming a typical pylon with 6 pairs of hung cables and there will be more at this rating  to handle higher demand then the worst case is that the UK will need 135 Million Tonnes of Copper for its new green grid.

This will be pointless due to the amount of energy required to mine, process, manufacture, transport and install the stuff.

The green argument in reality is non-existent.

[reformed nice guy]

3 hours ago, jamtomorrow said:

Break that 460,000km down over the population, it works out less than a yard of cable per household per year up to 2050.

 

Think about all the white good, electrical goods, toys, charging cables etc that the average household buys new each year. There is probably a yard of cable already in all of that

[JMD]

3 hours ago, jamtomorrow said:

That tells me very little - the scale of civilisational infrastructure is always mind-boggling. The answer is always "It's a lot of stuff" - yeah, no shit.

Break that 460,000km down over the population, it works out less than a yard of cable per household per year up to 2050. This in a country where the middle classes are still habitually whazzing thousands per household per year on mindless discretionary spend.

It's not unrealistic or unachievable, just unrealistic and unachievable in a country that can't divert a fraction of its consumption into capital formation.

Agreed. But it's probably not about giving information. Instead these types of articles (and the eco-reporter behind them) are usually all about presenting false choices. Eg, You can have maintained roads or new electricity cables - but you can't have both. 

Edited June 26, 2023 by JMD

[Yadda yadda yadda]

9 minutes ago, reformed nice guy said:

Think about all the white good, electrical goods, toys, charging cables etc that the average household buys new each year. There is probably a yard of cable already in all of that

We would need more domestic cables for the fabled green transition. Heat pumps, car chargers (or bikes for those that can't afford them), a lot of wiring upgrades for increased loads, smart devices to report back usage, probably things I haven't thought of. Perhaps charging cables could be made that last longer. Not sure why they fail, except to keep industry going selling replacements.

[Errol]

Bearing in mind the UK can't even fix potholes, the chances of building that much new energy infrastructure seem slim.

[Axeman123]

19 minutes ago, reformed nice guy said:

Think about all the white good, electrical goods, toys, charging cables etc that the average household buys new each year. There is probably a yard of cable already in all of that

How thick are the conductors though? A yard of USB charger cable is probably equivalent in copper content to a millimeter of high voltage overhead stuff...unless I am missing something?

[DurhamBorn]

2 hours ago, Innkeeper said:

Something that many CEOs no doubt have never experienced.  Even if they can get capital, it will now be at a cost that doesn’t fit with their expansion plans unless of course they re cost them.  Leading to further inflationary pressures.

One other factor I had totally forgotten about until yesterday when I was discussing plans with a couple of other people with a view to taking a small business.  I remembered that an old adage used to be ‘if you’re not making at least 5% net profit then you might as well sell up and stick the capital on deposit in a bank’.  This was when deposit accounts routinely paid 5% without trying.  Those days are nearly here again and companies will now will be revising their margins accordingly, otherwise why stay in business?

Inflation will not be going away soon....

I priced all of this into my calls on the cycle.What it means is assets already there funded on long term coupons are worth much more because building new ones due to finance costs is much more expensive.It self funds as well.Asset company ups prices,so has more free cash flow so can invest in expanding asset base or lowering debt.New company has to fund from debt from day one.Its why BT is such a good buy now (if its pension scheme doesnt blow up due to government gilts) because there is no way smaller new cable companies can compete when raising debt.It also means Private Equity cant use the CBs free money,because it aint free anymore.

Its why Bailey say 1.8% inflation when we saw 12%,he doest understand the lags in reflation cycles,they self feed themselves.Of course like all cycles they end in failure,but there is a long way to go yet.Very likely we will see lots of industries merging down as well to a few players.

 

[wherebee]

1 hour ago, Nomad said:

The politicians from all side seem to be so focused on the woke agenda and ensuring benefits are ever increasing they seemed to have forgotten what their real job is, (i.e. ensuring the UK is competitive and staying ahead of the game). We really are in a mess. I've got two children, early 20s, and the future looks very bleak IMO

send them out to australia, seriously.  we need all the white, unjabbed young people we can get.  And whilst the future here is going to be messy, it's going to be a LOT less shitty than the UK, I predict.  We have, for example, six very very anti-vaccine MP's and 4 anti-vaxx political parties already.

[azzuri82]

13 minutes ago, sancho panza said:

We back onto farmland.A month or so back,the farmer approached me by my spud patch and started chatting.First time in near 18 months of our tenancy.So I engaged,nice bloke.

He seemed keen to work out my angle on our retnal and I explained 2% gross yield/couldnt mortgage for less than 5% etc.We tlaked a bit about economy more broadly as he had two kids trying to sell big houses.Long story short,he rents his land,works all days,all year,pays £15k in land rents,spends 6 weeks a year living in a caravan near his sheep(lambing I think).Bloke works very hard/long hours.Told me he'd talked all his kids out of going into farming and we tlaked about the economics of farming

I came away from the covnersation thinking how we've been living off people like him for years. @Joncrete Cungle might know what he'd be earning as a tenant farmer but there's no way I'd consider it for less than say £60k and even then,I'm wincing say that.

As a society,we have a generation of self starters in their 50's all looking for an exit.When I look at our little family invesment project,it'd take a 20%-30% return on capital in a reasonably bouyant marekt to get me to give up the security of our oil/baccy/comms invesments.

I think you're absolutely right that returns are going to need to rise to draw more people into setting up businesses especially given the hassles with the VAT/Tax man

 

when you sya there's been a turn do you mean in the qualitry of busniesses for sale as well as the amount?What differences have you noticed if you dont mind me asking?

 

 

I'd say that the quantity of businesses for sale is definitely rising, and people's expectations now are certainly more realistic than they were re: sale values than 6 months or a year ago. I suspect that this is because people are seeing the margins in their own businesses collapsing, and as a result are resigned to selling for much less than they thought previously.

In buoyant markets people can afford to hang on to businesses not making very much in order to facilitate a decent sale, but no one wants to work for free or worse, pay to keep something running for very long.

 

 

 

[Butthead]

I haven't read all of this thread so forgive me if this is a well-worn trope, but I think there's a really interesting difference to our current situation versus the past that will make things much much worse.

For the last 100 years or so we have generally had Conservative governements, and for all their faults they have generally looked after the economy reasonably well. Then from time to time Labour has got in, taxed and spent and fucked everything up, and then been voted out so the Tories can repair the damage.

Next year we are virtually certain to have a Labour government, but they will be inheriting an absolute clusterfuck of an economy. All the things they naturally want to do will push us over the edge. Raise taxes? This will reduce the tax take as people accelerate opting out one way or another. Spend? "There is no money left". And that's before you consider their likely social policies.

We are heading for oblivion, Labour will get us there faster.

[Agent ZigZag]

One question that has always puzzled me on this thread is that if we are to re tool who are we going to sell these goods to and do we have a strong competitive advantage over our competitors with access to cheap reliable energy. Will our goods be sold to the international market or purely an internal market whereby the velocity of money just circulates around under a new homegrown consumption market.

 

 

 

[JMD]

6 hours ago, jamtomorrow said:

Interesting to see you post this @sancho panza while I was thinking about the question upthread about "what does a successful economy look like?".

Top of my list would be self-sustaining capital formation.

The UK has struggled with this for decades. DB's concept of an economic "backbone" falls somewhat into this category, although it would be good to have any formation whatsoever these days, let alone self-sustaining - see BritishVolt, for example.

Capital formation is both the cause and the symptom - not only does it sow the seeds of productive employment and economic sovereignty, it also feeds that intangible sense of shared endeavour. Of a country that's "doing something".

Then contrast that with the decades of malaise and economic autophagy where we've gradually consumed our little-remaining productive capital. A country that's not "doing something" - see the bennies bill.

Obsession of UK elites over FDI three *decades* ago was a sure sign all was not well here. Early 90s it seemed like a minister popped up on TV every other week to sing the praises of some multi-national or other building a factory here or there. Whereas that was in fact the writing on the wall.

Capitol (self-sustaining) and Social (shared-endeavour) cohesion. I do like the sound of that.

But I bet our useless shortsighted polos would condemn it as being too last-century or sounding far too much like being an out-moded 'national purpose'. 

 

[ottokar]

34 minutes ago, Butthead said:

We are heading for oblivion, Labour will get us there faster.

That should be the Conservative party slogan for the next election, it might actually work.

[leonardratso]

id say the only way we could compete internationally would be on quality? as weve mentioned earlier our stuff was expensive but lasted, victorian values etc.

All this talk of copper cable is bunk, simply make it out of gold, theres lots of that in every indians house. Ill bet the pikeys have a stash that theyd be willing to sell back to the grid that they got it from.

[AlfredTheLittle]

16 minutes ago, ottokar said:

That should be the Conservative party slogan for the next election, it might actually work.

I desperately hope not. Much as I dislike Starmer and Labour, I would vote for them over the current incumbents, whose only selling point is to claim the other lot are even worse.

[JMD]

3 hours ago, Axeman123 said:

Somewhat related, although the man is obviously talking his book

https://www.thisismoney.co.uk/money/markets/article-12232123/Sir-Rocco-Forte-invest-overseas.html

Forte mentions people needing to be carried along with a belief that there is a destination for this country, but that tragically there is no destination. Is he alluding to that 'National Purpose' thing I mentioned?    ...Now I think about it, perhaps it could be the name for a new political party, although maybe it sounds just a bit too right-wing!

Edited June 26, 2023 by JMD

[DurhamBorn]

37 minutes ago, Butthead said:

I haven't read all of this thread so forgive me if this is a well-worn trope, but I think there's a really interesting difference to our current situation versus the past that will make things much much worse.

For the last 100 years or so we have generally had Conservative governements, and for all their faults they have generally looked after the economy reasonably well. Then from time to time Labour has got in, taxed and spent and fucked everything up, and then been voted out so the Tories can repair the damage.

Next year we are virtually certain to have a Labour government, but they will be inheriting an absolute clusterfuck of an economy. All the things they naturally want to do will push us over the edge. Raise taxes? This will reduce the tax take as people accelerate opting out one way or another. Spend? "There is no money left". And that's before you consider their likely social policies.

We are heading for oblivion, Labour will get us there faster.

Couldnt agree more.However,there is a tiny tiny hope.If your reading this Rachel Reeves MP.I saw Rachel talk a few times and followed her with great interest as she started out and climbed the ranks.I thought her the great hope of a real patriotic left Labour government.She seemed to understand welfare was a disaster,mostly for the working class themselves.She seemed to really get it,and i thought could end up becoming a legend,who reformed welfare,turned it back to a safety net,but at the same time helped everyone into work,and supported them doing it,rather than just dump them.Lately though she has been coming out with bullshit over and over.She seems to be a different person.My question is simple.Is she just playing to the gallery now and remains that great hope she once was?.Or is she really a sell out to the woke etc.If she remains the original i would love to work for her ,and id give her my roadmap work for free and continue to work for free.The BOE when i met them were clueless,no hope at all they will deliver any time soon,i wouldnt even waste my time with them again.

I know il likely be the only one on here who saw that huge potential in Rachel,but i did,and it really might come down to if she follows through on those foundation beliefs she had,rather than the crap coming out now.

Im not discounting a Labour government getting it right,but their green crap,taxes and woke rubbish seems to be clouding the chances of it happening.The country is in crisis,the biggest ever,Labour have stepped up before in the past,but they need to really sit back and consider everything.They can not allow open borders and woke rubbish to dictate policy.The Tories are finished,but Labour will also go the same way unless they really go back to why they exist.Its that everyone should be able to build a life through work,and the state is there to enable that to happen and provide the scaffold those lives and that work is built on.

Rachel has the ability ,she needs to go back and remember herself.

 

[belfastchild]

2 hours ago, JoeDavola said:

Got a letter from my electricity supplier.

GOOD NEWS, wholesale electricity prices are down 8% and we're passing the saving on to you....

....however the government assistance is ending, so that still means your electricity is going up 5% overall....

Which reminds me to submit a meter reading on 30th June!

[DurhamBorn]

For anyone holding SK Telecom shares the London Listing is ending late July so the ADRs cant be traded in London anymore,however they should be able to be traded in New York without any problem as Citibank was the sponsor and the ADRs are the same so if/when selling they will simply go through the US market.

[belfastchild]

1 hour ago, Yadda yadda yadda said:

We would need more domestic cables for the fabled green transition. Heat pumps, car chargers (or bikes for those that can't afford them), a lot of wiring upgrades for increased loads, smart devices to report back usage, probably things I haven't thought of. Perhaps charging cables could be made that last longer. Not sure why they fail, except to keep industry going selling replacements.

Not sure Ive mentioned it before in this thread or others but you have to look at GB in terms of energy consumed per household.

Over here in NI, its primarily heating by oil heating but most cooking etc is done on electricity. As a result, generally speaking the local cables from transformer to house have to be of a higher capacity and IIRC 100A is the standard connection here to every home.
Over in GB its been mostly gas heating and cooking, its been a few years since I looked but I dont think 100A connection is the standard, heard it was as low as 60A or even 30A for newbuilds/apartments. Gonna be fucked if you need to switch over to heat pumps, electric cooking, never mind electric cars.
The first people in a street to switch will be ok due to balancing requirements, after that, not so. Its why in my street there are only 2.5 solar connections, thats all the local end of the grid can handle.

[jamtomorrow]

1 hour ago, Chewing Grass said:

400kV lines need 2000mm2 cables max, so assuming a typical pylon with 6 pairs of hung cables and there will be more at this rating  to handle higher demand then the worst case is that the UK will need 135 Million Tonnes of Copper for its new green grid.

This will be pointless due to the amount of energy required to mine, process, manufacture, transport and install the stuff.

The green argument in reality is non-existent.

135 million tonnes is a lot of copper. Especially when the cables are aluminium

[JMD]

3 hours ago, Nomad said:

The politicians from all side seem to be so focused on the woke agenda and ensuring benefits are ever increasing they seemed to have forgotten what their real job is, (i.e. ensuring the UK is competitive and staying ahead of the game). We really are in a mess. I've got two children, early 20s, and the future looks very bleak IMO

Woke indeed. And yes i agree that our 'not-for-pupose' polos have for many years been little more than social workers. In recent times they've also taken on international charity worker responsibilities by facilitating 3rd world immigrant entry into this country. 

[Bobthebuilder]

7 minutes ago, belfastchild said:

heard it was as low as 60A

60A on a standard house incoming main fuse.

I have been saying on this thread for years that a standard 24KW (@ 12 litres per minute flow rate) gas combi boiler is the electrical equivalent of (24,000w / 230v) = 104A, the hot water demand alone is bigger than the main fuse.

Try explaining that to a woke hipster, without tearing your hair out.

[working woman]

8 minutes ago, Agent ZigZag said:

One question that has always puzzled me on this thread is that if we are to re tool who are we going to sell these goods to?

As well as who, there is also the question of what.

My background is the clothing industry - a good place to start with this as everyone needs food and clothes as a basic. 

Until the mid-90's we still made most of our clothes here in the UK, plus all the components - threads, buttons, zips, elastics, hangers, packaging etc etc.  Then during and after the 90's recession, it all went abroad.

Going back in history, our indigenous British fabrics/textiles were  wool plus fur and leather. The Romans had Linen and Ireland produced a lot of Linen. as they grew flax. Then we got Silk from China, Cotton from N.America, then Oil Based fabrics such as Polyester. Today more modern fabrics such as Viscose come from tree fibres.

Historically, the wealthy - the minority - got their suits made at Saville Row and their woollen Country Sports clothes were also made here. 

Recently, the majority wore High Street clothes made in the UK, and if shopped in a boutique would have seen some European brands, mainly German and occassionaly Italian.

Based on that we should start to rebuild our textile industry based on what our country/climate etc can provide  - wool, leather, fur, and tree fibres such as viscose.

We need to be world leaders in non-oil based fabrics - I think plant fibre fabrics would be a good the way to go. We have plenty of water as it requires water to make and dye.

We are also well known for our Quirky Designers such as Vivienne Westwood and should export that.  Japanese people loved her.

Britain still has a reputation of originality in the world, many other countries simply copy.

The skills are still here. i used to go into the factories where 100s of women worked,  who would now be in their 50-80s. 

The textile and fashion industries are two of the biggest industries in the world, employing millions of people.

Come on Britain, we should be aiming to take our place back on the world stage as world leaders.

 

[DurhamBorn]

1 hour ago, Agent ZigZag said:

One question that has always puzzled me on this thread is that if we are to re tool who are we going to sell these goods to and do we have a strong competitive advantage over our competitors with access to cheap reliable energy. Will our goods be sold to the international market or purely an internal market whereby the velocity of money just circulates around under a new homegrown consumption market.

 

 

 

 Ourselves and closer markets.As energy gets more expensive shipping fresh air halfway around the world doesnt work.Washing machines for instance,shipped 300 miles makes a huge difference.The UK should be shipping around our coasts like the Saxons did.