KDave

Oil is at least a 5 year investment potentially longer. Reinvest the dividends and watch it grow.

There will be big moves in both directions and most people will be thrown off at some point.

https://uk.reuters.com/article/idUKKBN27W2YE

Tesla to be 1% of S&P 500 weighting! 

A few negatives I can think of, firstly the amount of selling that will have to take place in the S&P to make room for Teslas insane market cap, secondly when this thing goes down it will now take the entire S&P 500 with it.  

Positives are the same reasons but from the perspective of buying the other S&P companies.

Which company will get the boot? An oil and gas company perhaps, possibly Exxon given its removal from the Dow Jones index?

Whichever company it is, view also as a possible buying opportunity in the outgoing.

We thank you Tesla for the gifts we are about to receive...  

5 hours ago, Roy said:

You can tell when a thread has died when there are only two opponents left in the ring and they are both liking each other's comments.

Plus the fact that this has nothing to do with Shell/BP, at least directly 🙂

But it is very interesting! Could you start a new thread.....'Inflation or deflation? WITH GRAPHS!'

It has everything to do with shell and BP, and everything else you can invest in. But you have proven that no one is reading our exchange and the thread is otherwise dead 

10 hours ago, Kman said:

 

The only scenario he gives  for inflation is "if the Federal Reserve start to monetise the assets on their balance sheet"

I think that means if the Fed start buying US treasuries directly from the government? correct me if I'm wrong

To do what he describes there would need to be a bill passed by the US government to change what the Fed can and can't do, if that happens we will know about it and yes it's money printing and yes it's time to worry

Until that happens it's deflation which he admits

So it's what will happen vs what will happen if something is done which can't be done.. deflation it is then 

I think that first bit is right and if it happens it will be a big game changer and will have lots of consequences. It doesn't need to happen though as long as the government keeps to its plan to invest in infrastructure projects and the like, and more importantly the market keeps borrowing and buying bonds. If the market stops buying then we might see that.

 https://www.ftadviser.com/investments/2020/11/05/why-investors-are-still-buying-government-bonds

Deflation I don't agree I just don't see conditions going that way. If things change then I will agree. For example welfare spending does not drive growth, so if spending just stays as is and then plans change in government I will agree with you then. Perhaps we just print for welfare spending and cut everywhere else (like last time - austerity), then it will be the same situation again. The economy will be in the hands of the banks to lend and get money into the economy, while the government waits for growth to return when it never will. 

Otherwise, there was a huge amount of money added into the system this year and it got out into the economy. At the moment they are planning to create and move a lot more money into government projects, which the market will facilitate by creating supply to meet the new demand. We will get growth in the private sector and we will get inflation from government borrowing from the market and spending into the economy, not just enlarged balance sheets. The mechanism of which we have seen with QE 2020 throughout the lockdown/crisis call it what you want. Things have changed, things are changing, this is not 2008, all imo. 

A few people are talking about it now, macro voices did a podcast around inflation today as well. 

Just now, RichmondStacker said:

I reject your apology as there is nothing to apologise for.  I was wondering how this data can help us going forward.

We are arguing two different cases, there is a strong argument for deflation and carry on as before, nothing will change. I think there is a better argument for inflation and change. The trouble is which one do you think is coming as to which way you invest, those are opposite scenarios.

3 hours ago, RichmondStacker said:

We have all these graphs and wall of text but how can we make money from this going forward?

Apologies.

@Kman I will PM

Looking backwards these past quarters looks deflationary to me, the numbers say the past was deflationary, government have done enough to stop collapse but nothing more. The conditions were deflationary, lockdown, unemployment. People are hoarding and not spending - past deflationary. 

Record levels of liquidity, savings and lower debt load - tomorrow that is inflationary potential. Vaccines and lockdown's ending inflationary. Government investing in infra and windmills - inflationary.

Are we going back in time or forward. Perspective.

Kick the can yes that is all they will do, but with a product at the end. Industrial base (private sector growth) and Infrastructure that can be leveraged. Debt loads borrowed at inconsequential interest rates that will be eroded by inflation.

Eventually inflation will mean rates must rise to offset and the government will no longer be able to borrow and will reign back. Not sure what happens then, end of the welfare state probably and a reset.

Inflation is a tax. "All this borrowing, taxes will have to go up" - Yes

1 hour ago, Kman said:

No money printing

https://files.stlouisfed.org/files/htdocs/pageone-economics/uploads/newsletter/2011/201104.pdf

"Critics of QE warn that because QE increases the monetary base significantly, dramatic inflation could
result. Currently, banks hold a large amount of reserves, which constitutes the largest component of the
monetary base. If banks were to loan these reserves, they would effectively increase the money supply. "

Wrong QE. Look at government spending now vs then and look at relative increase in monetary supply. Not the same at all. Apples and Oranges. 2009 and 2020. 

50 minutes ago, Kman said:

We do need inflation, the Federal Reserve wants inflation but they're powerless all they can do is talk it up and hope people spend expecting inflation "we will tolerate higher inflation" you wish Jerome 😛 they can't even get the 2% 

Most of the people alive today have never experienced inflation; the FED is not really poaching 'inflation expectations' imo. The FED is increasing liquidity and setting up conditions that will be inflationary via the government. In 12 months time we will see if it worked or not, with or without a big crash in between.

1 hour ago, Kman said:

You're proving yourself the monetary base isn't any indication of inflation because most of it isn't money 

Not really. I get what you are saying, velocity is tanked therefore no inflation so I must be wrong. Yes the velocity of MZM is quote "a relatively accurate predictor of inflation" so the opposite of what you have said. Agreed though in 2020 it has screamed deflation. Very few people are spending, people expecting unemployment, repossession, bankruptcy, business failure - because covid19/lockdown - no velocity. They are hoarding cash and reducing debt. Is this it going to be like that forever then? Is this it for all time? More lockdowns and further falls in velocity? Or in 2021 will we see some of that vastly increased MZM enter the system to chase the same/a much reduced selection of goods and services. 2021 perhaps we see a little more debt take up at historically low rates? Perhaps some more government spending, how about those windmills and HS2?  How large is the monetary base already that will be chasing goods and services and how much larger will it become.  

For the context of inflation MZM is money;

Money of zero maturity (MZM) is a measure of the liquid money supply within an economy. It represents all money that is readily available or in a liquid state. It includes money as cash in hand or money in a checking account, for example. Money in a bank CD would not be counted, however, because it isn't in a state ready to spend or otherwise use immediately.

MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand. Velocity of MZM is historically a relatively accurate predictor of Inflation

https://en.wikipedia.org/wiki/Money_supply#Empirical_measures_in_the_United_States_Federal_Reserve_System

They printed the money;

(MZM - https://www.investopedia.com/terms/m/moneyzeromaturity.asp)

"Change from year ago in billions of dollars" scale. That is the first part of the equation.

Second part of the equation and the problem with my position - velocity of money is 'FRED record' low (M2 here), it doesn't matter what scale you pick its setting new lows;

The problem with stimulus so far I think is as you have identified, no one is spending. Perhaps because they are under house arrest, how long will it continue. Deflationary pressure is enormous because money is not circulating, but its not for a lack of supply. 

This is where we - unlike 2009 we have huge amounts of liquidity with inflationary potential already in place. Unlike 2009 we have government ready to fire hose the economy (the threat and likely outcome of additional liquidity/inflationary potential). All we need is velocity, then we get inflation. Then short time later interest rates go up.  

We need inflation. Bond holders will pay in real terms, just like the last time we got to these levels;

The other option is some kind of reset, I don't think they are going there just yet.

What did your man say in the video, he worked out QE 2009 on a ramble without consciously realising;

 "we keep coming back to this point, were missing something - its suppose to be a very simple thing - you print money and you get inflation. That part has not changed - its absolutely true. So if you don't get inflation, then, you didn't print money its really that simple.... we didn't print the money we didn't get the inflation"

QE 2020, it looks like they printed the money to me. I could be wrong, all imo, etc.

I'll have a look tomorrow in the past to see if I can back up what I'm expecting, maybe something from the 1970's. You won't find anything this last decade for what's coming, do I need to say why again 

Cheers kman these exchanges are very useful I think. 

2 hours ago, Kman said:

Spot on yes with the first part

But banks aren't lending, just go on google news tab and search "banks not lending" or "banks tighten loans"

Or look h8 fed data https://www.federalreserve.gov/releases/h8/current/default.htm

They aren't creating enough money 

 

What do I keep saying, the consumer is dead, they are not going to be involved in this recovery. The market is investing in the wrong places because they see deflationary conditions, a repeat of the last 10 years. Deflation is great for the consumer. We ain't getting that. I think we get a government led reflation, investing in industry indirectly via infrastructure projects. The Government will be borrowing money at record lows from the market, enabled by the FED/central banks and will print it. They will be printing the money this time. "If you print the money, you get inflation."

Lets add up the quarters Q1, Q2, Q3 2020 and see how the balance falls. 

Loans and leases in bank credit - up

Balance of commercial and industrial loans - massively up. 

Real estate loans are up, dragged up by commercial;

          residential real estate loans - down a little bit (consumer)

          home equity loans (borrowing against home equity - consumer) - down. 

         Commercial real estate loans - up

Consumer loans - down overall 

        Credit cards (consumer) - massively down

        All other consumer loans (car loans is it?) - up 

        All other loans (business?) - up

This looks really good, because I am buying industrial and energy stocks, not consumer or tech. The balance looks pretty good its only Q3 where things started to suffer - they stopped printing as much this last quarter, but they have started again. All imo. 

10 minutes ago, Kman said:

The full chart again for context

 

It's squashed to the ground after 2007, they tried to raise it a little bit because they hit an unemployment target of 5%, by late 2019 they realise they were wrong and dropped it again

"Inflation erodes the purchasing power of a bond's future cash flows. Put simply, the higher the current rate of inflation and the higher the (expected) future rates of inflation, the higher the yields will rise across the yield curve, as investors will demand this higher yield to compensate for inflation risk"

Bond yields..

 

Would no evidence dissuade you? are you certain only because of belief? 

I saw this very interesting data in a youtube series I'm watching, sorry blurry screenshot but not sure where to find the actual thing 

 

Primary dealers since 2009 have been hoarding collateral, why? what are they scared of

https://www.ccn.com/collateral-why-banks-are-afraid-of-repo-market/ There's not enough to go around

The problem is deflation  

 

 

Sure you might say its belief in the fundamentals. What did your man say on the YouTube video - "You print the money you get inflation".

We are printing the money. Looking backwards is not going to show you what is happening now the next 10 years are not the last 10 years. I could be wrong but if we get deflationary scenario like you think then we get reset, the system will not survive it. Debt based system.

All imo. 

44 minutes ago, Kman said:

The dollars the government got for the bonds already existed

The money the fed use to then buy those bonds from banks and financial institutions is locked in a collateral account and exists as bank reserves, it can't be spent

Fractional reserve lending by commercial banks is money printing but we're in a debt based system, the more money created the more that needs to be created to pay it back 

If the economy isn't going well and banks aren't lending then how is enough new debt going to be created to pay back the debt from when the economy was going well?

How was there a dollar liquidity crisis in March with double the m2 and 3.6% employment, there should have been floods of cash

Dollars are lent to government from the market sure. How did the dollars get into existence in the the first place, borrowed into existence by the market from banks against their reserves. Debt based system.

Banks will lend so long as the market is willing to borrow, which will be true for as long as rates are kept low. If the FED does not get on with some more QE that isn't going to be for much longer look at the 10 year. 

What is government doing with all that money they are raising from bond sales? Inflation is what they are doing. It doesn't appear overnight. Like I say this is only just getting going;

https://uk.reuters.com/article/uk-britain-boe/bank-of-england-poised-to-take-bond-buying-plan-above-1-trillion-idUKKBN27L001

To me that chart screams massive crash followed by QE, government borrowing, spending and inflation, not necessarily in that order. That's all there is left unless we get reset. 

It just depends on what the FED does - will it wait for a crash and panic into it, or will it try to head it off. To me it looks like they were trying to head it off, but we will have to see there is a still a good chance of the big crash. 

2 hours ago, Kman said:

The federal reserve cannot cause inflation, they can't print money, the m2 rising is bank reserves, they can't get inflation with the economy looking good at 3.6% unemployment so how are they going to do it with the economy down the toilet

I disagree, the federal reserve can and are printing money via government spending, they fear unemployment and that is why they will print and keep dishing out the cash. They have already shown their hand over the last few months look at what has happened - massive amounts of printing and stimulus being given out for nothing, that liquidity is now sitting there ready to move. The FED will eventually turn the risk from deflation to inflation because it is the only way out, its just a matter of when - before or after a big crash. 

Don't beat yourself up about shell, you are learning - you got your money back and will likely get an opportunity to get back in unless the fed steps in. It's a learning process that never stops, you are figuring it out. Know thyself and all that. 

I think you bought shell for a quick win on the share price and then when it didn't happen wanted your money out and took the opportunity - trading mentality not investing in the company or oil, not really. You were investing in a share price. For an investor the past 3 days should be irrelevant imo, same applies to being in the red. It's the long term picture that you see that matters. 

Edit - from experience the hardest part of all this is holding on through the gains. It's easy to sit on a loss by comparison. 

7 hours ago, Kman said:

2011-2019 m2 double, oil halved 

I'd guess oil (black) came down because of dollar (green) strength 

 

If the m2 mattered to inflation shouldn't it doubling have meant the other way around, dollar down oil up

It's because a lot of the m2 isn't money it's bank reserves

Commercial banks money print, Federal reserve creates collateral accounts aka commercial bank reserves

"Commerce Department data released Friday showed the personal consumption expenditures price index—the Fed’s preferred measure for inflation—rose 0.2% in September when volatile food and energy prices are excluded, after rising 0.3% in August. The year-on-year rise was 1.5% after 1.4% in August, still far short of the Fed’s 2% target." Nov 02, 2020

They can't even get 2% inflation, the talk of "we will tolerate higher inflation" was just talk 

 

 

Comparing oil and the dollar with M2 isn't working for me, it assumes a lot of things about oil and the dollar as all being equal through that period. 

Like I keep saying the next ten years will not be the last ten, inflation is coming as they have told everyone and it's not just talk. 12 months from now we will know one way or the other. 

30 minutes ago, Kman said:

 

That does sound right, I'm sure they access to expensive data to see demand, production, inventories etc - they must not be liking what they've seen (up until now at least)

 

M2 is misleading and comes down to what is money

Are bank reserves money? that's what QE creates, it shows up on m2 pretending to be money but it can't be spent so it's not money

M2 overlaid on oil shows it's not inflationary 

 

 

Not sure what to make of your graph overlay. My brain is saying "1999 - 2015? increasing M2 is not inflationary really Kman?"  then 2015 happens and suddenly its not inflationary and I agree again.

What happened in 2015? Oil oversupply thanks to shale first thing that comes to mind, but there might be more to it. Its a bit find the narrative that fits though - we have two charts there, one half shows M2 as inflationary the other doesn't.

We need more data, something else to overlay to confirm, its too late for me to work out what it is though. I will get back to you.

9 minutes ago, HerefordBullyun said:

That's exactly why I'm piling in mining stocks

When you say mining do you mean gold/silver or everything

10 minutes ago, Derv said:

What does that mean exactly? I'm still trying to get the hang of the markets. Thanks

It means the window for borrowing is closing early, so likely the FED are about to fire up the QE helicopters and drop notes like napalm to keep rates down. Either that or they will do nothing and watch another big crash.

If the market is forward looking reflected in share prices then people/the market are expecting oil to remain at the $40 level for the foreseeable. Does that sound right to you? I can't see it staying low if demand last year was 10m barrels a day higher, given current rig count. You can turn off supply relatively quickly, remaining supply output is used up, low oil prices ensure new investment in supply is vastly reduced or turn off completely. Lockdowns and large inventories from the shock at the start of the year have kept the price low for longer, exacerbating those supply factors mentioned. 

You can't turn supply back on anywhere near as quickly. It will take months. The period between demand coming back and new supply coming in to meet is very interesting. It might happen quickly, it might not, just something to consider.

The other part is inflation. If this vaccine is legitimate, then soon people will be back out there circulating a vastly increased money supply (when looking at M2), this will lead to inflation. Its speculation as to when people will want/be allowed to get back to normal, but when it happens, inflation will kick off - we printed the money this time. Oil is right at the start of the production chain and inflation will start to show its head there first.

Who knows, given the way the rest of the world is using oil while the west remains locked down, perhaps the supply crunch and inflation will coincide. Both factors are when not if. 

21 minutes ago, Madstacks said:

I did notice the dividends gone from 0.47$ to 0.16$ , But i dont feel that justifies a 50% drop in share price alone, has there been a lot of dilution or anything else? I assumed they got cut due to corona and will probably be raised again in better times. 

The oil stocks are hated, that is why they fell. Its all sentiment and projecting a future of green without consulting the realities of energy in vs energy out. Without oil civilisation would collapse but few understand why, fewer still even care.

Sentiment is the biggest part of it for shell. CEO said no dividend cut then a month later cut dividends by two thirds, 75 years I think it had maintained or raised. Then Q3 they raise it again by a minuscule 4% - why cut in the first place then? Lots of questions surrounding leadership. 

As a company (the important bit), its doing alright. Q2 results were a washout as were every other oil company, but Q3 and $40 oil they all did alright, some made a profit of which shell was one. Did the market care? Nope! Sentiment is the driver. The market is wrong about Oil and its wrong about oil companies big time. We are still near 25 year lows, the opportunity is there. 

16 minutes ago, Kman said:

It's annoying for me I was planning to buy shell at lower 10 at worst, ten seemed to be what had developed as a top for the bottom

Thought I had winter with lockdowns to observe price and time it - I didn't factor in vaccine news at all, wasn't even in the back of my mind 

Still the initial spike seems to have calmed down already it should retrace back some, I will wait for price to stabilise again regardless 

 

 

I am with you, I hope it will come back down soon. But who knows anything can happen short term.