My first trade - Shell / BP

[Kman]

One big piece of the puzzle not discussed so far is the repo market ~ mainly because I'm not sure I understand it fully myself

It's a place where banks and financial institutions short term lend to each other (usually 24-48 hours) using collateral. One party swaps US treasuries for the value of the dollar loan + they need to pay back a small amount of interest 

I get the feeling it's like one big game of musical chairs -  as long as the music keeps playing and they're all happy to lend it works but if there's any disruption there's people left standing stranded without cash so they have to liquidate their assets like stocks to get the dollars

This is what happened in March, they stopped lending or they wanted really high interest and it broke down so assets got sold off

I could be wrong but the problem was people wanted to use corporate bonds as collateral which are usually accepted but because of the pandemic and economic uncertainty they were undesirable, I think that's why the Fed started buying corporate bonds because that  underpinned demand for them because at worst you could swap them for bank reserves, you wouldn't be left holding a dud 

If you look at what's happened since economically and the lack of dollar velocity there has to be huge shortage occurring globally

A country like China pre pandemic built up 3 trillion in US treasuries because over the years they put their excess dollars into them, now they need dollars to conduct trade and would probably like to start liquidating some but if they do that then it's obvious there's a massive dollar shortage and everyone will tighten up and not want to trade and the problem gets bigger so they're a bit stuck

People talk about China and selling US debt as a threat or because they want a different reserve currency, they just need dollars

More US QE would suck another x trillion dollars of liquidity out so I don't how careful of that they need to be of that

Hopefully this also illustrates that the Fed aren't all powerful "don't fight the fed", they like to portray that they decide how things go when really they bend to the commercial banks wants and are just trying to placate need so they lend to each other and provide liquidity 

Edited November 13, 2020 by Kman

[HGr]

Maybe you are both partly correct and there will be a kind of stagflation scenario. 

People were already strapped and up to their eyeballs in debt. A large rise in oil prices would mean inflation for life's essentials but would mean less discretionary spending overall. This sounds a lot like 10ish years ago. 

 

 

[Kman]

7 hours ago, RichmondStacker said:

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

Expect 2007/8 covid vaccine or no

Expect a dollar rally and massive sell off of assets: you wont need to prepare for it particularly as long as you have cash the opportunities will present themselves 

For now carry on as normal and don't worry about it, could be wrong, just don't leave yourself overexposed to anything you think could drop like a stone and not rebound

Personally I'm very interested in profiting from a dollar rally and maybe TLT (us long bonds) or leverage selling the S&P500,  but I will probably wait for the last two to actually start to play out before  putting any money in

Then after the sell off put the money into precious metal related etf/stocks

[Stacktastic]

Thanks to Kman & K Dave for their great analysis on here. Plus others. 

This forum has been a real blessing for me especially with such insightful & analytical comments today. In a world that does not make sense in most respects this year - hard facts & analysis gives me a bit of hope (even though I understand very little of it all). Or at the very least a bit of control on my life & ability to start enjoying the simple things again and stop worrying about making a living & the next year or two in general all the time. We are what we think and I am dreaming about stock charts!! It beats all the politics & social anxieties from April though, so its a positive step. 😛

Pretty sure my 100 thread topics sum up some of my all round thoughts. 😛 Its nice to share some thoughts without people jumping down your neck all the time (ie the alien one) with lame assesed, totally PC, un educated & downright socially conditioned people telling me I am wrong; when I know to some degree of certainty (with a lot of 100% proof) that I am right.  

This post would be better off on the "CV part 2" thread, sorry off topic!

Edited November 13, 2020 by Stacktastic

[HerefordBullyun]

1 hour ago, HGr said:

Maybe you are both partly correct and there will be a kind of stagflation scenario. 

People were already strapped and up to their eyeballs in debt. A large rise in oil prices would mean inflation for life's essentials but would mean less discretionary spending overall. This sounds a lot like 10ish years ago. 

 

 

As an observer of the thread I believe 🖕this gentleman is right.

[KDave]

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

[Kman]

20 minutes ago, KDave said:

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

 

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 

 

 

 

[KDave]

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. 

[Roy]

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!'

[Kman]

7 hours ago, KDave said:

all imo. 

I'm going to lay it out again clear as day

From the latest h8 US bank data they bought 52 billion worth of US treasuries in the past week

If yields go up they're worth less, is yields go down they're worth more, so what are they betting on?

Of all the world who is the smartest money? commercial banks, the ones that lend, the ones that can cause inflation, they're betting on deflation by saying inflation you're saying you know better than them

The latest 30 year bond auction had $61b worth of bids but the winning accepted offers totalled $26b, high demand; Is that 61 billion worth of dumb money? bidding on things that will go down soon because of inflation

If government stimulus meant anything for inflation what has it done since March?

If the government start building a bridge of solar farms so what? that doesn't fill in for all the unemployment, all the missing consumer spending and loans, all the business taking out loans to take advantage of that consumer spending, all that healthy currency that should be created 

All that consumer spending that ends up going to imports and circulating the globe, a global dollar shortage ****s the Repo Market and they don't lend to each other and they start liquidating assets and everything crashes

Government spending can't create prosperity and take US GDP levels back to 2019 and 3.5% unemployment and things were deflationary then

Government spending doesn't create new dollars it takes dollars out of the system, there's still a shortage  

The mzm, m2 whatever you want to look at doubled in a decade and oil halved that tells you the money base doubling means nothing for inflation

Inflation is the Feds boogeyman "oo quick go out and spend your money now because it will be worth less tomorrow "  they're trying to trick everyone into spending because spending is what helps the economy

It shouldn't be "don't fight the Fed" it should be "don't fight the commercial banks"

 

Edited November 14, 2020 by Kman

[KDave]

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 

[Kman]

2 hours ago, KDave said:

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 

I'd guess it's more that people haven't taken this level of interest in the monetary system previously, I wouldn't have been able to contribute anything a few weeks ago

But yes if we're hindering Roy going into detail about Shell and BP with his thoughts and research I'd rather shush and learn something 

Edited November 14, 2020 by Kman

[Stacktastic]

On 14/11/2020 at 20:14, KDave said:

the thread is otherwise dead 

BP is doing well now, its finally going up, but that has a lot to do with oil prices. 

I had my dividend from the Psizer today. Thanks you sneaky gits, im still 8% down.
 

[HerefordBullyun]

14 minutes ago, Stacktastic said:

BP is doing well now, its finally going up, but that has a lot to do with oil prices. 

I had my dividend from the Psizer today. Thanks you sneaky gits, im still 8% down.
 

I'm buying more MAG today lol

[Stacktastic]

54 minutes ago, HerefordBullyun said:

I'm buying more MAG today lol

I dont blame you. 

My judgment of BP is playing out so i will hang on for this one and take a profit rather than Shell. 

I am learning to be more patient. 

 

[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.

[HerefordBullyun]

1 hour ago, Stacktastic said:

I dont blame you. 

My judgment of BP is playing out so i will hang on for this one and take a profit rather than Shell. 

I am learning to be more patient. 

 

Just bought some more 15.38

[Kman]

3 hours ago, Stacktastic said:

BP is doing well now, its finally going up, but that has a lot to do with oil prices. 
 

@KDave can oil prices rise purely from speculation? 

If so and that pushes oil futures higher but the positive speculation turns out to be misguided, would that cause contango and more oil going into storage instead of being sold at a loss?

 

[KDave]

33 minutes ago, Kman said:

@KDave can oil prices rise purely from speculation? 

If so and that pushes oil futures higher but the positive speculation turns out to be misguided, would that cause contango and more oil going into storage instead of being sold at a loss?

 

Having just read up on it quickly yes I think so.

Assuming there is enough excess oil speculation via futures for Jan 2021 (from ETF's for example) - that increases demand for oil in the future, producers meet that demand at the agreed price, then when time comes for the ETF's to sell the contracts no one in the markets want the physical oil at that price, spot prices fall due to increased supply and some of the excess oil goes into storage. Is this basically what happened to USO in April? But in a major catastrophic way.

[Kman]

57 minutes ago, KDave said:

Having just read up on it quickly yes I think so.

Assuming there is enough excess oil speculation via futures for Jan 2021 (from ETF's for example) - that increases demand for oil in the future, producers meet that demand at the agreed price, then when time comes for the ETF's to sell the contracts no one in the markets want the physical oil at that price, spot prices fall due to increased supply and some of the excess oil goes into storage. Is this basically what happened to USO in April? But in a major catastrophic way.

Yeah I think it works that when you have a contract you have to take physical delivery, if you're a speculator you're hoping you sell your contract before that date but in April either because there was no demand with the lockdown or because they would have lost too much selling, instead they had to pay for it to go into storage

If price has gone up because of vaccine news that seems overly speculative and could push barrels into storage down the line or sold at a loss

Not sure if that will have much negative impact on oil or just the people speculating

Edited November 18, 2020 by Kman

[KDave]

Yes if they over estimate demand/bid the future price of oil too high then it will push spot prices down at the point of delivery.

Its interesting that for an ETF like USO, if the price of oil futures rises then investors lose a bit of money on the exchange of contracts, selling old contracts for spot price and then having to pay a higher price for the new contracts = less oil for your money. If they then have overestimated demand and spot falls to the point that no one wants the excess they are in real trouble. Seems like a bad way to invest in oil to me. 

Of course on the flip side USO would be a good investment if the spot market is tight and futures are low, because they can sell old contracts for a higher price (for spot price) and then buy future contracts at a low price when the same thing will happen next month. Does this not provide an incentive to keep bids for oil futures low? That oil speculation due to human nature should put downward pressure on future oil supply vs the other way around? Or am I looking at this the wrong way. 

[Stacktastic]

Today is a good day

Im hanging on this time. 

I have not had time to look, but is the oil spike related to the gold degrease, or supply and demand. Or neither?

[KDave]

The hardest part is holding through the ups and downs, and the expected ups and downs. It is very tempting to sell some given gold is dropping again. Many of my trusted commentators are expecting a crash, one of the best ones was predicting a crash 'soon' at the start of October, then after we go on to reach all time highs in the S&P, now we are end of November still waiting for the crash. It will come at some point. These are the same commentators expecting minimum $70 oil average in 2021, perhaps that comes later as well.

[Stacktastic]

1 hour ago, KDave said:

The hardest part is holding through the ups and downs, and the expected ups and downs. It is very tempting to sell some given gold is dropping again. Many of my trusted commentators are expecting a crash, one of the best ones was predicting a crash 'soon' at the start of October, then after we go on to reach all time highs in the S&P, now we are end of November still waiting for the crash. It will come at some point. These are the same commentators expecting minimum $70 oil average in 2021, perhaps that comes later as well.

My train wreck portfolio continues. I thought, "I had better put a stop on this at my buy in price". I ended up putting on a limit on it instead and sold it. Oh well I have still not made any actual losses & that sold with a whopping £15 profit. Im up 9% on my crude oil shares though, i will certainly add to that if it bottoms again. I need the money & thats £1,400 freed up. 

Yes I do feel its inevitable at some point, thats when i will buy back into BP. I should be earning again by then (my business has been 100% wiped out this year). I want to buy into the silver dip, but something tells me to hang on. Im £250 (14%) down on MAG, so if that is not enough of a sign, I dont know what is. (The GDXJ is very tempting though, but Im comparing it to June). I'm removing all money from my trading accounts and making some 'practice trades' as i will start loosing money soon . The lessons I learnt from BP and Shell is listen to your research, dont panic, trust in your judgement & stop looking at it every day!! 😛

Edited November 24, 2020 by Stacktastic

[HighlandTiger]

1 hour ago, Stacktastic said:

My train wreck portfolio continues. I thought, "I had better put a stop on this at my buy in price". I ended up putting on a limit on it instead and sold it. Oh well I have still not made any actual losses & that sold with a whopping £15 profit. Im up 9% on my crude oil shares though, i will certainly add to that if it bottoms again. I need the money & thats £1,400 freed up. 

Yes I do feel its inevitable at some point, thats when i will buy back into BP. I should be earning again by then (my business has been 100% wiped out this year). I want to buy into the silver dip, but something tells me to hang on. Im £250 (14%) down on MAG, so if that is not enough of a sign, I dont know what is. (The GDXJ is very tempting though, but Im comparing it to June). I'm removing all money from my trading accounts and making some 'practice trades' as i will start loosing money soon . The lessons I learnt from BP and Shell is listen to your research, dont panic, trust in your judgement & stop looking at it every day!! 😛

You are only "down", if you actually sell them. My worse performing stock is down 21% in a month, but I'm not panicking, and I'm certainly not thinking of selling. I'm happy to wait, even if it takes years to go back into the green.

Silver has dropped 18% in less than 4 months, but I don't see anyone saying "oh poo, I need to sell it all before it goes down anymore". As I said, my mindset with shares is to treat them like my pm's, don't worry about them in the short term, and like you said, "stop looking at it everyday" if your nerves are on the jangly side.