Kuppy on Inflation

[Spekulatius]

Interesting - gold used to be the classical inflation trade and trending down. This occurs every time there is hint of rising interest rates:

[MattR]

6 hours ago, Spekulatius said:

Interesting - gold used to be the classical inflation trade and trending down. This occurs every time there is hint of rising interest rates:

Ever since the huge Stimulus package, gold seems to perform really strange. I am not sure what drives this.

[Spekulatius]

51 minutes ago, MattR said:

Ever since the huge Stimulus package, gold seems to perform really strange. I am not sure what drives this.

I believe the ascent of crypto competing with gold has more to do with it. The correlation with the stimulus package is coincidental.

[MattR]

12 hours ago, Spekulatius said:

I believe the ascent of crypto competing with gold has more to do with it. The correlation with the stimulus package is coincidental.

In theory yes, but gold is such a low allocation and many people who buy gold want the opposite of the speculation of crypto. I think it is the other way around that the stimulus package is responsible and crypto competing with gold i coincidental.

[Gregmal]

https://www.cnbc.com/2021/09/29/fed-chair-powell-calls-inflation-frustrating-and-sees-it-running-into-next-year.html

 

 

Frustrating? Ha! Only if you believed all the BS and didn't figure out how to profit from it! Keep on going though, Team Biden/Powell! You can do it.

[ERICOPOLY]

More items at Dollar Tree will cost more than $1 as retailer grows selection, combats inflation

 

https://www.usatoday.com/story/money/shopping/2021/09/29/dollar-tree-prices-rising-family-dollar-stores/5914780001/

[SharperDingaan]

The market is in denial over inflation, same as  it was at the start of the housing collapse that brought on the GFC. Most folks shouldn't be in the market and probably know it, but have become market junkies addicted to the rush. Most dealers have become addicted to the endless stream of junkies. So ,,,,, everybody wins, as long as the band keeps on playing.

 

Of course we all know there will be a time of reckoning, the crowds loss will be the disruptors gain, and that some folks are going to get very, very rich. How rich being largely a function of street smarts, ability to think independently, and ability to think on your feet. Not very many people.  

 

Of course there are no guarantees, and predictions are just informed opinions. Nobody knows the future.

All you can do is attempt to know your limitations, and play within them.

 

SD

[maplevalue]

Cathie Wood: Next Big Risk Is Deflation

[Spekulatius]

31 minutes ago, maplevalue said:

Cathie Wood: Next Big Risk Is Deflation

Cathy's picks aren't so hot recently. This is how I imagine it looks like when the reveals a new one:

[Gregmal]

https://www.yahoo.com/news/inside-americas-broken-supply-chain-204628616.html

 

Transitory. Eventually it'll come down...

[Gregmal]

Why dont we just give China and Russia the edge forever in terms of both technology and energy?

 

Here's another insightful take...partially for what Putin is saying, but also the embedded narrative arrogance from the author.

https://www.cnbc.com/2021/10/13/putin-says-russia-is-not-using-gas-as-a-weapon-is-ready-to-help-europe.html

 

Along with this

https://www.washingtonpost.com/business/energy/dont-blame-climate-activists-for-the-global-energy-crisis/2021/10/10/ce8372b0-2a22-11ec-b17d-985c186de338_story.html

 

These ESG tools want to continuously push alternatives that have no place yet and when you screw with supply of essential products and services you bring on disaster. Of course, I'd expect Putin to get it...he's savvier and smarter than any US president Ive seen in my lifetime....but its just crazy watching these idiots in America and Europe grandstand about climate and interfere with energy production and then have the nerve to try to blame others for the crisis theyre creating. 

[Spekulatius]

I actually think that energy is going through the same COVID-19 whiplash like other commodities and this has very little to do with ESG. ESG isn't helping but it has little impact on crude supplies, imo.

 

We will see a rapid rise, followed by a rapid fall, imo.

[Viking]

56 minutes ago, Spekulatius said:

I actually think that energy is going through the same COVID-19 whiplash like other commodities and this has very little to do with ESG. ESG isn't helping but it has little impact on crude supplies, imo.

 

We will see a rapid rise, followed by a rapid fall, imo.

Who has been spending money to increase oil and gas production the past 2 years? No one. With oil spiking are we seeing the usual spike in spending at the big players to significantly increase production? No. Capital discipline like we have never seen. Especially the frack group. The big European producers are exiting oil and gas as fast as they can - they are focussed solely on alternatives today and moving forward.  Norway? Their big oil fund is exiting all oil investments (just a little ironic?).

 

Who wants to LEND to oil and gas producers. No one. ‘ESG’ risk is driving big changes at investment banks and pension funds etc

 

Who wants to LEND to oil and gas producers today? No one. ‘ESG’ risk is driving big changes at investment banks, pension funds etc. They are running from current oil and gas investments let alone spending more. And we are just getting started. Oil and gas IS the new tobacco. 
 

What are the companies doing with their free cash flow? Paying down debt (good luck rolling that over in a few more years). And with shares at crazy cheap valuation stock buybacks make way more sense than growing production. Choosing production growth over buybacks in the current environment will get a senior management team fired.

 

I agree Covid has created all sorts of distortions. And i am not suggesting oil will top $100 and stay there for years. But the hate driving the investment/ESG climate suggests to me that oil and gas prices will likely stay higher for longer. 

Edited October 13, 2021 by Viking

[Gregmal]

The price movements and covid caused bottlenecks are what make this stuff sooooo easy to trade. Its all so predictable and has been for way too long that at points I wonder if it really is this easy. But when you have folks like the ESG clowns investing irrationally, that removes a certain layer of efficiency from the market. 

[JRM]

1 hour ago, Spekulatius said:

I actually think that energy is going through the same COVID-19 whiplash like other commodities and this has very little to do with ESG. ESG isn't helping but it has little impact on crude supplies, imo.

 

We will see a rapid rise, followed by a rapid fall, imo.

 

Shutting down pipeline projects and banning drilling on federal land certainly didn't help things.  Then our genius brain president threatened to dip into the strategic oil reserve.  Now he's planning to meet with the industry to determine what can be done to alleviate the high prices.  what a moron.

[Gregmal]

[Spekulatius]

US Rig count is going up. We are still down from 2020, but increasing nevertheless:

 

Crude is driven more by what happens in Libya, Iran, Irak and Suadi Arabia. ESG has very little impact there.

 

The drop in oil production occurred early in 2020 and has nothing to do with the administration. I would bet that oil production is in fact up since Biden got elected ( not that it has anything to do with it). Then again the US is only a small piece of the puzzle anyways.

 

[Gregmal]

Thats fine and all but prices are largely driven by future expectations. Is it going to be easier, or harder to increase output going forward? Is demand going up or down? Then add in easy money and the locust nature of speculators to an already out of whack supply/demand equation and you get....well, what we've seen in everything from Gamestop to Uranium. 

 

Tangentially, I recall back in the early part of the decade how easy it was to start up an O&G venture. We'd get PPMs all the time as well as offers to go out and see all these "deals" that were in the works. Now, as others have said, even the majors are going to have trouble getting reasonable terms to refi existing debt. I mean on one side we have Cathy Wood saying oil should head back to $40 because we're about to get deflation, and then on the other side you have guys like Tepper and Kuppy lickin their chops at this setup. In between we have the policy makers playing the "lie to me slowly" game. No inflation. Transitory inflation. Gonna be a little longer than we thought. Gonna be a lot longer than we thought but still temporary. Uh oh, we lost control! Everything one needs to see to make highly assymetric bets is right in front of us. Its pretty awesome. 

[rohitc99]

https://www.cnn.com/2021/10/13/politics/social-security-cost-of-living-adjustment/index.html

 

Social Security recipients will receive an annual cost of living adjustment of 5.9% next year, the largest increase since 1982, the Social Security Administration announced Wednesday

[Spekulatius]

I think most of the gains in Oil and Gas have already occured. I also think that most inflation has already occurred and I would not be too surprised that  if we are going to see a slight recession in late 2022 due to the whiplash from COVID-19 reverses. These are all baseless hunches of mine of course.

 

I think it is not easy to predict energy prices. I tended to be overexposed to this sector, but gave up on it in 2014, luckily before the oil price and energy crash. I basically gave up on this space and let others venture into this snake pit. Money can be made trading this, but my guess is that the ratio of money to be made to brain damage incurred is way better elsewhere.

 

FWIW, my first stock I bought in the US was Conoco, when it spun off from DuPont in 1998. I did quite well, especially since the timing was pretty good with a barrel of crude hitting below $10/brl as a result of the Asian debt crisis back then.

 

Stuff like this will happen again. I have seen oil crashes in 1983, 1989, 1998, 2002, 2008, 2014 and 2020. I may have missed a few smaller ones. It is really hard to run a business when the main factor - the price you get for your product is beyond of your control.

Edited October 13, 2021 by Spekulatius

[Gregmal]

Yea I don't want and wouldnt recommend getting too much exposure to individual companies. I have leaps on a few, but this is where Kuppy nails it. Too often folks look at a situation and immediately gravitate to "gee I'll buy a 2% position in XOM/OXY/etc common stock!"......yawn and yuck. The key is finding the most efficient way to put on the trade and make money. You can have tons of scenarios as we've all seen where oil goes nuts and the companies fuck up. So just being long the futures or even better call options on the futures is the best way to play it, or so Ive found. 

[Gregmal]

Todays earnings kind of another reminder for the "cant find anything to invest in crowd"....whats the reason for not investing in banks?(besides being scared of one's shadow)...if nothing changes, they still earn gobs of money, allocate capital wisely, and trade at 10-15x. If the risks of relevance emerge(IE inflation) they clean up. Doesnt sound like a tough choice to be long any of the BAC/JPM/WFC/C/TFC bunch should one have a stunted list of investment options. 

[boilermaker75]

After BRKB, my next three largest positions are BAC, WFC, and BK.

 

Edit: I have also been writing puts. Today I wrote WFC nov 12, 44-strike puts for $1 per share

Edited October 14, 2021 by boilermaker75

[Gmthebeau]

I don’t like the banks at all, but I’m more a long term investor.  I did raise a lot of cash recently from FANG that I will redeploy gradually in other growth companies with more upside.   If I was trading in and out a lot the banks might be ok here.  Long term most of them have underperformed since GFC as they are so regulated now they can’t make the same returns.  Also who knows what their loan books are.   

[Spekulatius]

On 10/13/2021 at 5:49 PM, Gregmal said:

Yea I don't want and wouldnt recommend getting too much exposure to individual companies. I have leaps on a few, but this is where Kuppy nails it. Too often folks look at a situation and immediately gravitate to "gee I'll buy a 2% position in XOM/OXY/etc common stock!"......yawn and yuck. The key is finding the most efficient way to put on the trade and make money. You can have tons of scenarios as we've all seen where oil goes nuts and the companies fuck up. So just being long the futures or even better call options on the futures is the best way to play it, or so Ive found. 

I agree on this. If you like lumber near term, buy lumber futures not some riff RFP stock like Greenfirst (FinTwit favorite) Lumber futures bottomed at $450 and recently hit $750 while Greenfirst is up like 10% in the same timeframe?

 

But there are worse cases like this:

https://finance.yahoo.com/news/ceo-natural-gas-producer-eqt-162117083.html
 

Looks like the chumps at EQT may lose $5B on their hedges with a ~$7.5B market cap. it seems to me that when you went long EQT a while ago, you weren’t really going long NG, you were long an idiot management team that was hedging the hell out of their business.

 

Seems to me that if you like a commodity, you should just buy the commodity.

Edited October 16, 2021 by Spekulatius