(Bull) Market May 2021

Today was all about BTC and cryptos:







Which spilled over into stocks:



I wouldn't be surprised to hear that Mr Musk is receiving death threats etc for his 'involvement' in what many will perceive as his causation of the route in BTC.

After hours, BTC is falling again.

BTC is all about belief and confidence. Not much of either remains currently. The die hard kool-aid drinkers may well end up the way of their predecessors in the jungle.

What does it mean for the market? In a sentence: I have no idea.



We dropped and bounced. The market structure of the indices is now broken, the bounce came from support levels, which I think will be tested again tomorrow. I don't think that they hold. We'll see.

There was a lot of chatter about 'inflation', 'Taper' 'Fed': commodities sold off hard. Yields went up.

Currently 'May' is living up to its reputation.


jog on
duc

So BTC.

BTC is this: the Ruling Ring.



All the rest, some 4000+ pieces of sh**e trigger off of BTC.

Railways. Same network effect that is in play today, same with telephones, TV, etc. All rely on the network effect. But taking railways as our example:

Railways in the 1890 period.



Railway companies in the 1890's:



Today:



Lots more railways, but only 6 major railways, 7 if you include Buffett's BNF.

The blockchain will persist, survive, thrive. The 'coins' will disappear by their thousands. Consider how much capital it took to start a railway as opposed to floating a digital coin. So 4000 coins is probably a conservative estimate.

However many there are, they live and die by BTC.

Which brings us to the BTC narrative, which is fundamentally changing. At the last collapse:

(i) Being banned was a possibility. Now it is fact. China has its own digital Yuan. Obviously competition is not a good thing. Illegal. Overnight. BTC just lost 1.3B customers. The US will obviously watch with (glee) interest. The US want a digital currency. The US will, depending on China's success/failure, ban BTC. Another 360M customers lost. Add the rest of Europe another 560M customers gone. You think Mr Putin wants a BTC, errr, not a chance.

(ii) Companies were gradually adopting BTC as a payment option, led by TSLA, MSTR PYPL and a few others. Poof, gone or very soon.

(iii) Which brings us to our HODLers (hold on for dear life). With a material part of the narrative in doubt, will BTC recover and trade to new highs? How much capital evaporated today? Where will the new capital come from? There will be the $value of destroyed capital in blogoland by tonight. Here's the thing: if you went out last night, came home a bit late and slept in, you could have gone out a millionaire and come back potless. That is not a store of anything. That is just rampant tulip speculation.

Frodo is approaching the boundaries of Mordor.

jog on
duc

Waiting for a pullback in gold first sub 1800 before making a move in miners

BTC is a "Train wreck"
I really got a kick out of the analogy of "Trains & Bitcoin"

Bitcoin is built on the enthusiasm of others
Enthusiasm or lack thereof, drives BTC in both directions. Bitcoin is "built on enthusiasm" (BOE) as it has no intrinsic value.

Skate.

ducati916 said:

Here's the thing: if you went out last night, came home a bit late and slept in, you could have gone out a millionaire and come back potless. That is not a store of anything. That is just rampant tulip speculation

Click to expand...

The basic problem with Bitcoin as I see it is that even if it is accepted and legal, it's just far too volatile to use as basis for real world transactions of anything at all.

Would anyone agree to sell me their house for an agreed price denominated in Bitcoin? By the time it settles, it you could be receiving anything from an outright fortune through to not enough money to buy a loaf of bread.

Even the official fiat currency of most Third World countries is considerably more stable and that being so, it's something with neither an intrinsic value nor a practical use.

Smurf1976 said:

The basic problem with Bitcoin as I see it is that even if it is accepted and legal, it's just far too volatile to use as basis for real world transactions of anything at all.

Would anyone agree to sell me their house for an agreed price denominated in Bitcoin? By the time it settles, it you could be receiving anything from an outright fortune through to not enough money to buy a loaf of bread.

Even the official fiat currency of most Third World countries is considerably more stable and that being so, it's something with neither an intrinsic value nor a practical use.

Click to expand...

a snake eating its tail:
if you can use bitcoin to easily buy stuff, then it becomes stable!
why?
if you can buy any car with BTC, if BTC falls 10% vs your currency and you want to buy a car, you buy BTC and pay in BTC to get the bargain, so as money flows into BTC to allow bargain hunters to buy stuff (cheaper) with BTC, BTC goes up..a virtuous circle;
So until you can buy stuff with BTC easily, it will not be stable;

And I do not believe the fact you can buy guns or a slave on the dark web is enough to create the virtuous loop

So a late post. Early work commitments and a psychotic market all combined with sleeping a little late to hamstring posting at the normal time.

So the market has been up/down/up/down. Going pretty much nowhere, but necessitating a tremendous amount of flippe-floppeing. There are no directional trends currently unless you include sideways.

Defensive is the way to go currently: these are the Dow groups, Transports, Industrials and Utilities. Utilities are obviously ultra defensive, but are demonstrating strength. I'll do some for the S&P500.



Of course BTC has been all over the blogosphere:



Margin Calls:



The Bouncccccccce



The market:




I'm liking this sector currently.





And XBI for the bounce (no chart).

Mr flippe-floppe-flye:






The $VIX still has me concerned.



Some (defensive) sectors can make headway even against the jump in vol. They probably won't make great headway, but there moves to the downside in a market route, will allow reasonable time to exit, maybe.

No surprises here:



jog on
duc

Last day of the week.

With the 'inflation' discussion everywhere, the leading sectors this week should be no surprise: either prices rise with inflation, real estate based businesses or monopolies that have a pretty inelastic demand curve, medicine, health care.

Tech. halting the slide.

Commodities and yield flippe-floppeing. Currently my model posits 1.57% as the 'correct' yield. Actual yield as of yesterday 1.63%. Today yields fell to 1.625%. Which means, next week should continue to see yields come back to the 1.57% level. Good for stocks.



My inflation model has inflation under control re. PPI prices. DXY is also taking a pause in its trend lower. DXY will have a huge impact on inflation, yields. DXY is pausing. It is not reversing. At the moment, the correlation to stocks (SPY) doesn't seem high.



The issue now is going to be and certainly where all the chatter is: CPI prices, tied as it is to many minimum wage price hikes to attract workers who seem to be happy to sit on their arse at home currently, waiting on stimmies. The YoY CPI number was always going to be huge after March 2020. The chatter also revolves around that retail sales number (chart a couple of posts back) which has been estimated as 5yrs of future retail sales pulled into the present. Supply chains and availability or rather shortages going forward is now an issue.

Crypto risk.




Mr flippe-floppe-flye:







A list:



That is not even really a fraction of what is out there.

So far, whether it be the May seasonality or just the confluence of events, these past 3 weeks have been even choppier, breaking many established trends. I 'think' going forward into June, some will gradually reassert themselves. What has happened this month is that we as market participants have been conditioned to jump in, jump out, very quickly, grabbing small profits if we can. The best money is in sitting tight. Obviously sitting tight in something that works. If it's not working, there is no point sitting tight. I'll have a few more comments in the trades thread.

The S&P500 looks finally to have broken the Bear's dreams once again. Small caps (SLY) also look as if they are stabilising. The Mid-caps (MDY) however still look vulnerable. Which is odd. I'm going with the 2/3 majority on this: long. It may be that MDY correlates closer to DXY, but again an eyeball look doesn't see much correlation.

The big story this week was of course cryptos. Stocks have been a bit of an afterthought.


jog on
duc

Just to wrap up the week:

Just on the numbers, it would have seemed in retrospect, a pretty calm sort of market and to be fair, it probably was. It just didn't feel that way.



The market and BTC are not correlated:



While in BTC it has been a shocker of a month. Well cryptos in general.



What the market is correlated to currently is DXY.



DXY trades higher, market trades lower. DXY trades lower, market trades higher. Assuming that relationship holds....which way DXY? Lower. I don't know what rates would need to be to create a bull market in DXY, but it certainly is higher than 2% To turn DXY round I'd posit at least 5%.

Chances of rates going to 5%? ZERO.

With above $150 Trillion in Federal liabilities, never mind another $14T in Corporates, $50T in MBS and Munis, rates have to stay low, otherwise the level of defaults will trigger a deflation that will put the 1929 - 1934 period to shame. The Fed. would try to fight that deflation with liquidity (what else is there?) resulting in more than likely a true hyper-inflation and the demise of DXY.

So we will have an ongoing inflation for years, probably for my lifetime now. The only issue is, once the genie is out of the bottle, just how bad is it going to get?

With regard to stocks, the market will rise in a bull trend, but it now becomes more of a stock picker's market. Sectors that benefit from inflation will outperform those that struggle against a rising tide.

What I like:

(i) Healthcare. Boomers are ageing, they have money, health is pretty non-negotiable.
(ii) Drugs. Which runs alongside to the above.
(iii) Real Estate. REITS can push up rents etc. Again, somewhere to live is pretty non-negotiable.

Commodities

(iv) Energy to a point. If prices rise past a point 'X', lots of supply can come in.
(v) Agriculture, more so than in the recent past. Tricky one. Stay with the biggies, Wheat, Corn, SOYB.

Gold as paper.

(vi) Miners as a leveraged play on gold/silver. Probably slow, steady, sustained.

The other big issue will be growth. With tensions rising across the globe, the entire globalisation thing, along with just-in-time-supply is going to take a baseball bat to the head. If, inflation runs hot through commodities, into producer goods and on into consumer goods, holding excess inventory makes more sense. If supply lines are patchy, it makes more sense to hold more inventory. Rising prices = higher inventory. Falling prices = less inventory. Shortages are de rigueur in inflationary periods.

The Fed. is committed to higher inflation. They think that once it arrives that they can control it. The problem is that yes, it can be controlled, only the tool to control it cannot be employed....because it'll blow-up the economy into a monster deflation.

Anything really with an inelastic demand curve and elastic prices will work well.

jog on
duc

ducati916 said:

The market and BTC are not correlated:

Click to expand...

Thanks
I was going to look into (BTC / Market Correlation) but as usual, your thread has saved me time & trouble.

Skate.

ducati916 said:

Just to wrap up the week:

Just on the numbers, it would have seemed in retrospect, a pretty calm sort of market and to be fair, it probably was. It just didn't feel that way.

View attachment 124686

The market and BTC are not correlated:

View attachment 124687

While in BTC it has been a shocker of a month. Well cryptos in general.

View attachment 124688

What the market is correlated to currently is DXY.

View attachment 124692

DXY trades higher, market trades lower. DXY trades lower, market trades higher. Assuming that relationship holds....which way DXY? Lower. I don't know what rates would need to be to create a bull market in DXY, but it certainly is higher than 2% To turn DXY round I'd posit at least 5%.

Chances of rates going to 5%? ZERO.

With above $150 Trillion in Federal liabilities, never mind another $14T in Corporates, $50T in MBS and Munis, rates have to stay low, otherwise the level of defaults will trigger a deflation that will put the 1929 - 1934 period to shame. The Fed. would try to fight that deflation with liquidity (what else is there?) resulting in more than likely a true hyper-inflation and the demise of DXY.

So we will have an ongoing inflation for years, probably for my lifetime now. The only issue is, once the genie is out of the bottle, just how bad is it going to get?

With regard to stocks, the market will rise in a bull trend, but it now becomes more of a stock picker's market. Sectors that benefit from inflation will outperform those that struggle against a rising tide.

What I like:

(i) Healthcare. Boomers are ageing, they have money, health is pretty non-negotiable.
(ii) Drugs. Which runs alongside to the above.
(iii) Real Estate. REITS can push up rents etc. Again, somewhere to live is pretty non-negotiable.

Commodities

(iv) Energy to a point. If prices rise past a point 'X', lots of supply can come in.
(v) Agriculture, more so than in the recent past. Tricky one. Stay with the biggies, Wheat, Corn, SOYB.

Gold as paper.

(vi) Miners as a leveraged play on gold/silver. Probably slow, steady, sustained.

The other big issue will be growth. With tensions rising across the globe, the entire globalisation thing, along with just-in-time-supply is going to take a baseball bat to the head. If, inflation runs hot through commodities, into producer goods and on into consumer goods, holding excess inventory makes more sense. If supply lines are patchy, it makes more sense to hold more inventory. Rising prices = higher inventory. Falling prices = less inventory. Shortages are de rigueur in inflationary periods.

The Fed. is committed to higher inflation. They think that once it arrives that they can control it. The problem is that yes, it can be controlled, only the tool to control it cannot be employed....because it'll blow-up the economy into a monster deflation.

Anything really with an inelastic demand curve and elastic prices will work well.

jog on
duc

Click to expand...

My read and for what it is worth, China is playing a long game and the USA are going to get slammed dunk.

Chinese Yuan continues to rise against the USD so there input costs stay in check so China keep exporting higher inflation to the world. Since China is the input manufacturer and the USD keeps going down USA keep adding more inflation are now trapped into a never ending QE cycle.
Now they are making a play on there digital currency as well.
My call for Australia will be for a September election while we are still getting over the party as we also will be trapped into the QE.

I am almost 100% invested into our gold miners. I have a little bit of dry powder left for maybe a bear EFT.
I brought a little early on 2 and good timing on one miner so not to bad spot atm.

Gold....
Yes gold miners: safety and stability..not
look at rrl and arv : 2 of my stunning losers of this month;
Got seriously kicked
Ncm managed ok but just
i would recommend an etf
i believe GDX on the asx is a decent gold miners etf.

qldfrog said:

Gold....
Yes gold miners: safety and stability..not
look at rrl and arv : 2 of my stunning losers of this month;
Got seriously kicked
Ncm managed ok but just
i would recommend an etf
i believe GDX on the asx is a decent gold miners etf.

Click to expand...

I had GDX quite a few years ago, I liked it, but as usual sold out too early with a small profit. Should have held longer.
In my younger days I use to trade too much ‘on emotions’.
Wiser and greyer now.
GG

qldfrog said:

Gold....
Yes gold miners: safety and stability..not
look at rrl and arv : 2 of my stunning losers of this month;
Got seriously kicked
Ncm managed ok but just
i would recommend an etf
i believe GDX on the asx is a decent gold miners etf.

Click to expand...

Not so much safety and stability its the hedge against inflation if you don't think inflation then don't buy gold.
EFT's don't give as much bang for your buck.
My choice of gold miners
NCM is OK
NST is now a monster with the merger
EVN is my first choice

But for a 20% + bounce you would want a mid cap.
RRL I am still holding I feel it is the one to be in. They might of paid a bit much for Tropicana and shares have been punished but I still see them as undervalued. (I am at a lose ATM brought a bit to early)
GOR looked good as well.
Just my thoughts take them with a grain of salt.

ducati916 said:

(iv) Energy to a point. If prices rise past a point 'X', lots of supply can come in.

Click to expand...

Something I'll caution there is that as prices rise, so does the cost of new supply.

There are considerable commodity inputs to any large energy project and the other big cost is return on capital. If materials costs rise, and interest rates (as a proxy for expected return to investors) rise, then so does the cost of production from the new oil field, power station or whatever.

Quite a few were rather spectacularly burned with that one in the 1970's and 80'st. Relatively small electric utilities tripped up in all sorts of places around the world and, infamously at the time, Exxon spent more than US $1 billion before walking away from an unconventional oil project in the US , the estimated cost to complete it having blown out to $5.5 billion and rising as of 1982 when they pulled the pin. Those figures are actual $ at the time, not adjusted for inflation over the past 39 years which would put them far higher in "real terms" today.

History makes me cautious on this one. The cheapest time to build a dam or drill a well is when nobody else wants to build a dam or drill a well. Once the idea catches on, prices soar for every input - materials, specialist skilled labour, drilling rigs, etc plus the investors tend to start wanting a return too.

That's not to say nothing can ever be built, just that as the commodity price goes up the cost of building a big project on the supply side tends to go up too.

Oil news.

Friday, May 21st, 2021

Oil is heading for the biggest weekly drop since March, following three consecutive days of huge losses. Still, oil recouped some losses on Friday, edging up after getting sucked down with a broader selloff in commodities.

IEA says no new fossil fuels. The IEA’s Net-Zero report dropped like a bombshell midweek. The IEA said that to reach net zero, there should be no new oil, gas, and coal projects. There was no shortage of proponents and critics, but either way, the report could influence how investors think about oil.

Asia snubs IEA report. “The report provides one suggestion as to how the world can reduce greenhouse gas emissions to net zero by 2050, but it is not necessarily in line with the Japanese government's policy,” a Japanese official told Reuters. Officials in the Philippines also said no new fossil fuel investment would be a setback.

OPEC warns against IEA report. “The claim that no new oil and gas investments are needed post-2021 stands in stark contrast with conclusions often expressed in other IEA reports and could be the source of potential instability in oil markets if followed by some investors,” OPEC said.

U.S. and Iran near deal. The U.S. and Iran have sketched out the broad outlines of a deal to restore adherence to the 2015 nuclear agreement, which would include lifting sanctions. “We can now say that we have reached a framework or structure of an agreement,” said Iran's deputy foreign minister Abbas Araqchi, according to Argus. Oil prices dropped by more than 2% on the news.

Qatar cornering LNG market. Qatar is ramping up LNG supply and dropping prices, boxing out LNG projects elsewhere. “Qatar’s expansion plan is so huge that there are questions on the need for other supply options,” Julien Hoarau, head of EnergyScan, told Bloomberg. “It’s still the number one, but the U.S. has never been so close, so Qatar needed to move if it wanted to keep its leading position.” Qatar has the lowest cost LNG in the world. Bloomberg estimates that 10 U.S. LNG projects may struggle to secure financing.

Another year of canceled LNG projects. Reuters reports that 2021 is shaping up to be another year in which many LNG projects are postponed or canceled.

Europe oil demand rising. European traffic is nearing pre-pandemic levels as vaccinations improve and the latest Covid-19 wave recedes.

India asking LNG suppliers to delay deliveries. Slammed by Covid-19, India’s LNG importers are asking suppliers to defer deliveries scheduled for May and June. In addition, India’s disappearance from the spot market – due to the glut of supply in the country – could drag down spot prices for LNG.

Ford’s electric F-150. Ford (NYSE: F) announced details about the new electric F-150. The pickup truck has been the nation’s bestselling vehicle for decades, so an all-electric version will be highly anticipated. The new F-150 “Lightning” has a price starting at $40,000, a 230-mile range or 300-mile option. More notable is the fact that the battery can provide backup power to homes in the event of a power outage for as long as three days. Ford secured 20,000 deposits from interested buyers in less than 12 hours.

Shell sells stake in Philippines gas field. Royal Dutch Shell (NYSE: RDS.A) is selling its 45% stake in the Malampaya gas field in the Philippines for $460 million.

Large methane plume found in Canadian shale. Satellites have detected a large methane plume over Canada’s Duverney shale basin, adding to growing concerns about methane pollution from oil and gas operations.

Colonial CEO explains ransom decision. Colonial Pipeline paid a $4.4 million ransom to hackers. The company’s CEO explained his decision.

BP hiring spree for offshore wind. In a sign that BP (NYSE: BP) is taking offshore wind seriously, it is aiming to hire 100 people in the UK, and that figure will double by the end of the year. “This is the first step in terms of building our capability in this space,” a BP official said.

Biden waives penalties on Nord Stream 2 sanctions. The Biden administration said that blocking the Nord Stream 2 pipeline, which is over 95% complete, is a long shot. The U.S. waived penalties on sanctions on the project in order to avoid burning goodwill with Germany. The pipeline is expected to be completed later this year. “It is a good moment not only for Nord Stream 2 but also for the U.S.-Germany and the U.S.-Russia relationship,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies.

BP and Eni look at merging in Angola. BP (NYSE: BP) and Eni (NYSE: E) are in talks to merge their oil and gas operations in Angola.

Executive order on climate financial risk. A highly-anticipated executive order by President Biden was signed on Thursday, directing financial regulators across multiple agencies to begin plans for assessing financial risk from climate change.

U.S. shale sticking with restraint. An Energy Intelligence analysis finds that U.S. shale drillers are staying true to their word to maintain spending restraint, even in the face of higher oil prices. The 20 leading shale firms totaled $4.4 billion in free cash flow as a result.

California to require Uber and Lyft go electric. California regulators adopted rules on Thursday to mandate that 90% of ride-hailing miles come from EVs by 2030.

A list of the 30 Dow Stocks:






And it didn't take blogoland long to calculate the market capitalisation destruction suffered in the crypto universe.





jog on
duc

Smurf1976 said:

Something I'll caution there is that as prices rise, so does the cost of new supply.

There are considerable commodity inputs to any large energy project and the other big cost is return on capital. If materials costs rise, and interest rates (as a proxy for expected return to investors) rise, then so does the cost of production from the new oil field, power station or whatever.

Quite a few were rather spectacularly burned with that one in the 1970's and 80'st. Relatively small electric utilities tripped up in all sorts of places around the world and, infamously at the time, Exxon spent more than US $1 billion before walking away from an unconventional oil project in the US , the estimated cost to complete it having blown out to $5.5 billion and rising as of 1982 when they pulled the pin. Those figures are actual $ at the time, not adjusted for inflation over the past 39 years which would put them far higher in "real terms" today.

History makes me cautious on this one. The cheapest time to build a dam or drill a well is when nobody else wants to build a dam or drill a well. Once the idea catches on, prices soar for every input - materials, specialist skilled labour, drilling rigs, etc plus the investors tend to start wanting a return too.

That's not to say nothing can ever be built, just that as the commodity price goes up the cost of building a big project on the supply side tends to go up too.

Click to expand...

Morning Mr Smurf,

Point taken re. profitability and probable losses on capital down the road should such a scenario play out. My point is that as you have already indicated, this error seems to be repeated consistently and not just by the oil industry.

If oil prices returned to the $150/barrel level, I suggest that there would be huge swathes of capital attracted to the extraction of oil, increasing supply. Whether an economic return could be earned would depend on in part the continuing trend higher in inflationary pressures and demand at those prices and the timeframes involved and whether alternatives could be accelerated.

The thing with pernicious inflation is that it is slow, slow, slow, fast, very fast. Once it takes hold, it accelerates and becomes very difficult to contain. There are really only 2 ways: (a) increase supply by multiples or (b) raise interest rates significantly above the rate of inflation, which curtails the expansion (any further) of credit. Currently (b) is not an option.

If (b) is not an option, then ignoring for the moment expanding supply, there comes a point where demand just falls away to such an extent that prices stall. What is that? $200/$300/$400/barrel oil? What does that do to an economy? A lockdown by price?

There could also be an acceleration towards 'green' technology, although it seems that green is simply an acceleration of commodities being used in construction other than oil. The production of energy will never (it seems) be free or low cost and is therefore an issue in an accelerating inflation.

The world economy is in a parlous state when the answer to the crisis is to create an inflationary crisis.

jog on
duc

bsnews said:

Not so much safety and stability its the hedge against inflation if you don't think inflation then don't buy gold.
EFT's don't give as much bang for your buck.
My choice of gold miners
NCM is OK
NST is now a monster with the merger
EVN is my first choice

But for a 20% + bounce you would want a mid cap.
RRL I am still holding I feel it is the one to be in. They might of paid a bit much for Tropicana and shares have been punished but I still see them as undervalued. (I am at a lose ATM brought a bit to early)
GOR looked good as well.
Just my thoughts take them with a grain of salt.

Click to expand...

Smurf1976 said:

Something I'll caution there is that as prices rise, so does the cost of new supply.

There are considerable commodity inputs to any large energy project and the other big cost is return on capital. If materials costs rise, and interest rates (as a proxy for expected return to investors) rise, then so does the cost of production from the new oil field, power station or whatever.

Quite a few were rather spectacularly burned with that one in the 1970's and 80'st. Relatively small electric utilities tripped up in all sorts of places around the world and, infamously at the time, Exxon spent more than US $1 billion before walking away from an unconventional oil project in the US , the estimated cost to complete it having blown out to $5.5 billion and rising as of 1982 when they pulled the pin. Those figures are actual $ at the time, not adjusted for inflation over the past 39 years which would put them far higher in "real terms" today.

History makes me cautious on this one. The cheapest time to build a dam or drill a well is when nobody else wants to build a dam or drill a well. Once the idea catches on, prices soar for every input - materials, specialist skilled labour, drilling rigs, etc plus the investors tend to start wanting a return too.

That's not to say nothing can ever be built, just that as the commodity price goes up the cost of building a big project on the supply side tends to go up too.

Click to expand...

True,true ..
And something valid outside energy: any commodity : was involved in that loop for coal, nickel, gold too.
And not only energy or mining restricted but as well services.
We are well aware,at least in the industry of the mining sector boom and bust cycle, but it is parallel for example in IT
Blockchain becoming trendy: specialists are rare asking more, people want to learn and skill up,they need teachers who are in high demand already in the industry ...even specific hardware..if any required..until a new wave of experts arrive on the market and the skill so common place that the experts drive taxis to pay back their uni fees.
The beauty/scary side of capitalism which is often misunderstood by both our leaders and us pawns in the system.

ducati916 said:

Morning Mr Smurf,

Point taken re. profitability and probable losses on capital down the road should such a scenario play out. My point is that as you have already indicated, this error seems to be repeated consistently and not just by the oil industry.

If oil prices returned to the $150/barrel level, I suggest that there would be huge swathes of capital attracted to the extraction of oil, increasing supply. Whether an economic return could be earned would depend on in part the continuing trend higher in inflationary pressures and demand at those prices and the timeframes involved and whether alternatives could be accelerated.

Click to expand...

A simpler way to look at it is that if someone today calculates that a project needs $100 per barrel to be profitable, then most likely they've based that on present day costs.

So today's cost for a drilling rig, today's cost for steel, today's cost for labour, today's acceptable return on capital and so on. If the price of oil does rise to $100 then, unless the inflationary pressure is unique to oil and doesn't apply to other things, all those costs will also have gone up.

Agreed that money will likely be poured in in that scenario, I'm really just saying don't assume they'll make a profit out of it at whatever price has been calculated today as being profitable. Previous broad inflationary environments, as distinct from purely oil price spikes, have caught quite a few with that one. Start building a $400 million project and it ends up with a 1 in front of that price by the time it's actually built, etc.

So BTC has been trading over the w/e (as far as I can tell).



And is back down near the lows. If this support level gives way then it will free fall to somewhere between $20K and $5K. Assuming for the moment that it does, would you want to buy it on any fundamental basis at all?

It has no earnings, therefore its Book Value will always remain $0.00. Simply holding over any time period changes nothing. It pays obviously no dividend.

It cannot be a currency currently as its vol. is simply too high. Even if its vol. were to drop to the level of a fiat or of gold/silver, you have the added two following issues: (a) it will likely be outlawed and (b) currently, there is pretty much nothing that you can purchase with it.

It has no commodity value. You cannot use it for an input into the manufacture of anything.

It has no historical track record of providing a store of value. This MAY change. It may not. Currently, everyone who purchased below $30K is happy (actually based on behavioural economics they are really pissed off) but those that purchased and held at higher prices are on their knees praying.

Lacking all of the above, the ONLY value it holds is as a speculative instrument. This is the 'greater fool' avenue. If I buy it at 'X' I need someone dumb enough to pay a higher price, if I am looking to exit because I want to purchase a good or service. If I am simply holding it as a 'store of value' that implies at some point I will want or need to unlock that value. Time will judge whether BTC fulfils this claim.

The Guru or White Coat Syndrome.

Mr M. Saylor is the BTC guru. Having placed some $1B of MSTR cash into BTC at somewhere north of $20K, obviously was showing a massive paper profit at $69K. The blogoland half-wits have adopted Mr Saylor as their 'fundamental' argument. He is the CEO of a Company.

Looking at this company.

Financials:



Not terribly impressive.

The stock:



Trading BECAUSE of the BTC on the Balance Sheet. It is located under 'Long Term Assets'. You can see the effect.

How exactly is BTC an asset to this company? Listening to him speak on a variety of YouTube videos, the asset value resides in increasing his marketability, ie. he is now internet famous and can present ,'sell', MSTR products (whatever they are). Are the herd interested or likely to buy his product? Unlikely. Are potential customers likely to buy the product due to his BTC guru status? Unlikely.

If and the if is looking more likely as time passes, BTC is outlawed, what will companies do re. BTC holdings on their Balance Sheets? They will HAVE to SELL them. Now taking MSTR as the poster child, dumping $1B into an illiquid, falling market will incur huge losses, enough potentially to bankrupt the company (these were cash assets used to purchase the BTC originally).

He could refinance, issue equity, debt, whatever. ZERO chance. MSTR if BTC continues to fall is toast. This guru CEO has placed the entire company and all of its employees etc at risk, all 2000 of them. All for a speculation, which pursuant to Company Law would be deemed illegal.





Claimed:

BTC is an 'asset'. How is it an asset, other than as a speculative instrument? Never addressed.
Core business is improving. I haven't broken down the numbers (I may) but on a quick squizzy, it looks bad.
Twitter followers. Hmmmm.
Software is an asset that can be financed. True, but that value is far lower than the current market cap. which is based on BTC The EV is going to be multiples lower.

In the other corner you have Buffett & Munger.

This is the Tulip mania and South Sea mania playing out in real time.


jog on
duc