yadayada

A lot of oil wells will run dry (not just the shale ones) within 6months - 2 years. A lot of investments are probably not made to drill new ones with oil at <60$? Right now supply exceeds demand because drillers need to pay their bills, and stopping would be more costly. Some are even ramping up production to not go broke. Despite never getting their original investment back. So what happens if oil stays low for a while, and new investments aren't made in new wells world wide? You could see a drop off of 8-9 million barrels a day on the ~90-92 million barrels of consumption every day if that doesn't happen. Unless ofcourse all the producers are foreseeing this, and still investing in exploration and new wells, despite the fact that they would lose money on those investments if oil doesn't go to at least 70-80$. So there are three scenario's, 1. they are all foreseeing this, and investments in new wells are still made, speculating others will not make these investments. Keeping the price down. 2. Some producers are doing this, causing maybe a small supply shock, and oil goes to 70-80$ again (this is the version where the oil market is relatively efficient). 3. Investment dries up over the next 1-2 years, and you will see a huge supply shock, with oil spiking up to well above 100$, because suddenly demand cannot be met as adequate investments at those low oil prices were not made. To add, someone posted a link of a Saudi saying that 100$ oil will not happen again. They have a huge interest in scenario 3, so they want to scare off as much investment as possible. So you should probably take everything the Saudi's say with a huge grain of salt.

yeah after studying africa for a bit I have to agree there. You probably want to be extremely picky though, and everything has to line up to invest there. Like great management, great business, insanely cheap etc.

who cares if the S&P 500 is undervalued if you can buy a hong kong real estate company with prime diversified real estate for double digit FCF yields at less then 50% book value?

GDP growth in india has been flat though. And corruption is a huge problem, it does not seem to be a very business friendly place. Allthough that can have its advantages too I guess. Why not Africa? A lot of countries there grow at double digit rates, low debt/gdp, and some of them have a better business climate then Italy even. And there is a shortage of capital there (so better asset prices). Im more of a follower though, so ill wait untill i see some good ideas being posted in Africa, and then follow along :) . One idea I like is Conduril. Does a lot of construction in Africa and is likely to grow, and is cheap. Plus it is on a european stock exchange, so you would expect less corruption and fuckery.

What about holding some of your cash in HKD? As it seems to be undervalued.

700 billion$ is basicly inserted in the economy in the form of government debt. 1/3 of that comes from outside the US on average, and the rest from savings inside the US in the form of insurance flaot and pension money. So that is about 230 billion $ / 16800 billion $ = 1.4%. Population growth that is dwindling and at 0.7% in 2014. Which adds up to roughly the 2.5% in 2014. Now savings have to come in here somewhere. If they are increasingly tapped, that would mean a growing GDP too. But I cannot figure out how to calculate that. But on average over longer periods, that should not matter right? Net savings is like 400 billion$, so there is not that much room there. So please correct me if im wrong, but my theory is that real gdp growth in the past has come from mostly 2 things, population growth (which was closer to 2% a long time ago) and debt growth. Everyone provides a certain amount of value to the economy, so the pie can only grow if the number of people who can provide value is growing. So if the deficit would close at some point (which it has to if you dont want a default), Real GDP growth will almost grind to a halt to below 1% unless fertility rises and population will grow faster again. And it will become very difficult for the governemnt to pay all those older people their pensions and health care since they cannot be inflated away? And the debt/gdp number and debt/tax revenue ratios will become worse. And where increasing productivity (for example fusion energy would be nice right about now) would come in is that a larger % of that GDP number could be spent on paying off debt, because that would increase spending power of the dollar by lowering costs as fewer people have to be paid for the same thing. Like how oil is cheaper now, more money can be spent elsewhere (on deleveraging for example). It seems at the end of the day this is a balancing game, and something has to give. Every move you make has consequences. And technology and increasing human ingenuity (which would result in massive increases in productivity) is the wild card here that makes macro economics so incredibly difficult to predict.

each country has to take 80% of their risks. So ECB isn't carrying the risk if bonds arent worth what they bought them for. So if for example greece fails, they will take 80% of the pain. And richer countries will take 20% of the pain. While I get that, isn't the ECB not permitted to flat out printing money Fed style? At least that was what was circulating in the news in years prior. Im not an expert, but my impression is that those bonds will have to be returned into the market at some point. This is not printing money and then leaving them on the ECB balance sheet forever. You could say this is a massive loan to the Euro zone (or mostly southern EU countries). At some point those bonds will be sold again, and if that happens at a loss, the southern countries will basicly take 80% of the losses if everything happens as planned. That is also the idea of US QE. Except critics now say they have gone too far. Because how the hell do you unwind 4 trillion $ of assets without completely shaking up the markets? If that goes wrong, US taxpayers will foot the bill. If they don't that would seriously shake confidence in the dollar (so indirectly, US citizens would still feel the hurt then).

WTF http://imgur.com/HKy39ed That is his business card lol. No joke.

@RKA: The US government pours like 700bn$ in the economy of borrowed money (the budget deficit). So that is why the trade deficit is so large. They do not directly do trade with other countries, but this number indirectly ends up outside the US. Let's say the government pays a government official with that borrowed money, and that government offical spends it with you. Now you did not borrow that money, but your income depends on borrowed money. Now those dollars find themselves to mostly China because you import products with the money you earned. They get turned into Yuan. Now the Chinese owns those dollars, and they have to put it somewhere. So they invest it in the US, or they buy government bonds with it. Like that crazy chinaman who wanted to buy the wall street journal. Saying he was good at working with jews. You will get a lot more of that in the future. Also note that part of those factories in china are owned by Americans. So part of that trade deficit number ends up in American pockets. So if that goes on for a long time, then after a while, most assets (government bonds, real estate, stocks) in the US will be owned by foreigners. And remember that corporations mostly run things in your country. So if they start pouring in money to the government, they will slowly take over your country if it goes on long enough. That is why the US army is so huge. If that happens, and it goes too far, the US can forcefully take back those assets. Also a thing people forget is that the US racked up enourmous liabilities to the 65+ population, which is growing. While the base of tax payers is shrinking. Those liabilities cannot be inflated away, and they are much larger then the debt held in the bond markets. There comes a point where those have to be cut, and that would (or should) lead to enourmous distrust in the government and lead to unrest. Ofcourse there comes a point where all the tax money goes to: servicing debt, the army of the US and paying pensions and health care for old people. And it seems young people will not take that as they are the ones paying for it. Also an interesting thing to note is that Buffett with his buy and hold strategy started that right around the bottom of this graph: http://static4.businessinsider.com/~~/f?id=49d74ad14b54372b00134f9f Note how graham started investing during the delevering, and he only liked net nets. And right around the relevering, buffett started liking quality companies. And if you look at population growth, you see that it was close to 2% (compared to .7% now) http://www.multpl.com/us-population-growth-rate/table/by-year So when population growth started to flatten, growth came largely from a debt build up. In that period you had 1%+ of population growth, and debt grew a crazy amount in 50 years. If he would start now with this strategy, he would likely not do nearly as well in the next 50 years. Because GDP growth comes mostly from population growth and debt growth. If population growth slows down, and debt has ballooned already, you will see a few decades of very low gdp growth. So then the only growth that you wont see in gdp numbers, can come from productivity growth. But that has now the risk of eliminating a lot of jobs and tax payers, to pay back that enourmous debt! Interesting times for sure.

I have to correct that, they will not buy greek bonds. But yeah you are right. Draghi has already said in so many words that he will backstop those bonds. But I find it hard to see how he will do that. Germany would probably not be ok with this. And he really needs his permission. That is probably another reason why the euro is getting dumped. The market doesn't really believe Draghi's bluffs anymore. Because 1 trillion is still small compared to the total money supply of 10 trillion. I think the US QE was bigger compared to their money supply. And the euro dropped almost 20% in less then a year. The problem is, there is no money in greece. They have to cut. Their debt is massive. You could say it is bad, but the greeks have been pampered, and now they will have to take the pain. If they would spend money anyway, they would not be able to borrow money. Who wants to borrow money to greece with that debt load? I also doubt greece could do something similar as the nazi's. They dont have the ability. Having been to some southern european countries, it does look that a lot of the middle class live close to poverty levels there. Interesting thing is that a lot of wealth would be destroyed by a euro devaluation. Because imports would cost more, and we Import more then we export. Those factories that moved ot outside Europe, will not come back right away just because the euro is a bit cheaper. And the business that are hurt most are small and mid sized businesses (so the regular people). The large companies who export a lot, they can pay their personal the same amount, and now make more money. So really all a euro valuation does is squeeze the small and midsize businesses really hard (because they cannot fully give those lower prices to the consumer), the consumer (because they buy more imports then exports) and it will help the 0.1% who owns shares in the exporting companies that now have fatter profit margins because they basicly pay their personal the same amount that is now worth less on the currency markets.

each country has to take 80% of their risks. So ECB isn't carrying the risk if bonds arent worth what they bought them for. So if for example greece fails, they will take 80% of the pain. And richer countries will take 20% of the pain.

http://img.photobucket.com/albums/v233/dongfangmeiren/DebtHoldingsByNonResidents.png~original Mostly to its own people. It is a bit of a scam though, pension funds have to invest a certain amount of money in the government bonds, so basicly the people are getting fleeced like this. Pension money is inserted in pensionfunds, and funds are obliged to borrow it to the government for rates that seem too low.

In the latest numbers I saw there was no sign of deleveraging in the EU. On the contrary, overall debts vs GDP numbers kept increasing. And imo it all boils down to this: how will the EU cope with a debt which is 460% its GDP? Will it invert its trend towards the US level, 334% of GDP? Or will it proceed towards the Japan level, 655% of GDP? Until I don’t see enough evidence we are making good progress in this regard, I think any recovery will be based on very shaky fundamentals. Gio People keep saying europe as if it is one entity. Northern Europe is in pretty good shape. Especially germany. They are in a better shape then the US as a whole with lower debt levels. Southern Europe is what is keeping the average down. You can't really compare the average greek to the average german. And it seems this new QE program where each country has to take 80% of the risk is not going to do much, it is basicly more debt to solve a debt problem. I read that various african countries have a better business climate then Italy! That is something that needs to change if Europe has to get out of this slump. But that will only change after countries have been zombies for years and shit hits the fan. Im curious what will happen to Italy as they are basicly in a debt trap at this point. And if germany is not going to cough up money to keep them afloat, who is? Especially if there is no way they could pay back that debt. It is very interesting to watch for sure, I dont think this situation has ever occured before.

I saw some data on investment costs for oil wells in NA, and it went from 5$ in the 70's- 90's to like 35$ now. Growing exponentially in 10 years. Wish I could find it again. Makes me think this is not a second 1980 where oil will crash for 20 years. (als demand was pretty much flat in that time).

yeah i think the main difference is that they are longer term, and US oil falls off a cliff at low oil prices, since those wells dry up quickly. They are even lower cost according to some analysts http://business.financialpost.com/2014/02/20/oil-sands-retain-competitive-edge-over-u-s-tight-oil/

http://www.freenpv.com/?p=457

I guess he assumes numbers more in this range http://www.statista.com/statistics/271608/global-vehicle-sales-of-automobile-manufacturers/ Still extremely optimistic. I guess he assumes several million cars a year. If they really stay ahead of the curve and make it affordable with range, then I can see how sales could explode. I can see that if they figure out the tech and how to make it lower cost, they could stay ahead of those slow bureacracies for a decade or 2.

yeah not many people watch soccer on eurosport. Seems ESPN has a much better thing going with american football in that regard.

I think you gotta look at costs of north america if you want to know what oil is worth. As their costs go up or down, oil goes up and down. Because other countries try to control their output, so the high cost guys stay in. But if a bunch of shale producers who make half decent returns at 60$ a barrel get in the market, they will just pump out as much as they can if they can make a profit. Because without North America, OPEC has quite a lot of room to set prices. But those 10m barrels of North american oil (or 15m if OPEC cuts) could make all the difference. If half of them fall away, they will not all filled in by the rest of the world (and OPEC), and you will see high oil prices. But if they can be filled in at low cost, then you will see oil at a low price. And that would be bad for oil sands if the US can do it cheaper. Because they will not be disciplined. I think Saudi arabia could probably produce all the oil for the world for several years? And you would see 20-30$ oil. But that would be really dumb, because they would lose enourmous profits. They have discipline, but NA does not have that discipline, because it is a lot of smaller players just wanting to make money right now. It would make a lot more sense for North America to only produce just enough where some 90-100$ break even guys are still in the market. But they dont function as a cartel. http://snbchf.com/global-macro/shale-oil-oil-sands/ Ill make a prediction :) , just to read back 2 years from now. Between 6-18 months from now, oil will start shooting up again to at least 70$+. But it can go lower before that happens.

Thanks for your input, you make some good points :) . Here is how I see it: http://www.indexmundi.com/energy.aspx This keeps going up. North america produces 10m of those, so more then 10%. There is no way that will fall away over a sustained period. Also crisis or not, odds are, 5 years from now we probably consume a 100m barrels a year. There is still Africa that is now booming, other parts of Asia etc. Just look at how much of an effect China had on those numbers. And meanwhile, costs of getting oil out of the ground go up every year, so oil from oil sands, fracking and shallow and deep water is not going away. Add in natural gas that still has a very inneficient market because of a lack of infrastructure, and Im not too worried on the long term. Likely 2015 will be rough, maybe 2016 too, but I think 2017 and on will be good. And if you put a 8x multiple on let's say 20m$, that is still a very nice return with little risk for MCR. HOS is in a better spot because they can allocate ships elsewhere. I mean if NA oil falls away, that means -10m barrels, which is huge. That has to come from somewhere... If it doesn't then we will see a major spike in oil prices due to shortage, which will trigger a lot of investments, which is really good for service firms. And that will happen within 2 years because most of those shale wells will be dried up before that. Basicly boils down to this: http://www.energytrendsinsider.com/wp-content/uploads/2012/06/Oil-Consumption.png?00cfb7 That will not reverse. The west is only a fraction of world population, and the rest of the world is catching up. They will need a lot of oil, and that is only possible (barring some black swan event breahtrough) if oil trades around 100$ or higher, and if North America produces a significant part of that. The only reason production is not down is because producers need cash flow to pay debt. Note also that oil consumption in the west went down because we were all driving inneficient gas guzlers. But Asia started driving cars from the beginning that are quite efficient. So there is not a lot of room to cut down in mileage as we had. Unless ofcourse we all drive battery cars 5 years from now. But even that is unlikely if there is a break through. Because it has to go from laboratory to mass adoption. Which takes time

yeah completly agree , if you do it, you should really make them join some club or something competitive where they interact a lot with the same kids. So difficult to make good friends at my age now :( . And I think it is a good learning experience to be able to handle people you dont like, or are not similar to you. Also careful with this: http://www.scientificamerican.com/article/pushy-parents-could-harm-kids-social-skills/

Since schools are so awefull (never learned anything there, dont even know how to spell aweful) you cant go wrong. But I think the social aspect is more important. You make some good friends, because you share this shitty boring experience.

on ways of spending money, a personal cook is really the nuts. A private plane and a personal cook, those two things would be the first id buy if i had a shit load of money.

Macro enterprises, it is canadian.

I can make the case for MCR. A 70m market cap, probably about 30-50m in net cash by the end of 2015. Almost no debt. And they have pipeline maintenance income. Plus they have exposure to LNG. If things pick up, they probably earn between 10-30m a year. It seems insane to go with an exploration firm if you can buy this at these prices, unless you have a clear edge. Or HOS, net tang asset value is almost twice. They have contracts with the majors that go on for another year or two regardless where oil goes. And trading at 4x earnings if things go back to normal (average return on capital of last 10 years with current fleet). And plenty of cash to survive. Jones act functions as a moat. They also have a very new fleet, which is always a good thing if demand is down. It is probably a triple or quadruple if things pick up. And you dont have to worry about wether their reserves are low cost or not. Wether they have enough money to drill new wells or not. Wether it is not some scam or not. Wether the oil is actually there.. etc. Imagine some low cost large oil field is discovered somewhere, with a service firm you profit regardless if that happens or not (if they are not levered) and with very specific oil wells, you dont. You diversify, without really sacrificing much of your expected return. Plus you are protected by assets. Even if oil dries up much, they can probably liquidate their ships or digging machines at not too large discounts, and you would not lose money. Because ships and digging equipment can be used in other areas or parts of the world as well.