StevieV

I'm confused by this statement. In 2021, the US consumed 18.7 million boe/day. Latest data has US oil production at 12.2 million boe/day. Am I missing something? I believe it is much worse if you look at "green" energy. Solar panels, lithium, cobalt, copper, rare earth magnets. All are extremely reliant on non-US mining and production. For example, just doing a quick search it looks like roughly 70% of worldwide solar panel construction is in China and about 3% in the US. I think the considerations as to whether and to what extent the US should have an SPR go beyond whether the US is energy self-sufficient, but I don't understand where the premise that the US is "energy self sufficient" comes from.

That's a stretch. This couple lives one of the most material comfortable lifestyles in the history of humanity. They're 25 years old, plan to travel internationally 3 times this year to music festivals plus more local events. They spent over $600 on Ubers alone at the last music festival. $200 gym memberships. $60 sushi meals. Even at that, they can do those things and have a home. They just are in the red if they do all of those things and just bought a condo.

I think a Democratic executive and a Republican legislature is probably best for O&G companies. If we get a Republican legislature, that doesn't change anything with the regulatory environment. They aren't going to pass any relevant legislation that Biden will sign. Just a continuation of the current executive policies and deadlock legislatively.

Come on SD. It looks like you are trying to redefine Enterprise Value (EV). EV has a defined and calculated value. Essentially, Market cap + debt - cash. The EV just is what it is. Just like the market cap. There is no "calculated from either the asset or liability side of the Balance Sheet". Perhaps you meant intrinsic value.

Spek, I'm just trying to fill in some blanks and responding to a few things that catch my eye. I'm not trying to carry the bull case. I agree that the underlying commodity prices are a huge deal. How could they not be? There is a massive difference in what an oil company makes if WTI averages 60-80-100 or 120 over the next 5 years. I also agree that, at the least, it is very difficult to predict future oil prices. Oil looked like it would be tight for the foreseeable future and then US shale production came in and changed that. Even look at the very short term. As you say, Russian hasn't yet reduced their oil exports. That would have been a contrarian view just a couple months ago and Russian exports are a huge deal. FWIW, I'm long a few Canadian oil stocks. I think oil prices will average a high enough for the companies to do well and think the equity prices are sufficiently low to compensate for the risks. Hopefully for me that's correct.

Doesn't change the 5-year that much. As mentioned above, WTI + 109%; XPO -9%; XLE +8%. I agree. I was just responding to your iron ore chart that mentioned energy. I believe your iron ore chart was spot. I think the spot and equity divergence was most clear in 2020 actually. Every oil company is a zero at $20 WTI, let alone negative WTI. April 2, 2020, WTI was $25; up from $16 and on its way to -$36. That's a zero for everyone. Equities traded way down, but obviously and rationally the equities didn't all trade to zero. There are some nice things about trading oil directly, but I think there are also some big advantages to the equities themselves. I'll take MEG.TO as an example. Very roughly speaking, I think they do better than $1B in FCF/year at $70 WTI in '25 (tax pools exhausted) and pretty much eliminated debt by that time. Today, their market cap is $5B. WTI in USD. Others in CAD. Who knows what the market will think of oil stocks in '25, but MEG certainly would have the cashflow to do much better than a 0% return if oil drifts to $70 over the next 3 years and much better than +40% (98/70) if WTI stays at today's $98 rather than drifting down to the futures $70. I think my MEG FCF estimate is reasonable, but I did it quickly and so certainly could have screwed it up.

WTI and the XOP ETF have correlated well over the last 1 and 2 year periods, but XOP has extremely underperformed the price of the commodity over the last 5. Over the last 5 years, WTI has advanced 109% versus a negative 9% for XOP. Can say a lot about that, but the briefest is - the E&Ps are being valued much less richly vis-a-vis oil prices than they used to be.

I read the transcript for this podcast and I don't think the host made his case. The couple has high expenses including eating out, transportation and music festivals, but, according to the host, there is no way they will change those things. The host seems more adamant about this than the couple. The couple spends just about his recommended 28% on housing (they spend 28.6%), but the host spends the whole time telling the couple there is no way they'll cut their expenses and so they should sell the condo. Maybe. Maybe they should make a big cut in housing to fund the festivals and eating out. I don't object to the idea that the couple would benefit from spending on music festivals and not housing. I just didn't made that case OR, importantly, that selling the condo would fix the couple's savings problem. The episode states that the couple was saving money before the condo and not after buying the condo and so that's the problem. But, here's the key part: "Eric: [00:31:23] There was COVID, so not much to do. But between us it was great. We were actually saving some money. Ramit Sethi: [00:31:31] And then what happened? You decided to buy a condo. Walk me through that discussion. " The host says what happened was they decided to buy a condo? Uh. What happened is that things opened back up. Then they threw the condo on top of that. The couple wasn't saving money because renting allowed them to save. They saved money because the things they spend money on were shut down. Now they're not. Plus, when they weren't spending money on going out "between us it was great." How that gets to selling the condo and that fixes the savings problems, I don't know.

"ESG is now religion. It is STRONGLY believed by most of the population. And critically for investors, pretty much ALL governments, educators, institutional investors, pension funds, endowments, banks etc HAVE TO ACCEPT IT AND MINDLESSLY FOLLOW IT (and propagate it)." It is a bit interesting. Does most of the population STRONGLY believe in ESG OR do they HAVE TO ACCEPT IT AND MINDLESSLY FOLLOW IT? Can you tell the difference? There is a tremendous ESG bureaucracy whose livelihoods depend on ESG. That doesn't go away easily. I think that, if anything, it is more likely that ESG goals and programs will shift over time. We'll see. Whatever one thinks about climate change or CO2, I think most would agree that at a minimum any program or policy shouldn't do more harm than good. Increasing energy prices are very bad, especially for low income people and countries. Food price increases are even worse. I'm not sure how much ESG is contributing to each of these, but policies that leave people cold and hungry today aren't good ones.

MEG had an operational update last night. Some technical difficulties. Not ideal, but short term. - https://finance.yahoo.com/news/meg-energy-announces-operational-continued-210000319.html I don't consider MEG as high debt any longer and they are paying it down quickly.

From the article: "The insurance company denied her claim, but when the woman pressed the issue, the company and the woman agreed to approach an arbitrator to resolve the matter. The arbitrator decided in the woman's favor, awarding her $5.2 million last year." This is the wild part. Hard to imagine what the policy could say that could support that decision. Just imagine the homeowners insurance claims.

I don't think the hedge fund insurance models and the alt models are all that similar. For example, as I understand GLRE, the idea was basically to have a leveraged Einhorn equity hedge fund. Einhorn invests like his long/short hedge fund. The insurance operation provides no-cost leverage. Ergo, you get leveraged Einhorn returns. If Einhorn does something like 15%/year and you can get even 1.5 X that, then that's fantastic. The math is compelling. Unfortunately, at least last I checked, everything went wrong. GLRE was running a pretty limited type of insurance in order to ramp up the operation and mesh with the long/short equity portfolio. I believe it was tight margin on the combined ratio to begin with and GLRE didn't do a particularly good job with it. I'm not sure what the combined ratios were, but I thought they were running above 100%. So, instead of low or negative cost leverage, the leverage has a cost. Again, not sure that's correct and haven't checked recently, but something like that. That's not fatal to good returns. If Einhorn's investing returns were similar to early in his career, a leveraged Einhorn portfolio could certainly overcome a few percent drag. Unfortunately, GLRE coupled the bad insurance with bad investing. Lose on the insurance. Do poorly on the investing, so you pay for leverage of a bad portfolio. Ouch. APO is a good bit different. As an initial matter, they have the PE and asset management arms in addition to the newly added Athene portion of the business. The Athene business is just set up differently than GLRE. They aren't looking to use the Athene insurance float to create a leveraged long/short equity portfolio. With GLRE you are talking about Tesla shorts and Office Depot longs. With Athene, you aren't getting anything like that. Athene generally sells fixed annuities, so fixed payouts. Invests primarily in credit to cover the payouts+. Spread between the credit returns and the fixed payouts equals what Apollo is calling spread related earnings (SRE). Apollo also has some ability for various third party financings. They are looking to create good private credit. Athene also has a nice public record of earnings prior to Apollo buying them out. That's not a guarantee that Athene is going to work for Apollo. Just think they are doing something different than GLRE even though both involve insurance. I wrote this quickly from memory, so I might have made some unintentional mistakes.

One thing on which I totally disagree with Warren. If anything, BRK repurchasing shares generally helps selling shareholders. It is not like BRK goes in and takes away shares from holders who would otherwise keep them. The selling shareholders decide to sell for whatever reason - move to something else; buy a house; fund retirement. They put in the order and it gets filled. Doesn't matter who's on the other side. If anything, BRK being in the market helps the buyer get a better price.

Me too. FRE, DE and AUM all growing nicely.

Great timing.

"Californians seem to be happy with rolling blackouts on hot days." - California is #5 on the list of states people are moving from. It used to be a state people would move to and now it is a state people move from. Most of the other states that top the "moving out" list are cold weather states. I don't think energy is the #1 issue, but I don't think that all Californians are so happy with the state. This dramatically underplays the limitations of renewables, especially if when you talk about renewables you mean wind and solar. Also seems to dismiss or downplay the externalities of energy sources other than nuclear.

Second APO. I have been an APO holder for a number of years along with the other alts. APO has moved up nicely, but lagged some others such as BX and ARES. I think it has a lagged a bit because of the uncertainty surrounding the pivot caused by the Athene acquisition. I was and still am a bit uncertain about the acquisition myself, but I think they laid out the case for it pretty well during the Investor Day. As you point out, both somewhat cheap and growing nicely. I think they'll grow earnings in the mid-teens percentages. Should do pretty well even without a re-rate. I also expect a bit of a re-rate.

These are Hulbert's rankings, right? I had always thought people considered his rankings credible. I can see someone staying in the newsletter game. It is a different thing than raising money and running a fund. I'm not sure how well newsletter returns translate into raising capital, but let's say it takes 5-10 years to establish a track record. After 10 years, maybe the writer has grown his personal wealth nicely and has a nice newsletter subscribership. Maybe the author isn't making huge fund money, but could be fine. A newsletter is much less hassle than a fund and there's no guarantee that the fund would be successful. Might be attractive to just continue with the newsletter. I can definitely see that.

The share price has been impervious to good news and remained stubbornly cheap. I am not sure that the opportunity to buyback shares is a fleeting one. The company may have just as good of an opportunity to buyback shares after the opportunity to expand into a hard market has dried up.

I use 8-10% as my rough estimate of what I think BRK will return over the next 5-10 years. At today's price, I wouldn't build in any multiple expansion, but not contraction either (though, of course, either could happen). As I see it, the attractiveness of BRK is the combination of safety, consistency and certainty. Almost certain to go up over time at a reasonable pace. Management isn't going to do anything dumb. The buybacks and cash to fund them should ensure the stock won't trade exceptionally low for particularly long.

It is certainly true that sentiment on BX made a huge turn. Hopefully we'll see the same with Fairfax. The last couple quarters for Fairfax have been good enough that a sentiment turn seems justified.

"Who wanted to own Blackstone in 2014 or 2016." - Me. I haven't followed or owned BX through it's whole history, but in the mid to late 2010s, the company was delivering pretty good results. The earnings can be lumpy, especially as they were more incentive fee driven at the time. However, AUM growth was consistent and quick. The stock price was stuck-in-the mud despite the growth of the business and Steve S complained about it regularly. The same was true of their alt asset manager competitors - KKR, ARES, APO, CG. Perception has certainly changed for BX and its competitors. Who knows exactly why, but the two most likely culprits are the change to corporations from partnerships and the focus on FRE (fee related earnings). Also, the incentive fees were cyclical and many of the alts were cashing in big on investments they made during the GFC in the 2013-2015 timeframe. They over-earned for a period leading to some headline softness, depending on who you are talking about. Regardless, I am not aware of BX making any particularly major errors or hiccups anytime in the 2010. Just grinding away really effectively from a business standpoint, even if the market didn't care. BX didn't need to convince investors it had corrected any mistakes from the past. What mistake were the correcting? Fairfax has a heavier burden as they clearly made significant mistakes.

Hopefully Fairfax the business is on track and the stock is now poised to outperform, but I don't think that you can deny that the stock price has been terrible for the last decade. The stock has been an underperformer for almost any time period. 1, 2, 3, 5 10 years - all bad outperformance. Probably most of last year is behind the indexes. In the last 10 years, it looks to me that as of today the only outperforming timeframe to present is from a short period last fall. If someone had the foresight to buy in October last year, then they are reasonably ahead of the S&P 500 today, but that is a super-cherry-picked timeframe. A purchase at almost any other time is behind, and often very significantly so. Share price has stunk. No point denying it. In fact, that's one of the reasons it might be a good opportunity today.

Well, me too.

I'd much rather that Fairfax keep their promise to avoid shorting and avoid any more disastrous short losses. Tempting situations like ARK puts would seem similar to what has gotten them in trouble in the past. I think simply avoiding shorts altogether is the right solution and also believe it is very important that they stick to their statements on the matter.