Uccmal

Oil down another buck on 3 million extra barrels of storage. Cue upset traders: http://brokershandsontheirfacesblog.tumblr.com

More useful. You can borrow Buffett's farmland on an as needed basis. I had to laugh at Starbucks today. A guys phone didn't complete the transaction and he had to do it all over again. I paid cash - still more efficient. And I have the added knowledge that I dont have to pay it off later. Cash is so very handy for so many things. The only reason governments want to get rid of it is to get more control over taxation. I think it will be a hard sell in the US and any country with a value added tax. I like my debit and credit cards as well but still use cash daily. If you think about it, non-cash transactions have been with us for 60-70 years. They haven't managed to displace cash, yet. Right now my preference is for greenbacks rather than multicoloureds :-). As mentioned before, how am I supposed to pay my girls, my dealer, and my ammo supplier?

Potash Corp. - POT - Its funny. On this board or its predecessor in 2007/08 Potash was at an all time high and I got into it with a couple of board members who were claiming it was good value. Now it's good value. Recent Hr.un : Biggest Cdn. REIT - been hammered for some reason nvu.un : Cdn REIT - multiresidential mostly in small towns that aren't Fort Mcmurray All recent positions - we are in the getting to know you phase - so small.

I think yours is missing the last couple of weeks. I use these ones and take out the logarithmic effect for clarity: http://www.macrotrends.net/1369/crude-oil-price-history-chart I am unwilling to ascribe any meaning to this. Oversold, panic, new reality... who knows.

FWIW, On an inflation adjusted basis oil is running very close to the price from 1950 to 1970, and the price for most of the 1990s - excepting the 1998 brief collapse. Nothing to add.

That's a trivial conclusion. Of course that has to be true because dividends ultimately have to be grounded in profits, so as a group of course dividend payers/growers are going to be more healthy than non-payers. The issue is if you can find other markers of good performance besides dividends that may be even better. For example share shrinkage. I think dividend champions and the like are generally way overrated. Huge portions of the market are addressed towards investing in those stocks at the exclusion of every other kind of stock. I absolutely love to identify companies that could be huge dividend payers but for some reason or another aren't. That's a very hated subset of the market and if price offsets it or if there are good reasons, I will bet on them. I'm also not a huge fan of this strategy I've seen (especially on Seeking Alpha) where the history of dividend growth seems to be the most important thing to consider. This stock isn't a dividend aristocrat? Then don't even consider it! Pure bunk. I'd say the better dividend growth strategy would be to identify companies which are relatively small and have a huge potential market ahead of them they can capture while largely self-funding themselves. As for all those dividend studies that say dividend payers outperform non-payers, I find them absolutely hilarious. Dividend paying stocks tend to be profitable. Non-payers tend to not be, or at least less profitable. Therefore, all you're saying is successful companies tend to outperform unsuccessful ones. Well, duh. The issue becomes when dividend investors hold up these studies as gospel, all but saying dividends are the key to outperformance. Your turning this into a chicken or egg question. Companies that are successful can pay dividends. They continue to be successful because they have a good business niche, moat, or necessary product and economy of scale. They raise the dividends. It is self perpetuating and part of their culture. If Cokes management didn't find a way to raise that dividend every year, the whole gang would be out the door, but quick. Culture has alot to do with it. There are companies that have raised their dividends every year for generations no matter what the economy is doing. One could do alot worse than buying a clutch of these. Your middle paragraph is all but impossible. Your trying to predict the next Coke, Apple, Macdonalds, Exxon. All power to you. So all were left with is hindsight. Companies that have a culture of increasing their dividends tend to keep doing it. It keeps existing and future managers focussed. That Peter Bernstein quote sums up my thinking exactly in far fewer words., Board members here seem to think that most companies have managers capable of reasonable capital allocation skills, but that is just not the case. Big pots of money create their own problems.

These are the numbers I am roughly acquainted with. Sorry I am not going to beat you up with words. Logic dictates that this shouldn't persist very long. In the short term markets dont follow logic. In terms of Iran, I am finding it hard to belive that they are going to get much "new" supply to market that isn't already there. It sounds like cage rattling to irritate the Saudis. If you look at maps of the area there are pipes, and roads going every direction from the major oil fields. I think they have been running full bore during the entire period of sanctions, similar to what Cardboard has suggested. Isis, and others are getting their oil from somewhere to resell onwards. Iraq been buying Iranian oil and reselling? I dont think this qualifies as conspiracy so much as just doing business any way they can. They certainly dont seem to be suffering like a country under sanctions could be.

I don't disagree with most of what you have written, but I see it differently. As usually happens in commodity supercycles (and there have been a few) oil stayed way above the cost of marginal capacity for several years. Excess capacity was created, and therefore oil has to go way below the marginal cost for a while to bring the market to balance. In other words, I am not surprised oil is here and I don't think it's the result of manipulation*, I think it's the result of market forces. Now, I am sure a lot of trades get made around these moves and you may call those manipulation - but I think the current price is fundamentally justifiable for a period of time. *well, I do think it is the result of manipulation - but only in the sense that $110 oil was the result of an easy-money bubble and $30 oil is the consequence of $110 oil given that the marginal cost was probably around $70 at the peak and capacity got overbuilt (by a lot, when you consider that the marginal cost is likely falling to $40-50 as the bubble deflates). All bubbles overcorrect. You want to pin those suicides on anyone, I'd look at the Fed for blowing the bubble in the first place. Just my thoughts! P Pete, what you say makes sense. Aside from the recent calls by Soros, Goldman, and MStanley, I dont see any "unusual" manipulation. Anyone stupid enough to ba counterparty to GS deserves what they get. I think we wait it out. There is a point somewhere at which this starts to get absurd. We are now at the lowest Inflation adjusted price since the plummet in 1998, and below alot of the 1990s pricing. Today is reflecting the extra holiday in the US. No one wants to be caught holding the ball over a long weekend.

Its all BS. Camada is in a bear market now. Subsectors In Canada, Oil and mining, are in a depression. Stripping out a handful of high fliers, the US is probably already there as well. And so is everywhere else of any import. Its yesterdays news. Idiot analysts are always the last to know. Why do we suppose there isn't a central bank in existence willing to raise rates? The fed did it once for some reason I cant quite figure out. But it worked... No one is pushing them to raise rates anymore.

I'd argue that Apple wouldn't be a zero because it has +100bn in cash on its balance sheet. This is cash you, as a (controlling) shareholder of the company, can access. Stocks aren't a great example for IV because you usually don't have control and cash flows are uncertain. But take treasuries as an example. You can't argue that a treasury bond paying you $100 tomorrow is worth $50. You can't do this kind of calculation with commodities. I think this is not only a philosophical question but an important insight, because it's a trap for value investors and the reason I don't like investing into commodity companies either. I think I made my point clear. There is a difference between the market price of something (and the prediction thereof) and cash that you have access to when you are the 100% owner. You are the 100% of one gallon of oil. What do you have access to? You have access to one gallon of oil. So, now imagine you were the sole owner of Apple, what do you have access to? Not only to 100% of Apple stock (which would be the equivalent to a gallon of oil) but to the cash Apple has in its accounts and the future cash Apple will earn. This is fundamentally different from just owning the commodity. And, no, I don't think bitcoin has intrinsic value. Bitcoin – like gold – has zero intrinsic value. It has exactly the value people agree to give it. I'm looking at this from a risk/reward perspective – but that's a whole other discussion. Your argument is falling apart. Treasuries can easily drop 50% in a flash. What would you pay for a promise by Saudi Arabia to pay you back with interest? As in, what is the intinsic value of a 2016 10 year bond issued by Saudi Arabia, with a 4% yield guaranteed by the full extent of the Saudi constituiton, and legal system. US treasuries are only a safe haven due to people's perceptions of the US as a dynamic and safe country. There is nothing intrinsic about the adjectives I am using: safe, dynamic, perception, etc. Apple still has no intrinsic value under my scenario, even with 100 bn, on the balance sheet because management just spent the 100 bn overpaying for America Online. Its happened before. All assets are fluid and subject to change. You can only get by this by assuming something has value based on historical precedence, and existing supply and demand. Intrinsic value, like book value is a farce. There are always alot of intangibles on a balance sheet. We can only make a reasonable guess at oil's value. I am saying it is the single most important product on Earth - nothing else is more important at this time. That gives it some value. Human nature suggests that providers should profit from its production. Therefore, the value of oil should be in the range of just below the top few percent in terms of production costs - some idiot is always willing to invest in a new project above that cost. My guess is 50-55 USD per bbl.

LOL, nice switcheroo there. You realize that your new question is total turnaround from your previous claim that oil has no intrinsic value? The fair price of oil is obviously the price paid right now in open market. But that's again not what you really wanted to know, is it? Well, indeed, I don't realize this because those were rhetoric questions. There is no answer to those questions – which was exactly my point. Look up the definition of intrinsic value anywhere. There is no intrinsic value of commodities – which is exactly what Howard Marks is saying. I don't say that commodities are worthless! But they can't be valued intrinsically. This is what you can do however with a bond or a stock. With commodities it's like you said: There is only a market price determined by supply and demand – nothing else. There is only price action and no underlying value you can compare the market price to. But if you have only a price and not a value of something you can't calculate a margin of safety. Nico, your getting all philosophical about this intrinsic value. Thats not math. All products are determined by supply and demand. Yours stocks or bonds have no value if they aren't backed up by the cash flows. Take Apple. Can you give me an intrinsic value on Apple if the Iphone, Ipad, and ecosystem suddenly loses favour? Apple's would be zero. Oil cannot reach zero, even in a communist or pire socialist system. The real question is at what value should oil trade at to provide for societies' needs, and to make some profit for those who develop oil fields. I would say just below the cost of the most expensive 5% of production, perhaps $50, in the current environment. Lower after deflation hits the sector.

I agree with that. If there is a balance between supply and demand and the price is lower it is a good thing (even if some companies/countries/people suffer). The problem with oil is that it isn't a free market. You have an industry where some of the largest players are governments, there is always all kinds of manipulation going on. I'd argue that manipulation can't overcome the market in the long run. I also question why this conversation is happening at $30 oil but didn't at $100-120 oil. The marginal cost of oil was never that high, but I didn't see people complaining about market manipulation then. The simple fact is that when you overbuild productive capacity you need prices to fall *below* the marginal cost of new capacity to balance the market. I am not surprised that oil is down here - but I'll be surprised if it stays here permanently. Well articulated. Capacity will get shut down, or not bought on line, ever faster as the price tanks. We dont know what the price is to add capacity, but suffice to say much of the oil drilled in the past few years wont be drilled at these prices. If the MidEast is at capacity ( accounting for additions and deletions according to political events), and Russia is at capacity, the US, Can., and everyone else is cutting development then at some point demand will equal or exceed supply. Probably it overshoots the opposite way, or Maybe I am full of it and am just talking 20-25% of my book. I think you're right but I don't have the confidence to put 20% of my book behind the thesis. So far all I have done is initiate a starter position in Cheniere which is probably cheap if oil doesn't pick up and is very cheap if it does. And by luck or judgement I waited for low $30s oil to start that position last week. What gives me pause is that when the air comes out of a bubble it takes a lot of costs with it. Salaries that were inflated deflate, margins that were elevated fall, commodity inputs shrink, and the focus on efficiency rises. As a result the marginal cost can move *dramatically* downwards. We saw that in north American shale gas. I don't think oil will go the same way (down, down, down) because the new sources of supply are 5-10% of global supply whereas in north American gas they were much bigger. But it is a risk that the marginal cost will fall sharply in this scenario and we don't know where it will stop. My guess is somewhere around $40, but it's an informed guess only. Your last paragraph covers alot of ground. Salaries in O&G are very high during booms. As the inputs shrink, the cost of production will go way down in non-state controlled environments. They already have. The net is the same. If/when prices rise the companies get the spread from the efficiencies realized. There are alot of recent oil workers stuck in Calgary and elsewhere who will gladly take reduced pay. There was an enormous amount of waste in the system. I hiked with a guy a few years ago, who worked the fall season for an oil company. He was trained in advanced first aid (1 week course) and made enough in 12 weeks to live on all year in Canmore Alberta, one of the most expensive towns in Canada. He sat in a truck all day and read books. You can bet the first aider now has a real job as well. In the mideast, they dont have the same elasticity available. If they cut jobs, or input costs, they get civili unrest, especially since the cuts will come along religious lines. It is entirely possible in the race to the bottom, the Mideast will lose. Or they will cry Uncle and cut production enough to bring the price back up. Either way a "survivor" in NA wins. Some companies in the Cdn. west are in not terrible shape, and would have access to lots of cash to buy a Pennwest. As an aside Russel Metals has made it very clear they are looking for bolt on acquisitions - they just purchased a company for "parts" the other day. It wouldn't surprise me in the least to see Whitecap, or Arc Resources buy Pennwest. Whitecap is the obvious fit since they operate in the same lease areas. But I digress, these threads are all so similar.

Petec, Can you list them, tx. Al

Not to pick on Uccmal, but do these studies include portfolio changes when dividend grower slashes dividend? It seems self evident that "dividend grower" will perform acceptably while it grows dividends. But what happens when it has a problem and slashes dividend. Won't you lose a lot of previous outperformance by switching to something else at the worst time? Alwaysinvert, Jurgis: I cant do Dremans book justice here. You just have to read it. Anything I write will be taken out of context. Its an awesome book, amd he has corrected for most of your concerns. Alwaysinvert: I am staying out of the buyback argument on this thread. Been there done that.

I will add that should the markets be in long term "slow or no" growth mode companies that pay and increase their dividends above the rate of inflation will see that reflected in their stock valuations, in time. Everyone is still thinking that returns may come back to the 2009 to 2013 range - I am not so convinced.

David Dreman in "Contrarian Investment Strategies...." discusses dividend payers at length. Dividend growers generally do well versus companies that dont pay dividends. I have seen other articles on this but cant recall right now. I prefer dividends over buybacks, except in very rare instances - the two mentioned above. Dividends keep management focussed. But then we dont pay extra tax on dividends in Canada (for CDN. stocks). My holdings are now 90% dividend payers - The board will know how this goes in the coming years. Brokerage fees are so low that I have no problem reinvesting any dividends myself. Most managers are business and sales people, skilled at office politics among other things, but not necessarily capital allocation. They are also pressured to do certain things at the worst times.

Or there is that. At the moment oil is the single most valuable product on earth. Without it there is no sustaining anything that resembles our life style simce the 1700s, and most of is would be dead, or would never have been born.

LOL. Of course oil has intrinsic value: without oil nobody goes anywhere. If you believe that businesses have intrinsic value - and I guess you do because you mention "cash flows" - then you should realize that without oil pretty much all your businesses have no intrinsic value either (there are few exceptions perhaps). It's amazing how for people with a single hammer ("cash flows") everything looks like a nail... ::) Beat me to it Jurgis. If anything the value of oil is the easiest intrinsic value to find. It is definitely somewhere above the low prices of the late 1990s. If we assume some increase in E&P costs and inflation the intrinsic value should be right where we are at today, plus or minus a few bucks. Or you could take the difficult route and estimate the cost of all oil infrastructure in the world, the barrles produced, with the appropriate depletion rates and end up with 30 plus or minus a few bucks.

I agree with that. If there is a balance between supply and demand and the price is lower it is a good thing (even if some companies/countries/people suffer). The problem with oil is that it isn't a free market. You have an industry where some of the largest players are governments, there is always all kinds of manipulation going on. I'd argue that manipulation can't overcome the market in the long run. I also question why this conversation is happening at $30 oil but didn't at $100-120 oil. The marginal cost of oil was never that high, but I didn't see people complaining about market manipulation then. The simple fact is that when you overbuild productive capacity you need prices to fall *below* the marginal cost of new capacity to balance the market. I am not surprised that oil is down here - but I'll be surprised if it stays here permanently. Well articulated. Capacity will get shut down, or not bought on line, ever faster as the price tanks. We dont know what the price is to add capacity, but suffice to say much of the oil drilled in the past few years wont be drilled at these prices. If the MidEast is at capacity ( accounting for additions and deletions according to political events), and Russia is at capacity, the US, Can., and everyone else is cutting development then at some point demand will equal or exceed supply. Probably it overshoots the opposite way, or Maybe I am full of it and am just talking 20-25% of my book.

Well were now down to the approximate inflation adjusted price for the 1990s, exepting the low price spike in the few months of late 98/early 99, whatever that means.

I'm not sure the argument is based on why so much as on past correlation. Yeah, Thats kind of what I thought. Flight to safety in an uncertain commodity environment. Otherwise, I see no discernible logic behind the thesis.

http://www.bloomberg.com/news/articles/2016-01-11/morgan-stanley-sees-20-a-barrel-oil-on-u-s-dollar-appreciation I am not grasping something here. Why would the oil price drop on US dollar appreciation? Comments...

This is where the back of the envelope calculation helps: math so simple all it takes is the back of the envelope to explain it, even if the figures are approximate. I remember reading an 80+ page presentation on Sandridge right after Ward spoke at the FFH AGM a few years ago. After reading it, I was farther away from a thesis using simple math that supported buying the stock than before reading their presentation. Nowhere in those 80 pages was there simple quantification showing what their edge was or how much that edge was worth. Later, a little digging revealed that Chesapeake with acreage not too far away was pumping twice as much oil per well drilled than Sandridge was. A decisive analysis didn't even require the space of the back of an envelope. That one astonishing fact was sufficient to falsify all the BS in their self serving, 80 page report. When Tom Ward spoke at that meeting, all my antennae went up, and I got that greasy feeling. I never even bothered to look into Sandridge after that. Ward made out like a bandit. I got the same feeling about the CEO of Resolute. Never bothered to look at it either. Before the flames come out, I am not saying I am any better - we have all been had a few times by a good story. As time goes on I see more and more the wisdom of the "ham sandwich" businesses principle, even if its not entirely realistic in our fast changing world. I wrote this years ago, and will reiterate it. There is a reason that Buffett went into stable cash generating businesses as he got into the multimillions. Graham style businesses aren't meant for concentration and there aren't enough good ones around to invest billions in. As always I admire the business that Prem and company built.

Cardboard, We just need patience. So long as my dividends keep coming, even at a reduced rate this can go on for awhile. Sooner or later things will balance out one way or another. ie. survivors will brind costs down via wage cuts etc., or prices will go up. I have done catastrophe testing and will do fine even if Russell, ARX, amd WCP dramatically reduce their dividends, like Crescent Point and Mullen did. I would think Russell may have to, and WCP would probably have to after the second quarter if things dont rebound. ARx looks good for a couple of years out due to 70% gas, and long term hedges into 2019. Your idea, while novel, is also very unlikely. I am with Eric on this. Lower oil leads to upswings. At some point in the not too distant future the effects of buying larger vehicles, and cutting oil production will take their toll.

Scott - I love it. You'll be hard pressed to convince me you are lazy though, or even undiscplined. Al