Uccmal

Really? - Please elaborate a bit, Jurgis. I don't believe I add value through my investing decisions. And it probably would be more useful to society if I spent more time on projects in my primary occupation rather than trying to get extra return by actively investing. I was trying to go this way this year already, but got sucked in into oil morass and some other interesting "opportunities". 8) Most likely I'll just dump most money into BRK/Fairfax/Malone and couple more "forever" holds. I've been going in this direction already. (And before we have religious argument that this is also "active" investing - yes, I know, next question 8) ). The counterargument to this is that putting money in BRK/Fairfax this year would have been even worse than my oil-dragged portfolio. :o But this is for 2015 results thread. 8) Peace. Amen brother. Your not alone on this board I suspect. I have taken a capital drubbing, which is going to take me some time to work out this year. But the dividends keep flowing and will be a principle part of my returns going forward. Sideways, fairly, or even slightly expensive markets are not easy to invest in. But the arbitrage opportunity between margin borrow, and dividend payouts is extraordinary.

I have nothing to add... . I have nothing to add...

Technology driven deflation has never really produced deflation on a mass scale that I'm aware of. Obviously, technological innovations have the ability to drive costs down in a single sector, but it's quite hard to move the CPI without having some relevant impact to housing/shelter given it's large weight. Further, technology has been getting cheaper for decades. Go look at what a computer would cost you in the 1980s and then consider the $600 piece of equipment in your pocket is 1000x more powerful. That didn't lead to massive deflation in anything other than personal computing.... I'm still willing to bet that deflation comes from the oversupply in the system. Demand was artificially elevated for a period of decades due to excessively easy credit. We tried to maintain that elevation with 7 years of 0 rates because if rates were too low for too long before, keeping that at 0 for 7 years makes complete sense! The difference is that this time around consumers have been changed. Pre-2008 they would spend their windfall from a 50% correction in gas prices. Now they save it. Pre-2008 they would overextend themselves to buy new cars. Now, despite a multi-year upward cycle in auto sales and the cash for clunkers program, the average age of cars on the road is still elevated relative to the past. Pre-2008 consumers would use their equity in their house as a piggy bank. Post-2008 that kind of behavior is much, much less likely. The capacity that was built for an American consumer who was saving -2% a year is far, far too much for an American consumer saving 3-5% a year and that's not even considering the impact that recessions would have since we haven't seen once since 2008. I'm willing to bet that this overcapacity is what drives an extended period of deflation as that capacity gets worked off OR until the American consumer grows back into it. Either way, it will takes YEARS. Then we can consider that Europe hasn't even deleveraged yet (consumers or banks) and that China seems to be dealing with the same credit hangover/oversupply issue that the U.S. had and you get a pretty large picture that makes global deflation seem like a relatively likely outcome. People say don't fight the Fed/ECB/BoC etc. I'd say the Fed/ECB/BoC are fighting hundreds of millions of consumers and that the consumers are likely to win out. Some good points about technology deflation. You are correct to this point. What I am drivng at is that technology is going to displace workers in a big way. Governments are hiding it so far by disabling people out, or paying people to do nothing via the military. Finland, as a small example, is instituting welfare for everyone to counteract this effect. The worker participation rates are saying alot that is not getting captured in general employment stats. This time it is different. In past major adjustments displaced workers always had somewhere to go. Not so much now. How long before a single, or pair of Barista's run an entire busy Starbucks? The upshot is that automation at foxconn, and its competitors will bring the prices of manufactured goods toward the price of their commodity inputs. Those jobs lost in the oil patch wont ever be coming back. In the past entrepreneurs, professionals, and high skill workers were exempt. This time everyone's job is on the line. This is why there will be defaltion and why governments will continue handing out free money. They dont know what else to do.

Isn't there always risk? I am not sure where your going with the Fairfax comment but the biggest money I made on FFH was in the summer of 2006 a year ahead of the CDS bet. Or are you just referring to the Fairfax CD bet itself? The situation is of course risky. There is the risk that oil prices will drop further and every one of my holdings mentioned above goes to zero. That its never happened before, and all but one existed during the 1990s, and the other, WCP is a top notch company, should be of no relevance. They really could all go to zero and close their doors. So could Apple. So, we deal with what we know or think we know. Here is what I think I know: 1) The surplus of oil on the market is razor thin and will turn on a dime to a deficit. 2) The markets aren't going to tell you when things have balanced in advance. 3) To no. 1: A huge amount of oil development has been taken off line. It may take years to bring back. 4) At the same time the E&P is going off line, depletion hasn't slowed down from existing wells. Everyone in the periphery of the industry is squeezing existing wells (Russians, Canadians, Us Shale). This to me implies a production cliff. 5) Contrary to popular belief oil and mat. gas are still the most important non ag. commodities. We dont know when the above is going to happen. Enough with the numbers. I am by no means a technical analyst but I think we are seeing a bottom form with oil, and certainly with oil stocks. The early bounce could be very quick leaving everyone shaking their heads, saying why didn't I buy at x price. We already saw a mini version with PennWest, which has since became another buying opportunity for a small portion of a good future portfolio. Kilroy, I am not picking on you BTW, at least I hope it doesn't sound like it. You have the courage to put out ideas while others whine about lack of opportunities, or try to time some sort of bottom.

To your low risk lower return add: Arc Resources:arx - more gas than oil - gas hedged 2-4 years out Whitecap: cutting capex this year to stay within cash flow. Mtl: service provider - just cut dividend 20% to stay below 100 % payout ratio Rus: supply provider to energy industry - very low debt. Paying out over 100% of cash flow as dividends - I expect a possible cut to stay within cash flow. Maybe so, maybe not, Anyway, they operate as an inventory turn and more expensive inventory is out the door at a loss by now.

Its funny you mentioned cameras. Digital cameras lasted all of 8 years. Makes one want to avoid leading edge tech. A few months ago I bought my wife a Garmin GPS for running - nice device. I priced a similar one with an optical heart rate monitor and it was over 300 cdn. That was in Aug. The price has already come down 30%. I am in no hurry... Keith, do you remember when VCRs came out. At the start you had to pay over a thousand for the device, and then 50 or 100 dollars for a store membership. Fortunately for the economy lots of people jump on the latest and greatest. If they were all like me there would be no innovation.

The interesting thing about the late Victorian Era is that it was a time of relative peace and rising prosperity. I think we are heading into, or in, a long period of technology driven deflation. Goods get cheaper at an astoundig rate these days. Smartphones, better than two year old Samsungs or Iphones, for under $100. If employment, or alternative income, is maintained, purchasing power rises. As someone else said the fed will try the tightening experiment into next year, and probably stop at some point and hold tight, or even retrench. Funny how Buffett worried about the US getting sold off piece by piece to foreigners. With the USD sitting where it is the opposite may happen now. I think this deflation is driven by tech. developmemt rather than by monetary policy. Producing goods and services is becoming a competitive arms race to the bottom. Watsa is right for all the wromg reasons.

I didn't realize that. Yes, I live and drive in NH and heat with oil. The large drop in oil prices is very obvious to everyone around here. Home heating oil: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPD2F_PRS_SNH_DPG&f=W Gas: http://www.newhampshiregasprices.com/retail_price_chart.aspx?city1=NewHampshire&city2=&city3=&crude=n&tme=36&units=us Add some colour to my comments: http://www.cbc.ca/news/business/bmo-gasoline-prices-oil-1.3365821

Doesn't everyone have a pretty good idea of how much oil prices have dropped? You see gas stations everywhere with huge signs showing the gas prices wherever you go. Anyone who heats with home heating oil knows as well. rbang, You live in NH right. Take a spin to Montreal. Prices are still around 1.00 per litre. It isn't obvious to us.

Yeah, Last nght a friend of mine asked me how my stocks are doing with the TSX crash. He's never asked before. To non Canadians. Our pump prices are down only 30% from the peak. The government has to get their slice you know.

I like that word unpack. In plain English, you are proposing that Alberta and Canada meet their GG targets by paying Syncrude not to produce. It simultaneously takes out supply, and meets GG requirements. In effect Suncor becomes a finance cap and trade broker company of some sort. It will only work if the system is workdwide. That remains to be seen. We know Opec cheats on pumping - they will cheat on Cap and trades as well.

How implausible are these? Demand could slow due to a change in driving patterns, for example, if ecommerce leads to more efficient last mile delivery (UPS trucks delivering to ever house in the neighborhood vs cars all going to a store). Same thing with telecommuting -- marginal increases in telecommuting could have large effects on driving patterns. These don't require new forms of technology, more a behavior change that could come with a generational shift. This argument really only applies to the US, but you could see driving restrictions in China to combat smog, etc. Automation and tech driving down the cost of supply -- yeah, you're right that this shouldn't effect ROC on a prospective basis even if prices go down, but it does devalue the capital already invested (retrospective basis) and reduce margins for anyone using legacy processes (there are a lot of assumptions there but basically --> cheaper supply --> more oil --> lower price) I was trying to legitimately invert. I didn't do a very good job. The last mile you mention is really the only area you see reductions. Amazon isn't changing the landscape in terms of anything else but the last mile. I was listening to a funny segment on local radio the other day. The Dj's young son wanted something from Amazon and was alloted $15 to spend. He chose to buy kid blindfolds for sleeping. The other DJ commented that he didn't feel quite so guilty about his big truck, since she was having a useless item that will never get used shipped around the world, likely by air. Generational differences in the US may prove fleeting and more a product of the aftermath of the financial crisis rather than anything else. I dont see Chinese, Mexican, Indian, or Brazilian middle class forgoing car usage in any meaningful way. The opposite is more likely. And for the next few years its going to be gasoline and diesel, since they are the most versatile.

Munger says to invert... What would cause the oil price to drop lower or stay below $50 US per barrel, for the next ten years. 1) Production rises - either Opec related, Iran, Iraq, Libya, Russia. Whatever source it rises. It needs to rise above rising demand enough to keep prices down. 2) Oil workers worldwide (a high skill lot) agree to work for less, thus cutting costs further. Now this may not affect profitability potential at all. 3) Demand doesn't rise, or even shrinks. The last I read Nuclear Fusion is still on the drawing board, or at least not putting out as mich energy as goes in. 4) Automation and tech. improvement make the cost of gettting oil less. Its hard to see a negative in this except for workers. The end game of course is nearly free everything, and guaranteed income supplements from governments for all - see Finland. And we all sit around in a fog of dry ice playing harps all day. 5) A major discovery of a dirt cheap field that hasn't been found yet. Okay, Im reaching. 6) No war in the ME. History cant repeat itself. 7) No civil insurrections in the ME when kept populations realize things are getting worse. 8) All things stay static as in the 1990s - That was the period of the peace dividend. I cant think of anything else at the moment.

what do you mean "moral and ideological ressons"? Just curious.

I am just reading "the frackers", seems like this happened in 1980s and 1990s too after the gulf war. How are people so confident that this will turn so quickly this time around? If history is any guide, this can go much lower from here. Geopolitics seems to suggest supply is going to keep going up. I am not really sure if we are going to see firms in america default on their debt. IMO when push comes to shove, most banks and creditors are going to extend and pretend. Everyone knows this is cyclical, so why eat your losses now, when you can extend the maturities/lower coupons and wait for payments in future. Most shareholders though, might get severely hurt.. Maybe so, or maybe not. A good portion of the oil we get now is vastly tougher to get at then 25 years ago. In the last 25 years we have had to go deeper, further, and more dramatic (fracking) to get at oil. The worldwide rig count has dropped way off its peaks. All oil wells deplete over time. Therefore supply should come off. I dont believe every rig has suddenly become 80% more efficient in less than a year. As to your second point. The problem isn't what was borrowed before. It is what they need to borrow now to keep the lights on. To frack you need to spend money at a pretty good rate continually. Will any lender willingly put more capital at risk? I dont know the details, but I would think that deep water, and arctic drilling also require constant capital injection to operate. As opposed to the good ole days where you put a straw in the ground and had a gusher. Thats the premise anyways.

I sold some o&g holdings yesterday/today, so probably we are. Unfortunately, I also bought some, so... possibly not. 8) Overall, my current holdings are down 50% on the prices paid. That includes all gains/losses/divvies/interest/etc since I started buying ~Jan 2015 (one position is way older, but that's immaterial). I don't count losses on somewhat-oil-related stocks (e.g. CFX, etc.). The stock specific downdrafts are probably due to tax loss harvesting right now, at least in part. I hold Arc and Wcp and they are down somewhat from what I paid but way down from their highs. Both are well hedged into late 2016, and aren't in any mortal danger. Simultaneously PWt held up fine the last couple of days. So I think its tax loss selling. Same boat with my partially exposed Russell and Mullen. Edit: big fingers, little keyboard

Same here: http://peakoilbarrel.com/eia-says-shale-continues-to-decline/ The drop in worldwide rig count is astounding. There is no possible way the rigs have gotten 90% more efficient in one year, as Cardboard suggests.

Interesting observation. I was thinking about manipulation in this market this morning and the usage of the news media. Opec announced nothing new or unexpected the other day, but the media spun it like it was some kind of catastophic event for oil production and prices. What actually happened to send prices down? Fundamentals haven't changed in months in favour of cheaper oil. If anything, the fundamentals suggest prices should go higher. My conclusion is that talking heads on the short side manipulated the prices down using the news media. Now they are closing out positions, and we can expect a report on Rig counts or a new skew on cancelled projects to push things the other direction. This brings to mind the movie "Trading Places" where they are manipulating pork belly futures. OPEC announced a theoretical production increase of 200 to 700 k per day, which of course they have already been pumping for months. Take the mid point of 450 k and divided that by 92 M bpd and you get half a percent change in supply that was already hitting the market. Never mind that 0.5 % change is well within the margin of error on any estimates. So much bullsh*t, so little reality.

Why do people assume that the oil market is going to behave any different since the gas shale revolution. Perhaps this is a paradigm shift and people are just not accepting the new reality. I know some consider me a perma bear on oil. That is not the case. I have been looking but there is are so few opportunities right now. Why do the bulls think an "eventual recovery" in prices is right on the horizon? The NG market has been in a tailspin since the shale gas revolution took over and today are at record lows. Why is oil going to be any different than the NG market? As I have written elsewhere, I was in total denial when the NG market tanked, not to recover for almost a decade. Until I see something compelling that oil is "different", I will be very, very skeptical. Your logic is sound. I would not say I am a bull or a bear on oil. There are differences between oil and natural gas markets. Nat. gas is a stranded market in NA at the moment. The story is very different in Europe with gas being 3 times the cost here (6.24 usd per Million BTU, Nov. 30). Anyway, Oil is subject to geopolitics. I think that is probably the trigger point. Today OPEC agreed to pump 31.5 Million Barrels per day. I suspect they have been pumping at that level all along, but we will never know. To me there are several trigger points that might raise the price of oil: Only some more obvious ones: - Isis: So far they have preserved pipe to keep money flowing in. What if they get desperate and move to a scorched Earth policy and blow the pipe? They have shown themselves to be resourceful and agnostic where enemies are concerned - what if they blow a major Saudi refinery? - Saudi Arabia itself: This country was built by the ruling clan. They have to placate millions of people who have become used to a certain standard of living. A civil war seems a real prospect - this is the clan are so determined to contain the situation in Yemen. - Other Opec producers unravelling. No idea. - North America and offshore production for the most part is uneconomical, but surprisingly resilient so far. Does it drop enough in the near future to cause a price increase, or stability at a higher price or is $40 the new norm. No idea. - China/India/asia demand is not dropping. I keep coming back to the idea that the situation is inherently Unpredictable. No one anywhere, no matter what they claim today, saw the price drop coming last year. Is it not just as likely that we could see the opposite happening? Personally, I would like to see the price stabilize at some level that is not too high, or too low, in order to sustain global stability, but the world doesn't care about my desires or needs.

I lol'd at oddball, but your question is the relevant one. Like Morgan said, this kind of military style might work for some people and some companies. Wouldn't work for me, though I do see value in being more thrifty, more organized, more detail oriented, etc. There is recognized psychological value both for the person doing it and for the clients. As long as it does not blow back killing growth/innovation/etc. I.e. they might not have invented glass ceramic ( https://en.wikipedia.org/wiki/S._Donald_Stookey ). But perhaps they did not need to. :) Not a company for ScottHall, definitely. 8) It wouldn't work for Munger either. A typical case of "do as I say, not as I do". To me its just creepy, on par with companies that monitor keystrokes, and web cam cubicles. The thing about Munger is that no one ever would have heard of him had he not had a "lucky" meeting with Buffett. He is certainly intelligent, but his biggest fans overlook his fortuitous meeting.

I dont know what the fuss is about. This kind of stuff has been going on our entire lives. Russia isn't going to do anything dramatic. One thing they will do is take Turkey a little more seriously. I suspect Putin et al are starting to realize the mess they have walked into. As to the comments that the US caused the Syrian Civil war; it just doesn't stand up, except under the most far fetched of scenarios. My recollection is we had the "Arab spring" which migrated into Syria. President Assad chose to use force against mostly peaceful demonstators. As to Islamic State, and Al Queda, there is some culpability there. As someone noted above, assigning cause and effect are difficult given this BS has been going on for all of our lives as well. The sooner we get off Oil, forever, the less we need to worry about the mideast. Once that happens the need to interfere and prop up dubious regimes with poor social records and too much money will be unnecessary.

Except that the lenders would rather extend the debt than own the companies where ever possible, especially if the companies can meet their debt obilgations. Arx, and wcp, are having no trouble meeting their debt and dividend obilgations, and pwe may be headed there shortly. With each succeeding day at these "new low prices" the producers are bringing costs down in NA. In the non capitalist countries there is no incentive to bring costs down. I can only imagine the difficulty for Russia's, or SA's state oil companies to cut costs. Russia and SA are dependent on oil and gas to finance government operations. NA is not. In N. America's diversified economies something else picks up the slack. If the prices rise, the surviving NA producers will become very profitable very quickly. Packer, thanks for the chart. Nice summary. Not if that US or canadian producer has a ton of debt obligations he/she needs to meet! The hypothetical US or Canadian producer with a ton of debt has a finite amount of time in which they can produce at a loss, as does Russia, SA, etc. But, the US/CDN producer has a much greater finite amount of time. -Crip Not necessarily, the US/CDN producer has creditors who can declare it in violation of debt covenants anytime. Russia has gunz. The Russians and Saudis have no incentive to cut costs. Their economies and social programs and bureaucracies are incentivized for the opposite. If they cut costs people lose jobs, and there are no alternatives. Can/Us have much more elastic economies. Lenders are never in a hurry to take on the expensive dog's breakfast of CCAA or Chapter 11, if there is any chance they will get repaid at some point. We have seen lending agreements modified over and over in the Canadian west over the past year. The survivors in NA will come out of the low price environment in very good shape. If the price remains steady they will continue to cut costs as needed. Eventually the other countries will be forced to capitulate. This didn't work out according to plan.

Well, I am not the Board.... and I also cant predict the direction of oil... Alot of unexpected things have happened. The biggest one I am noticing is that the price of production, due to technological advance, in the US is coming down fast. Presumaby this overflows to Western Canada. This is an unintended consequence of OPECs actions, not that they had any choice in the matter - this is a battle to the death. The more expected side is the increasingly rapid development of renewables. At some point in the next few years the growth in the use of oil will stall, and start to reverse, regardless of price. That doesn't mean that oil cant be profitable in the long term for those who can produce it cheaply: such as Russia, NA, Saudi, Kuwait, Iran, and Iraq. On an individual basis I think the only way to do this is to pick those that will be survivors. To that end I have invested 4% in each of Whitecap (WCP), Arc Resources (arx), and PWT(pwe) respectively. I also have much larger positions in Mullen Group, and Russell Metals, both of which are partly leveraged to oil and gas. All of the above, including Pwt's present management, have been through down cycles before. Arc, mtl, and rus came out of the 90s glut. I also have a sizable position in Brookfield Renewable Energy... call it hedging with benefits. I dont follow US e&p companies at all.

Well, generally cash is a very poor choice in an inflationary environment… Will FFH do even worse?! Maybe, but I don’t see why we should assume that. Catastrophic losses in their insurance / reinsurance businesses? I agree it is a risk. But luckily enough they seem to have become much better underwriters than they were just a few years ago. Cheers, Gio I would have thought that Insurance would be an awesome business in a deflation. Take in premiums in todays dollars, and pay them out in fewer future dollars. It would work until the flip vack to inflation. To that end I think the deflationary hedges are more of a bet, than a hedge. In terms of deflation. I am definitely not seeing it in Canada. Prices on everything, except maybe technology, are up over the last few years, in part due to the dropping currency, in part due to asset inflation and higher taxation on said assets.

Eric, I absolutely agree with your broad point here and I do think that all multiples will compress in the next crash. I don't expect to make money in Fairfax the first 6 months of a crash. That said, I do think you're picking your dates a bit too carefully! I just (fairly randomly) chose Nov 2006-Nov 2010 to graph FFH CN, and it basically goes from bottom left to top right. The selloff starting March 08 lasted five months, took you back to where you would have been in Sept 07, and reversed rapidly. The same thing happened starting early 2009. So yes, the start of the storm felt shitty both times, and maybe that'll happen again and we'll will get a great opportunity; but all the graph really tells us is that this is a volatile stock that performed extremely well through the crisis. And we all know that what matters far more is how IV trends, and I believe FFH's IV could explode in the next crash if there is a deflationary panic. I think 2008 is not comparable to today in two ways: as soon as the next crash happens people will look to Fairfax, remembering what happened last time, which is bullish; but the starting multiple is higher, which is bearish. P People may look to Fairfax in a crash, but they will be selling none-the-less. The reason is fairly simple: the need to raise money for margin calls, and generalized panic. It absolutely will happan again. Your naive to assume otherwise. Going into March 2009 FFH dropped by 100 on the heels on extremely high earnings. I know because I was buying FFH at the time. Its posted somewhere on this board. I believe that people will see other stocks they love down 80%, and they'll dump FFH to buy those stocks. I've said this before: once you think the bottom is in, FFH is the wrong stock to own. I think they only had like 50% of their book value in stocks in March 2009, and a lot of it was stuff that wasn't all that compressed (JNJ for example). THE BIGGEST mistake I made in early 2009 was smugly believing that FFH would be backing up the truck and loading up on bargains. HARDLY! Not a single share of AXP for example. And MKL? I think the only thing they bought through the crisis was a teensy weensy bit more KMX. So look, there won't be much buying pressure on FFH stock itself if people remember what happened last time. But that was my mistake in misreading them -- they probably were uneasy after dropping their hedges and/or couldn't add more risk being an insurance company. Yes, you have said this before. I was buying the Leaps back then. FFh did some merchant banking as I recollect including H&R Reit, and Mullen Group. Most of my money in spring 2009 was going into SBux, GE, Axp, wfc, hd, and a couple of others. The others were much cheaper than FFH in March/ April 2009. Which begs the question: Why hold FFh at all? Returns now are middlng, and getting to the bogey of 15% for any further 10 year period is unlikely. Please dont take it that I hate the company at all. Its just there better investments.