SharperDingaan

Nobody knows how this will go, but most would expect variations of the below; Gaza/Egyptian border opened, managed by Egypt/UN; water/fuel/food/medicine in, people out, and held in camps on the Egyptian side. 2M people live in Gaza, they have nowhere to go, they cannot get out, and per the UN charter; collective punishment is illegal. The people living in Gaza are not animals. Israel is too far in to avoid a mass invasion of Gaza. Record body counts and atrocities on both sides quickly sour support, and create future generations of armed conflict. Israeli coalition government collapses, Hamas and Hezbollah disrupted, but continue to exist. The US cannot support both Israel, Ukraine, stay under its spending cap, and keep all the balls in the air without a new house leader, and quickly. Hot wars burn through munitions at an incredible rate, and US disruption fears are inevitable. US/Saudi/Iran/Israel deals collapse. Oil prices rise, and there is no longer a cap (Saudi supply flood) on how high prices can go. Somebody hits Iranian facilities, they hit Saudi facilities, and oil prices are .... Most would expect an overall downward market bias, and a strong upward bias on the price of o/g companies. Add a significant push for windfall taxes on the o/g majors (Exxon, etc), and the weapons suppliers; as they will be seen as war profiteering. Less of a push in Canada as an on-time completion of the TMP expansion is 'salvation'. Sh1tty way of making a buck, but pretty hard to find a better place than the WCSB. May we all do well. SD

Oil prices should go up a good USD 5-10 over the next little while. Little mentioned in the press are the current US/Iran USD Billion 6 prisoner swap, and 'permitted' increase in Iranian sanctions free oil supply. It's pretty clear that in pulling their strikes off, Hamas had to have logistics/co-ordination/intelligence help from a 3rd party; and that if escalation is to going to be contained, blood lust for Iran is going to have to be 'appeased'. Restructured prisoner swaps, no money, and all Iranian oil under sanction, etc. https://www.theguardian.com/world/2023/sep/18/us-iran-prisoner-swap-deal https://www.bloomberg.com/news/articles/2023-08-25/for-global-oil-markets-a-us-iran-deal-is-already-happening Total supply doesn't change, but Iran receives less for it (net of sanction breaking costs), and the western world temporarily pays a little more for sanctions free oil. The escape valves being Saudi agreement to reduce cutbacks, and additional Canadian supply on-line in late Q1 2024. More supply still if the number/length of Canada/US oil trains are also stepped up through Fall and Winter. All good for the WCSB. SD

Drug thing: Junkies routinely overdose on toxic drugs. BC averages 207 deaths/month (1455/7); in some places, so many at a time that it even overwhelms a city's ambulance capacity. Nobody plans on being a junkie, and nobody wants to use a questionable supply, but when needs must the dice are thrown. https://www.cbc.ca/news/canada/british-columbia/toxic-drug-deaths-july-2023-1.6950922 No matter the drug, some people are going to abuse it, it isn't going to go well, and there will be deaths; it doesn't mean we shouldn't use the drug as prescribed. However if we don't hear negative media, or see the bodies, we perceive everything to be fine. Manipulate social media to suddenly make patients aware, via a viral campaign and graphic imaging, and there will be a negative impact on the makers share price; that is exploitable. The financial industry has long been a haven for sociopaths and psychopaths, there will inevitably be attacks from time to time. https://www.ft.com/content/97fc800a-31e2-11e4-a19b-00144feabdc0 Economics thing: With only $X to spend on groceries, when inflation prevails you either buy less of the same (smaller packages), or substitute (house vs brand name). However if you can both eat less (Ozempic abuse) and divert the net savings into something more fun; the food industry sees immediate & growing permanent demand destruction. Furthermore that big earnings decline 'n' years out, discounted back to today, only appears as a gentle headwind and not as a hurricane. Exploitable opportunity. SD

Like anything, use Ozempic as prescribed for the type-2 diabetes it was designed for & it's a wonder drug. Abuse it to do something else entirely (weight loss), then repeatedly do it again by upping the dosage (overdosing), and it's a very different thing. Anorexics already suffer a disturbed perception of body weight and image, abusing Ozempic to keep the weight off is little different to a druggie craving a fix. Lot of people also used to think that Oxycontin was OK, until they got addicted. SD

Not enough. The reality is that Chinese demand continues to fall (relative to expectations), and to avoid an inventory build OPEC+ will need to apply matching cuts. Most of it will be from monthly OPEC+ run-rate depletion/disruption, plus the odd surprise. Russia cutting diesel exports while China sells off some of its excess is instructive. The mystery is India. Does it temporarily play nice with the international community, swap some of its Russian supply for Iranian, and continue to pay in other than USD? SD

Break down the ending stocks by type, and compare it to the minimum SPR requirement for that grade. Total stocks are approaching low levels, and a very high proportion of it is light. The heavy oil SPR is much lower than it should be, and the level of storage at Cushing has been flashing for some time. There is a reason why everyone is pushing for completion of the TCP expansion asap; almost everything going through it will be WCS (heavy), and it will be flowing an additional 500,000+ bpd. https://www.theglobeandmail.com/business/article-canadian-oil-output-to-hit-new-heights-within-two-years-report-says/ SD

Been shopping as well ... Keep in mind that the more EV takes over the world, the more valuable heavy oil gets; as it cracks into the feed-stock for asphalt, etc. Cars still need to run on roads, the roads need asphalt, and we get asphalt feed-stock from the bottom-middle layers of the heavy oil crack. If you want the benefits .... you have to crack heavy oil, and the more heavy fractions you want the more you will displace light oil (primarily shale). Today; heavy oil is typically despised; publicly seen as highly polluting to get out (oil sands mining/refining), and as 'dirty oil' when burnt (higher carbon release). Yet it is also routinely extracted in quantity; with minimal pollution via cold flow, water flood, and C02 sequester techniques, often at depletion rates < 10%/yr. Market miss pricing is a wonderful thing SD

It's click bait folks; designed to sell Ozempic. As body's 'starve' they initially extract more nutrient from less food; keep starving them and they try to conserve energy wherever possible, and feed on muscle. The rest of us get to put up with fashionable whining anorexics, and the well-know images of starving babies. Identical to the junkie selling highs (beauty); to keep the weight loss going, the dieter has to increase dosage, and toxicity rapidly rises on the ever declining quantities of dillutent(food). Ozempic does great until the bodies pile up, and the starvation images upload to social media. Exploit accordingly. SD

A lot of the consumption is simply boredom and availability; rich mans disease. Reduce the money that people have, and providers will just reduce the package size while charging the same. The population gradually gets healthier as it eats less, but no change to total revenue. SD

The reality is that all Utopia's are time limited; as the price to live in Utopia is accelerating irrelevance as time moves on, whether you're a Mennonite, a Mormon, or a Toronto Islander. Not mentioned in the article is that the Islands flood as/when Lake Ontario rises too high, and if you have a heart attack in winter ... you need to live long enough until a helicopter can arrive to airlift you to hospital (no ferry). https://en.wikipedia.org/wiki/Mennonites Its a great concept; but to maintain a healthy environment it really needs a much higher urban density, with open healthcare/groceries/road access, condominium style maintenance arrangements, all the houses designed for concurrent multi-generational living, and a location close to a source of employment. The 'old town' of a historic European/Medieval city, with the facades of old buildings kept, & the interiors gutted & modernised; great for an Old Montreal or Quebec City .... not so much for a Toronto Islands! Similar versions exist in Canadian former 'company towns' where the company has moved on, but left the infrastructure. The former 'ghost town' becomes a retirement community; the main income is pensions/tourism, and the more dense the population becomes, the more efficiently health care can be delivered. Housing/property tax is dirt cheap, commutes non existent, built-in health care and restaurant/tourism industry need for workers, and the outdoors literally next door. It often spawns a local green power & urban farming industry as well (vertical growing in warehouses). Not for everyone, but a very cost effective alternative for those wiling to think 'differently'. The downside is that without the scale, it can be very 'small townish' and NIMBY in the extreme. Many would tell you that the best thing between the Toronto Islands and Toronto itself .... is the lake! SD

I hear you, but a few practical issues. No matter how it is done, every forecast has a widening cone of possible outcomes; & the further out in time the forecast is, the wider the cone becomes (standard deviation). Beyond 2-3 years the +/- standard deviation becomes large enough to essentially render the predicted outcome useless. As soon as you use history, you have assumed that the future will either repeat or rhyme; not a bad assumption in 'normal' times, but we haven't had 'normal' for 17 yrs (2007 Great Financial Crisis & beyond). OK, if you think the future will be as least as volatile as the past, but otherwise? At the granular level, the use of history is the same as data mining; applying a data-set correlation > .85 outside of the data set; & hoping that it is still going to be reasonably predictive. It may be OK for the 3-4 month predictive life of a 'bot, but beyond that? Like to like, for a BBB equity; do you have confidence in your prediction that the share price of the common will fall by more than the price of the 7yr duration bond (duration of the bond fund) of the same entity - if rates rise 250 bp within the next 12-18 months? You are confident, in your prediction that the equity index will be 15-25% lower at some point over the next 18 months? i.e: If the bond was bought at par, the 250bp rise in market yield will reduce the price by $175 [ (0.025*7*1000/1000)], or 17.5% [175/1000]. If that rise in market yield causes the share price to drop by > 17.5% (a recession) the bonds are better. For most people it's going to be a guess, & little more than a 'gut feel' based on whatever they have seen/heard over the last little while; hence the emotion, & influence from the daily media feed. The reality of course is that nobody knows; it's all just 'informed opinion', at varying degrees of confidence. SD

The whole bonds vs equities thing requires the investor to have confidence in their own forecast of future interest rates, over some period of time (economic cycle). Cognisant as to where you are in the current cycle today, forecasting whether future yields go higher/lower from here, & trading the bonds vs holding to maturity; however it's not really executable unless you're trading minimum lots of 100K. Historic bond performance just isn't relevant, & most people are confined to a bond fund, paying fees, with some kind of a medium term duration at best. For most people to outperform equities via a medium term bond fund, interest rates need to fall by quite a bit (fed intervention to prevent a global/great depression). Most would argue that we are now past this (all CB's are raising rates, & all at the same time), & that going forward - it will just be return to routine business. If you think that going forward; stocks fall significantly as the various liquidity supports are withdrawn, bonds might be the better option; simply 'cause after inflation, they lose less. The reality is that if you expect global inflation to average 3%/yr at best, market yields are not going to go down by much. 70/30, 60/40 doesn't mean 40% in bonds; it just means 40% in fixed income, which could easily be dividend paying utilities/banks, preferred shares, rental housing etc. Depending on risk tolerance, a lot of these are a lot better alternatives to bonds. Different strokes. SD

A lot of the construction boom condos were bought as assignment flips, with Airbnb rental as the last resort. Mom/dad bought a condo for the kids to use while at school; post graduation the kids used the condo as equity to support condo assignment flips/purchases ... & now there's not enough equity/rental revenue to cover the higher mortgage interest & operating costs. As long as mom/dad continue to cover the monthly shortfall, the empire can be slowly sold off & unwound ... but comes the day they collectively apply the brake, the empire implodes on the recourse mortgages. Typical example: 5% (30K) deposit put down on a 600K condo that was to be built precovid. Post covid the expected price has escalated to 1M inclusive of interest costs & upgrades needed to sell the condo in this new world. Buyer either puts up an additional 20K (to total 50K) by date X, or both loses the assignment deposit & becomes liable for any losses the developer incurs on disposal of the unit. Without the money, & desperate to exit; the seller accepts 5K in an assignment sale. All else equal if the condo is built, the developer marks the unit down to 850K to shift the inventory & finally exit; the buyer gets the future upgraded unit for 25K (5K+20K additional) plus a 800K mortgage; if the developer bankrupts the buyer is out 25K. The buyer essentially bought a long dated call option with a strike at 850K, for 25K; if (when opened) the condo eventually reprices at a value of 1.1M .. & you sell, you have 250K - commission & legal costs . The existing airbnb condo sold to a family to live in, is the same as a condo built; & if an empires condos are liquidated, a lot of families benefit ... from both additional supply & lower price. Furthermore, if the empire is not amongst the first at the exit, the shortfalls from recourse mortgages are going to be a lot higher; hence the traders well-known 'your first loss, is your smallest loss'. Burning fuse. Most of the condo's have high condo fees, aren't spacious, and are not a great fit for families. But if it becomes affordable, has good access to public transit, & is not a dive, it's not a bad interim step; especially for someone just on their own. The big banks are well protected, but the public will probably not see it that way & sell them off aggressively. Same as in oil/gas, a miss-pricing to take advantage of. SD

Some add on's: A great many investment properties sit unoccupied/partially vacant. A first great wave of new housing will be their return to market, as/when landlords finally have to dump &/or re-purpose vacant office space; & everyone is screaming as to how 'awful' Canadian real estate investment is. Multiple towers worth of condominium units all rushing the exit at once, & new condo's getting cancelled (freeing up construction workers). A second wave of new housing (largely housing new Canadians/first time buyers) being the result of policy action. Probably a version of the 1970's MURB for qualified first time buyers, with a low DP and a non-transferable 25 year term fixed rate mortgage at 3-5%, backstopped by the BoC; sell the place, & the low rate mortgage is immediately repaid. Zoning amended to accommodate brown-field tear-downs & replacement with similarly zoned but larger buildings. Whichever political party implementing it, probably remaining in power for a consecutive 3-4 terms. Lot of disruption, but with it - opportunity. SD

Couple of points: Canadian interest rates are simply returning to long-term historic norms; we're just working through the hangover of extreme low interest rates from the Covid era. The price bubble arising out of low interest rates/very tight supply is slowly being deflated as fixed rate (blended payment, up to 5 yr terms) mortgages reset upon renewal, and supply rises as investors are forced to sell. Very little systemic risk (CMHC insured mortgage, bank capital buffers at highs/going higher, principal pay downs, term extension, etc.), but quite a bit of household risk (the more so the less financially literate you are, & most people). Investors built/bought office/warehouse/condos/houses, & have mostly sat on them; minimising accumulating unrealised loss by keeping them off the market, and prices high. Per the media reporting, it would seem that many are about to fold; speculators/investors fleeing, the new supply flooding the market/forcing down price, & ordinary people finally getting a chance to buy at more historic valuations. The inflation reducing, practical, & shorter term solution to the housing market. However, a lot of rich/entitled people are going to get burned, & the knock-on effects from related bankruptcies (over-borrowed against high RE valuations) are difficult to proactively quantify. Drowning people scream, and the media will be full of negative 'human interest' RE investment stories, feeding into the selling loop. The 'good news' affordability stories largely ignored, as the sources don't contribute to political campaigns. Not a bad thing, and long overdue. Moral hazard exists, it doesn't care how 'special' you are, & it's a bitch. Get used to it. SD

"The other use case I see with BTC is the censorship resistance. CBDCs may work for most, but they'll probably have the same issues that sex workers have, or that marijuana distributors have, and etc" Think of it more as 'active privacy'; and usage primarily as per the Cyberpunk Manifesto. Everything you do on a rail, payment platform, CBDC, etc. is public, and subject to ever changing public censorship (good/bad). Whereas BTC offers a widely available, direct and fully functional censorship resistant alternative, that you pay to use - as/when you need. Big brother suddenly turns on you ... the jaws snap on empty space, not your life savings. https://archive.org/details/anarchy_Cypherpunk_Manifesto SD

Have to think that most everyday payments are going to be done by CBDC; which we increasingly see happening every day (eCNY, eKrona, etc.). We will still have the rails (Visa, Mastercard, FedPay, etc.), & cash; but with less activity in each stream. While the Lightning network is a good 2nd level payment solution, it sucks as a business solution. For those small everyday purchases (coffee, lunch, etc.) it really doesn't matter if I can be tracked; and it's a lot easier/more cost effective to simply break the trace by using cash. BTC's true value is in its anonymous portability, and its long term inflation protection (store of value). We can argue to what degree; but the reality is that values are no longer constrained to hard assets for inflation protection, or trapped behind national capital controls. SD

Quick word, then let the thread resume .... A major issue is the lack of a relevant benchmark/comparable. If you're from another country, & had a life totally different from most all others around you, you're the one-off outlier .... there just aren't any other benchmarks. You take away the best you've seen in various people you've met along the way, & try to adapt it. I learnt brewing/bootlegging in Africa at the feet of an enormous black women, & thoroughly enjoyed the experience. Turned out she was the 'black sheep' of one of the Zulu households; and via her, I got to spend time with one of Africa's more far-sighted Induna's - all while under apartheid, in an extended civil war, with people routinely getting killed everywhere, everyday. As in wars everywhere, time accelerates, & the lessons learnt at the feet of both masters were incredible. Zulu culture celebrates 'bastards', as long as they are 'good at their job' & the cycle of life prevails (limited time engagement); hence the soft spot for the Robber Barons of their time, the friends in low places, etc. Along the way you will invariably meet some of them, the exchange of views raises your game, & you'll learn various 'management' techniques. Again; learning at the feet of masters, all of whom are paying it forward. The take away from all this is that 'wealth' isn't money; it's your relationships with people, & your confidence/ability to make/accept/trust in your own decisions. You need 'wealth' to eat/live; but after that - it's what you choose to do with it. Making money is pretty straight forward; the use of it .... not so much! Now back to the thread ... and the making of that money! SD

Couple of takeaways from the 'risk shop' .... The business ownership approach isn't just the longer term view on the market; business owners see capital and income as interchangeable, Joe Investor typically does not. The owners objective is a healthy/growing business capable of spinning off more profit every year; if the business profit is 500K this year, whatever money taken out as salary/dividends > what is needed to live, is a capital allocation decision. If you decide to live well; your business profit needs to be either a lot higher than 500K, or you are slowly running the business down (sometimes not a bad thing). Volatility is not an issue if you are 'prepared' for it (as you repeatedly hear); 'preparation' takes many forms, but it is fundamentally about access to cash. There's the 'cash' pile, and the 'debt free' assets pile; the first preparatory $ coming from higher debt (tax deductible interest), the last $ coming from the 'cash' pile. There's also the 2nd job/go back to work pile; everyone doing what works best for their risk tolerance/family situation. Hence high quality marginable assets, assumption of a 50% loan-capacity haircut, and a cash pile as 'insurance'. Occasionally you will encounter the opportunity to step up to the plate. It comes down to doing your numbers, being comfortable with/able to survive the adverse consequences assuming it blows up, and having the strength to 'walk away'. It might suck at the time, but there's often a consolation prize that is nearly as good. Continually do this well & eventually you will run up against the corrosive effects of wealth; if you are against the general concept of 'trust fund babies', you need to give some of it away. It is not charity, it is simply an exchange of monetary for social wealth; the better you can do it, the better your 'exchange rate' will be. So what? Everybody eventually croaks, & you can't take your wealth with you. Hence your 'mission', should you choose to accept it; is to lead a happy/healthy life well past 100, & demonstrate to those behind you, a life well lived. No sweat! SD

Long term investing thing. Almost everyone will be told they should get on the property ladder; as soon as possible! For the tradesman/handyman that's typically the 'fixer-upper', flipped for a gain, and repeated. For us less gifted, it's typically buy the small house in an appreciating neighborhood, rent/share the place, progressively flip, and repeat. The ultimate goal being ownership of a house that is debt free, some years before retirement. Carry a mortgage, pay it off via forced monthly saving, use gains to accelerate the mortgage burning date. But ...... propose to pay down that same mortgage via stock-market gains, & you're a heretic! Even though if you simply compounded at an average 12%/yr, your house would be paid off at the end of year 12. [at 12% it's a 2-bag in 6 years, and a 4-bag in 12. A Day1 20% DP, plus a 20% investment that grows to 80% in year 12, pays off the mortgage]. And the better you are at this ... or the luckier, the sooner you can burn the mortgage. Learnt this trick from Greek friends who used their sovereign debt crises to advantage. 250K in 25year zero-coupons, 1.25M purchase of a villa that would normally sell at 4M, and a brutal carry on a 1M mortgage. Yields went their way, the mortgage was repaid 2 years later, & there was enough left over to also buy a celebratory boat. Sadly I'm still mocked for passing on it! The reality is that the ability to 'apply' vs parrot [the CFA way] is not that common, and those that are good at it whisper. Stray out of the accepted swim lanes, and you will feel pressure; not a bad thing. SD

Nah - 100% long as always! We just try not to drink much of the latest cool aid. We're always in a mix of equity/bonds/cash; we just view the components differently. Cash = T-Bills, & mostly BTC/UBS. Bonds = Canada's held to maturity, distressed/zero-coupons, and mortgage repayment. Equities = o/g, utilities, etc. We do nothing; cash/bonds pretty much double by themselves, the gain pays off mortgage, & we're left with our money back plus fully paid off housing that we can easily rent to cover operating costs. Should UBS oblige with a spin-off of the former CS bank branches, our London(UK) redevelopment will be fully paid off, we'll still have all 3 units versus just 2 as originally planned, & there will just be a small tax-bill. However it is only feasible 'cause we have the risk tolerance, and the risk management expertise to do it; and view the whole thing as on par with running a business. As with all business people, we hope to be good at it, and we're not in it for charity. SD

Couple of observations. Price inflation. We aren't going to have significant inflation when folks are getting 5-10% wage increases every year. We're just creating future unemployment as the goods produced become too expensive to buy, we make less of them, & more of what we do make is done with machines vs people. Asset inflation. It is quite obvious that in a Canada/US, at required immigration levels, the state is going to have to become the mass builder of affordable apartments; and in quantities similar to that at the end of WWII to house returning soldiers. With the flood of new supply, today's high house values can only fall. Asset & credit deflation. Interest rates. Grandma eats a lot better when her 100K of capital pays a 5% coupon vs a 1% coupon. The money gets spent on necessities & travel; & with less program spend on seniors, there is less money goosing the economy. Deflation. Stocks/Bonds, 60/40 split. The real measure is the Sharpe Ratio; there are routinely times when bonds are a lot better than equities. The distressed bond that returns to par, the high duration zero-coupon in a falling yield environment, etc. Bonds are bought to provide cash, stocks are bought to provide growth; apples to oranges comparison. Oil/gas isn't the inflation builder it was; simply because the more the world's capital stock moves to EV, the less of an impact oil/gas has. It's still good to be the producer, but you're in run-off mode and net capital recovery (cash cow). So what? Sure, the indexes could go 10% higher than they are today; but, they could also go down - & by more. Given the rapidly growing list of global problems, repeated climate change events, & easy availability of high coupon treasuries (avoiding the risk altogether), which do you think the more likely? SD

Your best 'forecast machine' is your gut; & listening to what it is telling you. Shine the turd all you want ... but Chinese demand is slowing, and not coming back to historic year-on-year growth for quite some time. Simply because their economy is a lot bigger than it was, and their systemic problems are getting a lot worse ... not better. OPEC+ doesn't voluntary extend supply cuts because it wants to .... it cuts back because it has to. The Feds want a slower economy, to lower inflation. Markets only rise if the Fed screws up (have to intervene with a rate cut); if they don't, markets continue to pull back .... as the Feds intend. A bear market bias, plus an out-of-market call in case you're wrong. The closer the US 2024 election gets, the more uncertain/dysfunctional the market becomes, and the more the market sells off. Bear market bias, plus calls relying on Trump saying something provocative to get elected. Add it all up; if you aren't hedged, you're betting on failure (Fed) & disruption (Trump) to make your numbers. Great trading position, but not so much for most everyone else. SD

Troublesome businesses are routinely seized, & founders 're-educated' in the new reality. Whether anyone ever sees the founder again, depends upon how rational he/she chooses to be. Your brains or your signature on the contract; either works for us. SD

Like it or not, China is about as investable as a Russia; you are not getting your money out unless you take it in goods, and even then - at cents on the dollar. Everybody needs an enemy to support their military-industrial complex, and the outcome is an apartheid like detente. When one enemy collapses (Russia), a new one gets created (China). Entirely rational, & just the way of the world. As in the colonial era, the world is in another land grab; separating into American, Chinese, BRIC, & other. The powers do their thing, we eventually get balance again, then it's business again as normal. The reality is that it is a lot less risky, & a lot more reliable, to simply invest domestically vs in china. The only people bitching are those trying to exit china, & discovering there is no market to sell into. Pick your tribe & just get on with it. SD