SharperDingaan

Keep in mind that where you live has a lot to do with this view. We have a great many UK acquaintances who are depressed ... almost entirely because they live in the UK. Lots of reasons .... high inflation, high interest rates, too much debt, widespread mismanagement, debasing pound, loss of EU status, yada, yada. Yet ..... despite such a terrible environment .... almost nobody is willing to get on a plane? ... and leave for greener pastures ?? There are a lot of very good invitation-only private UK companies for sale, going for a song; simply because the founders want to partner up, cut back on their involvement, and train up a successor. They are tremendous opportunities, and we have a nephew in such a partnership. During our London property re-development, we used seismic detection to assess ground stability net of land disturbances (heavily bombed area during WWII) and burial sites. Small diameter directional drilling, placement of a seismic vibrator in different sections of the bore, and an electronic detector. As seismic waves travel differently through voids/disturbances vs solids, the time differences can be used to both locate the disturbance in 3D, and estimate its shape; very useful when council planning requirements are an issue. Some discussion later, and we're using the technology for burial detection in flooded areas (Canada's residential schools), and geo-locating dinosaur bones in bogs/sedimentary basins. The nephew being on two digs this season. SD

The reality is that the 'west' is a waning global power, and 'China' a rising one; both sides use propaganda to rally the troops. However everyone has to live somewhere, and propaganda is just another cost of living. The other reality is that the more scorpions in the bottle the safer it is for everyone. When done well; dictators rise on heaps of skulls, to be replaced by global powers every decade. Defense spending develops/drives new technologies, diplomats talk, peace and trade prevails, and the world is a pretty good place. But same as with wildfires, if the accumulating fuel isn't periodically burnt off (ongoing regional wars/conflicts); when the fire eventually happens ... it now burns everything. Sadly, extended periods of peace breed complacency, which triggers the next conflict; about every 70 years for a Europe. Leadership changes, and the concurrent death/destruction lays the groundwork for the next 50 years of rebuilding and prosperity. Ukraine, elimination of Putin, yada, yada ... The present day lower-level 'West' vs China conflicts are actually a good thing. The pushbacks will find a norm, and ambitious men/women on both sides will work the shadows the same as occurred throughout the cold war. Both sides benefit from the military spend and technology acceleration. It really means more things produced at home, and higher prices than we currently pay (inflation). During the cold war the 'west' did not rely on product made in Russia, so why would you expect the 'west' to rely on cheap product made in China today? SD

Just keep in mind that capex investment is often deceptive; and Exxon is a good example. What is Exxon actually doing? It continues to buy back stock in a big way, and has chosen to accelerate maintenance expense instead of having to pay the money out as 'windfall' taxes. Where is that additional capex going? Primarily into things that either reduce depletion/reduce production costs/lengthen reserve life, or enhance ESG reporting (lower emissions, etc.). Why? The more extractable oil there is the lower the cost/bbl, and the better the ESG; the less pressure on Exxon to sell 'dirty' assets, at a deep loss. X% of net income before tax, about equal to the incremental capex. Smart. SD

You might want to look at hard economics, and not press releases. We are entering a world when there will be a lot less oil usage, as energy consumption moves away from both internal combustion engines, and plastics; the major users of oil. Over the long-term; less demand, on the same supply adds up to a lower future price, and a shut-in of all fields with a marginal variable cash cost/bbl above that future expected price. An off-shore field is economic, primarily because it is both prolific and expected to have a long life; either because of low decline rates, or ability to tie into additional nearby reserves at low cost. You need to add the interest cost on the development debt/expected life/expected annual bbl output, to the variable cash cost/bbl; if it is above that future expected price the field is uneconomic, and not developed. But if you are a major, and you collectively stop developing new off-shore fields (i.e. discipline), supply shrinks and that future expected price will be higher than it otherwise might have been. The existing off-shore fields that you already produce from will be able to produce for longer, you will not have to finance anything much more than maintenance capex, and you can use the massive cashflow savings to pay down debt, buy back shares, pay dividends, etc. Exactly what we see happening today. At the same average oil price; a field with a 25 year reserve life will typically have a payback period of < 10 years, and will be highly profitable from then on until roughly the last 5-8 years of expected life. At which point profitability will sink according to the cost of secondary and tertiary recovery, divided by the expected life extension (35-25 years). Of course the reality is that oil prices will move up/down, and the field will either boom or shut-in as price changes. There is lots of undeveloped oil in the world. It is just not economic to produce, and is becoming even less so as we all move to alternative sources of energy. The mindset of 'we have to develop it' .... just isn't true anymore, the world has moved on. SD

Hate to tell you this, but those fields are not coming into production for a very long time, if ever; ongoing development will be kept marginally above the annual lease requirement, but that's about it. Simply because the majors will run down their existing fields (20-40 yr+ lives at current technology) first, and then assess whether the development of this field (in an EV world) is even required. Keeping it in the ground, serves everyone a lot better. SD

SA used a much higher average oil price for budget purposes, and can be expected to act accordingly. Longer term supply/demand clearly favors higher prices; whereas todays pricing is largely a paper oil manufacture, with contracts held for physical being met primarily out of SPR's and ship-to-ship delivery. Western SPR's are dwindling, Asian SPR's are rising. It is a simple thing to co-operatively slow down ship-to-ship delivery for a time, let Asian refiners draw down their SPR for a bit, and sell their resultant refined product at much higher prices. NA and Europe are in summer driving season, and the suck on refined product inventories has already begun. Russian runs on Chinese banking platforms, gets paid in Yuan, and will do as its told. SD

There is a big difference between very smart (fragile) and very adaptable (anti-fragile). As a species we're even more adaptable than venereal disease and cockroaches, both of which have proved near impossible to completely wipe out, and hence are everywhere! The ghetto thing is a good example; no matter your might, it is near impossible to peacefully keep people in a ghetto under worsening conditions; they riot, they cut off heads, they storm national capitals etc. and with a little manipulation - overthrow the existing order. They adapt ... the 'authorities of the day' pay the price .... and they call in tomorrows dictator to put the disruption down. Following which there are a rash of terminal 'accidents'; time at the top is a limited term engagement. Adaption. SD

Couple of other things .... Ghost towns are the 'norm' - not the exception; every time a mine is played out, a material employer closes, a natural resource is depleted (trees, fish, etc.), an existing technology is made obsolete (family farm, etc.); we just don't like to recognize that change is inevitable. The whole sustainability, reduce/reuse/recycle movement is a counter-culture reaction; produce sustainably, and there will be a lot less of this. A Canada routinely has more job openings that it has applicants, often because of skills mismatch; stability is enhanced under combined automation and immigration, but it means a very different looking Canada. Canadian culture adapts with the changing times (breathes), and diversity demonstrate its promise; not a bad thing. But in a China/India with a lot of young people in need of a job, automation = mass unemployment = civil unrest = repression; add the mass migration of climate driven change and you get the next crop of Stalin's, Hussein's, Marcos, etc. Great for the weapons and drug businesses, not so much for everyone else. Yeast in a diminishing sugar solution rapidly dies, as the food runs out and level of toxicity(alcohol) increases. In human terms; lower birth rates as kids cost more/start later in life, and higher death rates from both climate driven change and poorer health. Humans are not special, however we're at the top of the food chain because we are the most adaptable. Point? This plays out differently, dependent upon where you live, and if you are able ... you migrate to where the grass is greener. Obviously, the more of that greener grass in your neighborhood, the better off you will be. SD

A different approach .... Calculate what you would pay in MER per $1M of Assets Under Management; assuming 1.5%, it's about 15K/yr/million [1Mx1.5%]. Spend 5-10K every 1-2 years for a report, an asset mix, and a once-off investment recommendation assuming no further asset mix rebalancing for 12-24 months. Thereafter; have either your PA, or investment designate make the trades, and get out of the way. The higher the AUM, the more cost effective the approach. Repeat, reliable, once-and-done business also makes you very attractive to the fee-only advisor. Systematic 3rd party objectivity, and ability to acclimatize/train successors are bonus. Common practice amongst wealthier families where there is little interest/ability, and not limited to purely the 'investment' realm. Pre-nuptial agreements, trophy wives, heiresses, significant-other training, etc. It requires a change in mind-set, and it works very well SD

A few 'investment' words from an accounting 'heretic' ... coming up on conventional 'retirement' in a few years. 'Investing' is nothing more than managing the chequebook. Run your business/life well and there will be ongoing positive cashflow from operations, to put into either growing the business, or paying back to yourself. You can grow the business as cashflow allows, borrow/repay to expand the business quicker, or borrow/acquire to achieve scale, efficiencies, and diversification; and along the way, you will have to hire and rely upon people. As an 'investor' you get rich by trading the shares of companies managed by other people, as an 'accountant' you get rich by building/running those companies. For proof, look at the traditionally ethnic big trades and building companies in your community... and who owns them. The good accountant, plans today for where the company should be 4 years out, and executes according ('Strategic Planning' in MBA school). The accountant brings independent thought, a longer term mindset, expectation of continuous change/cyclicality, and a plan by which to grow todays tiny enterprise into something much mightier. Add an investment background to this (CFA) and you get both very good risk management, and ability to take on the inherently risky without the commensurate inherent risk. Todays fleet of 1, becomes tomorrows 3, and 8 the day after. The good accountant is also a master at the accounting 'fiddle'. That 'how to knowledge' allowing a rapid 'look through' the numbers to reality, ability to detect 'smell' many quarters away, and ability to assess the essentials on little more than a napkin. It's often very entertaining, and if there's also an options market .... both refreshing and very rewarding! Accounting and finance are friendly rivals, but different 'tribes' on either side of the same coin. Each sings its own song and manipulates popularity metrics to its own ends. Your first few 'jobs' will set your 'circle of competence'; simply because to invest successfully in sausages, you need to have worked in a sausage factory. At the entry level, that factory could be anywhere in the world, so take advantage; whether you choose to stay in that industry, or move on - that 'inside' knowledge stays in your head. Thereafter, YOU are the critical asset; and the more effectively that you can apply your toolkit, the more valuable you are. Demonstrate the chops/ability, and the money will find you; there are lots of investment dollars in the world, but talent? ..... not so much! Good luck! ... after your first million, habitually donate something sizeable to a charity every year. SD

PPR is failing, has uneconomic production spread all over, and is trying to do 20%+ dilution at 9 cents - when the shares routinely trade for less than this. As/when PPR sells chunks of their production; the related tax pools will go with the asset sale, and the desired production will very likely be available for a lot less per flowing bbl. SD

The most a fund will offer is a annual NCIB, and a trolled stink bid; the expectation being that if you need money, you are going to borrow it from the fund, and pledge your holdings against the loan. You will discover that at best a bank will only give you up to 40% of the market value, and that if you really need out; depending on the volume, you will be accepting a discount of 20-40% to market. You will also discover that as soon as you try to sell even a few shares, you will automatically tank the share price by 10%. SD

Some good names in this thread .... but a few cautions learnt the hard way. Stick with the names on the senior exchanges, and nations with better investor protections. Those higher listing requirements/protections both save your ass, and give you a deeper market to trade against. When the sh1te occasionally hits the fan, dog sh1te exchanges often go 'no bid'. Easy to get it in, hard to get out. Until there is a 'liquidity event' to sell into (who knows when), you are relying on dividends and interim sales of stock. You are not going to be swing trading, there will not be an options market to sell into, and you need all the interim shares you intend to sell - on day 1. You are liquidating over time. Look hard at the alternative; crypto ETF's. Disliked by many because it is both crypto, and volatile; however there is both a daily market, and if you have 'accredited investor' status; you should also be able to access CME Bitcoin and Ethereum options. Much easier to swing trade, you have the ability to earn premium income on your indirectly owned BTC/ETF, and price change happens much faster. There is also growing evidence that BTC/ETH is poorly correlated against US treasuries. Different strokes for different levels of risk/expertise. Good luck! SD

The reality is that long-term thinking is almost strictly a learned behavior, and somebody had to guide you; sadly for most it means having to derive it yourself, if you ever get it at all. However even if you have a guide, it doesn't mean the horse will take to it. A lot of folks take the view that 'they don't need to'; 'cause you're doing a far better job at it than they ever could, and it's your thing - not theirs. Ultimately it comes down to what makes you happy; and for most, the time horizon is the here and now. What am I saving it for? is a hard sell, when in the future I could well end up with dementia and beyond caring, if I even live that long (Keith Richards!). The same decision a retiree has to make when he/she has more money than they will ever need over their remaining lifetime; spend it, enjoy yourself and live longer as a result - or just fondle it and be a hermit? People will make mistakes, and it is their right to do so. Aside from some minimum guard rails (safety net) to mitigate the collective harm, let the market 'clear'. SD

More like the grocer has pricing power, but the consumer can negate it by substituting with a cheaper product or lesser volume. The weekly $200 grocery spend remains at $200, but the shopping cart now has fewer items in it, and more 'house' brands. SD

Inflation thing: Every grocer will tell you that prices are coming down as supply chains untwist; but they will not go down to what they were. Most would also tell you that absent an industry change, go-forward inflation increases will be around 3.0-3.5%/yr. In CPI terms; the price declines reflect the monthly calculation roll off/on, and the go-forward rate reflects the trend of month over month increases. Whether CB's can successfully bring that trend down to 2%, is opinion. A grocers net income before taxes is maybe 4% of revenue; from both selling the goods themselves to shoppers, and selling the display space to suppliers. All else equal as inflation hikes selling prices, it hikes the grocers net income; against which the more that people substitute lower priced goods, the worse it is for the grocer. However, given the uncertainty around future net income, as an investor - I'm only willing to pay a lower multiple for the grocers stock. Bias towards lower share prices. As Gregmal points out - people bitch about the prices, but the shopping cart still contains a lot of unneeded stuff. It's really denial that inflation has worsened their standard of living, and it will continue until ability to continue financing it runs out (Credit Card, LOC, etc.). The more consumer orientated the culture (US, China, etc.), and the more of a status symbol that 'brand' is, the worse it is; the forecast 2H 2023 economic softness that many are speaking of. 2H 2023 'softness' or a recession; depends upon local CB action. Inflation is hurting a lot of people, and it is getting a lot worse; foodbanks/shelters are seeing record volumes, addiction/domestic abuse is rising rapidly, and the infirm/mentally ill are being progressively pushed out of their supports. The mentally ill used to be locked up in institutions, now they are being left on their own to manage as best they can, wander the streets, and are failing; there is a reason why mass shootings and mass transit attacks have been spiking across the land. SD

Property has been framed this way for a very long time; the knowledge was just kept within the moneyed sections of the community. Example: 2% 'average' inflation, $1 M mortgage (interest only, for simplification), $250K (20%) DP, $1.25M house, 25 year amortization. In year 25 the purchasing power (relative to today) of the house is 2.05M [1.25*(1.02)^25]. In year 25 the purchasing power (relative to today) of the mortgage is .61M [1/1.02^25]. Buy vs rent the house, and relative to today, your purchasing power increases by 1.44M [2.05-.61]; a 250K DP worth 1.44M in year 25, is 5.75x your day 1 purchasing power, a CAGR of 7.25%; and the higher the actual inflation ..... the greater your year 25 purchasing power. The cost is 25 years of monthly interest payments, property taxes, and upkeep versus 25 years of rent. Of course there is uncertainty in both alternatives, but in most cases the buy approach will be the cheaper option. The 7.25% CAGR is not far off the often quoted historic US stock market return, involves significantly less risk, and enables materially more control over the investment. There is a reason why new immigrants invest in property vs the stock market ... it is not just for a place to live in. SD

The price of a REIT share is the PV of the net cashflow, discounted at market rate; divided by the number of shares in the REIT. The higher the vacancy rate the lower the net cashflow (facilities still have to run even if floors are empty), and the less ancillary revenue from the office tower food court and rental space. WFH drastically reduces both space requirements and foot traffic; the longer it continues, the more the need to maintain efficiencies by consolidating dispersed clients in fewer buildings (via incentive discounts) - and repurposing those now empty buildings. Reduce the vacancy rate (via condo conversion), you also raise foot traffic, and the free cash flow going to the REIT. Do the WE thing (long base let, multiple short re-lets) as condos for the masses, and you dramatically increase free cash flow. And as lease costs also fall significantly, as soon as land purchase and demolishment/rebuild costs are avoided; high vacancy rates going forward are unlikely to reoccur. If those long lets are with crown agencies, the future cashflow is easily securitized, and proceeds can be used to pay off debt. REIT financial ratios improve, and they trade at higher multiples. SD

The reality is that a lot of the vacant down town office space in a Toronto, is going to be turned into large condo's sold to retirees. Sell the now empty big house in the 'burbs, move downtown near the action, and be near to all the hospitals; direct train to the airport every 15 minutes, taking roughly 15 minutes one-way. A good chunk of it will also go into smaller, affordable housing, aimed at those on minimum wage. Governments doing 25-50 year leases, developers doing the renovation, tenants paying just the lease and utilities. Pension funds avoiding large write-offs. Lots of new housing, where it is often needed most, in just the time that it takes to renovate; 2-3 entire floors per tower. Of course if you don't want to hear it ... continue watching your share prices (REIT's) drop. Your choice. SD

It is the diversity, and the attitude that makes New York what it is; the same as it is in every other major city in the world; London, Paris, Berlin, Beijing, etc. There is widespread survival bias, populations vote with their feet, and it is typically a limited time engagement. If you're rich and can afford it, it's a great place to live; as millions do everyday, all around the world .... The moving out meme is almost purely an inflation thing. If inflation benefits more than it hurts you; you get richer, luxury goods get cheaper (relative to income), and you enjoy a progressively better life in the major cities. If inflation hurts more than it benefits you; your stay is shorter, and you need to move out as your life stage changes - nothing new. Of course, nobody wants to hear that ...... Social media/internet just speeds things up. Trends that used to take weeks/months to enter the public 'conscience', now take hours/days at best; what used to be 'taboo' to talk about, is now common discussion. What used to be contained to just family/friends, is now widespread. However nothing has changed; it's just the same sh1te, happening at about the same time, that previously you knew nothing about. A useful propaganda trick ... When we think of luxury goods, we think of LVMH; when we think of capital market scum, we think of GS!; both widely recognized as the best at what they do. Quality housing in a global major city is a luxury good; no different to anything else LVMH sells .... The flip side is that the major cities are also gilded cages; life in the city is not representative, and the more 'special' you are the more vulnerable you are. You are tolerated, not welcome; and tolerance depends upon you continually keeping that 'social license' refreshed. Comes the day you 'forget' that ... the masses rise up. Sometimes you keep your head, sometimes you don't; c'est la vie. SD

Everytime one buys a bond fund, one does exactly this. Does one realize that at the time? ..... probably not. SD

In your 30s/40s you buy sovereign zero-coupons at cents in the dollar. I have friends who collectively bought Greek 25yr zero-coupons during the 2011 crisis at yields in the teens, and resold at yields in the high single digits. 7-10x gain in maybe 6 months. Sadly, at the time, we didn't have the means to take them up on their invitation. If you know your stuff, there is way more money to be made in bonds. Bentley's vs Porsche's exist for a reason. SD

Inflation is a bet on market rates going higher/lower. Buy a bond and the change is duration x face value x bp change in market rate. Buy an equity and the change is duration x price paid/share x bp change in market rate. The mystery is the duration of the equity in question … theoretically, the estimated time (years) to recover the purchase cost via reinvestment of dividends and expected buybacks. Duration on a start-up? Expected time to bankruptcy. Duration on a consumer goods company? Purchase price/dividends. Duration on a smaller o/g (commodities) company? Purchase price / (dividends + buybacks). So what? …. The higher and more frequent the total dividends (annual + special), and the more spent on buybacks; the shorter the duration, and the less adverse effect to rising real market interest rates. So what? … where are real market interest rates currently at, versus times past? If you paid a lot and rely on good management to produce consistent rising EPS, to fund ongoing dividends (widows & orphans’ stocks), your duration is high; and rising real rates hurt you. If you paid little (re: high volatility) and rely on changing commodity prices to produce both special dividends and buybacks; in a rising commodity cycle, duration rapidly shortens, and rising real rates have much less impact. Your unexpected cashflow also allows you to exploit the opportunity. At roughly a 4%+ coupon, it makes a lot more sense for gran/grandpa to simply hold zero-risk treasuries versus blue-chips. Gran/grandpa have enough reliable cashflow to eat, and our unlikely to outlive their stash. Money moves to treasuries, account AUM rapidly declines, and a great many salespeople become poor as trailer fees disappear; there is a reason why the industry does not want higher market rates of interest, and commodity stocks are despised. Happy hunting! SD

You might want to keep in mind that Canadian CPI is highly likely to drop like a brick when the March numbers are reported; simply because a full 100 bp of change rolls off (2022: 03 vs 02) this month, and the new roll on is likely to be to be negative as well. US numbers will not be that different ..... What do you think happens when the press starts reporting a dramatic fall in the inflation rate https://www.bankofcanada.ca/rates/price-indexes/cpi/ May we all do well. SD

Tombstone post: Gear Energy closed at 1.15, April 06. SD