SharperDingaan

This is the model for almost all utilities, not just the electricity companies. As P&E is constructed on a cost plus basis, there is incentive to spend as much as possible in the build phase - by overbuilding; 150% of forecast demand, margin of safety at 4x design load vs 2, etc. Thereafter the utility will fill it's excess capacity by offering cheaper rates on higher volumes of throughput, and be looked upon favorably. Goodwill converting into a planned minimum annual rate increase for the next 10-20 years. As long as the technology does not radically change over the P&E design life, the model works. Of course, inflation and upgrades are part of life, and result in additional rate increases as/when required. The investor risk is a premature strand of the P&E, as either the need no longer exists (o/g pipeline), or the existing technology is about to radically change (EV, blockchain, etc.). The reward is that rates don't reverse - so if inflation declines, or throughput rises, the incremental margin flows direct to the bottom line - as unencumbered distribution. Ideally, a cowboy CEO uses that margin to buy things that the company shouldn't - to inflate current EPS and create a 'growth' P/E multiple. Eventually the cowboy explodes, the company materially cuts its dividend, and the share price implodes as the investor base churns over (TransAlta Utilities). That's when you buy, and in quantity SD

Aaaah, everybody needs an anarchist. For most it's just a fashion statement, and a schtick by which to get laid; spend all your time in either a nice warm coffee shop, a bar, or a bed!!. Almost always the anarchist is a lot smarter than he/she portrays, and is often a trust fund kid; but isn't really going to make a difference in the world. Harmless. Then you get the twisted bastards .... and either a Baader-Meinhof gang, or a Satoshi Nakamoto is born! Be careful what you wish for SD

Some very good memes on this thread! 'Tradition' has it that BTC is really just another 'stock', and bought/sold accordingly; trade it via an exchange but hold it in your own secure wallet off the exchange - yes it's also a currency, but I treat it as stock! More efficient processes are to hold it either via a fund (diversification, management, dividend, etc.), or a company (ie: Overstock). Depending where you live, the funds/stocks may also have limited legislated protections; a plus in Canada. However you hold; if your interest is in the cryptocurrencies, most of your holding is going to be BTC and ETH. If your interest is the blockchain applications, most of your holding is going to be in the platform companies &/or the tech funds. Different strokes. BTC's main 'legal' attraction is its appeal to those in hostile nations, where local currency is routinely devaluing. Hold you wealth in BTC as a hedge against local currency devaluation, but risk the possibility of having to sell the BTC for less USD later; 'terrible hedge!'. Thing is; that relative to today's price, when BTC is at USD 10,000-15,000 the upside volatility is largely on par with the downside. The lower BTC goes, the more attractive a hedge it becomes. There is also the coming 'halving', and the introduction of 'western' CBDC's which most people would view as supportive. No way you're using a CBDC to settle a black market transaction, cash is king! ... but the wealth accumulation still needs to be 'stored' somewhere - in either a 'bent' bank, or BTC. BTC isn't going away. SD

We have been lucky, as a good chunk of our QTD gain allocation has not yet been rolled in. From the risk perspective, the smart thing is to swing trade a portion of your holding; in anticipation of a later buyback at a lower price. If/when that takes place, and at what price, is anyone's guess. SD

Posted our view in the OBE investment thread. They did all the right things in Q3, but disappointment was inevitable. New wells came on line late, and investors hadn't adjusted their expectations re lower crude prices and higher differentials. Most quarters we swing trade around the ER to limit disappointments. At times like this, we look like heros. SD

OBE SD

Lot of medical staff will tell you that higher death rates are Covid related. Covid displaced almost all surgeries and in-person examinations; they went into backlog, and with the widespread burnout and retirements in the medical community, the backlog will continue for years. Cancers that could have been prevented or mitigated were not, and now the patients are terminal. Hip and joint replacements that didn't happen have become opioid addictions, slips/falls, sepsis, and death. And as the net 'retiree' pool in most places is in YoY net growth, the larger pool dying at the progressively diminishing rates (as backlogs come down), ends up as larger numbers of deaths every year. SD

Always the outlier .. it's been another very good year YTD. All our O/G is again up 100%+ (PD, ESI, OBE, WCP, CET, CVE-W, etc.), we have done 2 round trips that were both successful, and we have successfully taken big chunks of cash off the table. Even our vodka/caviar trade has done very well. Lost a little on basic crypto, and fixed income, but we'll more than get it back later. Much of this is legacy carry forward on positions that were established a long time ago; at the time when we were ridiculed. Round trips and dividend income, have further added to the pile. Pain index of maybe 2.5; primarily from the risk on our UK property development, and the magnitude of a 10% drop in the value of our portfolio. We don't hedge. We're finally seeing some developing utilities opportunities outside of the O/G space, and will hopefully see a lot more in Q1-Q2 with the rise in interest rates. Everything from retirement homes, through to small business robotics, crypto applications, and busses. Ideally we will be able to restock with new vintages, reduce our o/g exposure < 35% again via a variety of convertible debs and warrants, and make another sizeable capital repatriation to bring us back to optimal size. Sometime over the next 18-48 months we should also see a CAD CBDC, and better visibility into robotics/crypto apps. SD

All these colorful folks could not have done what they did, without a long line-up of investors, creditors, and politicians of the time throwing their money at him/her. And ultimately all were pissed, because the colorful folks were simply far better at the game than they were, and by many a country mile. The smart thing was to walk away on day 1. There was a time when Dome Petroleum owed a Canadian Sched-A bank so much money, that to call in the Dome Petroleum loans, would have threatened the solvency of the bank itself. Toxic debt had to be rolled for a time, until the banking industry could implement a 'safe' unwind. Very few people can do that. Penn West Petroleum was one of these companies run by the green eye-shade folks, so when things eventually blew up .. the hate on them was not that dissimilar. Today the green eye-shade folks are gone; but they still have the great land position, new management, and a new name - the hate ain't never going away! It's Obsidian Energy today And those green eye-shade folks? We own a few shares in their current companies and have done very well by them thankyou - all original investment capital safely recovered, and parked in Canada's SD

But then every now and again you meet a 'one-off' master at his craft ...... Smilin' Jack!! https://searcharchives.ucalgary.ca/jack-gallagher-fonds The man was truly brilliant at charm, and way ahead of everyone else. As a engineering student, summer drilling hand at the time, even I could readily see that! ... and damn he was good! He could be sending you to the shittiest, coldest, most hostile places in Canada's north - and you would swear that it was the angels telling you to forget the comforts, and go North young man! And you did !!. SD

Exited CET.TO on the Ensign Energy news for a one-year double. In our eyes CET remains a good choice, but we did not appreciate the excessive dilution, or the US reverse takeover of Altitude Energy Partners. If CET can keep up their quarterly acquisitions/deal making, great; but we also own Ensign, and have better opportunities elsewhere. SD

Recently had an approach to takeover an assignment on a large 12th floor Mississauga condo. Existing assignees are on the hook for material additional build costs (covid/inflation driven), and if it ever gets built - the building finishes will need to be 'upgraded' into a luxury 're-brand', with even more costs. Current assignees are at risk of losing their deposits, significant legal costs, and incremental cost assignment. Significant dollars and motivated sellers. It didn't go well, as I offered them low cents on the dollar, and wished them luck if they didn't sell. Didn't want to hear that I could simply wait for their development to bankrupt, and another developer to buy their land out of the bankruptcy, and build their condo in its place - while earning a nice safe 5%+ in GICs while I'm waiting. How insulting!! A good clean out is coming, and it is long overdue. SD

Keep in mind that 75bp vs 50bp today, also leaves the Fed with 25bp for a 'cut' later, and moves the 'pivot' bump to the December fixing. Impacting the Xmas sales that typically make/break the year of many a small business, and the year-end Wall Street bonuses based on December-31 values. Today's talking head are ripping me off! fry those bastards !! We have some fine vodka and caviar looking for a good home SD

No worries. I was just looking for a distinction between current (short-term) and long-term (1 yr). 60-day is too short, 120-day a little long; 90-day was a compromise, and the CPI peak tipped the balance. Overall I think that CB's are doing a great job, but sadly it's not going to be recognized for quite some time yet. It's also great to see Canada both facilitating/backstopping the issuance of Canadian Ukrainian bonds, and actively managing the ESG/CSR associated with the coming CBDC and blockchain/fintech rollouts. Nobel prize worthy, but sadly not issuable to a 'pseudonym' !! SD

Agreed. The Republicans only need to flip one seat for a senate majority, and will very likely flip more than that. Shortly thereafter, US drilling opens up again with new production either forcing down WTI or refilling the SPR. Incremental Canadian heavy desulphated, and transported by rail, in whatever quantities are available. If the Democrats are to to retain power in 2 years, they will need to make material changes right after the mid-terms. Implementation of friend-shoring components of the Freeland doctrine. https://policyoptions.irpp.org/magazines/october-2022/canada-us-security-doctrine/ Not a bad thing. SD

Hate to tell you this - but you're both out to lunch The US CPI rate peaked at 9.1% in July 2022; the index number at the time was 296.3. Three months later (Oct), with every successive month a decline, the CPI rate was 8.2% with an index number of 296.8. Annualize the 3-month change ((296.8/296.3)-1)x4, and the 'current' CPI is around 0.67% /year. https://www.usinflationcalculator.com/inflation/current-inflation-rates/ The US 5-yr treasury currently yields 4.183% nominal, or a 'current' real return of around plus 3.51%. One can do the same calculation for the remaining years to come up with the estimated real return yield curve, then draw your own conclusions. https://www.marketwatch.com/investing/bond/tmubmusd05y?countrycode=bx Either a great many folks with a Bloomberg Screen don't know how to work it, or we are all being fed a 'line'. Yes the 12-month consumer 'headline' rate is terrible, raising the price of mortgages and anything/everything purchased, but it isn't reflecting current results. However, it is a great vote getter! So what? You can have both high inflation (9.1%) and almost deflation (0.67%) at the same time. Two parties strongly arguing both cases, and both right, implies an inflexion point that is close by. May we all do well SD

In 1980, Trudeau (Pere), introduced the National Energy Policy (NEP) to Canada. Perhaps the most hated piece of energy legislation ever produced in Canada - largely because the oil majors of the time never believed that it could happen to them. It produced 'PetroCanada', headquartered at 'Red Square' in downtown Calgary, and ostracism of the 'comrades' who occupied it. It was put up or shut up, the fields were in Canada, and if you didn't like it - you were free to sell up and leave! https://en.wikipedia.org/wiki/National_Energy_Program The NEP's goals were "security of supply and ultimate independence from the world oil market; opportunity for all Canadians to participate in the energy industry; particularly oil and gas, and to share in the benefits of its expansion; and fairness, with a pricing and revenue-sharing regime which recognizes the needs and rights of all Canadians." It's not much of a step to modify the precedent to meet todays requirements. The federal politicians of the time were master bastards, and exceptionally good at what they did, as was the provincial premier; and the fights were legend. But ultimately the energy level just couldn't be sustained, and all sides eventually learned to live with it - even those with bad grace. Times change. SD

For now, the majors are thumbing their noses at the US; earnings and cashflows are artificially high, because of both the war in the Ukraine, and the ongoing asset strip ahead of the movement into the EV world. Feels good, but very stupid, and very dangerous. National oil supplies have a well trod history of nationalization; the most recent example being Germany's September 2022 expropriation of the Rosneft refineries. It would be very easy for the US to temporarily ban energy exports to Europe (where storage is already full), and 'force' all FCF > $X into new US/NA energy facilities (upgraded electrical grid, new refineries, local energy generation, etc.). Forced purchase of bonds in the new entities funding the build out, versus special dividends or buybacks of company shares. https://en.wikipedia.org/wiki/Nationalization_of_oil_supplies https://www.euronews.com/my-europe/2022/09/16/germany-takes-control-of-3-russian-owned-oil-refineries What do you think happens should the 'bastion of capitalism' do any one thing along these lines? Tankers are already lining up all along Europe's western coast, unable to offload 'cause of lack of on-shore storage. The share price drops like a brick, and the world finally sees the major energy companies participating in the ongoing widespread inflationary 'hurt'. Yet, there is insistence on repeatedly twisting the lions tail ..................... It doesn't end well. SD

You might want to lower your expectations around Winter 2023 crude oil and gas prices. The BoC raised interest rates by only 50bp this morning, versus the widely expected 75bp. The clear inference is that Canadian cumulative demand is dropping off, which also means less demand for crude and gas. At roughly 10% of cumulative US activity, most would expect something similar in the US. Texas NG prices are close to zero/negative in some places (Wawa) as there just isn't the egress capacity; can't sell if you can't get your product to market. US Diesel is also in short supply, and going into emergency protocol in some places, with the SPR down to 25 days of supply. Lot of local price 'drama', but the real solution to both these examples is lower demand. https://oilprice.com/Latest-Energy-News/World-News/Texas-Natural-Gas-Prices-Sink-Close-To-Zero.html https://oilprice.com/Latest-Energy-News/World-News/A-Diesel-Shortage-Is-Spreading-Across-The-US.html Oil markets are adjusting to the upcoming Dec sanctions. Russia/Iran has bought its own tanker fleet, and now delivers directly to China/India; with the US/Europe buying much of the refined distillate. A improvement in Chinese demand primarily benefits the black market, not the unsanctioned market. https://oilprice.com/Latest-Energy-News/World-News/Saudi-Aramco-Oil-Markets-Are-Adjusting-To-Sanctions-On-Russia.html Point? There is still lots of volatility, and the potential for abrupt price changes, but the extremes are becoming increasingly less likely to occur. Not a bad thing. SD

There is an investment 'upside' to the financial arseholes. To them, it is all about appearances and their perceived 'rank' amongst their peers - money is just the counter used to determine it; so ... FOMO will continuously drive them into the market - as manic depressives! To make a gain on a swing trade, you need someone to buy your 'overvalued' asset, and sell it back to you when its 'cheap'. Could be a stock, or an apartment in that 'must have' neighborhood in a New York, London, or Paris. Opens the door to lots of possibilities ....... SD

Keep in mind that you're looking at a very narrow 'silo' (niche tech), and extrapolating that the rest of the world looks like this too. Of course, it isn't, and the technical also includes the accountants, finance folks, logistics/operations folks, engineers, etc., etc. A lot of technical folks will tell you that they love what they do - but when you are at the top of your game, and add in the reality and intense stress (admin, politics, finance, arseholes, etc.) that is part of it; it's really a time limited gig. As you move on, you try to keep doing what you were doing, but in a different way that is less intensive. Thing is, that when you identify so closely with what you do (would even pay to do it); when you lose it in a restructuring - you're suddenly adrift without an anchor. Going from a life of 100 mph to 0 mph, in an instant, is a leading cause of death - as many a grave in the graveyard can attest to. It's those healthy outside interests that save your ass; whatever they may be. If you had 100M most people would still 'work', but just in a different way. The volunteer 'doge' at the local art gallery, the minimum wage earner for a few weeks/month per year, through to the traditional full time philanthropist. It's not the money, it's the 'other interests' and interactions with other people. Simply making more money when you already have more than you could possibly need, is pretty redundant. Different PoV. SD

Different take .... The ranks of the retired are rapidly swelling, the % of portfolios in fixed income is rising, and if those 'retiree's' are not going to be sucking on the public purse - they need higher coupon rates on their bonds, and age friendly part-time employment. Rates back to historic norms (or higher), higher minimum wage, gig worker coverage in benefit plans and pensions, etc. Widespread change versus the current arrangement; those old folks vote, there are a lot of them, and if you want to get elected .... you will do as you are told. We have incredible tech (blockchain, smart contracts, CBDC, etc.) in the wings, waiting to go; but the disruption will be extreme. To implement we need a recession, and economic supports tied into its widespread roll-out. Retiring people early, guaranteed minimum income, retraining dollars, higher minimum wage, new housing tied to minimum wage affordability. Infrastructure rebuild as extensive as that following WWII, fiscal versus monetary policy, and largely domestically financed via higher coupon debt (bought by old folks using the interest to live on!). Less yield chasing in the equities market, and the volatility that goes with it. But .... very different to the monetary policy world that we currently live in, absence of moral suasion, and addiction to the fed 'put' that too many believe is a 'birthright'. Historically the nouveau riche very quickly become the nouveau poor when there is this level of disruption, absent the 'spherical bastards' (Zwicky) who will do well no matter what. https://www.urbandictionary.com/define.php?term=spherical bastard We would suggest that we're at the beginning of the next industrial revolution, and that implementation has begun. Great time to be a young person, with practiced 'spherical' skills! May we all do well. SD

You might want to wait until after the BoC and the Fed each hike rates by an additional 75bp on October 26, and November 02 respectively. Next weeks headlines will be all 'the central banks are clueless', it's creating a recession! - lots of whining about rate increases, lots of ranting, it's all sh1te!! Drop the market a good 3- 6% Comes December/January it will be more about that you actually own an oil stock, versus which one. But if the market is willing to sell to you 'cause it's all sh1te ....... well, who are we to argue SD

A job is worth $X, and the employer fills it as best as they are able. If the job is not client facing, the employer will explore trying to offshore it at a lower cost. If the job is client facing, the employer will explore trying to fill it with the minimum skill/experience mix at lower cost. As the employee, you have the skill set, and accumulating on-the-job experience. However, in most cases, the most the employer can incrementally pay you year over year is some % of the annual inflation increase. But after 3-4 years it will be cheaper/healthier/smarter for the employer to simply replace you entirely - with a new person who doesn't have the on-the-job experience that you have accumulated. Creating cost savings, promotion opportunities, 'fresher' workforce, etc. - rational. If the employee brings to the job more than is required, that's great, but he/she will not be paid for it. That 'extra' got you the job instead, as you were selected over all the others who also had the job requirements, but not the 'extra' you bring with you. The pay for that 'extra' is 'better marketability', and it is to the employee to capitalize on that. However, the job itself will pay $X - nothing more. Example: In academia, a course instructor is often a PhD student, guaranteed a minimum number of courses to teach. The pay/course ($X) is typically the pay for a full-time assistant professor divided over the annual expected teaching load, adjusted for benefits. Whether taught by a PhD student with little/no teaching experience, or a retired professional with multiple designations and years of industry/teaching experience, the pay/course ($X) is the same. The professional gets rewarded via his/her 'better marketability' instead; and the opportunity to teach multiple courses instead of just one - earning 2x $X, versus just $X plus some% increase. Not what most want to hear. SD

Technical people are subject to product life cycle. Technical skills get progressively obsolete as new things emerge; but the cycle can be extended by adding new technical expertise (maintenance capex, and/or 'managing' vs doing). There is always someone cheaper than you that can do the required tasks, and we shop the world to find them. The job pays $X for the skill-set, that is it; if you bring more to it, good for you - but you aren't getting paid for it. Your 'best' solution is to move on. 'Life' progress is driven primarily by maturity and ongoing ability to reinvent - if you have kids, reinvention occurs everyday; without kids .... you need to systematically make it. Those who have had to flee countries at some point, and rapidly think on their feet, have an advantage; they matured very quickly, and had to learn how to adapt in hostile conditions. For the successful, ongoing reinvention became as natural as breathing, and almost always they also had good people skills, and ideally a high EQ as well. In my early investment years I was utterly useless, lost my shirt multiple times over, and fought both everybody and everything. I was told multiple times that I would be a lot smarter to just give my money to someone else to manage, 'cause I was truly sh1te!. Once financial maturity finally caught up, returns caught up, and now they are routinely very good; however, CAGR since inception suffers a very large drag from all those early losses! Everyone is different. It wasn't until I became familiar with Nash Game Theory, CFA 'dogma', and Nassim Talebs various risk management books, that a unifying investment model fell into place. Until then I had many of the parts, and I had come to them on my own, but it was slow going. Strong in technical is a great start, and can take you a long way, but that's all it is. Longevity lies in the soft skills, and ability to act on them. SD