SharperDingaan

A $200/bbl spike is not unreasonable, but the mystery is for how long ... However, companies are not going to be able to cut back on variable dividend/buyback commitments, and in most cases that is around 60% of FCF once debt has been paid down. At $200/bbl FCF may be spectacular, but only 40% of FCF will go to new drilling - not the more customary 100%+ under drill baby drill. It's going to take a long time to get back to 'normal'. It's also useful to research how DUC inventory works. Uncompleted wells are just wells awaiting fracking, casing, clean up and tie-in, typically coming out of inventory on a LIFO basis. They are mostly horizontal wells, and cannot be fracked until casing is available to hold the hole open. Once fracked, for the cracks to remain open they need to go into production fairly quickly. Because labour, sand, chemical, casing, rigs, pressure pumps, etc. are in short supply, it is taking longer to put wells into service. Hence, DUC inventory is a good 10-20% higher than it ordinarily would be. The inventory IS there - but as supply chain issues unwind ... it is going to shrink quickly. Beware the head fake. SD

This is very quaint A great many people would argue that in the real world, the more of a bastard/thief you are, the wealthier you are. Sure, WEB did well .... but compared to a Putin, MBS, etc. ? ...... WEBs pile is chicken shit !! Always go with the scum of the earth. They stay rich, because they are very good at what they do ! SD

Thing is; that 0.1% are either miners HODLing, or the very unsavory 'hiding' their wealth. Mess with BTC, and they primarily hurt themselves. Sounds like very effective decentralized and distributed incentives to me! SD

It is more along the lines of having secure feedstock (downstream), and raising the value of what comes out the ground (upstream). Control the whole value chain, and it no longer matters whether you are making your money on the upstream or downstream sides of the chain. What matters is that you have control, and the scale to take advantage of opportunities as they arise. SD

Be cautious around refining; it's the obvious place for a 'temporary' windfall tax. Refiners are also often 'vertically' integrated, and not stand-alone businesses - for very good reason. Europe will likely have some kind of residential domestic price cap on gas this winter. Very likely a similar kind of price cap on key items in the CPI calculation as well. Inflation that cannot be reduced through higher interest rates - swept under the rug through price caps financed via long term state debt issuance (ie: tied up in a condom). Energy continues to rip, voters express their thanks, and Ukraine effects sterilized. Tried and tested (AIG), and very German. SD

Part of the charm to a CBDC, is ability to pay daily interest on the CBDC in your wallet ..... Whatever this rate is, if a commercial bank is to entice the user to keep their short term funds at the bank, they must either match this rate or pay higher; the CB gets control over the deposit rate. However, it also means the rate CANNOT be negative; 'cause if it were - you would either just stuff cash in your mattress (avoid paying interest/fees all together), or always pay from a linked LOC with a permanent negative balance in it CBDC is coming, but it's not a straight-forward simple roll out. SD

Just to add balance ..... Off shore 'green field' long term oil supply is pretty much done. What does take place will be primarily consolidation: field extensions on existing infrastructure, extending reserve life to lower annual depreciation, and lower unit costs via higher throughput. Manufacturing. Existing long term supply is being run-off, and not being replaced. The 25-40 yr reserve, whether off-shore or a tar-sand mine, spitting back the bulk of its excess maintenance capex for years to come. Maintenance capex itself being primarily new investment in C02 sequester within the depleting field. ESG. SPR releases eventually have to be replenished, and they are globally being run down in a big way. Can't use inventory to buffer price hikes when you don't have any, and can't refill without raising demand (and price) for an extended period. US gas prices are ridiculously low vs Europe/Asia, US on-shore refining capacity is at end-of-life, and EV economics materially improve as the cost of gasoline rises. ESG, higher prices, widespread US disruption. In the US, short-term thinking dominates (in politics at most, the 2 yrs until the next mid-term election). Whereas, these trends are long-term, and ill suited to US thinking. Volatility. All of which adds up to higher prices for quite some time, lots of disruption, and lots of volatility. All on top of the rising/falling tide as the worlds economies progressively move out of Covid. Swing trades and headlines as your new friend. All good SD

Keeps coming back to the elephant in the room .... Blow the pipelines, and cut the gas flow - period. Can't sell what you can't deliver, and the wells rapidly either shut in or have to flare associated gas. Charge carbon tax on the burn, and deduct from Russian funds held under sanction We have long had a deep and liquid futures market for dealing with price spikes - use it. Realized gains offsetting losses on price caps, carbon tax and long term debt/inflation funding the rest. SD

Hard to do better than WCP as a swing trade, and collect a fat dividend while you wait. They are also paying cash for their recent acquisition. SD

Think of it as being in stages .... west first, then east, then north. https://www.nrcan.gc.ca/energy/energy-sources-distribution/natural-gas/canadian-lng-projects/5683 Going west has the advantage of shorter distance to Alberta, nearer to Asia than the ME, some ways along already, much larger scale, and a tangible counter (gas vs oil terminal) to ESG concerns. Hard to find a better proposition. In the near/medium term eastern egress primarily depends upon Hibernia/White Rose adding to existing facilities, and the regasification plant in St John reversing flow. All already in Canada, all on the East Coast, local and politically much easier to do. Northern access a political easier twinning of existing McKenzie Valley north-south pipe corridors. Mostly US gas to start, WCSB gas added later, and the western counter to climate change opening up the northern sea routes. LNG at the western end of the sea route strangling Russian exports to Asia; less distance to Asia, and avoidance of tankers in the sea route itself (ESG). Asia buying more from Canada, less from the ME, and the displaced ME flow going to Europe. Russian supply going to Asia and India on long term contracts at deep discounts. SD

Quite agree, the whole purpose of setting the table is to rig the game in your favor. So when you increasingly can't get the simple task right .. it speaks volumes to the fragility of your 'infrastructure'. Opportunity SD

No particular preference. NTR, GSP, WRX, KRN All on the TSX, all mining potash in Saskatchewan, all politically 'safe'. Each a boat on the expected rising tide, offering different takes. However, NTR also has an options market. Obviously, do your own DD. Within Canada, you might also want to include CP and CN. Simply because what Ukraine doesn't produce, the rest of the world will need to make up for. More grain volume than usual moving from silos/storage to ports, and it is already getting hard to find available rail transport (tankers/box cars etc.) for Fall. Good luck, SD

You might also want to keep in mind the type of oil ... There is a material US deficit in sour crude that is being met out of SPR releases, and on some occasions the entire SPR release is sour crude. The remaining SPR sour crude inventory is estimated to be < 240,000 (very low), net of minimum balances to maintain the structural integrity of the salt caverns themselves. Lot of folks starting to look for available Q4 railcars, sending WCS south and returning north with dilbit https://en.wikipedia.org/wiki/Dilbit SD

Ultimately, it is a game of trying to predict a bottom - with a bad set of tools. In almost all cases the tool assumes that the future will resemble the past, so when this this clearly isn't so ..... the tools fail. It is not the tool mechanics breaking down, it is the data that they are using. We have had continuous extraordinary CB involvement since the GR in 2007 - the last 15 years of the time series. So if this is a material portion of your historic recency weighted historic time series .... you are assuming similar extraordinary CB intervention going forward. You are ALSO assuming that the impact of changing technology is minimal. Hard to defend. So ..... now we have to do investment the 'old-fashioned' way, or how things were done before the 'quants' arrived. Sniff tests, focus on business fundamentals vs market, and not just on market comps and multiples, etc. Less 'formula', and more true 'value add'. Obviously, there is opportunity here. Sniff test. How is it that the analytical community STILL doesn't 'get' the changes going on in o/g, vehicle manufacturing (ICE to EV), food production (fertilizer), real estate, etc.? How is that retail increasingly seems to be getting this better than the analytical community? We know that Ukraine isn't producing surplus food anymore, that famines are inevitable, yet the analytical community is NOT talking up the fertilizer stocks? POT, etc. Obviously, something is very wrong ..... Opportunity !!! SD

Always the heretic we would put a few things to you .... While WEB lives, a lot of things that should be happening, aren't. WEB dies, following a suitable period of mourning - BRK goes through a modernization. Not much different to the British Royalty .... do you really think that the British Royalty is going to look anything like it currently does - after the queen is dead? Riches to rags in 3 generations. This first turnover is from a god to a mere mortal, historically they do not work out so well. Most would expect fund managers to initially sell into the 'legacy' euphoria in recognition of that, hence 20%+ downside. Then quietly buy back as 12-18 months later, mourning is over, the cash pile gets 'distributed', BRK gets broken up into multiple entities each trading at much more affordable share prices, and everyone raving as the sum of parts is now worth > than the whole. Its also known as asset stripping. Nothing wrong in that, but if you think that post WEB, BRK simply remains as it is - the odds are very likely against you. SD

Rents are dirt cheap, and the annual rent raise is capped in most places. As most include property tax, mortgage, and condo fees; inflation cost > rent raise is eaten by the landlord. A non issue a long as the landlord has turnover, if not - the landlord needs to sell. Rates of your floating rate mortgage rise > 150bp over 3-6 months, and you're f*****. However, rents are rising rapidly. If the place you live in is sold, your rental deal is off if the buyer is a family that actually wants to live in the place. Not unusual for the displaced to find that the rent on their new place is 2-3x higher than it was on the old. Sticker shock, mostly because the old rent was artificially low. SD

Keystone (Canada-US pipeline) is stranded largely because a re-approval would require massive damages payouts, which is not politically practical. The best alternative is a 'national interest' re-approval and completion of the pipeline on the government dime, and a sale/leaseback of the government interest to industry. Still very difficult. The pipeline carries very high political risk, that risk will continue well after it is completed, and there is very real possibility that it will economically strand before it reaches end of life. Can't make the business case, and existing write-downs cannot be reversed until Keystone is actually completed and product has begun flowing (years away). The more practical alternative is a build out of west-north-east gas pipelines that are entirely in Canada. Product/transportation/related employment a better fit for the times, globally strategic, more politically viable, and delivery from sea to sea to sea. US pipelines connecting to the trunk, where it makes sense. The Canadian energy future is bright for decades to come, but it gets there by stepping back from reliance on the US. The US has a great many disruptive issues to resolve (failed Jan 06 Coup d'état, Roe vs Wade reversal, etc.), that will take years to work through. In the meantime it is just pragmatic to avoid getting stepped on, by giving the elephant some distance. SD

Depends on your time horizon, and your directional degree of certainty; Speculation (1 day-2 quarters) vs investment (1-6 years); the longer the hold, the greater the certainty. The short-term community is just trading headlines, and today the news feed is negative. Speculative manic depression at work. Energy is not manufacturing, and vendors are not price makers; applying a multiple to historic earnings just doesn't work. Multiples are used, but it is on a FFO, FCF, etc - a forecast 12 months out. and NOT eps. Price moves up/down, primarily because future cashflow is expected to be higher/lower; the FFO/FCS multiples themselves move much more slowly. Investment speculation at work. Know your swim lane, then stay in it. SD

Look at Baba, before and after the Beijing Olympics. Baba used to have the material majority of the Chinese payment market, and earned a small piece on every transaction - Baba now has a much lower % of the payment market, and a lot less revenue as a result. Worse still - if Baba was part of an optimized (Black Litterman) portfolio, all the historic co-variances are wrong, as the world has suddenly and materially changed; the portfolio is not optimizing. CBDC disruption. Change Baba to Wells Fargo. If migrants can send money home via a CBDC for free - what do they need a Wells Fargo for? If they don't have to cash cheques at a Walmart? Most would expect that a good chunk of the Wells Fargo remittance earnings goes up in smoke. As with Baba losing market share to a CBDC, and the portfolio issues - so it goes with Wells Fargo as well. CBDC disruption. There is still a need for banks, but they get paid for access to the CBDC infrastructure, and value-add. How many people do they still collectively employ? A mystery SD

The Eurozone is the next jump, and the CBDC will be the digital Euro - supported by multiple CBs settling wholesale via their DSIB's and GSIB's. Lots of economic and political implications to that, particularly to southern and eastern Europe, hence the delays - the limitation is not the technology. Demonstrate the precedent in the Eurozone, and you have the template for something similar in SA, East Asia, Caribbean etc. Technology acceleration. Not spoken to in the Riksbank paper is the impact on state corruption, the biggest obstacle to development in most parts of the world. Do everything via CBDC, and materially more money in the hose gets to the end user, simply because holes are being plugged up - less aid money is required to deliver the same result. Estimates in some quarters, place the cumulative dollar value at around the size of the globes annual 'peace' dividend. Inferred but not spoken to, is what the corrupt do when CBDC is in widespread use - as corruption doesn't go away. The obvious alternatives are greater use of physical cash and BTC. Given that cash is issued by CBs, change the cumulative physical cash in circulation, and you change the demand on the fixed 21M token supply of BTC. CBs get control over the price of BTC, in much the same way that monetary policy works over control in setting interest rate. Against all this is VISA MC in its current form? and we want a multiple of todays earnings to own it? Nothing wrong with paying a multiple, but with this much headwind - it's not going to be very much. SD

If you don't wish to look at China's experience, look at Sweden's https://www.itu.int/hub/2022/01/e-krona-sweden-riksbank-central-bank-digital-currency-cbdc/ https://www.riksbank.se/globalassets/media/rapporter/pov/engelska/2020/economic-review-2-2020.pdf The reality is that if Riksbank, and the Peoples Bank of China (PBOC), did not think that it was a better all round package than the current system, they would not be developing it. The fact that these entities actually issue the currency, and are/have developing/developed a CBDC, strongly indicates that it IS a better all round package. SD

Privacy has a scale, extreme through to zero - give some of it up and you get benefits. Whether that be use of a Facebook/We Chat/Visa-MC collecting data for resale/AI use, or a CB offering guaranteed zero cost payment and liquidity via a CBDC. If you want extreme privacy either use cash, or BTC. There is a reason why most Benjamin's carry traces of cocaine. If I just want to pay for coffee/lunch, there's nothing wrong with cash Thing is ... if I walk into a car dealership, or a brokerage, and try to use a suitcase of cash to buy something - it has entirely different meaning. Cash is great, but it has limitations - as any black market vendor will tell you. So it comes down to transaction cost vs privacy cost - for making everyday transactions (privacy not an issue), VISA MC just isn't competitive against CBDC. VISA MC is really a predatory credit delivery system at 21% interest, for those who couldn't get credit cheaper elsewhere - which is sadly, a very large number of people. However, once you have the CBDC payment rail, it is very simple to add credit/points to it, and offer a much more cost effective solution than VISA MC. Blockchain technology just removes intermediation, and offers the identical product via different and much more cost effective plumbing - exactly what we see here. And this IS blockchain - it's just being done on a private ledger (CB), with a privately agreed upon consensus algorithm debiting account X and crediting account Y. Identical to the process that allows high volume fully auditable securities trade, confirmation, and settlement in < 2.5 seconds vs 3 days.. We live in 2022, not 2002, and over the last 20 years - technological ability has radically changed. A moat only holds up when the underlying technology is NOT changing. SD

The hate on CBDC has nothing to do with its merits - it is because of fear of the digital yuan. If e-CNY didn't work, and very well, there wouldn't be this fear. https://cointelegraph.com/news/draft-bill-to-ban-china-s-digital-yuan-from-us-app-stores CBDC is just another payment method - the same as crypto is. Like it or not, CBDC is a direct competitor, and just does payments better in almost all aspects. The cost is the loss of privacy, and reliance upon the CB. The antidote is zero-trust BTC - which of course has zero value, and we all hate! The place for this discussion is the crypto thread. SD

For the doubters ... the BIS link is the underling technical report, the Globe and Mail link is a more digestable summary https://www.theglobeandmail.com/business/international-business/us-business/article-crypto-fears-now-materialising-central-bank-body-bis-says/ Roughly 90% of monetary authorities are now exploring CBDCs as they are known. Many hope it will equip them for the online world and fend off cryptocurrencies. But the BIS wants to co-ordinate key issues such as making sure they work across borders. https://www.bis.org/publ/arpdf/ar2022e3.htm Retail CBDCs and fast payment systems ..... Nobody wants a FANG with any kind of significant market share in cross border payment systems. Before Apple there was Facebook Libra; rapidly shut down for very good reason. Where FANGS have been used, it has been primarily to develop/implement domestic payment systems (China, Russia, Nigeria, Caribbean) - that are subsequently 'partnered' with the state. Those payment systems are CBDC's and they make the ancient technology that credit/debit cards run on - instantly obsolete. Of course, you can still get around using horse and buggy - but the motor car is just multiple times more effective, efficient, practical, etc. However ... if we can't see a mainstream CBDC in the US or Europe, it doesn't exist ! The EU, the US, and Canada are amongst that 90% of monetary authorities. The big issues are privacy and integration with CB protection of DSIBs and GSIBs in wholesale CBDC; technical mechanics to making a payment were resolved long ago. They will be in service well within the next 15 years, and when they arrive - most would expect a lot less transactional activity on the VISA MC rails. Hence ... projecting 15 years of current inflation adjusted earnings to arrive at a valuation, makes very little sense. Nobody wants to hear obsolescence, hence the reaction. We get it. We just prefer to drive - by looking through the front-window, and not the rear one! SD

The central bank guarantees is a lot better than the VISA MC guarantee, doesn't cost anything, and includes fraud guarantee. Credit can be obtained for a lot cheaper from a secured Line of Credit, and it is very simple to pay daily interest on the credit balance in your digital wallet. Payment via the CBDC digital wallet centralizes financing services automatically - if you don't have the credit, you have a linked line of credit with available capacity. Excess cash auto-swept into a linked MM Fund account overnight, No capacity, no payment, no fraud. VISA MC was a great innovation in the 1950s. but it's had a 70 year run over multiple product extensions, and is really at the end of its product life cycle. We just cannot imagine an alternative to what we have all grown up with, and refuse to see that the world has changed. That VISA MC has to be torn from my cold dead hands !! SD