SharperDingaan

Hate to tell you this, but an acquirer would either simply wait for the o/g lease to expire, or buy them out at cents in the dollar - deducting cost of the drilling from the price, as it is a requirement to keep the lease in good standing. The corporate shell containing the tax pool losses, typically just isn't worth the restrictions. The alternative is for existing owners is to put new money in, drill the deposits themselves, pay all the cash flow back to themselves, and abandon as soon as the enterprise is unprofitable. Shareholders lose their investment (Y) and receive (mostly tax free distributions) distributions of X. Sh1tty way of doing business, but keep X > Y, and everyone is happy. Typically sold as a tax shelter, that uses the credibility of the sellers to raise new money. SD

Most o/g companies are currently only paying royalties, and will not be paying income tax for quite some time. All those stranded asset write-downs, and accumulated losses over the last few years - have created $ multi-billion tax pools. Even at USD 120 oil, it is going take a good 6+ quarters before most companies pay income taxes. O/G companies are generating obscene cashflows, and are now starting to return it to shareholders via dividends and buy-backs. The cashflows were politically OK, so long as debt was being paid down, and new P&E was being built - it employed lots of people. But today? it is just seen as obscene, and the more so - when a good portion of that USD 120 has little to do with their efforts (Ukraine/Russia war premium) Think of the windfall tax, as a tax prepayment, to be collected upon later. Give up a $ 1.00 today, and take $1.50 2-3 yeas from now. Different POV SD

You are marrying it, so better be really sure it is worth your patience and skill; almost always there are a better solutions elsewhere. It is almost always better to bid above market on a single six digit all-or-none day order. Buy more than you want, bleed some of it out later in the day, and walk away. Illiquid stocks move on liquidity events, and you have just provided one. You have also tipped the market there is a sizeable buyer, which will pull in others, that you are going to bleed shares into. Stay off the bulletin boards; 3-4 months later your presence will have been forgotten, and you can pull the trick again. On your first order, it is almost always better to go bigger, vs smaller - the 175,000 vs 125,000 order; it will be your best opportunity to accumulate size. It will also be a sizeable cash outlay, so it better not be dog sh1te, and you better be able to hold it (with no liquidity events) for at least 1-2 years. If you are being laughed at, you have done your job well. Professional, vs little investor, approach. Good luck! SD

History is always entertaining, but it also rhymes .... Stocks rise primarily because shares are bought back with debt. Inflation typically reduces margins to sh1t, and the higher prices kill volume .. but if you multiple sh1t by higher leverage (debt to buy back shares), you can maintain the EPS number. However, buy back 10% of your stock and you raise EPS by 11% ((100/90)-1)x100. The multiple also increasing, the more your industry is going the buyback route (agency). Buy popularity, and buy the industries doing buybacks. Under inflation it is better to buy versus build assets; the EPS benefit is immediate (no construction delay), and the transaction can be financed via inflated stock values. The seller uses the opportunity to sell their crap, and remove future liabilities from their BS (o/g ARO liabilities). But when the times change .... debt on the buyers books, and the write-down on those crap assets, bankrupts the buyer. Sell when asset purchases are the norm, and park in cash. The index on a domestic economy goes from 100 to 200; to the 'local', business is great it's up 100%! But to the foreign buyer .... if the FX rate on purchase was 1:1, and it is now .5:1, the return after FX devaluation is 0%. Exporters in commodity producing countries live very well, and it is summer in the southern hemisphere when it is winter in the northern hemisphere. Nice thing with inflation, is that both coupon rate, and market yield rise as the CB acts to bring inflation under control. Convexity, and agency/media making the 'cash is trash, buy hard assets' case - driving competition and coupon rates higher. Turn today's 'opportunity loss' (agency) into tomorrow's debt/equity swap, park cash in provincial debt (NL), and simply wait for the CB to do its thing. Like the target company, but buy it at 10-15c in the dollar. Lots of 'traders', all doing well, trading the story at various points in the inflation cycle. But the real money going to the predators trading the 'traders' over the whole inflation cycle. Good luck! SD

The US Fed Reserve meets again in 3 weeks to set rates; the BoC meets in a week to do the same thing - both entities are expected to raise by another 50bp. Do you really think the 1,000 point+ run-up since the last rate reset is going to stick?, or is it much more likely there's a healthy 'correction'? With a lot of the press (paid?) selling a negative story - whining about the impact on RE and the cost of living ..... Negative stories sell, positive ones not so much. Smells like an opportunity to me https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm SD

The Social (S of ESG) is stakeholder management; essentially change management and corporate social responsibility. The Governance portion is essentially strategic management, policy setting, and transparent reporting. ESG implementation is evolving, components are not weighted equally, and like all things - it is possible to game. As it stands, the reporting impact is disproportionate. While there is a minimum global reporting standard, results feed into largely binary loan issuance, and loan rollover decisions. Non negotiable if you already score poorly on the ESG front. Those bitching often aren't too environmentally conscious at the operations level, are not big on CSR, and see governance as largely just an exchange compliance thing. Companies are simply pressured to retire the 'obstructionists', on behalf of all stakeholders. And as some stakeholders have more 'power', there are very few 'obstructionists' in financial services ...... they were 'retired' a long time ago. In some circles, ESG reporting is seen as the precursor to implementation of the coming fintech revolution. You don't get to implement until you have both very robust ESG reporting, and very good ESG scores. Hence if you insist on being a dinosaur, your remaining time is very limited. Not a bad thing. SD

"Hi SD, I know all that. But it is almost inevitable that governments will crack down on crypto in current form, purely to deter the underground economy that has grown enormously and money laundering. Governments are always late to the party, but they eventually get to the party and ruin it once they realize that too many people are having fun. " Governments already have (China), and the solution is CBDC (Digital Yuan). CBDC reducing underground activity as it reduces the quantity of physical bills in the economy (can't buy/sell drugs anonymously if you cant get the bills to transact with!). However, the reality in the digital currency world is that BTC and CBDC are Yin/Yang, and they need each other to co-exist. Statecraft requires the ability to make use of anonymous bribes, and you can't do that with CBDC! Theoretically fiat is backed by the nations assets and security force. In practice? nations got rid of the gold standard decades ago, and the bill cannot be exchanged for the 'supporting' assets. The bill is backed solely by a 'promise', worth squat! Different POV SD

Recent reporting has Canadians with roughly 3B of Covid accumulated cash in the bank - the 'pre-loaded spend' that Finance Ministers refer to; it will be roughly 3T for the US, at the typical 10:1 multiple. Consumers have lots of money, they want to spend it (travel, airlines), but investors don't want to hear it - not the narrative. CB's are not raising rates for fun. If this 'pre-loaded spend' comes out faster than expected; rate increases will be in 75bp hikes, not the 50bp hikes of late, and 1,000 point index drops will be common place. Obviously, not good for those investors who insist on HODLing in a bunker. ESG is vilified because it makes debt rollover much more difficult; most people see the transparency as a reasonable ask, and recognize that at the physical level it is an evolving standard. Demonstrate movement towards obtaining a social license, and a sustainable business model, and there are no issues. However times have changed - it is 2022, not 1972. Choose not to incorporate ESG, pay your loans back as they come due, and explain to your workforce why you've laid them off. 'Cause the business IS there - the problem is the dinosaur running the place, and its inability to move with the times. Looking for someone to blame, and roaring loudly, is not going to roll your loans. Lots of market opportunities. SD

Sorry but we cant speak to this. We've done very well by both names, but over the summer we will be taking $ off the table to fund our London RE. Purely a risk management thing, and not a judgement on the prospects of either company. SD

You don't buy something with BTC, you sell BTC for a block of fiat and use that fiat to buy the Rolex. You buy/sell BTC maybe once/quarter; it's just another place to store some of your wealth, and like Gold or Real Estate - its value moves up and down. Gold and Real Estate (even when tokenized) are not really portable, and can be seized anytime - harder to do with Bitcoin. Your BTC evades capital controls, and is just another way of stashing capital 'elsewhere' - in the event that you ever have to flee in the night. Sure, there's a cost to that; but it's less than the commission you would pay to buy/sell that 'safe house' abroad (and leaves less trace), and a lot less than the haircut you will take to dispose of the transportable Rolex, silk carpets, artwork, etc. that you used to store your wealth. Apples to apples, at the practical level - BTC volatility is not the deterrent most think it is. Most retail BTC is stored as a Crypto ETF, and professionally managed. The ETF sold down, and proceeds converted into BTC as/when the need to 'exit' is getting close. Once 'out', the BTC is sold for local proceeds to enable 're-establishment'. Most often, very little practical naked exposure to the volatility of BTC. Needless to say, the more volatile your home is, the more value this has to you. Lot of value in a Russia/China/ME, not so much in a US/Canada. Peace and good governance has its advantages. SD

Bottom part of the S curve generating additional supply. Depletion on existing wells, plus shortages of mud/sand/chemical/casing putting a major drag on net growth from drilling. Heavy crude shortages limiting refining, and limiting the uptake of light oil. SPR releases masking the true state of affairs. All good SD

Lot of variables, so everyone will be different. Over the summer we expect a significant jump in the price of WTI, and will be using it to take $ off the table and reposition. Cycle wise, we look at doubling cycles, and less at position in the larger o/g cycle. The 1.50->3.00; the 3.00->6.00; the 6.00->12.00, the 12.00->24.00; the 24.00->48.00 The earlier the doubling the more company specific it is, the later the doubling the more the larger o/g cycle it is. Generally we only play the first 2 cycles, recover our remaining capital in the 3rd, and age out the stubs into the 4th/5th cycle. But at the 5th cycle it's not really our game any more. We assume a total wipe-out in the 5th cycle, have only house money at risk, and are net of 5-12x recovery of our original capital at risk. The reality though, is that a total wipe-out would be an anomaly. Different approach, but it ensures that we always survive, and that the market always works in our favor. And when the market periodically crashes, we always have the capital to take advantage of it. SD

Just to add to this..... Most reports assume buy vs rent is a choice, and that all benefits are financial. Totally ignores that most people rent 'cause they don't have down payment, and/or cannot afford the mortgage were they to buy. Totally ignores that benefits are both intangible as well as tangible - if you don't 'get' that, ask your significant other!. Put away the spread sheet. Most reports also assume old/new housing stock is interchangeable. Totally ignores that the single story post WWII bungalow of old, is well past replacement life (windows, plumbing, electric, roof, insulation, etc.), and obsolete. Not relevant unless the owner intends to demolish (highest/best use of the lot) and replace with new. Most people just don't get the real value of owning a property, though many might 'sense' it Your capital is devaluing by the inflation rate every year, and you need a place to live. Own debt free, and your capital increases at the inflation rate (nullifying inflation). You also no longer need to pay rent on a place to live (the biggest expense of most people), and in the interim - while you are paying off your mortgage, inflation works diligently to maintain/build the purchasing power of your capital. Most people also don't get that you mortgage against &/or lease the property to get your capital out - you don't sell the property itself. Millions of people, everyday, use a HELOC against their home as an ATM, or as a reverse mortgage supplementing retirement income. The biggest takeaways from all this? ..... If the extended family wants newborns, the small houses the the kids are living in - need to be mortgage free; and the family mansion with all the space, needs to be kept back against future use by the kids. The optimum solution is the single mansion (in a work friendly city) with multiple floors, and each generation living on its own self contained floor - very different functionality vs existing housing stock. In a London/Paris/New York, the 1/2 floor in a new build high-end apartment block. SD

Those bored apes are back, and with a whole new meaning for being a HODLer! SD

It seems a poor attempt to keep the global vaccination thing going. An attempt (WHO?) to repurpose Covid vaccine infrastructure into vaccine development for pox, malaria, polio, ebola, etc. While these diseases remain primarily a 2nd/3rd world problem, progress is very unlikely; but were they to show up in the 1st world, progress would be very rapid. Hence, welcome to monkey pox. 1st world kids in the '50's-90's used to be routinely inoculated against these diseases, as grand-parents/parents had seen what these diseases could do. Problem is that the existing inoculates have aged and croaked out, whereas the new kids have progressively not been inoculated. Result? a large pool of 1st world kids and younger adults with no inoculation, and zero experience with these diseases; plus a declining pool of aging inoculated adults with waning protection. A simple scare, diving everyone to inoculate, and these diseases stay in the box - when was the last time you saw someone with Polio? SD

I am sooooo disappointed ... I saw the thread and sooooo thought you were talking about these ugly little suckers! https://boredapeyachtclub.com/#/ The ape virus in the NFT world !! SD

This is very dependent upon basin, risk tolerance and holding period. As Canadian investors, we invest only in the WCSB, and only on the TSX. Better investor protections, real companies, and none of the typical Vancouver/Alberta bucket shop drama. The easy money has already been made, the 300,000 share blocks at CAD 1-2 that were widely available 18-24 months ago are now gone. Today it's more can you reasonably expect a double within 12 months, and do you need dividends or not. Look at the drillers (ESI, PD, etc.) and the related services (MLT). Lot of possibilities in this space, but do your own DD. There are going to be no issues passing on inflation increases, and cold stacked rigs are back in service. Industry 2022/23 earnings are very likely going to be at/near records. We also hold OBE, WCP, GXE, and a stub of CVE.WT. Primarily dividend plays at this point (after OBE refinances), the share price doubling in 1-2 years, and potential dividend cash yields in the 8-12% range. We hold the CVE stub solely because of the cash flow that CVE is generating; at some point they will do something with it. The caution here, is to have a systematic withdrawal plan - easy to be a hero in a boom, not so much in the bust. Pay your mortgages off, buy houses, stack T-Bills away somewhere, but take the gains off the table. Good luck! SD

We have an entire generation of analysts who have seen nothing but repeated fed bailouts, and now we have an aggressive Fed that means business. If/when they discover that moral suasion is back on the table ... we have the get me out at any price moment. Some of that money will run to O/G, pushing both price up, and the O/G multiple. Even at 50-60% of current Tech multiples, O/G does a healthy jump SD

Just to add to this. Outside of O/G, market Q12022 earnings were barely as forecast. Most would expect Q2-Q4 2022 earnings to underperform current forecasts, and updated forecasts to progressively lower the bar. Better numbers starting Q1 2023, after the Fed has had the time to demonstrate its thing. Assume 2022 earnings 5-10% (7.5%) below 2021. 2022 is not 2021, and the inflation/Covid/Ukraine veil 'dance' is a time limited gig. Assume the 2022 P/E multiple, relative to the 2021 P/E multiple, compresses 10-20% (15%) by 12/31/2022. $100 of 2021 earnings becomes $92.50 of 2022 earnings, and multiplies by 15.9 (.85 x 18.7). 2021 value of 1,870 (100 x 18.7) becomes a 2022 value of 1,470 (92.5 x 15.9). 2022 market fall of 21% (100x((1470/1870)-1)). SD

Like most others we use the opportunity to buy more via margin. Almost always a new investment/vintage, 6 year hold (unlevered 12% ROE), and a call on the future performance of XYZ. Our opinion, vs the market/agency driven hate at the time. Like most others we invest in easy special situations. The 10-20% gain on a round trip around an existing given position, the Investment ahead of an expected dividend. To some this is 'trading', but to most this is just an expected part of 'buy and hold'. You know the XYZ stock history, and the approximate value, so use it. We use good risk management, hold some FI, and consistently take $ off the table over time. So that comes the day .... we are quite comfortable with temporarily increasing the size of the portfolio by 30%, at the same time the portfolio is already down 30%. Example: Assume 100K of cash that will only be required 6 months out. You can buy a T-Bill today & take zero risk, or invest in a company you know well, in anticipation of a dividend increase < 6 months. While you wait; the company vs T-Bill alternative, has a cash yield advantage. But if it works out; all else equal, the dividend increase will also raise the share price of the company. Sell the company in 6 months, get your money back, and your bonus is the difference in price plus the extra dividend. Did you take a whole lot of incremental risk to get this? not really. SD

It is the Galaxy BS only. Basically Galaxy Debt + Equity - Cash. Not entirely Galaxy money though - If a margin client puts up $100 of collateral against $60 of margin, Galaxy gets to add the $40 collateral difference to its capital. Hence include all the client margin loan overcollateralization. If the $100 MV of the collateral falls to $60, the $40 difference reduces Galaxy capital, and forces Galaxy to sell the collateral to repay the margin loan. Hence, the first 'run on the bank' is a run on the Galaxy BS to force the margin calls that wipe out investors. The second 'run on the bank' is a run on the Galaxy BS to force mass collateral liquidation, proceeds < margin value, and the losses against Galaxy shareholder equity. The letter suggests the first run has wiped out most investors. The hope is no second run, resulting in Galaxy shareholders either putting up more equity, or being forced to invite a new partner in. SD

Essentially, the Galaxy Enterprise Value. SD

Agreed. Ontario goes to the polls June 02, and the winner will be whoever gives the largest inflation increases on expired union agreements (most expired during Covid, and rolled forward 'as is' until Covid is over). Lot of sizeable 'ratification' bonuses, and wage increases of 5-7% over 3 years being thrown around. Expectation of an annual bonus, plus pay raise, if you stay in place - particularly in health care & emergency services. Even Universities and Colleges getting in on the act Not much different across the rest of Canada - just the magnitude of the numbers. The US should not be a whole lot different overall, it will just vary a lot across the individual states. Sadly, all else equal, it will also widen the gap for the average joe (who cannot relocate) between the rich and poor states. SD

All else equal, with Covid receding and China starting up again, supply issues should start to untwist in a big way. The supply chain problem, largely changing to distribution limitations (labor shortage), and easier to do deal with. More supply, but subject to short-term disruptions, and companies holding inventory as a buffer. Demand systematically being drawn down in a big way by the Fed. In theory, a material rise in supply, and a material fall in demand should materially reduce prices - and the go-forward inflation rate. Thing is; it does nothing for the current inflation rate - current inflated prices are not going to go down, they just rise at a slower rate. Wage driven inflation is a catch-up to recover inflation increases to date. The longer it takes to get to lower go forward inflation rates - the more 'embedded' wage inflation becomes. Hence the aggressive fed movement. SD .

"Supply and demand is out of balance; there are 2 job openings for every worker right now looking for a job. The Fed is trying to thread the needle with QT and rate increases. Suck the oxygen out of the economy to the point of full employment without tipping into job destruction and growth in unemployment." The engineers solution (Fed) is reduce demand by 50% - 1 job opening for every worker looking for a job. More realistically, a demand reduction of 30-40% so as to accommodate employment friction, job retraining time, etc. In practice, this means higher interest rates, lower market indexes, lower housing prices, sucking liquidity out of the system, and letting the financial zombies fail (moral suasion) - the zombie employees finding a better and more secure job elsewhere. Wall street loses big, main street remains largely neutral. The Wall street solution is index benefits, and pay the poor a guaranteed minimum income. Let 'them' live their lives as they see fit, and let 'us' live our lives as we see fit. A very good solution, as many European nations can attest to; problem is - this is the US, and this solution just does not align with US culture. Most would say that in the early stages, culture wins, and Wall street loses big. In the later stages, a guaranteed income goes into effect, and the politicians of the day come knocking on your door asking for your vote. If you think this is reasonably predictable - there is your trading opportunity SD