SharperDingaan

Some basic numbers ... A medium (garage size) 10x10x8' unit goes for $310/month. 1st month free, rent already cut $10/month, 13 available. A medium (garage size) 9x10x8' unit goes for $243/month. 1st month free, rent already cut $10/month, 1 available. A small 4x10x8' unit goes for $150/month. 1st month free, rent already cut $20/month, 1 available. ie: Units are very price sensitive, and the smaller the space - the MORE price sensitive. That small unit would be used by a (small unit) condo dweller, many of whom have just lost their job to Covid-19. ie: High odds that within the next 2-6 months, there will be a wave of rental defaults, and few replacement renters. https://www.xyzstorage.com/locations/toronto-west/book-a-unit/#medium Assume the 9x10x8 rents for an average 10 months, net of a second $10/month cut. Rent of $2,097, or ([10-1]x233) Before the $20/month discount, and the 1-month free rent, total rent was $2,530, or (10x253) Work like a pig, for a 17% pay-cut. Assume the 4x10x8 rents for an average 8 months, net of a second $20/month cut. Rent of $910, or ([8-1]x130) Before the $40/month discount, and the 1-month free rent, total rent was $1,360, or (8x170) Work like a pig, for a 33% pay-cut. As costs could not be cut by anything close to this, NI must be dropping like a brick. At a 50/50 mix of units, the revenue cut is 25%. If you don't work with this tennant you're stuck with the costs of upkeep, on a lot of empty space, for an extended period. But work together, and maybe those potential losses that BOTH of you have, can be turned into an opportunity? SD

A fine belgian lambic, that is unusual because it's peach. https://video.search.yahoo.com/yhs/search?fr=yhs-symantec-ext_onb&hsimp=yhs-ext_onb&hspart=symantec&p=belgian+lambic+beer#id=1&vid=5f75a0b202617124c0f8eec431e95f53&action=click SD

You're looking at pre Covid-19 earnings. Do you really think that revenue, 0-18 months following Covid-19 is going to look remotely close? They know this business, and this location. So why are they selling? and supposedly at such a good price? Maybe because they just don't see continuation as being worth it, within the remaining term of the lease? You own the building, you know how many tenants are asking for deferrals, how much and for how long. You talk to others as well. When cash is short, people stop paying, and abandon their lockers. The revenue is from liquidating assets, not rentals - is that in the plan? are you OK with a liquidation business in your building? Or - maybe it's better to just buy a portion of the business? in return for giving them a rental term extension at a discounted rate. At the end of the term renew for an extended period, at market rate, and help them sell the business. They'll ultimately net more for the business, and you avoid a potential nightmare. SD

Just to throw some observations out .... For a great many years, we were happy with an average return of 9%/yr. Double every 8 yrs, withdraw half, and pay off mortgages or invest in new things. Today, we would be doing this every few months. Ridiculous. We were happy to earn an average cash yield of 5%/yr, on a temporary FI portfolio. Today, the portfolio is permanent, the cash yield is multiples of that, and it is likely to double again within the next 2-4 years. Ridiculous. We have done well because 'we' are the master, and money is the 'slave'; but it is becoming a lot more difficult. The solution seems to be setting a maximum size, then dumping anything above that into provincial bonds. Side-bar the capital until life eventually 'normalizes', and in the interim - just give the interest away to a charity. SD

Welcome to the new "free market" economic model: where bankruptcies are a thing of the past! They would be stupid not to to ask for it in the current environment. Has anyone asking for a bailout been rejected? They are just trying to do petro-dollar recycling. Give us the money, to buy out the repo'd shale debt (re-cycle), that we'll swap into equity. We'll take the leases over, and shut the field in. Free market at work, SD

Take just the gain off the table, and use the cash to pay yourself back the original investment. All of our equity positions are now funded with 100% house money - even OBE! Original investment now sitting in FI equities, purchased after dividend cuts in the the 50-75% range, and earning a cash yield in the high teens. ... You might also want to think a bit on what you might do - if all these investments suddenly go up 300%+ over the next 18 months. Large lottery winners often curse their win, because the sudden wealth destroyed their lives. SD

It also tells you that the cuts are expected to go a lot higher than 10M bbl/d, and that these companies are probably amongst the major beneficiaries. Look at where their major production is from, and what those production costs are ::) SD

Folks might want to do a reality check ... "Based on some polling that we've done and some analysis, I fully expect unemployment in Alberta to be at least 25 per cent, at least half a million unemployed Albertans." If that happens, it would mark the highest unemployment rate in any Canadian province since modern records began. On a seasonally adjusted basis, the highest rate recorded by Statistics Canada since 1976 was in Newfoundland and Labrador, which hit 22.7 per cent unemployment in September 1984. https://www.cbc.ca/news/canada/calgary/kenney-unemployment-alberta-prediction-capp-symposium-1.5524461 10% above the highest unemployment rate, ever, in modern Canadian history. Do you really think the economy is 'snapping back' once Covid-19 is done? Or is it much more likely that it is an exit from something a lot worse .... SD

Supply chains are reacting to Trumps N95 mask ban. -Calls to re-chart supply chain risk related to the US. The focus is on 2nd and 3rd order impacts, and a first time for many. -Mostly Grey Rhino's, but a lot of Black Swans as well. Biggest is that the US/CAN border remains open. -Main take-away is that patent protection really means squat. SD

"I'm not sure I understood your math very well but I'll study the industry more tomorrow." The takeaway is do nothing for 12 months, then make your investment. Let patience work. We're O/G. Returns are a lot bigger, and sooner. SD

4. The oil companies will never go for it or work to weaken it the moment they don't need it (see 3). What is described around here is roughly the equivalent of Canada's National Energy Program way back when. These days of course the oil companies would benefit greatly from a National Energy Program and would love to have one in place. Back the Alberta's (Canada's Texas) answer to the NEP was "Let the Eastern Bastards Freeze in the Dark". That about summarizes the goodwill of the energy producers. Seem to recall that it was a little different ..... https://en.wikipedia.org/wiki/National_Energy_Program The bitch was two-fold 1) those Eastern Bastards were nationalizing 50% of 'our' well-head production, and making 'us' pay for it!, and 2) those Eastern Bastards were smarter and bigger bastards than we were!! Lot of drama, but ultimately it came down to our patch, our rules, we can change them whenever we want, and have done so. "The main elements of the program included: (a) a blended or 'made-in-Canada' price of oil, an average of the costs of imported and domestic oil, which will rise gradually and predictably but will remain well below world prices and will never be more than 85 per cent of the lower of the price of imported oil or of oil in the US, and which will be financed by a Petroleum Compensation Charge levied on refiners...; © a petroleum and gas revenue tax of 8 per cent applied to net operating revenues before royalty and other expense deductions on all production of oil and natural gas in Canada...; (e) a federal share of petroleum production income at the wellhead which will rise from about 10 per cent in recent years to 24 per cent over the 1980-83 period, with the share of the producing provinces falling from 45 to 43 per cent and that of the industry falling from 45 to 33 per cent over the same period; (g) a Canadian ownership levy to assist in financing the acquisition of the Canadian operations of one or more multinational oil companies, with the objective of achieving at least 50 per cent Canadian ownership of oil and gas production by 1990, Canadian control of a significant number of the major oil and gas corporations, and an early increase in the share of the oil and gas sector owned by the Government of Canada." SD

Not to be macabre, but it's actually a very good idea. Not for today, but perhaps a year out. Retirement homes are similar to subsidized housing; the rent is fixed for as long as the 'tenant' lives there, and market rate is set by demand. In today's environment, death rates will be materially higher than 'normal', and market rates lower. Hard to find a higher number of replacement tenants amid the space's developing reputation as 'death hotels'. Valuation dropping like a brick, as the rental stream melts. But, retirement homes exist for very practical reasons, and their 'value-add' will become increasingly obvious as we move through Covid-19. Like it or not, there will be a 're-set', and a rush back - filling MORE space than usual and at HIGHER market rates (today's, versus that of 5-7 years ago). Valuation goes ballistic, as the rental streams rapidly double/triple. How much? Assume that you would normally be willing to pay 0.6x todays rental income of $1,000, or $600. Sh1t happens, rental income declines to $500, and you would now only pay 0.4x, or $200. Recovery happens, rental income rises to $1200, and you now have to pay .667x re competition, or $800. If you simply sat on a $600 T-Bill for a year, and THEN invested; you would have $2,400. (600/200)*800 4x your money, while staying as safe as possible (T-Bill), through a global pandemic. Obscene. Points are 1) you have to be able to live with yourself afterwards, and 2) the average post-recovery 'benchmark' return is not going to be high teens, it is going to be in the 2-4 bag range. SD

Thanks--agree it's a reset mode, but think it's just the beginning. The resetting will be painful for the industry for a long while and IMO Trump cannot stop it. I'm sure the super majors are hoping to pick at the carcasses of all those shale firms down the road as well. Only after wide consolidation may more "rational production" take hold out of U.S. oil output, but will take time. Once lit, this will happen rapidly, 3-6 months at most. Assume the only buyers are those on the WH conference call, and funded with 0% long-term $QE. Debt bought from the banks at X cents in the dollar, swapped into majority equity interests, and the wells shut-in. Moratorium on squeezing out the minority interests, for Y years. Bails the banks out, the oil industry out, delivers the promised cuts, executes rapidly, and everybody can plan again. Phaze 2, a NA/EU tariff wall to ensure security of supply. Cooperate, and we do it after the elections. Fcuk with us, and we do it now. Demonstrate your 'proof of commitment' by announcing cuts, we'll demonstrate ours by NOT announcing a tariff. SD

Excuse me if I misunderstand your post--always takes me a few reads of your posts and even then I'm not 100% sure...lol Trump has already exercised his "heads up" announcement and tweets and it moved oil up substantially. What more can he do with tweets/announcements that doesn't shatter whatever shred of credibility he may have left? He's just started on the selective tweeting of 'behind closed door' discussion. 'Leaks' to selective media, to move a discussion along, is a long-standing diplomatic process. Trump just does it by Twitter, but same objective. Aside from the oil industry colluding like a cartel to take a hit and all cut production (and actually abide by it), what else is going to fill the 20-30 million barrel/day hole? The global production cut IS ALREADY THERE. We just don't see it yet because producers are eating the cost (MC>MR) to maintain market share. Stop eating the loss, shut-in instead, and a magical production cut appears. And Russia says they'll only cut if U.S. cuts, but: The thing about U.S. producers is it is a capitalist system unlike many others and colluding/price fixing *like a cartel* is not legal. Furthermore, if U.S. drillers go bankrupt, their wells do not stop pumping--they keep pumping for the creditors and/or shareholders in bankruptcy and they will keep pumping after CH 11 because now the breakeven cost of that well is lower. Drilling may stop, but the existing wells will likely keep producing. Our sandbox, our rules, we change as we want. Put the shale leases in the hands of the majors (via $QE funded asset purchases out of BK), and the production stops. There will still be some, but now it'll be a responsible bleed off. I don't see how U.S. cuts production...Trump (in addition to crude imports) would have to ban/tariff refined product exports to achieve this? But lots of second/third order negative effects from doing so. NA can export whatever it wants, the exports just get world price (lower). Exporters to the US pay the tariff difference, & there's still a profit as long as long as the product is not available in NA. Tariff $ collected pay towards offsetting affects. It's just terrifying to many, because it's unpredictable change. We have markets for that. Replies are in red. The take-away from this is that the industry is 'resetting the game', and that 'change' events like this are fairly common. The US going off the gold-standard, WW's, pandemics. Brexit, Trumps election, advent of crypto-currency, etc. We just don't want to hear it. SD

There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale. Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what. 'Proof of commitment'. Show us the walk, not the talk. The Twitter finger is getting itchy. SD

Just to throw some things out ... Bet on break-down. Share prices of major companies decline an additional 50-70% from where they are today. It will take time for the market denial to penetrate, but we're coming down from a decade worth of artificially high and inflated levels. Bet on a FDR type 'New Deal'. Trump gone, fiscal vs monetary stimulus into mega-projects to get people working again, critical off-shored supply chains returning on-shore. The US ban on the export of N-95 masks, in a global pandemic, underlying the necessity. Bet on infrastructure redevelopment, and the supply-chains feeding it. New power grid, new charging station grid for e-vehicles, new inner-city housing redevelopment, new tech and the use of that tech (blockchain, AI, WeWork type set-ups, etc.) Bet on accelerated change. Trump is 78, and representative of 1-2 generations of privilege. According to the 2015 Actuarial Life Table, he will be dead within 9.5 years. https://www.ssa.gov/oact/STATS/table4c6.html Attitudes and influence that are rapidly waning, and at accelerated rates. Point is ... bet on change, and a lot of it. SD

Gaming is just gain optimization, within a fixed 'internal' set of parameters (the 'game'), even Nash recognized that. But Nash also recognized that you could game 'external' disruption, by changing game parameters (game 'changing', and game 'setting'). NA is game 'changing', SA/Russia are game 'optimizing'. Who you think wins, depends on who is funding your POV. Whatever the opinion, the reality is that everybody needs higher prices, and asap. In the near-term, simply stop flooding (Opec+). In the long term, enable a stable planning environment (US Shale). The existing 'game'. The game 'changer' is a viable NA tariff wall, and the game 'set' is more discipline in the shale patch. New 'game'. Lots of mystery, and high stakes, for all involved - but 'do nothing', is not an option. 'More time', is just back channel 'communication'. Iran (under sanctions) and Iraq are still producing, as are the rest of the Gulf states. How much existing inventory, goes into new 'strategic reserves', who's are they, and where? In today's climate, most would expect some kind of 'proof of commitment'. So if there's no 'special meeting' next week ... and no cuts ... SD

'Energy Independence' just means reduced price volatility. A business environment that is predictable enough to enable investment in long-term infrastructure, that's it. The benefit being that when you really need that oil/gas, you have some. It's a put on the downside, there's a cost to do that, and 'we the people' pay it because its the most practical solution. As has already been pointed out, the issue isn't just supply, it's the massive inventory. The smartest solution is to just shut everything in for 3 months, pay people to stay home, and meet the demand from inventory. In the West, with Corona everywhere, we are already paying people to stay home - and for months. The ME and Russia is not going to shut-in unless forced, the NA tariff wall is just the club. There will be shut-in production in NA as well, but we'll just get the higher tariff price, and the business stability to permit the mega-projects to go forward. Everybody benefits. Sure there's lots of screaming. So do your kids, when you take away the TV. SD

Keep in mind too, that the price behind the tariff can be periodically changed as well. Most would be OK with a minimum price enabling NA security of supply, and world price for anything above that. SD

Everyone, together, either cuts back 10-15M bbl/d (& maintains it), or a NA tariff goes up. The US may accept some cut-back, but not a lot, as they have the tarif wall to fall back on. Muscular negotiation. SD

Trump just puts the tariff up, and then talks. The opening ante is a 12.5 million bbl/d cut, for a couple of months. Don't care how you do it. SD

10 MBOPD OPEC + Russia cut isn't going to happen. That is around the same amount Saudi Arabia typically produces! They both have covid-19. Shut in almost entirely for 2-3 months, and sell from storage. SD

The number being discussed is 15M bbl/day ... and this is before Fridays WH oil major discussion. WCP +23% SD

If you take out NA demand you also have to take out NA supply. US won't be exporting anything at 20 bucks a barrel. so I'm not sure if the price would collapse. US would just disappear from both the supply and demand side. I do realize I'm oversimplifying because certain refineries are geared towards certain types of crude. But big picture, I don't follow that the global Brent price has to collapse in a US tariff scenario. Big picture is China, India, and EU on the consumption side. Russia, ME, Others on the supply. Storage is full. Demand has collapsed, so either supply cuts back < demand, or the margins go to zero. SA/Russia unlikely to cooperate, so EU/Brent production shuts in. EU joins the NA tariff wall, that is now 40% of consumption. EU/Brent production restarts, and stability. SA/Russia fight it out for the remaining demand. US/EU protection looks the other way, and just maintains its arms agreements. How long do you think those SA facilities remain in one piece, should rivals and neighbours gang up? And when selling replacement weapons is just good business? NA also doesn't have to produce the oil that it dumps. It just sells ME paper oil at today's prices, and closes out by taking tomorrows spot rate physical delivery at the specialized on-shore refineries. And it's not even 'dumping' because NA didn't produce it ;D SD

Just to throw some things out ... The WH meeting with the heads of the oil majors, is no different to when Bernanke met with the heads of US banks. It's 'here's what we're going to do' ... not a discussion. Our own thoughts are tariffs by the end of April. It's probably the opening round of muscular 'negotiation'. Do versus talk, and stability until the economy is back to what it was. 12 months+ People are being paid to stay home anyway, with $QE, so most realized 2nd order effects will be external. The game changer is India. Covid-19 is now starting to bite, and much of their in-sourced production is reversing. As China did, their oil consumption is going to collapse. China's consumption isn't going back to what it was, while NA/Europe is dealing with Covid. Take out NA consumption, and the external price must drop like a brick. But nice and cosy, 'inside' the tarif wall. No point to storage, and this strands whatever external storage is already there, if the external price is going lower. And it WILL go lower - as nothing prevents the NA block from dumping into the external market. Swing production is a bitch. Allow the EU into the circle, and the US/Europe can leave the ME. Done being policeman, and don't need to, as we're now largely self-sufficient. And for a very long time. So, gentlemen .... let's negotiate. SD