SharperDingaan

They will just cut dividends, take massive write-offs, and extend debt maturities - but they will survive. The good news is that they are integral to the global economy, so after the cuts/write-offs/negative press ... they will be the ones to own. Mean reversion becomes your friend. SD

Just to follow up. It is just more inconvenient, and more costly to obtain a non-recourse loan in the US, but not particularly difficult. A very brief google search pulls up at least one bank, and a few mortgage brokers. Sure, they are unlikely to be the choice of johnny or suzy, but if you want non-recourse financing, you can get it. To the predatory borrower the extra cost is just insurance, and even tax deductible! https://www.sensefinancial.com/non-recourse-lenders/ The sad thing is that it is 'easier' to bail out a failing bank, than it is a failing home owner reliant upon airbnb cash flow to pay the mortgage. The airbnb landlord layer creates a toxic overlay, magnifying volatility; because as soon as a lender forecloses, it triggers a selling waterfall with no floor - as there are no buyers. The only back stop big enough to arrest the waterfall, is state purchasing as public housing; probably NOT what most had in mind. The opportunity is what this can do for somebody seeking election. In the DB pension industry, underfunded pensions (liabilities > assets) are common, and it doesn't collapse the DB value proposition. All a 'wise' authority need do; is target a specific area, work with the banks in that area to temporarily allow a LTV > 100% to non airbnb landlords, and offer to buy X units at 50% of the current market. Let the banks foreclose on the airbnb landlords. Instant public housing at a deep discount to market. Lots of ordinary voters saved from foreclosure. And all these votes concentrated in a target area, and grateful to the 'wise' authority. Airbnb landlords portrayed as leeches. SD

No worries. I have no problem with exposing the risk, but I'm not going to do the math for everyone. We KNOW that this can and DOES happen. Something very similar occurred in the US, and it initiated the GR2 of roughly 2007. This is just similar sh1te, in a different wrapper. Bankers argued that debtors wouldn't walk away, because it would damage their credit rating. And were wrong, repeatedly. It is well known that while Individuals are frequently very smart, they become progressively 'dumber' as they collect into larger 'homogenous' groups (ie: group think, mob mentality. etc). The defense is as much diversity, and independent thought, as possible. Coupled with ability to act. Obviously, not what many want to hear. .... but great for making a market ;) SD

But what exacttly is the problem. Airbnb apartments are just standard apartments. For a long time they made what? 2x - 3x their mortgage? Now they can rent long term and cover the mortgage. It seems very pandemic related. If there is so much property in excess of demand then rental prices should go down. Last time I looked I see big rent inflation everywhere. Just to throw some things out .... In the US, Airbnb ownership is a very smart thing to do. Put bluntly, it is an asymmetric bet against the US banking system, with very little downside US HELOCS/mortgages are for the most part non-recourse. Both the ALM mismatch risk, and cash flow mismatch risk, are borne by the bank - not the unit owner. And the more units the owner has - the more effective the risk transfer is. A SMART unit owner, may initially finance with 20% down. When times are good, apps do the marketing, cash flow is at 2-3x plus, and SMART owners repay themselves as fast as possible. The dumb, and the greedy, just plough the surplus cash flow into more units - with a little 'empire building' help from social media. In the short-term. More demand for the same supply, raises price, raises equity, raises more demand. In the medium-term. High unit values fuel new-build construction, and the good times roll. Great thing with 80% is that as cash flow shortfalls have to be financed and unit values collapse, 80% quickly becomes 90-95%. THE SMART SIMPLY WALK AWAY. They've already got their money back, and this is now the banks problem - not theirs. Non recourse lending is great! At the extreme, we get a condo market collapse, and the new builds become public housing. Owned by the smart money, and guaranteed by the public purse. Circle of life. Takeaway? Risk is your friend. But only play with house money, a keep taking as many $ off the table as soon as you can. Otherwise known as asset striping. SD

Economics is a harsh mistress. You might want to run a restaurant where your chef would like to eat and could afford it on chef's salary. You might want to run a restaurant out of love and do the best for your customers and staff. You may earn awards and a torrent of thanks and well wishes. But it's unlikely these patrons would have paid you 20-30% more so your restaurant would be rent-increase proof (if not Covid proof). Unfortunately, there's little space in the economy for businesses run out of love (unless they are also run out of deep pockets filled elsewhere). One could even argue that these destroy the business aspect for others who are trying to survive and run their places - whether out of love or out of business. Still sad. Short term, customers are the ones who win. Long term, the owners and the staff are people who lose. Covid only magnified this X-fold. It's not always this way. My partners and I are part of a community group that is helping 2 family-run community restaurants through Covid-19. Version 2.0 of the restaurants are both re-builds from the floor boards up, and will be re-starting life with recycled/upgraded equipment, zero debt, months of donated prepaid rent, and a direct line into a culinary schools flow of new graduates. Mom and dad retired, and their kids running the place, with business advice from 2 conseiller. SD

You asked for value proposition, I just refused. Could care less what others think. Have a good day. SD

But now it's a collectors item ... and it doesn't go off! SD

high quality, best of breed, widow and orphan stock are not adjectives I would use to describe companies where the only question is if they survive. guess that's what makes a market. Too bad you couldn't bother to look at some of the other exchanges, or over a time frame longer than 3 months. SD

There is nothing wrong with the idea. There are just better alternatives, and I offered a direction. A very basic search on the TSE, would have given you WCP.TO and PEY.TO. Search other exchanges and you'll get different names. The only question, is do they survive, and do their dividends ultimately mean revert. Not rocket science. SD

Can you name your top 3-5 that fit this description? Sorry!. Do your own DD SD All for keeping illiquid ideas to yourself, but I find it odd that you won’t throw out at least one name. Where are these mythical best of breed companies cutting their dividends and trading at prices which will allow for a double or tripling to normalization? Could care less. You have a brain, use it ;) SD

If I'm honest I think it stacks up great. Most companies I follow that fit your description are still expensive or do not have the long-term growth potential that these companies do. Companies that I would love to buy, like HSY, SBUX, MDT, FICO, MCO, VRSN, NVO, SPGI, are all still trading at 15+ EV/EBITDA. Most of those don't have the compounding growth potential either. I don't find too many opportunities that have fantastic operating margins, are virtually guaranteed to be more valuable in 10 years, and are trading at 10% FCF yield. What companies are you looking at that fit that bill? A widow/orphan stock normally pays $4.00/share, and yields 7%. Price is 57.14 (4.00/.07). Due to Covid-19 related stress, dividend is cut to $1.00; the POS is dumped and sells down to $10.00, at a 10% yield (1.00/.1). You buy it. If post Covid-19, the dividend is restored to its former $4.00 - the cash yield is 40% (4.00/10.00), and the price is back to 57.14 (470% increase). But apparently, this airport authority stock can do better than this ....... SD

Can you name your top 3-5 that fit this description? Sorry!. Do your own DD SD

Right now, would you get on a plane? And in the current seating configuration? Most places (without border restrictions) you can only fly to/from ‘gateway’ airports, and most airlines are pulling the middle seat from the rows of 5. Airports get paid on activity; planes don’t fly, airports don’t get paid. So how long are you willing to wait until planes start flying again? Because it could be a long time. Number of flights depends on demand, stimulated by either price or service. Today, price has to fall a long way before someone will fly; and this is AFTER improving service by taking out the middle seats. No tourism, no flights, and no need to travel anywhere other than a gateway city. Cash yield depends on dividend and price paid. A great many, high quality best-of-breed companies have already cut their dividends 50-67%, and trade at low prices. All they need do is restore their dividend within X years, and todays cash yield doubles, or triples. How does this opportunity stack up? SD

I don't think investors will find themselves in the same squeeze again - so minute $40 off the table. I do think that supply/storage issue hasn't been fixed, so watching the futures contract trend towards 0 near each expiration may be expected since it forces people to close the position or to take delivery and no one wants the latter. Squeeze that's earlier, and not as severe. This time around, a trapped trader will be fired. Also incentive to have underfilled contracted Cushing storage on expiry day (reduce filling until expiry day). SD

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been. Lack of money, has a wonderful way of concentrating the minds of everyone, Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up) The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy. There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps. And perhaps one of the biggest lessons from Covid-19. All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down. Interesting times. SD What this says to me is that if you have pipe already, it will become increasingly valuable. The repercussions for future supply are interesting to say the least. SA, And to a lessor degree the other large Mideast countries are going to be facing revolution if the oil price stays down for very long. We saw what happened to Libya’s and Venezuela’s supplies when governments become unstable. Simultaneously we have a virtual elimination of long tail projects by every major player in the world. The outcome is likely toppled regimes, and a massive price bounce back, down the road. It may become more like railroads, with very few players making a lot of money. We could speed up the rebalance really quick by turning the gulf fields into glass. China may take exception but I sure Moscow would be on board. Existing pipe will behave, on pain on nationalization. Keep renewing the social license, or lose it. Most long-tail projects are now stranded, but regimes will continue to produce as they need the FX. Without tariffs, others will shut-in. Agreed, regime change in most places unless they can collectively raise price, and keep the price up. Game changers Covid-19 demand destruction is enough to permanently shut-in sizeable global production. Global agreement to lock up the global inventory, then bleed it out slowly. Post Covid, demand rises, supply remains constrained, and price rises to some set-point [uSD 62/bbl?] Thereafter all incremental demand supplied from inventory. Stability for a long while. SD

Agreed, times have changed, but they have also made a national energy policy more of a necessity than it has ever been. Lack of money, has a wonderful way of concentrating the minds of everyone, Like it or not, there will be climate driven constraints, but it can be done intelligently (ie: orphan well clean-up) The Supreme Court has ruled there is 'duty to consult', not a 'duty to agree'. A sick community cannot veto a pipeline, because it cannot make a decision. The obvious industry 'consultors', are the governments of the day, under a national energy policy. There will be quasi-privatization. Crown corporation in-ground SPR, pipeline company, oil company, rail (oil/grain car) fleet, tanker (nfld) fleet, supply-chain (medical, food) infrastructure, etc. Most likely as oiligarch, crown corp and 1-2 private corps. And perhaps one of the biggest lessons from Covid-19. All of the above are essential services, with immense value-add, and robust . When the sh1te hits the fan, the gig economy, and non-essential services break down. Interesting times. SD

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days. I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward. Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts? More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale? I assume that's quite low. So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff? It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy. https://oilprice.com/Energy/Oil-Prices/EX-BP-CEO-Low-Oil-Prices-Are-Here-To-Stay.html The reality is that it will take YEARS of demand > supply, to work off the existing above ground inventory, and because there's lots of inventory - prices will stay low during that entire time. Left to the market, that means widespread and long-standing shut-in/re-drilling across most production sectors, and largely state-only production. Hard on jobs. More practical, is national energy policies, and 'in-country' prices [tariffs] high enough to sustain domestic production. Alternative energy incentives switch to pollution minimization incentives. In Canada, a made-in-Canada price, and more pollution saved by Tar Sands polluting less/carbon sequester, versus switching to EV. NEP 2.0, and rebuilt pipelines across Canada. We 'the people' pay more, but we get jobs, stability, and the ability to plan our futures. Canada might even improve its Kyoto Accords performance!, albeit not in the way intended. SD

This may be a really dumb question but if someone out there has a liquidity problem, how can they pay someone else to take the contract off them? I can understand how a liquidity crunch would drive a firesale at a low positive price. I can't understand how it would drive a negative price. Surely if you're f***ed for cash and the price goes negative you just go bust and stop worrying about the fact that you can't accept delivery? COLLECTIVELY: There are a lot of open contracts to clear/roll Market clearing at losses < margin release. Open positions declining, posted margin increasing. Price volatility triggers posting of additional margin by time X. Margin call selling accelerates. Price volatility, caps the maximum permissible posted margin? Dump to get under the margin cap? market clearing at loss > margin release. In theory, if a counter-party fails, the exchange makes good against the margin posted; the posted letters of credit. In practice, the hope is that the issuers of those letters of credit … are NOT netting against other obligations of the failed counter-party. Liquidity crunch. In practice, the open position also does NOT go to zero upon contract expiry. Refiners may both want the physical, AND have a place to put it; delivery via a tank-to-tank swap at Cushing is not unheard of. Neither is delivering WTI via a tank swap, and replacing with a floating substitute delivered to a tide-water refinery. Those Saudi tankers bound for the US, are there for a reason. As at 1:35 PM EST, the spot price of WTI is PLUS USD 11.18. Yesterday, at 4:09 PM EST. the spot price of WTI was MINUS USD 35.30. A history making USD 44.48+ one-day change in the spot price, yet nobody is taking about it? SD

This is big, but not quite what you say. Futures further out (June and July, I think) were still in the 20s last I saw. This is a storage issue for this month's contract because we're close to date when you have to get delivery. https://www.forbes.com/sites/jimcollins/2020/04/20/the-us-oil-etf-uso-is-the-culprit-behind-oils-massive-plunge/?subId3=xid:fr1587412446979iif#141008c724e8 It matters, but Liberty is right. This is small potatoes--most oil futures for May were already closed. This just screws some people with open long contracts who cannot take physical delivery. That said, I don't see why this doesn't happen again when June expires...nothing about the massive oversupply has been fixed, and storage continues to fill. Well Liberty is not exactly right. USO had nothing to do with it. Guy in his link knows not what he is talking about. USO was all in the June contract already. See link below. http://www.uscfinvestments.com/holdings/uso So yea you have a problem with delivery. But when the thing went to minus 10. Why didn't some trader for a refinery go "Fuck it! at -10 I'll take some extra barrels and clear the market." It's because NOBODY wants those barrels. If it's a storage problem, do you think that there will be more storage or less storage available 30 days from now? If you have the same storage problem for June delivery and that contract will go negative then what is the fair value of that contract today? Normally E&P close and roll their contracts over because there hasn't been any problem with delivery. Now if I'm an E&P guy with overproduction and I just saw spot go down to -35 cause nobody is taking delivery and I'm looking at the $20 june contract don't I just sell my production forward and force delivery on whatever fool was dumb enough to buy the contract? This is not just a storage problem. Somebody was getting material margin calls, and tried to roll a big long position into other months; ordinarily not a problem, as long as you have the confidence of the market. But if a growing liquidity concern is suspected, no-one wants you as the counter-party, and you can no longer roll. All you can do is fire sale your position for as much you can get, by end of day. The negative price - indicates that somebody was willing to pay others [a lot] to take the contacts off their hands. This would only occur this aggressively, if liquidity had been cut off, and there was a 'containment' instruction to avoid any physical oil. Physical oil in transit, is routinely sped up, or slowed down, according to need. We will know, if there is a liquidity injection into the inter-bank clearing system within the next few days. There's lots of storage. Just keep the oil in the ground, and DON'T produce it. We just don't have a mechanism yet - most would think that before the next expiry we very likely will have. We live in interesting times. SD

As at 4:09 pm EST: WTI is priced at MINUS USD 35.30. The immediate issue is which big players have bankrupted, and what announcements are we going to hear in the next day or so; as this will be on par with the collapse of Lehman Bros, and the other US I-Banks, at the start of the GFC. The follow-up will be that if there was hesitation on a NA oil tariff before, it's now gone. This will have done major damage to US oil-state infrastructure, and Trump's re-election chances are zero - without a massive, and almost immediate rescue package. SD

This is where you discover the difference between a paper barrel, and a physical barrel. And how poorly the futures markets are understood. There is no storage, there will be no outstanding contracts, and the market will clear by cutting price. And we will all be FINALLY forced to recognize that the paper price of a barrel, has little to do with the physical price. SD

There is nothing like a field trial to seperate the men from the boys. WFH was a permanent trend before Covid, post Covid there may be more of it, but there are limits. The reality is that if you are to be effective in any kind of service business, there has to be some face-to-face time with both clients and co-workers; it's just a matter of how much. WFH quickly separates the leaders from the managers. Leadership and EQ amplifies under WFH, as it's all about change management and adapting to changing stimuli; the technology just acts as a lever - both up AND down. The sh1te manager before Covid, is unemployed under WFH. Your success is measurable, buy how many additional people are knocking on your door. Essentially the equivalent of 'alpha' in the investment world, that a PM brings to the table. And like the investment world, it's rare, and you need to pay up for it. So ... what's the 'permanent' effect of all this ??? If I'm a good leader, I'm good with managing people that WFH, I can access the technology, and I can vote with my feet .... why am I working for you? and why should I continue to be loyal to you? 'Cause unless you have a very good value proposition for me - you're dead weight. More meaningful engagement, or I walk ...... terrifying, to a weak manager. The cream rises to the top, it rises on merit, and a little more rapidly. All good. SD

Drilling companies have few employees, not the land owners, and those drilling companies are the problem. The solution is a tariff, and a swap of industry debt for interest only federal debt, at terms of 5-years plus. Drill if the netback covers the interest and G&A. Set the tariff high enough to get the netback necessary. Employees keep their jobs, states keep earning royalties, and a grateful southern states votes for you. SD

"The quicker solution would be to effectively reward drillers for taking a timeout. Under the approach being developed by the Energy Department, the agency would contract with companies to delay production of proven oil reserves for several years, if not indefinitely. When that crude is finally extracted and sold, the proceeds would go to the Treasury. Companies would be selected through an auction, with the government picking the lowest-price bidders." It just indicates how clueless the administration leadership actually is. We already have this process, it's called bankruptcy (market at work). The treasury just buys the leases out of bankruptcy, and sits on them indefinitely. No paying anybody, not to drill. SD

They've been taken behind the woodshed, and for many of them - it's to be put down. Give them some space. Their leases are in the process of transferring to the majors, and discipline WILL be imposed. This is no different to consolidation in the gold, diamond, or oil fields of bygone eras. The little guys get snuffed, and the majors shut it in to protect their infrastructure investments elsewhere. Employment declines versus former levels, but significantly rises over current levels, and the displaced move on. Gut wrenching, but the best long-term outcome. SD