SharperDingaan

Think of every good coming into Canada as having a carbon/pollution tax. The good may have been produced very cheaply elsewhere, where there are no carbon/pollution charges; but if it is to be sold in Canada we charge a tariff equal to the carbon/pollution taxes that should have been paid. It is now an expensive good, and its cost is a lot closer to its 'true' cost of production. If that good costs less to produce in Canada, we wouldn't buy it; if it costs more to produce locally we would. Everyday trade, and in/out sourcing prevails. But that good is expensive, and we are all going to have to pay more to use it; however, because it IS expensive, we will actively seek substitutes. If the economic substitutes are ultimately less polluting, we all win; and get there via market forces, not someone telling us what we should do. Whatever tariff money that Canada might collect, might be used to buy Alta carbon credits (one example). The proceeds in turn paying for Alberta carbon/pollution cleanup equipment that reduce Alta's total pollution load. 'Cap' the total pollution load; and whatever you 'save' via these credits, you can 'spend' on a scale-up of Tarsand throughput - to offset uncollectable carbon charges on commodity exports. Environmentalists start allowing pipelines to be built, production curtailments end, and carbon trading becomes the money machine that facilitates change. Everybody 'wins'. It is just a different way of doing things. That, hopefully, catches on! SD

I suggest that we would. A tanker delivering Saudi Crude to a Montreal refinery would get taxed twice; a high inbound rate (when its full) as soon as it enters the Seaway, and a low outbound rate (when its empty) until it exits the Seaway. The cost would be passed on to the refinery, raising the cost of the crude, & reducing the refiners margin. To get the refiner to take Alta crude (assume they can) we need Montreal delivery at a landed cost lower than bringing the crude via the Seaway The ability to adjust cost (net of scaling) + transport + toll, via a 'safer' pipeline, gives a lot of flexibility. Carbon tax, acting like a tariff on fuel imports, to produce behavioral change. Agreed, all else equal, production shifts elsewhere; but all else isn't equal. Sure US refiners may refuse to pay the carbon tax - but doing so also threatens their supply (now a low margin business), and promotes creation of a refinery closer to source (in Alta, vs the US Gulf Coast); diverting supply, and both stranding and starving their supply line. Ultimately to maintain the reliable supply, they pay up. Sure, a determined polluter can still pollute by moving elsewhere; they just can't do it here. And that's OK, 'cause we can only change (and benefit) from what is within our control. Raising the import tariff, also makes it harder for them to sell to us. Ultimately, it means doing business differently. SD

Just to move the discussion along .... Screwed Alberta. It's not just Alberta, it's the entire fossil fuel industry (coal, gas, oil, etc.). The reality is that the industry is being asset stripped and the capital redeployed elsewhere; implying that any material further growth will have to come from FFO, not capital raises. Leduc was 1947; the last 72 years have been a great run, but everything eventually comes to an end. The resource is still there, but the 'same old' isn't as effective anymore. Opportunity. All-women management. Ordinarily I would agree; hire for ability, not gender. But in the energy industry it's primarily a boys club, we've done this the same way for many years (ability = male), and it just isn't working anymore. We need a different approach, and have nothing to lose (and everything to gain) by giving women the opportunity. Particularly when women are much better at collaboration and 'working together' than men are. The practical reality is that there will never be 100% women, but a material majority is not unrealistic. Would 'Lehman Brothers' have suffered the same 'fate', had they been 'Lehman Sisters'? Competing internationally Agreed that if you cant recover the carbon cost (US buyer), you have to eat it. The market solution is to either 1) sell higher volume (economy of scale paying the carbon tax), or 2) sell different product with higher margins. The market (environmentalists) is signalling no scaling up (pipelines to transport this volume) until the carbon issue is addressed. It is also signalling make different product (refine in Alberta) that sell for more. Divert flow into higher value product. A Canada problem, not an Albertan one; but to get to end point will require the co-operation of all of Canada. A federal versus purely regional approach, and one that would really benefit from more women in the room. Pipeline. Inclined to agree, but the judiciary does not work in a framework vacuum. An advantage with charging for land transit is that a Quebec would also pay for tankers transiting to/from via the St Lawrence Seaway, and that a facility at Churchill (Manitoba) would bring benefits to a northern canada. Split the egress over multiple deep water ports (BC, Manitoba), and you also reduce the spill risk in each location, making egress (at each port) easier to approve. Lots of possibilities ........ SD

Canada had a big night last night, the conservatives lost badly, and to many - we apparently now have the worst possible minority Liberal government with respect to getting pipelines built. The reality of course, would appear to be a little different. https://www.bloomberg.com/news/articles/2019-10-22/trudeau-team-seeks-to-calm-oil-patch-fears-of-pipeline-debacle?utm_content=business&cmpid=socialflow-twitter-business&utm_campaign=socialflow-organic&utm_medium=social&utm_source=twitter We would love to hear people’s thoughts, and to kick off the discussion; put forward the following. 1) TMP is actually ‘green-lit’, subject to demonstration of a ‘real’ no-bull**** business case, ‘real’ no-bull**** climate change advantage, and a ‘real’ no bull-**** time-line. Show me 'real' declining or static pollution levels, show me ‘real’ native consultation, show me 'real' changing business practices. Liberal/NDP pipeline decisions, supported by oil-patch conservatives. 2) Same as a gas tax, dedicate the TMP net benefit to Green investment. We, the people, bought a pipeline – the result of which is supposed to be more wealth for all. Dedicate that wealth to ‘green’ infrastructure, for a period of ‘N’ years? Canada demonstrates progress towards Kyoto accords. 3) Oil-patch carbon-tax, contained within the oil-patch. Produce more bitumen in the oil-patch and you pay a carbon tax to oil-patch pollution reducers, that pays for equipment to make that new production carbon neutral. Canada demonstrates progress towards Kyoto accords. 4) Energy (oil, gas, electricity, nuke waste) corridor toll fees. Let energy cross provinces, but make it pay an access toll to each province/first nation/sovereign sea way, whose land or waters it crosses. The less polluting &/or toxic the energy, the lower the toll, creating market incentives to lower pollution. Canada demonstrates progress towards Kyoto accords. 5) All-women management of the energy file in the various jurisdictions? March the testosterone out the door, and let Canada’s very capable women work on the problems. Their way. Canada both supports male/female equality, and demonstrates progress towards Kyoto accords. 6) Alberta/Sask oil-patch refining, & alternative energy generation? Higher value-add capture in the oil-patch, less polluting product in the pipe, and export electricity versus coal – net of C02 sequester. Accidents will still happen, but now it’s a lot easier to clean up afterwards. Let the fire begin! SD

Brief word on carbon-tax. Carbon tax is just one of many possible pollution taxes. It could just as easily be a methane tax, a plastics tax, garbage tax, etc. The basic idea being that if you want to degrade the public 'common'; you pay for it, as per your choice. The tax is just a tool to encourage you to change your behaviour. The bitching is ... I don't wanna change! I'm not able to change. Lots of ways to locally charge, lots of ways to locally return the money ..... but so long as if largely stays in the same ecosystem, hard to rant against. Terrible for the politician though. As while the 'end-user' (you and I) pays, settlement occurs at the 'industry' level (trading carbon credits); and there are no more 'repatriation' cheques to voters (vote buying) with the politicians face on them. Boo! Even worse, the politician gets the complaints! I can't afford this!, what are you going to do for me?. This is killing my job!, don't you get it ?. Your job is to support your community - me! Do your job! .... So if you have to take the heat (complaints), and do not get any credit for it (vote buying); carbon trading is a useless system, 'cause there's nothing in it, for ME! Climate change taxes are just another cost of living, no different to heat, light, and power. Your cost of living goes up, you need to make choices; stay where you are and reduce your standard of living a bit, or keep your standard of living and move somewhere cheaper, your choice. But I don't wanna change, and don't think I should have to! Point is, implementation has little to do with the 'science'. And young people have had enough of it .... hence the Greta Thunberg's of the world. SD

The investment dynamics around climate change are pretty straight-forward. The 'science' does NOT dispute that climate change exists; it just disputes that humans are the material cause of it. Per the geologic record, climate change has persisted for billions of years, and was present well before humans arrived. We really don't need to agree the cause; we just need to recognize that our current climate is changing more rapidly, and mitigate accordingly. From the Investment POV, mitigation means disruption; business NOT continuing as 'normal'. Opportunity. Big industry (tobacco, sugar, oil) fights against the 'cause', and the 'public interest' fights for it. Contemporary history to date evidences running, ugly, fights - continuing for years; that are ultimately lost by 'big' industry. The time is used to 'asset strip' the industry, and re-deploy the capital elsewhere; and the more 'controversy' - the more time to 'asset strip'. Smart. Ultimately, the 'people' win, and flow (pollution charges, carbon tax, etc.) becomes the dominant investment theme. Flow, than in turn, affects the stock of future investments. The only 'certainties' are that it will take some time, and company level future outcomes are very uncertain. Future projections must be PV'd at high discount rates, typically producing negative NPV's. Dogma says don't invest in negative NPV's; hence very 'solid', future businesses, don't get invested in. We use subsidies to prove concept, until the discount rate declines (de-risks) enough to produce a competitive NPV. Opportunity. Investors are short-term, NOT long-term, focused. So ... there is a very cheap, and very deep, fishing hole; being 'hidden' by 'noise'. And .... WEB has apparently noticed. https://edmonton.ctvnews.ca/berkshire-hathaway-firm-announces-launch-of-200-million-alberta-wind-power-farm-1.4639066?cache=yes Different strokes. SD

Interesting discussion, re the investment POV Per the stock of existing industries - it's which ones suffer and which ones benefit from disruptive change. Lots of spin. Per the flow of climate change through industries - it's really whether carbon trading is the most effective mechanism. More spin. Whether one believes in climate change or not is irrelevant; as at this point - most would recognize that the collective belief in climate change is well past the tipping point. Like it or not, carbon/pollution trading makes very good sense. You want to pollute? you pay for it, and create the economic incentives to clean up your act. If you are polluting 'for everyone else' (Alberta Tar Sands), then build it into your selling price. If you cant pass the cost on, then you either need to do business differently (invest in carbon removal, sell refined versus raw product, chemicals versus fuel), or shut down - a decision dictated by the market, not some 'authority' telling you to do so. Industries routinely strand; in a 'resource economy', disruptive change is the norm - not the exception. Like it or not, Tar Sands production is perceived as high pollution; and 'climate change' is forcing business to be done differently. We just don't want to hear it, because it will throw tens of thousands out of work. Rather than work with change, we choose to fight it, and create short-sell opportunity. Great for investors, but not so much for the people being affected. SD

Grew up in the colonies, under apartheid, sanctions, terrorism, and UK ‘capitalism’. Bootlegged, seen the collapse of nations, escaped with head/limbs still intact, have had to start again in new places, met all kinds of interesting people along the way, and have learnt from the best. No different than many others before me. African dictators, and their apparatus, are the same as everyone else’s; what ‘should’ happen, and what actually does. To control a majority, you have to use patterns; in communication, finance, commerce, detection, etc. But live under continuous sanctions (or oppression), and these patterns, and their evasion, become as natural as breathing. As many an older Russian, South American, or Lebanese will tell you; and often with a sparkle in their eye. As applied to investing, we’re just executing a version of Yin and Yang. The very western ‘textbook’ financial theorems of Yin, against the more ‘earthy’ time-tested patterns of Yang. So long as everything remains ‘balanced’ we suffer; but in ‘dis-continuities’ we tend to do very well. In today’s world – Talebs bar-bell approach. We also recognize that in investing; time and volatility, are very close cousins (occasionally the same thing). Over a long holding period, the price of a commodity stock at any point in time, should reflect the commodity’s current place in the commodity cycle. When there is a lag (most cases), you are looking at a cheaply executable Yin/Yang opportunity, driven by time arbitrage (market short-term vs your long-term orientation). Talebs bar-bell. It means that for long periods of time we have to be able to weather negative returns, offset by short periods of multi-bagger returns. If we don’t need cash flow, negative returns are meaningless as we don’t need to sell. But when we do sell, we need to be puling gains out of the portfolio – and applying them elsewhere; typically, mortgages. We don’t need cashflow because mortgages are already paid off. Different mentality. SD

Thank you for the recognition, but there are many others a lot better than I am. I prefer not to name, but a shout-out to the many attached to the financial services/wealth management industry, that post here. When you have to continually deliver over a short time frame, it is a very different thing. All contributors are different, but it's really the diversity of viewpoints that make this board work. And that they do NOT all come from the same place. Coal stoker, and aristocrat, long may it continue. Top-down macro is just a different methodology to bottom-up micro; common sense and pattern recognition, versus reliance on formula and ratios. It helps to be widely travelled, and to have bull**** detecting friends from Brooklyn! SD

Couldn't resist .... One of my 'sidelines' is building the operational financial models for the Cannabis Industry. The everyday tools and information that you need to run your business; inventories through to packaging, sales mix, margin analysis, excise reporting, etc. Aimed at the smaller players who cant afford an SAP/Oracle, AND the larger players who would like to run block-chain/smart-contracts on top of their existing SAP/Oracle. Lots of 'colourful' people in this industry ... but I'm just on the 'reporting' side of the business. A great many of these places were never intended to actually produce a store; The hope was quick money, on the assumption that they would either get bought out, or become illegal money/pot laundering facilities. Landlords were happy to rent out/renovate, as to many - it would seem pretty damn hard to lose money at this. It is actually very easy to lose money at it, and it would seem that the 1st year track record will turn out to be even worse than it is in the restaurant industry. I have been told that Detroit's geography, and numerous run-down buildings, make very attractive vertical greenhouses for growing under 'controlled' conditions (lights, hydroponics, etc.); permitting reliable production of high THC product, that can be locally packaged for cheap ;) SD

Seems we have similar fleeting experiences with Geology. The university I attended had an emphasis around paleontology which was pretty interesting, but not what I was after. I did get to participate in a dino dig out near in the bad lands Montana section and the Green River Formation in Wyoming. But yeah, I had zero desire to be a paleontologist. The other aspects of geology (resources, formations, stratigraphy, etc.) stuck with me. I backpack a lot and often get those book with info on local formations and strata. My mum tells stories of how in South Africa, multi-ton blocks of kimberlite (igneous rock) would be 'planted' like gravestones on huge open fields and left to 'weather' for a year. After which the rock became like a mud-clod, that could easily be broken up to get at the diamonds inside. Mother nature, just doing her thing. SD

‘Geology’ was a long time ago; but I suspect that we were looking at ‘associated’ natural gas. %/mole of around 68% methane, 15% ethane, 9% propane, 5% butanes, 3% misc. Today, pipelines transport primarily ‘non associated’ gas; dry gas at 94% methane, 3% ethane, 3% misc.- or gas condensate at 86% methane, 5% ethane, 3% propane, 2.5% CO2, and 3.5% misc. Obviously, some gasses are worth more than others; wherever practical strip the ethane, and propane out of the feedstock – and re-sell it in higher paying markets. To the user burning feedstock, the value is lower cost/calorie, and less pollution – not the caloric content/mole. While carbon trading is much maligned, it is actually very much in the energy industry ‘interest’. A gas burner pays less for the feedstock, and less for the pollution; raising the demand for gas, and its pipeline transportation - which is much more environmentally acceptable. And anyone with new equipment, that pollutes less than the average, will receive a carbon credit. Gas burners receiving credits, will seek more gas. Tree huggers receiving credits, will plant more trees. But if there is no gas pipeline – no credits. If you’re paid to pollute less – you have a revenue stream to pay for the equipment. You are paid to sequester CO2, and paid to use electric over gas heating wherever practical. Simply use a windmill to produce some of the electric requirement – and you will get paid three times – carbon credits for the electricity produced, gas and carbon credit cost savings on the gas you did not burn, and lower war-chest costs fighting environmentalists. SD

I spent one-semester studying geology, and it didn't go well. When the rocks were covered in dirt they all looked pretty much the same to me, and my interest was primarily in extraction at minimal effort. Chemical/biological leaching, and pressure/temperature induced phase change, are dirty words in most geologic circles. However, I found methane hydrates extremely interesting, and they are widely abundant - as all that is really needed is high pressure, cold temperature, and organic matter decomposition. Hence their presence on continental slopes, and especially in the arctic/antarctic. https://agupubs.onlinelibrary.wiley.com/doi/full/10.1029/2011GL047222 Problem is that a sudden pressure reduction, or heating, can cause near instant phase change. A water column filled with gas is a lot less dense, and will hold up a less dead-weight; hence a floating ship (displacing that water column) will instantly sink/break-apart - dependent upon how much of the ship is in the gaseous water column. Disturbances are also relatively common; as submarine earthquake slides, or volcanic magma migration (heating the water) routinely sets off mini releases. Side-by-side; burning methane versus natural gas releases around 30% less energy, the same amount of CO2, but double the amount of water. CO2 is also a lot less damaging to the environment than methane, and can be absorbed by vegetation. The additional water might reduce ocean salinity (good), but more of us would have to swim - as sea levels would rise further (bad). Not everyone's thing, but point is - geology isn't just rocks. SD

Nice Zappa reference. A-holes, can only be A-holes, as long as no one changes the game on them. Years ago there used to be a company named 'Rent-A-Wreck' that would rent you a fully MOT (ministry of transport) road-tested banger for dirt-cheap. Good engine, tires, windscreen wipers, heater, and brakes - but multi-coloured, and very scratched up, body panels and seats. Dirt cheap to rent as it was both butt-ugly, and only required the bare minimum of insurance. Ideal student car for moving your stuff. Lots of very expensive flashy cars at intersections - but they would all get very nervous, when I pulled up besides them with mm of 'clearance' to spare And none too happy with my lowering the 'social' value of the surrounding marquis sheet metal !! I found lots of A-holes, but they were all scared sh1tless of scratching up their metal, and appearing remotely associated!. Busy intersections had a way of rapidly giving me lots of space as I pulled up. Amusingly, a good neighbour and I drove off everyday at about the same time, and he'd toss me a six-pack every other week or so. His driver had discovered that if they followed me, I'd clear most of the obstructions out of the way - and that their trip would be about 10-15 minutes faster. Every time. Sadly, 'Rent-A-Wreck' is no more, but it was great fun while it lasted ... and very instructive. There's only room for A-hole #1! SD

Just for fun ….. It’s hard work being an A-hole! Someone’s always trying to steal your stuff, key your car, get in your space, etc. And that’s before those other A-holes try to take your spot; as nobody respects A-hole #2, or A-hole #3 - just A-hole #1! SD

Taleb, in his 'Skin In The Game', cites the minority rule; that (as long as the incremental cost isn't onerous) all you need to control a majority is a vocal and active minority. The example used is halal product - and the reality that it's typically cheaper to make ALL your product halal, that maintain separate facilities. The same thing occurs with organic/non-organic, trans-fat/non trans-fat, etc. You might want to ask him ;) SD

Thank you for your thoughtful comments. You clearly have your own unique voice in all your posts. I have heard it said that a unique voice is a sign that someone is not acting as an ideologue and is likely to engage sincerely in debate. I would like to add to one point you make here. Although in advertising and commerce the goal is frequently to a consumer to take an action as you said, when it comes to political disinformation, a very common goal IS to discourage someone from doing something. Voter suppression is frequently a goal and that makes my point, but there are plenty of other examples. Disinformation primarily is aimed at creating distrust or apathy. A passive, demoralized, disinterested populace is frequently the ideal outcome because they will be better opponent and less likely to offer resistance as an adversary. Whether it's Russian disinformation, or Trump talking the message often is that "everybody's a crook, so why bother". That is the common theme. The fact that Russian disinformation and Trump supporters have this in common is probably just coincidence. Criminals frequently justify their actions by telling themselves and others that "everybody does it". When in fact that's not the case. Criminals are in fact rather rare. In the case of Russian disinformation, it is much more the case of decades of practices and refining of their techniques and distrust and demoralization has worked for them for decades. One of these little old ladies was Russian .... and along the way - worked with some of the best propagandists of her time. Disinformation, and 'goal-post' setting, is nothing new; the only real difference today is the 'scaling' possibilities that come with greater speed and more precise targeting. The trick of course is not to engage, and let the propagandist do all the running. With the help of an opportune banana peel every now and again ;) SD

You're not following the right people and/or muting the right keywords, then. Twitter is whatever you make of it, very maleable. A few tidbits, courtesy of some friends who were very good at this - and in the pre 'social media' world. They were both women, and they both died peacefully in their beds, surrounded by grandchildren - at a very old age. The intent of high volume communication, is to make you auto-filter ... make you create an echo-chamber, consistent with your own view. All I need then do to change your view -- is change the frequency of messages containing your filtered words. You will think you have more support than you actually have, and your opposition is bigger than it actually is ... 'cause I tampered with your feed ;) The intent of noise, colours, motion, etc. is to overwhelm. Just as your eyes do not 'show' your brain everything they see (they show 'bits'; your brain fills in the rest), your cognitive processing is selective. Hence, all I need do to change your view, is to make those things I want you to process - addictive. If I then control the frequency of this input, I can essentially 'control' you. :) The intent of the manipulation is to either 1) make you do something ('do nothing' is the enemy), or 2) make you accept change (the 'current' is not sustainable). The think nothing of it, and don't think to question. Obviously, the tool has many potential applications - some good, some not so much. There are of course a number of very effective 'counter-measures', but they will remain anonymous. SD

Politics is unavoidable in the investment decision process, but we don't need to see it every time we log in. For most people; just keeping it on ignore, and 'sampling' once every 2 weeks, is more than enough. SD

We get tequila shots too :D https://www.businessinsider.com/wework-ceo-adam-neumann-layoffs-firing-tequila-shots-run-dmc-2019-9 According to The Journal, during an all-hands meeting at WeWork's New York City headquarters, Neumann described those layoffs as necessary to cut costs. Moments later, employees at the meeting were served shots of tequila — there were toasts and more drinks, and the evening ended with a performance by Darryl McDaniels of Run-DMC. Don Julio 1942 tequila costing more than $100 per bottle? SD

We f##ked! SD

All of this really drives home the point. Few are of a doubt that it’s a good long-term business, but net of discounted future cashflow; it’s very volatile in todays environment. In the short-term you are trading volatility, in the long-term you effectively own an essential business. This example is wind turbines. It could just as easily be electric cars, or the space industry. You are planting saplings in waste land; your kids benefit, not you. There are many easier ways of doing the same thing – simply buy a ‘widows and orphans’ stock, and never sell. The continuously growing dividend will serve you well, and leave your capital for the kids. Different strokes for different folks. SD

Producing Wind turbines is a mediocre business at best. I looked at Vestas a while ago and didn’t see a reason to get exited. Agreed - but everything in the wind farm business is mediocre. Per public markets, the choices are either the utilities using them - or the turbine makers themselves. Different types of business. Turbines pollute (noise, aesthetics, etc). Viable locations are limited, and damage suits are working through the system. Hence utilities have a long tail risk, that must be included. Turbine makers not so much. Turbines are two businesses. Once/done construction, and erection/decommission + repair/maintenance. When the industry is growing the money's in construction, when its mature it's in servicing. Break everything down into flat-packs, and ship by the thousands to extract economies of scale. Asia (& therefore Asian manufacturers) has a material advantage. Easier to override public objections, cleaner air/water quicker - by leapfrogging o/g and coal as a fuel source, and lots of sparsely populated windblown desert/plains to put them in. For every 1 'western' turbine, maybe 2-3 Asian turbines are being installed. And not just in Asia. The problem is time to market development. These are FUTURE cash flows - that must be discounted at a high rate to reflect the uncertainties. Current NPV is negative to marginal - at best. Hence the industry subsidization. You don't get rich, your kids do. SD

Look at Vespas, the leading maker of wind turbines ;) Copenhagen Stock Exchange SD

There has to be a sizeable part of the market that is being frozen out of the market, and word is leaking out. The repeated and growing daily intervention; would seem to suggest that the Feds initial 50B injection is having to be rolled, AND that they are having to roll additional maturities as well. Creditors are taking their money out. The last time we saw something like this was when the major I-banks collapsed. Big numbers, and big impacts that further magnified based on degree of market connectedness. This smells like DSIB/GSIBs. Brexit is coming up in 41 days, and a hard crash is looking more and more certain. Are global overnight funding flows getting distorted as the Oct-31 date gets closer? SD