SharperDingaan

https://www.google.com/wallet/ The payer pays from their digital wallet, and there is no payment - if the digital wallet does not have sufficient credit. Zero credit risk to Google. Reload the wallet at a $50 balance, and Google just obtained $50 of float at zero cost. Multiply by 100M users, and that is 5 Billion of free money. A 2% return (conservative) on that float is 100M; net of this return, the cost to operate google pay is essentially zero. If both payer and receiver have a google wallet, settlement can easily be made via a simple general ledger cross. If you then want the cash; simply pay your bank account from your digital wallet - & draw the cash out through the banks ATM. Clean, simple, no clearing interchange; and a cost of maybe 5c/cross. Versus a total of maybe $3.50/$100 of transaction using plastic. Plastic is a dying business. SD

We're a little biased, but this may well not turn out the way many would hope. Google Pay. You don't need a credit card to do the transaction, it is a lot cheaper & faster for both payer & receiver to use Google Pay. It is an easy thing to link the payment to a cheap line of credit; paying by Google is also a lot cooler than paying by antiquated plastic. It is relatively straight forward to put Google Pay on an Apple watch, use biometric ID, & remove the wallet entirely. Run Google Pay on block chain smart contract technology (ie: fin tech.) - & security goes up dramatically. Fin tech is already here, the major global banks have begun investing, & the layoffs have begun. We are in the early stages of the 2nd portion of the new product development cycle, & China is now rivaling the US in terms of global economic importance. Block chain is vulnerable to attack by super-fast CPU processing, but only so long as the next fastest CPU processor is relatively slow. At least 1 of fastest CPU processors in the world resides in China, and it can process at > 30 petaflop/second. It is highly unlikely the PRC is going to allow rivals. Visa is just a physical application approaching sunset, following a good run. Still a lot of juice in it, but the horse & buggy producer in a world moving to automobiles. SD

A few things to keep in mind. Consultants. They are simply insurance policies; the cost is the premium. You have a great idea, you think it will work, but its high risk. Bring in a consultant, feed them enough information to recommend the idea, & implement. If it works you’re a hero; if it fails it’s the consultant – not you. Repeat as necessary, & live for a very long time. Intelligence. Many different types (brains, practical, political, feral, people, EQ, etc.) but each useless if there’s no drive. Hence all drive, few smarts, often wins out; we call it persistence. Marketing. I’ve studied it, I know everything, hail me as guru; no possibility that the kool-aid was laced, or that the mob is wrong. The 1% publicly embrace, privately bet against; & only have to be right once. We call it anti-fragility. SD

The reality is that the $ are not coming out of the cash account without being taxed. Not for everyone, but you may wish to consider incorporating & doing your investing within the corp. Assuming the sums involved aren't massive, dividends & net realized gains will be taxed at the small business rate. Probably less than you are paying now, & it avoids the forced RRSP liquidation starting at age 72. When you need money, the corp. can pay you a tax free return of capital dividend up to your original contribution. Common practice amongst owner managed business partnerships. Each partner opens & funds their own corp. Each corp. invests in the partnership up to the agreed % ownership. Thereafter, each partners accumulation over time accretes in their own corp., & they pay themselves from that corp. only as/when they need the funds. SD

Nice to see. We can finally start making some progress again. One also has to think that the folks around him are extremely good, & that they have a very deep bench. Goodale, McCallum, are very much in the Paul Martin mold …. & it goes on across the spectrum. The god fathers of Cretien & Lalonde also love a good street fight – so probably a good 2-3 year run to come with little interference. SD

DBA from McMaster ... currently in progress. Just did the thesis abstract on a block chain_smart contract_derivative application - to manage the financial risk attached to long-term inventory in the whisky & bourbon industries. When its done, I'll build my own Oracle ;D SD

If you already have a lot of business experience, the MBA will not teach you anything new. It will however give you some structure to what you were already doing intuitively. It is worth something - but not the 100K stuff. If you are early in your career, buying the name plate may be worth the cost. Depends on what you plan to with it, but treat it as a limited life union card. If you didn't go with a big 6 school; 5 years out - what you did with your MBA will count for a lot more than where you got it from. Ordinary mortals are far better served going the project versus courses route, doing the whole thing on-line versus taking time out, doing it later in life - not earlier, & using the opportunity to do a deep dive into the emerging technologies. If you intend to work through to the new retirement age of 72, you really need to be retooling by around age 50. But this time - with 25 years of experience to back your new tech, you haven't come to tickle the world's cohunes; you're there to squeeze! So far ... Rod Stewart has had 8 kids by 5 different women - & will probably have a few more before he finally croaks out. This is just a cheaper version of the same thing. SD

Attached is a simplified production profile for a shale field. Play with the assumptions, or the well addition, to fit to a specific field. Full year production decline from April 2015, when drilling really started slowing, would be around 20%. Roughly 12.5% if annualized to Dec 2015 - so what we are seeing is actually very real. More notable is that for Apr 2016 through Apr 2017, the decline would be around 35% - from fewer wells, & shorter lives from high-grading. THE major reason why 2016 prices are forecast to be higher. The demand side is largely a wash. The additional volume wanted from lower prices largely offsetting the lower volume wanted from reduced Chinese demand. And all this without somebody tossing a lit match … SD Production_Profile.xlsx

Its better to look at annualized netback, & subtract the annualized last 2 quarters of cost = X Multiply X by the multiple & divide by the sharecount = Y. Compare Y to todays share price. Sell the high outliers & buy the low. The reality is that you are using a rubber ruler on rigged numbers, and a precise guess is still just a guess. You have enough resolution to roughly discern the best & worst case, but that is about it. SD Finetrader/Aws SUBTRACT impairment to offset production & royalties on shut-in wells. The $60 number should be roughly equal to $45-50. You also seem to be using USD numbers. Convert to CAD & its 30% higher. IV should be (75-50)/(75-60) x 1.3 higher than you have calculated. ie: 2.17 to 2.60 x higher depending on your impairment number Market cap is roughly equal to IV. Logic test. When the market is balanced, you would expect industry IV to roughly equal industry market cap; & that is roughly what we are in fact seeing. SD

As owner, we want to see SE accounting as it is more conservative. To capitalize the cost you have to find the oil, & be able to deliver it in today’s market, profitably. Once capitalized, the costs are then subject to annual impairment testing based on reservoir and forecast economics. SE earnings & impairments are lower than they would be under FC accounting, but of much higher quality. True maintenance CAPEX is depreciation + amortization + impairment. The problem is that 1) the impairment is many years of depreciation + amortization charged at once, and that 2) historic depreciation + amortization was understated. Most folk would average the depreciation + amortization over the last 10 years, & add the 10 year average impairment/10. As long as the period covers 2-3 cycles it should be reasonable. Reserves can be bought at fire sale prices. The driller could also luck out and hit a big field near an existing collection facility. Firms lower costs by either buying cheap or using scale. Long term owners prefer SE accounting & a strong BS, so as to capitalize on the periodic fire sales. Short term investors prefer the higher earnings of FC accounting & a weaker BS, as it produces a higher share price & greater trading volatility. Opposite sides of the same coin. To a value investor thinking like an owner, today’s market is a screaming buy. To the short-term investment orientated media it’s a dog. SD

Of course, Iran has tankers; they need to deliver their oil to market. It does not mean that their tankers are full (the picture shows an empty one), or that the oil they may have contained has not already been sold. It is also highly likely that any oil contained was delivered under a futures purchase, & will be delivered against either a spot or futures sale ie: it has already been sold. It also means that cargo owners are expecting higher prices; cargo x (selling-purchase) price > months x storage cost. The haggle to get to higher prices will of course have to address this. Just keep in mind that Russia takes a different view regarding enforcement, and that pipelines and tankers are vulnerable assets. Cant pump if the pipeline is broke, or deliver if the tanker has sunk. SD

A 100B budget shortfall is not sustainable. The forthcoming Iranian production is also no where near what many people thought it might be. SD http://www.telegraph.co.uk/finance/oilprices/11847268/Low-oil-price-forces-Saudi-Arabia-to-cut-spending-amid-record-budget-shortfalls.html Saudi Arabia has projected an official budget shortfall for this year of $39 billion, but the IMF and other institutions believe the actual deficit will be much higher. The IMF forecast in July that the deficit will be 20pc of Gross Domestic Product (GDP), while Saudi Arabia's Jadwa Investment firm said on Wednesday it expects the shortfall to be around $109bn http://www.moneycontrol.com/news/commodities/saudi-arabia-reassuresoil-prices-strategist_2930801.html Croft thinks that Iran's supply likely won't come online until the end of the second quarter of 2016 because of "the types of modifications the Iranians are going to have to do to their facilities to be compliant with the deal." She also doesn't think the output will be 1 million barrels a day, as has been suggested, and instead will fall somewhere between 375,000 to 500,000 barrels per day.

The primary issues with transferring wealth are the corrupting influences, there is never enough, and the inter-generational tranches are not equitable. Each family arrives at its own solution. Some work out, others do not. A different model …... Use a trust to invest in the houses of the family. 20-70% of the equity of the parental house & those of each of the kids as/when they come into the market. Reduce the size of the monthly mortgage payment & you free up cash for other things; the younger set invest in new & growing family, the older set in travel, & the fund benefits from time & appreciation on the various equity interests. As there are no savings until the trust invests, it mitigates against downstream corruption in the younger sets. No money, no party. On average, over time the trust should grow. How fast depends on how much of each generation’s real estate the trust owned & for how long. Appreciation gets diluted over rising family count. The initial set-up can be costly, but once the boiler-plate agreement is drawn up it is usually reusable with minor amendments. There is no activity in the fund other than sporadic purchase & sales/partial sales. Minimal operating costs. As with everything it can be abused, so the trust manager is arbiter. Give the manager a tight Investment Policy Statement, & make it an outside wealth management firm. Not for everyone, but worth considering. SD

No DBA yet … but the world of block chain smart contract derivative fin-tech is looking more & more promising ;) Talebs approach is best executed using derivatives to maintain a position against the market. Negative carry, a portfolio entirely of straddles, reliance on volatility, and an anti-marketing bias; make it an incredibly hard sell to OPM. Very different story when it is private money, & there is skin in the game. Our interest is because we hold PWT, & we view it as an infinite life call option on WTI. Our risk is that PWT goes under, which we think very unlikely. In the meantime there is no carry, & no timeline as to when an event needs to happen by. Ultimately we should do very well, but there is no way you could sell this to a retail investor concerned with monthly/quarterly portfolio volatility. Different strokes. SD

Agreed zerohedge is not the best source; a more conventional news outlet would have been better. None were available. It was posted because a Russian operating base in Syria evidences escalating risk. Somebody makes a mistake, & the sh1t could hit the fan real quick. Quick strike matches. Taleb is vilified because he does not play the talking head game (being right); & makes money by actually betting against the head. Nobody likes being made a fool of. SD

http://www.zerohedge.com/news/2015-08-31/russian-military-forces-arrive-syria-set-forward-operating-base-near-damascus SD

Just keep in mind Talebs argument that you are not investing to be right (ie: talking head forecasting correctly), you are there to make money (ie: be right just once, but make a killing). You want the black swan event, & we know they happen regularly. There are so many matches in that tinderbox, that accidentally striking one is really just a matter of time. We cant say when, but we can be pretty sure there will be a naked flame at some point. The Houthis seized the Saudi city of Jizan again yesterday. Bombing your own cities does not play out too well on TV, & there are way too many willing cameras in the area eager to show the world. SD

We rather suspect the EIA numbers are still very overstated, & that this weeks US crude import numbers may be very revealing; 3 declines in a row would suggest some quiet production cutting. All the run-up so far has been strictly supply related, & does not reflect any war premium. But play with matches around gas tanks, & sooner or later there will be a fire. We do not really want to be on the other side of Taleb on this one! SD

Pumpkin Ale! ... but only small quantities because it truly sucks. Great Super Bowl commercial parody though SD

You are the sum of your partners, and the more pithy they are - the better! SD

Today’s fire at the Aramco Khobar towers is not the first instance they’ve had. http://www.bbc.com/news/world-middle-east-34101228 http://www.reuters.com/article/2015/08/26/us-saudi-security-usa-idUSKCN0QV0PL20150826 Interesting article on the war on Yemen. http://www.mintpressnews.com/saudi-arabias-war-on-yemen-opened-the-floodgates-of-dissent-within-its-own-borders/208403/ When it started in late March 2015 WTI was US48/bbl, before moving up to US60/bbl in May & June as the bombing made the western media. Today WTI is roughly US$45, the war still goes on, & it has escalated. Saudi Arabia is flooding the market, global strategic inventories are bloated, & the bombing is not on the western media. Some notable clips from the article ... Though little known to the public, the Houthis have a wealth of experience when it comes to “breaking into the kingdom.” Back in 2009, the Houthis managed to hold on to the city of Jizan long enough to negotiate a royal ransom. Shamefaced and under the cover of a well-orchestrated media blackout, the kingdom paid up and moved on. Arguably the most violent and reactionary theocracy in the world, Saudi Arabia’s totalitarian monarchy is also absolutely opposed to any form of political criticism. For those inquisitive minds which cannot bear to be confined to silence, Saudi officials invariably react by way of whip or death. As Nassim Nicholas Taleb and Gregory F. Treverton explained earlier this year in Foreign Affairs: “Fragility has five principal sources: a centralized governing system, an undiversified economy, excessive debt and leverage, a lack of political variability, and no history of surviving past shocks.” For Saudi Arabia, all five criteria have already been fulfilled. Most would argue that WTI should trade with a war premium of at least US$15-20/bbl. Arguably the only reason it isn’t is because strategic reserves & storage facilities are being flooded in anticipation of disruption, the low price is stimulative to the global economy, & the recent invasion is not in the western news. OPEC members need a higher price, Saudi Arabia doesn’t have many friends, & the Houthis are very good at breaking in; how long before somebody pays them to blow a minor pipeline. Matches & oil do not mix. SD

Hate to tell you this but the cash is restricted, & any residual has to be returned to the payer as the underlying services were not performed. Identical to selling goods on consignment; in the event of a liquidation the consignors get the option of either taking their stock back or dumping it alongside the liquidation of the BKs stock. In this case the consigned goods are cash, & the consignee will be taking it back. Deduct it from the BS & reduce equity. SD

A lot of this is also petro $ recycling; when you are bad at consumer products you sell weapons instead. More telling is that for Russia to be running a large enough deficit with the ME to make it necessary, they must have been swapping Russian for ME Crude in quantity - and need these sales to square up the accumulated price difference. If the weapons create some tension in the ME, that is not a bad thing for pricing either. The SA investment smells like a bribe to slow down construction, put roughly 250M bbl (at $40/bbl) of in-situ ME crude in Russian hands, & create a joint incentive to cut back. Find some difficulties, co-operate to stabilise the price at $60/bbl - & there is an extra $5B in it for you. All good, as it suggests change is afoot. SD

We have no idea what OPEC may choose to do. What we know is that there is serious division within the ranks, it has become public, & that it is not sustainable. SD

Pressure is building on Saudi Arabia from members within the Organization of the Petroleum Exporting Countries (OPEC) to agree to an emergency meeting to arrest plummeting oil prices. http://www.telegraph.co.uk/finance/oilprices/11814760/Opec-unity-cracks-as-members-call-for-meeting-to-stem-oil-slump.html SD