SharperDingaan

Just for comparative. • Customer logs onto smart phone • Customer pulls up Google Pay app. Logs into their account • Customer keys in amount, details, & account number of Google Pay recipient. • Google pay confirms existence of the recipient Google Pay account • Google confirms via a yes/no ask if you are sure. • Click yes. Google debits your wallet, credits the recipients And as this is essentially the equivalent of a debit card transaction; the cost is 6 cents versus the $1.50 you would have paid had you used VISA. Customer complains because the restaurant doesn’t have a Google Pay account. Customer is now forced to pay by cash, debit card, or even by V/MC. Customer is not coming back until the restaurant/bar gets it act together; so next weekend the restaurant/bar either has a Google Pay account, or does less business. The average restaurant/bar might open a handful of P2P accounts; GooglePay, ApplePay, Paypal, etc – but there’s a limit. Top of wallet just became redundant, & turned into a P2P popularity contest. Next time you go to a coffee shop, supermarket, or higher end bar – look at how many people are paying via their phone. They are easy to identify, because they are the ones slowing the line down. Count how many, & estimate their ages. SD

Um Google has 1.4B? I assume you mean Android has 1.4B != Google. Google Play has 1B. Google does not control all Android users. We just used this; & assumed that ultimately 1 in 2 of those on the company’s Android mobile operating system maintains an active Google Pay account. Used once/day or once/year; don’t much care. Point was, a free cash float in the billions. http://www.wsj.com/articles/google-says-android-has-1-4-billion-active-users-1443546856 Sept. 29, 2015 1:14 p.m. ET. Incoming Google Inc. Chief Executive Sundar Pichai said Tuesday that the company’s Android mobile operating system had added 400 million users since May 2014, for a total of 1.4 billion. Make your own estimate. SD

I think we are just talking past each other. Some minor rebuttal, and we will call it done. If you are content to always borrow from V/MC, & repay by the card due date; it doesn’t affect you. Pay your annual $100-$150 card fee for the convenience, & be happy. If you are OK with paying the 24% rate on those occasions when you do not repay on time, V/MC is a great deal. If cachet is worth more to you than cost, V/MC remains a great deal. So long as the overpaying is reasonable, & you like the rewards; treat it as simpy another cost of doing business. If you are young and poor, you cannot be so charitable. You want the lowest possible interest rate , no annual fee, lower prices (because merchants don’t have to recover the 2-3% fee), rewards that you will actually use (concert tickets/access), and societal change. P2P does all of it. Google Pay would charge a nominal cost/transaction because of the large zero-cost float. Google has 1.4B users; if just 50% of their users sign-up to a Google Pay wallet, and the average balance is $30 – they obtain 21B of float (1.4B users x 50% x 30). Invested at 1.5%, they would earn 315M. Google is also a distribution platform; very similar to your grocery store. The more popular it is the higher the stocking fee it can charge suppliers. Ultimately it will be the incremental advertising revenue that pays for it. SD

V/MC already works closely with P2P players – as loan provision, & the payment process; are complementary products. To pay/receive from someone outside your P2P network – it is cheapest to run on the existing V/MC rails. But you can significantly reduce the amount of traffic, if you can make Google Pay/Apple Pay exchange payments directly with each other through a P2P clearing/interchange mechanism. Make it attractive to stay within the V/MC rails, & there is no need to go the direct P2P clearing/interchange route; hence the close workings. To get cash back, you have to overpay for your purchase; pay me $4 so that I can give you back $3 - & make us both happy. You also do not have to have saved first before you buy something, you just need someone to loan you the money. It is still the same loan as today, made on the same lending criteria, and paid in the same digital currency. A mortgaging bank does not give you a sack of cash, it simply credits your account (digital currency) by the amount of the mortgage. Music is priced by the song; it is essentially given away to drive network effect – that is scalped at the touring concert. P2P payment within the same network (ie: settlement via crosses), follows a similar business model. And the bigger the network effect, the more attractive it becomes to both payer & receiver. Agreed V/MC has a great business model, but it is no longer the ONLY great business model in the space. It also has the disadvantage that its demographic is older; todays V/MC dad is tomorrow’s lower spending grandpa, & that P2P kid is tomorrow’s higher spending dad. SD

Gio, you are missing the point; consider a very simple back-of-the envelope Imagine tbere is currently $200 of total business. Asia expands the total business by 25% to 250. XYZ Credit Card Company currently has a 50% total market share, & expects it to remain that way with the addition of Asia; XYZ business goes from $100 (50% x $200) to $125 (50% x $250). Shareholders anticipate higher earnings from the additional business, and everybody is happy. Now imagine that P2P shows up, & collectively reduces the XYZ Credit Card Company to a 40% total market share. Total business (including Asia) is still $250, but that 40% share is now only worth $100. Same as it was before the Asian addition, but zero growth. Assume we have no idea why folks chose to use P2P; they just do. What happened? The equivalent of that anticipated Asian growth in the total business went to our P2P friends; XYZ Credit Card Company just trod water. Obviously the numbers are manufactured, but it’s pretty clear that it will not take much of a collective market share loss to materially erase much of the Asian expansion benefit. SD

Separate the loan making process from the payment process. Agreed loan granting is a specialized process, usually best done by bankers; but the payment process is all about cost/transaction, speed, reliability, flexibility, etc. Bankers are not so good at the payments side - if they were; there would be no PayPal, Apple Pay, etc. The reality of course is that bankers are actually very good at payments, but they have allowed their high fees to price them out of the market. You can price skim, only so long as users have no other alternative; alternatives are getting developed. End result is lower future earnings for V/MC. SD

We agree - the current names are Amazon, Google, & Apple; Microsoft & one of the big Chinese firms as well – but as enablers, not the platforms themselves. Initially the industry will be everyone and his dog; but it will rapidly consolidate to achieve scale. Don't compete by trying to replicate the V/MC business model; change the game by competing on global consumer distribution - & offering faster, cheaper, & more reliable payments; at similar quality and flexibility. Nothing says the platform provider has to give you credit; Uber is not a taxi service, & the platform provider is not a bank. If you want credit, simply borrow from your bank & pay the cash to the provider. They will credit your wallet; then simply pay who you want. No need to pay the annual V/MC fee, and no fee to make the payment. No credit risk to the platform provider either, as there is no payment if there are no credits. So what. Pay 22x trailing earnings, when the stock normally trades at 27x, and you must have got a hell of a deal. If you think that P2P is not going to result in V/MC earning less than the most recent trailing earnings - at any point over the next 22 years, you may be right. But if P2P outside of V/MC becomes commonplace - at any point over those next 22 years, you could be seriously wrong. The first internet URL went up in 1993; 22 years later we cannot do anything without the internet. Block chain makes little sense for payment purposes (i.e.: Bitcoin). We tried to over simplify & illustrate that the mine cost is essentially the cost of the electricity used to run the CPU; nominal per verification. The actual calculation is of course more complex, & comparison to today’s numbers illustrates the power of Moore’s Law https://en.wikipedia.org/wiki/Moore%27s_law. Much of the resistance is because we cannot imagine a plastic world without V/MC. No one wants to hear that their favorite cow could well be delivering less milk over the future. SD

You can look up the current hashing rate here: http://bitcoin.sipa.be/ It's around 30,000 Gigahashes/second. Divide the hashing rate of your hardware by that number. I will use my GTX-260 as an example, it's hashing 40 Megahashes/sec, so is 1.3 x 10-6 of the total network power. Therefore I expect to earn that fraction of the 3600 new coins generated per day, or 0.0048 coins/day. At current prices, that is worth $0.1632/day. You would compare that to the cost of running the equipment, to tell if it earns a current profit. My graphics card costs an incremental 94 watts of power to mine (above what the computer draws anyway). I don't count my base PC power usage, because I am doing other things at the same time, like writing this post :-). If you have a dedicated mining machine, then you need to count the full hardware and electricity costs. So at my electric rates, it costs 2.25 kWh = $0.27/day to mine. The operating cost is the electricty for the computer. If all the miners CPU power were from just these GTX-260 CPU’s , the operating cost would be $202,500/day (0.27/(3600/0.0048); or $56.25/coin. The value of that coin today is approx USD 320 https://exchange.coinbase.com/. http://www.thestar.com/business/2014/02/26/ontarios_big_industries_plead_for_lower_hydro_rates.html http://michaelbluejay.com/electricity/computers.html In Quebec, with its big hydro facilities, industries paid 4.5 cents a kilowatt hour. In Manitoba, which is also hydro-rich, the price was 3.6 cents. Most laptop computers use about 15-60 watts, far less than desktops. Simply run these miners out of high end 15 watt laptops in Manitoba, and it would cost roughly CAD 1.20/coin (15/94)*(3.6/27)*56.25. Use real computers with lower power consumption, and the cost will be under CAD 1.00 per 3rd party verification - and this is very back of the envelope. SD

Gio; a lot has happened - it just isn’t visible yet. No different to rust on a car; by the time you see it, it has already occurred. V/MC is just a payment system; one of many, all competing to allow person A to pay person B as cheaply and efficiently as possible. It is the plumbing that allows the payment to occurr. Cash, digital P2P (peer-to-peer), debit, crosses, Hawala, etc. are just different kinds of payment systems – unique plumbings, each with their own pro’s & con’s. The customer uses whatever best suits their purpose. Business wise this is identical to multiple vendors offering the same commodity product – a process by which to pay. Lowest cost producer wins; scale up to minimize fixed cost per transaction. Add a new & viable payment system (P2P), and everybody gives up some market share; the more mature the product is in its life-cyle - the more market share the product is likely to give up. V/MC is mature product. Block chain technology is not a payment system, but it can be used as one (ie: Bitcoin). It is simply a robust digital token ID verification process, with a low cost audited transactional history of all transactions that the chain has been through. The chief cons are its slowness, and CPU processing requirements. Used as crypto-currency - block chain technology allows anonymous, unlimited sized payments to be made; in zero trust environments, entirely outside of the global banking system. Hence the global AML/ATF interest in the technology. P2P transactions are dirt cheap, so long as both parties are on the same network; if one of them isn’t – you have to touch the banking system; & pay. To avoid V/MC machine & processing fees, all a restaurant or bar owner need do is open an account on each of the major P2P networks, & advertise it on the door of their establishment. The mystery is to what extent establishments will do it, & to what extent will their clientele use it. Usage is likely to differ widely across both generation & type of clientele. I advocate a more rapid than expected take-up by the young and disaffected; and by those in Asia. At present; game theory argues working with versus against P2P rivals. Anyone's guess as to how long that will last. SD

A little humour. Clearly the crisis HAS changed things, & probably forever … http://www.telegraph.co.uk/finance/financial-crime/11988110/Bad-bankers-are-like-shoplifters-says-George-Osborne.html "If you go and shoplift at the local WH Smiths you go to prison," he said. "But if you’re the market trader on the trading floor of a big investment bank, and you rip off people to the tunes of millions of pounds, there are no criminal offences to deal with you." The Chancellor said that "there was a lot of totally understandable anger" at bankers, as they were in part responsible for "the biggest single economic crash of our lifetimes". "The idea that you can just ... move on is, I think, a bit optimistic". “People on the whole would prefer, in a wine bar, to say proudly that they are a banker, rather than mumble or imply that they run a brothel or something more respectable and useful.” So despised … that you have to say that you are something else! No-one is suggesting that credit card use will go to zero tomorrow, or that no-one will roll a balance. But the fact is that if you do it repeatedly; it is either because you have no other cheaper credit, or you’re too lazy to actually pay your bills on time. Neither is attractive, & you are not the target market. Fin tech is not understood. The simplest digital currency is a routine cross between 2 customers of the same bank (debit customer A, credit customer B, zero cash change); it’s not just block chain, or some crypto-currency. Google Pay is also just a digital payment facilitator; functionally no different to Uber helping you find a ride. Google Pay is not a bank, and Uber is not a taxi service. The underlying cross process itself is also ancient and proven; it is just an updated and modernized version of Hawala, or Hundi. https://en.wikipedia.org/wiki/Hawala Network effects are also not fully understood. Monkey see – monkey do is well understood and used every day to market card prestige. Not so understood is that the bigger the banks customer base, the greater the % of total volume that can be executed via nominal cost crosses. The Google Pay network is anyone in the world with an account; and that execution via nominal cost crosses may be 2-3x what it might be for a regular bank. Scale matters. All it needs is a global Microsoft Windows 95 type launch with new age music; aimed at young people, ridiculing bankers, and pitching no credit required as the new sexy. It’s ours, its tech savvy, it’s not banking, and it’s not your grandpa’s f'ing credit card. F**k the banker! Flip the bum in the pin-stripe outside the door a quarter, as you leave the door of the rock concert, restaurant, or supermarket. Light a match to the anger at bankers, and capitalize. SD

To each his own; it is not a big deal. SD

We have no position in V/MC, and no intent to short them. We're invested in the technology of the developing fin tech instead. The great claim of plastic is free credit if paid promptly, and rewards points; problem is the Kool-Aid has been called, & its come up short. Most plastic holders have to pay an annual fee to use the card; the reward is a kick-back for overpaying (2% cash back, or points) for what you bought; cards are so routinely defrauded you have to buy insurance against it; and the credit could be obtained a lot cheaper almost anywhere else. Put up collateral, & a credit rating is not a problem. Why not simply pay by debit instead, & stop the bullshit. Simply back the digital wallet with an $X auto-load from your bank account, no different to how you load your transit card. If you ever get defrauded the most you can lose is the $X balance in the wallet. The ongoing financial crisis has changed how many young people around the world choose to do business; bankers are despised by young people in many countries; and the young have seen parents devastated by over borrowing. To many, excessive debt is a bad thing; and a V/MC is personification of that. You use Google Pay, or a debit card - because it proves you have the money. Paying by V/MC suggests you need the credit. Not quite the marketing message a platinum card claims. Yes, to date there has not been the volume to hit the tipping point. It is also the same eco-system, but now with significant distribution through tech platforms - & not just V/MC (who will have lower market share). The fact that all major banks are now aggressively laying off in response to the rise of fin tech; suggests they also agree. Not what we want to hear. SD

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