SharperDingaan

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

One of the major issues with heavy oil in Alberta is that to get costs down; the producers really need better technology (less water), & almost a doubling of throughput. Pipelines are the limiting factor. Synthetic crude is not great quality, but upgrade & blend it with NGL/lighter grades & you can make chemicals in industrial quantities; worth a lot more. We also get an industrial sized use for today’s rising by-product volumes of NGL, polluted water, and CO2 extraction. Divert a significant supply into alternative products & there will also be higher prices in Alberta. The great thing about chemicals is that manufacture is inherently dangerous, & there is a general preference for large quantities of cheap, reliable, by-product feedstock. As the better grades (produced elsewhere) are worth more, & the oil sands are remote; there would be a strong bias to JV production at the mine site. Much like rising water cuts from carbonite deposits, once it starts - it just keeps getting bigger. To mitigate it you try to draw down the deposit as slowly as possible; by selling at the highest price possible. No matter where the deposit is located. SD

Good article. Keep in mind that there are few rigs that can do this, & their higher day rates typically do not get discounted. The drill savings come from fewer days on site, & less downtime (plus associated costs) while drilling. The oft quoted day rate for rigs is also a weighted average rate of varying rig quality; the large quantity of progressively deeper discounted rigs swamps their presence. For OPEC members to get their costs down, they need to go to secondary production; it would lower their production costs to around USD 40-60/bbl – and greatly increase the volume they could supply. The primary issue is that at USD 40-60/bbl, shale production is economic - & the stuff is pretty much everywhere. Without USD100+ oil most ME states will ultimately undergo regime change, as they become progressively less able to fund their social obligations. The required reservoir production know-how is western; and it is in the market interest to break cartel control, by developing more abundant shale - ahead of secondary stimulation of ME oil fields. Ultimately, the best compromise is a return to USD100 oil, reinvestment in both ME oilfields & shale production, and diversification through state investment in the globes various oil patches. Long term oil at USD40-60, as GS has been promoting. Shale economics, as per the article. Russian moron commentary at the recent OPEC conference. Each group correct within their silos, each silo pointing to a similar compromise. SD

Which oil stocks are you long right now? Full weighting to PWT, & a half weighting to PD that is 100% hedged; with both in tax deferred/tax exempt accounts. We will most likely go back to a full PD weighting over the tax loss selling season. Net of reinvested house money, we are taking very little risk. We see these as being akin to ships bound for the new world. Stand alone investments, big enough to matter if they come in; but where we can afford to lose one or two along the way if the worst happens. Hence our higher risk interest in O/G, Greek/Spanish banks, UK property, commodities, etc. SD

https://www.youtube.com/watch?v=JnSbL6ZlGiM Sleeman’s beer is way better, & just up the road from me. And the reason for the 50 year interruption – they got caught bootlegging into the US prohibition. Can’t ask for a much better pedigree than that! SD

We find the angst somewhat amusing. Oil prices are cyclical. And because they ARE cyclical we know, with certainty, that tomorrows price will not be the same as todays. To invest is to simply be comfortable with the idea of arbitraging uncertainty over time. Today’s dog (Gold @ $350) is just tomorrows star (Gold @ $3500). All those OPEC nations need higher prices to fund their various social programs and wars. We have great confidence in the self-interest, and ability, of those regimes to remain in power. We also have great confidence in the laws of supply and demand, and reservoir engineering. Everywhere in the world, the CAPEX cost of maintaining production goes up as reservoirs progressively move through their various stages of production. Even in Saudi Arabia, and Iran. Petro dollar recycling was a wonderful invention; most recognize that petro yuan recycling would be a similar invention. Traditionally you exchange weapons for oil, & let the resultant tension add to the commodity price - in a virtuous circle. If all you did was simply trim (if even necessary) & hold, it is pretty hard to see how you would not do well. Nothing to do with being bullish or bearish. Corruption and self-interest work far better! SD

To most folks FCF is either EBITDA – maintenance capex; or cash flow from operations + cash flow from investment – cash flow from financing. The application, dictates which way you go. A rapidly growing company (.com, start-up, serial acquisitor) is relying on ongoing cash flow from financing to cover the cash drain from operations and investment; EBITDA is usually negative as well. You are allocating capital based solely on hype and projection. Hire a good piano player, and you can do very well. An established company has a sizeable EBITDA, at least a 5 year EBITDA track record, and multiple product lines at different stages in their product life-cycle. To get to FCF most folks would simply average the EBITDA & subtract the average maintenance capex. Because it is a 5 year average, it also eliminates much of the change attributable to business cycles. The bigger the average EBITDA, the better it works. The approaches are just opposite sides of the same value coin. SD

One has to realize that these are marketing pitches, and you are not the target market. To make a reputation, the analyst has to routinely round-trip favored customers through their covered stocks - & see to it that those customers don't end up with a loss. You play the piano keys, to bring in the masses; so that the favored can exit the box - & reward you a job at their organization next year. A cynic might point out that there is nothing to prevent you from taking a leaf from the same book, and simply entering/exiting between the favored few. Much as a mosquito, or tick, gets a free meal - without killing its host. SD

You really need to make some distinctions here. We routinely hedge within tax sheltered (RRSP) or tax exempt accounts (TFSA) - because there is no tax impact. A 100% hedge means a 50% sale of our position, sitting on the proceeds, & committing to repurchase at a lower price by XYZ date. If we did this outside these accounts we would be taxed, & it wouldn't be worthwhile. Trading more for speculation, is also very different to trading more for hedging; we trade to hedge. While to some there is no difference between speculation and hedging, thousands of farmers across the nation would adamantly disagree. SD

To get Blackhat control you really need to be a using a CPU processing in the petaflops/second; there are very few of these in the world, & they are for the most part state controlled. You also do not have to dedicate the CPU 24/7. Distributed security really means state security. When the Oracle is trusted, the 3rd party hash verification process is actually more important. Every application where there is a digital wallet, implicitly requires that you trust the Oracle to aggregate the debits and credits correctly; something we already do every time we look over our bank statement. Not the purity a theoretician would want, but more than adequate for business applications. The Blackhat now has to rewrite the chain history, hack the Oracles block chain on record and replace it, then deliver the modified block chain before anyone else. Put the Oracle on a fast CPU & this becomes very hard to do. The Oracle also needs just 1 failed check to detect a possible hack. SD

It is very clear that Varoufakis was prepared to pull the trigger. Only, a political decision stopped it. http://www.telegraph.co.uk/finance/economics/11764018/Varoufakis-reveals-cloak-and-dagger-Plan-B-for-Greece-awaits-treason-charges.html. Political parties change, & so do finance ministers; both German & Greek. It would appear the Germans want an orderly exit in return for debt forgiveness; to get there they need to make an example to others, and de-fang IMF insistence on debt relief/extension, and French refusal to cede budget power to Brussels. To win; everybody has to continue playing the game under the tyranny of the commons. But under the tyranny, everybody wins a bit; and one or two win a lot – if they can keep the tyranny together. Ban the Greeks forever …. and may they never return! Thanks to Germany, on any given day; Greece could wake up to a new, and more radical, parliament. And it will be very easy; in their first act of power - to do an Iceland, and immediately switch back to drachma. We know the machinery is already there. We know that both the IMF and the French would have stronger positions than they would otherwise have. And Germany loses a lot - as the tyranny of the commons collapses. End of dumber. Orderly exit terms for Greece, would also apply to all others – including Germany and France. Move from Euro 1.0, to a more manageable Euro 2.0 by shedding members, and the big winners also get to monetize their gain. Graceful, but end of dumber. If you’re Greek, a disorderly exit has to be the preferred route. If you’re dumber you have to be thinking it’s getting time to exit gracefully; while you still can. SD

Its going to be so boring with Varoufakis now gone .... but now we have dumb and dumber, so maybe there is still some hope! What are the odds that the Greeks simply tell Berlin and Brussels to shove it in the next few weeks - & take their €340bn of loans with them. SD Berlin and Brussels are now acting as if their aim is to punish Greece and force it out of monetary union, even though this would almost certainly precipitate a default on €340bn of liabilities to the eurozone. As expected, the government appointed Euclid Tsakalotos, the former chief debt negotiator, to take over as finance minister after the flamboyant Yanis Varoufakis was forced out to appease the creditor powers. Mr Varoufakis's final sin was to call his Eurogroup colleagues "terrorists". Mr Tsakalotos, an Oxford-educated economist, is less abrasive but he has never been a believer in the euro and comes from the "neo-Marxist" Left-wing of the Syriza movement. The switch may improve the atmosphere at Eurogroup meetings, but does not alter the fundamental clash of interests

With small firms you need to reframe your thinking. Do you want the firm to grow, so that you can sell later at a higher multiple and EPS. Or, do you want the firm to pay out its earnings and forsake growth, so that you can invest the cash flow elsewhere. In private firms, the latter option is almost always better. Start getting big, and the money disappears into machinery and price wars. Stay small and you are no threat to anyone. You are also mall enough for most to consider taking you out via a buyout versus starting a price war. SD

Sorry but the 7% number is inaccurate. Per the CMHC website the minimum is 5% for a single family dwelling and 10% for murbs. This 7% may be accurate for a brand new entrant with no prior real estate history, but it ignores the thousands of other trade up transactions where buyers already have significant equity from their previous home. If the 7% were representative, most Canadian posters on this board would have a mortgage equaling 93% of their house value - just how likely is that? http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_003.cfm Folks finance the land transfer tax, they do not pay it out of pocket. The Ontario tax on a 629K property is 1.26% (7,910) of the property value, the interest cost would be 197/year; $17/month is not a show stopper. http://www.fin.gov.on.ca/en/tax/ltt/ First time buyers are not buying 629K townhouse condo's either, as they cannot withstand the bidding wars. Different story for a 200K condo - but that is not the market we are talking about. But even if folks do take out the CMHC insurance, they will finance it. The CMHC premium for a 20% down payment is 1.25% of the home value. Again, $16/month is not a show stopper. Rent also goes up every year if you have a terrible landlord. No difference. SD