Cardboard
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Posts posted by Cardboard
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Why not a third term for Obama while we are at it?
And regarding some WWIII with Trump, who is pushing Chinese buttons so hard in the South China Sea right now?
And I have never seen Russian planes harassing U.S. navy vessels like we have seen in recent times. Never!
Sometimes I wonder if Obama is not trying to make things so bad so that a state of emergency is declared in the Fall and that no U.S. election can be held. This way he could do his third term a la Roosevelt. Is that not his hero by the way?
Cardboard
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Buying gold Monday? Lol
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It is worth looking at the chart posted by Warren Buffett at the AGM on the performance of the S&P 500 vs Protégé Hedge Funds.
The difference in performance is striking and while I agree with Warren that fees hurt the hedge funds, I do believe that the underperformance is so large that negative Alpha is much larger than the impact from fees.
I think that most of the underperformance comes from hedging or shorting stocks/the market and likely some from bad picks. And what about the impact of predicting macro?
So if you are trying to hedge to protect your portfolio or you are shorting to profit, you are quite likely going against a very strong headwind that may result in the same kind of underperformance as presented by Warren.
Cardboard
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Core inflation which excludes energy and food was up 0.8%. What do you think is going to happen to overall inflation with oil now going up?
Cardboard
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I own their preferred's and believe that you are very well compensated for the risk with a dividend yield of 11% + on all of them now. The AIM.PR.B has the highest yield of any of the floaters that I know of and by far.
A few concerns related to the company are: slowdown in air travel due to lower activity in Western Canada, renewal of their contract with Air Canada in 2020, majority of free cash flow used for stock dividend and buybacks instead of paying off debt and preferred's at these prices. Although, they said they would retain cash this year by slowing down buybacks to repay $200 million of debt due next year.
The balance sheet remains very strong with $938 million in liquid investments, $718 million in debt, provisions and pension obligations and $323 million worth of preferred's at par. Although, $300 million in short term investments needs to be kept as redemption reserve.
With the company generating about $140 million a year in EBITDA minus maintenance capex, it is hard to understand why the preferred's trade at such distress level.
Cardboard
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Regarding oil, I have my own mea culpa in that I did not anticipate following the OPEC November 2014 meeting that Saudi Arabia and its Gulf allies would engage in a race to the bottom.
My initial thought following their decision to not cut supply was that they would let supply and demand re-balance themselves with lower oil prices $60-70. Instead they increased the glut and no, the additional revenues from the extra barrels is not making up for the loss revenues from pricing. Far from it.
I also did not anticipate that a president would be so hell bent on signing a deal with nothing in return from Iran except their word that they would stop nuclear weapon development for 10 years.
Cardboard
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No, staying right on topic.
You brought up the idea of SUNE in August 2015 and this fairy tale article on Al-Naimi was published in April 2015. By the way, the guy who doesn't understand a thing about how the market works had read it at that time.
And now, you are saying that you bought because of Saudi Arabia, a highly levered renewable energy company that would undoubtedly be badly hurt by much lower energy prices brought on mainly by Saudi Arabia who voluntarily increased the glut? Maybe there is logic in your thesis but, at the moment I don't see it.
Why I am saying that this article on Al-Naimi is a fairy tale? Simply because their current war on other producers and other sources of energy has been anything but, well thought out. It was obvious to anyone for years that high oil prices ($85+) was bringing up a slew of new and unconventional energy sources: shale, oil sands, solar, wind, biomass, etc. If you have a chance to tour the oil sands in Canada, you will get a sense for how desperate humans were to find new sources of energy.
A lot of that development has been heavily accelerated by their actions or creating a scarcity by hoarding their oil. When the world saw that oil was not coming out of the ground in the Middle East despite really high prices, markets found other ways to satisfy their energy needs. So I believe that instead of extending the "life" of oil, they instead reduced it by getting that genie out of the bottle quicker and now people are also incentive to reduce the cost of these to stay alive. These will not go away.
Moreover, when you foresee a future where lower oil prices will be needed to prevent competition, you do not create a state budget that is dependent on $100+ oil. The current impact is a budget deficit of $100 billion a year that will likely see their currency reserves largely depleted if that "war" last a few more years and will severely restrict their chance of transitioning to a non-fossil fuel economy and that is if they are able to maintain peace in their country.
My theory, is that they are a bunch of greedy pigs who have now seen their strategy backfire against them and on top of that, they are unable to think logically when religion enters the picture or from their rival Iran. So here they have given up on a $5/barrel oil premium (could be more, could be less: my opinion) due to markets pricing in a more stable supply level (put a hard number on it) that would have resulted in zero difference in overall oil supply at that price (Iran is increasing anyway) simply because they hate Iran. This is anything but rational.
Cardboard
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So your deep understanding of markets is what made you invest in SUNE and see that stake wiped out?
Cardboard
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How is rational the idea of losing something like $5 a barrel or $50 million a day for simply disagreeing to freeze your production for 6 months at its highest level in years or near max capacity?
No, my religious enemy is trying to increase its production by 500,000 barrels a day, if they are lucky, so we will do all we can to make sure we all lose $100's of millions a day on 50 million barrels a day of production. That has to be the summum in intelligence.
Cardboard
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Saudi Arabia has made Putin look like a fool: he himself met with his industry leaders to ensure they would honor a freeze and last week Russians were told that it was a go by the Saudis despite Iran not freezing.
They are also now threatening the U.S. if Congress passes a new bi-partisan bill allowing terrorism victims to sue them:
They need a good lesson.
Cardboard
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While I am not able to verify this information, apparently that the Brent futures are in backwardation for the front months (1 to 2 months out). So, spot price is higher than these future prices.
If true, that means that oil is already tougher to get your hands on in the international market for immediate delivery or that we are getting very close if not already in balance between supply and demand. That would be ahead of consensus.
This may help explain why oil has remained into the $40's this week despite a larger than expected inventory build in the U.S. and a barrage of negativity and skepticism around the Doha meeting on Sunday. While true that a cut is out of the question, if a freeze is truly enacted and based on supply and demand coming into balance, $40 should become a bottom and not some recent high as indicated by most.
Cardboard
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This IMO is the beginning of the big story for oil this year:
http://www.cnbc.com/2016/04/07/venezuela-decrees-fridays-a-holiday-to-ease-energy-crisis.html
Have you noticed that oil is now refusing to go down despite news such as record shipment from Iraq, record post-Soviet production, Iran shipping more, likely no freeze at the Doha meeting, etc.?
The U.S. has been seeing a decline in production for a year now and the trend now looks much firmer but, the big story is what is going on outside the U.S. and the Middle East and that includes Venezuela. The country could very well be into a civil war before long and even if it doesn't, it does not have the money to re-invest in oil and their wells deplete too and their oil sands are very expensive. The supply risk premium may come back due to Venezuela.
It is the same story for Mexico, Columbia, Azerbaijan, Algeria, you name it. Then you are seeing decline in developed places such as Canada and the North Sea.
Before long, fear will return to the market but, it will be fear of not having enough oil to meet demand. Speculators will move quickly to the other side of the boat and the world will experience the effect of inelastic supply.
Cardboard
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Inventory draws are already beginning:
"API weekly crude oil inventories fall: reports The American Petroleum Institute, an industry trade group, on Tuesday reported that U.S. inventories of crude oil fell by 4.3 million barrels in the latest week, according to news reports. The API data is closely watched for clues to official data, which will be released Wednesday morning by the Energy Information Administration. Analysts surveyed by oil-data firm Platts have forecast a 2.9 million barrel rise in inventories."
Cardboard
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"You guys are right, I love the optionality of cash and the dry powder aspect. I'm currently in 30% cash for that reason, and have been raising it steadily since. However what I'm concerned about is the 70% exposure that I do have. These are names that I feel are high quality, defensive names that would decline less in a downturn. However they would still decline in a broad sell-off, and I'd rather not trim the exposure (including not taking a short-term tax impact)."
I assume that these are stocks that you have held for a while and have unrealized capital gains and are not very cheap but, not at your selling price yet.
If that is correct, then one strategy that I find interesting is to buy slightly out of the money puts on these names with a 5 to 6 month duration to protect your downside and to finance the puts with the sale of out of the money covered calls of the same duration.
So in essence, this strategy does not cost anything. It will protect your downside against a material slide in the market and if your stocks go up to the level of the covered calls, that would likely represent a good sale anyway.
Cardboard
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"There shouldn't be a difference between owning a call + cash vs. owning equities + put. It's the same trade (unlimited upside + downside limited at the strike price). "
In theory yes, in practice absolutely not!
The reason is correlation. If you buy puts against your specific stocks then yes, it would work. However, and I have been burned by this before, do not assume that your stocks will behave the same way as the general market.
Last year is actually a great example of that with a majority of stocks entering into bear market territory or over 20% declines while the S&P is pretty much flat. Hedging using S&P puts would have been a disaster: losses in your portfolio + premium losses on the puts.
Cardboard
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http://realmoney.thestreet.com/articles/03/31/2016/case-120-oil-2018?puc=yahoo&cm_ven=YAHOO
I agree with this view but, not sure that oil will spike all the way to $120. However, I am absolutely convinced that oil producers will have to climb a wall of worry before they go after new projects. This will cause a big delay to get the new oil on the market. It will require hedging, tough financing and very sweet payouts to justify to shareholders.
People talk a lot in the media and even Wall Street strategists but, most of these people never spent a minute reading financial reports of various companies. There you see the truth about the effect of decline rate, kind of capex required just to stay in place, difficulty obtaining financing, lower reserve values, how many people have been terminated, etc.
It is true that Iran is a wild card and some other ME players but, so much is being cut elsewhere and there is so little available for re-investment even in the Middle East that a supply crunch is highly probable.
Cardboard
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I suggested something crazy two or three years ago which I think now is bang on.
If you find no bargains or companies with more upside (much more to ensure a margin of safety) than the market, then you should hold cash.
Then your hedge, should be S&P calls. Not puts but, calls.
This would have worked beautifully and I still think it works.
The reason is that the S&P tends to go up overtime, not down. Think about Buffett and the continued increase in GDP and standard of living. So puts are a money loser game unless your timing is perfect. Moreover, if the S&P goes down, you will never know when to cash in: you will have no yardstick, no bell ringing, just trying to get a feel for the maximum panic from the crowd.
So IMO cash is the best hedge if you can't find bargains. That is a lot of risk on its own to sit out the market because you can't find good investments. So if they come, dry powder is there sitting anyway. Then, if the market keeps going up, the calls will give you the upside at a very low cost since they have likely been bought with very low volatility.
Cardboard
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Regarding future NA cost to extract oil, this is just one example of what is to come:
http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCNQ-2356028&symbol=CNQ®ion=C
Moreover, I am not current on what is allowed by each State regarding flaring of natural gas but, expect this to come to an end in the not so distant future with environmental pressure. In Alberta, if you cannot collect the gas and transport it, the oil stays in the ground. To comply, means a lot of money required to develop natural gas processing and infrastructure or fees to contract it out.
Also consider the possibility of more stringent regulation regarding the injection of water and other chemicals due to earthquakes. This could make fields nearby populated areas out of reach due to higher costs/lower recoveries.
In other news, API just reported a build of 8.8 million barrels for the past week vs expectations of 2.7 million. Not good. Will have to see what EIA is saying tomorrow about gasoline consumption and refinery demand being in their turnaround season.
Cardboard
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Interesting analysis with zero consideration as to what makes an oil field cheap to extract in the first place or size of reserves. True for any resource by the way.
Cardboard
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I fully understand what you are saying.
I also understand that your arguments fully fit with the politicians as described by Trump as fully incompetent when they negotiate something.
Cardboard
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"No, that is incorrect. The delivery system is a separate issue that has no association with the nuclear deal and is dealt with by a separate sanction regime enforced by different parties."
Nobody has ever developed ballistic missiles to deliver TNT. There are only two uses: WMD delivery or putting something into orbit. I guess that the Iranian will use the same excuse as the North Koreans or to develop their space program. Lol
If an agreement was signed that did not take care or envision a comprehensive solution, then that is a failed agreement, totally useless. Obama thought that the Iranian would behave with more opening and got played. Looking at their behavior the program is likely going full speed ahead in undisclosed locations.
And I never said that Bush never got abused. After all, it is not like he was the best president in history!
Cardboard
Big bank rally today
in General Discussion
Posted
Along with higher interest rates on the long end of the curve.
What is the explanation?
Is it due to the Saudi threat of selling U.S. treasuries and the Senate which voted unanimously yesterday to support the bill?
I could understand treasuries dropping in price but, why the banks? With the economy growing barely 0.5%, how is that helpful to have higher yields due to that threat? Seems very short sighted if that is the case.
And would they not sell other assets held in the U.S. including large stakes in financial institutions?
Cardboard