Cardboard
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Posts posted by Cardboard
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"Donald Trump may personally turn out to be harmless, but his supporters are anything but."
I wonder why so many people point quickly to any violence made by the right but, always turn a blind eye to the violence committed by the left?
In Chicago last week, there were clearly radical elements of the left trying to disrupt a peaceful rally of Trump supporters. The media blames entirely Trump because his message enrages the left. Why is the right not doing the same thing at any Sanders rally?
We saw the same in Ferguson, Baltimore and many more places.
I cannot recall violence of that magnitude by any element from the right in the U.S.
Cardboard
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When people use terms like these, I think that is why Trump and Cruz are doing so well: "not conservative old fashioned religious-values".
Guess what, that is a very large portion of the American population, if not the largest group. IMO, these people are sick and tired of being asked to be politically correct, bend their principles for everyone and then being told that they are dumb and should not exist.
The Constitution was written by these very people using such values. When in Rome, do as the Romans do or at the very least, respect what they are.
Cardboard
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Amazing how this website is populated by so many leftists who will spend a lot of time analyzing a candidate from the right, but zero time on their own. Just like Buffett. Even if Hillary was indicted he would still stick with her.
While I don't like Donald Trump, I have to say in his defense that some of his ideas are good and that being an entrepreneur, he tried to build something, had to face issues, compromise, etc. while none of the other candidates did any of this.
Cardboard
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Love the denial on Tom Ward and the bashing against activism. Even Buffett acknowledged in his last appearance on CNBC that activism at some companies is necessary.
Tom Ward created a monster loaded with debt, which was operating in three unrelated areas, funding a NBA basketball team, benefited from large over compensation, received a massive golden parachute and we will see if he was involved in the unfair land deals in which Aubrey Mclendon was indicted.
If Watsa had encouraged or perhaps not blocked, a deal for Repsol or others to acquire SandRidge, Fairfax would not be sitting with a potential total loss on this investment. If hedging oil for 3 years was the thing to save SandRidge, then I do believe that with their large position that they could have influenced current management (which I think is doing a good job considering what they have been handed) to enter into more hedges.
Cardboard
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I will say it again. Review the holdings in the ETF, assess the companies in there that have the highest weighting and then you will likely come to the same conclusion.
XOP includes all the U.S. majors, all the solid independent and all the refiners!!! None of them will go BK over the next year.
The companies that are perceived to have trouble surviving the next year or longer, like PWE, are already trading like dead man walking. Their share prices are minuscule and with tiny weighting in ETF's if they are still included.
One candidate for bankruptcy included in XOP is WLL trading at $7 and change and down 80% over the last 9 months. You could short it and possibly see it go to zero but, it won't make a difference to the ETF from this point on.
And on the ETF, if a new company is IPO'd or a new one emerge via some merger, they will buy it because it is solid and will flush the one on the way to zero. So they will never give you full benefit of stocks going to zero and will benefit from new ones that are going up.
Finally, if you think that oil will go to $15 and stay there for 3 years then we have a different story. XOP short will be a winner but, then I think that many countries will be bankrupt beforehand and these companies would end up with very high demand on their hands.
Cardboard
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You should find individual shorts or a better thesis.
Shale cannot be destroyed. If the price goes back up and the resource is available to be exploited profitably, financing will return over time. Bankruptcy is simply a process of selling assets on the cheap to another owner to satisfy obligations.
So solid companies will still be around and the index will simply keep the good ones and add the new ones. The bankrupt ones already had their prices decimated so they are no longer relevant to the index that you are shorting.
Regarding Saudi Arabia, they are the ones destroying themselves with their stupid market share strategy. If they had supported the price around $50 or $60, the shale industry would have corrected on its own along with all expensive projects worldwide. This would have sufficed to keep their so called market share. Now they have caused a crash all the way to near $25 and have a huge deficit to deal with. This deficit will not stop even above $50 oil. Before the oil price moves back up to their deficit neutral level, their reserves will likely be gone.
Cardboard
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"Taken conversely, I think the dissociation is bearish for equities. That pretty much sums up my long/ short position currently."
So basically your thesis is around a rejection of paper assets in favour of hard assets a la 2000?
Cardboard
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EIA report was good for inventories and weak for U.S. production if you are an oil bull.
Oil inventories were higher by 3.9 million barrels but overall, products declined by 4.6 million barrels with strong demand for gasoline. Once again we are in the midst of the maintenance/turnaround season for refineries so these numbers bode well especially with gasoline demand being much higher in late spring.
Lower 48 States production was up 3,000 barrels/day. In some ways, I almost preferred when these guys kept the number constant from week to week or kind of indicating that they simply did not re-estimate it. Now, they seem to move it up or down by a few thousand barrels to show some activity in the numbers...
I mean, these production numbers should be going up and down every week and a fair bit. For example, Alaska which is exact production (not an estimation) has moved down 0.4% this week or 2,000 barrels/day and that is a small move compared to many other weeks. That would correspond to a 34,000 barrels/day move for Lower 48 States. Seems totally abnormal to have so many weeks during a year at 0 change or close to it.
Then you have enormous moves every week in commercial stock and Adjustment (Unaccounted for crude oil!) which makes you wonder if you can trust at all the bulls.. that is being presented.
Cardboard
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"The concern I have is that if oil stays in the high 30's and even the low 40's then over time will American production return. Are we going to be in the same boat next fall?"
What about climbing a wall of worries? High $30's and low $40's oil? The $30's were unconceivable to the industry in December 2015.
I am not picking on you Asterisk but, that is what everyone is wondering now.
There are two things in that statement that need to be discussed:
1- American oil is not everything. While the media keeps putting most emphasis on U.S. production and U.S. inventories, there is a much larger world around the U.S. $100's of billions of capex have been cut around the world and the effect is just starting to appear: Brazil, North Sea, Canadian oil sands, you name it. As Uccmal mentioned, many of these are large, long lead projects with low decline rates. While the decline in production takes longer to appear, it will be much more profound longer term. Projects that were completed in the Gulf of Mexico of that type are the cause of the lower than expected decline in U.S. production so far.
2- The American shale oil boom is over. The rig count has been cut by 2/3 and most of these employees who have been laid off have gone elsewhere. Many oil & gas service firms will disappear or be consolidated. Older rigs are also being scrapped (see Precision Drilling for example). Even the bravado king Harrold Hamm is forecasting a 9.5% production decline year over year at Continental. The decline would be even worst if one was to look at the 2016 exit rate. The acquisitive and arrogant Crescent Point is cutting its dividend, again, this morning. We should see at 10:30 am what the EIA has to say but, the trend in production was firmly down over the last 4 weeks.
When the stock market goes up along with oil, you don't hear about the energy debt crisis but, it was discussed yesterday. This issue is not going away at $30, $40 or even $50 oil. Line of credits are going to get cut in April no matter what and the bond market is nearly shut.
The situation is very similar to any cyclical industry. Take U.S. housing for example from 2001 to 2010. Financing was easily available. Cost of housing, construction labor, material and land were going up continually. Then it reversed. Financing dried up. Cost of housing, construction labor, material and land were going down. How long did it take post 2009 until the situation stabilized and homes were built again?
I would say that we are into the restructuring and consolidation phase. Production should keep on declining as only the very best assets will be drilled with still high decline rates of roughly 30% a year.
Cardboard
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I have no idea if this oil rally is real or not. It is the fourth time that oil rallies since the beginning of this bear: Feb 2015, Apr 2015, Aug 2015 and now.
What feels different this time is the amount of skepticism and that some fundamentals are improving. Although, I read that bets or the amount of futures on an increase in the oil price were at record highs over the last few days which is not a good sign. For a while, it truly felt like climbing a wall of worries and this sharp down move today is very good to flush out weak hands which is the essence of bull markets: slow climbs, sharp down moves.
The API inventory report today shows a build of 4.4 million barrels vs expectations for 3 million, yet oil is calm tonight. There is a growing understanding that inventories will start to draw once the refinery turnaround season is over and gasoline is used up for the driving season. The EIA report last week was quite bearish IMO except for the continued decline in U.S. oil production. Oil still rallied strongly in the days after. Going up in the face of bad news is also indicative of a bull market.
One brokerage firm also pointed out that oil didn't collapse following Iran's increased oil shipments and that their latest attempt to attract foreign capital for oil development has been mixed to poor. With oil being this low, who is going to commit billions of capital in a country that continues to challenge U.N. resolutions? So many projects are awaiting capital globally.
Cardboard
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Some monetization on the way:
http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aDC-2349361&symbol=DC®ion=C
Cardboard
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Could someone explain to me why WTI is trading over $2 a barrel cheaper than Brent?
1- Currently, both are on the same April contract so there should not be a difference due to contango as we saw last week with WTI still trading on the March contract which expired Monday.
2- The export ban has been lifted and the surplus of U.S. very light oil is now being exported as can be seen in the numbers published by the EIA.
3- U.S. production is falling while Middle East production is increasing (Iran). So the glut should be in the Eastern hemisphere or closer to Europe where Brent is priced.
Cardboard
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There is already a thread or two on the topic. And I have a question on Brent that I will ask right now!
Cardboard
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"Think about it if infrastructure were privatized...If you managed a private infrastructure company would you want to invest in toll roads/bridges/utilities in SE michigan or Florida? Or California? Or NYC? Or Jersey? Or Washington? Or SC/NC? Or just about anywhere else?"
You let the rate of return dictate where it gets invested. I am sure there is no problem to find a buyer for the Ambassador Bridge in Detroit. Cost in NYC or California will be sky high which will impact the viability of any project.
If a city has no more plants and businesses, it will die anyway if you stop the welfare. People will go where they can survive and hopefully thrive. The land will return to agriculture.
If that place is so special due to its environment or something, then tourism will show up. If it is a wasteland, then that is likely what it will remain.
At the end of the day, it is the people as a group who decide where they want to live. What is the point of making a city top notch when only few "want" to be there and future viability is invisible as far as the eye can see? Towns and cities have closed in the past. Sad but, just how it is.
Cardboard
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I thought that the $800 billion stimulus at the beginning of the Obama administration was about shovel ready/infrastructure type projects?
Seriously, government led infrastructure projects are prone to massive corruption as was seen everywhere around the world: contractors colluding among themselves and with the help of some corrupt government officials fixing the bid process. The designs also led by the government do not always match the needs and you often see this "architectural artist type creativity" built in it. Then long term maintenance is obviously not taken care of seriously. Why is everything falling apart? Because new projects are often entered into to please the population while no serious consideration is paid to maintain them in the future.
I do believe that we should privatize a lot of infrastructure. When firms do compete to offer the best ideas, at the lowest cost, then I think that the government and people win. Obviously, selection should be highly monitored to ensure a fair process. Strong conditions around maintenance, viability of owner, etc.
On the capital side, it makes the economy work better since banks, investors and others get involved to bring in what is necessary. There is a lack of demand for loans in the economy then, there you go. A better process IMO than the government issuing bonds.
The other advantage is capitalism at work or if something is not worth being built because it will never repay itself via enough usage, then it does not get built. Some are concerned about tolls and the like but, a city could also choose to use its tax revenues to pay a fee each year to the bridge owner for example.
Hwy 407 in Toronto is a big success IMO and I do believe that many many other examples could see the light of day if we give them the chance. You would be surprised how fast the first hyperloop could be brought into service with the private.
Cardboard
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One of the better EIA reports in a long time.
U.S. oil inventories were up 3.5 million barrels which is less than half of what API reported last night or up 7.1 million barrels and pretty much right in line with analysts expectations of a build of around 3 million.
Remember that refineries are right in the middle of their turnaround for the summer season, so a build is normal. Input to refineries was down 1.14 million barrels last week.
What is weird is that net imports were down 117,000 barrels a day for the week or 819,000 barrels. So where is that build coming from? Oh! The Adjustment number or Unaccounted for Crude Oil!!! 2.24 million barrels...
More importantly, bears were quick to point out recently about builds in products such as gasoline, distillates and others. Meaning that the U.S. was slowing down or worst entering a recession. Well, this did not happen this time around. Gasoline was down 2.2 million barrels and Distillates down 1.7 million barrels. The sum of these two is actually quite a bit higher than the decline going into refineries. Demand is still there.
On the supply side, Lower 48 States production was down 35,000 barrels a day or the third week of decline in a row. Although, a lower decline than last week of 50,000, we are down 115,000 barrels a day in the past 3 weeks. Starting to look like a solid trend and with the rig count plummeting each passing week, it should accelerate.
What is not noticed by Wall Street at the moment is the very large decline in propane/propylene inventory that seems to be occurring on a weekly basis now. While winter consumption is a big factor, we are rapidly approaching last year's inventory level from a starting point that was much higher than last year. This is telling me that shale oil production is coming down fast. Propane, butane and other condensates are a significant by-product of shale oil.
If Saudi Arabia (true largest state sponsor of terror?) had not dumped 2 million barrels a day on the market, we would be in balance by now. Apparently that they want to send 150,000 troops in Syria in April to defend their gang. Their budget deficit will only grow exponentially and once their subdued population starts to revolt from the various cuts that are already happening, it will be too late.
Cardboard
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You have got to pay attention to what Moore is saying:
"What we will however have is a 1970's style commodity cycle where we get inflation in the things we need and deflation in the things we already own."
Is this the beginning?
http://www.cnbc.com/2016/02/24/el-nino-sends-sugar-to-biggest-1-day-gain-since-1993.html
Cardboard
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Most of the cash on the balance sheet is not at the holdco level. It can only come back to Fairfax, the parent, via dividends and most of these companies are insurance companies having regulators authorizing or not these dividends. Currently, they likely have a fair bit of dividend paying capacity but, seems like that they are choosing not to or they foresee a need for more.
I recall that Prem mentioned almost 10 years ago now that he would not let cash drop below $1 billion at the holdco level. The company has grown quite a bit since then and he is getting close to that threshold per Q3 report. However, now this is in USD. Has he mentioned anything related to that since then?
Cardboard
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"What is this extra $500M going to do?"
This is how Fairfax has obtained its stellar book value growth results from the late 80's to the late 90's or by issuing overvalued stock. It was not just with the compounding of investment results or underwriting. Size also matters now but, when you look at per share book value growth over the last 15 years by just cherry picking the best periods, you see a much lower rate. This is due IMO to a lot of stock being issued at book or just above vs 3 times during the 90's.
The question is: are they going to redeploy this for more value than what they are giving? Same question that Buffett is asking himself when he is reluctantly issuing stock to make an acquisition.
I personally think that doing it now makes sense since the stock is popular vs the market. At the same time, piling cash for piling cash and if they are to re-deploy in so-so investments, then it is not a wise decision.
Cardboard
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Hi Moore, glad to see you back!
If I recall properly, you have been absent from this board since shortly after the March 2013 Cyprus crisis and were moving heavily to cash because you felt most assets were levitating or being inflated by the large money printing or QE. What did you do since then? Sounds like you are now picking bargains in the wreckage that many are now ignoring because they are busy fighting the last war.
At least, I can attest that your macro call of moving to cash at that time was near perfect.
Cardboard
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Sure, every investment carries its share of uncertainty. However, I see an enormous difference between buying long dated treasuries with the whole intent of making money on their movement vs income and someone who is participating in a liquidation event with a 30 to 50% gap to value closing rapidly.
There are also investment out there where the sum of the parts, calculated honestly with no speculation, is double the current share price. If a catalyst is in place, then I don't think it matters much if inflation goes to 2% or minus 2% in 12 months.
So timeframe and certainty can be two very important factors determining the difference between investing and speculating (betting).
Cardboard
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I think in some ways it is a good thing.
In the past, people did not retire at 55 to live and play until 90. They worked until they could not anymore and the government came up with a program to protect them during that "disability" period if you will with social security. It was a 5 to 10 year retirement period.
Society now has to re-adjust away from that Freedom 55 mentality. And I don't think that there is any way around it: can't have people working 30 to 35 years and getting about the same income for another 30 to 35. The ones who will have the toughest pill to swallow are government and public workers. However, when there is no money left, there is no money left to pay.
So while health advances provide a longer and healthier life, it has to be paid somehow and can't be borne just by the younger generations: their own cost of living plus pension and healthcare for the boomers. Makes no sense.
So if the boomers keep on working, they will reduce that load on society, will produce GDP, spend which will help everyone. I also assume that debt will go down because inheritance will happen quicker via home transfer or other means. Remember that there is always a borrower and a lender for any debt.
Cardboard
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I have never studied it in detail so I can't really provide a good answer but, the price of these ETN's is based on futures that they hold. These expire and get renewed and depending on how far they are from spot prices you get mismatch.
To give you an example, April Brent future prices are currently at $33.01 while March WTI future are at $29.56. On Monday, the March WTI future expires. It is very likely that the new future will trade around the same price as the April Brent or $33: U.S. export ban has been lifted, U.S. production is declining and they were trading at about the same price a few weeks ago when they were expiring on the same timing.
Now, this difference is due to contango or a reflection of too much current supply vs what is available in the future. It is also impacted by the cost of storage and interest rates.
So I don't know how USO will adjust exactly for that gap of $3.50 a barrel but, looking at the chart, it is clear that it is declining faster than the oil price itself. Therefore, I would not put a dime in there if I was to bet purely on oil.
By the way, the EIA yesterday reported a 50,000 barrels per day decline in Lower 48 States production last week. That is the 2nd week in a row and it is accelerating. Oil rig count is down another 26 this week in the U.S. alone per Baker Hughes just now. Only 439 left and the decline has been brutal in recent weeks.
Finally, this fear constantly published by shorts of filling to capacity storage tanks is just it. Recent weeks show little build and by May, I see a very strong probability of draws being much larger than expected by the crowd.
Cardboard
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IMO, you guys are missing a key point in all of this: baby boomers will never be able to fully retire. This will make a huge difference going forward in terms of needs, consumption, productivity, and all these forecasts.
Even the savvy ones with say a million dollar in investable assets will not earn enough income with their investments to keep up their lifestyle and that is a very small percentage of the population. 2% a year is $20,000. Withdraw $20,000 to $30,000 a year to supplement and assume a 30 year lifespan and trouble is easy to see.
The only ones who will be able to enjoy retirement as expected will be the ones who have defined benefit plans and many of these have a very high chance of being cut due to too low returns on assets and/or plans being under reserved.
They will manifest and cry once money runs out but, who is going to defend them? Their children who are barely making ends met? Indeed, I think that there will be very little pity going around for those who have essentially siphoned our society dry and signed sweet pension deals with our governments and corporations. They will have to continue working and many will have to live with their kids just like in the good old days. Their houses will likely be given to the kids in return to take care of them. And poof! A lot of debt goes away.
Cardboard
Donald Trump
in General Discussion
Posted
"How well can he work with other countries when he needs to? Or maybe a better question is, how willing will other countries be to work with him?"
On that one, I think very willing. The U.S. has too much to offer for people to just walk away because they find the new boss grumpy and loud.
Obama was all about "reconciliation" or what he perceived as necessary after the Bush years and honestly he has been abused by more than one country in his dealings. Think about Iran with their missile tests and then saying: "It is not in the nuclear agreement." Or Russia always poking at the U.S.
While I don't think being "friendly" is a bad thing, in business and into international politics, you have to be careful since each country has its own agenda and constituents. Again some of his dealings were good IMO such as with Cuba but, I would say that he was a little naïve as to how cooperative some countries would be.
Trump talks a lot to gain votes but, at the end of the day, I think he would simply be more: you give me this, I give you this.
Cardboard