Stocks - The Best Buys 2

[Leondros]

Originally Posted by Table 5

I was in living in NYC during the financial meltdown of 2008, so perhaps that amplified the noise, but in many ways that was much more troubling economically. It was an internal collapse of the entire financial system based on layers of terrible decisions, and shook the foundation and trust of the entire backbone of the US (and therefore the world).

The effects of Coronavirus, on the other hand, was brought on by external forces, at a time when the economy was doing well (at least in the US). There will be of course still be major repercussions, but at least it will be mostly because of economic inactivity, as opposed to a crisis of faith in the entire system.

I think we're extra-hooped in Alberta because the collapse of oil on top of things, but I think many in the US see this more like a pause, as opposed to a total re-assessment of everything they believe. At least, that's my hope!

I think that is a good anecdote of of the crisis being in New York but what scares me more about this crisis is the 'what-ifs' (maybe they were equally present in 2008). In 2008 I was still in University with little skin in the game but some of my economics and finance professors didn't seem as concerned. Their points were the typical points 'bail-outs', 'too-big-to-fail', etc,. The US financial markets and banks simply were too important for the world to let fail and there just had to be a solution. It just felt different.

Fast forward to today, and I guess wearing the oil and gas lens definitely does not help, but I just can't see the next 2 - 3 years being positive. As this is a Calgary centric forum and most of us posters are worried locally this is where my focus is. I am worried locally for the housing market, I am worried for our jobs, and I am worried for our economy. The rate at which we are filling up global oil storage capacity however is staggering and the only way draw downs will occur is when demand starts to outpace supply. This won't happen for years - and my question is how long can the city of Calgary hold on.

On a more macro level I am also interested to see how the US does coming out of this thing. They have had to pull monster fiscal stimulus and will likely have to pull much more. Remember 2008 only saw a $800 B package, what we have seen today out of the US is $2 Trillion. This stimulus is going to be far larger than what we saw come out of the US and shows the severity of what we are dealing. 2008 saw a huge crash, but it didn't see unemployment rates which we are going to see nor the pervasiveness of the issue (in my opinion). The debt globally that is going to be needed to taken on will have far reaching consequences that not doubt will have impacts going forward (inflation, credit worthiness, etc).

My previous post foretasted volatility for the next 6 months and I stand by that. I also believe once we return to normalcy we will see slow economic recovery. But all of the social programs and stimulus isn't going to make everyone whole. There will be people out a lot of money that will be forced to make dramatic lifestyle changes. I think this will be a far slower recovery than people are hoping.

[Table 5]

Yeah, don't get me wrong, I don't think this is something we just shake off in a couple of months. This is a totally different kind of beast, and there will be huge repercussions, plenty of which we have no clue about yet. Apart from the massive amounts of debt, I think one of the biggest issues will be if COVID keeps back coming in waves and sporadically shutting things down every few months, preventing any sort of forward momentum. It's going to get really disheartening.

In the end, I feel like the US will come out alright. We'll see what the government does (print its way out of debt?) but that country is filled with an unflappable, almost naive, attitude and ability to push forward and take risks. Uber, AirBnb, Pinterest, Slack etc were all founded within a year or two after the Great Recessions.

Like you though, I'm much less optimistic about what happens here in Alberta, where things were already pretty dour before Corona. Hopefully we see a similar type of willingness to try new things outside of the energy sector, by both the government and private entities.

[Leondros]

Originally Posted by burn_this_city

With the overall demand destruction crack spreads are really low, hence why gas is so cheap compared to 2016.

I'm beginning to see an issue with SU and HSE's fully integrated model when there is immense demand destruction such as this. The crackspeads are going to stay negative for a while which is an awful sign for unhedged companies such as HSE and SU. Not only are they selling upstream barrels for less, but their refining of said barrels is also yielding them losses. Pretty grim indeed.

[burn_this_city]

Originally Posted by Leondros

I'm beginning to see an issue with SU and HSE's fully integrated model when there is immense demand destruction such as this. The crackspeads are going to stay negative for a while which is an awful sign for unhedged companies such as HSE and SU. Not only are they selling upstream barrels for less, but their refining of said barrels is also yielding them losses. Pretty grim indeed.

RBOB Gasoline futures in NY Harbour $0.54/gallon. Insane.

Run rates need to drop, well shut ins must happen.

[Bill Bumface]

Originally Posted by Table 5

This is a totally different kind of beast.

I disagree. I think it's very similar, with a pandemic layered on top of it.

Corporate debt levels are really over stretched, and the average rating of that debt was not great before the current streak of downgrades.

Valuations were insane before the current crash, and now are roughly back around 2008 peaks. The financial system is arguably in worse health than it was before the previous crash, and we are undergoing a massive, potentially risky experiment in fiscal policy.





Cyclically Adjusted Price to Earnings ratio:


Also, we're hitting a maturity wall for corporate bonds. Note the high ratio of "speculative grade". That was from before the bottom fell out, current data would look much worse. Companies are going to struggle to roll over their debt:



Let's hope the money printer cranked to max saves us.

[Enoch Root]

Originally Posted by Leondros

I think that is a good anecdote of of the crisis being in New York but what scares me more about this crisis is the 'what-ifs' (maybe they were equally present in 2008). In 2008 I was still in University with little skin in the game but some of my economics and finance professors didn't seem as concerned. Their points were the typical points 'bail-outs', 'too-big-to-fail', etc,. The US financial markets and banks simply were too important for the world to let fail and there just had to be a solution. It just felt different.

Fast forward to today, and I guess wearing the oil and gas lens definitely does not help, but I just can't see the next 2 - 3 years being positive. As this is a Calgary centric forum and most of us posters are worried locally this is where my focus is. I am worried locally for the housing market, I am worried for our jobs, and I am worried for our economy. The rate at which we are filling up global oil storage capacity however is staggering and the only way draw downs will occur is when demand starts to outpace supply. This won't happen for years - and my question is how long can the city of Calgary hold on.

On a more macro level I am also interested to see how the US does coming out of this thing. They have had to pull monster fiscal stimulus and will likely have to pull much more. Remember 2008 only saw a $800 B package, what we have seen today out of the US is $2 Trillion. This stimulus is going to be far larger than what we saw come out of the US and shows the severity of what we are dealing. 2008 saw a huge crash, but it didn't see unemployment rates which we are going to see nor the pervasiveness of the issue (in my opinion). The debt globally that is going to be needed to taken on will have far reaching consequences that not doubt will have impacts going forward (inflation, credit worthiness, etc).

My previous post foretasted volatility for the next 6 months and I stand by that. I also believe once we return to normalcy we will see slow economic recovery. But all of the social programs and stimulus isn't going to make everyone whole. There will be people out a lot of money that will be forced to make dramatic lifestyle changes. I think this will be a far slower recovery than people are hoping.

Then they didn't understand.

I don't think there is any question that for Calgary and AB, the headwinds today are worse than 2008. But for global markets, there is no comparison.

Yes, a $2T bailout is a big concern, but it is designed (rightly so, IMO) specifically to keep this slowdown short, and to keep people liquid. If it results in the recovery being quicker and sooner, then the extra funds are worth it.

[Leondros]

Originally Posted by Enoch Root

Then they didn't understand.

I don't think there is any question that for Calgary and AB, the headwinds today are worse than 2008. But for global markets, there is no comparison.

Yes, a $2T bailout is a big concern, but it is designed (rightly so, IMO) specifically to keep this slowdown short, and to keep people liquid. If it results in the recovery being quicker and sooner, then the extra funds are worth it.

My point is I don't think it will be quicker. We just had a massive bullrun with the last couple of years being attributed to massive stimulus in the form of tax cuts and stimulus. I think we are in for some trouble because of this. Mr. Bumface brings up the points I'm concerned about - high levels of debt maturing, inability to really roll-over this debt nor people seemingly having an appetite to do this, inability to service said debt. And as Mr. Friedman postulated, we could very quickly get into a destabilization right out of the gate.

[Enoch Root]

Originally Posted by Leondros

My point is I don't think it will be quicker. We just had a massive bullrun with the last couple of years being attributed to massive stimulus in the form of tax cuts and stimulus. I think we are in for some trouble because of this. Mr. Bumface brings up the points I'm concerned about - high levels of debt maturing, inability to really roll-over this debt nor people seemingly having an appetite to do this, inability to service said debt. And as Mr. Friedman postulated, we could very quickly get into a destabilization right out of the gate.

We could, sure. But the types of problems you and Mr. Bumface bring up are pretty standard things that the market faces on a pretty much continual basis.

They are NOTHING like the issues faced in 2008 for example.

As for whether it's quick or not, we'll see. But yeah, that is a fundamental issue with respect to severity. THE fundamental issue, IMO, in this situation.

[OMG!WTF!]

Something going on with oil. Must be a truce in the works or something.

[DiracSpike]

Trump has a production cut deal with Russia and KSA apparently
This is absolutely the craziest months for oil and gas stocks I've ever seen. My holdings all crashed, halfway through the crash I sold out, they crashed even harder, I bought back in, and now we we're rocketing back up, probably soon to come back down for some reason. Price war, virus destruction, then an unprecedented agreement between the three largest oil producers in the world? Insane.

[nik-]

Originally Posted by DiracSpike

Trump has a production cut deal with Russia and KSA apparently
This is absolutely the craziest months for oil and gas stocks I've ever seen. My holdings all crashed, halfway through the crash I sold out, they crashed even harder, I bought back in, and now we we're rocketing back up, probably soon to come back down for some reason. Price war, virus destruction, then an unprecedented agreement between the three largest oil producers in the world? Insane.

Where do you see the SA portion? I'm only seeing Russia isn't increasing output.

[troutman]

Originally Posted by OMG!WTF!

Something going on with oil. Must be a truce in the works or something.

CBC said China is buying up oil for strategic reserves.

[burn_this_city]

Originally Posted by nik-

Where do you see the SA portion? I'm only seeing Russia isn't increasing output.

There's no details out there, but it sounds like something is in the works. I think US/CAN will also agree to cut production, at least in AB and Texas. Whether or not they can get other producers outside OPEC and NA remains to be seen, really need everyone to cut 15% for 2 quarter.

[DiracSpike]

Originally Posted by nik-

Where do you see the SA portion? I'm only seeing Russia isn't increasing output.

on CNBC it says "Trump expects Russia and KSA to agree to production cut". I'm sure that means that Trump is going to mandate cuts as well since I doubt they would do that out of the goodness of their hearts.

[nik-]

Originally Posted by DiracSpike

on CNBC it says "Trump expects Russia and KSA to agree to production cut". I'm sure that means that Trump is going to mandate cuts as well since I doubt they would do that out of the goodness of their hearts.

It's in everyone's best interest to do that, but does he even have the ability to mandate cuts?

[DiracSpike]

Originally Posted by burn_this_city

There's no details out there, but it sounds like something is in the works. I think US/CAN will also agree to cut production, at least in AB and Texas. Whether or not they can get other producers outside OPEC and NA remains to be seen, really need everyone to cut 15% for 2 quarter.

You think we'd have to as well? I'd argue that we've been formally curtailed for the past 18 months and effectively curtailed for basically 5 years now haha.

[DiracSpike]

Originally Posted by nik-

It's in everyone's best interest to do that, but does he even have the ability to mandate cuts?

Honestly no idea. Reading about Texas O&G it strikes me as Wild West. They're regulated by the Railroad commission of all things which basically never denies permits for anyone to do anything, I think I saw that 100% of flaring applications were accepted which is insane.

[Leondros]

It was a tweet from Trump saying he just spoke to MBS, who spoke with Putin, and that Trump expects 10 mmboe per day in cuts (as high at 15 mmboe per day). Then everyone freaked out and prices have been sky rocketing ever since.

I am very skeptical though. That is a lot of cutting and would need an immense amount of buy-in. If Russia is around 10 mmboe and SA is 13 mmboe, they are going to need to cut by 50% in addition to OPEC members buying in as well. The next largest is Iraq at 4.6 mmboe for reference. I don't see them being able to curtail that much nor would they want to. Russia and SA both want to see some fundamental changes in US Shale and they have not achieved that yet. Makes no sense to me.

[nik-]

Well if he says 10, I expect 1.

[burn_this_city]

Originally Posted by DiracSpike

You think we'd have to as well? I'd argue that we've been formally curtailed for the past 18 months and effectively curtailed for basically 5 years now haha.

We have to cut no matter what, at least 500kbpd within a month or the tanks in AB fill completely. I wouldn't be surprised if we end up cutting 750k-1M total as part of some grand bargain. There's no sense in hoping a rising tide lifts all boats when our takeaway issues will still cause a massive differential to WTI.