True North_'s Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/122906/comments http://seekingalpha.com/article/139840-it-s-the-oil-price-stupid?source=feed#comment-519756 519756
It's also not clear to me that the oil price run-up in 2008 was related to supply / demand issues (the quote from the article: "...the price run-up of 2007-08 was caused by strong demand confronting stagnating world production"): in fact, if anything, the collapse in price suggested the opposite (which is that it was largely driven by financial investment in the commodity and the price collapsed when other factors drove the financial players out of the market in August/ September/ October last year). Demand in the US (the bellweather for the oil market) started to drop in late 2007 - as Americans increasingly parked their cars.

As for the cancellation / delay of oil projects, Mmmark's comment above (that $50 oil isn't sufficient to justify investment in replacement supplies, also needs careful consideration. First, most the projects were delayed or "cancelled" when prices hit the $35 mark, and seemed poised potentially to drop lower. Expanding your investment in an environment where oil prices are dropping is tough to justify to shareholders. Second, the credit markets were frozen. The small to medium players had no access to capital (indeed, entirely worthwhile projects collapsed because alternative funding could not be found - for example, Oilexco's North Sea project). Investment was impossible (and continues to be difficult). The larger players also saw their cost of capital rise, and saw no rush to develop or aggressively pursue their projects.

Things appear to be loosening a bit now, as credit markets become more accessible and oil prices stabilize - Imperial Oil just announced that it is proceeding with its major oil sands development in Alberta (the Kearl project - projected to produce about 100,000 bbls/day). Ironically, it was the downturn in the investment environment that helped push the decision - the overheated Alberta labour market has essentially collapsed, and Imperial Oil has managed to reduce its overall costs on the project by at least C$1 billion. I expect other projects will similarly be brought back online over the next few months.]]> Wed, 27 May 2009 12:38:46 -0400
It's also not clear to me that the oil price run-up in 2008 was related to supply / demand issues (the quote from the article: "...the price run-up of 2007-08 was caused by strong demand confronting stagnating world production"): in fact, if anything, the collapse in price suggested the opposite (which is that it was largely driven by financial investment in the commodity and the price collapsed when other factors drove the financial players out of the market in August/ September/ October last year). Demand in the US (the bellweather for the oil market) started to drop in late 2007 - as Americans increasingly parked their cars.

As for the cancellation / delay of oil projects, Mmmark's comment above (that $50 oil isn't sufficient to justify investment in replacement supplies, also needs careful consideration. First, most the projects were delayed or "cancelled" when prices hit the $35 mark, and seemed poised potentially to drop lower. Expanding your investment in an environment where oil prices are dropping is tough to justify to shareholders. Second, the credit markets were frozen. The small to medium players had no access to capital (indeed, entirely worthwhile projects collapsed because alternative funding could not be found - for example, Oilexco's North Sea project). Investment was impossible (and continues to be difficult). The larger players also saw their cost of capital rise, and saw no rush to develop or aggressively pursue their projects.

Things appear to be loosening a bit now, as credit markets become more accessible and oil prices stabilize - Imperial Oil just announced that it is proceeding with its major oil sands development in Alberta (the Kearl project - projected to produce about 100,000 bbls/day). Ironically, it was the downturn in the investment environment that helped push the decision - the overheated Alberta labour market has essentially collapsed, and Imperial Oil has managed to reduce its overall costs on the project by at least C$1 billion. I expect other projects will similarly be brought back online over the next few months.]]> http://seekingalpha.com/article/138617-fracing-technique-creates-great-opportunity-in-exploration-of-oil-and-gas?source=feed#comment-511438 511438
This is not a recommendation of either stock - merely an indication that certain of the stocks which are traded as "pink sheets" down in the US may bear looking as they are fully listed on the TSX (a classic example is Canadian Oilsands Trust, which owns about 37% of the Syncrude project (about 125,000 bbl / day production to COS.UN) and has about 40 years of reserves). ]]> Wed, 20 May 2009 12:01:44 -0400
This is not a recommendation of either stock - merely an indication that certain of the stocks which are traded as "pink sheets" down in the US may bear looking as they are fully listed on the TSX (a classic example is Canadian Oilsands Trust, which owns about 37% of the Syncrude project (about 125,000 bbl / day production to COS.UN) and has about 40 years of reserves). ]]> http://seekingalpha.com/article/137454-oil-is-it-a-bullish-rally-or-a-sucker-s-rally?source=feed#comment-503667 503667 tonto.eia.doe.gov/oog/....
]]> Thu, 14 May 2009 11:16:10 -0400 tonto.eia.doe.gov/oog/....
]]> http://seekingalpha.com/article/134860-my-oil-outlook?source=feed#comment-487829 487829
One comment on the oilsands - you need to take care to distinguish between existing producers' costs (including the costs of expanding their existing production) and those of entirely new sites. The former are currently running costs of between C$30 - $35/barrel (e.g., Suncor, Syncrude). That's about US$25-30/barrel at current exchange rates. Properly managed expansions will see their costs rise, but they will probably remain under US$35/barrel overall.

New sites, which require the full panolpy of infrastructure to process the product and bring it to market, do require higher prices. For them, they probably need long term prices in the US$60-70 range to justify their investment and risk.]]> Sun, 03 May 2009 16:42:57 -0400
One comment on the oilsands - you need to take care to distinguish between existing producers' costs (including the costs of expanding their existing production) and those of entirely new sites. The former are currently running costs of between C$30 - $35/barrel (e.g., Suncor, Syncrude). That's about US$25-30/barrel at current exchange rates. Properly managed expansions will see their costs rise, but they will probably remain under US$35/barrel overall.

New sites, which require the full panolpy of infrastructure to process the product and bring it to market, do require higher prices. For them, they probably need long term prices in the US$60-70 range to justify their investment and risk.]]> http://seekingalpha.com/article/134491-oil-inventory-nears-a-20-year-high-does-it-matter?source=feed#comment-487803 487803
I am not suggesting that you can ignore what you are calling "cross asset and cross sector trades". I think much of the price run up in 2008 was driven by that type of trading. However, although commentators are now starting to talk about commodities as "currency", oil is still, ultimately, going to be priced by users. Financial trading in the commodity can result in (or increase) demand destruction (by driving unsustainable price increases, which lead to curtailed use). Demand destruction will eventually lead to price corrections - which can be magnified by the need of the financial traders to off-load their "paper" positions.

A 2006 US Senate report suggested that the effect of commodity trading for financial purposes, had probably accounted for much of the (then) significant increase in the price of oil. See: levin.senate.gov/newsr... at p. 2, where it notes:

"The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil to be delivered in the future in the same manner that additional demand for the immediate delivery of a physical barrel of oil drives up the price on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.

Although it is difficult to quantify the effect of speculation on prices, there is substantial evidence that the large amount of speculation in the current market has significantly increased prices. Several analysts have estimated that speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel. Additionally, by purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $70 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing, resulting in U.S. crude oil inventories that are now higher than at any time in the previous eight years. The last time crude oil inventories were this high, in May 1998 – at about 347 million barrels – the price of crude oil was about $15 per barrel. By contrast, the price of crude oil is now about $70 per barrel. The large influx of speculative investment into oil futures has led to a situation where we have high crude oil prices despite high levels of oil in inventory."

That trading/speculation, in my view (for what that's worth), became excessive in the spring & summer of 2008. As oil topped $140 a barrel, use (which was already dropping) waned dramatically. At some point, I wonder if an economist will examine the question of how much that bubble price in oil exacerbated the problems experienced in the US economy in September/October 2008?

You are right, of course: financial "speculation" will impact the price of oil. However, if it runs too far ahead of demand/supply, it has created a bubble and, barring other factors, will eventually correct.

]]> Sun, 03 May 2009 16:22:03 -0400
I am not suggesting that you can ignore what you are calling "cross asset and cross sector trades". I think much of the price run up in 2008 was driven by that type of trading. However, although commentators are now starting to talk about commodities as "currency", oil is still, ultimately, going to be priced by users. Financial trading in the commodity can result in (or increase) demand destruction (by driving unsustainable price increases, which lead to curtailed use). Demand destruction will eventually lead to price corrections - which can be magnified by the need of the financial traders to off-load their "paper" positions.

A 2006 US Senate report suggested that the effect of commodity trading for financial purposes, had probably accounted for much of the (then) significant increase in the price of oil. See: levin.senate.gov/newsr... at p. 2, where it notes:

"The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil to be delivered in the future in the same manner that additional demand for the immediate delivery of a physical barrel of oil drives up the price on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.

Although it is difficult to quantify the effect of speculation on prices, there is substantial evidence that the large amount of speculation in the current market has significantly increased prices. Several analysts have estimated that speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel. Additionally, by purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $70 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing, resulting in U.S. crude oil inventories that are now higher than at any time in the previous eight years. The last time crude oil inventories were this high, in May 1998 – at about 347 million barrels – the price of crude oil was about $15 per barrel. By contrast, the price of crude oil is now about $70 per barrel. The large influx of speculative investment into oil futures has led to a situation where we have high crude oil prices despite high levels of oil in inventory."

That trading/speculation, in my view (for what that's worth), became excessive in the spring & summer of 2008. As oil topped $140 a barrel, use (which was already dropping) waned dramatically. At some point, I wonder if an economist will examine the question of how much that bubble price in oil exacerbated the problems experienced in the US economy in September/October 2008?

You are right, of course: financial "speculation" will impact the price of oil. However, if it runs too far ahead of demand/supply, it has created a bubble and, barring other factors, will eventually correct.

]]> http://seekingalpha.com/article/134491-oil-inventory-nears-a-20-year-high-does-it-matter?source=feed#comment-486835 486835
That being said, if the price drops below replacement, we are setting ourselves up for a demand shock at some point in the future (I would guess it's not that distant - say 12 to 24 months? But that's only a guess). There's lots of talk about, for example, the cost of oil sands production in Canada. It's important to distinguish between existing production (and the cost of expanding that production) and "greenfield" (perhaps "brownfield" would be a better term) sites, where all of the infrastructure must be put into place (e.g., the Fort Hills site, prior to the proposed PetroCan, Suncor merger). For existing producers - such as Suncor and Syncrude (Canadian Oil Sands & other partners) - production costs run about Cdn$30 - 35/barrel (that's about US$26 - $30 at current exchange rates), not the [uncertain currency] $70 that is often touted. New oilsands projects, depending on input costs (which are now falling, as labour and materials costs drop with the current recession/depression), however, probably do require oil to be between $60 - $70 US a barrel long term, to generate a sufficient IRR to justify the investment and risk.

Two strategies seem possible: buy on dips, and hold long (say, a 5 year time frame). If doing that, I think you'd want to accumulate if the prices pull back this summer/fall if demand destruction outweighs future estimation of supply concerns and speculative interest. Alternatively, buy on dips, and sell on strength, popping in and out of the market. The former seems easier to me.

Oil prices collapsed last autumn, because the disconnect between supply & demand could no longer be papered over by financial investors, who had other demands on them. Even if you accept that long term price inflation has to occur (for a variety of reasons), you probably could watch for pull backs to invest.

On the storage point, does anyone know what the total private storage capacity is in the US? The EIA website is silent on this point. Working storage (as opposed to total tank space) of refiners is about 152 million barrels (versus total shell capacity of about 180 mm barrels) - see: tonto.eia.doe.gov/dnav... .
With respect to Cushing itself, the storage capacity there has been variously quoted – a report on Reuters, however, suggests a shell capacity of 46.3 million barrels (see: uk.reuters.com/article...). Working capacity is generally 80-85% of the shell amount (so, about 37-39 million barrels). The February 2009 EIA figures for Cushing are among the highest shown since 2004 (when the separate data set was broken out by the EIA), at nearly 32 million barrels in storage. See tonto.eia.doe.gov/dnav... .

But, any estimates out there for total private storage capacity for crude oil (as opposed to refined or other products)?]]> Sat, 02 May 2009 17:20:20 -0400
That being said, if the price drops below replacement, we are setting ourselves up for a demand shock at some point in the future (I would guess it's not that distant - say 12 to 24 months? But that's only a guess). There's lots of talk about, for example, the cost of oil sands production in Canada. It's important to distinguish between existing production (and the cost of expanding that production) and "greenfield" (perhaps "brownfield" would be a better term) sites, where all of the infrastructure must be put into place (e.g., the Fort Hills site, prior to the proposed PetroCan, Suncor merger). For existing producers - such as Suncor and Syncrude (Canadian Oil Sands & other partners) - production costs run about Cdn$30 - 35/barrel (that's about US$26 - $30 at current exchange rates), not the [uncertain currency] $70 that is often touted. New oilsands projects, depending on input costs (which are now falling, as labour and materials costs drop with the current recession/depression), however, probably do require oil to be between $60 - $70 US a barrel long term, to generate a sufficient IRR to justify the investment and risk.

Two strategies seem possible: buy on dips, and hold long (say, a 5 year time frame). If doing that, I think you'd want to accumulate if the prices pull back this summer/fall if demand destruction outweighs future estimation of supply concerns and speculative interest. Alternatively, buy on dips, and sell on strength, popping in and out of the market. The former seems easier to me.

Oil prices collapsed last autumn, because the disconnect between supply & demand could no longer be papered over by financial investors, who had other demands on them. Even if you accept that long term price inflation has to occur (for a variety of reasons), you probably could watch for pull backs to invest.

On the storage point, does anyone know what the total private storage capacity is in the US? The EIA website is silent on this point. Working storage (as opposed to total tank space) of refiners is about 152 million barrels (versus total shell capacity of about 180 mm barrels) - see: tonto.eia.doe.gov/dnav... .
With respect to Cushing itself, the storage capacity there has been variously quoted – a report on Reuters, however, suggests a shell capacity of 46.3 million barrels (see: uk.reuters.com/article...). Working capacity is generally 80-85% of the shell amount (so, about 37-39 million barrels). The February 2009 EIA figures for Cushing are among the highest shown since 2004 (when the separate data set was broken out by the EIA), at nearly 32 million barrels in storage. See tonto.eia.doe.gov/dnav... .

But, any estimates out there for total private storage capacity for crude oil (as opposed to refined or other products)?]]> http://seekingalpha.com/article/130395-there-s-still-plenty-of-crude?source=feed#comment-461212 461212
From: www.reuters.com/articl...

"Cushing's nominal storage capacity is 46.3 million barrels, according to public company filings and industry sources consulted by Reuters.

Only 80 percent to 85 percent of that is operable -- as little as 37 million barrels -- as some tank space is left empty for safety reasons or crude blending."

]]> Mon, 13 Apr 2009 03:58:38 -0400
From: www.reuters.com/articl...

"Cushing's nominal storage capacity is 46.3 million barrels, according to public company filings and industry sources consulted by Reuters.

Only 80 percent to 85 percent of that is operable -- as little as 37 million barrels -- as some tank space is left empty for safety reasons or crude blending."

]]> http://seekingalpha.com/article/130395-there-s-still-plenty-of-crude?source=feed#comment-461195 461195
The EIA does not seem to list the total non-SPR storage capacity (just for fun, I’ve sent them an email and asked). They do, however, note both the shell & working capacities of US refiners (the latter is the more relevant). Based on January 2009 data, the total working storage capacities at US refiners was about 152 million barrels (versus a shell capacity of about 180 million barrels). See: tonto.eia.doe.gov/dnav... As at the end of January 2009, the EIA reported a total stock of 352,896,000 barrels of oil, of which there were 95.5 million barrels in storage at refineries (leaving about 57 million barrels of working storage capacity at refineries at that time) See: tonto.eia.doe.gov/dnav... amount in storage at refineries does not appear at all high, based on the historical figures from the EIA. (As an aside, working storage space at refineries has dropped from a high of nearly 190 million barrels in the 1980s to the current figure of about 152 million barrels.)

The interesting figure is the amount in storage at tankfarms and pipelines. Again, using the EIA’s January figures (which are all that are available - the weekly reports don't seem to break this information out in the same detail), there were 234,723,000 barrels of oil in storage at tankfarms & pipelines, the second highest figure on record in EIA data going back to about 1981/82. See: tonto.eia.doe.gov/dnav... .
The balance of the oil was either “in leases” or “in transit” from Alaska.

With respect to Cushing itself, the storage capacity there has been variously quoted – a report on Reuters, however, suggests a capacity of 46.3 million barrels (see: uk.reuters.com/article...). Whether there is a difference between “working” and “maximum” capacity, I simply don’t know. The December 2008 & January 2009 EIA figures for Cushing are the highest shown since 2004 (when the separate data set was broken out by the EIA), at something more than 32 million barrels in storage. See: tonto.eia.doe.gov/dnav...

The weekly reports show that total oil stock have climbed since the end of January, from 352 million barrels to about 361 million on 3 April (around 55th out of about 1380 entries, on the all-time list since the early 1980s). We’ll have to wait to see whether it’s being put into the tank farms, or picked up by the refineries.

]]> Mon, 13 Apr 2009 03:19:53 -0400
The EIA does not seem to list the total non-SPR storage capacity (just for fun, I’ve sent them an email and asked). They do, however, note both the shell & working capacities of US refiners (the latter is the more relevant). Based on January 2009 data, the total working storage capacities at US refiners was about 152 million barrels (versus a shell capacity of about 180 million barrels). See: tonto.eia.doe.gov/dnav... As at the end of January 2009, the EIA reported a total stock of 352,896,000 barrels of oil, of which there were 95.5 million barrels in storage at refineries (leaving about 57 million barrels of working storage capacity at refineries at that time) See: tonto.eia.doe.gov/dnav... amount in storage at refineries does not appear at all high, based on the historical figures from the EIA. (As an aside, working storage space at refineries has dropped from a high of nearly 190 million barrels in the 1980s to the current figure of about 152 million barrels.)

The interesting figure is the amount in storage at tankfarms and pipelines. Again, using the EIA’s January figures (which are all that are available - the weekly reports don't seem to break this information out in the same detail), there were 234,723,000 barrels of oil in storage at tankfarms & pipelines, the second highest figure on record in EIA data going back to about 1981/82. See: tonto.eia.doe.gov/dnav... .
The balance of the oil was either “in leases” or “in transit” from Alaska.

With respect to Cushing itself, the storage capacity there has been variously quoted – a report on Reuters, however, suggests a capacity of 46.3 million barrels (see: uk.reuters.com/article...). Whether there is a difference between “working” and “maximum” capacity, I simply don’t know. The December 2008 & January 2009 EIA figures for Cushing are the highest shown since 2004 (when the separate data set was broken out by the EIA), at something more than 32 million barrels in storage. See: tonto.eia.doe.gov/dnav...

The weekly reports show that total oil stock have climbed since the end of January, from 352 million barrels to about 361 million on 3 April (around 55th out of about 1380 entries, on the all-time list since the early 1980s). We’ll have to wait to see whether it’s being put into the tank farms, or picked up by the refineries.

]]> http://seekingalpha.com/article/130571-oil-price-moves-february-11-april-9?source=feed#comment-460531 460531 Sun, 12 Apr 2009 11:54:55 -0400 http://seekingalpha.com/article/128656-looking-for-a-few-good-banks?source=feed#comment-447479 447479
On collective loan losses by Canadian banks:

"From our perspective, we don’t believe that the peak levels of loan
losses will be much different than in the past. Better diversification
is good, but not if the recession is more broad-based (which it is). The higher consumer exposures should be a positive in Canada—unfortunately, more of the consumer books are now outside of Canada. The argument of the loan book being “higher quality” is hard to prove or debate. Our highly simplistic view is that it is hard to believe that, after 18 years in Canada without a recession, loan books have no excess. In summary, we estimate loan losses of over $16 billion in 2010."

On the potential risk to dividends:

"Dividend Concerns – Against a backdrop of rising loan losses,
and tough spreads, it is clear that the risk of bank dividend cuts
is rising. We would put that risk at 20% overall currently, with
BMO somewhat above this. Canadian banks [by which he means the big five ] haven’t reduced their dividends since the Great Depression and could well ride out the current storm by scaling back risk-weighted asset growth, implementing DRIPS and raising non-common capital. This could work, but if the economic outlook continues to deteriorate or if the recovery is further delayed, bank boards may well move to reduce payouts."

His top recommendations:

"Stock Picking Remains Difficult – We have traditionally been reluctant to change ratings excessively, but in a world of sharp price moves and a very tough overall market environment, we have succumbed with a downgrade of CIBC (Market Perform rated) and an upgrade of TD (Outperform rated). We still think the latter has challenges on its U.S. loan book, but with additional focus on balance sheet growth and internal capital generation, the banks should be able to ride out the storm. BMO (Outperform rated), despite the above-average risk of a dividend cut, is simply cheap in our view and should be able to hold value unless the charges are bigger than we expect."

If anyone wants to see his more technical discussion on capital ratios, let me know.]]> Wed, 01 Apr 2009 01:07:39 -0400
On collective loan losses by Canadian banks:

"From our perspective, we don’t believe that the peak levels of loan
losses will be much different than in the past. Better diversification
is good, but not if the recession is more broad-based (which it is). The higher consumer exposures should be a positive in Canada—unfortunately, more of the consumer books are now outside of Canada. The argument of the loan book being “higher quality” is hard to prove or debate. Our highly simplistic view is that it is hard to believe that, after 18 years in Canada without a recession, loan books have no excess. In summary, we estimate loan losses of over $16 billion in 2010."

On the potential risk to dividends:

"Dividend Concerns – Against a backdrop of rising loan losses,
and tough spreads, it is clear that the risk of bank dividend cuts
is rising. We would put that risk at 20% overall currently, with
BMO somewhat above this. Canadian banks [by which he means the big five ] haven’t reduced their dividends since the Great Depression and could well ride out the current storm by scaling back risk-weighted asset growth, implementing DRIPS and raising non-common capital. This could work, but if the economic outlook continues to deteriorate or if the recovery is further delayed, bank boards may well move to reduce payouts."

His top recommendations:

"Stock Picking Remains Difficult – We have traditionally been reluctant to change ratings excessively, but in a world of sharp price moves and a very tough overall market environment, we have succumbed with a downgrade of CIBC (Market Perform rated) and an upgrade of TD (Outperform rated). We still think the latter has challenges on its U.S. loan book, but with additional focus on balance sheet growth and internal capital generation, the banks should be able to ride out the storm. BMO (Outperform rated), despite the above-average risk of a dividend cut, is simply cheap in our view and should be able to hold value unless the charges are bigger than we expect."

If anyone wants to see his more technical discussion on capital ratios, let me know.]]> http://seekingalpha.com/article/128656-looking-for-a-few-good-banks?source=feed#comment-446646 446646
From a US perspective, the other advantage is that owning either a Canadian or Australian bank provides some protection against US dollar devaluation. Canada increasingly seems to be considered a "commodity" currency: when the global economy emerges from the current train wreck, commodity prices will begin to increase (some may well spike because of the lack of current investment in exploration & production), and the Canadian dollar will likely appreciate against the US dollar (as it did in 2008).

On the issue of capital ratios - treat them with a bit of care because the numbers are not entirely comparable. Different countries have different standards / requirements for what constitutes tier 1 capital. Canada has recently moved to permit Canadian banks to use more perpetual pref shares as Tier 1 capital (I think it's moved from 25% to 40% of total tier 1 capital - which brings Canada more in line with other OECD countries). Consequently, over the past quarter there have been a number of pref share issuances, including two by the TD bank. I think it's fair to say that TD found its capital ratios under a bit of pressure last year as a result of the move to Basel II calculations of capital (the risk-weighted assessment methods), and its acquisition of New Jersey-based Bancorp.

For mdpath: the writer indicated that he is looking to go long on some bank stocks and this was his analysis before purchasing. ]]> Tue, 31 Mar 2009 12:36:22 -0400
From a US perspective, the other advantage is that owning either a Canadian or Australian bank provides some protection against US dollar devaluation. Canada increasingly seems to be considered a "commodity" currency: when the global economy emerges from the current train wreck, commodity prices will begin to increase (some may well spike because of the lack of current investment in exploration & production), and the Canadian dollar will likely appreciate against the US dollar (as it did in 2008).

On the issue of capital ratios - treat them with a bit of care because the numbers are not entirely comparable. Different countries have different standards / requirements for what constitutes tier 1 capital. Canada has recently moved to permit Canadian banks to use more perpetual pref shares as Tier 1 capital (I think it's moved from 25% to 40% of total tier 1 capital - which brings Canada more in line with other OECD countries). Consequently, over the past quarter there have been a number of pref share issuances, including two by the TD bank. I think it's fair to say that TD found its capital ratios under a bit of pressure last year as a result of the move to Basel II calculations of capital (the risk-weighted assessment methods), and its acquisition of New Jersey-based Bancorp.

For mdpath: the writer indicated that he is looking to go long on some bank stocks and this was his analysis before purchasing. ]]> http://seekingalpha.com/article/128148-expect-oil-to-approach-100-bbl-again-by-summer?source=feed#comment-442740 442740
As a long term investment, well capitalized oil producers and the major integrated companies are likely a safe bet. Smaller exploration and development companies, in this environment (where access to capital is difficult and the ability to survive the price volatility - see the example of Oilexco (TSE listed)) ARE A RISKY BET. Some articles published on Seeking Alpha have suggested that, as a hedge against the possible (likely?) devaluation of the US dollar, US investors look to acquire inter-listed Canadian (or other foreign) oil companies. An interesting angle - playing for higher oil prices, plus something of a currency hedge. ]]> Fri, 27 Mar 2009 14:28:03 -0400
As a long term investment, well capitalized oil producers and the major integrated companies are likely a safe bet. Smaller exploration and development companies, in this environment (where access to capital is difficult and the ability to survive the price volatility - see the example of Oilexco (TSE listed)) ARE A RISKY BET. Some articles published on Seeking Alpha have suggested that, as a hedge against the possible (likely?) devaluation of the US dollar, US investors look to acquire inter-listed Canadian (or other foreign) oil companies. An interesting angle - playing for higher oil prices, plus something of a currency hedge. ]]> http://seekingalpha.com/article/128148-expect-oil-to-approach-100-bbl-again-by-summer?source=feed#comment-442666 442666
The longer term problem is made more complex by the curtailment of investment in oil infrastructure. The cuts in exploration and development budgets have been legion. That does potentially set the stage for price shocks down the road: but only after OPEC's excess production capacity is absorbed. How long that takes will depend a lot on the macro economic environment and I leave that to others to guess at. In the meantime, I expect oil prices will be highly volatile; I wouldn't be counting on prices north of $100 anytime soon (unless the US dollar collapses - in which case, again, the price increase will feed into demand destruction in the largest oil consuming nation).

As a long term investment, well capitalized oil producers and the major integrated companies are likely a safe bet. Smaller exploration and development companies, in this environment (where access to capital is difficult and the ability to survive the price volatility - see the example of Oilexco (TSE listed)). Some articles published on Seeking Alpha have suggested that, as a hedge against the possible (likely?) devaluation of the US dollar, US investors look to acquire inter-listed Canadian (or other foreign) oil companies. An interesting angle - playing for higher oil prices, plus something of a currency hedge.

(Long CNQ, some Canroys, Talisman).
]]> Fri, 27 Mar 2009 13:51:49 -0400
The longer term problem is made more complex by the curtailment of investment in oil infrastructure. The cuts in exploration and development budgets have been legion. That does potentially set the stage for price shocks down the road: but only after OPEC's excess production capacity is absorbed. How long that takes will depend a lot on the macro economic environment and I leave that to others to guess at. In the meantime, I expect oil prices will be highly volatile; I wouldn't be counting on prices north of $100 anytime soon (unless the US dollar collapses - in which case, again, the price increase will feed into demand destruction in the largest oil consuming nation).

As a long term investment, well capitalized oil producers and the major integrated companies are likely a safe bet. Smaller exploration and development companies, in this environment (where access to capital is difficult and the ability to survive the price volatility - see the example of Oilexco (TSE listed)). Some articles published on Seeking Alpha have suggested that, as a hedge against the possible (likely?) devaluation of the US dollar, US investors look to acquire inter-listed Canadian (or other foreign) oil companies. An interesting angle - playing for higher oil prices, plus something of a currency hedge.

(Long CNQ, some Canroys, Talisman).
]]> http://seekingalpha.com/article/124850-canadian-banks-should-follow-dividend-cut-trend?source=feed#comment-419735 419735
The suggestion that cutting the dividend could lead to insolvency (Columbo, above), doesn't make much sense to me. It would make it trickier to raise common equity capital, but they've already tapped the markets in the last 6 months(and with pref share issuances). BMO cutting its dividend to (say) $0.30 - $0.40/quarter could shore up its capital quite handily, if needed. Watch second & third quarter results: if they deteriorate materially and the glimmer of recovery on the horizon remains distant, then you would do well to assume the dividend is significantly at risk. ]]> Mon, 09 Mar 2009 17:20:44 -0400
The suggestion that cutting the dividend could lead to insolvency (Columbo, above), doesn't make much sense to me. It would make it trickier to raise common equity capital, but they've already tapped the markets in the last 6 months(and with pref share issuances). BMO cutting its dividend to (say) $0.30 - $0.40/quarter could shore up its capital quite handily, if needed. Watch second & third quarter results: if they deteriorate materially and the glimmer of recovery on the horizon remains distant, then you would do well to assume the dividend is significantly at risk. ]]> http://seekingalpha.com/article/122848-canadian-banking-system-an-oasis-of-financial-calm?source=feed#comment-412147 412147
Two comments above: BMO has not cut its dividend; and the reference to the acquisition of Commerce Bank by TD was not (as suggested by Graham Burge: "Mr. Skousen pardon me if i am wrong but i disagree with your claim that the Toronto Dominion Bank owns the Imperial bank of commerce") a suggestion that they had acquired CIBC, but referred, of course, to their acquisition of US-based Commerce Bancorp announced in October 2007 and consumated in early 2008.]]> Wed, 04 Mar 2009 00:42:06 -0500
Two comments above: BMO has not cut its dividend; and the reference to the acquisition of Commerce Bank by TD was not (as suggested by Graham Burge: "Mr. Skousen pardon me if i am wrong but i disagree with your claim that the Toronto Dominion Bank owns the Imperial bank of commerce") a suggestion that they had acquired CIBC, but referred, of course, to their acquisition of US-based Commerce Bancorp announced in October 2007 and consumated in early 2008.]]> http://seekingalpha.com/article/112415-more-proshares-ultrashorts-tomfoolery?source=feed#comment-340149 340149 Mon, 29 Dec 2008 01:49:53 -0500 http://seekingalpha.com/article/96727-the-global-war-against-shorts-canada-bans-short-selling?source=feed#comment-262686 262686
That being said, the OSC did not have much choice. If you read the order, the only stocks which are covered are those that are inter-listed between the US and Canada. If short selling of an inter-listed stock was banned in the US, then it also had to be banned in Canada. The OSC's aim, quite appropriately, is to prevent what they are calling "regulatory arbitrage" - a concern that seems real given the current circumstances.

Don't we live in interesting times?]]> Tue, 23 Sep 2008 14:02:52 -0400
That being said, the OSC did not have much choice. If you read the order, the only stocks which are covered are those that are inter-listed between the US and Canada. If short selling of an inter-listed stock was banned in the US, then it also had to be banned in Canada. The OSC's aim, quite appropriately, is to prevent what they are calling "regulatory arbitrage" - a concern that seems real given the current circumstances.

Don't we live in interesting times?]]>