Saturday, December 2, 2017
Friday, December 1, 2017
Grant's Interest Rate Observer: More Upside for Oil?
What if the supply glut that has bedeviled energy markets since 2014 is less severe than commonly believed? That central question was placed under the spotlight by researchers at the Massachusetts Institute of Technology. The Energy Information Administration, they argue, has overshot its future production forecasts by attributing technological advances to recent output increases, rather than producers first drilling their most productive acreage due to the low price of oil. Bloomberg has the details:
“The EIA is assuming that productivity of individual wells will continue to rise as a result of improvements in technology,” said Justin B. Montgomery, a researcher at the Massachusetts Institute of Technology and one of the study’s authors. “This compounds year after year, like interest, so the further out in the future the wells are drilled, the more that they are being overestimated.”
Margaret Coleman, the EIA’s leader of oil, gas and biofuels exploration and production analysis, said in an email “the study raises valid points” and the administration is looking to give its estimates a tighter focus.
While government supply forecasts come under scrutiny, the current rate of production decline looks to be much faster than widely understood, if a recent analysis from the Boston Consulting Group’s Jamie Webster is on the beam. Webster explained his thesis in the Petroleum Economist on Nov. 16:
Decline rates shrank in the initial phases of the price slump, as companies sought to keep existing production as high as possible by streamlining maintenance and focusing capital. Offsetting a field’s or well’s decline is, after all, often the cheapest barrel a company can bring to market. It was a way producers battened down the hatches to try to [outlast] what was at first thought to be short-lived price weakness.
As the notion that prices would stay “lower for longer” took hold, those temporary effects were undercut by the sharp drop in capex. The result was an increase in the decline rate. Rystad [Energy] estimated that 2016 had the highest decline rate of the past 25 years. It’s likely to get worse, too, as the recent deep spending cuts steepen the decline curve for the next two years. Furthermore, we can expect a long-term structural increase in the decline rate, simply because – in the absence of many new fields being developed – the average age of the producing ones is now trending upward. In 2017, we assessed the decline rate at 9+%, equating to about 8.8m [barrels a day]. That’s five times greater than the demand increment for 2017.
The questions over the prospects of domestic output growth come following yesterday’s agreement by the Organization for Petroleum Exporting Countries, along with Russia, to maintain their previously agreed upon supply cuts - which were scheduled to expire in March - through the end of 2018.
Things may likewise be (finally) looking up for the drillers if a recent transaction between Transocean (NYSE: RIG) and DEA Norge in the North Sea for work beginning in mid-2019 is any indication. According to analysts at Johnson Rice, the implied day rate for the contract came to $200,000, well above the existing contracted day rate of $180,000 for a North Sea contract on the rig, which runs through February of 2018.
The price of oil has made a furtive rebound, with West Texas Intermediate crude trading towards the upper end of its two-year trading range near $58 per barrel. WTI remains far below its 2010-2014 average of $91 per barrel, however. Grant’s, which has proffered a kind word for the prospects of Texas Tea and an array of associated securities on a few recent occasions (Nov. 3: “Not the FANGs,” March 10: “Laddered oil play” and March 25, 2016: “Investment value – ‘on,’” among others), continues to expect good things from the energy patch.
Thursday, November 30, 2017
Wednesday, November 29, 2017
Tuesday, November 28, 2017
A direct hit from Victor Davis Hanson/NRO
Plenty of people in ‘flyover’ country like not only Trump’s message — and actions — but also Trump, the loudmouth messenger.
EXCERPT: The Republican Never Trump movement is divided, because it is all but impossible to offer a coherent alternative to Trump’s conservative agenda, which is 90 percent doctrinaire. Never Trump predictions — Trump would govern as a squishy liberal, or appoint David Souter–like justices, or tank the economy, or discredit conservative ideology — have so far not panned out, at least if one follows what Trump has done rather than what he has said. In ironic fashion, Trump has learned politics more rapidly than his politically seasoned critics have learned to critique Trump.Grant's Daily Interest Rate Observer: Bitcoin and other Cryptocurrencies
Let’s take a brisk tour of the most exciting, confounding, lucrative and, yes, dangerous financial realm in recent memory: Bitcoin and its fellow crytocurrencies. Bitcoin, which fetched about $963 per unit on Jan. 1, changed hands at around $10,044 in mid-afternoon, good for a 944% return year-to-date. Over a five year period, its price has advanced by approximately 85,000%.
As might be expected, the digital store of value’s meteoric rise is leading to no shortage of interesting behaviors and remarks from market participants.
Elon Musk, CEO of Tesla, Inc. and SpaceX, was moved yesterday to debunk a blog post theorizing that he is in fact the mysterious Satoshi Nakamoto, the pseudonym of the still-anonymous creator of bitcoin’s source code. Meanwhile, cryto-ficionados looking to score some digital ducats have come up with an innovative solution: Using Musk’s own Tesla charging stations to mine for them. EcoMotoringNews explains:
Some creative Tesla owners came up with a way to make a few [thousand? – ed.] bucks from their parked EVs: Cryptocurrency mining.
One member of the Tesla Owners Worldwide [group] on Facebook suggested the idea, possibly in jest. Then another owner went ahead and did it, posting a photo of his setup. Some members suggested that his setup could pull as much as 3 kilowatts of power and would probably require the vehicle’s air conditioning to be on for cooling.
Last week, when the price of bitcoin still hovered near $8,000, crypto bulls caught an unwelcome surprise from the operators of a smaller e-currency called Tether (for more see the Sept. 8 Grant’s, “Crypto 36,000” and its subsection, “Tethered to What?”). Tether, which claims a one-for-one backing with U.S. dollars, announced that some $31 million worth had been stolen by hackers, and that it would not redeem the coins. A Nov. 21 piece in the New York Times noted that the operators of Tether and the largest bitcoin exchange known as Bitfinex are one and the same, and went on to mention some other curious details about the incident:
Tether and Bitfinex have insisted that the two operations are separate. But leaked documents known as the Paradise Papers, which were made public this month, show that Appleby, an offshore law firm, helped Mr. Potter and Mr. Devasini, the Bitfinex operators, set up Tether in the British Virgin Islands in late 2014.
One persistent online critic, going by the screen name Bitfinex’ed, has written several very detailed essays on Medium arguing that Bitfinex appears to be creating tether coins out of thin air and then using them to buy Bitcoin and push the price up.
Tether and Bitfinex have countered this criticism in statements on the companies’ websites and promised that every Tether is backed up by a dollar sitting in a bank account. In September, the companies provided an accounting document intended to prove that Tether is financed with real money.
Lewis Cohen, a lawyer at the law firm Hogan Lovells who advises many virtual currency projects, said the document, because of the careful way it was phrased, did not prove that the Tether coins are backed by dollars.
Among the cohort of crypto True Believers, perhaps none boasts the stature and track record of Murray Stahl, co-founder and chief investment officer of Horizon Kinetics. In a recent interview with Barron’s, Stahl was coaxed into providing his assessment of bitcoin’s potential value. To say the least, if he is on the beam, today’s levels will represent a screaming bargain.
Barron's : How high can the price go?
Stahl: I've got a value, but it is so preposterous I wouldn't tell anybody, because it is much higher than today's price; it would be meaningless to anybody. I think it is worth much, much more than what today's price is. I won't tell you a number. I'll tell you how I get to a number. So, basically the premise is that bitcoin or some cryptocurrency is accepted as a means of the exchange. Let's say that premise proves to be valid. Well then, because it is a worldwide currency it is valued by a law of no arbitrage. It has to be equal to the nominal value of all the fiat currencies in the world. At least that, maybe even more because it is non-inflationary.
Barron's : So is your price target the value of all fiat currency in the world?
Stahl: Yes, whatever that number is.
Barron’s went on to cite an estimate by The Money Project pegging the total value of the world’s fiat currency wealth at $7.6 trillion, which would make each bitcoin worth $361,000.
Needless to say, not everyone shares Stahl’s opinion. John C. Bogle, progenitor of the Vanguard Group, minced no words this afternoon at the Council for Foreign Relations, according to Bloomberg: “Avoid bitcoin like the plague. Did I make myself clear?”
Finally, a Nov. 20 Bloomberg dispatch titled “A Bitcoin Bubble? Here’s The Bet It’ll Survive the Apocalypse” details the increasing popularity of cryptocurrencies among so-called doomsday preppers.
Across the North American countryside, preppers . . . are storing more and more of their wealth in invisible wallets in cyberspace instead of stockpiling gold bars and coins in their bunkers and basement safes.
That one elicited an enthusiastic rebuttal from investor Bill Fleckenstein on the most recent Grant’s podcast:
When you can overcome the intellectual hurdle of the fact that the amount of bitcoin is supposed to be limited, but the amount of potential forks (i.e. a split of one cryptocurrency into two or more smaller ones) is unlimited and the amount of potential alternative cryptocurrencies is infinite. Oh by the way, the blockchain is what most people yap about, but yet, you don’t own it [when you buy a crypto], I submit that if you can overlook all those things . . . why can’t you overlook the fact that you need electricity in an apocalypse and you wouldn’t have any, that’s just a simple inconvenience.
Crypto is certainly one of the defining characteristics of this cycle. As for its prospects, place your bets accordingly. Or don’t.
The Federalist: Why It’s Justified To Vote For A Morally Questionable Politician
God uses all kinds of ‘immoral’ men and women to bring about his purposes. He is actually rather pragmatic regarding the secular world.
Monday, November 27, 2017
Sunday, November 26, 2017
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