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(B)(N) The Old Canadian Oil Patch

May 9, 2015

Courtesy: BMO Capital Markets Great Lakes Trading Region

Drama. Investors are wringing their hands and grabbing their capital because of alleged concerns with the new government in Alberta which (they say) is “left-leaning” meaning that it cares about people, their jobs, their wages, and social productivity and it will do something to help them but we’re minded instead of a funerary march in the oil patch with well-paid “mourners” who are, in fact, well-paid only because of people, jobs, wages, and social productivity and we’ve often noted in these Posts that wealth is not an income (but it helps) and without an income, it is soon gone.

We don’t have those “right-leaning” funerary concerns but the Canadian oil patch and mining sectors are in a “depression” (please see Figure 1 below) because of the long-term mismanagement of these resources (of which the government is far from innocent) and the solution to a depression is always the same – we can’t leave (although our money can; please see below) and we need to find a new source of income from what we have.

Moreover, the Great Lakes Trading Region (please see the illustration above) is the 3rd largest in the World and has a lot of potential but it is still much smaller than the combined trading region of the Euro Area countries, Russia, China, and Southeast and Southwest Asia that sets-up a trading dynamic for resources and people unlike anything that we’ve seen in the last fifty years which are history (anyway) and not the future; please see our Post “(P&I) The World Trader’s Almanac – China” for more information.

And if we don’t invest our money to account for that, we won’t have any and we need to lean neither left nor right for the government of the day but forward in the hunt for our income.

The Hunt For An Income

Figure 1: The Hunt For More Inflation

Figure 1: The Hunt For More Inflation

Our investment model suggests that we take profits and move our money into markets that are “inflationary” with respect to our own but there’s no reason that we should move in haste and not respect the stop/loss that we’ve setup in the NYSE and TSX markets (which markets are still alive and as good as any) and take only that money that is given to us as other investors go to cash and sell-off their stocks; moreover, there’s lots of opportunity to do that and even in this one – please Figure 1 on the right.

However, we also expect that the boards and management of the hard-pressed oil and gas companies in Canada are not just crying in their beer as they trim capital expenditures and employees to survive for the next year but are also lining-up to get new money to make acquisitions among their hard-pressed peers in the oil-patch – that’s how it works but it requires patient money and effectively IPO-like investments.

And if that’s so, then we ought to be thinking about acquisition prices not unlike the recent Talisman-Repco deal or the Nexen-CNOOC deal of 2013 – some of these companies will want new money to make acquisitions and others will want new money to defend themselves because neither of them have any money right now; please see Exhibit 1 below for the right answer to this wrong question.

Exhibit 1: The Olefactory Sense in the Old Canadian Oil Patch

Figure 1.1: (B)(N) The Olefactory Sense in the Old Canadian Oil Patch

Figure 1.1: (B)(N) The Olefactory Sense in the Old Canadian Oil Patch

For more information on the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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