Friday, October 11, 2013
Alfidi Capital Drops Into DataWeek 2013
Life for Yours Truly isn't all about slogging through investment conferences. I throw in the occasional trade show in the hope I'll learn something new and meet attractive women. DataWeek 2013 and API World fit that bill for me last week.
I didn't have time for the entire conference because it's really a code developer's show and I'm Mr. Finance. I could only attend a select few sessions because I was too cheap to pay for anything but an Expo pass. I noticed that many of the paid seminars had no gatekeeper at the door, so anyone could have walked into a paid session. I hope the conference organizers weren't losing money from freeloader coders wandering around Fort Mason Center.
My first free session was an overview of how SQL queries and Java apps running in a Hadoop ecosystem feed Big Data streams into ERP systems. I don't know code but I know a business problem when I see it. Hadoop apps interact with both transactions and analytics, completing the CRM / Big Data / ERP integration that so many IT pros say they want. This leads me to the belief that knowledge management pros must understand Hadoop. There is no other way for them to ensure that the enterprise's business intelligence effort and predictive analytics are available to the C-suite. That's how tools channel data up the decision chain to support strategy.
Hadoop reminds me of Salesforce's approach to offering cloud ERP solutions, except Hadoop solutions are built on demand. Both types of solutions can be scaled down for small enterprises that can't afford big iron computing. My first take-away from DataWeek is that startups doing manual, customized apps or analytic solutions for B2B customers will fail. Data ecosystems like Hadoop are growing too large for anything but machine learning that automates analytics. Only top-layer KM, heuristics for predictive analytics, and corporate strategy should be subject to manual manipulation. The KM focus should be on structural design, with decision criteria that trigger manual intervention.
I patrolled the Expo floor prior to the heavily advertised beer tasting. I was pleasantly surprised to see several attractive women staffing the booths. Disqus gal, you were the best, and thank you for filling out those jeans so well. The women attending were also cute. It's good to see more women pursuing tech careers. They should pursue me too but I understand if they're focused.
I attended a talk from IBM Analytics about the most important factors in data visualization. I started visualizing what the hot blonde woman in the back row would look like at my place but then I remembered I have a blogging job to do. It turns out there are four pillars governing how analysts should publish visual representations of data: purpose (why), content (what), structure (how), formatting (everything else). Knowing the purpose for assembling a presentation lays the foundation for an iterative design checklist.
Purpose for me means knowing what actions I want to prompt in my audience, such as uncontrollable rage at my opinions. Content covers the data and relationships that matter to me and my audience, like IQ comparisons that demonstrate my intellectual superiority to most of humanity. The IBM guy showed a simple bar chart of how Apple's iPhone revenue was greater than all of Microsoft's revenue, so even two data points can show something powerful. Structure governs the meaning of axes and layouts that reveal relationships, like my relationships with numerous female admirers. That would take too much time to graph so I'll just relate IBM's best practices here. Using 3D graphs distorts data and you can't see intersections with axes when the front 3D thingy obscures what's in back. The human brain is better at comparing angles than circles, so charts with long bars on a common baseline are easier to perceive. Horizontal bars showing binary (either/or) breaks in continuous data frees the vertical axis to sort categories by ranking. Finally, formatting data to show what's important accounts for how users will consume the data. Callouts in geodata reveal something that matters. Using color to indicate quantity forces readers to keep glancing at the legend, which is bad. Color also has cultural context; red-/white/blue means something in the US and France. "Redundant encoding" puts the same data into different visual channels, driving the point into viewers' brains in case the format doesn't translate perfectly. Labeling highlights things, so either make it possible to label outliers (if they reveal something significant) or use them to orient viewers when you label axes. IBM's white paper on successful visualization sums up all of this stuff and so does the author's handy diagram. This knowledge makes me think about the graphs I've seen in oil and gas investment presentations. Formatting the wells' decline rates means everything if scale de-emphasizes the steepness of the decline curve. Readers fooled by logarithmic scales may think declines are gradual in shale wells. I'll look for scale the next time some shale energy promoter shows me his projections.
The only other seminar I had time to check out was on how security architectures can be unified across mobile, cloud, the Web, and APIs. Typical APIs aren't exposed to the general public and API security is enterprise-specific. The security landscape is so broad that it open up APIs as a potential portal for intrusion. Enterprises that support tiered access from public users and internal users (like financial service institutions) must support multiple credentials. I think authentication protocols will have to be built into APIs prior to launch, just like analytics. APIs must do much more than run apps. They collect use case data, feed analytics, provide a security barrier, and define the user experience. Integrating all of these things will require more effort from programmers than ever. I'm glad I'm not a programmer.
I took the above photo at the Rackspace / Codame / Geekdom SF Dataweek afterparty. The photo captures a computer-generated video with parts of the image melting and morphing. I'm the dark suit and white shirt in the middle foreground holding my camera. One aging hippie near Fort Mason maligned me as a "suit" while I walked to the conference center that day and I took it as a compliment. I represent money, knowledge, and style, thank you very much, and that's why hot women gravitate to me and not aging hippies. The Rackspace party reminded me of the articles I read in the late '90s about dot-com startups living wild on VC money in San Francisco's SOMA district. This afterparty was my chance to relive what I missed by not being around for that scene. It looked more like a rave, with a contingent of "club kids" in high-soled shoes and glittery leggings. I noted several of the hot Expo booth babes letting their hair down but I was too busy admiring the tech on display to get their hotel room numbers. Twentysomethings owned the future, in the '90s and today. I'm not in my twenties anymore but I own the future now.
I didn't have time for the entire conference because it's really a code developer's show and I'm Mr. Finance. I could only attend a select few sessions because I was too cheap to pay for anything but an Expo pass. I noticed that many of the paid seminars had no gatekeeper at the door, so anyone could have walked into a paid session. I hope the conference organizers weren't losing money from freeloader coders wandering around Fort Mason Center.
My first free session was an overview of how SQL queries and Java apps running in a Hadoop ecosystem feed Big Data streams into ERP systems. I don't know code but I know a business problem when I see it. Hadoop apps interact with both transactions and analytics, completing the CRM / Big Data / ERP integration that so many IT pros say they want. This leads me to the belief that knowledge management pros must understand Hadoop. There is no other way for them to ensure that the enterprise's business intelligence effort and predictive analytics are available to the C-suite. That's how tools channel data up the decision chain to support strategy.
Hadoop reminds me of Salesforce's approach to offering cloud ERP solutions, except Hadoop solutions are built on demand. Both types of solutions can be scaled down for small enterprises that can't afford big iron computing. My first take-away from DataWeek is that startups doing manual, customized apps or analytic solutions for B2B customers will fail. Data ecosystems like Hadoop are growing too large for anything but machine learning that automates analytics. Only top-layer KM, heuristics for predictive analytics, and corporate strategy should be subject to manual manipulation. The KM focus should be on structural design, with decision criteria that trigger manual intervention.
I patrolled the Expo floor prior to the heavily advertised beer tasting. I was pleasantly surprised to see several attractive women staffing the booths. Disqus gal, you were the best, and thank you for filling out those jeans so well. The women attending were also cute. It's good to see more women pursuing tech careers. They should pursue me too but I understand if they're focused.
I attended a talk from IBM Analytics about the most important factors in data visualization. I started visualizing what the hot blonde woman in the back row would look like at my place but then I remembered I have a blogging job to do. It turns out there are four pillars governing how analysts should publish visual representations of data: purpose (why), content (what), structure (how), formatting (everything else). Knowing the purpose for assembling a presentation lays the foundation for an iterative design checklist.
Purpose for me means knowing what actions I want to prompt in my audience, such as uncontrollable rage at my opinions. Content covers the data and relationships that matter to me and my audience, like IQ comparisons that demonstrate my intellectual superiority to most of humanity. The IBM guy showed a simple bar chart of how Apple's iPhone revenue was greater than all of Microsoft's revenue, so even two data points can show something powerful. Structure governs the meaning of axes and layouts that reveal relationships, like my relationships with numerous female admirers. That would take too much time to graph so I'll just relate IBM's best practices here. Using 3D graphs distorts data and you can't see intersections with axes when the front 3D thingy obscures what's in back. The human brain is better at comparing angles than circles, so charts with long bars on a common baseline are easier to perceive. Horizontal bars showing binary (either/or) breaks in continuous data frees the vertical axis to sort categories by ranking. Finally, formatting data to show what's important accounts for how users will consume the data. Callouts in geodata reveal something that matters. Using color to indicate quantity forces readers to keep glancing at the legend, which is bad. Color also has cultural context; red-/white/blue means something in the US and France. "Redundant encoding" puts the same data into different visual channels, driving the point into viewers' brains in case the format doesn't translate perfectly. Labeling highlights things, so either make it possible to label outliers (if they reveal something significant) or use them to orient viewers when you label axes. IBM's white paper on successful visualization sums up all of this stuff and so does the author's handy diagram. This knowledge makes me think about the graphs I've seen in oil and gas investment presentations. Formatting the wells' decline rates means everything if scale de-emphasizes the steepness of the decline curve. Readers fooled by logarithmic scales may think declines are gradual in shale wells. I'll look for scale the next time some shale energy promoter shows me his projections.
The only other seminar I had time to check out was on how security architectures can be unified across mobile, cloud, the Web, and APIs. Typical APIs aren't exposed to the general public and API security is enterprise-specific. The security landscape is so broad that it open up APIs as a potential portal for intrusion. Enterprises that support tiered access from public users and internal users (like financial service institutions) must support multiple credentials. I think authentication protocols will have to be built into APIs prior to launch, just like analytics. APIs must do much more than run apps. They collect use case data, feed analytics, provide a security barrier, and define the user experience. Integrating all of these things will require more effort from programmers than ever. I'm glad I'm not a programmer.
I took the above photo at the Rackspace / Codame / Geekdom SF Dataweek afterparty. The photo captures a computer-generated video with parts of the image melting and morphing. I'm the dark suit and white shirt in the middle foreground holding my camera. One aging hippie near Fort Mason maligned me as a "suit" while I walked to the conference center that day and I took it as a compliment. I represent money, knowledge, and style, thank you very much, and that's why hot women gravitate to me and not aging hippies. The Rackspace party reminded me of the articles I read in the late '90s about dot-com startups living wild on VC money in San Francisco's SOMA district. This afterparty was my chance to relive what I missed by not being around for that scene. It looked more like a rave, with a contingent of "club kids" in high-soled shoes and glittery leggings. I noted several of the hot Expo booth babes letting their hair down but I was too busy admiring the tech on display to get their hotel room numbers. Twentysomethings owned the future, in the '90s and today. I'm not in my twenties anymore but I own the future now.
Thursday, October 10, 2013
Wednesday, October 09, 2013
Alfidi Capital Attends IPAA OGIS San Francisco 2013
I'm not a member of the Independent Petroleum Association of America but their events have great value for me as a market analyst and commentator. I attender their annual Oil and Gas Investment Symposium (OGIS) San Francisco last week. I'll address each of the presenting companies in future blog articles. This particular article is about concepts that apply to the entire energy sector. The OGIS participants use these ideas frequently. Understanding these ideas enables understanding of a company's value.
First of all, IPAA has some phenomenal statistics available for free. I had previously relied on the Energy Information Administration's data but the IPAA data sets are excellent companion pieces. IPAA also advocates maintaining tax breaks for oil and gas exploration on its Energy Tax Facts site. I'd prefer to eliminate any and all tax breaks for energy exploration because the market needs to price the all-in cost of energy production. I would also eliminate breaks for renewable energy because its costs have pretty much reached grid parity. Eliminating both severance taxes and depletion allowances would make the non-renewable energy sector's project economics more transparent.
Let's talk about hedging for a moment. Lots of hydrocarbon producers like to hedge the price of oil with futures contracts. Exploration and production (E&P) companies in the upstream sector hedge against declines in the price of West Texas Intermediate (WTI) crude because a price drop will hurt their revenue. I can see how operators who have committed free cash flow to a capex program would not want to see their drilling interrupted by commodity price swings. Hedging makes a bit less sense for operators who have committed to a perpetually rising common stock dividend. That kind of corporate policy can hamstring management and set investors up for disappointment if the hedging strategy cannot sufficiently protect earnings. Most E&Ps hedge most of their projected production. Swaps seem to be the most popular instrument but some companies use costless collars. That's my anecdotal impression, anyway.
Energy REITs and MLPs also hedge prices (again, to support their expected dividend) and some of them even hedge interest rates because they borrow to acquire new producing properties. They hedge prices to make their payouts more predictable. Investors have to live with that predilection, but it makes less sense to me than producers who hedge prices. Do E&Ps hedge interest rates as well as prices? They certainly borrow for capex.
I'm agnostic on whether North American oil producers should hedge their production against WTI prices or Brent prices. It may depend on where the companies market their crude. Crude shipments to the Americas are often priced in WTI quotes while production in Asia and the Middle East is priced in Brent. The Brent-WTI spread matters to investment banks, hedge funds, and energy traders whose arbitrageurs play the price differential. Bloomberg has a decent rundown of common energy prices; arbitrage away, hedgies. The CME Group has the most transparent energy derivative prices I could find, including contracts for both WTI and Brent. Futures and other derivatives have enormous risks and I've never used them in my own portfolio. I would rather leave them to energy supermajors who have complex value chains to hedge.
MLPs have it easier than E&Ps. Older wells with long, slow decline curves fit MLPs very well because they need little additional capex other than basic maintenance. That's why MLPs use debt to acquire existing wells rather than putting in capex. I agree with the common MLP claim that low barrel per day (bpd) producing wells are ideal for their structures. I've heard some MLPs describe their avoidance of incentive distribution rights (IDRs) as a selling point to the investing public. I really think MLPs will have a field day buying low-producing shale wells at cheap prices once the Bakken boom fades away.
Some E&P companies tout their natural gas liquids (NGL) production. Investors need to remember that NGLs are more difficult to hedge because they require longer futures contracts (about 12-18 months). A web search for "NGL derivatives" did not reveal any central exchange for them that I could find, but some energy trading firms specialize in constructing private swaps for NGLs. The lack of liquidity for these financial derivatives means NGL swap prices can easily affect real-world NGL prices.
Energy MLPs do have to worry about Unrelated Business Income Tax (UBTI) and they report this on the K-1 form they send to their investors. I had previously thought that holding a high-yielding MLP in a tax-advantaged retirement account would be a smart move until I realized that UBTI may trigger a tax liability. Index funds and ETFs that invest in MLPs do not have this UBTI drawback for an IRA. An MLP that produces zero or negative UBTI poses no apparent problem for an IRA. It pays to know the rules in IRS Pub 598 and it pays to read an MLP's documents. I am not a tax advisor, so don't ask me what to do.
If you're sick of hearing about fracking and horizontal drilling, there's a new drilling technique called "down spacing" coming along. Drillers down space by decreasing the space between wells in an area, which is slightly different from the "pad drilling" concept that erects more than one well on a given land plot. These two approaches fly in the face of one of shale gas's selling points, namely that one drill rig per pad enables the minimum possible surface disturbance. Increasing the rig count on a project also accelerates a field's decline rate. Shale producers need to think hard about how much they can spend on additional engineering to expand recoverable deposits before they go hog wild into down spacing and pad drilling. We're all going to hear a lot more about enhanced oil recovery (EOR) techniques and ways to minimize sub-surface non-productive time (NPT) as more shale plays hit their very steep decline curves.
I don't worry about whether producers have drill-to-earn, produce-to-earn, or shoot-to-earn clauses in their farm-out agreements. Either they produce or they don't. I'm interested in bottom-line results. I don't worry about land value capture because the financing of infrastructure servicing oil/gas fields is less important than whether said fields are economically recoverable. Held by production clauses are good to have if the producer doesn't know how long it will take to bring a greenfield project to maturity.
I'm agnostic as to whether a producer owns a working interest or the entire property; their job is to spend capex on production and someone has to pay the costs of owning wells. I do care about MLPs that focus on royalty interests (especially overriding ones) because that limits their lifetime capex commitment.
Geologists analyze a project's porosity, resistivity, lithology, total organic carbon (TOC), permeability, and isopach subsurface data. I don't look at those things because I'm not a geologist. I'm a finance guy and I need to see financial data. All of the eyewash on soil engineering that energy companies put into their investor relations pitches means nothing if they don't have a budget to turn exploration into production. Geological characteristics will determine the amount of stock tank original oil in place (STOOIP) and its estimated ultimate recovery (EUR).
The EUR of a project deserves a special.discussion. EUR is a mix of oil, gas, and NGLs that is always measured in BOE. Proven reserves includes several engineering terms that do not necessarily comport with financial terms allowed by US securities regulators. Progressing from 1P (proven) to 2P (probable) to 3P (possible) reserves may impress some investors but it does not impress regulators. The SEC has very definite rules for what can and cannot be included in reserves reported in financial statements. This is why producers break down their 1P reserves into proved developed producing (PDP), proved developed non-producing (PDNP), and proved undeveloped (PUD). Using estimates of proven reserves only is the most conservative way to calculate a project's valuation. That's why I read the 43-101 reports of junior resource companies that are registered in Canada. The 43-101 regime allows for "proven and probable" (2P) reserves that I can use to find a valuation.
It's good to know the Baker Hughes US rig count to track the energy sector's health. Producers need to know the day rates of rigs in their region. Analysts track the recycle ratio of an energy company, which the companies themselves often quote as the netback. I have not yet used a recycle ratio in my analysis of energy companies but I will try to apply it in the future. It may even apply to renewable energy companies if it can be measured in kilowatt hours.
I shake my head at shale oil producers who allow their natural gas production to flare off instead of trying to capture it. That is literally money going up in smoke. Producers who care about maximizing ROI on their projects should be willing to spend the capex needed to install temporary pipelines and storage systems that will enable them to capture gas that would otherwise flare off. Orphan gas gets plenty of attention in the midstream sector. Too many shale producers have their eye on the steeply declining production curve and want to get a cash return as quickly as possible. They need to to think more about how capturing extra gas production from a shale play will increase a project's long-term value when it's ready to be sold to an MLP. Don't ask me to figure the difference between wet gas and dry gas; that's a problem for petroleum engineers.
The great thing about reading my blog is that all of the knowledge I gain at conferences and investment seminars is here for free. You people should be entertained by my discussions. I'll take my bow, thank you very much. The next set of IPAA events will give me more opportunities to show off my knowledge.
First of all, IPAA has some phenomenal statistics available for free. I had previously relied on the Energy Information Administration's data but the IPAA data sets are excellent companion pieces. IPAA also advocates maintaining tax breaks for oil and gas exploration on its Energy Tax Facts site. I'd prefer to eliminate any and all tax breaks for energy exploration because the market needs to price the all-in cost of energy production. I would also eliminate breaks for renewable energy because its costs have pretty much reached grid parity. Eliminating both severance taxes and depletion allowances would make the non-renewable energy sector's project economics more transparent.
Let's talk about hedging for a moment. Lots of hydrocarbon producers like to hedge the price of oil with futures contracts. Exploration and production (E&P) companies in the upstream sector hedge against declines in the price of West Texas Intermediate (WTI) crude because a price drop will hurt their revenue. I can see how operators who have committed free cash flow to a capex program would not want to see their drilling interrupted by commodity price swings. Hedging makes a bit less sense for operators who have committed to a perpetually rising common stock dividend. That kind of corporate policy can hamstring management and set investors up for disappointment if the hedging strategy cannot sufficiently protect earnings. Most E&Ps hedge most of their projected production. Swaps seem to be the most popular instrument but some companies use costless collars. That's my anecdotal impression, anyway.
Energy REITs and MLPs also hedge prices (again, to support their expected dividend) and some of them even hedge interest rates because they borrow to acquire new producing properties. They hedge prices to make their payouts more predictable. Investors have to live with that predilection, but it makes less sense to me than producers who hedge prices. Do E&Ps hedge interest rates as well as prices? They certainly borrow for capex.
I'm agnostic on whether North American oil producers should hedge their production against WTI prices or Brent prices. It may depend on where the companies market their crude. Crude shipments to the Americas are often priced in WTI quotes while production in Asia and the Middle East is priced in Brent. The Brent-WTI spread matters to investment banks, hedge funds, and energy traders whose arbitrageurs play the price differential. Bloomberg has a decent rundown of common energy prices; arbitrage away, hedgies. The CME Group has the most transparent energy derivative prices I could find, including contracts for both WTI and Brent. Futures and other derivatives have enormous risks and I've never used them in my own portfolio. I would rather leave them to energy supermajors who have complex value chains to hedge.
MLPs have it easier than E&Ps. Older wells with long, slow decline curves fit MLPs very well because they need little additional capex other than basic maintenance. That's why MLPs use debt to acquire existing wells rather than putting in capex. I agree with the common MLP claim that low barrel per day (bpd) producing wells are ideal for their structures. I've heard some MLPs describe their avoidance of incentive distribution rights (IDRs) as a selling point to the investing public. I really think MLPs will have a field day buying low-producing shale wells at cheap prices once the Bakken boom fades away.
Some E&P companies tout their natural gas liquids (NGL) production. Investors need to remember that NGLs are more difficult to hedge because they require longer futures contracts (about 12-18 months). A web search for "NGL derivatives" did not reveal any central exchange for them that I could find, but some energy trading firms specialize in constructing private swaps for NGLs. The lack of liquidity for these financial derivatives means NGL swap prices can easily affect real-world NGL prices.
Energy MLPs do have to worry about Unrelated Business Income Tax (UBTI) and they report this on the K-1 form they send to their investors. I had previously thought that holding a high-yielding MLP in a tax-advantaged retirement account would be a smart move until I realized that UBTI may trigger a tax liability. Index funds and ETFs that invest in MLPs do not have this UBTI drawback for an IRA. An MLP that produces zero or negative UBTI poses no apparent problem for an IRA. It pays to know the rules in IRS Pub 598 and it pays to read an MLP's documents. I am not a tax advisor, so don't ask me what to do.
If you're sick of hearing about fracking and horizontal drilling, there's a new drilling technique called "down spacing" coming along. Drillers down space by decreasing the space between wells in an area, which is slightly different from the "pad drilling" concept that erects more than one well on a given land plot. These two approaches fly in the face of one of shale gas's selling points, namely that one drill rig per pad enables the minimum possible surface disturbance. Increasing the rig count on a project also accelerates a field's decline rate. Shale producers need to think hard about how much they can spend on additional engineering to expand recoverable deposits before they go hog wild into down spacing and pad drilling. We're all going to hear a lot more about enhanced oil recovery (EOR) techniques and ways to minimize sub-surface non-productive time (NPT) as more shale plays hit their very steep decline curves.
I don't worry about whether producers have drill-to-earn, produce-to-earn, or shoot-to-earn clauses in their farm-out agreements. Either they produce or they don't. I'm interested in bottom-line results. I don't worry about land value capture because the financing of infrastructure servicing oil/gas fields is less important than whether said fields are economically recoverable. Held by production clauses are good to have if the producer doesn't know how long it will take to bring a greenfield project to maturity.
I'm agnostic as to whether a producer owns a working interest or the entire property; their job is to spend capex on production and someone has to pay the costs of owning wells. I do care about MLPs that focus on royalty interests (especially overriding ones) because that limits their lifetime capex commitment.
Geologists analyze a project's porosity, resistivity, lithology, total organic carbon (TOC), permeability, and isopach subsurface data. I don't look at those things because I'm not a geologist. I'm a finance guy and I need to see financial data. All of the eyewash on soil engineering that energy companies put into their investor relations pitches means nothing if they don't have a budget to turn exploration into production. Geological characteristics will determine the amount of stock tank original oil in place (STOOIP) and its estimated ultimate recovery (EUR).
The EUR of a project deserves a special.discussion. EUR is a mix of oil, gas, and NGLs that is always measured in BOE. Proven reserves includes several engineering terms that do not necessarily comport with financial terms allowed by US securities regulators. Progressing from 1P (proven) to 2P (probable) to 3P (possible) reserves may impress some investors but it does not impress regulators. The SEC has very definite rules for what can and cannot be included in reserves reported in financial statements. This is why producers break down their 1P reserves into proved developed producing (PDP), proved developed non-producing (PDNP), and proved undeveloped (PUD). Using estimates of proven reserves only is the most conservative way to calculate a project's valuation. That's why I read the 43-101 reports of junior resource companies that are registered in Canada. The 43-101 regime allows for "proven and probable" (2P) reserves that I can use to find a valuation.
It's good to know the Baker Hughes US rig count to track the energy sector's health. Producers need to know the day rates of rigs in their region. Analysts track the recycle ratio of an energy company, which the companies themselves often quote as the netback. I have not yet used a recycle ratio in my analysis of energy companies but I will try to apply it in the future. It may even apply to renewable energy companies if it can be measured in kilowatt hours.
I shake my head at shale oil producers who allow their natural gas production to flare off instead of trying to capture it. That is literally money going up in smoke. Producers who care about maximizing ROI on their projects should be willing to spend the capex needed to install temporary pipelines and storage systems that will enable them to capture gas that would otherwise flare off. Orphan gas gets plenty of attention in the midstream sector. Too many shale producers have their eye on the steeply declining production curve and want to get a cash return as quickly as possible. They need to to think more about how capturing extra gas production from a shale play will increase a project's long-term value when it's ready to be sold to an MLP. Don't ask me to figure the difference between wet gas and dry gas; that's a problem for petroleum engineers.
The great thing about reading my blog is that all of the knowledge I gain at conferences and investment seminars is here for free. You people should be entertained by my discussions. I'll take my bow, thank you very much. The next set of IPAA events will give me more opportunities to show off my knowledge.
Tuesday, October 08, 2013
Monday, October 07, 2013
The Haiku of Finance for 10/07/13
Shutdown endgame near
Some deal already agreed
Conflict just for show
Some deal already agreed
Conflict just for show
Financial Sarcasm Roundup for 10/07/13
My busy schedule in the real world has put my online lulz on the back burner. Let's see what the LOLmemes have to say about some recent financial headlines.
The Treasury Secretary is mouthing off about the risk of a debt default. He's only going through the motions. Washington drama requires the principal actors to demonstrate sufficient drama so the narrative can distract the folks at home. The two parties have probably already reached some sort of deal to fund the Affordable Care Act in exchange for unspecified cuts somewhere else, most likely to welfare programs. The high-profile shuttering of popular national attractions that don't even need operating hours, like some of the war monuments in D.C., is a shameful sideshow. The federal government is nowhere near a debt default because it has plenty of cash to pay its bondholders. We are nowhere near dodging a bullet.
The World Bank is reducing its Asia growth forecasts. They could have read my blog for advance warning that China's growth is fraudulent but no, they just couldn't disrupt the bull case at the height of consensus excitement. Export-driven economies work great when your trading partners in the US and Europe go into debt to buy your stuff. The four Asian tigers were the talk of the 1980s and '90s. Now they're turning into big pussycats.
Japan is making progress towards its stated inflation target of two percent in two years. They could easily overshoot and hit 20% in two months but no one seems to care. The average German or Austrian had no love lost for the Weimar Republic once its hyperinflationary policies destroyed their savings. Abenomics will travel a similar path in Japan and the average saver won't notice until their savings are counted in millionths of a yen.
I hope you all enjoyed reading my sarcasm as much as I did making it. Nah, just kidding. I don't care what you idiots think. If lulz gets you excited about reading my stuff then have at it.
The Treasury Secretary is mouthing off about the risk of a debt default. He's only going through the motions. Washington drama requires the principal actors to demonstrate sufficient drama so the narrative can distract the folks at home. The two parties have probably already reached some sort of deal to fund the Affordable Care Act in exchange for unspecified cuts somewhere else, most likely to welfare programs. The high-profile shuttering of popular national attractions that don't even need operating hours, like some of the war monuments in D.C., is a shameful sideshow. The federal government is nowhere near a debt default because it has plenty of cash to pay its bondholders. We are nowhere near dodging a bullet.
Sunday, October 06, 2013
The Limerick of Finance for 10/06/13
The end of the old pension plan
Find a new job when you're an old man
City budgets in stress
Big debts are a mess
Future payments will fill a small can
Find a new job when you're an old man
City budgets in stress
Big debts are a mess
Future payments will fill a small can
Saturday, October 05, 2013
Alfidi Capital Pays Attention to Mexico and Silicon Valley
We often hear about the special relationship between the US and Great Britain. It's cemented by language, culture, common law, and a long absence of conflict. There may be some other special relationships out there that some of us have ignored. I found out about another special relationship last week when government and business entities from the US and Mexico met in Silicon Valley to promote bilateral trade.
The City of San Jose's Office of Economic Development let us know just how lucrative the trade relationship is for California. Mexico's GDP is growing this year and it's California's largest export market. That's a whole lot of refried beans, pardner. I didn't know that the federal government of Mexico had a trade promotion organization named ProMexico. The Mexican Consulate in San Francisco informed us that ProMexico is their equivalent of the US Commercial Service. They said the US is Mexico's #1 FDI source, and I tried to confirm this in OECD's Statistics with no luck. "Made in Mexico" products have the highest percentage of US content of any domestically sourced products in the world; in other words, Mexicans put more US subcomponents into their goods than any other country. The country has not done well in developing lower-tier suppliers and must rely on a high percentage of US-made components. The regional breakdown of Mexico's economy is important. Northern Mexico has generally higher purchasing power and more industrialization than southern Mexico. This is clearly a good opportunity for US suppliers to continue to target maquiladoras in northern Mexico.
The Consulate said that US retirees in Mexico are mostly an untapped market for US-branded services. Yeah, I'm pretty sure the makers of medical alert devices and motorized scooters are salivating at the chance to sell down there. I also learned that Mexican startups rise seed-round money in the US because there's very little to find in Mexico. It's hard for startups to qualify for business loans from Mexican banks because their interest rates are high. It sounds like Mexican startups take CustDev seriously if they seek early adopters in the US to obtain market data.
The US Commercial Service introduced their Silicon Valley Export Assistance Center, which I didn't know existed. See, I learn stuff too. US companies doing business in Mexico can easily launch into other Latin American countries. The Commercial Service can customize trade missions for a single company due to their extensive contacts in-country, starting with their Mexico country page.
Please note that the SBA also connects with the Silicon Valley Export Assistance Center. Our government really does work well when the business sector is the client. Uncle Sam protects intellectual property rights at StopFakes, safeguards critical technologies at the Bureau of Industry and Security (BIS), sponsors emerging markets through the US Trade and Development Agency, and finances trade at the Ex-Im Bank. Our taxes pay for these services and they're pretty effective, so businesses would be crazy not to leverage them to the max. Check out the SBA's export loan programs and OPIC's investment services (like their Expanding Horizons workshops).
The San Jose Silicon Valley Chamber of Commerce presented the local region's perspective. I don't come down often enough from San Francisco to use their services but I'm intrigued by their program for reintegrating military veterans into civilian life. The Joint Venture Index of Silicon Valley tracks this region's economic health and sponsors public-private solutions. I recall that San Francisco once had a public-private partnership called the Private Industry Council but it was merged into a City office during Gavin Newsom's administration. The Silicon Valley Leadership Group assembles the region's leading employers to speak in one voice on public policy. I didn't quite see the direct connections to trade with Mexico but the region certainly has the right policy players in place. I also learned that "embeddedness quotient" describes employee happiness. Who knew? I didn't.
Mexico and the US have a lot going on. That's pretty special.
The City of San Jose's Office of Economic Development let us know just how lucrative the trade relationship is for California. Mexico's GDP is growing this year and it's California's largest export market. That's a whole lot of refried beans, pardner. I didn't know that the federal government of Mexico had a trade promotion organization named ProMexico. The Mexican Consulate in San Francisco informed us that ProMexico is their equivalent of the US Commercial Service. They said the US is Mexico's #1 FDI source, and I tried to confirm this in OECD's Statistics with no luck. "Made in Mexico" products have the highest percentage of US content of any domestically sourced products in the world; in other words, Mexicans put more US subcomponents into their goods than any other country. The country has not done well in developing lower-tier suppliers and must rely on a high percentage of US-made components. The regional breakdown of Mexico's economy is important. Northern Mexico has generally higher purchasing power and more industrialization than southern Mexico. This is clearly a good opportunity for US suppliers to continue to target maquiladoras in northern Mexico.
The Consulate said that US retirees in Mexico are mostly an untapped market for US-branded services. Yeah, I'm pretty sure the makers of medical alert devices and motorized scooters are salivating at the chance to sell down there. I also learned that Mexican startups rise seed-round money in the US because there's very little to find in Mexico. It's hard for startups to qualify for business loans from Mexican banks because their interest rates are high. It sounds like Mexican startups take CustDev seriously if they seek early adopters in the US to obtain market data.
The US Commercial Service introduced their Silicon Valley Export Assistance Center, which I didn't know existed. See, I learn stuff too. US companies doing business in Mexico can easily launch into other Latin American countries. The Commercial Service can customize trade missions for a single company due to their extensive contacts in-country, starting with their Mexico country page.
Please note that the SBA also connects with the Silicon Valley Export Assistance Center. Our government really does work well when the business sector is the client. Uncle Sam protects intellectual property rights at StopFakes, safeguards critical technologies at the Bureau of Industry and Security (BIS), sponsors emerging markets through the US Trade and Development Agency, and finances trade at the Ex-Im Bank. Our taxes pay for these services and they're pretty effective, so businesses would be crazy not to leverage them to the max. Check out the SBA's export loan programs and OPIC's investment services (like their Expanding Horizons workshops).
The San Jose Silicon Valley Chamber of Commerce presented the local region's perspective. I don't come down often enough from San Francisco to use their services but I'm intrigued by their program for reintegrating military veterans into civilian life. The Joint Venture Index of Silicon Valley tracks this region's economic health and sponsors public-private solutions. I recall that San Francisco once had a public-private partnership called the Private Industry Council but it was merged into a City office during Gavin Newsom's administration. The Silicon Valley Leadership Group assembles the region's leading employers to speak in one voice on public policy. I didn't quite see the direct connections to trade with Mexico but the region certainly has the right policy players in place. I also learned that "embeddedness quotient" describes employee happiness. Who knew? I didn't.
Mexico and the US have a lot going on. That's pretty special.
Friday, October 04, 2013
Too Many Fatso Opera Stars Ruin Performances
I'm an opera fan. I've attended performances of the San Francisco Opera since 2005. It's fun to see the spectacle on stage and hear powerful voices. It is not fun to see fat slobs pretending to be opera stars. This is a problem that cries out for remedy.
Fatsos in the opera pose a number of obvious problems. Their extra girth burdens the stage. You know how old and creaky some of the stages are at opera houses? Well, some are even older than that. A fat opera singer puts undue stress on the floorboards. If they fall through the floor someone has to patch the hole and unionized crews charge extortionate rates for work these days. Does your local metropolitan opera company want that kind of walking liability on their stage? I don't think so.
Fat opera singers make productions more expensive. Just imagine the extra material that goes into making their costumes. That's twice the fabric right there compared to the cost of clothing for someone with a svelte figure. I'll betcha catering is more expensive when tubbies are backstage.
Fatties are more of a financial risk because of their poor health. Luciano Pavarotti died of pancreatic cancer and obesity is one of the disease's risk factors. The guy probably could have extended his life expectancy if he had dieted. Any opera company that expected to put him under contract toward the end of his life was out of luck. Contrast his story with Deborah Voigt. The London opera company that fired her from a production she was too chubby to perform still had to pay out her contract. She lost over 100 pounds to become more marketable and it paid off. She even looks healthier now than in her early days, as seen in her own parody video of her weight loss. The lesson is clear. Singers who keep up their health and appearance extend the length of their careers and enhance their earnings. Opera companies and recording labels are wise to bet on slim singers.
The single most important reason for getting rid of obese opera singers is to have believable performers in a role. There is zero scientific evidence for the long-held conventional wisdom in opera that heavier singers have better voices. There is plenty of evidence that physically attractive people are more desirable employees. Nothing is more laughable than a fat man portraying a Casanova-like adventurer or a fat woman portraying a Salome-like seductress. Give me a break already. Drama requires suspension of disbelief but there's no way an overweight performer is believable in a romantic role. Overweight people are simply less marketable.
Bring on the hot chicks like Anna Netrebko and Angela Gheorghiu who like to show off their goodies on stage. Those gals deserve to be in the limelight because audiences want to see attractive performers. Modern opera goers increasingly favor performers who can execute a full range of drama in addition to vocal projection and intonation. We are all sick and tired of seeing walking lard buckets perform works of art.
Fatsos in the opera pose a number of obvious problems. Their extra girth burdens the stage. You know how old and creaky some of the stages are at opera houses? Well, some are even older than that. A fat opera singer puts undue stress on the floorboards. If they fall through the floor someone has to patch the hole and unionized crews charge extortionate rates for work these days. Does your local metropolitan opera company want that kind of walking liability on their stage? I don't think so.
Fat opera singers make productions more expensive. Just imagine the extra material that goes into making their costumes. That's twice the fabric right there compared to the cost of clothing for someone with a svelte figure. I'll betcha catering is more expensive when tubbies are backstage.
Fatties are more of a financial risk because of their poor health. Luciano Pavarotti died of pancreatic cancer and obesity is one of the disease's risk factors. The guy probably could have extended his life expectancy if he had dieted. Any opera company that expected to put him under contract toward the end of his life was out of luck. Contrast his story with Deborah Voigt. The London opera company that fired her from a production she was too chubby to perform still had to pay out her contract. She lost over 100 pounds to become more marketable and it paid off. She even looks healthier now than in her early days, as seen in her own parody video of her weight loss. The lesson is clear. Singers who keep up their health and appearance extend the length of their careers and enhance their earnings. Opera companies and recording labels are wise to bet on slim singers.
The single most important reason for getting rid of obese opera singers is to have believable performers in a role. There is zero scientific evidence for the long-held conventional wisdom in opera that heavier singers have better voices. There is plenty of evidence that physically attractive people are more desirable employees. Nothing is more laughable than a fat man portraying a Casanova-like adventurer or a fat woman portraying a Salome-like seductress. Give me a break already. Drama requires suspension of disbelief but there's no way an overweight performer is believable in a romantic role. Overweight people are simply less marketable.
Bring on the hot chicks like Anna Netrebko and Angela Gheorghiu who like to show off their goodies on stage. Those gals deserve to be in the limelight because audiences want to see attractive performers. Modern opera goers increasingly favor performers who can execute a full range of drama in addition to vocal projection and intonation. We are all sick and tired of seeing walking lard buckets perform works of art.
Thursday, October 03, 2013
Wednesday, October 02, 2013
The Haiku of Finance for 10/02/13
Magical health plan
Payment won't keep up with cost
No way to fix it
Magical Thinking for Affordable Care
The Affordable Care Act is the law of the land. The online insurance exchanges are activating - sort of, with glitches here and there. The government shutdown means quite a few GS-rated IT pros will not be available to fix those glitches. Consumers are finding out just how much they'll be subsidized or how much extra they'll have to pay to subsidize someone else. Christmas is coming early for some folks while others are drafted to play Santa Claus. The IRS helpfully lets us know how much more we'll pay for noncompliance.
The wonder of our time is that Americans wonder about the origins of goods and services. Several generations of creeping entitlement programs have conditioned Americans to think of transfer payments as a birthright. I am certain that many Americans believe Social Security and Medicare are paid from a magical black box. That box just got a lot bigger in the minds of everyone signing up for ACA-guaranteed health insurance. Television comedians doing street interviews reveal that Americans don't even know this law's official name.
The wonder of our time is that Americans wonder about the origins of goods and services. Several generations of creeping entitlement programs have conditioned Americans to think of transfer payments as a birthright. I am certain that many Americans believe Social Security and Medicare are paid from a magical black box. That box just got a lot bigger in the minds of everyone signing up for ACA-guaranteed health insurance. Television comedians doing street interviews reveal that Americans don't even know this law's official name.
I used to mention the unfunded liabilities of our nation's middle class entitlements on this blog. I did not expect many Americans to pay attention but I had to salve my own conscience and put facts on the record. I won't do that for ACA so much because I don't expect it to survive a hyperinflationary economy. The law's subsidies may be useful to our political class during the onset of hyperinflation. ACA payouts to a newly destitute working class can increase rapidly along with whatever emergency bond buying program the Federal Reserve activates. That transmission mechanism won't last long given the complex nature of this law's payment plans. The rapidly hyperinflating payouts will encounter many delays in the ACA's claims activation process, rendering them unable to keep up with hyperinflating health care prices. Other transmission mechanisms, specifically SNAP/EBT cards and home mortgage modifications, are much more effective channels for hyperinflation because the government can feed payments directly to banks.
Americans holding ACA exchange health insurance during hyperinflation will wish for magical payouts. The payouts will arrive in diminished form, too small and too late to be of much use in paying rising bills. Frustration with the whole enchilada will only end when hyperinflation ends.
Tuesday, October 01, 2013
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