‘Quality Shareholders’ Review

Coming out on November 3, 2020

I was approached by Columbia University Press to write a galley review for Professor Lawrence Cunningham’s latest work: Quality Shareholders: How the Best Managers Attract and Keep Them. The book is expected to be released on November 3, 2020.

Professor Lawrence Cunningham (@CunninghamProf) is acclaimed for his work on Warren Buffett and Berkshire Hathaway. If you want to better understand Buffett and the Berkshire organization, he’s the guy. His most famous work is The Essays of Warren Buffett: Lessons for Corporate America, currently in its 5th edition, is a must for investors. Professor Cunningham is also on the board of Constellation Software, (CSU.TO), a company that I had the misfortune to watch its stock rise for years without ever investing.

I was approached to write a review for the blog. So here it is.

In his new book, Quality Shareholders, Professor Cunningham touched on a concept that I had in mind for a long time – that certain shareholders, Quality Shareholders (QSs), are more beneficial to have than others. The idea that there is a Quality Shareholder (QS) class is what this book is about. The concept in my head wasn’t as articulate. It needed a little polishing. I like how Professor Cunningham lays it out. The book brought clarity and structure to the concept. QSs are defined as shareholders who buy large stakes and hold for long periods. They see themselves as part owners of a business, understand their businesses, and focus on long-term results, not short-term market prices.

Continue reading “‘Quality Shareholders’ Review”

So I tried TikTok

I had to figure out what TikTok was. What is it that required the full weight of the Presidency of the United States? Why do the US and other countries want to ban it? Why are the news paying so much attention to it? Why does TikTok even matter? And why Microsoft (MSFT) and Twitter (TWTR) sniffing around?


Before downloading the app I knew that TikTok was a Chinese video-sharing social media app with short videos mostly about music and dancing. ByteDance, the parent company of TikTok, has 60,000 employees in 126 cities. Beside TikTok they have a bunch of other apps that I never heard of. It goes without saying that TikTok is one of the most popular social media app, especially among young people. Despite its rapid rise, there are still plenty of people — often, older people — who aren’t quite sure what TikTok is, including me until recently. It’s kinda of my job to know these things even if I don’t use them. And I’m a parent of two young guys, so maybe I should be concerned with what’s coming.


To give some background, I often create “ghost” accounts just to check things out and I notice that the same patterns recurring. First I don’t get it. I didn’t get Twitter at first and it took like five years before I started using it. I didn’t get Snapchap (SNAP) and still don’t. I didn’t get Reddit and now it’s awesome. I didn’t get Instagram and now I like it better than Facebook (FB). My thinking at first was “why use Instagram when you have Facebook?” Why use WhatsApp when you have Skype? Why have another app that does almost exactly the same thing as the other one? It takes me a while to understand these Internet trends. Now I use WhatsApp and keep Skype for my mom because the hassle and of getting her a new video conference app is not worth it. I use Twitter, Instagram, Reddit and dislike Facebook. And what they hell happened to Facebook? When I got it around 2006 it was just to post drunk pics. Now Facebook is a giant cluttered monster that decides elections results. You can also see FB’s influence on Instagram where they are starting to clutter the whole thing. So yeah social media is the toilet of the Internet and I’m stuck in it.

Continue reading “So I tried TikTok”

Thoughts On Nvidia

I’ve admired Nvidia (NVDA) for a long time. It’s a great company with great leadership and great companies are not typically cheap. Greatness comes at a premium. How much of a premium? That’s the key question and there’s no easy answer.

Unfortunately I’ve never invested in the company and I certainly regret it. Nvidia has a market cap just over $250 billion and is trading at an all-time high. The stock is up 80% year-to-date. Nvidia has $9 billion in net cash. Nvidia is not cheap. It’s trading at 22x sales and 60x EV/EBITDA. This suggest that the price might be ahead of its valuation. But Nvidia always traded traded at crazy multiples. The people buying Nvidia at these numbers believe the company will exceed expectations. Will Nvidia live up to the lofty expectations?

I’ve pinned down two reasons for not investing in Nvidia in the past.

  1. Price
  2. Lack of understanding (circle of competence)

The first reason, price, is still valid. Despite how great the business and its future is, I just can’t get myself to justify paying this much. Of course I said the same thing when Nvidia has a market cap of less than $100 billion. Now the question is will Nvidia be a $500b company in the future?

The second reason is my mistake in labeling Nvidia as a “video game” company. Nvidia is famous for its graphic cards, the GeForce. A graphic card is commonly refereed to as graphic processing unit or GPUs. People that builds gaming rigs use Nvidia graphic cards for the best gaming experience. A good graphic card can cost $1000 and more. Prices are on the rise and the hardware gets outdated pretty quickly. AMD is their main competitor.

Then the cryptocurrency bubble happened and Nvidia became a “crypto” company. When the bubble popped Nvidia did fall but quickly recovered.

Reviewing Nvidia forced me to reframe what Nvidia really is. Labeling Nvidia as a “video game” or “crypto” company was a mistake. Nvidia is way more than that.

Nvidia was founded in 1993 by Jensen Huang. Huang is the current CEO. The main idea was to accelerate computing and video games was the first obvious application. But at the time there wasn’t really a market until Quake came out, a 3-D first person shooting game that demanded a lot of computing juice.

Now Nvidia has parlayed video game success into super-computing dominance and artificial intelligence (AI). These multi billion markets didn’t even exist back then. This year, Nvidia’s data center will generate more revenue than its gaming unit. Nvidia recently inked a new partnership with Mercedes-Benz for computing hardware, software, and services starting in 2024.

Nvidia is becoming an end-to-end platform company. What does that mean? Nvidia is building the architecture, developing applications, and providing the software and hardware. Whereas a chip could go for a couple of hundred dollars, autonomous driving applications could go for several thousand dollars. Mercedes is going to design their cars with Nvidia in this partnership.

Labels can be misleading. Without trying to repeat the mistake of the past, Nvidia is more than just a chip company. Now the business model is the chip and the infrastructure for developing artificial intelligence. When you think Nvidia, you have to think accelerated computing (not videogames). Adding the accelerator to microprocessor became the GPU, well because it does graphic, but it does so much more.

Now scientific computing takes Nvidia into data centers. AI crunches a lot of data and needs a lot of muscle to accomplish that. Nvidia’s chip speeds up the algorithm to make the approach viable from months to days. Nvidia is a key component in the pick and shovel of AI, along with Intel, Amazon, and Microsoft among others.

Nvidia is tackling big markets, anything “smart”. Nvidia is at the center of AI, supercomputing, autonomous driving, 5G, virtual reality, gaming, medical, industrial and robotics. Each of these are multi-billion dollar market with a great future.

Now the main question is how much is this company worth? I’m not talking about next quarter numbers, but in five years when we had made progress in these big areas. I will keep an eye on Nvidia if the stock corrects.

Alimentation Couche-Tard And Circle K – Invest In One Of The Best Retailers In The World

I finally got around writing a new article for Seeking Alpha. I can’t believe it has been eleven months since my last one. In this latest article I made the case for investing in Alimentation Couche-Tard, better known for operating the convenience store Circle K. It’s a great business with great management. It’s simple, predictive, and generates tons of free cash flow. The company is undervalued. The market discounts potential acquisitions and growth opportunities.


Summary

  • ATD is an excellent retail operator. ATD has demonstrated a record of consistency and profitability few businesses can match.
  • M&A is the bread and butter of ATD. They are pros at buying, integrating, extracting synergies and operating.
  • ATD’s best opportunities have come after a difficult period.
  • Excellent balance sheet. Low leverage. Great cash flow.
  • ATD’s culture contributes to its success.

Note: Alimentation Couche-Tard use US$ as their reporting currency unless mentioned otherwise. USD-CAD 1.35, Price of 1 USD in CAD.

Alimentation Couche-Tard (TSX: ATD.A, ATD.B, OTCPK: ANCUF) is primarily traded on the Toronto Stock Exchange under the ticker ATD.B.

Alimentation Couche-Tard (ATD) is a CAD$47 billion Canadian convenience store and gas operator juggernaut that’s flying under the radar. ATD is the second biggest convenience store and gas station operator in the world after 7-Eleven with 14,880 locations and 133,000 employees in 26 countries. For those readers that want to polish their French,‘Alimentation’ stands for food and a ‘couche-tard’ is a night owl, a person that stays up late. The night-owl also reflects the company’s personality: patient, quiet, keeping an eye on things, and when the right opportunity presents itself it is ready to strike like a predator.

Continue reading “Alimentation Couche-Tard And Circle K – Invest In One Of The Best Retailers In The World”

Book: Daring to Succeed: How Alain Bouchard Built the Couche-Tard & Circle K Convenience Store Empire

The following business biography delivers: Daring to Succeed: How Alain Bouchard Built the Couche-Tard & Circle K Convenience Store Empire. It’s business biography that delivers,a lot on business, management, culture, M&A, and leadership. It’s an easy read, not dry, and contains tons of real life lessons. It’s better than most of the stuff I read in business school.

It’s a great business book that’s under the radar. You probably never heard of Alain Bouchard or Alimentation Couche-Tard (ATD). But convenience store chain Circle-K probably rings the bell. Alain Bouchard and ATD are the low profile type, French Canadian, and convenience stores are a boring business. Combined all that together and it doesn’t vibrate “best seller” list. But if you are looking for quality content, then you won’t be disappointed.

Circle-K is the global leader in convenience store. But how did 4 guys (Alain + 3 partners) from Montreal, Québec, achieved that kind of success? And who dreams of becoming a convenience store leader?

What kind of success you asked? Well since the IPO in 1984 Couched-Tard is up 875x. It’s up more than 10x in the last ten years. It’s closing in $60b in sales (well pre-covid). Not bad for a boring business.

Summary: Great book if you are looking to further your business/investment knowledge for the slow summer days.

If I have the time I will try to write notes to share.

Quality Shareholders

You heard of quality companies, but what about quality shareholders? I find the idea of “quality shareholders” very interesting. The topic is further explored by Professor Lawrence Cunningham. You can read more on the topic with the following paper: The Case for Empowering Quality Shareholders and Professor Cunningham has a book coming out this fall: Quality Shareholders: How the Best Managers Attract and Keep Them (Pre-order)

Here’s the preview from the book:

Anyone can buy stock in a public company, but not all shareholders are equally committed to a company’s long-term success. In an increasingly fragmented financial world, shareholders’ attitudes toward the companies in which they invest vary widely, from time horizon to conviction. Faced with indexers, short-term traders, and activists, it is more important than ever for businesses to ensure that their shareholders are dedicated to their missions. Today’s companies need “quality shareholders,” as Warren Buffett called those who “load up and stick around,” or buy large stakes and hold for long periods.

Who are the quality shareholders?

Quality shareholders can be defined by these characteristics:

  1. They are long-term shareholders. They believe in the vision and management. They stick around for a long time.
  2. They are concentrated owners. They own blocks of shares.
  3. They are studious shareholders with a focus on operations. They are not indexers or complacent.

Why have them?

Companies may benefit from a high density of such shareholders. They can be a source of lower cost of capital and are possibly available for consulting.

Also they can offset the balance between other shareholders. If you have an activist trying to rock the boat, the concentrated ownership of quality shareholders can be a source of stability

Or just think of what could happened if you didn’t have quality shareholders. If you shareholder base is composed of mostly indexers, traders or speculators, they might just bolt on you during the next market downturn. This will result in higher financing cost or possibly open the door for a takeover (maybe from a company with quality shareholders!)

Where do you find them?

It’s tough to be a publicly traded company. Eyes are on your every three months. If you don’t hit guidance your stock takes a hit. That’s not a way to run a company.

Today’s shareholders demographic is indexers heavy. They buy the index. They don’t care about the particulars of the business. They focus on the market returns. They don’t bring much to the table.

So where do you find these high quality angels?

Well it’s like anything in life. Do you have what it takes to attract them? Do you deserve them?

  • What corporate actions are you taking to attract them?
  • What message to you communicate?
  • Are you clear, consistent, and rational?

High quality companies choose their shareholders. By that I don’t mean they actually directly pick who will be their shareholders. What I mean is that they put the conditions in place to attract quality shareholders. Of course a publicly traded company is not going to have 100% quality shareholders. But they might bring a balance to the other groups.

I’m reminded by the old saying “birds of a feather flock together”. You attract what you deserve. It’s the same in life. Your partner in life, your circle of friends. How often do you see a smoker hanging out with a group of fit people? Not often. But if it happens you can tell it doesn’t fit. It’s the same when it comes to shareholders.

One idea is to end quarterly guidance and focus on the long-term plan of the business. And execute accordingly. Remember quality shareholders are not passive. It doesn’t mean you are a free pass. If you say you will deliver Italian food and you show up with fast food, they are not going to sit there quietly.

I’m reminded of a Phil Fisher analogy (author of the famous book Common Stocks and Uncommon Profits). Phil Fisher once compared companies to restaurants. Over time through a combination of policies and decisions, they self-select for a certain clientele. Are you serving fast food or 5-star dining? Two different crowd.

Here’s a couple Warren Buffett quotes from a presentation Professor Cunningham did on the topic. A link to the recording is here.

Delisting China Stocks?

I’m been trying to make sense of the U.S.-China escalating tension. I believe we are in a cold war. It’s been brewing in the dark for years, each player placing their pieces, trying to get optimal positioning once it breaks out. The cold war is being fought on many front. There’s a trade war, a tech war, an economic war, a covid war, a political system war, and there’s the Hong Kong issue (and Taiwan). Washington is considering a range of sanctions against Chinese officials and firms as punishment for Beijing’s crackdown on Hong Kong. The world is being forced to choose between the U.S. or China, just like the world had to choose between the Soviet Union or America. The list of issues is long. Often, for an successful oversea company trying to growth, going to the NYSE or Nasdaq would make sense. 

I’m trying to assess the U.S. threat to delist Chinese stocks. Are they dumb crazy? Is it just politics? Or does it make sense?

  • Over the years, American investors have been pumping billions of dollars into Chinese firms listed in the U.S., from giants like Alibaba (BABA) and Baidu (BIDU). Investors have been able to profit from the explosion of e-commerce in China, even though the likes of Facebook and Amazon.com Inc. are largely shut out of China.
  • Recent admissions of accounting fraud at Luckin Coffee have prompted heightened scrutiny of U.S.-listed Chinese companies.
  • There’s a threat to evict some 170 Chinese companies listed in the U.S.
  • The move is more than just political. China, uniquely among major world economies, bars the U.S. Public Company Accounting Oversight Board (PCAOB), from monitoring corporate audits, considering that a national-security risk. Chinese audits are done on a completely different basis.
  • The Senate passed a bill giving all Chinese companies three years to let the PCAOB in, or be kicked out of U.S. markets. It will likely clear the House.
  • Rumblings about China companies not playing by the same rules have been around for years. The bill will force Chinese companies to abide by the same accounting rules as U.S. companies listed on the NYSE and Nasdaq.
  • The bill will also require public companies in the U.S. to disclose whether they are owned or controlled by a foreign government, including China’s communist government.
  • China declares states secrets in not allowing full transparency of corporate books, especially those with heavy state involvement.
  • Why close the books? Probably what they find won’t be pretty. Opening corporate records could reveal embarrassing links between the nation’s leaders and valuable share packets. Stuff that they don’t want to come out.
  • The question now is whether we will see Chinese companies give in to the new rules or relocate outside the U.S.
  • Two of China’s most valuable U.S.-listed companies, NetEase (NTES) and JD.com (JD) are pushing ahead with multibillion-dollar share sales in Hong Kong.
  • Chinese stock can thrive without a primary U.S. listing, look at Tencent. If you have a good company, you will likely find capital.
  • Despite the issues with Chinese companies, attracting capital is one of the U.S.’s major force. It’s very important that they keep that advantage. I bet London and Singapore is looking for take advantage of the dispute.
  • The U.S. instead should have policies to attract listings and capital. One idea is hiring high quality annually-inspected US audit firms.
  • Companies with good oversights and financial control would probably trade at a premium. Investors prefer companies that have oversight.
  • It’s important for any company to play by the rule. I don’t think the idea of crippling Chinese capitalism by denying it a listing will work. It’s probably good domestic political firework, but it won’t amount to much. It will probably hurt the country by pushing companies to look elsewhere.
  • Despite the issues, the U.S. and China should work out their problems. It’s what’s best for everyone’s interest. They need each other. They depend on each other.
  • China should play by the same rules as everyone. The U.S. should go back to the principles of what made them great.
  • Get each country’s top three negotiators and send them on an island to work it out behind doors.

Thanks for reading and have a good weekend,

Brian

YYX Annual Value Symposium is back on

YYX Value SymposiumThe 5th YYX Annual Value Symposium is back on, via video in May 27, 2020, and I will be presenting in a TEDx Talk format. 

yyxtoronto.ca/symposium.html

 

Specialization

I was stuck at home for sixty days with wife and kids. During that time I took on projects that I wouldn’t normally have the time for, such as making maple syrup, brewing beer, making pasta, and baking bread.

  • I boiled maple syrup because I have maple trees. Made just over 4 liters of syrup. The last 2.5 liters took 30 hours of boiling and used a ton of propane. It was a fun project because I have young kids. They participated at collecting the maple water and sampling various products. This project is seasonal and would have done it Covid or not.
  • Brewing beer: More of a personal project. I had a beer making kit sitting in the basement and it was about time that I get to it. Kids had fun watching boil the grains and adding hop and stuff. The beer is currently in its second fermentation stage. I will have a taste of the IPA in two week.
  • Making pasta. The easiest and fastest. And it’s totally family friendly. Fresh pasta is so much better than the box stuff. So much. I don’t know if I can go back. It’s a very underrated activity. The cost benefit ratio is totally tilted towards the benefit. Flour and eggs. That’s all you need.
  • Baking bread: I joined the sourdough #breadster bandwagon community. I made my starter (5 days) so I can have natural yeast, then another 24 hours for bread making. It’s “labor” intensive. It’s not super physical, but it’s time consuming and you need to be precise with everything. If you are one degree off here and there the whole thing can go awry.
  • Beer and bread is all about working with yeast and fermentation. With beer sanitation is super important. I got really paranoid with sanitation. Too much bacteria can kill a beer. I learned a lot. Science meets art. Once you master the science and process, you can really start to experiment with several type of grains, hops etc…same goes for bread. The possibilities are endless.

Lessons

I developed a deep sense of appreciation for the miracle of economic specialization. Bread is like $3 and it’s a shit ton of work.  I understood specialization as a concept. I understood the benefits, especially when it comes to trade and economic development. But now, anybody that comes up with some protectionist nationalist argument, I would tell them to go make bread.

More photos

Continue reading “Specialization”

Insights on Oil

oil-gifIt’s not breaking news that the energy sector has been a disaster zone this year, as the coronavirus pandemic has decimated global oil demand. There’s an assumption that anyone looking to invest in energy stocks, and oil stocks in particular, is an idiot, and that assumption appears pretty reasonable—if you’re looking in the rear-view mirror. There’s might be better days ahead for the industry. But “when” is the key question. There’s an old saying in the oil industry: The cure to low prices is low prices. I expect more carnage in the short-term before it gets better. Companies will be destroyed. There will be survivors that come out on the other side looking stronger. Their shares are pretty attractive right now. But who will survive?  Energy is essential. Although demand is down right now, the world is going to need more energy in the future. Low-cost energy will help to boost the global economy.

But it’s my opinion and I have no money on it, no skin in the game. The sector is too insane for me. It’s driven by too many large actors with non-economic motives (e.g. Saudi-Arabia). Anyway I’ve been reading a lot news of the sector and here are a few insights I picked up. Sometimes in carnage there’s glimmers of hope.

  • I can’t think of an industry in recent time where even though things could get worse, they got really bad. Predicting a massive drop in oil prices, sure. Predicting negative oil prices? That’s a job losing proposition. Investors in oil have been suffering for a long time.
  • The market is efficient at pricing in risk. Oil prices have collapsed twice in the past six years. That would tell investors there is a greater likelihood of that happening again. If you’re an operator, this means you might require a higher return than in the past because the risk is greater. If you’re an investor, you require a higher rate of return before you’re willing to invest. Thus, when demand comes back and oil prices recover, the commodity price might be a little higher than it otherwise would have been, depending on how high you need it to be to get that marginal barrel produced.
  • The world is still highly reliant on hydrocarbons. Renewable-energy sources are growing, but long-term demand for oil and natural gas is growing faster in percentage terms.
  • The May futures contract for WTI crude turned negative in April (-$37 a barrel), as demand plummeted and storage capacity ran out. That seemed to be an unusual set of circumstances with open futures contracts and perhaps some unsophisticated investors who got stuck. The lesson: Don’t hold financial contracts that you can’t honor as expiration approaches. With limited-to-no storage capacity available at the delivery point for the WTI oil-futures contract on May 19 (Cushing), so holders of financial contracts will need to sell prior to expiration. If open interest remains high as we approach expiration, then negative oil prices are possible again.
  • Negative oil prices were an anomaly—a function of a timing mismatch between the pace of demand reduction and that of supply reduction.
  • You need to break down the oil industry in two players: Producers and refiners. In between you have the pipeline, storage, and the infrastructure (mid-streamers). In normal times, good news for producers would tend to be bad or neutral for refiners, because refiners have to buy from the producers.
  • The hope is that the oil market rebalances and every part of the industry improves — oil and gas producers make more money selling crude, refiners sell more gasoline, and pipelines see more activity.
  • Refiners have been cutting back on processing crude because there are too few buyers. No one is driving as people stay at home to stop the virus, and gasoline is normally the number one use of crude in the U.S.
  • U.S. oil prices have jumped 99% in just the past week, an incredible performance that has made energy a top performing sector after months of under performance. Investors bet that companies in the beaten-down sector can come back from a historic rout in the first quarter. Even with the latest surge in stock prices, it should be noted that nearly all energy stocks are down by double-digit percentages for the year. Crude is up for two reasons:
    1. One is that investors now expect demand to return for major products like gasoline and diesel as countries start loosening lockdown orders imposed to stop the spread of the coronavirus.
    2. That oil companies have gotten more serious about reducing supply. U.S. oil production has already declined by almost 1 million barrels a day since it peaked in March, according to Rystad Energy.
  • The Texas and the U.S. responds to market prices, not government or OPEC. Earnings releases from U.S. oil companies show they’re prepared to make dramatic cuts.
  • The idea of the Russia-Saudi Arabia price war is to drive U.S. producers out of business. It might work to a certain degree. That playbook employed in 2014 with limited success. Now S-A is trying again with a weaker hand. You might end up with zombie companies like in 2014, where U.S. producers pump just enough to cover interests on the loan.
  • Mass bankruptcies look unlikely, at least in the short term. And if riskier companies can hold out until oil prices rebound, they are likely to be in a position to produce better cash flow next year. Oil futures a year out are projecting West Texas Intermediate crude at $33.
  • For companies to produce oil profitably, Brent needs to trade around $50 a barrel. Back in December, with the Brent at $60, companies with the right structure could thrive and  cover their dividends fully. Oil companies were buying back stock with excess cash flow. They could compete with the S&P 500 on a cash-flow-yield basis. Today the math doesn’t work at current prices.
  • I was surprised to learn that energy stocks now account for a measly 3% of the S&P 500 index, thanks to a terrible decade and massive technology companies. It’s much higher than that in Canada. I know it was at least a third of the index at one point but I don’t know if it’s still that high now.
  • Most oil and gas producers, including the majors, will lose money in 2020 or barely eke out a profit, and most of those still paying dividends will have to borrow to cover the cost.
  • They key for oil companies is reducing production, slashing costs, and conserving cash. These steps are likely to pay off in higher oil and gas prices over the next two years—and stronger operations and balance sheets for the industry’s survivors.
  • Royal Dutch Shell Plc. (RDS-A, RDS-B) cut their dividend for the first time since WWII, to 16 cents a quarter from 47 cents for a 66% cut. For a company that seems to want to be around for a long time, it’s the prudent move. Most companies, including Exxon, BP, and Chevron should cut but won’t. Instead they are delaying capital expenditure. You can only do that for so long before it bites you in the butt.
  • Take Exxon for example. Analysts think that Exxon will generate $2 billion of negative free cash flow this year, with a $15 billion dividend commitment. The company recently issued $18 billion of debt, which could cover this shortfall, but one could definitely question how long it makes sense to do so.
  • I think Shell is the most anti-oil oil producer. Shell is thinking about the long-term transition away from fossil fuels. Shell leads big oil in the race to invest in clean energy. Shell has this “Sky” scenario plan that highlights the transition toward a clean energy world by 2070. It’s much later than the U.N. 2050 plan and is probably more realistic. 
  • Everybody talks about the negative impact on U.S. producers. That Russia and Saudi Arabia are trying to drive them out of business and that Saudi Arabia wants to regain the crown of world’s largest producer. But there are other major global impacts that won’t go unnoticed. Low prices will hurt or destroy many countries dependent on oil. This can’t be good for enemies of the U.S. that are not under their political and/or military control, such as Venezuela and Iran (also Saudi-Arabia’s rival/enemy). This can’t be good for Russia also but I think they have enough foreign reserves to withstand the storm in the short term.
  • OPEC++++ agreed to cut production by nearly 10 million barrels a day, starting this month, to help to rebalance the market. I’m very skeptical it will work. First the math doesn’t work. For the near term, it’s too little, too late. The cuts agreed to are starting from a base level in October 2018, when OPEC was producing at a higher level, so the effective cut is more like 7.1 million barrels. Balance and supply is out of whack by way more than 10m a day. Second, if you look who the countries who signed the deal, how many of these countries can you trust? OPEC alone has had time keeping their members from cheating. The whole thing almost fell apart because of Mexico. This is not an easy agreement to implement. Here’s an headline: Iraq faces problems cutting 1 mln bpd of crude output -sources

Here’s an interesting take to wrap up things:

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