Thursday, October 13, 2011

Oil Stocks are Undervalued

I Have been loading up on oil stocks lately because of record low valuations. Oil companies are a screaming buy right now. so cheap that the Chinese are willing to pay more than double the share price for Daylight Energy. 

from CIBC  analyst 
We view the sector's risk/reward as extremely compelling. The large caps
are only 13% off their lows reached in the 2008/09 financial crisis and the
sector is discounting only ~US$70/Bbl oil LT. Our top large-cap picks are
Summary on Suncor: 
 Suncor Energy Inc. (SO–$46.00 Target): Our top pick remains Suncor, which we believe is one of the best-positioned companies against downside commodity risk. We believe the stock has far more defensive elements than the market gives it credit for (most FCF generation and one of the best balance sheets at US$70/Bbl) yet it has been among the worst performers during the recent downturn. Even with the sell-off in oil prices, Suncor is being well supported by high Brent and SCO premiums and exceptionally strong downstream results. Given the company’s operational momentum throughout Q3, we should see record CFPS from the company this quarter. Furthermore, following the recent completion of its major turnaround in the oil sands in Q2, we believe the company is now poised for ~18 months of relatively uninterrupted operations.
Summary on Talisman
Talisman Energy Inc. (SO–US$23.00 Target): In our view, Talisman is better situated now than at any time in the past five-plus years, as the company can lay claim to a well-defined unconventional gas portfolio and is demonstrating substantial and sustainable growth. Additionally, Talisman brings a compelling mix of highimpact exploration that could further extend those five-plus years of international growth visibility. Although Talisman does not have the same defensive characteristics as Suncor in the US$70/Bbl case, we note that even if it did have to cut capex by ~$500 million from our current forecasts, we would still expect ~9% of growth next year – one of the highest growth rates in our group. Additionally, we note that its balance sheet remains very strong even at the US$70/Bbl level. Talisman is also one of the least expensive on P/NAV metric – trading at only 42% of risked NAV. Furthermore, Talisman offers more exploration catalyst potential than any other Canadian large cap, in our opinion, which will be the defining factor for the stock’s performance in Q4/11. The company has high-impact wells planned for offshore Indonesia (South Makassar Strait) and Kurdistan but it is Colombia that most interests us given the lower risk, large size and relatively short cycle times.

Wednesday, October 12, 2011

Worlds First Fiat Currency

Fiat Money is Not New
The first time fiat money was ever used was in 11th century china, during the Yuan and Ming dynasties. Surprisingly this ended with hyper-inflation and the notes were discontinued in 1455.

That's a nice little fact, but then after more research it seems that every fiat currency ever used throughout history has ended in devaluation and eventual collapse. 

Fiat Money Never Worked
From Louis IV to Napoleon to Post-World War I Weimar Germany .The Treaty of Versailles was essentially a financial punishment placed on Germany to make reparations. The sums of money to be paid by Germany were enormous. (Huge unpayable debt, sounds familiar?)

Can you look at this graph that shows gold in USD and tell me that inflation is around 2% and that we need looser monetary policy because we are at risk of deflation. All that while keeping a straight face?

How does one profit from this eventual collapse?
The general idea is to own leveraged hard assets. of course the best hard asset to fit this bill is real estate. If you don't own your own home go buy one. It is possible that the gold bullion ship has already sailed but you can still find some gold miners trading at some good valuations.

The US dollar is a fiat currency like many before it throughout history, why would it be different this time?