Thursday, August 18, 2016

Sea Levels, Soros, and the Warmism Scam

A correspondent writes,

There are sea walls, boat moorings and harbor structures all over the world whose elevation above sea-level has not changed since they were built. Some of these were built several thousand years ago. One such ocean-side structure is a seawall that Alexander the Great constructed to invade an island city off the coast of present-day Israel.

Several years ago, I talked about this seawall with a marine archaeologist who specializes in the coast of Israel. I was gathering information about whether sea levels have risen or fallen during the Industrial Age. They have not.

I started by by noticing, soon after Al Gore introduced his global warming swindle, that an ocean mooring made somewhere near Australia had not changed its elevation with respect to sea level since it was installed in the 1840s.

So the sea has not risen from melting ice. (The temperature of the earth has fallen for 80 years, possibly because Earth is heading into an Ice Age.)

Here is a chance for you to watch knowledge of the Gore's global warming swindle spread. Soros gave $30 million to Gore to support his global warming swindle
Previously on climate and warmism.

Wednesday, August 17, 2016

Distressed Watch: Bonanza Creek Energy

The 6.75% note (due 4/15/2021) trades at 43, ytm of 30%. The 5.75% note (due 2/1/2023) trades at about the same dollar price, ytm of 24%. As you can see the yield curve is inverted, and in fact the notes seem to be trading at estimated recovery value. This makes sense since the company missed its August 1st interest payment and before that had hired restructuring professionals.

Those two unsecured notes total $800 million at face value. The company also had $273 million drawn on a line of credit at the end of the second quarter.

Compare the total debt of $1.073 billion with the value of the Company's reserves. The PV-10 at the end of 2015 (using $50.28 per Bbl WTI and $2.59 per MMBTU HH) was only $329 million, down from $1.1 billion at the end of 2014.

The market cap is down to $50 million from $144 million the first time we mentioned the company.

Going concern uncertainty from 10-Q:

  • Since the first quarter of 2016, the Company’s liquidity outlook has deteriorated due to the borrowing base reduction that occurred in May 2016, the inability to sell assets given current market conditions and counterparty concerns about the Company's liquidity and current capital structure, continuation of depressed commodity prices and the possible inability to access the debt and capital markets.
  • While the Company is currently in compliance, based on the Company’s estimates and expectations for commodity prices in 2016, the Company does not expect to remain in compliance with all of the restrictive covenants contained in its revolving credit facility throughout 2016 unless those requirements are waived or amended.
Production will probably be falling significantly:
  • We estimate capital expenditures for the remainder of 2016 to range from $7.5 million to $17.5 million. We ceased our drilling program at the end of the first quarter of 2016 and do not have any active drilling planned for the remainder of 2016. Consequently our production will decline in line with our normal decline curves, and we will experience further reductions in revenues, profitability and cash flows.
The crude oil volumes fell 23% between Q2 2015 and Q2 2016! During the year ended 6/30/16, the company completed 67 wells. During the year ended 6/30/15, the company completed 145 wells. With drilling dropping to zero, production will probably plummet further.

The bonds do not seem like a good deal to me at 40 cents.

Out of the Money Puts?

Ridiculously overpriced garbage that might be worth owning puts on:

Tuesday, August 16, 2016

On Inflation and Indexing (Buy & Holdism)

From a correspondent,

Indexing makes perfect sense in a long term inflationary environment. Inflationism is guided by the idea of buying things regardless of their value. Indexing follows the same logic.

China Helping the Lion of Damascus

A correspondent writes,

China is going to strengthen its military role in Syria.

I was expecting this to happen eventually, but it is astounding that it has happened, even so.

The US/Israel/Saudi effort to overthrow the Syrian government has given rise to the military alliance of Russia/Syria/Iran/China, with more Syrian allies to come. This may be the motive for the departure of Turkey from NATO.
In the aftermath of the fake coup, Turkey does seem to be moving away from Europe/NATO and toward Russia.

Review of Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley by Antonio Garcia Martinez

We've been consistently skeptical of Facebook, a view which has been wrong so far, although the stock price increase has brought the valuation to almost 100x net income. (Meanwhile, the cumulative profits of the company are about half of what they spent to buy "WhatsApp" in 2014.)

Since we're also skeptical of the Techbubble 2.0 more generally, it seemed like it would be worth reading the new Chaos Monkeys, about some lame startup whose author was acqui-hired by Facebook.

I won't rehash the author, Martinez's, story, because who cares? The only thing I thought was interesting about the book was what happened to him after he landed at Facebook.

He did an odd deal where he and his two co-founders sold their startup to Twitter, but he went to work for Facebook instead of joining Twitter with the other two. He got a signing bonus which was a multi-million dollar amount of stock that would vest monthly over four years. (Note: if you have to work to get the money, it's a salary not a signing bonus.)

When Martinez joined FB, they had yet to figure out an ads strategy. The ads team ended up dividing into two camps regarding the details of how to target ads. A "friend of Zuck" in upper management was brought in to settle the dispute, and decided against whatever Martinez was advocating.

The very next day, Martinez was sacked (he says he was going to quit anyway) and lost half of his unvested stock "signing bonus".

Remember Tinker Tailor? If you work in a big organization, your real enemies are inside the organization. I observed the same principle at work in my review of Innovator's Dilemma:

Companies fail to innovate because "they are focused on maximizing the present value of their salaries, which means making sure Bob's division doesn't try to get you fired" for "disrupting" the product that Bob's division makes.
That's why people start startups. But if you start one, and get acqui-hired and negotiate for stock that will take time to vest, keep your head down. Be like Bighead at Hooli.

3/5.

Conrad Industries Q2 Results

Summary:

For the quarter ended June 30, 2016, Conrad had net income of $1.3 million and earnings per diluted share of $0.25 compared to net income of $1.2 million and earnings per diluted share of $.21 during the second quarter of 2015. The Company had net income of $3.9 million and earnings per diluted share of $0.74 for the six months ended June 30, 2016 compared to net income of $5.2 million and earnings per diluted share of $.89 for the six months ended June 30, 2015. Results for the three and six months ended June 30, 2016 included research and development tax credits of $0.6 million and $1.2 million, respectively. Conrad's backlog was $248.7 million at June 30, 2016, $211.8 million at December 31, 2015 and $131.7 million at June 30, 2015.
The market capitalization is currently $125 million, which is about exactly 1x book value. The enterprise value is $95 million.

The current backlog is a record high! It includes "an ocean going tank barge, four twin screw tugs, two ATB tugs, four spud barges and a LPG barge".

Regarding the LNG barge, which is a new type of project for them:
Vessel construction gross profit in the 2016 periods reflects a $4.5 million loss recorded in the second quarter on the LNG barge. The losses on the LNG barge primarily relate to vessel changes required by regulatory authorities, which increased costs and caused delays, and higher than expected equipment costs, resulting from the vessel being the first of its kind produced in North America. While most of the regulatory review process has been completed, we continue to have regulatory and execution risk associated with completing the vessel and are in discussions regarding potential late delivery charges. The barge is scheduled for delivery during the first half of 2017.
Results are stronger than I would've thought. Nice to see a company that has no interest expense and no long term debt.

Share repurchases YTD:
During the first quarter of 2016, we purchased 181,075 shares at an average price of $19 per share. During the second quarter of 2016, we purchased 12,955 shares at an average price of $21 per share.