2/3/2020

Good morning,

I hope everyone had a good weekend. The mighty Thunder went 2-1 last week with the lone loss being to the Dallas Mavericks. That is a really good loss though because the Mavs are currently the 6th seed in the Western Conference and OKC is the 7th. If OKC finishes with a top 10 record in the league at the end of the regular season, then it will lose one of its two first round picks this summer. No one wants to lose any picks. First round picks are more valuable than a good PR guy for snake. OKC has the 13th best record currently and is only two games back in the loss column in regards to having a top 10 record. OKC is ahead by 5 games in the loss column compared to the 14th seed. So it seems likely that OKC will not fall below the 13th best record in the league. The top 10 is well within striking distance though. Too close. You know what could derail OKC's chances of earning a top 10 record? THE NBA TRADE DEADLINE ON THURSDAY! This is a top three sports holiday in my book with the other two being the NBA draft and the first day of NBA free agency. If you try to speak to me about anything non wild NBA trade rumor related up until 2 PM on Thursday, then I will ignore you and question your priorities. I don't make the rules. I just abide by them. If you have any wild, but could actually happen, trades then please send them my way. ESPN has this thing called the trade machine and it is highly addictive. I really want someone to pull off a successful trade that has every single NBA player in the league being traded in one mega deal. Happy trade deadline week everyone and remember, you can't actually trade family members or friends for future first rounders. I don't think so anyways. I mean, you could try it still I guess and see what happens. Worst case scenario is the trade gets nixed like the CP3 to the Lakers trade back in the day and it just gets super awkward for everyone when the player / family member / friend you tried to trade away ends up sticking around. For this weeks #bucketsblog, Kobe's impact goes well beyond America's borders, the U.S. tried to meddle in a foreign country's political system and failed, President Trump thinks peace is possible in the Middle East, the coronavirus somehow led me to want to slide tackle United States Men's National Soccer Team "player" Michael Bradley, OPEC still wants to prop up oil prices, coal is dying, and U.S. E&Ps are making the dreadful Sacramento Kings tanking strategy seem prudent.

February 3, 2020

With the loss of Kobe, the U.S. also lost one of its best ambassadors to China

• I still can't believe that Kobe is gone. All nine lives on that helicopter flight were taken far too soon. Life makes zero sense most of the time. Kobe had a gigantic impact on the entire world and that has been evident by news stories appearing about him on tv stations ranging from CNBC, ESPN, and the Weather Channel. He was a global icon who seemed to truly maximize each day. Very inspiring to see and hear all of the stories that have came out about him since his death. One of the stories is about how Kobe might have actually been America's best ambassador to China. Basketball has been around in China since the 1890s when YMCA missionaries brought the game to the country with them, according to Foreign Policy writer Lauren Teixeira. The game has stuck since then and has been played ever since. It even survived the authoritarian leadership of Chairman Mao Zedong as he banned all western sports from China during his reign except for hoops and table tennis. The NBA really didn't take off until Yao Ming was drafted by the Houston Rockets in 2002. Since then, the game and the league has sky-rocketed in popularity to the point to where it is estimated that at least 500 million Chinese citizens will watch at least one NBA game every year. The Chinese market is worth ~$4B to the NBA per year and it all started once Chinese citizens started to tune into NBA games to watch Yao which led them to watch Kobe play. Kobe was pretty good at hoops and his popularity soared in China over the past two decades. His jersey was the number one selling NBA jersey in China for most of the 2010 decade. Kobe was declared "a cultural ambassador by the Asia Society in 2009 at a ceremony attended by the Communist Party politician and sports director Liu Peng," according to Foreign Policy. Kobe "also established the charitable Kobe Bryant China Fund, which donated supplies to poor children with the backing of the Chinese government," also according to Foreign Policy. The day Kobe passed away, the hashtag on China's version of Twitter, called Weibo, accumulated over 3 billion views temporarily dominating any Weibo topics related to the coronavirus. By all accounts, Kobe was extremely popular in China. It also probably helped that he didn't jump into the scandal that popped up this summer after Rockets General Manager Daryl Morey tweeted out support for Honk Kong's protesters against Chinese leadership. This may end up being an extremely costly tweet to the NBA as the stats listed above will all likely take a hit. That is a topic for another time though. Kobe was an exceptional unofficial ambassador for the U.S. to China. The impact of his loss extends well beyond the basketball court.

Russia and Venezuela 1 - U.S. 0

• Remember that one time when America tried to overthrow Venezuelan leader Nicolás Maduro and replace him with Juan Guaidó? This all started to happen around this time last year. Mr. Guaidó was claiming he was the rightful winner of Venezuela's latest presidential election. America, along with a few other western countries, backed Mr. Guaidó and George Washington's home country took the reigns on making sure he would be the new leader of Venezuela. However, America underestimated the strength of Venezuela's relationship with Russia and Cuba, according to the Wall Street Journal (WSJ). Part of President Trump's plan was to utilize sanctions against Venezuela (surprise!) to put maximum economic pressure on Maduro to voluntarily step aside so Guaidó could take over and bring Venezuela out of its economic misery that it has spiraled into under the questionable leadership of Maduro. According to WSJ, under Maduro's leadership, Venezuela has experienced "hyperinflation, high infant mortality rates and a shortage of medical supplies contribute to the humanitarian crisis there. Food, electricity and water shortages have driven an exodus of 4.5 million people." A large part of the sanctions imposed by the U.S. involved shutting off Venezuelan crude exports of about 1mmbpd in addition to shutting down gold exports. However, America severely underestimated Russia's influence in Venezuela. These sanctions failed as Russia's state-owned oil company, Rosneft, assisted Venezuela in concealing its oil exports and making it difficult, if not impossible, for U.S sanctions to prevent oil exports from moving out and Venezuela getting paid. This did not become apparent to American officials until the second half of last year when American delegates met with Russian delegates in Rome. In this meeting, American delegates sought to persuade Russian representatives to join them in backing Guaidó. Instead, Russia told the U.S. to back down from any type of military threat and lift sanctions immediately. Ever since this meeting, things have spiraled out of control for American foreign policy in Venezuela. Guaidó's approval ratings have cratered by 20 points to 38%, according to Venezuelan pollster Datanalisis. It is a Venezuelan pollster so take that with a grain of salt, but Guaidó's sinking profile was highlighted when he tried to climb an iron fence to enter the National Assembly on January 5th and run for re-election but was blocked by security (picture below - credit WSJ). Regime change is extremely difficult and rarely successful. Venezuela is turning out to be yet another example of that. So much for America meddling in a foreign country's election.

President Trump tries to broker peace in the Middle East

• It seems like most U.S. presidents had the same desire to do the same at some point, but the possibility of anything actually happening is super slim so most presidents never really put forth a peace plan proposal. Much like the possibility of RUSS ever speaking to snake again are slim despite what both say to the media about how things are "cool" and to just let things be. We all saw how legendary OKC fellow Kendrick Perkins, who is now better known for his Twitter game than his actual basketball game, annihilated snake about how he joined a 73 win team after losing to them in the playoffs the night that RUSS returned to OKC for the first time dawning a Rockets jersey. Perkins called RUSS the best player ever for the Thunder and snake, wait for it, got his feelings hurt and lashed out at Perk on Twitter. Wow. Everyone is shocked right? Anyways, the Middle East has been in conflict since dinosaurs were walking around eating plants and getting destroyed by asteroids and stuff, probably. Mr. Trump joined the kinda sorta current leader of Israel, Prime Minister Benjamin Netanyahu, to unveil the plan to make peace between Israelis and Palestinians. Mr. Netanyahu is currently caught up in a drawn out election crisis in Israel about who the actual Prime Minister will be. For now, he's still the dude. Mr. Trump is caught up in the middle of an impeachment trial. Put two and two together and it seems like this is more so an attempt to gain positive press for both parties rather than to actually unveil a real peace plan idea that has a chance of succeeding. According to WSJ, "the plan does explicitly embrace a two-state solution to the conflict—which is to say, it calls for Israel and a Palestinian state to exist side by side." However, the outlines of the two states in the proposal would require Palestinians to change where they envision their state being located and agree to a reduction in the size of the state they are demanding. Jerusalem would be the capital for both states. Israelis would retain the central part of Jerusalem and Palestinians would have its capital sit on the eastern side of the city. Both claim Jerusalem to be their capital as this city holds significant religious meaning to both sides. Really, the entire area is claimed by both sides which is why conflict always seems to be prevalent over there. The WSJ points out that two individuals who have significant experience in the region - Dennis Ross who has worked on several Israeli-Palestinian issues for multiple U.S. presidents over the years and Philip Gordon who was the top National Security Council Aide under President Obama - have significant doubts on whether or not moderate Arabs would even join the negotiating table. The pressure against joining the negotiating table comes from the "wrath of Iran" and radical Muslims as neither party will likely want anything to do with this peace plan as it will likely be viewed as too favorable to Israelis. Mr. Trump is the 10th president to try and broker peace between the two states, according to the WSJ. All have failed. Glass half full, at least Mr. Trump is trying something. Glass half empty, the real motivations behind this make the plan seem disingenuous which is why there does not seem to be any confidence that the plan will succeed.

Coronavirus quarantine is bad news bears for a lot of things, including oil demand

• First and foremost, the human aspect of this virus is always the top priority and hopefully a vaccine can be developed quickly. The virus is wrecking everything in its path, including global stock prices, supply chains, and oil demand. Global oil demand could be impacted by 1.5 mmpbd which is three times the original estimated amount, according to S&P Global. The quarantine in China is up to 50 million people as of January 27th, according to the Washington Post. Phil Flyyn, PRICE Futures analyst, summarized the demand loss like this: "the bottom line for oil is that we have never seen a quarantine of this magnitude. Planes and trains are not moving and factories are closed [which] will cause a historic hit to energy demand. … The more considerable fallout may be to come as it is possible that this could slow not only the Chinese economy but the global economy as well." For reference, when SARS broke out in 2003, oil demand only fell by 300-400k bpd. Chinese demand was only 5 mmbpd back then and is now 13.5 mmbpd. The current $4-$5 drop in oil prices is based on the initial demand loss expectation. If the demand loss actually rises to 1.5 mmbpd, then oil prices "could fall by an incremental $5/bbl to $7bbl and OPEC would need to react," according to Tudor, Pickering, Holt & Co., managing directory Michael Bradley. I really hope that is the same Michael Bradley that brought shame upon American soccer by being the guy who "captained" the United States Men's National Soccer Team to not qualifying for the 2018 World Cup. I hate playing with him on FIFA and I can't stand to watch him play in real life. Hopefully he's moved on to his second career being an energy analyst. If that is him at TPH though, then I don't believe a single word that he says. That was therapeutic. Thank you all for making it through that diatribe. Mr. "I can't qualify for a World Cup when all I have to do is tie Trinidad and Tobago (Trinidad and Tabogo!!!)" Bradley does have a small glass half full approach though as he believes the coronavirus has "pushed crude oil price and most energy equities/ETFs into technically oversold territory. Investors are panicking and selling the unknown. We think this is providing an extremely good buying opportunity." There is that I guess. Now if you will excuse me, I am going to go fire up FIFA, play against Michael Bradley, and slide tackle him into oblivion. Not a good chart followed by a good chart (Fansided credit):

At least OPEC is still cutting production

• The oil cartel announced last week that it plans to stick to current production cuts at least until June this year with the possibility of deeper cuts being agreed to after that if oil demand in China falls off significantly due to the coronavirus outbreak. Even Russia is rumored to be on-board with keeping production cuts intact through June if prices stay below $60/bbl. Russia is keen on cheating as all Americans know. Remember that one time its entire Olympic program was pretty much shut down because of doping? Before the coronavirus outbreak, it was believed that Russia wanted to exit the production cuts at the end of March, according to smart people with connections at Reuters. And not like "connections" that your buddy has at Chili's where he can get you half off cheese fries because he knows the waitress, but like real connections. Saudi Arabia on the other hand appears to be dead set on keeping a cap on production in order to support prices as much as possible. Saudi leadership recently IPO'd part of its oil company, Aramco, and someone is going to have to pay that hefty, promised dividend on its issued shares. Plus Aramco is still straddled with all of the social benefits that come out of its profits. So Saudi Arabia still needs a decent oil price in order to keep its country going. That very same fact is true for U.S. E&P's that need a decent oil price in order to not go bankrupt. It works out well for both groups of people. For the most part. U.S. E&Ps are still struggling mightily to spin off free cash.

Coal isn't dead yet but it's close enough to call it

• There is at least some benefit of really low natural gas prices. Coal companies are getting destroyed since coal just can't compete whatsoever with natural gas for power generation at current prices. Coal had a hard time competing at $3/mmbtu gas as it was. Throw in the fact that nat gas is currently sub $2/mmbtu and coal is starting to plan its own funeral. It is believed that coal wants to be cremated, which ironically would give it a second life. For the non-energy readers, mmbtu pretty much just means one unit of production. So like an iPhone is one unit of production that is sold for $1,000. A natural gas unit is called an mmbtu (million british thermal units). The low nat gas prices could force some coal-fired power plants into retirement much like all the young gun point guards are forcing Chris Paul into retirement. Wait, what's that? CP3 just made the all-star team?!? Round-house kick to the face to you, father time. Gregory Marmon, Wood Mackenzie senior research analyst, stated that low gas prices are "just going to be another nail in the coffin going forward because very few coal plants are going to be directly competitive at $2 [per MMBtu] natural gas." Marmon seems to be a crafty numbers guy as he also said that ~750k tons of Powder River Basin (Wyoming) demand is affected positively or negatively by every one penny move in the price of natural gas. #mathlete. For 2020, coal demand is expected to fall 13.5% from 2019 levels, according to the EIA. Moody's is calling for a 15-20% decline in coal demand this year. All of this raises a very important question, who's demand is falling quicker? Kevin Love's after he has been openly aggravated with his crappy teammates, coach, and ownership; or coal? Another chart that is no good:

Speaking of U.S. E&Ps tanking worse than the Sixers did a few years ago...

• Sam Hinkie, former GM of the Philadelphia 76ers, was a genius and was wrongfully fired by the NBA for being one. In major sport leagues in the U.S., there is a time to tank and that is especially true in the NBA. It is basically impossible to win a title without a top 10 guy on your roster. The only way to get one of those for the vast majority of franchises is to tank for a few years, accumulate as many first round picks as possible, and keep taking your chances in the draft. Mr. Hinkie did this quite well but was a bit too open about it and the NBA did not like the perceived damage to the brand that it was getting as one of its teams was blatantly tanking for a few years. So Adam Silver, NBA Commissioner and probably a robot on the inside, fired him after being "encouraged" to do so by other NBA owners. The message was then sent out to the league and public that tanking with a methodical plan to get your team to a point to where it will be a perennial contender is unacceptable, but gross mismanagement and going without a plan to rebuild a team is totally fine (see: Kings, Sacramento). Hinkie was tanking the Sixers with a master plan. The Kings just keep tanking with no direction. U.S. E&Ps are tanking because that is really the only thing they can do at the moment, but its more like a Kings style tank instead of a Hinkie Sixers style tank. E&Ps do not seem to have a realistic plan on how to survive and then thrive if oil prices do not recover. Oil and gas prices are just too low. There isn't much E&P co's can do about it except try to outlast the storm and prudently manage production. 2020 was supposed to be a comeback year for E&Ps. Instead, it has started off horribly. "Energy has been the S&P 500's worst-performing sector each of the past two years," according to the Wall Street Journal. The energy sector has dropped by 11% this month which puts it on track to be the worst month since January 2008. The rest of the S&P 500 has gained 0.9% for comparison. Brent crude prices have dropped 14% so far in 2020 and is on pace to have its worst month since January 1991, according to Dow Jones Market Data. This is pretty telling of how the sector has performed in 2020 so far, from WSJ: "Of the 28 companies in the sector, only one— Apache Corp., whose shares jumped earlier this month after an oil discovery—is in positive territory for the year. The sector had fallen in seven of nine trading sessions before declining again Friday morning." The complete drop-off in value is being attributed to weak weather-related demand and the coronavirus outbreak, according to Goldman Sachs. Earnings season is here for full year 2019 and 4Q-19 and this is not expected to bring any type of relief as "analysts expect earnings from energy companies to plunge 43% this quarter from a year earlier, compared with a decline of 0.3% for the S&P 500 as a whole," according to FactSet. Yikes. The tides have to turn at some point...

Thoughts of the week:

• Last Friday was national backward day. To celebrate, a website called The Hustle, which I would highly recommend subscribing to its daily email, published its "Shower Thoughts" that were related to national backward day. I found this one to be a gem: "“The Matrix” backwards is about how Keanu Reeves gets off drugs and lands a stable job at a company."

• I have always wondered if the person who invented skiing did it on purpose or on accident.

• Next time we play pickup, we are playing by North Korea rules. A friend of mine sent these over last week and they are amazing. North Korea's Basketball Scoring Rules:

1. Slam dunks are worth three points

2. Field goals in the final three minutes of the game are worth eight points

3. Three-pointers are worth four if the ball doesn't touch the rim

4. A point is deducted for missed free throws