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Brian’s Blog, April 2018

Is Change Coming, Again?

It has been some time since I sat down and mused on the macroeconomics of our planet. The reasons for this are many and I will go through some of them at the end of this letter but as we are seeing some major changes around the world that are and will have dramatic effect on our lives, so too have we seen great changes at IR. Perhaps not so dramatic as Xi’s consolidation of power in China or Donald Trumps suspected affair with a porn star, but we hope they will make an impact on the experiences you have at IR and in a good way.

It seems to me that about every 20 years or so we see some kind of fundamental technological creation that follows some socioeconomic shift that affects the way we live our lives. As I was growing up computers were starting to make their way into our lives.  This lead to the internet of things, and now we are staring at an energy shift. There are many geopolitical events that have affected our lives, the fall of the Soviet Union and the end of the Cold War, before that the two world wars and currently a nationalism movement and a push away from free trade. I believe we are in the middle of a brand new geopolitical event and probably some new technology as well, but before I start let’s be clear on one thing.

USA: the Only Superpower

The USA is the only superpower on this planet and no individual nation can come close to dislodging them. This is fact. They have a superior military by far and control all of the oceans and seas. They control 25% of the planet’s GDP and they hold the reserve currency, as 60% of all transactions are done in USD. The USA is self-sufficient in energy, in fact, if not the largest producer of oil and gas in the world it is neck and neck with Russia. And none of these conditions are about to change anytime soon.

This is terrifying to many other countries and disconcerting to others. It is the reason that the US is seen as an aggressor and opportunistic, bullying others into situations they don’t want to be in. Trump has leaped to the top of the hill, king of the bully’s and is playing the role to a T. The world is appalled at his blatant lack of social skills and overbearing rhetoric but not at all surprised at his focus: the United States of America. Americans are bullies and that’s just a well-known fact. But is it true? Is bullying just built into America’s DNA or is there something else that forces this to happen. It is true, America has pushed its might around! But what would happen if the US was to become passive, lay back and bask in the sun?  Take an extended vacation? Perhaps not show up for the next few NATO meetings? Take a few months off work to reflect on their position?  Have a midlife crisis?  Do a 180?

Hmmm, I have an idea but it would be fun to speculate over a few beers. It might make a great board game: America takes a vacation. Within a few years, definitely less than a decade, I think someone or several someones would fill the gap. Russia and China would not just take a nap or crawl back into their own sandboxes and become content playing with their own toys. History is full of wars caused by ambitious dictators and geopolitical imperatives long before the United States of America was even dreamt of.

The US has trading partners in every corner of the world, and because they have been so successful at trade they have developed a navy and military to protect this trade. As we look at the history of the conflicts of the world we see that most if not all major wars are due to nations trying to protect or project their economies. As their economies grow their power expands, the need to protect that expansion builds military power and military power allows nations to have influence over others. Sometimes it is direct conflict but often it is protection from rivals or economic aid in trade for setting up a strategic military alliance. Powers ebb and flow.  The superpower of the day uses its influences to grow its economic power that can be used to build military might. Mighty powers like the Romans and the Ottoman Empire grew strong, eventually went too far and were beaten back for numerous reasons. Sooner or later all superpowers mature and fall victim to their own bureaucracy. The US is nowhere close to this stage in its evolution. It has many years yet of being the boisterous immature brat that it ostensibly is.  But again, if not the US then it must be someone else.

Power corrupts and Absolute Power Corrupts Absolutely

If I have learned anything, it is that people everywhere are the same. Power corrupts and absolute power corrupts absolutely, as the saying goes. I don’t care if you’re Chinese, Japanese, Russian, American, Canadian, Pakistani, Indian, Native American or Jewish. Also if you stake out a territory you will defend the territory almost to oblivion, especially if you can send others to do the fighting like we see in the proxy wars of the Middle East. And you will defend the interests that are profitable to your existence the same way. This is the human way and it is what we have seen in almost every culture and society in recorded history. I don’t like it but it is reality.

The study of geopolitics tell us that geography is the defining factor in how a country must protect its interests and how its’ political system will likely develop to make the most of its advantages and safeguard its disadvantages.

Russia and China Revealed

Russia is a great example of this. A land locked nation with very little year round access to the trade routes of the oceans, it must rely on its ingenuity and might to see to its well-being. The reason for holding dearly onto the Crimea of the Ukraine–once the Crimea of the USSR–is to illustrate power and keep some access to the Black Sea.  In days gone by when its power was at its peak it conquered surrounding territories as buffers to its central core–mother Russia–most recently creating one of the most powerful nations on earth, the Union of Soviet Socialist Republics, USSR, or Soviet  Union. Today the Russian economy is in tatters and their power to influence through might and prosperity is merely a shadow of those glorious days since the First World War. Russians are a proud people, strong of will. They have had to be to survive in a northern territory surrounded by hostiles both in the form of other nations and the environment. They need a strong central government with a stronger leader and Vladimir Putin has emerged as that leader. Putin knows that he has to keep the Russian image alive so he is projecting as much outward strength as he can: backing the Syrians, confronting the USA, holding steady in central Asia and trying to project superiority by election meddling and other seemingly technological accomplishments. Other appearances of power have come from the recent pronouncement by Putin that Russia has supersonic missiles that are so fast and accurate that they are unstoppable using conventional anti-missile defensive systems. Supersonic and the next evolution hypersonic missiles, are the future and are likely here already in some forms, but whether Russia is leading in this technology would be unlikely. Even if they were they are not the ultimate weapon Putin would like you to think they are.

China is appearing as the next great super power on the horizon and its development has been nothing but spectacular. The US is threatened only by China’s ambitions. China is the second largest economy in the world commanding about 15% of the world’s economy according to IMF numbers. It would be third if we counted the EU as one country but we don’t, it is merely a brief experiment in history.

China has big ambitions but it has huge geographical limitations with the Himalayas on one side, the jungles to the south, and vast Mongolia and Russia to the north. Japan, Taiwan and the Philippines, who are all more or less American allies, sit right in the middle of its ocean trade routes. China is trying to project its economic influence through its one-road-one-belt initiative, building infrastructure, and throwing dollars around in countries it needs to fulfill its ambitious trade plan. China knows that the US can cut off its trade routes with its naval might so it is building its own fleet in response, but it is decades away from being able to influence the US at sea. An overland route is an ambitious but intelligent alternative in the meantime. Taiwan is a major concern as it is very strategic and has always been a negotiating point for China and the US but this is changing as the US has decided to move from the Nixon-era position of not recognizing Taiwan as a separate nation. This will get interesting.

China is however at a turning point in their economic growth, riddled with economic rot from its artificially induced forced growth spurt. This rot is systemic and has been spread through corruption and debt-fueled bubbles and overbuilding of industries and infrastructure. China seems to be nearing a crisis point and the recent political developments have only added fuel to this assumption. At the recent National People’s Congress, Xi Jinping received the honor of having his leadership granted indefinitely. Since he became leader, Xi has been purging his enemy’s and inserting his allies. He has now solidified his position for as long as he is needed. Also during the congress many institutions and high level departments were purged of power, amalgamated and or eliminated. This was done to maintain Xi’s control, centralize power, reduce the chance of dissension and streamline policy effectiveness.

China the country, is made up of many smaller societies and cultures.  There is something like 290 languages in China. It is diverse and this has been a problem throughout history as China has seen many unions formed only to fall apart over time. Like we are seeing in the European Union, differences are always there and are built into cultural heritages and not easily forgotten or put aside.

The coastal areas of China are where the wealth is and it is has been the bane of many emperors throughout history to distribute this wealth amongst the many poor in the interior parts of China. This will likely be Xi’s biggest test as he must keep the poorer parts of China, and that is most of it, from rising against the rich. Wealth distribution is his only choice and this will likely cause some of the rich to lash out also, especially as we see growth slow. It is a fine line Xi walks, changing the economy to a sustainable one, feeding the poor and keeping the rich, well rich, or at least rich enough.

Xi’s grab for power, just like Putin’s display of power, is not because these men are power hungry monsters, though they may be.  It is simply that the times dictate the hierarchy that runs their respective political systems needs men like them to defend the country’s continuity from its own internal circumstances. Russia’s is one of weakness and an economic morass, and China’s is from its record-breaking growth experiment, ethnic diversity and uneven wealth distribution. If not Putin and Xi, then someone else would have been chosen and it would be men just like them.

US and China Trade War

In the mix we now we have Trump the immature president of an immature superpower who is locked in chains because his support is the small minority that can tolerate his blunt bullying. Others who he needs to enact his reforms and ambitions on are either too afraid to back his policies because of his brashness, or are truly dead set against them. I stand by my words that this man, The Donald, if remembered for nothing else, will be known as the President that defined the lines that separate all of the tensions in American society. Hopefully they will take a long look at those divisions once he is gone and work to repair them. They likely will have no choice.

Currently the US is threatening China with $50 to 60 billion in trade sanctions and of course China is threatening back. I have said in earlier letters that one day the world would start to hold China accountable for its trade and incentive practices and this adds more urgency to the reforms they are initiating along with the necessity of a powerful leader to enforce them. US sends about $115 billion worth of exports to China and China sends about $480 billion to the US. Trump is right when he says a trade war is easy to win, but it would not be without its consequences. My best guess about this is: look for US sanctions to become more of a way to force China in line with the rest of the world than a trade war. (I hope.)

Canada Asleep at the Wheel

In our own back yard we see our socialist governments more worried about environmental issues than economic, mostly because we have missed and are oblivious to the warnings of the 2008 financial crisis. The IMF recently identified Canada as one of three countries that are most likely to have a banking crisis. At the moment votes are all that matters as our economy hums along, even as oil hovers around lows not seen for 20 years. The elite class is focused on how we can further reduce our energy consumption–less than 2% of the world’s—and thus save the planet. A pipe dream of the wrong kind.

Crisis Brewing

China is going to have some kind of crisis, in what form who can say but the Chinese are preparing for this, there is no doubt. The US in initiating a trade war and are due for a recession. And Russia will continue to make headlines meddling in everyone’s affairs, even if they can’t do much else. These are all items that will impact our economies, if and when they happen, while our Canadian governments have their collective heads in the clouds dreaming of pot, tax increases and solar power in a country that has no light for 6 months of the year. I think all of this is going to bring about some kind of change. It may not be anything we see in a specific event but as these things play out we will need to adapt in some way.

Opportunities in Change

The earth is an enclosed system there is no doubt we are having an effect. Whether you believe in carbon as the cause of climate change or not, the trend is towards a healthier planet and that’s a good approach. Look for NDT opportunities in change. Outside of our petrochemical industry, in alternate energies and environmental initiatives, there will be a growing need for specialized NDT…because we do need to clean up our act.

IR Adds People, Products and Training

That last sentence is a nice segue back to IR and all of the new events we have been undertaking over the last several months. Right off the top is the addition of Heather Addley to our business development team. As most of you will know, Heather has been in the NDT business for as long as many of us can remember. She has run her own successful businesses and managed successful business for others. Her addition to IR will provide us more strength in our UT department and in mag and die. Her management experience and mentoring skills will add immensely to the growth of our younger staff members. We are very pleased that Heather chose to come to IR as we knew she had many other options.

Also new to IR is Barb Daley. She comes to us as our Marketing Manager, a new position for IR and one that we have desperately needed.  Barb has many years of marketing behind her.  It will be a lot of fun seeing how she works with what has been achieved so far through a tremendous effort by our staff, despite two old pipe-liners who started this company. From the looks of what she has done in very short order, I feel we have found the right person indeed.

Also added this year is Jacob in calibrations, whose background is theoretical physics and electronics, and Sharel who adds her constant smile and valuable experience to our accounts department.

IR has also been quietly developing our technical side with our Warranty, Installation and Repair Center, (the WIRC shop).  Our technicians have been relentlessly pursuing manufacturers training and our list of products that we are authorised by the manufacturers to repair and/or calibrate is growing by leaps and bounds. Our goals have always been to repair, service and install in-house all of the products we offer to our clients, and we still continue to strive for this goal.

One of the problems attaining our goal of service and repair of products we sell is that we keep on bringing in more products. This year we have added flawed specimens from Sonaspection and reference tools from PH Tool, both very high quality manufacturers.  We have also added thickness gauges, as well as handheld LIBS carbon analyzer and XRF analyzer, both by SciAps. The latter two you have to see to believe.

And that’s not all, we are working on more, more products from outside vendors but also we have new Exposure Products. IR has commissioned Armorlite to build an Exposure exclusive NDT lab we call the Freedom Series. They will be totally self-contained with no hookups, no truck installations, and no through the box bolt downs. They will sport many other benefits as well and will include Exposure’s brand new processing tank design that has been several years in development. Our tank trials are over and they are now being offered for sale and are as leak proof as is possible in the environments we work in, garnering impressive reviews from those who are using them now.

Well this is all I have for now, perhaps it is a little long but it’s been awhile and I think we can see clearly now the great, the wannabe, and the waning powers of the earth and their imperatives. China to keep on increasing its influence while maintaining social stability in a growing and maturing economy. Russia needs to look like it is still a mighty force to keep its proud people from questioning its economic disparity as it fades far from its former self, and the US, a still growing, bullying, adolescent superpower that’s far-reaching tentacles will continue to meddle wherever its interests lie. All of them have potential crises on their horizons that could disturb our quite slumber here in Canada. I’ll be keeping an eye on how things develop and be in touch in a few months.

Cheers!

Brian Sargent

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September 2017 Newsletter

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“There will come a time when it isn’t ‘they’re spying on me through my phone anymore. Eventually, it will be ‘My phone is spying on me’.”
― Philip K. Dick

“I know there’s a proverb which says ‘To err is human,’ but a human error is nothing to what a computer can do if it tries.”
― Agatha ChristieHallowe’en Party

All of the biggest technological inventions created by man – the airplane, the automobile, and the computer – says little about his intelligence, but speaks volumes about his laziness.
― Mark Kennedy

 

Contents

  1. IR and Technology
  2. Smoldering Fires and Tax Reform (Just an Opinion)
  3. A World in Turmoil
  4. Interest Rates and the Canadian Dollar Mean An Early Christmas for IR Clients
  5. Tennessee, Memphis and Nashville

IR and Technology

As most of you know, we have been working to automate a number of the processes at IR. Our filling system has been redesigned and standardized, and we have an accounting and inventory system of some significance. We have also implemented a work flow system that will auto-generate certificates. It draws from a data base, which means that mistakes caused from entry errors are almost nonexistent.

Technology does, however, cause its own problems. Our database system has been overwhelmed by the volume of data we have accumulated over the last year and a half. This has slowed the process and is extremely frustrating. Never a quitter and always looking for the best way (see Mark Kennedy’s quote here), we have invested in the development of a new platform. This platform is meant to to handle all of our needs and increase speed and carrying capacity to the point of it “never being a problem again” (I’m rolling my eyes).

We are very happy with the workflow and its advantages, so much so that we are going to add it to most (if not all) departments at IR. Our own experiences will be used to create many more advantages for our clients. We hope to share these advantages with you in the very near future. I guarantee you what we have planned will be nothing short of amazing.

 

Smoldering Fires and Tax Reform (Just an opinion)

Over the last several years, there has been a smoldering fire that is slowly spreading. It’s being debated at work and in lunch rooms. It’s being debated around the after-hour sociables at local taverns, and at dinner tables. It is part of a larger wildfire that has spread to developing and developed countries alike all around the globe. In some places, it has erupted into infernos that have changed political landscapes. In others it just waits, creeping through the underbrush.

Here in Canada, it has sprung up as a political change; social issues that have trended into the forefront of our political system. This movement has been called several things, such as fascism and communism. In reality, it is none of those things. However, it is a significant shift and it is happening everywhere.

Most recently, our own smoldering burn pile has flared up in the form of tax reform. Our finance minister has decided to close some small business “loop holes” that have been seen by some as unfair advantages for small business owners. This flash flare-up could ignite a full scale blow-up and may spark a significant change. This change could cause even greater polarization of our social and political ideals for some time to come.

The threat is that even small business owners will fall into the category of “abusers of the system;” That they are looked upon as part of the problems perpetrated by the “one percent”.

Small business owners are the backbone of our democratic economies. They invest in our communities; they are the trees that make up the substance in our economic forest. The Amazons and Apples of the world are the giant sequoias, important in their own majesty, creating micro-economies and projecting national and global influence as they eat up the forest floor around them. However, the average business is what the forest ecosystem revolves around. It’s where the sequoias sprang from and it is where they get the nutrients and intellectual resources needed to sustain them.

Large corporations are the worst innovators. It is small businesses that take the risk in developing new ways. It is small businesses that transform these new ways into viable business opportunities. The large corporations feed off of these new start-ups. It is here where they add to their own growth through acquisitions and mergers.

I’d like to make it perfectly clear: the tax items being debated right now are not loop holes. They are intentional tax breaks to foster, protect and promote small business, including family farms. Much has been written about the effects of Bill Morneau and the Justin Trudeau liberal tax plans, good and bad. However, the very health of our social and economic system in Canada is what is at stake.

It is very apparent that the tax system is out of date and in need of reform. The tax incentives right now may not be the best, but unless some other incentives are in place, the small business community will be stunted.

Under these new reforms, the forest may eventually turn into a barren landscape of a few towering old growth giants. Or, in the best case scenario, the forest will succumb to slow, rotting decay, dragging the Canadian economy along with it.

Politicians are shamelessly using every conceivable trick in the book to try and capture votes – without one thought to how this kind of sensationalism is promoting the trend towards protectionism (think Donald Trump here). No stone will be left upturned if it garners a vote. The notions of inequality and unfairness have been used in every campaign. Words like unfair, loop holes for the rich, the one percent and patronage are the keys in statements promoting distrust and even hate. We are better than this.

No one should ever underestimate the power and the importance of small business. They are the innovators of the good and the bad. They promote competition, keeping prices reasonable. The reason small business is such a high risk affair is because very few new ideas ever pan out. However, while they are in business, the small businesses often drive prices down and keep even the giants competitive. Sometimes, new ideas work out and that is when everyone takes notice; but it is the failures that help keep the rest honest.

Only the strong survive, and that is the way it should be. The law of the jungle. A new shoot springs up and the rest of the forest does little to encourage it. In fact, they often try to destroy it.

A new business must have customers, just like a sapling must have light; if it isn’t positioned properly it will wither and die. It is wrong to artificially support start-ups by clear cutting the forest, but some pruning here and there will help it flourish. Supporting the healthiest saplings will also eventually support the forest as a whole.

Small businesses need to be encouraged, and tax incentives are a great way to do this. I don’t necessarily support the current tax breaks. Sprinkling of incomes to family members was done to benefit family farms. It does nothing for the single entrepreneur. Passive corporate investment income, however, can and is being abused by some professional services, so let’s change that instead.

However, we must be sure to have something to replace the policies with before we just mow the forest floor. Let’s not use them to stir a fiery protectionist movement just for the sake of votes. It is not wrong to make money, in fact it is required.

The needs of business owners (from start up to retirement, income to profits, succession or sale) need to be looked at. A modern tax plan needs to be developed. But this is the way it used to be. Now, everything needs to have a line drawn – have someone to blame. Burning passions created bombastically over imaginary lines however, draw votes.

 

A World In Turmoil

We have been talking to friends and associates in BC, Houston, and now Florida, where wildfires and hurricanes are tragically real life events right out of a Hollywood horror movie. I can’t imagine the pain and anguish those affected must be going through.

An 8.1 quake in Mexico and another storm, Jose, brewing in the Atlantic have all got us wondering what we can do to help. All I can say is be careful: phishing scams are starting to pop up, so donate to well-known foundations and charities through equally well-known channels.

There are those who think that this type of environmental destruction creates future growth because of the jobs created to repair the damage. Unfortunately, the cost is ultimately high, and destroying your perfectly good infrastructure with the idea that rebuilding it is a boom to the economy is false. This could be the trigger that pushes the US into thatcyclical recession we have all been wondering about.

The weather is one thing, but it seems that Russia, China, the US, and Europe (among others) are all jockeying to maintain their relevance as well as protect or project their self-interests. A lot of pushing and shoving is going on. We need to keep abreast of the importance of these gyrations and especially how it affects commodities and the Canadian economy.

Interest Rates and the Canadian Dollar Means Early Christmas for IR Clients

Our central bank, the bank of Canada, has been steadily increasing interest rates. The economy is improving as GDP has risen beyond expectations, however, inflation has not. I am always amazed by the numbers we get related to GDP and unemployment. I have no explanation, just wonder.

For instance, before the fall of oil prices, we would advertise for a position and get 1 or 2 resumes. Seriously, 1 or 2. Now we advertise and we get somewhere between 500 and 800 resumes? Hmmm. Alberta is hovering at about 8% unemployment (it was 7 something before the oil crash) and the national average is about 6.5% (a point below what it was before the oil crash). Seems odd but what do I know?

I believe that interest rates are headed up to try and stop the overheated housing market, private borrowing, and subsequent indebtedness. We have reached 95% GDP public debt level, and private debt has increased year over year; it is now 165% of income. Mortgage debt is huge, but home equity loans may be even bigger. Poloz is hoping he can slowly defuse a ticking time bomb, but he may just be speeding up the inevitable.

The original idea was to lower savings rates by lowering the Central Bank rate. This was done in hopes that investment would flow out of savings accounts and into the economy. Well it worked, as savings rates are close to an all-time low- even in an aging baby boomer society.  Low interest rate policies have created housing bubbles and spending sprees because they made money almost free.

So the idea now is to slowly pull the drugs away from the drug addict and hope that they can handle the withdrawal. Anything is possible – I’d be prepared for any scenario. There’s liable to be a tipping point; the world is in one big experiment right now.

The one good thing coming out of this is that the Canadian currency is gaining against the USD, which is allowing IR to chop some prices as inventories roll over. You will begin to see some significant price decreases if you have not already. Word of caution: in our opinion, we do not think it will last. We feel the US dollar has perhaps fallen close to its bottom, so perhaps you should get, while the gett’in is good?

Under these new reforms, the forest may eventually turn into a barren landscape of a few towering old growth giants. Or, in the best case scenario, the forest will succumb to slow, rotting decay, dragging the Canadian economy along with it.

Politicians are shamelessly using every conceivable trick in the book to try and capture votes – without one thought to how this kind of sensationalism is promoting the trend towards protectionism (think Donald Trump here). No stone will be left upturned if it garners a vote. The notions of inequality and unfairness have been used in every campaign. Words like unfair, loop holes for the rich, the one percent and patronage are the keys in statements promoting distrust and even hate. We are better than this.

No one should ever underestimate the power and the importance of small business. They are the innovators of the good and the bad. They promote competition, keeping prices reasonable. The reason small business is such a high risk affair is because very few new ideas ever pan out. However, while they are in business, the small businesses often drive prices down and keep even the giants competitive. Sometimes, new ideas work out and that is when everyone takes notice; but it is the failures that help keep the rest honest.

Only the strong survive, and that is the way it should be. The law of the jungle. A new shoot springs up and the rest of the forest does little to encourage it. In fact, they often try to destroy it.

A new business must have customers, just like a sapling must have light; if it isn’t positioned properly it will wither and die. It is wrong to artificially support start-ups by clear cutting the forest, but some pruning here and there will help it flourish. Supporting the healthiest saplings will also eventually support the forest as a whole.

Small businesses need to be encouraged, and tax incentives are a great way to do this. I don’t necessarily support the current tax breaks. Sprinkling of incomes to family members was done to benefit family farms. It does nothing for the single entrepreneur. Passive corporate investment income, however, can and is being abused by some professional services, so let’s change that instead.

However, we must be sure to have something to replace the policies with before we just mow the forest floor. Let’s not use them to stir a fiery protectionist movement just for the sake of votes. It is not wrong to make money, in fact it is required.

The needs of business owners (from start up to retirement, income to profits, succession or sale) need to be looked at. A modern tax plan needs to be developed. But this is the way it used to be. Now, everything needs to have a line drawn – have someone to blame. Burning passions created bombastically over imaginary lines however, draw votes.

Tennessee, Nashville and Memphis

The end of October brings the Fall ANST conference and exhibition, and this year it is in Nashville, Tennessee. Almost religiously, a number of us attend the conference and we also often bring our wives. This year will not be the exception; in fact, the wives are insisting they come along and have decided a side trip to Memphis is in order.

A visit to Graceland and Beale Street is not an option, but a necessity. The trip has been planned the weekend before the ASNT conference. If you are interested in tagging along with us, drop me an e-mail at brian@irss.ca, and I will include you in our plans for accommodations and reservations.

We are not planning on many days in Memphis- just a day or two before we’re off to Nashville. It is likely we will take some form of group transport like a rental bus, limo, or van. It’s a 3 hour drive or so. We thought it might be fun to fly to Memphis and then drive to Nashville. The more the merrier.

I will close now with a last comment as this letter has gotten rather long. At IR, we record and investigate every comment made to us by you. It is how we improve. It has been estimated that only 20% of client problems are relayed back to the service provider. We do get very few but I know we are not perfect. Please, if you do have a comment let us know. We do take them seriously – and thanks again for your patronage. You can contact anyone at IR, but Jessica’s inbox (Jessica@irss.ca) is where they will end up.

And remember,
For the unknown there is NDT,
For NDT there is IR.

Cheers!
Brian Sargent

 

I think NDT, therefore, IR.

 

Our mailing address is:
8108 McIntyre Rd
Edmonton, AB
T6E 5C4
(780) 452-4761

Posted on

Brian’s Blog August 2017

Brian’s Blog

August 2017

Low oil price here to stay

Sadly our predictions for under $60.00 barrel oil for 2017 seems to be right on and perhaps a little optimistic. Never to worry, fracking and other new technologies has pushed the costs of recovering oil to new lows as well but our land locked position here in Canada is a problem and needs a quick remedy.

Even though commodity prices are tanking, or are still in the tank, the CAD seems to be rallying. As an old friend from my childhood would say “Hmmmmm, Expect that to change, I would”.

The Saud’s and the Russians are heading faster and faster down the path of civil discontent as oil prices are nowhere near a level to replenish there cash reserves and so pain is going to increase for those in charge.

It is interesting and worth a few moments to look at why we are in the oil slump that we are.

Drilling for shale oil costs less per project than conventional plays of years gone by. There are two general types of costs: capital costs and operating costs. Capital costs are the investment required to drill and complete the well and build the facilities onsite to manage it. Operating costs are the ongoing costs after the well has been drilled. These are measured either in dollar per thousand cubic feet or in dollar per barrel.

The total well cost – the entire amount of investment required to set up a new well, including land, permits, drilling and completion – varies by location but runs consistently in the low millions of dollars. A report by the EIA estimated that the average completion cost per well is around $5 million to $9 million, depending on the location of the deposits. Some companies, however, are able to drill and complete wells much more cheaply.

According to the EIA, drilling accounts for 30-40 percent of all capital costs. Completion costs, which include the actual fracking process, account for 55-70 percent. Facilities costs, which include erecting onsite buildings as well as road construction to transport oil away from the site, account for 7-8 percent of well costs.

The same EIA report analyzed well completion costs across a number of companies and locations and determined that average costs, in terms of dollar per barrel of oil equivalent – an approximation of energy released by burning one barrel of oil – declined 7-22 percent from 2014 to 2015 and 25-30 percent from 2012 to 2015.

Importantly, some wells are drilled but not completed when funds dry up or when oil prices dictate that the well is no longer economically viable for the time being. In this scenario, the oil driller has effectively used the low permeability of the sedimentary layer to store oil until it’s ready to frack the deposits.

Once the oil starts to flow, operating costs tend to vary. Gathering, processing and transporting can range from $2.25 to $5 per barrel for oil or higher, depending on how far and the mode it needs to be transported by. Water disposal can range from $1 to $8 per barrel. Other general and administrative expenses range from $1 to $4 per barrel.

New drilling techniques can expedite the completion process and thus drive costs down further. Several years ago, a new well might have taken 3-4 weeks to drill. Now it can take as few as 7-10 days. Not only does this cut down on the overall costs of producing a barrel of oil, it also gives producers flexibility to respond to higher prices and to expand their operations. In fact, now that so many shale plays are known to produce, exploration is less risky, so companies are more willing to operate there.

Since capital and operating costs are so varied, there is no single break-even price for shale oil. But if we average wells by location, we can get a sense of which prices generate profit and which do not.

Russia and Saudi Arabia can still produce oil cheaper than the US can, in the $10 to 15 dollar range. Their problem is that the Russians and Saudi’s are so dependent on oil to finance there economies that they literally need $100 oil to maintain the status quo.

US Recession

The US “IS” going to have a recession. It’s just anyone’s guess when that happens. Statistically it is due anytime. The US Federal Reserve is gently upping interest rates to have some dry powder available for when it does happen. It is however, the rest of the world that will suffer the most, as the US is self-sufficient in energy and is not nearly as dependant on others to drive its economy. It derives most of its GDP from its own consumption unlike many countries such as Germany and China.

ISIS

The Islamic State is looking more and more like it will fail in its bid to create a Caliphate in Syria. News of cholera and polio outbreaks are seen as a loss of control in their abilities to provide even basic services. It will now be of interest to see how ISIS regroups and where they pop up. Although before that there is still a bit of work to do routing them out of there strongholds. Now Israel, the US and Turkey will have to decide how they will deal with Assad and his band of terrorists. None of them wants a strong Syrian and Iranian alliance.

Protectionism

So there you have it, more of the same coming up. Growth is slow to non-existent and it is only growth that can increase the use of commodities. So the oil glut will remain until such time as production falls due to lack of revenues and any rise in revenues will result in a rise in production, a circle jerk if you will. The other way out is we somehow initiate growth, but the world is due to shrink in population in the near future so growth may be difficult. Our opinion is that even if we do see growth it may lack the longevity of past booms and will likely be spurred by India and North Africa and a few others. In any event we are a few years away from a demographic trend that will lead to any kind of recovery and nothing indicates that much else can change that. What will probably effect economies as much as anything in this stagnate climate is geopolitical issues arising from civil unrest and protectionism probably caused, at least in part, by the economic slowdown.

At Home

At home here, we are sitting on the boondoggle that is the North West Redwater Refinery that has blossomed from a 4 billion to an 8 or 9 billion dollar project. If this was a viable project in the first place industry would have built it, another reason why government should keep its nose out of business. The only profitable refineries are those that are built to serve the markets that surround them or those that are situated in a place that makes shipping easy like the gulf coast. Albertans will be paying for this for decades.

IR is beefing up its rental lines. Currently we are offering Sentinel 880, SCARPro Selenium 75 and 330 Cobalt 60 devices, Open Vision, Sonatest flaw detectors, Comet 300 Kev spot tubes, Vidar digitizers and we lease Armorlite RT labs. IR is now so much more than just a one stop shop for NDT products and services, and keep your eyes and ears open for other products and services soon to arrive like calibration of light meters, and x-ray tube repairs.

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Brian’s Blog July 2017

BRIAN’S BLOG

July 2017

Hello everyone!

It’s been awhile since I have sent out a letter but we have just wound up our open house event here at IR Edmonton and I wanted to thank everyone for the great turnout and support. It’s always great to see some old friends and make a few new ones.

Our open house was billed as “A Taste of New Orleans”. It was held in conjunction with our maintenance and source retrieval courses developed and run by QSA Global with Mike from the Houston office and Theo from the Baton Rouge office, as the instructors. Theo Ewing the maintenance instructor also brought his immense talents to the kitchen as he prepared his famous Jambalaya and Crawfish Étouffée and as promised it was the hit of the party and didn’t last long.

Mark Sermazeski with Cruelty Free Cartoons, mark@crueltyfreecartoons.com was with us again and as always he entertained like no one else can. Mark is warm, very social, humorous and a great caricature artist who is engaging the world with his exceptional talents. We were very thankful that he took the time out of his very busy schedule to come to our event (he had another event in Vancouver that same night).

Also in attendance was Rebecca Rudolf of Comet, Jeff Darby with Carestream NDT, Charles, (Buddy), Lehmann of QSA Global, and all the way from England James Denton and Steven Shepherd both with JME. Thanks guys and gals it was great having you and the technical information you provide to our clients is always a main highlight and one of the reasons these functions are always so successful.

James and Steven brought JME’s famed crawler, newly updated and redesigned, (I believe it’s the only crawler in the world that meets the RED Act) and their 6.5 MeV Betatrons for display. It is amazing how much power such a small generator can provide, the complete unit would fit in the trunk of most medium size cars. The new crawler incorporates X-ray and can also be converted to use an 880 exposure device as a Gamma crawler.

Rebecca was here to show off our new demo and rental tubes, The 300 KV EVO Smart tube, real beauties that will be ready to go very soon. These new tubes are rugged, and almost operate themselves.

Before I get on to other topics I want to thank our staff as well for all the hard work in preparing for this event, they take the time out of there busy days to help organize and then implement all the necessary arrangements and still put in a full day’s work. Thank you all, you are tremendous and make IR what it is.

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Brian’s Blog October 2016

BRIAN’S BLOG

October 2016

Jeffrey Gundlach of DoubleLine Capital said recently:

“Sell everything: the house, the kids, stocks, bonds, commodities
– everything looks overvalued.”

Jeffrey Gundlach, to be honest, hasn’t always been right. He predicted muni bonds to be a bad investment and their value to lose more than 20%. That was in 2011 and so far that hasn’t turned out as predicted, but in his defense, the markets have not been working in a predictable fashion either.

Jeffrey Gundlach is famous for TCW’s, Total Run Bond Fund and its 10 year finish in the top 2% of all bond funds. Which elevated him to oracle status and he has been orating ever since. He is often heard on CNBC, Bloomberg, and others. So could he be right this time? Is it time to “sell everything” and hide in the hills?

One way to get some insight on this is to look into what the “smart money” is doing vs what the “dumb money is doing. Smart money refers to those investors that more often than not get things (the trends right). They don’t always make tones of money but they usually are contrarian at the right times. These are the commercial investors, the guys whose companies depend on them being right. This might be airline investment advisor who buys fuel options at the right times, or another who hedges oil or sells their commodities while betting on future gains 12 months out.

The dumb money are those that continue into a trend until it ends and then try to get out, usually to late or hang on expecting things to turn around until the bottom. Once, at the bottom they often become so disillusioned that they bail only to see things begin to rise again. That’s me. We follow the heard right into the slaughterhouse.

According to one investment newsletter I receive it looks like Mr. Gundlach may be on to something. Apparently the smart money is at or close to record levels in shorting commodities, lumber, oil, stocks, and long bonds.

Even gold and silver are expected to fall according to smart money. They even short the USD, my favorite hedge for the last two years! And of course the Yen. Let’s look at what this may mean before we get all caught up and put the kids and dog in the garage sale.

So smart money is short commodities. If this is true and raw materials like iron, aluminum, copper etc. are about to fall some more, this would also mean that China will not be getting its mojo back anytime soon, US will continue to muddle along as is or fall into that overdue recession that has been eluding the cycle geeks. Shorts on lumber mean housing starts may be ready to turn down, and low expectations for oil would then just be a natural call. As economies would begin to stall even more than at the anemic pace we are seeing from the developed countries around the world. If we are to trust “smart money” then we must sell our gold and silver, the go to buy for gold bugs when crisis hits. I’m not surprised by this as gold and silver shot up just before the 2008 mortgage crisis but fell when stocks fell and the major crisis peaked. They have stayed down ever since until recently, as they have spiked up close to $1400.00 USD, Deja vu all over again?

The smart money is also close to record levels in short positions in the stock market. This is one market that has gained from central banker’s monetary policy in a big way. If bubbles always burst as some analysts contend, then this is one big bubble looking for a needle in the fiscal hay stack.

Japan has been rumored to be contemplating helicopter money, direct bond purchasing to provide monies for infrastructure, (they already have the best infrastructure in the world), or checks sent directly to the people as tax rebates or some other schemes. Shorting the Yen has been a favorite of some contrarians for many years but it has rarely paid off, a lot of money has been lost on this bet but it looks like a sure thing? Maybe, some day.

If all this comes to pass as smart money at the moment seems to be indicating then the USD could take a hit but my personal opinion on this is that the USD will continue to be in a better position than my home currency, it being commodities and export dependent in the eyes of the world.

So let’s summarize what has to happen-just for fun;

  1. The USD falls with the Yen as both counties fall into recession or stagnate further at a minimum
  2. China continues to slow putting deflationary pressures on commodities
  3. Japan’s helicopter money does not impress investors
  4. Oil continues to fall due to slowing world economies along with all commodities
  5. Housing starts falling, dragging economies and lumber prices with them
  6. The monetary policies of reserve banks becomes ineffective, the stock bubble bursts and gold and silver follow.

Hmmmm!  A lot has to happen for the smart money to win this one. There are things called Black Swans, one time or very seldom cataclysmic events, there are also unknown unknowns, the effects that something unknown produces that we couldn’t even conceive of, like mortgage derivatives in 2008. There is also the truism that the markets can stay irrational a lot longer that the average investor can stay solvent. You might not want to sell the kids right now but I’d have them dressed nice and if the dog isn’t behaving…well?

It’s impossible to tell how all of this will play out but through it all we have to put food on the table. At IR we are continually working to find you the best deals and give you the best service we can. We have recently launched our new ecommerce website loaded with prices so you can compare (if you want) but we are confident that what we offer goes beyond just price, it is people. People like Jenna, Pieter, CJ, Vanessa, Byron and Robbie, who know you, who you can trust to give you great service and advice or just bounce an idea off of. Our new website is a convenience for you, not a replacement for personal service, we still want you to call or come in and see us. We hope you like the new site and that you will give us your comments, likes or dislikes because it is for your benefit that we have spent countless hours putting it together.

So have a look, go to www.irss.ca and remember “For the Unknown there is NDT, for NDT there is IR”!

Cheers

Brian Sargent