The Derivative - Canadian Commodities and Building Business with Tim Pickering of Auspice Capital Advisors

Episode Date: September 3, 2020

In today’s episode we’re pushing the boundaries of traditional alternative investments and getting into oil trading, trend following, and taking risks (both in business & with your strategy) with Lead Portfolio Manager and CIO at Auspice Capital Advisors, Tim Pickering. From trading shell oil to striking out on his own – Tim’s expansive experience in the alts world is about as big as the Canadian Wilderness he hails from. Today we’re talking with Tim about Lewis and Clark, Tim’s background in oil, willingness to fail, commodity market benefits, Canadian oil production, what a product suite entails, providing alpha and diversification as a trend follower, Canadian beer, striking out on your own, discovering new (profitable) ventures, Calgary rodeos, oils negative àrally movements, strategy evolution, Chicago or Miami, and Lake Louise. Chapters: 00:00-01:27 = Intro 01:28-25:47 = TD, Shell, Enron to Two Men & a Dog 25:49-53:36 = Trend Following, Commodity Volatility & Aspects of Momentum 53:37-1:18:49 = Focusing in on Auspice 1:18:50-1:23:02 = Favorites Follow along with Tim on Twitter and LinkedIn and make sure to check out Auspice Capital Advisors. And last but not least, don't forget to subscribe to The Derivative, and follow us on Twitter, or LinkedIn, and Facebook, and sign-up for our blog digest. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Thanks for listening to The Derivative. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past or potential profits, and listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk

of substantial losses. As such, they are not suitable for all investors. Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. You know, we realized quite quickly that, you know, if you take a system that you trade in bonds, for example, or currencies that has a 6% volatility, and then you try to trade natural gas that not only has a, pick a number, 46% volatility, and it ranges from 20 to 120, and it can do that very quickly. All of a sudden, you realize there's some limitations to those traditional systems. All right. Hello, everyone. We're heading up into the Canadian wilderness today to talk

alts, oil, trend following, and more. You don't hear of too many hedge fund shops located in Canada, much less Calgary or Alberta, but we've got one of us today and Tim Pickering, founder, president and CIO of Auspice Capital, who returned to his roots and set up shop right there in Calgary away from the hustle and bustle of New York or London or Chicago. And Auspice does a lot of things, a lot of things well, and Tim looks at this industry and his own investment models in a quite unique way, in my opinion. So excited to dive in. Welcome, Tim.

Thank you for having me. Thanks for being here. So I mentioned Calgary in there in the intro a little bit, perhaps overly so. But you're actually today out of the city at your lake house, right? Where is that? We are in, yeah, I'm about three hours south west of Calgary in the East Kootenay region of British Columbia so right in the Canadian Rockies you go through Banff and Kootenay National Park and you pop out on the other side of the valley and and on a lake called Columbia Lake which is actually the headwater of the Columbia River that flows all the way to Astoria Oregon got it which is where Lewis and Clark eventually ended up in, right?

That's right. Missouri didn't work and they ported over to the Columbia. So to me, a Canadian lake's got to be freezing cold, but you were saying it's not actually warm. Yeah, we're in a very warm area. There are fruit trees around here. It's a very warm valley despite being in the Rockies. Lake warms up to 70, 80 degrees in the summer and a beautiful place to spend time. We've had a home here for roughly 20 years. And, you know, now with COVID and being remote, we've had the opportunity to spend quite a bit of time here this year that's awesome i i we were talking last year when i was up in glacier national park top of montana with my family and i was kicking around perhaps driving the extra few hours come up and visit you there

but i didn't so next time that's right well yeah if they ever open the border up montana's just hop skip and a jump about two hours south of me here. And not even two hours, but an hour and a half, I guess. And very easy to get down into that area. Beautiful part of the world. Know it very well. Agreed. Very beautiful. So tell us a little bit about Calgary and Alberta.

It's big egg and oil and all the rest, right? Cattle. Yeah. All of those things. I'm originally from a farming family out in the Canadian prairies east of Alberta in the province of Saskatchewan. Came to Calgary very young and went to university there. We are on the eastern side of the Rockies. Think of Denver, very similar. Big ag in the province, but probably the most noteworthy aspect of Alberta is we are the third largest oil reserve in the world by

sort of the classic measures. Many believe that if you- In the world. In the world. And my pitch has always been, if you, if you take any modern recovery techniques especially including the oil sands it is the largest oil reserve in the world by modern recovery. But you're on the, you're in the lesser opinion there. The lot of people agree with you in that, or that's your own. No, I think, I think factuallyually we can we can actually demonstrate that i think it's it's more that uh it's easier to talk about saudi arabia um it's easier to talk about obviously you know given the the size of the u.s

market now and the consumer market um canada just doesn't wave its flag overly aggressively. But it is a massive oil producing region, not without some controversy, as we've seen in the media over the years. But at the end of the day, Calgary is an oil town. Really? More so than the Stampede and everything it's known for? Well, that's part of the culture. I mean, you know, people come from all over the world to the Calgary Stampede. It's the largest, what they call, outdoor rodeo in the world. So there's some other very large rodeos. I lived in Houston, very large rodeo, Las Vegas, and different places.

But Calgary's a big one. It's definitely the destination for that culture unfortunately like many things it was cancelled this year for the first time in over 100 years so it's kind of a bit of a tragedy but you know economically you know between things like that and the downfall of the oil business and then just the general hurt from COVID that everybody's experiencing in the world. You know, it's kind of been, you know, almost like a triple whammy for the Alberta and Calgary area. That's too bad.

And so tell us a little bit of your background. You mentioned a few cities you'd lived in and how you ended up back there. Sure. Yep. Little background. Educated at University of Calgary, did an undergrad in finance and was pretty specific going into university. What I wanted to do, I wanted to be a trader. I had done a lot of research as a young kid about stocks predominantly. Didn't have really a broad view. Didn't come from a family with too much

background in it. My dad did introduce me to grain trading and grain futures when I was young. So I think that maybe stuck with me a bit. So you would actually hedge the family farm? Yeah, he was looking at it more of a, you know, I think hedging is a bit of a stretch. I think it was more somewhat speculative. What we call hedgelating, right? Yeah. That's a lot of the farmers do a lot of hedgelating. You know, and this area in terms of grain production, what Canada is known for, Canada is the largest producer of canola. So when I was, you know, when I was growing up, that was called rapeseed, and they flipped over to the canola name. But we are the largest producer of canola in the world. So the original Rapeseed contracts on the Winnipeg Exchange, which is now part of ICE, was a pretty big deal.

And so that kind of imprinted in me, I think, at a young age. Went on and did my undergrad, and, it was trying to figure out, you know, how do I get out of here and get on some sort of trading desk. And what happened was TD Bank, Toronto Dominion Bank, which is now very well known in the US, one of the big six Canadian banks. They had what they call the trading development program. They came to various schools recruiting for it. My particular business school really produced a lot of people that went into investment banking, management consulting, but really investment banking because of the energy business and how dominant it was. And, you know, I don't know if I was the only one that applied, but long story short, I got the job, moved to Toronto with TD Bank on the trading development program. You know, and it was one of those lucky opportunities in life. I was exposed at a very to a real widespread experience of capital markets. So the TD trading floor had fixed income, currencies, money markets,

basically everything except equities. And I've heard from other people, would they put you in a rotation where you'd get time at each? Yeah, that's right. So you do a rotation. We started in, I think it was late August of 1995, went through the rotation. And the hope after you go through all these different desks, and not all the desks, by the way, are trading. Some would be on the sales side of that desk, but they give you a balanced experience.

And really, they're looking to see what your aptitude is. And honestly, you're mostly trying to figure out what your own aptitude is. I was one of the only undergrads admitted into the program that year. There was 20 some people. And honestly, I'll probably never forget it. The head of HR looked me in the eye and basically called me the wild card. They didn't have a lot of hope for me as an undergrad. They said it was a very rigorous program. And, you know, was I going to last? Many of the other people on the program had CFA's, had graduate degrees, had other job experience already very sophisticated you know from Toronto a lot of them you know I was the kid from Calgary wearing cowboy boots who you know I'd heard of sushi but I'd never ate a sushi and you know so it was it was a really mind-opening experience nonetheless went through the rotation and I was actually offered a trading job on the money market desk, trading BAs with bankers acceptance, short term of the curve and getting offered a trading job of all the,

all the people involved is, is the big win. Like if you get a trading job as opposed to a sales job, you know, you kind of, you kind of did what you'd hope to do. And so I was offered the money market trading job and I accepted that. A couple of days later, the head of trading came yelling my name across the trading floor. I mean, you know, again, very large bank trading for hundreds of people told me to get in his office. And I was scared whether I was getting fired or not.

What'd you do? Well, it was Friday. So I don't know, maybe I don't even remember what I did on Thursday night, but you know, get into his office. And he said that they had lost their commodity trader. And they needed somebody to, to be on the commodity desk, which was part of what they called the customized solutions group. So basically proprietary trading. And would I be interested in trading commodities and specifically trading energies? In your first week? No. So this was after the rotation. So I was already-

I mean, your first week of the trader, John. Sorry. No. So I'd gone through the whole rotation. I'd gone through the whole rotation through all the different areas. Now it was like, it was job time. Yeah. And I hadn't even started on the job that I'd accepted. Oh, the bankers. Yeah. Yeah. I hadn't started the money market job and, and he came along and said, you know, do you,

do you want to join this team and you'd be primarily focused on energy derivatives and you know, what do you know about oil and gas? You're the kid from Calgary. And you know, I, I just straight up, I said, you know, not much, but you know, I can tell you how I look at markets and how I, I, you know, I'm developing as a trader. It's a, it's a purely discipline based risk one to make three type philosophy and based on risk management and capital allocation and an emotional type of approach. And he basically said, you know, that's the right answer because last thing we need is some rogue trader blowing up this conservative Canadian bank.

Because the rest of the bank's risking 30 to make one. Yeah. So it was a great opportunity. So I ended up taking that job and not the money market job. And in a way, the rest is kind of history. It kind of gave me an incredible opportunity after forming this base of risk management discipline to be exposed to commodities and energies. And if you speak specifically to energies, you know, natural gas, crude oil was already been around a long time from a trading perspective. Natural gas was the Bitcoin of the time. Yeah. Very sexy to trade,

very volatile. And so from a trading perspective, you know, it really was an exciting area to really launch my career. And yeah, I mean, we've written some was known as the Widowmaker back then, right? Lots of stories. So then you parlayed that into a and then Shell, what they called Shell Trading Division approached me to come and focus on option trading, primarily natural gas, again, because it was the volatile market, but all energies and come and trade options for them again, primarily from a proprietary market making perspective. So I reported to a Houston based team,

but I ended up moving back to Calgary, which was kind of not the plan. I didn't, wasn't really looking to get back to Calgary that quick. But it was again, an incredible opportunity to went back to Calgary, trade for Shell. You know, and the opportunity really with Shell was trading the energy markets now with this sort of disciplined base that I had and trading it in size. And is that, are they trading around their own book or was it like you have a budget and trade within this budget and if the money you make is good? It's a great question. So what they did was the E&P side or the exploration and production side of, of Shell, like, like many oil companies, that that's a separate business. What they did was they split out a trading and marketing business.

And so the idea is to market energy, not only for that, for Shell, but many of these smaller producers that don't have a trading and marketing division. Right. And marketing for anyone who doesn't know in the ag and oil space means basically selling the producer's crop or storage. Production. Yep. That's right. And so in that case, that's what the entity is set up to do. For what I was hired to do was basically to trade the energy markets, but I didn't have clients. There was nothing really I was providing. There was a little bit of hedging business that we would go after for the other producers, but it really wasn't the focus. The focus was purely proprietary trading and trading Shell's capital. I didn't have, you know, in the sense that I wasn't a physical trader, so I didn't have a storage optionality to it. I had to go create my own optionality with calls and puts. So a lot of that was OTC, some of it obviously on exchange, but we were purely prop traders looking to provide non-correlated returns to the Shell energy trading business. And you weren't just reading charts and coming up with discretionary trades, you started, I really developed two core paths coming out of TD that then developed further at Shell and that was trading an option portfolio and primarily being a market maker around optionality in the energy space.

And then developing systems to, you know, really at the end of the day follow trends in the marketplace. And that started when I was at TD. to really, at the end of the day, follow trends in the marketplace. And that started when I was at TD. There were other people that used systematic trading at TD, but they did it in the financial markets. And so when I joined the team there at TD, it was an opportunity for them and for myself to explore doing that with these volatile energies. And that really proved to be the, you know, the formation of

everything we've done that became Auspice because, you know, we realized quite quickly that, you know, if you take a system that you trade in bonds, for example, or currencies that has a 6% volatility, and then you try to trade natural gas that not only has a pick a number 46 percent volatility and it ranges from from 20 to 120 and it can do that very quickly all of a sudden you know you realize there's some limitations to those traditional systems and so my original work at TD that was then expanded at Shell was developing systems and strategies that could adapt for for lack of a better term, to the volatility regime shifts of the energy markets. And you're not, you weren't a quant, you didn't have a programming background. So how did you bridge that gap?

Were you handwriting? Yeah, so you're right. I'm not a quant. I'm a finance guy. So, you know, you learn to program it. You know, you've got a certain capability. The next step for me was getting, you know, getting out of spreadsheets and getting to real programming. Well, that was some applications and tools like TradeStation, you know, at the outset but but the real shift for me personally and this is where you know kind of the dawn of auspice was in the fall of 2000 so i'd been at at shell for roughly a year

i hired ken corner who has now been my my business partner or trading partner for pushing 20 years. He was an engineer. He'd been with one of the big utilities in the hedging side. He understood it. And what he was brought on to do is give us quantitative horsepower. You know, I was the experienced sort of trader at that point and had done these things with the bank and Michelle, but was limited in terms of the quantitative side. So I brought Ken on. And, you know, again, it's kind of like the rest is history. We've been now pretty much together for 20 years. Yeah, so we buried the lead a little bit.

So take us from you decided to leave the cushy corporate world and maybe it wasn't so cushy because you had a P&L, right? But what was that decision like to say, I'm going to go strike it on my own? Well, the first step was I moved down to Houston. I became VP of trading with Shell in 2002. So this is kind of post energy merchant meltdown, the Dynagys and the Enrons. Went down to Houston. And, you know, once you hit VP of trading, there was a lot more that was about

politics and all the rest versus running your proprietary trading desk. And you had a lot of people reporting to you. And that was fine for a while. But it always nagged at me that, you know, here I went to business school, but could I really run a business? And that was kind of the driver. It wasn't so much, you know, I got to step out on my own, but it was, could I run a business and could we develop something different than just, you know, here's our one trick pony strategy, so to speak. So we just, you know, I came back to Calgary and, you know, at this point, you know, kid number two is on the way and said, if I don't, if I don't do it now, I probably never will. And just just kind of went for it. In 2005, took the year to figure it out and how we were going to go about this and, and had the good fortune of a actually a neighbor that is literally across the street from me here at our lake house, um, offered to be my first investor. He was a successful oilman. And, um, and, and, you know, gave us some office space and it started very simply two men and a dog.

Yeah. And the dog. Yeah. Uh, going back for a second, you mentioned something interesting if, if so when you were trading with shell, were you going trading with and against Enron and those guys? Absolutely. So give us a little, what was that, crazy times? Give us some stories on the Enron, how they were approaching the markets and whether it was cool or scary or what?

You know, I guess cool more than scary. I mean, they were a very large entity. They were embracing technology. If you remember they created what was called Enron online. So this is one of the first trading platforms where you could actually trade instead of picking up the phone and talking to an inter dealer broker, an OTC broker. And at that time, you know, ice, the intercontinental exchange was still in its infancy.

And Enron online was kind of the place to trade. Enron was trading everything and they were trading it big. And we had people that had left our shop and had friends from school that ended up going to Enron. And the peculiar thing to me was always, how is it that every trader I know at enron how is it that they're all making the most money yeah right couldn't quite figure it out and and i i kind of have a philosophy in life you're saying like they were all successful equally when in a normal trading shop you're gonna have one huge right a normal guy one loser yeah and so to me you know even just philosophically in life if it's ever too good to be true, it probably is.

And it sends up red flags for me. And so Enron sent up a bunch of red flags for me. It didn't mean you didn't trade with them. In fact, you know, Shell had like every, everybody had significant exposure with Enron. It would be quite difficult at that time to, to not. But yeah, they were a big shop and somebody you traded against, they had a lot of might.

I took a, you know, again, I came out of a very conservative philosophy in terms of money management coming out of the TD Trading Development Program. You know, I wasn't a big bat swinger. You know, it was about controlled risk and discipline and creating rigor around what we were doing and a lot of rules based stuff. And yeah, they were just another counterpart you could trade with. All right. I wanted some better story that they hung you on a 10 million lot or something like that. We'll take it what i will tell you is that when when enron

went down um one of the roles that i filled um and it was just before i moved to texas because it was the fall of 2001 um that to 9-11 it just happened as you know and and uh when enron collapsed one of the roles i was offered or given to take on was unwinding the positions with Enron. So obviously, you know, under ISDA, the International Swap Dealers Association rules, you could unwind things, but you had to follow certain protocols. And I was given that role to basically unwind a large portion of the shell exposure to Enron and follow this protocol. So they basically set up a separate. They were in essence bankrupt and the counterparty was gone, but there were still assets there. Correct. So you had to go through a process.

They set up a mini trading desk and put a lawyer beside me and you had to follow certain protocols. And net net shell came out positive but uh you know again it was a crazy time and most of the stories that i could tell you about enron and the people aren't probably appropriate for this podcast oh for sure um the my favorite story of all that the uh when amaranth went bust and citadel had pre right they agreed to buy their book, but before they signed, they had already offset all the positions. So they just, as soon as they signed, they made a billion dollars on the, on the,

on the shuffle. Yeah. On the shuffle. And, and yeah, I mean, there was, there was a lot of that going on at that time. I mean, because again, it wasn't just Enron, Dynagy went after Enron and then they went down. So, I mean, it was, it was a real mess having said all of that, you know, you got to remember the timeframe, 9-11 had just happened. Great tragedy, enormous volatility. Then you had the merchant energy meltdown within months. The volatility in the marketplace was enormous and that created enormous opportunities. Okay.

So let's pivot. You're talking about the models a little bit. Let's get into your, what you guys, your main strategies at Auspice, some of the other stuff you've been doing with Auspice from the strategy standpoint. Sure. Have you do the elevator pitch then we can. Yeah. I mean, at the core, we are, you know, we are a, we're a CTA. We are a trend follower philosophically. I'll preface that by saying when I left TD and even when I left shell, really being a CTA didn't mean a darn thing to

me yeah we were a quantitative trader we used futures we used over-the-counter derivatives we were very rules-based and getting more and more rules-based in our decision processes but being a CTA really didn't mean too much I read a little bit about some famous CTAs, but I didn't identify as one. Yeah, I was going to ask that earlier. If when you were coming up with these rules and models, were you aware of John Henry and Winton

and what they were doing, or you would kind of come to your own conclusions? Really come to our own conclusions. I mean, sources we were using were quantitative trading related, but unrelated to the CTA proper space for sure. Yeah. You know, as I said, I'd read about the Turtles and Jerry Parker at some point along this journey. But, you know, again, I never really identified with it. When I made the decision to go off on my own and Ken joined me, you know, it was really let's take our skill set and what we've done with the institutions. And let's really expand it beyond our focus in specifically energies and commodities but you know again with a heavyweight to energies because what we discovered in our testing and and our analysis was that the discipline we were

putting around trading in the energy space was every bit as valid in other markets yeah we were trading the thing that was most volatile and that was really even td's philosophy is like look if you're going to trade the energy markets which which is great, you better be disciplined. Right. So if you can figure out natural gas, Euro dollars is a walk in the park. This was the philosophy. And so we started testing, you know, other markets. Shell wasn't interested in participating in those other markets. It was it was very focused. You know, and at the end of the day, we decided, you know, let's go hang our shingle.

As I said I had a neighbor here at our lake house that had encouraged me to do so and said he'd be kind of client one and introduced me to client two and and they would introduce me to a high net worth group that would kind of be the start and you know that that's how it started we started with the philosophy of of a single product which is what we call Auspice Diversified. So it even started much simpler. It was a single CTA strategy really based on, we just used what we'd been using at Shell, but just more markets, diversify, all the commodities and financials. Um,

one of the differences being with a heavier commodity waiting than a lot of our peers, if you will, or what we now believe are our peers. Yeah. And for sure these days, that's one of the parts that sets you apart, but that was in the DNA way back from the beginning, right? From the beginning, the beginning. The commodity background, we were very comfortable with it. It's the same explanation I give clients and prospects all the time

and people we're talking to in general is that if you want real diversification, you want to create non-correlated returns and you want to create crisis alpha, you want positive skew divergent returns, the commodity markets provide you that, especially if you're agnostic in terms of direction. So it's always been a commodity tilt for us. I would argue the other side of that, that a lot of guys designed their models and came up with, hey, we're going to be overweight bonds and some things that test a little better on a trend following model, right? A lot of these commodities don't test well at all,

which when you mentioned Jerry Parker, when we had him on the pot, he's like, yeah, but you've got to keep them in there because you never know when that next outlier happens. That's exactly right. And he talked about palladium, for example. So it seems like you're saying it's as much philosophy as it is the testing. Yep. No, for sure. I mean, look, lots of things test. Well, I did some work for a client the other day who wanted sort of this basket portfolio put together and, you know,

with this weighting and fixed income and use this benchmark index. Well, sure. That, that looks great. I think it had a eight point something percent annualized return for the last, you know, 20, 20 years. You're not going to get 8% annualized out of, out of fixed income for the next 20 years. And mathematically not going to happen. And my dad's favorite line that he's told me is you, nobody ever lost money on a spreadsheet. Yeah, that's right. You're doing that test. Of course, you're going to come up with a good number. Yeah, there's no bad back test. But, you know, again, everybody will give you the pitch. I mean, you take it, we try to take a very disciplined

approach to back tests and what we learn out of it. But commodities have always been been part of that. And for the simple reason is, you know, the diversification within the commodity landscape is so massive, the diversification even within subsectors like grains or energies is massive, natural gas and crude oil are not the same thing. And, and so, you know, there was just no doubt about it, we were going to stay tilted towards commodities. And, and, you know, and there's, there's a other side to that, you know, that, that knife edge and that is, you know, commodities have been a tough place to be for the last decade, first decade of my career, they were, they were the place to be, you know, post.com till 2010, 2011. And in the last 10 years has been very tough, not just from a trend perspective,

they've been quiet in general. Yeah. It lacked volatility in general. It's a generalization, but it's been a tough place to be. And we've stayed generally commodity tilted. We've had ever a debate about changing the weightings. And then along comes late 2018 and strategies you know, strategies we had outperformed. And we can attribute that to commodity volatility. And, you know, here again in the beginning of 2020. Yeah.

And in 14, probably, with the crude move as well. Absolutely. Yeah. The volatility and, you know, I mean, you can go through all these different timeframes of sort of opportunity, if you will. But, you know, those are the timeframes. If you look at returns in 2014, CTAs did well. We did exceptionally well because of that commodity weighting and that opportunity that we have given ourselves, if you will. Now, again, you know's there's always a drawback

the drawback is that in in a year like 2019 um we underperformed and um you know it kind of gets you concerned like you know any any money manager and and we talk to our clients and and they say look you know we we just expect you to show We hope you show up at those key times. We really don't need your help in 2019 when the stock market's up 20%. Yeah, exactly. Lots of beta, yeah. So what is that weighting and what do you see as your peers' typical weighting? So it's 50-50 for you guys and other places it's 75-25 or do you have any idea? I mean, even, you know know looking at our deck on our

main fund here our long-standing fund Auspice Diversified as we left 2019 we had 71 percent commodity exposure versus financials. It's been you know I think more typical. That's based on on the positions that you were in or on like the actual weighting and the risk budget that you'll assign? If you look at it from a risk perspective, like we look at everything from a risk perspective and say, where's the risk? The risk is right now 70% commodity type thing. And I think a typical for us would be, you know, sort of 60% to two thirds, you know, definitely over 50%. But it can be even higher. We had periods this spring, when things started to move where we were, you know, we were high 80s. And then even, you know, as, as, as trends changed, back that off to, you know, again, sub 50. So,

so it's dynamic. And to be clear, it's not a forced, it's not a forced thing. You know, again, sub 50. So, so it's, it's dynamic and to be clear, it's not a forced, uh, it's not a forced thing. You know, we, we, we get on trends that are trending. I'm not, not getting on things that, that are mulling about. So, so if it's only currencies and fixed income trend trending, do you become 60, 40 that way? It's entirely possible. But what I'm saying is it's rare. Yeah. We don't force the budget, so to speak. But, you know, this is generally the way it's tilt. This is what we've set up to be the opportunity set.

And because that diversity exists in the commodity space, there's generally something trending. And so how are you achieving that? By having less financial markets in the portfolio uh well there's definitely less um but there's also just a you know less waiting sort of a less of an opportunity even if we had all the financials on um there's less of a weight and less of an opportunity for those for those and so that would be like i'm gonna risk one half of one percent on a commodity trade and a quarter of one percent on a financial strength yeah we the way we look at it is is we basically break the world down into seven sectors there's four commodity sectors energies metals

grains and softs and then you've got currencies equities and um bonds and fixed income. And so even if everything was on, you're four to equal weighting. Yeah. You're four sevenths of the risk to commodities. And I mean, that's kind of a little bit of a pie in the sky explanation, but it gives you an idea of the sort of the way we look at the budget. And then you don't have concerns on some of these soft markets that there's not enough liquidity or volume or things of that nature? We absolutely do have those concerns. And so, you know, part of our risk approach and capital allocation approach depends on the liquidity of that marketplace. So we do have filters that in certain markets, you can't trade coffee at the same level as you can trade Kugel.

Right. All right. So that's the main Diversify program. So that's been the same program since 05? at a whole, I mean, it has evolved. And what I, what I'd say in terms of the evolution of it is, is we've, it's become basically the melting pot of all of our strategies in general. So it, it's core is, is trend following strategies of various types. So it's, it's after trend, it's after momentum. Then within that, we do something that's kind of one of our newer strategies, if you will. It's been an auspice diversified, but we split it out. That's called auspice short term. And it's something we, you know, we developed out of that genesis, out of shell, where we're actually doing kind of the opposite of trend following.

We're actually trying to take advantage of when markets pivot from a trend up to a trend down. It's that transition. And so it captures these patterns and reversals, you know, at a time when trend following is going to falter, you know, trends good until it bends in the end. This strategy is intended to target the bend in the end. So that's like mean reversion? Well, look, there's definitely elements of mean reversion in it. What I would say in terms of sort of, you know, an explanation is it exploits, you know, it exploits the volatility using a mean reversion type aspect in a short-term momentum approach in a very tactical way. It's looking for this setup where there's been a momentum one way, that momentum has

ceased, and it looks like it's going to go the other way. And so we go the other way. We're looking for that reversion back um now that's on an hourly basis like what's the time for that momentum yeah so so we're looking at what was that momentum yesterday for example what did yesterday's action tell us and what is today doing is it doing something different and then if it sets up in a certain way it shows us the criteria that we're looking for then we'll we'll take that trade in that opposite direction so yesterday's momentum was up today's showing aspects of momentum the

other way we'll go short and then we buy back in that position by the end of the day it goes home flat every day and then when you and wasn't that only on the energies for a bit? That's correct. Yeah. And only really for the reason of that was our experience base. We had, we have a lot of data, tick data in the energy space going back forever.

And because of it, you know, like any other short-term strategy, execution is everything. Uh, it's got a capacity, um, whereas trend following doesn't really, um, you're, you're doing something in a very, uh, short timeframe. Um, yeah, we go home square and in the energy markets was where we cut our teeth. Yeah. And I'd argue, I don't know why,

you can tell us why, like that it's more apt, oil prices especially, it's more apt to kind of not push too far one way or the other, maybe because of all the commercials involved or what. A lot of different motivations. I mean, what I would say is in general,

we can all understand that the energy markets, you know, generic statement, but the energy markets operate at a higher volatility. And so if they're operating at a higher volatility, you've got more opportunities for this type of behavior. Right, right, right. And so that's a standalone program and part of the diversified. Correct. And in the diversified, it can kind of serve as a you're kind of lowering position levels at time if you're long energy and you see some of these short-term trades short you

can kind of flatten your exposure for a day or two in terms of the trend following exposure yeah they they operate in in you know they operate separately right what i'm saying as as a portfolio can have some offsetting at time. Absolutely. Characteristics. Absolutely. Yeah. Yeah.

That's, that's exactly right. And, you know, why does that philosophy or why, you know, why do we believe in it? Why, why do we think it works? You know, I think we kind of think of the markets having really three types of regimes. So, you know, this is how I describe it. You know, you've got markets that are trending. Great. You've got distinct long-term moves in a clear direction. There's all sorts of tools to capture that. Trend following is not up for debate here, at least not on this podcast. And then the next type of regime would be like a range bound market.

The trends occur on much smaller time scales within medium term ranges. That's where trend following generally performs poorly and tends to falter. It may get stopped out. This was a large part of the discussion you had with our friend Jerry. But short term can do very well in that sort of range bound market. Market's not really going very far. It's just stuck in a range. And that's where we were looking for something to offset the trend following aspect where

it's going to have a little trouble. So one's good for trend. One's good for the short term strategy. That's a nice offset. The toughest of the market is the one that's really hard for both. And that is you've got this directionless market. You've got trades within previous short-term ranges. Trend following really goes nowhere. And typically, this short-term reversal strategy can also struggle because you've got reversals in momentum that just don't go anywhere.

Imagine you had, in candlestick terms terms you had just dojis every day it goes one way it comes back it goes bottom it comes back and and that's a tough environment for anybody to trade so right and those the short term wouldn't capture those because there's no setup of the momentum they're very tough to do i mean that and that's really where the risk management layer comes in. So, you know, you get like anything, you got to give it room to, to make returns. You got to take some risk. But we're still running, we're still running stops so that, you know, you don't get just chopped right up. Yeah. And it feels,

it feels like that scenario has been prevalent for most of the last five years across financialss across different things for short term especially because some of the more famous short term have have not done so well that's right yeah and so you know when we look at the environment and you know people keep asking and it's not that it's it's uh it's going to change tomorrow but you know the energy markets even at times and we've gone through periods in the last five years, by the way, that the energy markets just tightened up and weren't going anywhere. We're in one of those spaces right now. But again, if it's got enough range bound activity, as opposed to just sideways chop, it's still an opportunity for us. And arguably, we've been in that type of a zone since crude dropped post-COVID and then

has been in this sort of $40 area through, call it May, June, July. That sort of back and forth range bound activity has been good for the short term strategy. Good. All right. So we got diversified, we got short-term, what anything else in the quiver? Yeah. Well, the one thing about Auspice is we're, we're a pretty busy shop. You know, what we intended to do was create a product street. So we sweet. So we started with a trend following approach that's continued to evolve.

We've got Auspice short-term. One of the areas we went into over a decade ago was creating some, what we call liquid alt strategies. So lower cost strategies that, that at the time our philosophy was to make available for ETFs and some retail vehicles. We were early being a decade ago, it seemed, you know, managed futures ETFs and that type of thing, you know, haven't haven't really been all that embraced. What came out of it for us with these what we call liquid alt strategies. So we've got two ones called managed the managed

futures index, one's called broad commodity. Those strategies have now been picked up by some of the institutions who were looking for a, you know, it's not the alpha, it's not beta, it's something in the middle type philosophy. They were looking for a low cost CTA solution or a low cost broad commodity solution. They didn't just want to buy GSCI and be long and wrong. They wanted some tactical risk management type approach. So that liquid alt space has been a good area for us as a business. And so you created the model, wrapped it into an index, then you licensed the index out to different firms who want to create a mutual fund. That's exactly right. So that's how we, that's how we partnered with one of the ETF and mutual fund companies in New York. They've got an ETF out on NYC, the COM ETF, that is basically just

tracks our broad commodity, our long flat commodity index. really what it is is is you think about it's a CTA approach yeah friend following approach on commodities only and it goes that's right that's right so it's a more tactical risk management oriented approach to being long the upside in commodity which should be should in theory capture if there's inflationary pressures or whatnot should capture the big up move and you're not going to slog through like the past 10 years um that's right well i mean at the end of the day like the one thing we have to accept is that commodities in general have had a poor decade yeah you know in general if there's no if companies are going down

you know this strategy is longer flat so it's still gonna it's still gonna you know, this strategy is long or flat. So it's still going to, it's still going to, you know, suffer in one sense, but it's not going to have the same downside as, as, you know, a long only Bloomberg commodity or GSE. Right, it should have less downside. What have you experienced with clients and with the, what this group's telling you of people used to have, right, I need five or 10% in commodities. It seems like that's been taken out in body bags, right? Of that strategy institutionally, right? Do you think that still exists out there or people smartening up and saying, Hey, I need a dynamic commodity allocation. So, so the quick answer is the latter is, is, you know, it's been a very tough space and you're, you're right. A lot of people, especially retail has written that off, which,

you know, you can understand what we're seeing is more and more institutional players and larger retail. So say large independent RIAs starting to look for that allocation. And, you know, it's not going to be a massive part of their portfolio. Like maybe it's, maybe it's 5%. Yeah. But you know, again, if you're going to go into the commodity space and that's not your expertise, you can go, you can go pick a commodity and, and bet on one thing. And, and you know, we surely don't advocate for that. We, we, we believe in a tactical risk managed approach and we know trend and momentum works. How does it spread the market exposure?

So a lot of these commodity indices are really just crude oil indices in disguise, right? So our broad commodity is a basket of the 12 most liquid commodities, the things you'd expect. And again, we're not long all of those 12. If a commodity market shows upward momentum properties, we'll be long that commodity, but we could be in cash for the rest of the portfolio. Was it long gold right now? That's right.

So this year started where gold was the only thing. We actually have currently in that strategy, just out of interest, about 75% of the opportunities are on so it's been a big shift since Kovac hit yeah Wow cool and then of any other strategies we want to talk about yeah the only other one I would point out so we are launching a new strategy, just went through the legal, should be launching in early October, called the Auspice One Fund. And really, what is it? It's basically a full CTA overlay on a traditional, you know, a traditional portfolio of fixed income and equities. And even on the fixed

income and equities side, using some passive approaches, but in general, accepting that we understand something about trend and momentum and having that overlay where you're overlaying trend and momentum on that traditional portfolio. And really, why are we doing that? Well, because that's how we manage our own money. We all want equity upside. We don't want the big crash. And on top of that, we know and we believe that there's sort of no better combination of sort of a traditional portfolio and especially even just equities and a CTA approach. And the benefit is, you know, for Auspice as an example, we run a margin to equity that's less than 10%. So what do we do with the rest of that capital? Well, we can take that capital and generate a traditional portfolio and put it all in one solution. And that just came

about from various investors coming along. Not the institutions, they go and do this exact same thing themselves. Whether it's a high net worth individual, any retail person, family offices saying, you know, we want kind of, we want that downside protection of CTA, but we also want to participate on the upside. We want to smooth it out. So why don't we just put that all in one thing? So we call it the Auspice One Fund. It's about to launch first in Canada.

And then hopefully we'll find the right distribution partner in the US. And that'll be managed accounts could do it as well? At this time, it's in a private placement commingled fund structure. But theoretically, yes. With those, you know, always, you know, and you and I have talked a lot about these things with those caveats in terms of what's the right size for that managed account that you can properly diversify. But that whole concept is interesting, right? That's really taken off the last two three years of you know and it used to be i was on the other side of like you can do the equity piece on your own you don't need me

to do that like i'm providing this alpha and this diversification as a trend follower just add that on in the size as fits you yeah it seems like it's pivoted to okay if you can't figure that out or if you're too right we'll just package it and give you what you want. Like we'll stop swimming upstream and here you go. That's right. And so interesting that you brought it up that way in terms of the equity exposure. One thing I didn't mention is that our liquid all CTA approach. So that again, we've had it in retail products, some of the institutions, we've run managed accounts for them, does not include equity indices. So that's one of the differentiators from Auspice Diversified as a CTA and what we're doing in the liquid

alt strategy space. And the reason is quite simple. When we first developed that index strategy, we call it for the retail space, say for ETFs, we recognize that the retail investor does not need more equity exposure. Just again, take out that thing that reduces that. It really reduces that risk that equity is on a big trend and then it turns around and our equity trend is going to be a drag on that portfolio. Just take it out. And then if you get beyond the retail investor and you look at the institutional investor, they've already got their favorite ways to get equity exposure in a very cost effective way. Yeah. And when you're usually in those meetings, that's one of their first questions, right? Like how much equity exposure am I getting? And they're trying to do that math of whether it's worth it for the rest.

That's right. And so we recognize that. And then, again, is one of the differentiators between sort of our flagship CTA strategy and these liquid alt approaches. Yeah. So that's really the product suite. We've got our main fund. We've got these liquid alt approaches in CTA and broad commodity. We've got our short-term niche strategy and then the pending Auspice One fund. So switching gears a little bit, I've always been impressed with you personally from afar in comparison to a lot of other cts who are just like they kind of feel like if i build the model they will come seems like maybe it's your business background before you got into the trading desk

but seems like you've had at least as much focus on building the business and providing products that people need. Like, talk to me a little bit about how you view that and why you've, you know, how you kind of view the two sides of the business side of it and the trading side of it. Yeah. I mean, it's, I appreciate it. It's almost like a compliment there, but, but that's as good as it gets for me. But you know, what I would say is that, look, I mean, part of the reason we're doing things the way we are doing them now is because we made lots of mistakes. And I surely didn't come out of the institutional trading world, you know, one with a big Rolodex. I wasn't from the CTA space. Part of this quest, as I explained, was could I run a business? And what I discovered about myself, and I think what Ken and I discovered about ourselves and what we discovered with us, this was, there's kind of two things that get us up every morning. One, can we do something interesting and innovative and something slightly different, right? Like, don't just follow the easy path and, you know, the world's going to continue to change

so can we develop something different and unique and you know part of our history we didn't get into i mean we actually launched the you know one of the first natural gas etfs we did that in canada based on physical gas what would be back when gas was all the rage um you know opened a lot of doors canadian oil etf right? That shut down. That's right. We did have a Canadian oil ETF. And again, you know, given everything that happened through COVID, the economics didn't make sense. ETFs are a narrow margin business anyway.

But, you know, can we do something unique and different? And is it going to make us a ton of money? Well, I'm not sure. Like an ETF generally doesn't, Okay. But what does it do? It opens doors. And when we went down the retail ETFs path with first Claymore and then Horizon ETFs, and now with Direction in New York, what it did was it broadened our horizon. It broadened our understanding of the business. It broadened our client base sort of by accident. And so from a business perspective, you started to get it. So first thing is do something interesting and innovative.

It leads to other things. And then the second thing, really me discovering about myself, is the relationship side. You know, as managers, we all have numbers. And you've got periods when you perform and periods when you don't. And periods, hopefully, when you outperform your peers at the right time. But when it really comes down to the decision, I really believe a lot of that's going to be based on relationship. And going down this path and running my own business has been the most enriching part of my life in terms of meeting great people. If you're just sitting on a proprietary trading desk at a bank or at an energy company,

your existence is fairly narrow. You're there to do one thing and that's generate returns and get your bonus and go home. And that's fine. It just wasn't for me. I wanted to meet great and interesting people. I wanted to do something that hadn't been done before. And that's really the quest that Ken and I have been on. And I think really the one that, you know, despite being a boutique size firm, and we've been around quite a while, it's really what led, which is probably one of your next questions to the strategic partnership we just formed. Yeah. And I'll just add to that. It seems like you have this willingness to fail too, right? Of like, and not be embarrassed for lack of a better word of like, what the heck are they doing running some oil, Canadian oil ETF, stick to your knitting, stay in your lane, all those derogatory statements of like, hey, no, we're trying to innovate. We're trying to be a real shop here.

Yeah. I mean, look, you got to take shots. It's no different than how we trade as CTAs. It's a risk management effort. We're wrong more than we're right, but we pay winners to losers. You've got to be willing to try things and that expands your network. You know, despite our Canadian crude oil ETF, not doing exactly what we wanted, you know, it opened so many doors for us that we could have a whole nother conversation on. Yeah. We learned a lot. Is it a distinct process within the firm or is it just kind of as these things come up and you weigh, let's go for it or not go for it or you have a process of like okay what's our innovative product next year going to be we are we are long ideas yeah and short time and people yeah like the rest yeah so so you know we're we're creative guys i guess at the end of the day um you know ken and i always joke like both of us come from a bit of a musical background. And, and, you know, it just seems we're always trying to find some way to put a square peg in a round hole. And, and, you know, that that's truly what drives us. And, and once you get a taste of, you know, sort of the fun around an innovative thing, you know, you kind of look for that. And so you're always throwing ideas at at the wall and

sometimes they're right in front of you you know I I I don't have many regrets in life but one of them is that you know we didn't launch the auspice one fund 15 years ago when we started or even 10 years ago yeah we should have put we should have put that together and and instead of doing it in our own portfolios it's like why didn't we offer this out? Well, and I think, I think for some unspoken rule at the time was like, no, you just do what you're good at. It's like stay in your lane.

Yeah. Like, whoa. And you do the hard part and let the others do the easy part. Well, like, well, you,

you know, you, you, you try to attract and we don't spend too much time focused on this anymore, but you try to attract investment advisors.'t spend too much time focused on this anymore but you try to attract investment advisors you know they've got that part they're missing these divergent non-correlated positively skewed returns we'll focus on this the problem is especially in the retail space is what we do the return stream being you know divergent is it's a bit inhuman right remember that equity returns and convergent returns you know they grind

higher in this low volatility way and every once in a while they they correct and everybody can rationalize it and come up with a reason and we can all forgive it we do the opposite right we grind along and people are saying you know okay are you guys ever gonna make a return you're just going sideways and you're pulling back and then every once in a while you pop and it's it's somewhat inhuman okay i wrote i wrote a paper must have been 10 years ago when we should have done the same thing that was called like uh the problem with alpha is it lacks beta somewhat tongue-in-cheek but that is the problem like if they're in the flat period they don't have anyone to talk to at the cocktail party or what's

going on and commiserate it's just like i'm just being this thing on my statement every day it's pissing me off yeah so i mean you know as far as an innovation uh you know look and and we surely didn't invent the wheel we've seen some other people doing similar things um you know generally doing things because we think they're right, not trying to copy anybody by any stretch, but we're going to put our own twist on things. And, and so, sorry, you mentioned being short on people and time. You just did a announcement recently, like you added some people in time, maybe perhaps? Well, we haven't added, interestingly, we haven't added people yet. I don't know if you can add time either, but.

Yeah, I don't think you can add time. What you can do is gain some other teammates, if you will. And so what we did is, there was a press release out in early July. We formed a strategic partnership with a group called Walter Global Asset Management, or WGAM.

They are a Montreal-based private equity firm. It's run by a very experienced, highly respected individual who has financial, his whole career has been in the financial space. He's on the board of one of the largest pensions. Very respected individual. Can we share his name or what's his name? His name is Sylvain Brasso. It's, it's, it's no, it's no secret. And Sylvain and I got to know each other over the last couple of years.

I have a ton of respect for his philosophy and his business experience. And they started taking positions and that, that made sense to them. And really, we were looking for a partner that brought something to the table we didn't have. So again, while we're long ideas and we're short people, so to speak. So, you know, who are those right people? a very strong team with business development people that have a really deep background, not specifically in the CTA space, but in the alt space, in the asset management space in general.

And what it did for us beyond, or what it has potential to do for us beyond just gaining access to that type of a person is it's a specific geographic zone that they have expertise. And that is in the province of Quebec in Canada. So the province of Quebec in Canada is, is distinct in many ways. Not only the French speaking, but there are a significant amount of large institutions. Do you speak French? Un peu.

Tiny bit. Yeah. But no, I mean, that's unfortunately not my strength. And so, you know, here we basically broadened our scope. It's not just the Canadian thing by any stretch but could we could we essentially expand our global relationships those in Canada those in North America beyond while still respecting what we do at Auspice as a manager so the idea is to help you scale both in Canada and elsewhere yeah I mean, and I think that,

you know, CTAs in general are like this, you know, our capacity at Auspice and our scalability as a business is significant. And, you know, we've been at a certain level for a while and continue to develop products and we have capacity and you know, how do we, how do we broaden our reach in terms of, of, of clients and relationships? Yeah. And we've even put you in front of institutional investors before. And we're like, here's an emerging manager. And they're like, he's, they've been around for 15 years. I'm like, well, but it depends on your definition from an asset.

This new program has a short track record. So there's always that weirdness. So that's interesting because, you know, I've debated this with many people. I've even talked at some of the conferences and said this. Look, in my view, an emerging manager isn't one that's been around for six months or a year or two years my view of emerging manager is one that has the ability to get to the next level and really bust out and has the capacity and maybe has the skill set and the track record to get to the next level to really emerge from where they are and and so you know part of our our thing it needs to be separated from startup manager right there's

like startup managers that That's right. Exactly. Emerging. Yeah. Yeah. We could spend a whole week on that. And then, so what did it look like? Did they, it's a straight partnership or they took ownership or you still have control? What are all those pieces? Yeah. So they, you know, it's in the press release. So again, this is public information. Yeah. We'll put it out on the show notes as well. They took a minority stake in, in Auspice, a significant minority stake. As I said, the largest shareholder in Auspice remains myself and Ken Corner. We are every bit and more motivated than we've ever been. You know, this just opens doors and different doors and different places

with different people. And again, they're a very respected and experienced team. And so it's been a different, let me say, it's been a, it's been a different year. You know, starting last fall, we started the due diligence process with them. Really got going around Christmas time from a term sheet perspective. Had some targets in terms of when to close this spring and then COVID hit. Yeah. And you know it definitely brought a... Congrats on wrapping it up during COVID. That had to be tough. It was. It was. You couldn't have, you know, I wouldn't have been able to get my head around that, you know, this was going to be completed during COVID. We're going to be working externally, you know, most of the time. We're going to be doing a deal with a company from across the country. And we're going to get it done. And it took longer. But I would say not by any fault of the WGAM group or ourselves at Auspice, the challenge we found through the whole process, and, you know, if we were trying

to close in April or May, it ended up happening basically right at the beginning of July, end of June. And the challenge actually was, when you go through these processes, as you know, you've got a lot of accountants, you've got a lot of lawyers involved, everybody's remote. Everything just takes a little longer because of that aspect, especially from a legal perspective. Due diligence takes a bit longer, you know, just any of the legal paperwork. So it took longer, you know, just any of the legal paperwork. So it took longer. But, you know, we're absolutely ecstatic about it. I'm extremely proud to have them as partners. And, you know, at the end of the day, you know, we think this is kind of the recognition that we've done things interesting. We built a great client base of institutional clients. You know know now can we get the company to the

next level yeah well congrats I'll say I knew you went so switching gears and we'll wrap up I wanted to just given your oil background and you there in oil country just get your quick thoughts on you know what happened when we went negative in oil the huge rally back, flat now. I know it's not necessarily in your models, but your personal thoughts on where oil's been and where it's going. Well, you know, it gets back to one of the reasons that I focused on energies at the beginning and even specifically natural gas, because it was always, you know, these are commodities that if you can imagine it, you know, if you can create the craziest scenario, you know, it can probably happen. And I remember natural gas going to, you know, the teens in terms of pricing and then, you know, almost going back to zero. Right. Yeah. And, and, you know, that's been in, in our,

in our thoughts and in our experience, you know, since we started in this business. And so the fact that oil could go negative, no, that never got talked about. But when you come from an energy trading background, so forgetting futures for a second, but actual physical energy, lots of energies, especially natural gas, have traded to zero and to negative. That's not exactly a new concept. And so the ability for that to happen. It was for some of the retail trading platforms, it turns out. Absolutely.

And some of them were not designed to, you know, there's all sorts of things that have happened because of that. They weren't designed to even participate properly and cover your risk and all those things. I guess for us, yeah, it was surprising. I'm not going to say it wasn't. But having said that, you know, not overly so because again in the chaos of COVID you know I actually thought there was going to be a lot more of that type of just unimaginable market activity. So and then so you were mentioning has it taken a it's kneecapped the Calgary area's oil producers? It's been been absolutely devastating to the Calgary area you know Calgary and oil producers? It's been been absolutely devastating to the

Calgary area. You know Calgary and the Canadian oil business was was struggling somewhat. You know quick Coles notes and it ties to the Canadian crude ETF we ran. So it was based on on the price of heavy oil. So predominantly Canada's a heavy oil producer as opposed to light sweet. The concept is that they have a lot of it, but it's harder to get out of the ground. So it is more intensive to get out of the ground. The biggest issue isn't really that because technology solves that. The biggest issue is getting the Canadian oil to market. Yeah. Right. So the biggest buyer, the buyer of 99% of our oil is the United States. So that's been a great relationship, but U S generally produces light sweet, as you know,

and then imports heavy, the refineries crave heavy because they get better margins out of it. They can do more with it. So that's historically come from markets like Venezuela. Venezuela is obviously a disaster. So where's it coming from? It's coming from Canada. The problem is, you know, you got to get it to market. So more and more refineries want it. How do we get it there? And we in the U.S. don't want pipelines. Well, you know, that's definitely not just a U.S. thing. I mean, there's only so much pipeline capacity to the US and even within Canada. The big difference between Canada as an oil producer is we have no way of getting our oil, other than a very small sliver at this point, to tidewater. It's all domestic, stays in North

America. So the challenge is, you know, if we don't have the pipeline capacity, well, then you start using things like rail cars. So rail has been used now for quite some time to get this excess capacity to the US markets and across Canada, but again, primarily the US. So it's been a controversy for a decade plus of getting a pipeline across from Alberta, across the Rockies, out to the Vancouver area, and on to Tidewater, and then the potential to the Asian markets. And that seems like a no brainer. But it has been a Canadian fight for a decade. It's been vicious. What's the cost they're throwing around? Well, the costs are billions, but it's not even so much the cost as, you know, the bigger players, you know, like Kinder Morgan walking away. You know, when they walked away two years ago from the Trans Mountain Pipeline, they basically said that the political environment was not worth the risk in Canada.

Yeah. So who loses out of that well canada doesn't get their oil to market and our oil gets heavily discounted versus other barrels and so you know that's a fairly silly thing to do and i'm being polite yeah we made the decision we're a resource producing country we made the decision to extract a, but we don't have the ability to get a global price for it. And we've got one client for our product. Right. It's almost like you should have just left it in the ground. It's the most idiotic thing. So back to your question, how's Calgary doing? Well, you've devastated for sure the mid and junior size oil companies, the bigger ones will survive.

But at low prices, and then remember, so it's not a $40 WTI, but then if you discount $10 or $15 to get to the price in Canada, well, you're not at an economic level. So this has devastated the industry in Alberta. The environmental push from Greta on down has put a lot of pressure on it. The Canadian banks have generally funded the oil business in Canada and other foreign banks and they've got, they're walking away. They're walking away. What a, I lost my train of thought there, sorry, go ahead.

Well, I was just to say, so, you know, it's put an enormous pressure on the energy business. And again, coming back to one of my first comments, Canada is not a small oil producer. Canada is a very large oil producer. Yes, the US is bigger, but the reserves we have are a lot bigger. Right. So so, you you know this has some implications well now you got a shale oil problem in the united states because it's not economic and nobody wants to fund that either so all of a sudden we go from you know we got too much oil to we got covid we don't need oil and then we realize well we're still using quite a bit of oil. And, and I have the belief

that we're going to continue to use oil for a long time. And we should do it by incredibly high environmental standards and all the rest, but that that's not going to go away. And I think we're probably like, like many other things, we're probably going to cycle where we've had too much oil, sorry about that. We've had too much oil and then, you know, then we're not going to cycle where we've had too much oil, sort of that we've had too much oil and then, you know, then we're not going to have enough because there is not the capital investment in the energy business. And it's a resource. They can't just turn it back on. It's not that simple. And, and, you know,

so so many producers in Canadian markets and in some of the U S markets are failing, they're shutting in production. And, and, and I'll leave this one almost conspiracy like theory, but I really don't believe Saudi Arabia has as much oil as they say they do. You got lots of reasons to believe that. You got lots of friends who've worked in that space and, and, you know, old boys that have known that have spent careers over there and they don't believe it's as good as they've kind of somehow convinced the world to think. Why do you think they're diversifying away from oil so aggressively?

Right. Or selling their stake in their prized position. It's crazy, right? So there's all these signs. And so Canada has this big reserve and has, you know, the biggest market in the world and the best friend in the United States, yet can't get Iraq together. And so, yeah, there's going to be some, there's going to have to be some changes, but I think the potential is that, you know, the economies will, will come back and, and we still need to burn oil because there's a lot of transportation.

Even if you're as green as you can be, you're using oil for pretty much everything. Are we going to see a pickering for provincial governor at some point? It sounds like a good political platform to say save Alberta I've spent a lot of time talking to our current government in Alberta largely around and I don't I don't know what they're called I apologize what's the governor equivalent called premier our premier is you know trying to help out our economy, obviously, bearing in mind a large portion of our provincial revenues come from oil royalties. And the royalties that we gain in Alberta are what we call barrel in kind. They actually get barrels and have to sell them.

So when you've devastated the oil price, you've got a big discount. Now you've got a province that's gone from a very, very successful province to really being in a lot of trouble. Why I tell you that is I have no political ambitions whatsoever. However, I really want to help my government understand how to manage risk in the oil business. Yeah, especially if they get the oil instead of cash. That seems like a bad setup. That's right. Alaskans get cash, right?

That's right. So it's the same setup essentially that they get a piece of every barrel, but it's in barrels. Yep. That's right. So they, they have enormous risk, you know, on the books for Albertan citizens in terms of the revenues that are the core infrastructure drivers of our economy. So. It's only someone who could help them hedge that risk. Yeah, exactly. So I've been fairly active in that space, in the media, in our province, on radio programs,

as an advocate for a more active program of risk management for our oil and energy revenues. Pickering for premier. It's got a nice ring to it. The signs would look nice. Go on to finish up with our favorites. Get back to some of your personal side, then we'll be done. Favorite Canadian food, tradition, spot, something Americans don't know about. Takeaway spot, favorite Canadian food or tradition? Favorite Canadian food. Are there any? Poutine? Yeah, I mean, I think those are the ones that come to mind. I have to think about that for a second. I would say that Canadian beer probably takes the cake.

Yeah, I could agree with that. What's your favorite Canadian beer? Labatt's? Is that a favorite? I would say just some local stuff. Yeah, no, I mean like Molson Canadian. Yeah, all right um favorite american city i gotta say two two all right yeah there's two that come to mind i love the city of miami um and you know because of our industry we've got the opportunity to spend quite a bit of time there and have friends there and really enjoy it. But the second, and it's equal, is Chicago. Nice. That's what I asked. I knew you were going to say Chicago.

The reason for it is going to Chicago as a commodity trader is like going to Mecca. It truly is a culture of people that feels very comfortable to me. It's very different than being in New York or other metropolitan areas. Chicago just feels right. I'm worried about that long term without the trading floors and it's all servers and ones and zeros now. Is that culture going to exist, persist? Well, and we have the same concern in Calgary you know people say it's an oil town and it's got this edge to it because of it you know you go through downtown Calgary right now not even just because of COVID it's it's pretty devastating favorite

Calgary restaurant for anyone coming to visit it was a restaurant that i take pretty much all my visitors to called buchanan's uh in downtown calgary it's been around since 1988 when we had the olympics uh family run uh you never have a bad meal it's got to be one of the best places on the planet done favorite canadian ski resort? I would have to say Lake Louise, which is, you know, outside of Calgary, just two hours to the West. Holds the first stop on the world cup downhill for men and women every November. Lake Louise is definitely the place. Yeah. One of the prettiest ones as well right beautiful

spot right in banff national park yeah and then everyone we asked favorite star wars character are you a fan i'm a big fan favorite um i i'd still have to say luke sky Luke You got a little Luke with the long hair I'm still going with a COVID cut here I just got a haircut this week And it was getting pretty shaggy Getting a little unruly Alright Tim it's been fun

Thanks so much My pleasure Have a great weekend we'll talk to you soon Thanks Jeff all the best Alright buddy been fun thanks so much um my pleasure have a great weekend we'll talk to you soon thanks all right buddy you've been listening to the derivative links from this episode will be in the episode description of this channel. Follow us on Twitter at RCM Alts and visit our website to read our blog or subscribe to our newsletter at rcmalts.com.

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