The Triple Action of Interest Rates

As the saying goes: Don’t Fight the Fed.

Here is my rather naive understanding of how Interest Rates influence equity markets and why I’m still bearish.

Let’s have a look at a very simplistic example of the following company:

Share price: $100
EBIDTA: $10/year
Debt: $100 (variable interest rate: 2% = $2/year)
Dividends: 3% = $3/year (payout rate is only 37.5%, nice!)
To keep things simple, the company pays no taxes.

Bottom line: after all the payments, we end up with $5 extra dollars every year.
$10 – $2 – $3 = $5.
Pretty amazing.

What happens when interest rates start going up?
For example, from 2% to 5%.
Continue reading “The Triple Action of Interest Rates”

Birchcliff Energy: One bad quarter for commodity prices won’t hurt our company

Birchcliff Energy Ltd. is a dividend-paying Calgary, Alberta based intermediate oil and gas company that explores for, develops and produces natural gas, light oil and natural gas liquids.

Source: Birchcliff Energy website

Business was booming for Birchcliff Energy Ltd. (TSX:BIR) back in 2022 because natural gas prices were going through the roof.
Here is one of the interviews Birchcliff‘s CEO gave to Bloomberg:
Continue reading “Birchcliff Energy: One bad quarter for commodity prices won’t hurt our company”

DISCLAIMER: The content in this blog represents the opinion of the author. No information here should be used for any purpose except for entertainment.