08
Oct

Rate Cut Wednesday

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Fed cuts 1/2 point in coordinated move with at least five other central banks. Markets and commodities bumped on the news then started selling again. Crude has been all over the map overnight hitting a new low of $86.05 before heading back towards $90 as a little wind comes out of the dollar's sails. Equities are barely reacting to the news with an hour to go before the open and the question remains, "so now what?". I won't buy further into this event for the time being other than perhaps the occasional opportunistic trade as I await some sort of catalytic event in the group be that a large acquisition (come XOM, what's that $40 billion cash position for?!) or a reverse in natural gas. If this proves to be the medicine the market needs (sort of doubt it) then the recovery will be a long and arduous one with plenty of opportunities. 

In Today's Post

  1. Commodity Watch
  2. Oil Inventory Report Preview
  3. Stuff We Care About Today - Debt and Living within One's Mean
  4. Stocks We Care About Today
  5. Odds & Ends

Commodity Watch:

Crude Oil rose $2.25 to $90.06 on OPEC production cut rumors. After a brief rate cut inspired rally crude is trading off another $1 to $2.

  • OPEC Watch: Rumors bouncing around include an imminent production cut to hold the line around $90 or maybe $80. The head of Libya's national oil company said it was better to leave their oil in the ground than to produce it for these prices. I think its a bit tougher for the head of the cartel and the leading members...more of a tightrope they will be walking between holding prices up and further pushing on the weakened economies of the developed countries.

 

  • Gasoline Demand Watch:  The Mastercard Spending Pulse survey shows gasoline demand down 9.5% YoY last week which is down 5% from the prior week. That 9.5% number is the largest year over year decline we have yet seen and is inline with another Mastercard survey showing retail down purchases down 10% in September.  

Natural Gas slid 7 cents to $6.77 in another step closer to getting me into a long trade there. This morning gas is off another dime to a one year low. And still winter approaches.

  • Weather Watch: Cold starting to creep in with heating degree days up to 38 vs 20 in the year ago week.
  • Imports Watch: Imports ran 8.8 Bcfgpd last week with LNG remaining low at 0.7 Bcfgpd. This is off about half a B a day from the prior week and 2 Bcfgpd lower than last year.
  • Tropics Watch: Tropical Storm Marco came and went through the Gulf with little to no impact on Mexican offshore production. Otherwise, all is pretty quiet in the Atlantic Basin.

Oil Inventory Report Preview (estimates from the Dow Jones survey)

ZComment: Most important number will be the products demand numbers. If the gasoline number backs up what Master Card says look for further weakness. Either way, oil is likely to track more what the broad markets do. I would expect little sustainable upside were we to get bigger than expected draws and an absolute pummeling if we see larger than expected builds. Buyers are on the sidelines at this point and I don't think this shoulder season report will provide much motivation for them.

Stuff We Care About Today

When a bounce does occur I think that the following will trump production growth:

  1. Less debt on the balance sheet.
  2. 2009 capital budget should closely match or underspend cash flow.
  3. Size will matter more as investors will likely wait for the smaller names to fall even further.
  4. Higher Hedges - this one may take time...it still has not mattered yet for the highly hedged and the unhedge have seen like size thrashings.

On the subjection of capital budget cuts, we have already heard from a number of big and medium sized E&P names. This morning the list grows to include KWK, DNR, EQT and I expect that with a very few exceptions all of the E&P universe will be tightening their belts for the end of 2008 and into 2009.

 

Odds & Ends

Analyst Watch: Pretty quiet on the analyst front.

158 Responses to “Rate Cut Wednesday”

  1. 1
    Sambone Says:

    8:35 am EST

    Oil Bounces Off “08 Lows After Rate Cuts

    FROM MARKET TALK

    [Dow Jones] Nymex crude rebounds from fresh 2008 lows after the Fed, the European Central Bank and other major central banks announced coordinated cuts in target interest rates, the latest effort to address a mounting financial crisis. Nov crude had fallen as low as $86.05/bbl, beneath its Jan 22 low, then briefly sprang into positive territory before losing ground. Nymex Nov crude -$1.27 at $88.79/bbl.

    Oil Back Lower After Jump On Rate News
    LONDON — Crude oil futures bounced back from near 2008 lows after a raft of global central banks announced a coordinated cut in interest rates Wednesday.

    But the reaction proved short-lived and prices dropped back lower amid a flurry of volatile trade.

    Having earlier set a new 2008 low at $86.05 a barrel — its lowest since December last year — Nymex light, sweet crude briefly jumped back to over $90 a barrel following the rates announcement.

    But doubts that the cuts — the Federal Reserve, the Bank of England, the European Central Bank and Bank of Canada all cut rates by 50 basis points, others by lesser amounts — will be sufficient to brighten an increasingly gloomy economic outlook proved too strong for crude’s sudden rally and prices soon fell back lower.

    “Is a rate cut enough to boost the outlook for the real economy? I doubt it,” said Simon Wardell, analyst at Global Insight in London. “Unless there is a staggering turnaround in the economy, the outlook for (oil) prices is still weak.”

    At 1226 GMT, the front-month November Brent contract on London’s ICE futures exchange was down $1.66 at $83 a barrel.

    The front-month November light, sweet, crude contract on the New York Mercantile Exchange was trading $1.74 lower at $88.32 a barrel.

    The ICE’s gasoil contract for October delivery was down $16.50 at $801.25 a metric ton, while Nymex gasoline for November delivery was down 516 points at 201.12 cents a gallon.

    —By Nick Heath, Dow Jones Newswires

  2. 2
    Nicky Says:

    Morning all.

    SPX next level of support is 958, then 945.

    I still think 85 you will see folks step in a buy crude.

  3. 3
    zman Says:

    The KWK capex cut will remove 5 rigs from the Barnett shale. Without a climbing rig count, high first year decline rate plays like the shales will begin to slow down pretty quickly.

  4. 4
    zman Says:

    Thanks Nicky. OPEC getting pretty nervous. Daily comment count rising from members saying action is needed.

    DNR, along with its capital budget reduction, announced it canceled a recent $600mm acquisition.

    Opening group indications, believe it or not, very ugly again.

  5. 5
    zman Says:

    RBC cuts SD target to $35 from $67, still Outperform rated.

  6. 6
    VTZ Says:

    This is retarded… I am too young to have seen the 87 crash or anything prior but this is pure insanity it seems…

  7. 7
    zman Says:

    COP and XOM up. Flight to size, big cash positions

  8. 8
    zman Says:

    V – Agree retarded. Forced hedge fund selling still ongoing. Those with cash buying common stocks in the group will make a killing over the next year or two. The assets are still there, underground.

  9. 9
    VTZ Says:

    I never thought that I would have seen something like this in the spaces I am in and as a result have thrown cash away over the past 6 months that I could have used now.

    At this point I am weary at throwing in any more because I’ve already lost an arm and a leg…

  10. 10
    VTZ Says:

    At least I’ve learned a few things and to be honest, as terrible as it may sounds I’m glad that the hedge funds and financial industry is getting what it deserves.

  11. 11
    VTZ Says:

    I’m saying what it deserves as a result of gross mismanagement of risk.

  12. 12
    VTZ Says:

    and being responsible as a whole for trashing the world economy as a result

  13. 13
    Sambone Says:

    DJ Transocean Cut To Hold From Buy By Dahlman Rose.

    Hmmmm, day late, dollar short. Love those ANALysts

  14. 14
    isleworth Says:

    Z- what is your favorite in this mess? HK?

  15. 15
    Garyinhou Says:

    I would have needed 6 arms and 3 super-computers to buy what I wanted in the first 10 minutes… NOV at 28, POT at $80, HK at 10.63, CHK at 20.50.. but hey, they could always go lower.

    It’s like they say in Seattle… “If you don’t like the weather, wait 5 minutes and blow your head off…”

  16. 16
    zman Says:

    V – I don’t disagree. Problem is that those in charge are not going to suffer for this mess.

    Isle – pretty tough question right now. For a long term stock hold I like things like SD, CLR, HK, PQ, CHK, NFX, SWN. For a bounce APC, EOG, XOM, SLB, HAL. Bigger is better for now as is under-leveraged. There’s very little reason to how they are trading at present though.

  17. 17
    Dman Says:

    VXO has now given its second reading above 65. This is progress.

    Was the down opening purely a follow on from yesterday’s panic or a reaction to the European banking meltdown or both? Dunno but again it is progress of a capitulation variety.

    I was expecting a failing bounce in reaction to rate cuts and instead we got the opening plunge and XCO was there for the taking at $6.99. Oops too slow.

  18. 18
    Sambone Says:

    By Nikhil Lohade and Maria Abi-Habib
    Of ZAWYA DOW JONES

    DUBAI (Zawya Dow Jones)–Fear gripping global markets weighed heavily on Gulf
    stocks Wednesday with all the oil-rich region’s major indexes closing sharply
    down and blue chips hovering near their lowest allowed intraday limits.
    “World markets are tumbling and there is a strong contagion effect on the
    region,” said Faisal Hasan, head of research at Global Investment House.
    Markets are concerned that the Gulf’s previously insulated economies will be
    hit by a global slowdown.
    About $23 billion, or the equivalent of about 20 days earnings from oil
    exports, was wiped off the value of stocks in the region Wednesday. The six
    Gulf states pump about a fifth of the world’s crude.
    Investors in markets in Saudi Arabia, the United Arab Emirates, Qatar and
    three other Gulf states, have lost $344 billion on stocks since the beginning
    of the year, close to their entire oil export earnings over the same period
    based on an average price of $100 a barrel.
    Robust oil prices have failed to bolster investors’ confidence in the region’s
    markets amid growing signs that the slowdown in the world economy and a global
    credit crunch has spread to the Middle East.

    SAUDI ARABIA: The market closed down 1.5% to 6160.52, led by telecom stocks.
    Heavyweight Saudi Telecom fell 1.3% to SAR57.25.
    Bellwether Saudi Basic Industries Corp., or Sabic, reversed intraday losses to
    rise 5.6% to SAR90, helping trim overall market losses.
    “Retail investors drove the early selloff but some big investors are buying
    blue chips, finding valuations attractive,” said the head trader for Gulf
    equities at Riyad Capital.

    U.A.E.: Dubai shares plummeted 8.4% to 3085.02 at close, led by Arabtec
    Holding, limit down 15% to AED6.80.
    “Gulf investors are dumping shares as they fear that a global financial
    markets meltdown will badly hit the local markets,” said Mohammad Ali Yasin,
    managing director at Shuaa Securities.
    “Every new news is adding to this fear as the crisis spreads from the U.S. to
    Europe, and closer to the Gulf region,” he added.
    Bellwether Emaar properties lost 7.4% to AED5.50. The company is allowed to
    implement its buyback program this month but can only start buying back after
    three days of its third quarter result.
    Emaar is trading below its book value, at a price to book value, or P/BV, of
    0.88, according to data from Zawya.com.
    Dubai shares will be allowed to fall a maximum of 5% or 15% depending on the
    stock but there is no circuit for the benchmark index, a Dubai Financial Market
    official told Zawya Dow Jones Wednesday. Stock circuit is the price limit or
    range outside which the stock price can’t go.
    Abu Dhabi market fell 6.4% to 3176.94. Aldar Properties lost 9.7% to AED5.48.
    Heavyweight Etisalat was down 7.2% to AED14.50.
    “There is panic in the markets. Retail investors are following institutional
    selling, spooked by a global markets crash,” said a trader at Darahem Financial
    Market. “Margin calls are adding to the selling pressure,” he added.
    The U.A.E. central bank cuts key rates by 50 basis points after market hours,
    matching a U.S. Federal Reserve rate cut.
    The U.A.E. dirham is pegged to the U.S. dollar and it follows the U.S. Fed for
    its monetary policy.

    KUWAIT: The Gulf’s second largest market fell 1.4% to 11472, led by bellwether
    Zain, limit down 8.6% to KWD1.060. “All the Gulf markets were down, as they
    follow global equities, and that is impacting sentiment in Kuwait too,” said a
    Kuwait-based institutional trader.
    The Kuwait central bank’s move to cut key rates Wednesday failed to boost
    sentiment in a big way, he added.
    The central bank said Wednesday it slashed the discount, or lending, rate by
    125 basis points to 4.5% and the discount rate to 4.5% from 5.75%.

    QATAR: Doha market closed down 8.8% to 7434.54. Banks and industrials led
    losers.
    Qatar National Bank fell 9.6% to QAR150 and Industries Qatar slipped 9.1% to
    QAR108.80.
    “Many stocks traded limit down as investors panicked,” said Bashar Issa,
    financial analyst at Dlala Brokerage & Investment Holding.
    “A global and regional equities meltdown is hurting sentiment and hopefully
    some government intervention will be seen to stem the slide,” he added.

    BAHRAIN: Shares were down 2.7% to 2319.98, undermined by banks.

    OMAN: The Muscat stock market closed 7.2% lower at 6626.94, led by industrials
    and banks.
    Bank Muscat fell 3.9% to OMR0.948. Bank Muscat said Wednesday its net profit
    for the first nine months of 2008 rose 43.9% to OMR90.1 million from a year
    earlier.

    EGYPT: The CASE 30 index shed 7.1% to close at 5478.55.
    “There was general panic selling from all investors,” said Karim Mashhout of
    Naeem Brokerage.
    “Foreign investors are still selling their shares across the board and so are
    Gulf investors,” he added.
    Trading on a number of stocks was halted intraday after they hit their lower
    limits.
    -By Nikhil Lohade, Dow Jones Newswires

    Dow Jones Newswires
    10-08-08 0957ET- – 09 57 AM EDT

  19. 19
    zman Says:

    Dman – Well if you liked XCO mid 20s then a move 7.75 from 6.99 shouldn’t deter you.

  20. 20
    isleworth Says:

    thanks Z.

  21. 21
    zman Says:

    Gary – thanks for the laugh but the market has already taken care of that for me.

    Isle – I’ve been around the block for awhile now but I listened to some 40 year veterans of the energy market on Monday and to a tee they have never seen anything like this. Not one. The hedge fund guys there were just sick since the ones that come to that conference are energy focused and not the hot hot money that just follows what’s working like so many of them.

  22. 22
    zman Says:

    Oil #s in 20 minutes

  23. 23
    Garyinhou Says:

    Z – Do you know much about FLS? i.e.- their position to be able to weather the storm etc…

  24. 24
    Dman Says:

    Z – yeah I’d pay $6.99 but $7.01? No way that’s way too expensive and the debt bogey man will get me.

  25. 25
    zman Says:

    Gary – nope, should I?

  26. 26
    zman Says:

    Gary – I don’t know their financials but from what I’m hearing they are the kind of company that may see some order delays as big projects slow down or get shelved.

  27. 27
    zman Says:

    The EIA is hiring Sam, maybe the analysts should go work there. Seriously on the RIG rating cut there are rumors that Brazil will have to slow down its exploration program as newbuild rigs are delayed. If they only slow down due to rigs I can’t see how its bad for RIG.

  28. 28
    Garyinhou Says:

    Flowserve… Big valve, pump, seal co. out of Irving TX.. I throw them in my equip mfg list – In equip space, edf worth keeping eye on..

  29. 29
    Garyinhou Says:

    Thanks Z.. that last part was my area of concern… I guess same for NOV or any other mfg.. it’s getting cold, throw another backlog on the fire.

  30. 30
    zman Says:

    Market acting like the backlogs at these equipment co’s are not reliable at all…like they are going to evaporate. Giving them no credit for the reductions in things like steel costs. Of course, market not doing a lot of thinking right now.

  31. 31
    Dman Says:

    Service seemed to be bouncing better than E&P but now all running scared ahead of the oil number.

    5 year chart of NBR is quite something to look at.

  32. 32
    zman Says:

    crude up 8.1 mm barrels on high imports

    gasoline up big as well

  33. 33
    Sambone Says:

    OK troopers, been out a couple of days. I’m getting excited! I just started my list on what to buy. First two are RIG and COSWF. RIG, lowest estimate on the street is $12.29 this year. I put the lowest P/E in 4 years of 7.4 on it. I will be buying under $80. It is very close to it’s support. Future is bright. COSWF – McDep came out and said that if Oil is at 80 or below they will cut dividend to $1 per quarter. Hmmm, that’s a yield of 14+% with the stock at $27. Pretty compelling to me. Catch a falling knife? Maybe, but I believe more like taking advantage of “Mr. Market”.
    I bought the WB pr D under 15. Most I bght under 10. I was excited about that also. I’m not jumping in the pool but just my legs to start with. Margin calls will be over soon.
    More names on my list later.

  34. 34
    zman Says:

    Demand continues to be weak for gasoline, rising production and imports spelling trouble for margins, gotta think utilization will come off hard soon.

  35. 35
    zman Says:

    oil down $3 now, keeping powder dry here. Market suddenly tumbling to low of day as energy gives back gains.

  36. 36
    zman Says:

    wow…SD was up 7%, now down 10%…they sell natural gas folks, not oil. or at least not much. that’s hedge fund capitulation.

  37. 37
    Dman Says:

    Sam, I can see the logic that margin calls are all done at some point. But what’s your edge on calling that point?

  38. 38
    antrimshale74 Says:

    It will be interesting to see the short interest in the energy sector. I wouldn’t be surprised to see a lot of shorts have shifted from financials to energy during this short sale ban.

  39. 39
    zman Says:

    Antrim – the increase in the number of rumors would corroborate the concept that the shorts have jumped to the energy names. Maybe the group sees less pressure if they let the short selling ban on financials expire this time, what is it, the 17th?

  40. 40
    antrimshale74 Says:

    Short selling ban expires at 11:59 pm tonight. Shorting is fully restored as of trading tomorrow.

  41. 41
    Sambone Says:

    D – As a hedge fund knows, the first six months of this year all you had to do is be long Commodities and short the banks with a lot of leverage. Now the Hedgies are puking because of that leverage. They are and were on the wrong side, because since July there has really been no place to hide. Once Joe six pack gets his quarter end statement, he’s going to puke and then sell. The lows will be in soon. I’m just getting ready to buy. I’m looking for the lows of 02/early 03 to come soon. When Maria starts crying on TV, Cramer’s show goes dark, and they are puking on the NYSE floor, that’s when I’ll be buying. I went through 87 and this is getting close to it, but not yet. Watch Maria.

  42. 42
    antrimshale74 Says:

    If things ever settle down in the credit markets, and that won’t be happening for a while, that is when you will see the M&A activity in energy. I’m thinking there will be stock for stock deals, moreso than cash purchases.

  43. 43
    Dman Says:

    Nicky, care to take a look at gold?

  44. 44
    zman Says:

    Antrim – ok, thanks. Lot of good that did.

    XOM only thing green on my screen now. At some point they step in and buy something but it apparently won’t be a gassy name given their dumping of the Barnett due to low nat gas prices.

    5 to 15% down moves now routine.

  45. 45
    antrimshale74 Says:

    Sambone, using the 02/03 numbers, it implies another 50% down on the OIH. At the rate we’re moving, we should be there by next Friday.

  46. 46
    ram Says:

    ZMAN – I would assume SD is not going away. Therefore, as we approach single digits, and with a balance sheet better than most peers, what’s the risk at $8 or $9?

  47. 47
    zman Says:

    Antrim – agreed re stock for stock. But the currencies (stock) of the guys who would have been potential buyers are very depressed, as much or more than their targets. To me it looks like it will be Major for independents, maybe a big name indie going out. But it will take long than I thought.

  48. 48
    antrimshale74 Says:

    The majors haven’t fallen nearly as much in stock price as have large independents. CHK, PQ, HK, etc. have all dropped precipitously. By the way, any thoughts about the debt announcement the other day from PQ in its 8-K filing?

  49. 49
    Sambone Says:

    A – Watch Maria and get you list ready.

  50. 50
    zman Says:

    Ram – so tempted to answer back $8 or $9. Re SD, I’m long, not happy, like everyone else. Gas prices stink out west…heck, they stink just about everywhere now. We’re at firesale prices on reserve valuations…will put in post tomorrow but for them at $10.75, the market is valuing their proved reserves at $1.73/Mcf. That’s on mid year reserves of just under 2 Tcfe. They thinking their 3P reserves (proved+probable+possible) are close to 5 Tcfe. So the market is giving them next to nothing for the proved reserves and nothing at all for the upside potential. There are shorts at work on this name.

  51. 51
    ram Says:

    Since I don’t watch Maria, can someone post the “Maria” indicator when it happens? Thanks in advance. By the way, Maria who?

  52. 52
    zman Says:

    A – re PQ you mean their credit line expansion?

  53. 53
    antrimshale74 Says:

    Zman, what were reserve valuations back when natural gas was $3.50? What is the possibility that oil and gas will severlely overshoot to the down side (something like $40 or $50 oil and $3 natural gas)?

  54. 54
    Sambone Says:

    Ram; Maria Bartiromo – Money Honey – CNBS – Afternoons

  55. 55
    antrimshale74 Says:

    Another thing is that I think there is a severe dislike of leverage right now, and these companies are really quite leveraged, regardless of their immediate cash needs.

  56. 56
    zman Says:

    Antrim – It gets a little foggy as that was way back in the early 2000s. But I remember deals going for $1.50/Mcf in the ground + value for land + value for infrastructure and other assets when NG was $3.

  57. 57
    isleworth Says:

    Kass is reporting that Boone Pickens Partnership is having to liquidate a lot of energy positions, leading to today’s weakness – perhaps an explanation????

  58. 58
    zman Says:

    Antrim – not all of them, see table today’s post. CHK yes, EOG not so much. Names like XOM, not at all leverage. A majority of them, even at these prices and with the more indebted names like CHK have good TIE ratios (no interest payment problems). CHK still getting no credit for those now brilliant hedges.

  59. 59
    ram Says:

    ZMAN, thanks for #50. It looks like a bargain to me.

  60. 60
    sane Says:

    API

    Crude UP 9.4M
    Gasoline UP 3.4M
    Distillates Down 1.2M

  61. 61
    zman Says:

    Isle – I had been told by an investor there that one of TBP’s funds is unlikely to last through year end.

  62. 62
    isleworth Says:

    Boone may be a great energy man,with tremendous hands-on experience, but he sure has made a lot of very bad bets/calls.

  63. 63
    zman Says:

    Ram – I’m waiting to add to it if I add to it. Part of the problem is they are getting next to nothing for gas in their particular part of Texas. Among the smaller, newer names, I like more oily CLR better. Like them both long term but am worried about the distance to bottom…to much baby and bathwater action, too much rumor mill to play more options yet.

  64. 64
    antrimshale74 Says:

    Zman, I totally agree with you about CHK and XOM. It’s almost inevitable that XOM will have to make some purchases. Their reserves are declining and they have something like $40 billion in cash. That being said, I am concerned about PQ and some of the other guys.

  65. 65
    zman Says:

    Isle – I think you can say the second part about me too of late. Nibbling here and there for the last three months has been nothing but pain.

  66. 66
    rlogan1301 Says:

    ung at this level? pull the trigger?

  67. 67
    isleworth Says:

    Antrim- what is your concern on PQ?

  68. 68
    antrimshale74 Says:

    How about Vlad the White Knight coming to the rescue of Iceland? We might need him, too, at this rate. He has $563 billion in cash, even with the collapse of the ruble.

  69. 69
    antrimshale74 Says:

    Regarding PQ, they had to get a debt covenant waiver. In this environment, that totally freaks me out. And I’m stuck sitting on common shares, too. Yuck.

  70. 70
    zman Says:

    Antrim – did not mean to suggest it will be CHK that XOM buys if they buy anything but their common stock back. I think it will be oilier than CHK, that they go after. Maybe someone with global and deepwater exposure…APC or DVN or APA. And some of those names could take out say a CLR who has a huge acreage position in the Bakken and thereby make themselves juicier targets for an XOM.

    If CHK goes I think it will CVX or maybe longshot COP or some kind of deal with China…the U.S. just said it welcomes their investment in the U.S. oil industry and we know CNOOC has approached CHK in the past about some assets. BP also a possibility. But XOM has shut the door on U.S. gas.

  71. 71
    isleworth Says:

    Z – I think you have done very well overall – and that’s what counts. I did learn that when you say “this is getting too easy” that it means to EVACUATE….. 🙂

  72. 72
    ram Says:

    Thanks SAMB – I’ll wait until the Money Honey cries. With regards to ’87, I am old enough to experience the fall. Although, I recall the experience 21 years ago like a bandaid being pulled off quickly instead of one hair at a time like it feels now!

  73. 73
    zman Says:

    RL – waiting on that rollover in injections, hopefully see that tomorrow. Did like the import and weather data (see post) though.

  74. 74
    zman Says:

    Isle – I think the sell indicator is the word Honduras.

  75. 75
    isleworth Says:

    ok pal, will watch for that one from now on. Is there a code word for BUY?

    BTW, I am a happy client!!!!

  76. 76
    ram Says:

    Re #68 – Interesting that the Russia financialy helped out a NATO country. I’m pretty sure Russia will remind them later who saved them. I would also imagine Russia is looking for another country to save.

  77. 77
    Dman Says:

    Z – with XCO nearing my target price of $6.99 (lol) I note that they aren’t on your list of interesting names. What’s your thinking there?

  78. 78
    zman Says:

    Antrim – oh, I see what you are on about re PQ. That’s a working capital covenant that was temporarily waived. That’s not a huge deal in my book as E&P’s routinely operate with negative working capital balances (CL > CA). This is often the case as hedges flow through the balance sheet and you can end up with a lot of current liabilities if your hedges are underwater. There can be lots of reasons. But you are right, in this environment, you don’t want to see any thing re the balance sheet get waived.

  79. 79
    zman Says:

    Isle – thanks, make my day. I consider myself the first client and I’m none too happy. Suggestions for improvements, aside from be smarter and buy stuff that goes up welcome.

  80. 80
    mahout Says:

    Sambone #33,

    Sam, I admire your courage. We are going to have to have people like you to start buying to turn this thing around.

    I had to go play golf yesterday. Tough duty, but somebody has to do it. It turned out to be a very expensive golf day when I got back and saw that I had lost my shirt in the market, again.

    I would like to buy fine companies like RIG, which I have nibbled at on the way down (can’t help myself, I guess) at these highly distressed prices. However, I have a problem, as follows:

    It seems to me that the only thing now standing in the way of, not a repeat of 1987, but an unmitigated long term disaster is the FEDERAL RESERVE BANK, which is now exercising its emergency powers. The SEC, the FDIC, the Congress, the Treasury, and the White House have all struck out! The FED’s guarantee of commercial paper is one example. It was absolutely essential and other things also must be done.
    Regardless of the extremely low valuations on fine stocks, until the Hedge and other Funds stop liquidating, these prices will continue falling.
    Personally I don’t think they are very near calling a halt to their selling yet. The darn thing feeds on itself.

    Very good luck to you in your buying. I hope you nail it right at the bottom of the plunge.

  81. 81
    zman Says:

    Dman – Re XCO – big exposure to Marcellus which will take even longer now to develop now that nobody wants more gas. Nothing wrong that I know of, they have other stuff but I’ve always been less familiar with them than I’d like. Man, what a beat down. Will put them in the list of reserves vs value for tomorrow as they are certainly a target now.

    I figure a big, cash heavy entity can either buy a big E&P (or 2 these days) or buy a basket of small E&Ps with assets in targeted basins.

  82. 82
    zman Says:

    I remember a few months ago, I think it was when LEH did a big recapitalization offering, Maria literally screaming that the debt crisis was over.

  83. 83
    Sambone Says:

    1511 GMT [Dow Jones] UK integrated oil company stocks should be increasingly
    attractive in the current financial turmoil, but investors overcome with fear
    don’t seem to have realized it, says NCB Stockbrokers analyst Peter Hutton
    Wednesday. “Investors are dashing for cash… the stocks that most closely
    resemble cash are the integrated oil companies,” because of the security of
    their dividend yield, he says. But oil company shares have been among the
    hardest hit and “I’m beginning to get to the stage of scratching my head and
    wondering what’s going on,” he says. (JHR)

    Dow Jones Newswires
    10-08-08 1111ET

  84. 84
    zman Says:

    Isle – the buy word is Napa.

    So Paulson says he is gone with the administration. Wonder what that job pays.

  85. 85
    Garyinhou Says:

    The most beautiful sound I ever heard:
    Maria, Maria, Maria, Maria . . .
    All the beautiful sounds of the world in a single word . .
    Maria, Maria, Maria, Maria . . .
    Maria!
    I’ve just met a girl named Maria,
    And suddenly that name
    Will never be the same
    To me.
    Maria!
    I’ve just kissed a girl named Maria,
    And suddenly I’ve found
    How wonderful a sound
    Can be!
    Maria!
    Say it loud and there’s music playing,
    Say it soft and it’s almost like praying.

    Maria,
    I’ll never stop saying Maria!

    The most beautiful sound I ever heard.
    Maria.

  86. 86
    antrimshale74 Says:

    One thing, too, is that the length of time it took Congress to pass the Financial Markets bill totally destroyed confidence. 2/3 of residents here in Michigan think we’re heading for a Great Depression. While they may or may not be right, I can assure you that these people aren’t buying anything now. I heard last night that National Auto Dealers Association is predicting 700 auto dealerships will go out of business in the fourth quarter.

  87. 87
    zman Says:

    Market getting nutty(er) again.

    TSO had joined the ranks of the single digit midgets. Back to 2004 levels and off from $60 last sumer.

  88. 88
    Dman Says:

    Z – thanks on the XCO

    There is some capitulating going on. What has bothered me for the last week or so is that commentators who correctly foresaw the current mayhem have have been turning positive on indicators and sentiment readings that would normally be good for a turnaround call. But this ain’t normal. Not even close. How often does Iceland go bankrupt? That’s not a garden variety event and it’s just a minor example of the current chaos (not minor if you had deposits in an Icelandic bank).

    So to really see capitulation on the scale matching the real-world events, we should be seeing all indicators off-the-charts scary. The only thing that really fits that description to my eyes are the 5-year charts of NBR & HAL. They look to be priced for armageddon, never mind a few E&P cutbacks.

    I guess one counter-argument is that the markets have been going down for so long that you can’t expect short-term technical indicators to reach ultra-extremes because it has been too drawn out.

    But traditional sentiment tells (like those Sam mentions in #41) should work. The media have only recently abandoned non-stop happy talk.

    On a positive note, there are some serious opportunities here. We all know the long-term path of energy prices and they now have to retrace recent highs all over again. The Vlad for Iceland thing is possibly a sign of things to come: petro-dollars coming full circle (back to the West), helping stabilize the system but signifying a shift in ownership along the way until we get some serious alt-energy happening.

    Have nibbled today on some SD and NBR stock. Already underwater on the NBR (!#@$) but it’s valued at 2003 levels, which seems, well, crazy.

  89. 89
    BossmanG Says:

    Z, when you spoke to fund managers, did they mention when they might bottom fish? or are they sitting on the sidelines, cashing out/taking losses?

  90. 90
    Sambone Says:

    LONDON (Dow Jones)–The Organization of Petroleum Exporting Countries is
    considering an emergency meeting in November to confront the recent fall in oil
    prices, an OPEC delegate said Wednesday.
    “The idea being talked about is at some point next month,” the delegate said.

    -By Spencer Swartz, Dow Jones Newswires

    Dow Jones Newswires
    10-08-08 1210ET

  91. 91
    Dman Says:

    VXO above 71. About time.

  92. 92
    zman Says:

    Re fund managers. Two camps. Those in and those looking. Those in were just throwing up their hands at any questions I had. Those not in were not yet ready to buy. Didn’t get into when that would be but I got the sense that they don’t know.

  93. 93
    Garyinhou Says:

    With earnings season comes the inevitable cuations, warnings, and inability to reaffirm guidance. Perhaps final death nell and capitulation for all.

  94. 94
    Dman Says:

    UNG flirting with green

  95. 95
    zman Says:

    Gary – flipside is, stocks have 0 expectations built into their prices. Many names have already pre-announced 3Q numbers due to hurricane impacts. 2Q reports were coming out as the stocks peaked, maybe 3Q come out at the bottom. I think the Street wants to hear conservatism and would rather see you explain that you have no counterparty risk to Lehman in your first paragraph than they would a big well. Sheesh.

  96. 96
    Garyinhou Says:

    Basically, an awful lot of armageddon priced in at these levels? I’m hoping so but logic on vacation.

  97. 97
    Sambone Says:

    G – There is no “Logic” in this market. It’s all Fear at this point.

  98. 98
    Sambone Says:

    DOW JONES NEWSWIRES

    Oil and natural gas companies’ shares were falling sharply Wednesday as crude
    oil traded 3.5% lower on a giant build in oil and gasoline inventories and a
    widening decline in demand.
    For the week ended Oct. 3, oil inventories rose by 8.1 million barrels and
    gasoline stocks grew by 7.2 million barrels, the U.S. Energy Information
    Administration said Wednesday. The builds far exceeded the analyst forecast of
    a 2.3-million-barrel increase in oil stocks and a 1.1-million-barrel build in
    gasoline. The inventory rise was at least partly due to Gulf Coast ports and
    refineries returning to normal production after shutting down ahead of
    Hurricane Ike in September.
    Climbing inventories point to weakening demand. Total products supplied, a
    means of measuring consumption, was down 8.6% from a year earlier, roughly
    double the declines seen at the end of August. Oil use is down 2.45 million
    barrels a day from a year earlier, and is at the lowest point since the week
    ended Sept. 21, 2001.
    Leading energy shares’ declines were natural gas exploration and production
    company Southwestern Energy Co. (SWN), which was recently down 10% at $23.87;
    oil and gas drilling component maker National Oilwell Varco Inc. (NOV), which
    had fallen 10% to $29.50; and oil refining company Valero Energy Corp. (VLO),
    which had slid 9% to $20.75.
    Light, sweet crude for November delivery traded $3.14 lower at $86.92 a gallon
    on the New York Mercantile Exchange.
    – By Kerry E. Grace, Dow Jones Newswires

    Dow Jones Newswires
    10-08-08 1142ET

  99. 99
    Garyinhou Says:

    Hear that.. I couldn’t stop myself today.. went shopping for nov, hal, hk, clr.. It was like hitting the dollar menu at McD’s with a $50.. still got $45 left..

  100. 100
    Dman Says:

    Have to admit the 5 year SPX chart also now looking pretty spectacular. When things get this unglued, it could lose another 10% easily enough.

    Last two days have had a different feel to them: less roller-coaster and more grinding down with occasional spikes. What does that mean? No idea.

    Nicky! You out there? What do you think of UNG & gold?

  101. 101
    Garyinhou Says:

    11:38am.. HK 1.9 million shares – wow

  102. 102
    isleworth Says:

    I think all of the early chatter on the new PQ credit agreement caused it to crater. Gross overreaction to nothing material IMHO but has allowed us to add. 🙂

    “I am proud of the continued operational performance of the Company, even during this challenging period of hurricane disruptions. Our strong growth in reserves from our diversified portfolio of assets was recognized by the group of banks that form our new credit facility. We continue to forecast reserve growth in excess of 40% during 2008 from the drill bit alone, while remaining mindful of liquidity as we navigate the effects of the global economy on our business,” said Charles T. Goodson, Chairman, Chief Executive Officer and President.

  103. 103
    Garyinhou Says:

    Z – that spike in volume from 11:38 to 11:39 in HK could have only been a fund? or perhaps a suitor?

  104. 104
    zman Says:

    Isle – agreed re 102

    Gary – almost certainly a fund. My system is not showing that level of volume either so it may be some blocks that will show later.

    Market just halved its losses….wild moves.

  105. 105
    zman Says:

    Iraq now saying OPEC may need to cut production if price stays below $90.

    http://www.upstreamonline.com/live/article164466.ece

    In the end, the U.S. may need to borrow a little cash from Iraq.

  106. 106
    zman Says:

    CHK green. Whoa.

  107. 107
    Dman Says:

    Iraq (!) Iraq wants to cut production? Or do they want, ahem, KSA to cut for them? Either way, pretty amazing to hear that.

    I’ve been wondering whether, in fact, the Saudis might be happy with $80 for a while on account of they want to give the global economy a boost.

  108. 108
    zman Says:

    Dman – I think Saudi is much more comfy with $80 than the other members would like. Agreed re the boost to the global economy.

  109. 109
    zman Says:

    Wow, CHK still green and up 2.5%, massive volume for this time of day.

  110. 110
    Dman Says:

    Tony Crescenzi at RealMoney is reporting on a significant thawing in credit markets today. The details are gibberish to me but this guy does know his stuff.

  111. 111
    BossmanG Says:

    Dman, what is meant by thawing lol?

  112. 112
    zman Says:

    Well he should keep saying thawing as its unlocking the group a bit which has been in the penalty box all day.

    CHK up 4% now…hmmm.

  113. 113
    Dman Says:

    Bman: in recent day/weeks the credit markets were frozen to most participants. No one would lend to anyone. Even GE could only borrow at hideous rates. Thawing just means an easing of credit availability which usually also means lower rates.

  114. 114
    zman Says:

    LINE yield no right at 20%. Pretty interesting thought for IRA money.

  115. 115
    BossmanG Says:

    Ah, stupid question now that I realize, thawing of the frozen credit
    thanks, i need a vacation from this market

  116. 116
    ram Says:

    Yes, I hear you guys, but did Maria cry?

  117. 117
    john11 Says:

    Joe Bastardi of accuweather out with a forecast of coldest winter in 5 years.

  118. 118
    zman Says:

    Walked away from the screen for 10 minutes. Lots of green now. May walk away for a half hour and see what happens.

  119. 119
    ram Says:

    ZMAN – What do you think about this move up in the last two hours? It sounds like someone yelled NAPA two hours ago.

  120. 120
    ram Says:

    Did anyone see if the shorting ban is going to be extended? I wonder if the shorts are gathering up the money they made on non-financials and can’t wait to get into financials.

  121. 121
    zman Says:

    John – thanks for that catch on the weather.

    Ram – it looks like broad market based and not group specific. I’d like to see both of them hold up. More Simi Valley than Napa I think.

  122. 122
    ram Says:

    Simi Valley – yuk! I used to live in Camarillo and now about Simi Valley.

  123. 123
    ellwodo Says:

    Decided CHK will make it over $36 in the next 15 months, bought some Jan 10 $30 calls. (If my Jan 10 $60s ever recover, these should make me happy.)

  124. 124
    zman Says:

    Ram – never made it north of San Fran over the trip but did spend some nice time in Carmel and Monterey.

  125. 125
    antrimshale74 Says:

    We’ll have to see what happens when Paulson speaks.

  126. 126
    ram Says:

    I love Carmel – good food, shopping, and decent wineries to visit.

  127. 127
    zman Says:

    Ate at Clint Eastwood’s old place there, Hogsbreath…had his version of a white castle slider…mmmm good. Trying to get the wife to agree to retire somewhere near there someday.

  128. 128
    douglas51 Says:

    Golf is cheaper at Pebble beach this year and easy to get on.

    Anyone know anything about Sempra: SEP?

  129. 129
    zman Says:

    Spyglass looked deserted.

    SEP a little outside my normal range, apologies.

  130. 130
    zman Says:

    By the way, crude is only off 50 cents for the day in late trading, gotta think there is something to all the OPEC rumors. Big surge in imports catching up after the storm and a big rise in US stocks should make it easy for them to cut back more.

  131. 131
    Sambone Says:

    D – SEP is Spectra Energy LP. Is that what you need info on?

  132. 132
    reefguy Says:

    Heard why MLP’s crashed: Goldman was holding clients position in a internal synthetic, to simplify tax accounting for clients. Goldman put leverage on the vehicle(NFS)and was forced to liquidated the shares to pure equity.

  133. 133
    reefguy Says:

    124- wait until houses reprice in 2011 at 50% of current market

  134. 134
    Dman Says:

    Z – just to clarify from your post today: you don’t think CHK’s debt load will paint a target on them?

  135. 135
    zman Says:

    Reef – thanks, that sounds about likely. Guys at IPAA were sick of talking about all the hedge fund machinations that were known to be driving equities lower. LINE guy was really sick of it. They all just want to talk about the stories, much like me, ya know drilling and completing wells etc. At some point (I think soon) that will all matter again.

    Dman – on the CHK I was just highlighting it because it won’t be what people are looking for when they head back to the group (lots of leverage I mean). But the beat down is way over done and since their debt is further out in maturity its not a crushing concern. I hold it long term, and I’m not ready to add it or much of anything just yet. But I may trade a little here and there next week if we can just move sideways to the weekend.

    SD now up 15% from down 14% earlier. Yeah, people really have a good handle on where these stocks should be. Sheesh.

  136. 136
    john11 Says:

    reef, thanks for 132.. been adding to VNR another 20% payer.

  137. 137
    isleworth Says:

    Z – any hope for refiners?

  138. 138
    reefguy Says:

    Kmp- if I had guts, i would have made 25% today. LOD $35.60, now $44.60

  139. 139
    zman Says:

    Isle – re refiners. Not if the consumer won’t bite on lower gasoline prices. Maybe Bastardi’s cold winter helps. Very tough environment. They went back to work and just killed gasoline. Names like TSO are trading below any kind of replacement value and possibly below inventory value (as in refined product on hand x price). I will check to see if I can get more recent numbers but at some point they stop falling due to valuation. 3Q still going to be the best of the year but 4Q is teetering now.

  140. 140
    zman Says:

    Reef – I hear ya, feeling pretty gunshy myself. I’ll probably start playing again after the next shoe drops. I do like the volumes today in E&P land though.

  141. 141
    ram Says:

    Why do you think there is another shoe to drop? Why would you think today shouldn’t be the bottom?

  142. 142
    zman Says:

    Trying to get a little BEXP, one of the few big down traders today, after a very nice well the other day in the Bakken.

    Ram – just a feeling. Felt like a bottom so many times I have little faith that we suddenly have hit the floor and will now work higher. Hope I’m wrong.

  143. 143
    douglas51 Says:

    Sambone…yes, SEP. Thanks

  144. 144
    Dman Says:

    ram: today we had Iceland bankrupt, rescued by Russia and Iraq suggesting OPEC cuts. That tells me that almost anything could be in the headlines tomorrow. Might not be bad stuff, but now seems to be the season of outlandish headlines. How about “China and Taiwan settle differences and agree to bail out the Fed” ?

  145. 145
    zman Says:

    ZTRADE: Picked up a little BEXP November $7.50 call position (QBJKU) for $0.90 with the stock around $6.50. Strong well results in the Three Forks Sanish in North Dakota yesterday and the stock not following the slightly move up in the group today. This a bit of an “enough is enough” trade as this stock was around $10 at the beginning of the month and $14 mid September.

  146. 146
    zman Says:

    Wow Dow swing today.

  147. 147
    reefguy Says:

    hedgies selling into close

  148. 148
    Fred Says:

    Z – Polecat started talking and market tanked.

  149. 149
    Sambone Says:

    SE/SEP = Spectra Energy. One is the management and the other is the MLP. I really like SE/SEP. It is run by Paul Anderson. He is a very smart operator. He used to run this years ago as “Pan Energy” in Houston. DUK bght them and Paul moved to BHP and took over after BHP screwed up. He turned that around. When DUK screwed up (See Enron) he came back and ran that. He did not take a salary but only restricted stock if he performed. No options, etc. DUK was trading at 13 when he took over. He turned it around and then they spun off to shareholders SE. Paul now runs his old firm.
    This is the largest Ngas pipeline in the US. Small retail in Northwest. They get paid to transport from point A to point B. The price of Ngas doesn’t affect the bottomline. I have 75K shares of SE. I like to own the management side of the MLP’s unless I need income. Do NOT buy MLP’s in an IRA. I am currently sniffing pretty hard at KMR the management side of KMP.

  150. 150
    Sambone Says:

    Tini time

  151. 151
    zman Says:

    We should ban government officials from talking during market hours.

  152. 152
    Fred Says:

    Z – Amen brother

  153. 153
    antrimshale74 Says:

    VIX was up again today. This really is THE NEVER ENDING STORY.

  154. 154
    Nicky Says:

    Good evening anyone who is still about. Dman – sorry I wasn’t around earlier and have just been catching up on all the posts on the site and saw your questions.

    A bit of trivia first – I heard Maria Bartiromo gets paid $1.1 million per year! And Cramer over a million for their shows on CNBC – well as far as I am concerned the latter you can drop in a heartbeat. Shall we just recall his forecast for the July lows being the all time lows in the market. The guy is a total jerk and obviously an overpaid jerk at that! He has to be the great contrarian call in the business.

    Okay my overall views on the broader market. To state what everyone already probably knows – Dow, SPX, Nas down 6th straight days in a row – hasn’t happened since 1991. Dow has lost 1600 points in 6 days. You can smell the fear I suspect and I am with Samborne on this that the time is nigh. To try and pick a bottom is madness, insanity and we shall all wish we had afterwards. All I know is that the risk/reward is getting better the lower we go! And unless all these companies are going to zero there is going to be a bottom!
    The market clearly wants to work on its own. Every time they interfere we get a few hundred point rally and then it tanks sticking the finger up as it goes! And then to cap it all they bring Paulson out an hour before the close today – who hasn’t been seen for days’- and he tells us that it could be weeks before the Treasury does anything. For God’s sake this man is supposed to be doing everything in his power to save the markets and instead he makes an inane comment like that! So tonight the short rule is revoked – personally I think great news – now the markets can work again – and it MAY just provoke the opposite reaction to what everyone is expecting. Wouldn’t that just be typical. The longs have stayed out as they can’t hedge their positions – now they can again – it could be time to back up the truck. There were small signs today of a change. As Dylan Rattigan said (and I laughed as I had said it to myself earlier) the market wasn’t down 500 today so I consider it an up day! If anyone saw Fast Money Jeff Mackie was absolutely hilarious on having been caught short going into the rate cut this morning. But there were sectors today showing strength – an early signal that people are starting to nibble. Many shares did not sell off any further today – exhausted? Buyers coming in? And Santelli commented all afternooon that the flight to safety trade may finally be over. When this turns you better believe we are going to see the mother of all rallies inside a 48 hour period.
    I will however go back to where this could end. Clearly anyone watching the charts can see the spike down which is why it is so difficult to pinpoint a low. As far as Elliott Wave goes then its possible that we have finished 3, are in 4 (up and chopppy) with 5 down still to come. So in other words we could get some wild gyrations whilst this bottoming process takes place. There are some obvious places that people are going to call for ie 7600 area on the Dow but I am mindful that the market nearly always disappoints when it comes to targets! Remember oil at 150? 8500 – 8800 may be more likely for the final low on this run. Bear in mind that the last leg down is likely to be the worst.
    Now bigger picture. The decline has been far greater on this first leg down than I think anybody could envisage. We are getting to target areas that I thought we would reach later in 2009. Frankly that is not encouraging for levels we are finally going to reach before this is done. The bounce when it comes will I believe be huge and last anywhere at a maximum into the spring of next year. Everyone will tout it as the start of a new bull market. IMO do not be fooled. The Dow is still going to 7000 and now probably lower and the SPX looks very likely headed for 700 and possibly 500 by the middle of 2010. What we have just seen will look like a tea party compared with what is to come. As I heard the number one technical analyst for the last 3 years in the USA say last night this is a once in a lifetime/generation event and we are only half way there!

    Oil – still think it will bottom between here and 80 on this run. hoping for 85 but not sure I am gonna get it. Gasoline 18200 support.

    Gold – 926 proving to be fierce resistance in the December contract. If we can get above there we may get to 960 to coincide with the low in the indices. Then I am looking for a retest of the lows around 775. Its difficult not to be bullish gold in the current environment but I feel a bit that its underperforming – with the melt down and fear we are seeing surely it should be making new highs?

    Nat gas – see it hit 6550 earlier today and I missed it. Been looking for the 6.50 area to get long for a trade.

    Anyway thats my two cents worth! Sorry to ramble on.

  155. 155
    elduque Says:

    Thanks Nicky and to all contributing.

  156. 156
    john11 Says:

    Nicky, no ramble there, really appreciate your posts all the time. That was a great summary of difficult times we will all have to deal with.

  157. 157
    Bleemus Says:

    CHK CEO McClendon sells all of his personal company stock to cover margin call.

  158. 158
    rseidman Says:

    It came over the air that CHK CEO “involuntarily” sold all his shares of the company.

    Explained it was needed to meet margin calls

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