27
Oct

Another Monday Meltdown?

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One crazy week begets another. This we have the Fed meeting on Wednesday (consensus expectation is now a 50 bps cut to 1% fed funds) and 3Q revised GDP on Thursday (expected to show negative growth (down 0.6%). Sentiment on the group remains tied to the broader markets as is summed up by one word: Ugly.

Observations from last week's earnings reports and trading:

  1. Deepwater - still going strong. I like (DO) best there for a cheap, highly contracted, low leverage, high yield way to play the segment.
  2. Low Debt Vs. High Growth. Low debt wins hands down right now as does cash if you have it. E&P mantra has become flexibility with an eye on staying within one's cash flow. High growth does not matter at the moment. 
  3. Oil hinging on Demand vs Supply. Ok, nothing new there but when traders shrug off an OPEC cut coming to 5% of their daily output without so much as an uptick it reinforces the thought. Look for a sharp snap back here once:  1) consumers start responding to low gasoline prices at the pump, 2) the credit markets unfreeze, 3) drilling shifts to Wall Street (M&A activity is occurring overseas already), and 4) the dollar stops opening 1% higher day after day.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch - early cold, much colder than normal
  3. Earnings Watch - The Week Ahead
  4. Stocks We Care About Today
  5. Odds & Ends

Holdings Watch: Wiki Holdings, ZEB Performance and the 10KP updated through Friday

Commodity Watch:

Crude oil fell another stunning 11% last week to close at $64.15. The dollar index rallied 4.8% to close the week at 86.44. and is up a whopping 17% since its early August breakout. Meanwhile OPEC cut production by 1.5 mm bopd on Friday with an effective November 1, but it went unnoticed as far as crude prices were concerned. I think that coming on another broad market sell off day the fact that crude didn't turn is not surprising and ok.  I say, go ahead, get the damage out of the way to the crude chart and to the energy related equities. This morning crude is off $1.50 to $2.50.

  • OPEC Watch: Iran says don't rule out another cut if oil fails to stabilize. Iran's economy is thought to suffer below $70 as does the fate of Ahmadinejad  (said to be ailing already) and I would not rule out the threat of a loan wolf action here (either a claim of another cut by Iran or some sort of provocation of Bush in his final weeks in office).
  • Non-OPEC Supply Watch: And get ready for non-OPEC supply to dwindle. Investment over in places like Mexico seemed like a good idea over $100 per barrel but their congress wouldn't allow it despite sharp annual declines. Now, just as they are warming up to the idea, falling prices and a constrained sentiment towards new exploration projects will see fewer takers if Mexico finally opens itself to foreign partnerships.  
  • Mid-East Tensions Watch:U.S. mounts raid inside Syria on Sunday. No impact on oil although it might inspire Iran, who has already condemned the attack, to step up its nuclear rhetoric.

Natural gas fell 8% to close at $6.24 last week on  the November contract. Gas should begin reacting to an early blast of cold that sent heating degree days well above normal (colder) last week (see graphic under weather watch). This morning, gas is trading of 15 cents in line with the decline in oil prices.

 

The Natural Gas Directed Rig Count Noticeably Backing Away From Decade Highs ...Bigger Fall To Come Soon. The service stocks  and E&P names are looking for a 200 to 400 rig drop here this Winter as low prices force capital budgets further into retreat. So far you can't really see it in the numbers but as Chesapeake and others pointed out, the rigs don't stop drilling mid well but will get released as they complete their current assignments. I expect that we've seen the highs for at least the next year for gas rigs  When this becomes more pronounced it should have a stabilizing to positive impact on natural gas prices.

 

Now, take a look at the four core counties in the Barnett Shale, the current leading growth driver for natural gas production in the U.S. I broke them down by county so you can see rigs vs production during 2008 and for each of the last 5 Januaries.

Key Points:

  1. As you can see from the tables rig activity jumped 217% from January 2004 to January 2008.
  2. Where rig activity was high like in prospect rich Jonson County, production flew up.
  3. Conversely, where it remained more flattish, like in Wise country (which is pretty drilled up at this point) production leveled off.
  4. In aggregate, the 217% increase in rigs yielded a 197% increase in daily production growth.
  5. Note that Johnson county has been the core driver of the core region...CHK and others are reducing their rig count here.
  6. Production declines of Barnett shale wells is asymptotic, with the average core Barnett Shale well declining 81% in its first year. Without a rising rig count production growth will quickly grind to a halt in Johnson country and will decline in Denton, Tarrant, and Wise next year.  
  7. In aggregate, the 17 counties of the Barnett Shale produced 3.6 Bcfgpd in Jaunary. The core counties represent the best of the Barnett in terms of economics so if rig counts are falling there we can easily make the assumption that they are falling faster in the other 13 counties.

 

Weather Watch: HDD's rose to a much colder than normal 92 last week, so look for a much small injection to storage this Thursday (probably something close to 40 Bcf or less) from 70 Bcf last week. In other words, an early cold spell is arriving on time to allow injections to fall off and transition to withdrawals right when they normal would despite the extra supply currently on hand.

Tropics Watch: Zip, nada, zilch as the end of the Atlantic hurricane season approaches.

Earnings Watch:

Stuff We Care About Today Watch

(ATPG) Announces 10% Stock Repurchase. Don't care about this name in particular but buybacks are gaining increasingly popularity in the small to large cap E&P group.

Odds & Ends

Analyst Watch: Credit Suisse cuts RDS to underperform, 

 

112 Responses to “Another Monday Meltdown?”

  1. 1
    Sambone Says:

    After OPEC Oil Output Cut, Price Floor Slow In Forming

    By GREGORY MEYER
    Of DOW JONES NEWSWIRES

    NEW YORK — The Organization of Petroleum Exporting Countries’ move to pump less oil in the face of shaky demand growth will result in higher prices — eventually.

    For now, however, the cartel’s decision Friday to trim 1.5 million barrels a day from its output target won’t put the brakes on oil prices’ nosedive, analysts say.

    The reasons have to do both with oil supply dynamics and global financial markets. Any constriction of supply on the back of OPEC’s decision won’t be felt for weeks. In addition, the cartel has a spotty compliance record.

    Stock markets also reflect mounting evidence that world economic growth is stagnating, and possibly reversing. Oil has paralleled stocks’ path on fears that a weaker economy will result in anemic demand. Equities tend to precede the bottom of the business cycle, notes Merrill Lynch strategist Francisco Blanch, whereas commodity bear markets descend alongside it. With stock markets continuing to fall, he says that suggests the economy is set to slow further.

    Benchmark crude futures on Friday settled at a 17-month low, ending $3.69, or 5.4%, lower at $64.15 a barrel on the New York Mercantile Exchange.

    In the near term, prices could keep falling: Many point to $50-a-barrel crude if an economic slump persists.

    “From the get-go, I never anticipated the OPEC production cut would make a lot of difference to this market, simply because there are so many other things going on,” said Jim Ritterbusch, president of Galena, Ill.-based energy trading advisory firm Ritterbusch and Associates.

    Crunching Quota Numbers
    OPEC said it will lower its production ceiling, now 28.8 million barrels a day, by 1.5 million barrels a day starting Nov. 1. The cartel spelled out how much each member subject to quotas agreed to take off the market. Cutting 466,000 barrels a day, Saudi Arabia would shoulder the biggest share.

    But OPEC members Angola, Nigeria and Venezuela are already producing under quota, according to recent International Energy Agency estimates. And assuming not every country rigidly adheres to Friday’s agreement, the actual cut is likely to be 1.16 million barrels a day, said Lawrence Eagles, head of commodity research at JPMorgan in New York.

    That amount could lead to evenly balanced supply and demand by the end of the year, Eagles said. It also indicates further cuts could be needed in the first half of next year. The wild cards are whether the northern hemisphere endures an unusually cold winter, boosting heating oil and gasoil use, and whether demand softens even further with the economy.

    JPMorgan stands by its forecast that oil prices will average $79 a barrel in the fourth quarter, and about $70 a barrel early next year, Eagles said.

    Others say OPEC would need to cut more than 1.5 million barrels a day to meet its new production goal, as the cartel was in September producing about 530,000 barrels a day over quota. If the group succeeds, Barclays Capital analyst Costanza Jacazio said demand could outpace supply next year, tightening the market. Barclays sees crude averaging $105 a barrel in the second half of 2009.

    However much is cut, it will take time for the effects to sink in. Tankers need more than a month to sail from the Persian Gulf to the U.S. and at least 20 days to reach Europe or Japan, said Harry Tchilinguirian, senior oil market analyst at BNP Paribas Commodity Derivatives in London.

    Tim Evans, energy analyst at Citi Futures Perspective, said OPEC’s new output stance may have rescued crude from a deeper decline Friday.

    “While it might be tempting to conclude that the OPEC decision was bearish, we think it will prove effective in raising the ultimate floor for prices,” he said in a note. Another cut could push prices higher, he added. OPEC is scheduled to meet again Dec. 17.

    The Weight Of Fear
    In trying to establish a price floor, OPEC is up against factors beyond its control. Fears of a global recession, and its effect on oil demand, are pummeling stock and oil markets concurrently.

    Oil prices may stay largely detached from supply factors for months to come. World stock markets sank again Friday, with the Dow Jones Industrial Average ending down 312 points at 8379. Investors’ rush to avoid risky assets amid the financial crisis has also contributed to oil’s 56% decline from July.

    “If equity markets stabilize in the next month, people will play closer attention to the fundamentals of the oil markets,” Tchilinguirian said. “But because the equity markets right now are the bellwether of economic sentiment, whatever happens there is going to affect how people trade oil.”

    The IEA sees world oil demand growing by less than 1% annually this year and in 2009. Other forecasters see worldwide demand contracting next year for the first time since 1983.

    Even if OPEC had agreed to a more aggressive cut, Tchilinguirian notes, it “could have been perceived as negative for the world economy and sent prices lower anyway.”

    —By Gregory Meyer, Dow Jones Newswires

  2. 2
    Sambone Says:

    Crude Dives, OPEC Continues To Disappoint

    Dow Jones Newswires
    From Market Talk:
    0904 GMT [Dow Jones] Crude oil futures are depressed by lower equity markets and a broadly stronger US dollar, says a broker at ODL Securities. Notes OPEC’s 1.5M b/d output cut announced Friday “brought nothing new to the table…(and) was never going to be enough to reverse the current downtrend.” Anticipates the group will meet again and curtain output further before its next scheduled meeting Dec. 17 in Algeria. ICE December Brent -$2.72 at $59.33/bbl, Nymex December light, sweet crude -$2.46 at $61.69/bbl.

  3. 3
    zman Says:

    Saw Stephen Schork this morning saying the fair price of oil is around $80. I swear he said two weeks ago it was $30 but not matter, he’s been a big bear, interesting to see that one change his tune.

  4. 4
    zman Says:

    ACI beat 3Q, guided 4Q down. Stock not off that bad, conf call at 11 est.

    Market in general not off as bad as early indications and even bouncing. Energy off harder than broad markets by 2 to 3x on nothing volume. Looking for a reversal to green today. I know the TA guys wants a single day capitulations but a 3 week capitulation has occurred already and a change from big sell to big gain may be what the doctor ordered. Frankly, I’d prefer to see some calm, flat to sideways trading.

    People are already talking 3/4 cut which would put us at 3/4 which would be a record low for the States which I’m not convinced would do much good right now.

  5. 5
    zman Says:

    Coal sector going green.

  6. 6
    bill Says:

    i like your weather watch chart

    hard to believe oil at 60 and gas at 6

    no one can make money at these levels

    A close examination of chk hedges in last outlook reveals that they undwound some hedges so maybe a pop in q4 earnings

  7. 7
    mahout Says:

    Z,

    Government action taking far too long to help the situation. Momentum of this worldwide fear driven paralysis and shrinking of activity and asset values is going to be very difficult to arrest.Going to more cash. Not selling any dance partners tho.

  8. 8
    Dman Says:

    Baltic Dry Index down 91% from its peak (so I read today in Minyanville). Wow. Need some calls on that thing.

  9. 9
    zman Says:

    Bill – going below freezing in much of the South tonight so I have to think this week scores better than the flat with last week initial forecast from the CPC.

    Market thinking about putting on a rally cap here.

    Dman – no kidding. Ya gotta, gotta, gotta figure it and the SEA snap back pretty hard when there is any sign of a global floor in place. At some point WMT’s going to start receiving lots of plastic toys from China…unless Christmas is canceled.

    Maybe I’m kidding myself but I think we go green across the board today. Just too much negativity and I saw this having watched the Hang Seng fall 12% and listened to Squawk Box since 4 am which I can tell you is a pretty useless endeavor.

    Refiners inching green after the coals, couple of gassy names up too. XLE flat. If the market gets the green light the one day rally will be largish.

  10. 10
    reefguy Says:

    Treasure island up 21%

  11. 11
    zman Says:

    WLT may be the smart coal play here, earnings out this week, talk about beaten down, and ACI let off the hook after lowering fwd numbers.

    Reef – think its just speculation? EXXI and MMR not reacting to anything.

  12. 12
    reefguy Says:

    Yes, 12000 share of TISDZ is about $8500

  13. 13
    zman Says:

    Reef – right, don’t want to play that game, not and be the last one in I mean.

  14. 14
    zman Says:

    PXD at new low (as are lots of things) but this one is less than 2x ’08 or ’09 CFPS estimates. Zoiks.

  15. 15
    zman Says:

    Market action like watching paint dry. Somebody shoot this week/month in the head so we can move on. October is supposed to be ugly but this is ridiculous.

  16. 16
    cargocult Says:

    Why aren’t the refiners benefiting from lower crude prices?

  17. 17
    zman Says:

    ACI call starting, will let you know if I hear anything worth staying awake for.

  18. 18
    zman Says:

    Because product prices have come down at about the same pace as crude. Not today but over the last several weeks.

  19. 19
    Dman Says:

    #15 It does seem pretty calm compared to the down 20% up 10% all-in-one-day action of late. So why is the VIX still up at 76??

  20. 20
    arodeen Says:

    http://www.economagic.com/doeme.htm

    Didn’t know if anyone liked to plot their own data. This is supposed to be DOE data.

  21. 21
    zman Says:

    ACI Call

    Powder River Basin improving over next year:

    1) cutting back production
    2) new markets are developing for PRB coal, more blending with higher BTU coals in the West and East
    3) new demand from new plant startup
    4) test shipments of PRB coal sent to China …tests going well.

    Impact of financial crisis on coal markets:
    1) underlying supply/demand remain positive…correction overdone
    2) see exports of 80 mm tons in 2008, vs 50 mm in 2006. See 2009 exports up 8 to 10% from 2008
    3) see less coal imports from Latin America.
    4) coal remains lowest cost energy source for most of the world.
    5) they see a coal supply deficit over the next 3 to 5 years.
    6) conditions in the big coal exporting countries have worsened this year
    7) met coal markets do look weaker with economy.

    U.S. Domestic Coal Consumption:
    Down about 1.5% this year through mid October due to mild summer.

    Supply Side: EIA says production is up 1.5% through mid October, but this is all due to Central Appalachia growth which is in turn due to high prices over the summer and faces strong cost pressures in the face of the recent drop in C. Appa. prices.

  22. 22
    zman Says:

    arodeen, thanks, I clicked through and then into natural gas and those look like tables from the MER (Monthly Energy Review) but they were stopped out at mid 2007. EIA has the same data up through 2 months ago at http://www.eia.doe.gov

  23. 23
    mahout Says:

    Z,

    Copper now down to $1.73. This worldwide economic activity indicator is very bearish.

  24. 24
    Sambone Says:

    By Lananh Nguyen
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures fell in London Monday as economic
    worries continued to depress prices.
    Oil slackened in line with lower equity markets and a broadly stronger U.S.
    dollar, with ICE Brent crude earlier dropping below the key psychological $60 a
    barrel level.
    “Price continues to be dictated by broad de-leveraging and risk-aversion,”
    said Hamza Hamza, a fund manager at Sucden UK Ltd. “With this negative
    backdrop, I would still favor more downside.”
    At 1304 GMT, the front-month December Brent contract on London’s ICE futures
    exchange was down $0.34 at $61.71 a barrel after dipping to an 18-month low at
    $59.02 a barrel.
    The front-month December contract on the New York Mercantile Exchange was
    trading $0.21 lower at $63.94 a barrel after earlier touching a 15-month low.
    The ICE’s gasoil contract for November delivery was down $2 at $626.75 a
    metric ton, while Nymex gasoline for November delivery was down 100 points at
    146.79 cents a gallon.
    Fears over slowing global growth pervaded markets Monday, prompting many
    participants across wider financial markets to liquidate positions viewed as
    too risky.
    “It should be expected that more risk is still to be taken off the table,
    meaning that the waves of indiscriminate selling across asset classes are not
    yet necessarily over,” said Olivier Jakob, managing director of
    Switzerland-based Petromatrix consultancy.
    Slumping stock markets and a rising U.S. dollar largely overshadowed
    fundamental news, even after the Organization of Petroleum Exporting Countries
    pledged to roll back production by 1.5 million barrels a day Friday.
    While oil extended its selloff, some analysts said that OPEC’s decision could
    yet provide some support for prices – which have shed nearly 60% of their value
    since peaking in mid-July.
    “While the initial reaction in the oil market is negative, we think it is only
    a matter of time before OPEC tightens it up enough to cause the oil price to
    recover,” said Colin Smith at Dresdner Kleinwort bank in London.
    He warned participants not to dismiss OPEC’s latest move. “We regard this as a
    clear statement of intent by OPEC to defend oil prices with further cuts likely
    if oil prices do not recover.”
    Other participants were also anticipating OPEC to trim output again in the
    coming months.
    “Weakening of the demand side could necessitate further cuts,” said analysts
    at Citigroup in London.
    Oil market participants were also looking ahead to a two-day meeting of the
    U.S. Federal Reserve which begins Tuesday. The central bank is largely expected
    to cut interest rates by 50 basis points.
    “Any Fed decision on Wednesday may briefly add a little support,” but a
    50-basis-point cut was already priced in, an oil broker in London said.
    In the medium term, oil demand could rebound once Reliance Petroleum Ltd.’s
    new 580,000 barrel-a-day Jamnagar refinery in India comes online in December.
    “Once we start seeing the new Reliance refinery starting up and the crude
    moving over there, things may start balancing a little; but until then, I’m not
    too hopeful,” the broker added.
    -By Lananh Nguyen, Dow Jones Newswires; +44 (0)20-7842-9479;
    lananh.nguyen@dowjones.com

    Click here to go to Dow Jones NewsPlus, a web front page of today’s most
    important business and market news, analysis and commentary:
    http://www.djnewsplus.com/al?rnd=ho8PTXEg%2B5DfkckkGM%2BVJw%3D%3D. You can use
    this link on the day this article is published and the following day.

    Corrected Oct. 27, 2008 9:24 ET (1324 GMT)
    (END) Dow Jones Newswires
    10-27-08 0915ET
    Copyright (c) 2008 Dow Jones & Company, Inc.
    At 1304 GMT, the front-month December Brent contract on London’s ICE futures
    exchange was down $0.34 at $61.71 a barrel after dipping to an 18-month low at
    $59.02 a barrel.
    (In “OIL FUTURES: Crude Falls As Econ Worries Grip Market” published at 1315
    GMT, the time of crude oil futures prices was misstated.)

    Dow Jones Newswires
    10-27-08 0922ET
    22 AM EDT 10-27-08

  25. 25
    bill Says:

    arch coal website says 11– that must be replay

  26. 26
    zman Says:

    Mahout – on the brighter side, I guess people will stop stealing it.

    We’ve fallen into a pattern of “because we have sold off, we will continue to sell off”. Need something to break that cycle. Maybe coordinated currency intervention does it, maybe not. Maybe its a housing recovery (saw baby steps there this morning) but that will take months to gain footing.

  27. 27
    bill Says:

    how are you on aci call

    onference call regarding Arch Coal’s third quarter 2008 financial results will be webcast live today at 11 a.m. E.D.T. The conference call can be accessed via the “investor” section of the Arch Coal Web site (www.archcoal.com).

  28. 28
    zman Says:

    Bill – It started at 11 EST, Q&A starting now.

  29. 29
    bill Says:

    nevermind, lol

  30. 30
    zman Says:

    Just looking over the horrible energy performance today it once again looks like forced liquidations on the part of a few (low volumes) and a complete dearth of buyers.

  31. 31
    zman Says:

    The one bright spot, and it’s dim but worth noting. The majors (big) and names like EOG (low debt) are performing much better than the small and mid cap E&P names.

  32. 32
    PackMan Says:

    Z- can you comment on the CHK knockout swaps for October. It seems NG is now below the trigger price. Is this an Oct. 31st event only ?

  33. 33
    BirdsofpreyRcool Says:

    good morning, all. glad i was on a desert island on Friday… missed the IG index move to 250 and the VIX to 90. these are head-exploding numbers. You can’t see them and stay sane…

    IG better this morning, coming in from the opening wides at 230 to 219 now.

    But, the credit market is directionless. IG trades are all over the place. Not sure what the mrkt is waiting for… Not sure any move by the Fed on Wednesday is going to move this market up. I am seeing a 100% possibility of a 75 bps cut and a 66% probability of a 100 bps cut. Can’t get much more negative than that.

    All that said, the credit market is still frozen. Any rally is merely volatility and/or short-covering until we see some real progress in corporate bond offerings.

  34. 34
    zman Says:

    Pack – As I understand it they bought out some of the Nov and December position but the october portion remains in place. So they would take the market price on just under 25 Bcf instead of just over $10 if the price of gas is sub $6.28 on 10/31. So its a about $4 per Mcf hit on roughly a third of their 4Q expected volumes.

  35. 35
    BirdsofpreyRcool Says:

    the thing is, we are so negative, that we will probably get a rally once we get into November and/or pass the election.

    Fund managers NEED the rally to salvage some of their year. If you see even the slightest HINT of a rally, money will come off the bench and hit the field. No one wants to be caught, sitting this one out.

    That said, any stock market rally that is not followed up by a corporate bond market rally will end in tears. But, quick moves and light-fingered trades can still make money in this market. Just don’t fall in love with your positions. That is what will leave you in tears.

  36. 36
    zman Says:

    Thanks Bird, the equity markets are directionless with the credit market. Wonder what a 100 bip cut would do to the dollar?

  37. 37
    Dman Says:

    KWK director selling to meet margin calls

  38. 38
    zman Says:

    EOG, XOM, CVX green, pretty much all other energy names deep red. Talk about a flight to big cap safety.

  39. 39
    Dman Says:

    #37 from the DJ wires. Doesn’t say when selling occurred (eg today?)

  40. 40
    zman Says:

    Dman – thanks for the headsup. I saw a list the other day (headed by Aubrey of course) of 18 energy CEO’s in the same boat. There is likely to be legislation to force executives to disclose margin positions.

    Oil just briefly turned green, how odd.

  41. 41
    BirdsofpreyRcool Says:

    z – yeah… pretty funny to even think about 100 bps… but, just looking at the futures mrkt.

    frankly, a weak US$ is the best thing that can happen to us (in the long run). There are two areas the US needs to invest in, both of which are helped by a weak US$: infrastructure and export-related manufacturing. Too much consumer growth (fueled by cheap imports and jobs outsourcing) is a large chunk of what got us into this mess. The US has natural resources (other than enough oil), so we can afford to spend/build infrastructure. And we need a weak US$ to make our exports competitive.

    Basically, we need to stop shipping US$s overseas and start shipping US Finished Goods overseas.

    Energy, infrastructure, value-added manufacturing. I think those are the areas with the best outlook in our “L-Shaped Recovery.”

    Grantham and Coxe are two good sources on this.

  42. 42
    zman Says:

    Bird – I’ve been saying for a long time we could possibly export our way out of a recession with the weak dollar in place. I thought Paulson understood that when he said “we believe in a strong U.S. dollar” and then did absolutely nothing to encourage one. But now, everything seems to be running to the dollar at precisely the wrong time to help out. Good for shopping abroad but little else.

  43. 43
    BirdsofpreyRcool Says:

    z – a strong export economy would do so much for the US. It would bring back vital, midwest manufacturing, it would encourage investment dollars, it would rebuild a strong economic foundation for the US (and give people jobs!).

    I agree, Paulson gets this. Problem is, as bad as we suck, the world sucks more. The euro banks laughed at us… but they are in worse shape than we are. We really really need a weak dollar.

  44. 44
    bill Says:

    kwk got a DOWNGRADE ON `10/20

  45. 45
    mahout Says:

    Z #30,

    That’s it in a nutshell, “a complete dearth of buyers”. ‘So many wonderful prices on wonderful companies but almost no one will buy out of fear. Cash and its equivalent is about the only thing rising in value because it will constantly buy more of every thing else. Cash is indeed “emperor of the world” now and almost everyone is trying to pile up more of it. I think this is why you won’t see XOM rushing to aquire tender juicy companies. They don’t want to give up any of that precious cash which is a great comfort to all that hold it now. But like you said, “this too will pass”, and the time will come when cash will be spent again. I just don’t want to be considerably ahead of that date in my purchases.

    I have a retired friend, an enterprising sort. We call him a “real estate magnate” because he bought one of the many distressed foreclosure homes in Phoenix to fix it up and sell it for a quick profit. Before he could get the job done thieves broke in and chopped the copper out and took it away. Some world we live in.

  46. 46
    bill Says:

    ng trying to recoup today’s losses

  47. 47
    zman Says:

    Mahout – Definitely seeing a rise in crime both economic and otherwise. Lots of the copper crime here as well as anything that’s not nailed down and I’m not on the wrong side of the tracks. Talk about some world we live in; I live about a mile from Anne Pressly. Very unfortunate.

  48. 48
    zman Says:

    Packman – ok, one correction to what I said about re those knockouts. The October contract expires Wednesday, not Friday.

  49. 49
    mahout Says:

    Bop,

    Your #35 and #41 are wisdom in my book!

    ‘Don’t doubt there may be some panicy rallies.

    On infrastructure needs, Boone Pickens windmills by the zillions would fit nicely there.

    Good to have you back.

  50. 50
    Dman Says:

    This tortuous rally (if that’s what it is) in the broad markets seems to be picking up more green energy names with each swing.

  51. 51
    BirdsofpreyRcool Says:

    IG is moving even tighter on the day. 217 now. -10 bps tigher from the open.

    Personally, I just think things (stocks, bonds, futures) are moving in the direction of maximum pain. Guess people got short and/or bought bond insurance on Friday and before the open. Who can blame anyone, given the complete fugliness of Asia.

  52. 52
    BirdsofpreyRcool Says:

    thanks, mahout.

    would love to see windmills… just NIMBY! Until the Kennedy’s are willing to allow windmills to be built off of Martha’s Vineyard, why should the rest of us put up with looking at those ugly things? (this comment is mostly tongue-in-cheek… but, not 100%…)

  53. 53
    zman Says:

    Pretty weak, nervous looking rally at this point. Seems selling came back as NY got back from lunch/

  54. 54
    Dman Says:

    NBR about 10% above its LOD

  55. 55
    zman Says:

    Dman – yeah, its amazing what small $ figures will do to % figures, lol. I’m long enough for now, don’t get me wrong, much prefer some shade of green and am “encouraged” or “constructively optimistic” since the Street seems to be doing a little sorting today (in favor of low debt, large cap names).

  56. 56
    BirdsofpreyRcool Says:

    seeing some pretty significant undwinds in the CDS mrkt today. Selling is coming from overseas. Overall, this is good (i think?) as it indicates more deleveraging taking place as foreign investors are closing out “insurance” positions on US bonds.

  57. 57
    Pete Says:

    Z re:4

    “Looking for a reversal to green today”

    looks like

  58. 58
    zman Says:

    Bird – thanks very much for the color on that shady world of yours, lol.

    Pete – if only we could string 3 days in a row together. I figure we sell off tomorrow or at the latest Wednesday in advance of 3Q GDP revision Thursday. Hope I’m wrong as we are way oversold.

  59. 59
    Dman Says:

    Z – based on the deepwater conference calls you heard recently, how would you view risks to earnings at OII?

  60. 60
    antrimshale74 Says:

    Refined products out-pacing crude today. Any thoughts on playing the VLO earnings release?

  61. 61
    zman Says:

    OII. Very good question. Three part answer:
    a) inspection/repair business grinding to 0 which is expected and there may be some upside from Ike/Gustav work there
    b) ROV’s going to stay busy with the deepwater rigs (you need 1 or 2 for each)
    c) maybe a little downside to out year numbers as I bet they reign in the rate at which they add ROV’s.
    Not enough for me to bite on but I’ll be on the call as this thing is cheaper than it ever gets but so is everything else.

  62. 62
    zman Says:

    Antrim – expectations are for no surprise so you don’t really have to worry about the 3Q numbers so much. However, the mood at the refiners is pretty grim. If I play, I wait for the conference call and then play another name. Maybe FTO, maybe TSO for next day earnings release. In the past when asked if I was going to go after these guys for earnings and I took a pass it has been a good chance to get a 10% pop, lol. I may also listen to them and buy in during the call…but not before.

  63. 63
    Dman Says:

    Thanks Z on the OII. The chart looks enticing for a quick move up if crude can stabilize.

  64. 64
    BirdsofpreyRcool Says:

    Pimco’s Gross on the tape, says they are buying “swaps, mortages, bank bonds…”

    well….. DUH! Those are are all basically Govt-backed securities now. They SHOULD be a buy. Let’s see if more fixed income mngrs can keep that ball rolling.

  65. 65
    BirdsofpreyRcool Says:

    IG 219

  66. 66
    BirdsofpreyRcool Says:

    IG 220

  67. 67
    BirdsofpreyRcool Says:

    IG 221

  68. 68
    zman Says:

    Odd how NG didn’t rally with every other commodity today. Volume is light. Weather was better than expect, imports last week were light of year ago levels…hard to figure.

  69. 69
    VTZ Says:

    Not hard if youve been banging the gas glut drum for the last 3-6 months and you only have 1 number against you.

  70. 70
    zman Says:

    V – I hear ya, but we are uneconomic in many many regions, and when you look at the growth driver in the Barnett (today’s little white paper) its pretty easy to see what happens to production as rigs come off which they are and will be.

  71. 71
    VTZ Says:

    Oh I agree with you… I’m just justifying it with unfounded statements (I might be on my way to thinking less and more like an analyst).

  72. 72
    zman Says:

    Day starting to look a lot like Friday…may be stuck this way through Thursday morning.

  73. 73
    BirdsofpreyRcool Says:

    IG 223

  74. 74
    Sambone Says:

    DOW JONES NEWSWIRES

    In the latest sign of how the financial crisis and steep drop in commodity
    prices since July have blindsided some of the most prominent investors, energy
    crusader T. Boone Pickens said he and his BP Capital investment firm have lost
    some $2 billion since oil and natural-gas prices started tumbling in July.
    The figure, released on “60 Minutes,” is sharply higher than the most recent
    estimates of Pickens’ losses. His funds previously were thought to be down more
    than $1 billion in 2008, with his personal losses pegged at more than $300
    million.
    In the “60 Minutes” profile, which says the value of Pickens’ hedge fund has
    been cut in half since July, Pickens said he will get the $2 billion back.
    Along with Kirk Kerkorian and Carl Icahn, Pickens returned to prominence
    during the past few years by employing tried-and-true investing tactics. But
    market upheaval is throwing the prominent investors for a loop, a sign the
    playbooks of even top investors need updating.
    Pickens, who is 80 and earned his spurs in the oil patch, has been an energy
    believer for years, arguing that global demand would outpace supply. It’s
    worked, at least until this year.
    Pickens has acknowledged that a deep recession would cripple his bullish
    positions. That’s what the market now is forecasting. Lately, he has moved his
    equity fund into cash.

    -By Donna Kardos, Dow Jones Newswires (Gregory Zuckerman of The Wall Street Journal contributed to this report.)

    Dow Jones Newswires
    10-27-08 1359ET

  75. 75
    teomax Says:

    birds, I posted following for ya on friday, but as I read here, you were away.
    here it is again:
    “One guy on another forum post about reason for IG and credit markets frozing this:

    “The first backstops (FED guarantees) caused rushes into those instruments. This starved another area, which then had to be backstopped. That in turn made the guaranteed base bigger, which starved the rest even more severely.

    Now we’re the point that a significant part of the credit market in the US has a backstop and as that universe gets bigger the starvation gets more acute. This doesn’t necessarily cut off credit, but it makes it ruinously expensive.

    If you can only earn 6% on capital but need to pay 10% for that capital, you’re fucked and dead.

    That’s the essence of the problem.”

    he directly connect FED backstops as cause of capital flight out of the emerging economies.
    So unintended consequences are really big and threating to take down few countries and they arent even good for USD because of significant strenghtening.

  76. 76
    Sambone Says:

    By Brian Baskin
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil futures moved above $65 a barrel after OPEC’s
    secretary general floated the idea of a second production cut before December.
    Light, sweet crude for December delivery traded 90 cents, or 1.4%, higher at
    $65.05 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange traded 87 cents higher at $62.92 a barrel.
    Oil prices rose by about $1 after Organization of Petroleum Exporting
    Countries Secretary General Abdalla Salem el-Badri said a second emergency
    meeting could be called before the group’s holds its regular gathering in
    December. OPEC announced a cut of 1.5 million barrels a day below quota at an
    emergency session Friday, a move that failed to quiet oil market fears of
    weakening demand due to the deteriorating economy.
    “The market is now on guard as to what OPEC’s next inventory play is,” said
    Phil Flynn, an analyst with Alaron Trading Corp. in Chicago.
    The move higher was fairly small, however, as many doubt that OPEC members
    will fully comply with announced cuts, Flynn said. Members are likely to cut by
    only 60% of the agreed-to reduction, and could take months to comply even that
    much, analysts at JBC Energy in Vienna said on Monday.
    Futures were already up from the day’s lows as U.S. equities bounced back from
    early losses. The oil market has tracked stocks over the last month, as
    equities provide clues to the extent that the credit crunch will affect the
    wider economy.
    Front-month November reformulated gasoline blendstock, or RBOB, recently
    traded 3.91 cents, or 2.7%, higher at $1.5170 a gallon. November heating oil
    traded 2.17 cents, or 1.1%, higher at $1.9682 a gallon.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    10-27-08 1345ET

  77. 77
    zman Says:

    Re 76. I like how JBC just pulls that 60% number out of the air along with the time frame for cuts. Truth is they have no idea but I would imagine since Saudi is bearing the brunt of the cuts they will come down on anyone else seen cheating. Compliance to OPEC quotas has tightened substantially in the last 24 months cheating won’t go unnoticed.

  78. 78
    BirdsofpreyRcool Says:

    teomax – thanks for your posting.

    there are some aspects of truth to the post. but, not sure the poster has all his “cause and affects” correct.

    The credit freeze started well before the gov’t backstops… but, it didn’t get much coverage in the popular press. Basically, credit markets have been frozen shut since July 2007. But, it reached a crisis point when the inability to properly price and then sell assets started to bankrupt our banking system. You can (correctly) argue that the banks did it to themselves, but it is incorrect that the gov’t intervention was aimed at “saving the banks” or, worse yet “saving wall street.” Gov’t intervention was aimed at saving our entire financial system.

    Unfortunately, you can’t “make” someone have faith in you; you have to engender and build that faith. Bernanke blew it, repeatedly, since July 2007, and the debt markets spiraled out of control. Long before direct gov’t backstopping.

    Stupid-wide credit spreads will eventually entice investors back into non-gov’t-backed debt (they always do). But, until investors do that, allowing companies to issue new debt, we have a crisis of confidence and a frozen credit market.

    As far as emerging economies go, when markets are scared, they always flee the EMs first. So, i don’t agree with the cause and affect there either. But, JMHO. thanks again for sharing!

  79. 79
    Jay Reynolds Says:

    http://www.bloomberg.com/apps/news?pid=20602099&sid=adMJ0kccHGlk&refer=energy

    Petrobras’ Costa Says Oil Prices to Rise Again, Valor Reports

    By Jeb Blount

    Oct. 27 (Bloomberg) — Oil prices will rebound because of scarce supply, said Paulo Roberto Costa, head of refining at Petroleo Brasileiro SA, Brazil’s state-controlled oil company, the Valor Economico newspaper reported.

    More……

  80. 80
    BirdsofpreyRcool Says:

    teomax – but, of course, more gov’t borrowing (either directly or indirectly, thru backstops) does crowd out private sector borrowing, shoving rates up. The EMs feel the affect of that more than any other part of the financial sector. That is why the euro banks are the next to feel the pain.

    US banks had “subprime” lending, the Euro banks have their “emerging market” lending. Fortunatly, lending to EMs is a very very small part of the US banking portfolio… but, it’s a very large part of the Euro banking portfolio.

    EM loan defaults will be the next banking-shoe to drop. Fortunately, US banks will not bear the brunt of that.

  81. 81
    PackMan Says:

    Z – re: knockouts. Wed. will be an interesting day. If you are CHK, you are very interested in buying NG futures. If you are their counterparty; well, you know….

  82. 82
    BirdsofpreyRcool Says:

    IG 221

    looks like no meltdown today. but, tomorrow’s another day, eh?

  83. 83
    zman Says:

    Packman – not sure that’s a fight they can afford to wage as they’ll be up against multiple counter-parties. It will no doubt be a bit of a gamed close on Wednesday.

  84. 84
    zman Says:

    Re 82. Don’t speak too soon, this kind of head fake rally, completely given up in the last hour is pretty exhausting to traders/managers alike.

  85. 85
    BirdsofpreyRcool Says:

    Moody’s lowered GM’s rating to Caa2 with a negative outlook.

    That rating says that GM is basically bankrupt as it assumes bondholders will not receive 100 cents on their bond dollar.

    So, bad management decisions (and over-paid CEOs) in automotive will be the next taxpayer-funded bailout. Nice.

  86. 86
    zman Says:

    GM CEO is Bob Nardelli right? He still owes me $ from when I was long Home Depot. Overpaid, former GE exec. In my book, they based Alec Baldwin’s character in 30 Rock after him.

  87. 87
    BirdsofpreyRcool Says:

    re#82 – sorry. you’re right. but, i was out Friday, so i guess i still have a little bit of optimism left in me. until the closing bell, you just don’t know these days.

  88. 88
    BirdsofpreyRcool Says:

    z – even worse… Nardelli is CEO of Chrysler. So, he gets even MORE pay b/c C is backed by private equity (Cerberus). They don’t have to answer to shareholders, so the pay package there is (if possible) even more vomitous.

  89. 89
    zman Says:

    Bird – Don’t get me wrong, I have plenty of optimism, born that way (you have to be to trade options) and can’t generally break the habit but I have a dose of pragmatism thrown in for good measure…and patience. I think sideways is better than multiple failed V – up’s anyday. Flat today here might actually see Asia and Europe bounce giving us a running start into the rest of the week.

  90. 90
    antrimshale74 Says:

    Birdsofprey – The frustrating thing for taxpayers is that it is more than likely cheaper to infuse government money into GM than it is to pay for the collateral damage. You’re talking nearly 2 million lost jobs when you account for all of the suppliers that will go banrupts, you’re talking huge unemployment expenses, you’re talking about PGBC taking over GM, Chrysler and hundreds of suppliers’ pension funds, you’re talking about a federal rescue of the State of Michigan and perhaps Ohio. The damage goes on. I have no doubt that a government cash infusion into GM/Chrysler is substantially cheaper. If you want to see bleak, a place of total despair, you’re welcome to come and visit me for a week and observe how depressed people are around here. People are downright terrified. They know the auto industry is as we know it is gone forever.

  91. 91
    BirdsofpreyRcool Says:

    re: Nardelli…. you should see the house he is building in Bloomfield Hills. It literally looks like someone cut out every single feature from some book on architectural monstrosities and then glued them together to form the biggest, ugliest “house” you’ve ever seen. Says so much about the man, i think.

  92. 92
    zman Says:

    Feeling more comfortable with socialism everyday, lol, but the American auto industry if it is to be saved has to start with the workers, with ensuring the pensions and health plans, and then putting teeth in CAFE standards. Stop letting Dingle block improved mileage standards. 23 years with the same mileage (actually down 1 mpg) for a Suburban! Sheesh. You don’t “get America off foreign oil” by drilling alone or putting up windmills. Conservation needs to have an equal part. If you look at the progress appliances have made over the same 23 years the gap is mindboggling.

  93. 93
    Sambone Says:

    By Brian Baskin
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil futures settled near a 17-month low as
    concerns about falling demand outweighed talk of a second OPEC production cut.
    Light, sweet crude for December delivery settled down 93 cents, or 1.5%, at
    $63.22 a barrel on the New York Mercantile Exchange, the lowest settlement
    price since May 29, 2007. December Brent crude on the ICE futures exchange
    settled down 64 cents, or 1%, at $61.41 a barrel.
    Oil prices remain locked in a downward spiral based on expectations that
    global demand growth will be drastically lower in 2009 as economies cool
    worldwide. While little new happened to deepen demand worries Monday, the
    market failed to receive any sign that it had hit bottom, either.
    Futures rallied briefly on comments by Organization of Petroleum Exporting
    Countries Secretary General Abdalla Salem el-Badri that the group could hold a
    second emergency meeting before its regular session in December. El-Badri
    raised the prospect of another production cut, on top of the 1.5
    million-barrels-a-day reduction announced on Friday, at OPEC’s first emergency
    meeting.
    “OPEC is just going to address the supply side,” said Darin Newsom, senior
    analyst with DTN, a market information service. “Adjustments to supply are not
    having the desired effect on the market, and they probably won’t.”
    Market participants have also raised doubts that OPEC members will fully
    comply with cuts.
    The U.S. is moving toward an oversupply of crude, with analysts anticipating a
    1.6-million-barrel build in crude stocks in weekly data due Wednesday from the
    U.S. Energy Information Administration. Oil inventories are already above the
    five-year average, as refiners hold down runs in response to weak demand.
    “Refiners aren’t in a real hurry to start making a lot of product that they’re
    not selling much of,” said Phil Flynn, an analyst with Alaron Trading Corp.
    “Crude should continue to build for a while.”
    Analysts surveyed by Dow Jones also gave an average forecast of a
    1.8-million-barrel build in gasoline inventories and a 500,000-barrel build in
    distillate stocks, which include heating oil and diesel.
    Front-month November reformulated gasoline blendstock, or RBOB, settled 10
    points, or 0.1%, lower at $1.4769 a gallon. November heating oil settled 3.21
    cents, or 1.7%, lower at $1.9144 a gallon.

    More information on settlements and highs and lows for futures on Nymex and
    ICE platforms can be found by searching for the following headlines:

    Nymex Light Crude Oil Close
    Nymex Harbor RBOB Gasoline Close
    Nymex Heating Oil Close
    ICE Brent Crude Oil Close
    ICE Gas Oil Close

    -By Brian Baskin, Dow Jones Newswires (James Herron in London contributed to this article)

    Dow Jones Newswires
    10-27-08 1518ET

  94. 94
    VTZ Says:

    The auto industry has no right to be bailed out in my mind as a result of it’s inability to change. STOP MAKING TRUCKS THAT COST 70,000 AND GET 15 MPG!

    Reminds me of something I just saw about the Swiss watch makers. They used to have 75% market share in the watch market because they had beautiful watches (old mechanical gear style watches). One year, a swiss guy invented the quartz movement digital watch with a battery. The Swiss all shunned it and kept going with what they did best in the same way as North America likes making big stupid trucks/SUVs. The Japanese came and bought the patent for quartz movement and recently swiss had 5% market share based on doing what they did best.

    Change or die… Chevy Volt is the only thing that MAY save the us auto market.

  95. 95
    BirdsofpreyRcool Says:

    antrimshale… believe me, i understand what you are saying is true. i have watched the Detroit 3 pound the living daylights out of the suppliers for years, while failing miserably to deal with their own, internal messes.

    The saddest thing i’ve heard in automotive lately is that VW would not even consider opening a plant in Michigan. what better place to have workers, infrastructure, and cheap real estate? And yet, the Detroit 3 have so poisened the system, that no automotive manufacturer would voluntarily move here.

  96. 96
    VTZ Says:

    And only if power is cheaper than a tank of gas.

  97. 97
    zman Says:

    So much for the flat close.

  98. 98
    BirdsofpreyRcool Says:

    re #82. sorry. i jinxed it.

    z, you were soooo right.

  99. 99
    BirdsofpreyRcool Says:

    IG 225

  100. 100
    zman Says:

    Re 93. Report has it all wrong, oil price has nothing to do with demand concerns. Price was marking the dow all day long as it has been doing more and more of late. We’re back to the land no differentiation.

  101. 101
    zman Says:

    Funny how I was not even tempted to add/buy anything today…must not be alone on that one.

  102. 102
    zman Says:

    1.7 mm and 1.9 mm share blocks of XOM traded just before the close. Somebody just baned out of $240mm in the last 10 minutes. Wow. Barclays biggest holder there by the way.

  103. 103
    Alhambra Says:

    This market is like a basketball game, only the last five minutes count.

  104. 104
    douglas51 Says:

    Re: Nardelli: His house in Atlanta is 4 down from mine and has been for sale since he left Atlanta…the neighborhood association is not sad he is gone.

  105. 105
    zman Says:

    Roger that Alhambra…this too shall pass but it is very frustrating.

    Bird – you’ve got a Bloomberg so it would be faster for you than me probably but does this last slide make this the worst October on record yet for the Dow and/or S&P?

  106. 106
    zman Says:

    Douglas – thanks for the laugh. Too bad he could certainly care less…the guy positively looted HD.

    For the technically inclined I would have to think that the velocity of the decline into the close could only be described as fugly.

  107. 107
    antrimshale74 Says:

    Re: VW, the big problem here is that the unions control all levels of government. They are like a mafia. Even local governments are forced to hand out pay raises of 3% + because of binding arbitration even though the governments are broke. VW didn’t want to deal with that crap even though the state offered massive tax credits.

  108. 108
    BirdsofpreyRcool Says:

    z re #150: let me check on that… don’t know a BB function off the top of my head that tracks that, but will ask the BB help desk.

  109. 109
    BirdsofpreyRcool Says:

    IG 227

  110. 110
    BirdsofpreyRcool Says:

    BB help desk = no go. just have to download the level of the SPX for 9/30/xx and the level for 10/31/xx into a spreadsheet and do the math.

  111. 111
    BirdsofpreyRcool Says:

    here ya go: The S&P500 Index extended its October retreat to 27%, its worst monthly decline since 1931.

    Since the worst monthly decline in 1931 was the 29.9% drop in Sept, that makes October 2008 the worst OCTOBER in U.S. stock market history (at least, as far as the SPX is concerned).

    Wow. Actually, we still have time to top the -29.94% drop in Sept 1931…

  112. 112
    zman Says:

    Thanks Bird, knew we had to be close. Ugh.

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