28
Oct

Wednesday – Oil Inventories Preview Plus WLL Pre Call Snapshot

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Sentiment Watch. Ugly. Intra day rallies continue to be sold. Only the best of news in the group (either earnings beats by a very wide margin or big well announcements) are able to move stocks in a positive way and the effect of this news is fleeting. We've seen this before and it can go on longer than expected. So far I've been adding to positions on weakness move more into wait and watch mode for the remainder of the week, especially now that I'm positioned for the (WLL) and (SWN) calls. 

Eco Data Watch:

  • Durable goods rose 1% as expected
  • New home sales data will be released at 10 am EST, forecast of 438,000 units.


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today - WLL preview, STR
  5. Odds & Ends

Holdings Watch:

  • $10KP II:

    • $23,400
    • 47% Cash
    • The Current Holdings Tab has been updated.

 

  • Yesterday's Trades:
    • PXD – Sold the $45 Nov Call position taken yesterday for $2.65, up 61%. Will reposition same dollars into WLL prior to their earnings tomorrow evening, not very trusting of this market and not willing to delve further into my cash position at this time.
    • WLL – Added (5) more WLL $60 November calls (WLLKL) for $2.65 with the stock trading flattish on the day. Earnings after the close today.


Commodity Watch:

Crude oil rose $0.87 to close at $79.55 in volatile trading yesterday. After the close, the API released another set of mixed to somewhat bullish but confusing data. This morning crude is trading off slightly.

  • Sudan Watch: Production Missing The Mark.
    • 2008 production was 500,000 bopd
    • 2009 target was 600,000 bopd
    • Current actual production: 470,000 bopd
    • 2010 target 480,000 bopd
    • Sudan blames increasing water production and contractor delays in getting it solved for the oil volumes miss.

Natural gas up 4 cents to close the day at $4.56 yesterday. The November contract expires today and December takes over on Thursday. December is currently trading at $5.28. This morning gas is trading flat.

  • Early Read On Natural Gas Storage: 40 Bcf injection vs

    • 18 Bcf last week
    • 49 Bcf last year
    • and 32 for the five year average
  • China / LNG Watch: Qatar has diverted a further 10% of its LNG output from the U.S. to China. Qatar said that it will not send its gas to the low priced U.S. market when China is willing to pay more.

Oil Inventory Preview


API Watch:

  • Crude: DOWN 3.53 million barrels
  • Gasoline: DOWN 0.255 million barrels
  • Distillates: DOWN 0.671 million barrels

ZComment: Once again API rolls out an odd looking set of numbers that seem to reverse the previous week and contradict themselves. Nothing wrong with the former but the mix of flat refinery throughput and slightly lower imports should not produce such a wildly reversing number in the crude inventories. Traders appararently though little of the numbes as well with crude trading relatively unchanged over night.

Crude Comment: My sense is that there still exists risk to the crude inventory numbers for an upside surprise due to a recovery in imports. Inventories swing about widely from week to week this time of year and I continue to expect a modest build in crude stocks over the next several weeks as imports return to a more seasonal norm and refinery utilization remains low. Note that last year saw a larger than average build this week and therefore anything short of a 3.2 mm barrel build will result in a contraction of the current surplus versus year ago levels.

Product Inventories Comment: The most important numbers of the day will again be gasoline and distillate demand.---- 

Stuff We Care About Today

WLL Precall Thoughts


Pre Call Thoughts:

  • Could see upside to the 3Q production guidance levels. While (WLL) is historical, more often than not, a beater of estimates, they also had a number of wells that were drilled but not completed with EOG that should have come on line during the quarter in Sanish.
  • Valuation:  Numbers have been coming up due to higher production expectations, higher oil prices, and better oil price realizations: Since the 2Q call:
    • 2009 CFPS went from $7.34 to $8.56
    • 2010 CFPS went from $11.60 to $12.56
  • They should be able to comment on an exact completion date for their 65,000 bopd line connecting their volumes to the Enbridge system which would result in narrower differentials to WTI.
  • Given where prices were and somewhat restrained activity levels, they should be able to build cash on the balance sheet in both 3Q and 4Q.
  • Look for a further contraction in "days to drill" in the Bakken.
  • Possibly comments on their Eagle Ford acreage plans
  • WLL Reports after the close today and has its conference call on Thursday at 11 am EST

I will have one of these for SWN in the Thursday post for their call on Friday.

STR Operations Update: Issues 2010 Guidance

  • Just a couple tidbits here as I don't own it but am watching and I find the story increasingly interesting.
  • Haynesville -

    • acreage upped to 43,000, up 39% from last notice, still a smallish player but focused on a prolific piece of the play.
    • 4 wells brought on with IPs ranging from 21.5 to 24.4 MMcfepd, working interests are fairly high
    • STR has greatly stepped up participation in the play: Interests in 19 wells year to date, another 9 that have yet to be completed and another 10 that are currently drilling.
  • Bakken -

    • 2nd well - IP of 841 BOEpd on a 5,023 foot lateral
    • 3rd well drilling now, 9000 foot lateral planned, don't know location
    • 80,000 acres
  • Granite Wash -

    • 24,000 net acres with one rig running
    • No world beater Newfield-esque wells yet but the potential is there.
  • Pinedale -

    • Still seeing better wells even as they downspace.
    • Downspacing may go to 5 acres (that's close) giving them over a 1,000 potential locations
    • 5 rigs going to 6 in 2010
  • Woodford -

    • 22,000 net acres in the Cana play in W. Oklahoma
    • Again, not world beater sized wells, but good economics at $5+ gas
    • 1 rig to run here.
  • Production Guidance -

    • 2010 established at 210 to 215; up 15% over 2009
    • Capex is set at $900 mm, this should be well within cash flow.
  • Conference Call for 3Q earnings tomorrow.

HERO 3Q Call at 11 am EST. Passing interest. 

Odds & Ends

Analyst Watch:

  • (BP) cut to Hold at Citi
  • (EVEP) cut to Perform at Opco
  • (WLL) target raised to $69 from $58, rating stays Buy
  • (RRC) gets Underperform rating from SMH Capital

177 Responses to “Wednesday – Oil Inventories Preview Plus WLL Pre Call Snapshot”

  1. 1
    BirdsofpreyRcool Says:

    TechTrader is out with a 60/40 LONG call this morning as he intends to buy the selloff for a bounce.

    HeadTrader notes that the High Yield CDS Index was higher, post eco-#s (HT looks across asset classes too, that’s why we love him).

    IG 105 1/2 wider by 1/2 bps from yesterday’s close

    HY 92 7/8 down 1/8 point from yesterday’s close

    HERO came in just as the sell-side models predicted (I’m looking at the DB model right now… actually, a tad better than this model). But the results were indeed pathetic, as advertised. Seeing some encouraging language in the forward-looking statements (which is what I was hoping to see). Basically, HERO says the bottoming took place last quarter and they see activity (and rates) ticking up from there. Not calling for a robust recovery, by any stretch. As a matter of fact, they themselves say they don’t yet know WHAT kind of recovery on what kind of timeline they are facing. To quote — “While it is still too early to know what 2010 will hold as we have yet to see our customers’ spending plans, and the environment could remain weak for some time, we believe the worst of the cyclical downturn may be behind us.”

    Not exactly a raving endorsement of a robust recovery… but, just knowing the worst is probably behind them means that the call optionality embedding in the stock has increased in value. Will look for more forward-looking comments in the conf call at 11am EDT.

  2. 2
    zman Says:

    Couple of things to add to the WLL comments:

    The estimates for 3Q are up sharply from the last report. This is a function of both higher expected production but also higher oil prices and better differentials. This will make it tough for them to beat their 3Q CFPS estimates out, tough but not impossible as it looks like the Street has lagged the move in crude in their estimates.

    At the upper end of WLL’s production guidance, they would have done roughly the same volumes as in 2Q. Average oil prices improved during the quarter nearly enough to cover this upward move in the quarterly numbers (despite some now poorly priced oil hedges on 3/5 of production) and if you add in improved differentials (which looks to have been the case) and the lower cost guidance it should help produce a modest beat.

    2Q CFPS Actual: $2.16 having beat their estimate of $1.74
    3Q CFPS Estimate: $2.52.

    My point is that estimates in the E&Ps and especially the oily names have been going up, not down like the rest of the market. So a beat here is tougher but also more meaningful.

  3. 3
    zman Says:

    Re

    “While it is still too early to know what 2010 will hold as we have yet to see our customers’ spending plans, and the environment could remain weak for some time, we believe the worst of the cyclical downturn may be behind us.”

    Sounds just like comments from SLB to NBR

  4. 4
    BirdsofpreyRcool Says:

    Some X-Asset Class observations, worth reading…

    http://www.capmarkets.com/ViewFile.asp?ID1=318121&ID2=338878765&ssid=2&directory=11608&bm=0&filename=Three_More_Signs_That_The_2004_Scenario_Is_In_Play_10-28-09.pdf

  5. 5
    zman Says:

    UUP – interesting to see how the tight the option spreads on this dollar tracker.

  6. 6
    BirdsofpreyRcool Says:

    z — #3, yep. They are all singing from the same hymn book, it seems.

  7. 7
    zman Says:

    BOP – I’ve found that works better for the little service names than being over confidant when you really have no reason to be.

    If anybody gets any text on that WLL price target boost at WLL please send it along. Subash and I must be thinking the same thing re the quarter for him to upgrade his target on the same day they release.

  8. 8
    zman Says:

    Norway bumps rates by 1/4 point. The third or fourth of many nations to do so. How this is good for the dollar I can’t fathom.

  9. 9
    BirdsofpreyRcool Says:

    z — agreed. I’ve seen where overconfidence can just CRUSH a little service guy… and it takes a couple of yrs to come back (reputation-wise) from that.

  10. 10
    zman Says:

    Analyst Watch:

    SWSI cut to Underperform at BMO after announcing secondary.

  11. 11
    zman Says:

    Caught Kass interview on CNBC last night. Couple of things stood out:

    ** Still bearish or more bearish than he has been for the last 6 to 8 weeks.

    ** Thinks the highs on the major indexes are in for the year.

    ** Sees the market as over valued by 5 to 12%. That last one struck me as the market is up in between that range since he flipped from Bull to Bear.

  12. 12
    elijahwc Says:

    Chesapeake Energy won’t drill in New York watershed – NY Times (26.34)

    NY Times reports bowing to intense public pressure, the Chesapeake Energy
    Corporation says it will not drill for natural gas within the upstate New York watershed, an environmentally sensitive region that supplies unfiltered water to nine million people. The reversal seems to signal a more conciliatory tone from the gas industry, which is facing mounting opposition in New York to its drilling practices. The decision also increases the pressure on state regulators to reverse their decision to allow drilling within the watershed.

    “We are not going to develop those leases, and we are not taking any more
    leases, and I don’t think anybody else in the industry would dare to acquire
    leases in the New York City watershed,” Aubrey K. McClendon, the chief
    executive officer at Chesapeake Energy, said in an interview on Monday in Fort
    Worth. “Why go through the brain damage of that, when we have so many other
    opportunities?”

    On “Why go through the brain damage of that, when we have so many other
    opportunities?”

    In legal circles we have a name for that, res ipsa loquitur, or the thing speaks for itself. Aubrey has done the industry no favor and will hear these words many times over in court regarding the so many other opportunities found elsewhere.

  13. 13
    zman Says:

    Eli – bad for him maybe, good for gas prices, definitely. Not today, not next week but down the road.

    Group getting just bludgeoned.

  14. 14
    zman Says:

    Stocks uniformly red, 1 to 3% across the board. Not tempted to touch cash here.

  15. 15
    Wyoming Says:

    http://www.denverpost.com/ci_13656358

  16. 16
    PackMan Says:

    Hi all … CHK NYS news; any trade here Z ?

  17. 17
    zman Says:

    Pack – I’ve been avoiding trading the CHK for awhile now. I don’t think its a big deal to them, it would have been if they had said Pennsylvania but not really New York. Likely a drag on all the Marcellus names today/tomorrow so UPL, RRC, even COG whose big beat is now “soooo yesterday”.

  18. 18
    PackMan Says:

    thx Z

  19. 19
    zman Says:

    Pack – Liking my position in LINE more and more these days.

  20. 20
    bondbuddha Says:

    Mortgage Bond market rallying again this morning. Back to stock watching I suppose.

  21. 21
    zman Says:

    New homes sales in 10 minutes.

    Oil inventories in 40 minutes.

    Initial read on 3Q GDP tomorrow.

  22. 22
    zman Says:

    With oil this high, and 2 bottom of the barrel imports numbers in a row, I would not be surprised to see a BIG crude build today, as high as 5 to 7 mm barrels. Products demand is really more important but a headline crude number than big would crunk oil towards $75. Really not a bad thing for stocks but it would make them redder for the week. No bet on it from me as imports are very tough to predict. The bigger concern is the continued broad market weakness. Energy was strongest yesterday, looks like weakest sector today. So unless you are picking lows during the day and then punting pre close its pretty tough at the moment.

  23. 23
    zman Says:

    S&P daily chart looks a lot like the end of the last two months.

  24. 24
    isleworth Says:

    Z- there looks to be a pretty good institutional rotation out of energy going on…..hitting them all………

  25. 25
    BirdsofpreyRcool Says:

    The mrkt is in the mode of selling any rally now. That is not supported by the bond market (which continues to buy), but one can’t fight the tape either. Still, don’t think we go straight down from here either. Think the easy (long) money has been made and now you pick your stocks, prick your points, and swing-trade the volatility.

    Kind of a “duh” statement, but thought I’d make it anyway.

  26. 26
    bill Says:

    sd looks like it wants to go back to 5

  27. 27
    BirdsofpreyRcool Says:

    New Home Sales for Sept came in -3.6% vs 2.6% expected. So, much worse.

  28. 28
    zman Says:

    Home sales of 402K, less than expected, first drop in 6 months. Stimulus no worky.

  29. 29
    zman Says:

    Bill – yeah, not a lot of rationale thought going into pricing right now.

  30. 30
    zman Says:

    One thing I will not do is continue to add on weakness when the weakness is uniform. I played that game beginning mid summer 2008 for too long. I’ll let the market settle out for a bit. I might take a few puts in here on pricier names but its pretty hard to judge when this will turn so my mainstay will be cash.

  31. 31
    zman Says:

    WLL for instance. Down 3% basically on the open, light volume, earnings tonight, upgraded price target today. No one cares.

    PXD – giving back most of its gains from their big E.F.S. announcement two days ago. Glad I sold yesterday, will reposition but will take my time.

  32. 32
    zman Says:

    BOP – any comment on new credit rating rules just approved by House Panel. I think there is a BB story but I don’t have access. Just wondering if it’s a hit to credit markets.

  33. 33
    elijahwc Says:

    Rally Time

  34. 34
    zman Says:

    Credit Suisse calls VLO CC disappointing cuts estimates.

    Eli – reasoning “always darkest before the dawn”??

  35. 35
    zman Says:

    STR – semi strong response to ops update outlined in the post, backed off a third of the morning rally and might be worth a day trade. Any other day/week I would have gone after that one (and COG yesterday and stuck with PXD a bit longer).

  36. 36
    BirdsofpreyRcool Says:

    z — re#32… not seeing any comments/commentary. I’ll keep an eye open for it tho.

    Choppy, ugly day.

  37. 37
    elijahwc Says:

    Yup…plus SP Emini holding above 1051 and Dollar index rolling, and PMs end of month.

  38. 38
    zman Says:

    Eli – if it does I owe YOU that beer.

  39. 39
    zman Says:

    Oil numbers in 10 minutes.

    Eli is a long time friend and mentor. Someday I’ll get a Bio out of him so you can see why I listen to the guy.

  40. 40
    zman Says:

    Analyst Watch:

    Howard Weil UPs VLO to Market Outperform.

  41. 41
    zman Says:

    FSLR trading up into earnings tonight. Not going to play this time.

  42. 42
    zman Says:

    Jerome – care to take at FSLR, ok I may play a little. I just think most of the bad news is already out there for the group. Have been torn on this one since I expect further cost per watt improvements.

  43. 43
    bondbuddha Says:

    HK Permian closing starts today, finalizes on Friday

  44. 44
    BirdsofpreyRcool Says:

    I just think this is the usual case of the late-October fuglies. That, and so many people wanted the mrkt to go down, so it is.

    Really, the consumer outlook for the Holiday Season will set the tone into the end of the year. Oh yeah… along with Reid/Pelosi/BHO. But, seeing signs of life in the consumer here in Detroit… pretty much Ground Zero for this recession.

  45. 45
    zman Says:

    EIA Oil Inventory Watch: crude at time of report: 78.60, down $1

    Crude: up 0.8 mm barrels
    Gasoline: up 1.7 mm barrels – high
    Distillates: down 2.1 – good number

    Crude imports: 8.9 mm bopd, staying low for a third week.

    Gasoline demand: 8.858 mm bpd, not great
    Distillate demand: 3.637 mm bpd, good uptick.

    more in a bit …

  46. 46
    zman Says:

    More EIA oil

    oil initially falling on the report, probably over the gasoline number as mogas is off 3%

    Cushing fell back to near its low for the year which is interesting and supportive of crude prices.

    Surprised to see a 3rd week of weak looking crude import numbers. More than just an anomaly at this point, probably speaks to China demand.

    There was an uptick in refinery utilization which yielded more gasoline production than was expected yielding the big build in gasoline. It’s normal this time of year to see gasoline builds so really shouldn’t be as big a factor in crude prices as heating oil and diesel demand which have gotten up off the floor finally. (Still nothing to brag about but not as terrible as before).

  47. 47
    zman Says:

    Just looking at these numbers, crude should rally modestly, not fall. Currently down $1.40 from down $1 pre report.

  48. 48
    Dman Says:

    Z – crude sold off ahead of numbers. Numbers modestly bullish, crude sells off in response. This is pure sentiment in action.

  49. 49
    zman Says:

    Dman – agreed. I just thought I’d make my stand clear for the day with 47. Those were not bad numbers. This is an ugly little market at the moment.

  50. 50
    zman Says:

    BOP informs me the natural gas consensus estimate has fallen from 40 Bcf yesterday to 30 Bcf this morning.

  51. 51
    Dman Says:

    Dollar index has managed to nudge the downtrend line for the 1st time in about a month. It could finally waffle through it & a technical move up is possible. I think this is also a big part of the oil action today, i.e. it’s time for a dollar rally. Deflationists have gotta have some time in the sun.

  52. 52
    Jerome Blank Says:

    Re: #42, Right now FSLR is a difficult stock to evaluate, it’s subject to wild swings, most recently flipping back and forth between P&F buy and sell signals, (I might try and modify the box sizes to get a better picture)… it’s forming an unusual P&F triangle pattern, it’s currently on a buy signal, but back into o’s, a print thru resistance at $160 would really lift the fog on the technical picture, ie: given this stock’s unusual trading personality a print of $160 would better confirm the buy signal…

  53. 53
    bloodystupidjohnson Says:

    You got a couple days to see if I am right when I mentioned that alot of this selling is mutual fund related balancing of the books (tax loss selling). Energy was “hot” and probably over owned by the funds. However since I am not really a trader, and not very good at it to boot, then maybe these views should just be taken with a grain of salt.

  54. 54
    VTZ Says:

    Re 51: It’s too bad CPI deflation has little to do with the value of a dollar and everything to do with simple supply and demand of houses, CDOs, cars, people looking for jobs.

    “Woops… our bad we made WAY too many of all the above and now they are worthless like our dollar because people realize all our GDP growth was fake for the past xx years”

  55. 55
    BirdsofpreyRcool Says:

    BSJ — once the calendar rolls ino November, I think all eyes will be looking for indications of what the Holiday Selling Season is going to look like. I don’t think (personally) we have much more down to go in stocks, before we base and inch up again. End of October is alway SCARY.

  56. 56
    zman Says:

    Obviously I’m in that camp as well with BOP but I’m not adding to positions for now.

  57. 57
    Dman Says:

    BOP – erm … Holiday Stock Selling or Holiday Stocking-Stuffer Selling?

  58. 58
    bloodystupidjohnson Says:

    The point I was trying to make, that if I am right, then these stocks should start rallying around the start of next week.

  59. 59
    Dman Says:

    V – yeah well I don’t mean consumer deflation, I mean the whole debt-deflation scenario that the deflationistas have been wrong about for 7 months but were right about for the previous ugly stretch.

    I saw a report today that HSBC sez credit card defaults increased 48% in Setpember. That could get anyone worrying about debt crunching.

    Commodity inflation has had a decent run, the market likes to behave wildly, so now a little bit of deflation makes sense. Especially when some notable deflationistas have recently more-or-less capitulated and admitted that commodity prices will become infinite in short order 🙂

    But personally I don’t think that crude has gotten all that high when you factor in that the $$ it is measured in has been falling. It’s just that the two factors in that valuation might go for a bit of rejigging.

  60. 60
    zman Says:

    BSJ – that’s what I got from your comment. I’m long and half cash (more than that after today were we to close here) and not adding despite the fact that I suspect you and BOP are correct that the somewhat random looking selling is about to abate.

  61. 61
    elijahwc Says:

    Ouch Emini 1051 is toast. BOP may be right in late-Oct fuglies cause the mkts to have a confirmational biasis, and Dman in that dollar is causing a late season sunburn, but I still believe if we regain 1051 we rally.

    Anybody know anything about REXX?? MarcShale play with interesting rework things in Illinois.

  62. 62
    BirdsofpreyRcool Says:

    BSJ — i agree with you. The selling will stop and tepid (?) rally will continue into Nov and Dec. Time will tell, of course.

  63. 63
    zman Says:

    PXD – down $2.60 or 6%. Wow. That’s just nutty.

  64. 64
    zman Says:

    Wary of REXX. Probably a gagillion Illinois locations… not economic at the current strip last I checked. Hypey management.

  65. 65
    zman Says:

    MMR getting crunked. Talk about hypey management.

  66. 66
    bloodystupidjohnson Says:

    Good news, bad news, it just does not matter. There is just broad selling in these names. Look at WLT, great earning and it collapses. PXD, good news, sell off. The key will be to watch good news be treated like good news and not sell off a day later.

  67. 67
    zman Says:

    Eli – If we stop falling on the S&P in the next couple of days, above 1020, then the chart just looks like another “higher low, followed by a higher high / opportunity to get long” point.

  68. 68
    zman Says:

    BSJ – couldn’t agree more. Probably takes until next week to see that. Maybe a glint of it with WLL and SWN releases

  69. 69
    oklahoma Says:

    starting to get a decent rally out of cop; heck any green looks good to me

  70. 70
    bloodystupidjohnson Says:

    Maybe I back on your relative list, because those were the names I was thinking about too. Esp WLL. WLL is acting different. It is selling off before the earnings, so maybe good news might be treated like good news.

  71. 71
    BirdsofpreyRcool Says:

    HERO conf call… things were pretty tough, company positioned it’s cost basis and balance sheet to get through it. Not seeing any significant uptick in demand for rigs, but think that rigs for 2010 and 2011 delivery will be pushed out. No lack of excess capacity on the horizon, but things will snap back. And when they do, it could create a pinch point (my words, not their’s) and drive rates up fairly rapidly. It’s not a matter of “if”… just a matter of “when.”

  72. 72
    Dman Says:

    Eli #12 – are you saying that Aubrey was less than entirely prudent about something?

    Wow, knock me over with a feather. All I ask is that he goes on CNBC and fesses up every time he buys anything on margin. If that has to be 5 times a day, so be it. It would make for great TV for at least, I don’t know, the first week or so. Because they could keep talking about how he vaporized $500m if his own money and (fill in the blank) of shareholder money.

    Although I guess these days it has to be $300B before anyone notices.

  73. 73
    zman Says:

    Oklahoma – Hear ya, CVX green, COP off lows, XOM flat. Interesting after yesterday’s strength, note that it doesn’t go far down the risk ladder though. Mini majors HES and MUR both look like your average E&P today, red.

    BSJ – hear ya, keep talking WLL off those lows.

  74. 74
    zman Says:

    Dman – ya know the guy has done a lot right. Hedges, getting in early on several plays … and while I used to be able to say that he “never met a play he didn’t like” he actually sold off the Woodford and hasn’t gone after anything in Canada yet like Horn River, lol.

  75. 75
    elijahwc Says:

    # 72 – lol Aubrey’s new compensation package will now include speaker’s fees from the plaintiffs bar association.

  76. 76
    Jerome Blank Says:

    Is EXXI still fundamentally solid in front of earnings coming up?

  77. 77
    VTZ Says:

    He hasn’t come to Canada yet because he’s scared of our health care.

  78. 78
    zman Says:

    I would not characterize EXXI as an earnings play. All about the exploration angle. No clue as to how well they do on the numbers.

  79. 79
    oklahoma Says:

    watching a 30min tick chart on the dollar and these guys (COP,WLL,SWN) put in their lows about the same time the DXY starting dropping. Wonder how GDP numbers effect tomorrow?

  80. 80
    Dman Says:

    Z – #74, well if I’m honest I have to admit he made me a lot of $$ before vaporizing it.

    Still think the CNBC thing should be in his contract. And he should have to wear a clown hat or something. I mean, he could always stay off the margin if he doesn’t like the CNBC idea.

    I’d actually settle for Fox Business. It’s the principle of the thing. Nothing to do with me being bitter. Not one bit, no sir.

  81. 81
    bloodystupidjohnson Says:

    I am going to take a contrary view on Aubrey compensation package. I think CEO’s deserves the money when times in the economy and the industry are tough. This usually means their stock is under pressure, and shareholders are screaming. Lets face it, when times are good, any fool can run some of these companies. They earn the dough when times are tough, and are overpaid when times are good.

    In CHK case, I think Aubrey has done a nice job during this downturn and deserves the money.

  82. 82
    zman Says:

    On the dollar, normally I’d get the whole concept of “rally on bad news as the dollar is the world’s go to currency and if the U.S. sneezes the world catches a cold , yada, yada, yada”. But this time, it seems like the dollar rallying in the face of data that if anything suggests that the Fed will be even slower to raise rates and the government is even more likely to to increase spending in an attempt to right the once again floundering ship is nonsense. Especially when other economies seems to be showing more strength and their rates are headed higher. Somebody set me straight.

  83. 83
    zman Says:

    BSJ – yeah, we’re related.

  84. 84
    VTZ Says:

    Compared to the finance industry compensation in the oil patch is a joke. I agree fully with BSJ.

  85. 85
    elijahwc Says:

    CHK – I agree with all of the above but must note that as a shareholder none of his art collection resides in my house.

  86. 86
    jat Says:

    I met with Marc and Aubrey at the end of September in OKC. I saw them again at the Analyst Day. In the space of those 2-3 weeks, items on their cash resource plan changed for 2010 changed by a few billion. That’s all. So, yes, they have created a great business, but when Aubrey tells me something it is hardly the same as when Chazen tells me something.

  87. 87
    Dman Says:

    BSJ – if I still owned CHK, I wouldn’t care how much he was paid, although I’d prefer he got paid in stock that the margin clerks can’t reach.

  88. 88
    bloodystupidjohnson Says:

    When I look at Aubrey, I see where they sold off a piece of Haynesville to PXP at the top of the market. Then during the extreme credit crunch of Sept/Dec they still managed to sell off parts of other plays at decent money. He really has done a nice job of preventing a liquidity crunch.

  89. 89
    Dman Says:

    I realize I’m fighting the last war on the Aubrey margin fiasco. Probably a one-off type of thing. And I agree with VTZ: I’d rather see energy types making big $$ than the manipulator-politicians running the financials.

  90. 90
    bloodystupidjohnson Says:

    Dman: look at it this way, at least he put his neck on the line via buying the stock on margin.

  91. 91
    BirdsofpreyRcool Says:

    Jerome — #76 EXXI’s quarterly earnings will be weak. But, that is backward-looking. They are brining back a lot of oily production as we speak (Oct-Jan. mainly in Nov) that was knocked offline with Hurricane Ike. That will be cash in the bank and will support EXXI’s 2010 capex and interest expense obligations.

    I think the stock is supported at this level (actually, higher from here) on those current operations alone. Then you get the upside from any positive results from Blackbeard West and Davy Jones. EXXI is not in the Blueberry Hill well. But the stock could get thwacked on any negative results from that well… That would be a primo buying op, as a dry hole at Blueberry Hill has really no impact on the results from Blackbeard and DJ.

  92. 92
    bloodystupidjohnson Says:

    I love when a decide company goes down because its ceo has to meet a margin call. That means that decline has nothing to do with the IV of the company. It might be bad for traders, and death on option holders, but for investors it is like heaven.

  93. 93
    zman Says:

    STR up 15 cents on that ops update now.

    Cheapish stock, story becoming more interesting, pretty good growth in 2010 with upside potential while living within cash flow.

  94. 94
    Jerome Blank Says:

    Re:#91, thanks BOP, looking for a buy opportunity…the stock bounced off its daily moving avg a few moments ago and held a penny shy of a 3 box reversal at $1.75 ($1.76 low)…holding support

  95. 95
    BirdsofpreyRcool Says:

    What is fun about HERO is that it is a call option (that doesn’t expire) on GoM shelf activity. You get any positve results from any of the deep wells being drilled on the shelf, it will be off to the races for HERO.

    Caveat — HERO’s fleet does not include the heavy duty type of rig that can drill the deep (greater than 20k ft, i’m guessing) and ultra deep wells (that would be Rowan)… but, any positive results from those deep wildcats will reignite interest in Shelf prospects.

  96. 96
    isleworth Says:

    Oppenheimer believes HES’s upside potential is greater than their downside risk from sharply lower oil prices. Firm notes HES’ 3Q09 earnings of $0.74/share significantly exceeded consensus estimates of $0.56/share, on sharply higher production, mostly US oil volume, and lower income taxes. Earnings were well below the 3Q08 level, but up sharply from 2Q09. The firm says the earnings swings over these periods were mainly a result of oil and gas price volatility. Firm says realized prices were $53.48/boe, $58.77/b for oil and $4.60/mcf for gas, 32% below 3Q08, but 20% above 2Q09. Oil prices continue to recover from last year’s sharp decline, but gas prices declined further in the third quarter.

  97. 97
    BirdsofpreyRcool Says:

    EXXI — any buy oppy would be 1) technical, 2) negative reaction to last quarter’s earnings (to be announce Nov3), and/or 3) any negative reaction from the Blueberry Hill well (which EXXI is not in).

    If it wasn’t for the current slug of oily-production coming back on right now, I would not be interested in the stock. But, with that baseline of cashflow defining what i think is a cheap stock (for oil production), you have a wonderful non-expiring call option on the Shelf Deep Drilling Play. So, makes it worth owning a little, at the right price, imho.

  98. 98
    zman Says:

    UUP has big open call interest in the 23 strikes with ETF at 22.67. A lot of interest for a barely existent bid. And not a lot of puts. Hmmm.

    BOP – that’s how I think of KOG … A call option on the Bakken that doesn’t expire.

  99. 99
    bloodystupidjohnson Says:

    If you looked at the price action of these energy names, you would think a) the dow was down 200 points, b) oil was kicking around 60 instead of 78.

  100. 100
    BirdsofpreyRcool Says:

    HERO not sucking post-call… heard one of the analyst whisper offline internally that “it wasn’t bad”… or, something to that affect. Think we see more positive body language toward the stock here.

  101. 101
    BirdsofpreyRcool Says:

    z — KOG… so true. It’s what I look for in a stock… exposure to an event I believe in, with a “call option” that doesn’t expire on me. I suck at timing things precisely, so “not expiring” is worth a lot to me.

  102. 102
    baylor3217 Says:

    My losing streak in SD trades continues.

    If I had just bought puts instead of calls each time I’d have made a fortune.

    Now trying to exude if I should avg down on the pullback or not.

  103. 103
    zman Says:

    Dollar strengthening again, immediate negative reaction in crude and in the broad indexes. SSDD.

  104. 104
    baylor3217 Says:

    Exude equals decide

  105. 105
    Dman Says:

    There’s quite a few non-expiring call options out there today …

    eg. GMXR

  106. 106
    zman Says:

    Baylor – I bought my first tranche of SD’s last week. Will only average down when this market action subsides. Little to no thought going into the pricing action.

  107. 107
    bill Says:

    gmr (a tanker stock) getting battered as they had to cut divy from 2.00 to 50 cents and raise 200 m + in unsecured debt to give to the banks to make them happy

  108. 108
    Jerome Blank Says:

    SD went back on a P&F sell signal this morning with the print of $11.50

  109. 109
    bill Says:

    our beloved ng stocks are getting crushed today. I cant believe the daily moves

    did too much hot money flow into the names?

    q 3 earnings will be lousy, we all know that

  110. 110
    oklahoma Says:

    energy complex seems resilent to the interday high in the dollar only a few setting a new low….could be early for the hammer…i hate red , only green this year on my christmas tree

  111. 111
    zman Says:

    BOP – do TT and HT have follow up comments?

  112. 112
    BirdsofpreyRcool Says:

    HT calm as the Sargasso Sea. He points out that this has been a 5% pullback from the highs and that we are barely negative on the SPX for the month of October (to which he adds “not bad”).

    He thinks we return to rally mode after the end of October scaries work their way thru.

  113. 113
    zman Says:

    Thanks BOP. I don’t sense panic either, just some flushing action. E&P off 10%+ in five trading day. High and low multiple stocks getting tossed alike.

  114. 114
    dij Says:

    SPY 61.8% pullback from Oct high is 105.03, (about). 101.9 is 100%.

    CHK’s 61.8% is 24.72.

  115. 115
    zman Says:

    SP 1026 looks pretty key here.

  116. 116
    Dman Says:

    VTZ: the link below has a story about weird goings on with the physical holdings of GLD. If you can make sense of it, I’d appreciate your thoughts:

    http://aaronandmoses.blogspot.com/2009/10/where-did-gold-go.html

  117. 117
    zman Says:

    CIT news.

  118. 118
    zman Says:

    Getting sent lots of S&P charts.

    One showing S&P at the 50 day after having bounced off it before.

    Another showing the VIX series of rollovers corresponding to rebounds in the index itself.

  119. 119
    baylor3217 Says:

    Thoughts on purchasing WLL calls or common on this recent 10% pullback?

  120. 120
    john11 Says:

    ATPG has a new presentation up; They are presenting at The Energy_prospects Group right about now.

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzU2MzUzfENoaWxkSUQ9MzQ3Njg0fFR5cGU9MQ==&t=1

  121. 121
    zman Says:

    Baylor – I added yesterday in the Nov $60 calls when the stock was flat on the day (so about $2.75 higher than here). I’m done adding until I see the numbers. I own $60s and $65 November calls there at present.

  122. 122
    baylor3217 Says:

    For chartists, seems SD seems to be making higher highs and higher lows of which it appears to have touched the trendline this morning.

    Any thoughts?

  123. 123
    john11 Says:

    That should read;
    Energy-Prospectus Group

  124. 124
    Dman Says:

    BSJ – tempted by GMXR calls here?

  125. 125
    Dman Says:

    Z – XOM down a mere 0.33%. CVX even.

    More fund buying?

  126. 126
    BirdsofpreyRcool Says:

    CIT additional funding… may not prevent a form of Ch11 at some point, but shows that there IS money available to support risk assets. A far cry from just 9 months ago.

  127. 127
    BirdsofpreyRcool Says:

    z — one of the portfolio management ideas making the rounds is that it’s time to step out of small cap and into large, as the risk/reward favors the Big Guys here (the small guys having run so much already). That would explain XOM, CVX, and BP here.

  128. 128
    zman Says:

    BOP – right, moving up the risk ladder. As it applies to energy, the concept is a dubious one. Size and earnings leverage don’t necessarily relate. But a lot of managers think of E&Ps and Majors as more related than they are actually. As for service, I can see how a HAL or SLB could actually perform on the numbers better than some of the smaller guys as they have hacked out costs and taken share. Not true for say an XOM vs an APA or an APC. XOM is still burdened with a high cost mindset and refining and chemicals side which acts as both a hedge (a poor one in the last down cycle for oil) and a hinder as prices move back up.

  129. 129
    BirdsofpreyRcool Says:

    z — re128 — no argument from me. Don’t like to buy the integrateds. There is always one part of the biz that disappoints.

  130. 130
    zman Says:

    WILDZ

    FSLR – Added (1) FSLR November $165 call for $6 with the stock at 153.33 and earnings after the close. High risk from the standpoint that these guys have repeatedly been able to post strong results and then pull defeat from the jaws of victory by announcing something the Street didn’t care for during the conference call. I’m looking for further production growth and further advances in cost per watt and flat to down margins (expected).

  131. 131
    BirdsofpreyRcool Says:

    HT thoughts… we need to close at or above the SPX 50DMA (right around here) today. But, that’s just short-term stuff.

  132. 132
    zman Says:

    Thanks BOP

  133. 133
    elduque Says:

    BOP – looking at HYG it appears that credit is getting wacked as well?

  134. 134
    BirdsofpreyRcool Says:

    Credit down with equities today. Yes. “Whacked” might be a bit too strong a term, however.

    IG 109 widened 2 more bps in the last 30 mins

    HY 92 1/4 -3/4 pt on the day

    US Treasuries rallying a tad today too.

    So, today’s trade is away from risk and toward risk-free.

  135. 135
    BirdsofpreyRcool Says:

    IG 108 1/2 now

  136. 136
    zman Says:

    Bill Gross was on CNBC this morning fielding questions about risk aversion. Comment for investor who was risk averse was not to buy treasuries but to go with high quality, high yield stocks. Even after the rally they’ve had.

  137. 137
    BirdsofpreyRcool Says:

    Desk not seeing active sellers and/or shorters. More of a sitting-on-hands-day for buyers. We have to get through first look at 3Q GDP tomorrow morning. Then the weekend. Then Monday, we wake up and it’s not October any more.

  138. 138
    BirdsofpreyRcool Says:

    z — #136 interesting. Jibes with Bill’s recent comments about wanting to get into the equity fund mngmt biz too.

  139. 139
    jiveyjr Says:

    7 out; line away; pay the don’ts ….time for a new shooter already

  140. 140
    zman Says:

    BOP – yeah, he’s one guy where “talking his book” is ok with me.

  141. 141
    BirdsofpreyRcool Says:

    z — in the final analysis, we all “talk our book,” eh?

  142. 142
    zman Says:

    True, I just don’t see the same ignoring or half the argument from guys like Gross vs some other, TV loving types.

  143. 143
    zman Says:

    Flint Michigan, land of bulldozers:

    http://abcnews.go.com/Nightline/Business/shrink-survive-rust-belt-city-bulldozes-vacant-homes/story?id=8936668

  144. 144
    BirdsofpreyRcool Says:

    142 — ha! that’s b/c Gross is a Bond Guy.

    Not that i’m biased, or anything…

  145. 145
    BirdsofpreyRcool Says:

    143 — they are actually complaining that the City of Detroit is not bulldozing houses fast enough. I guess an empty lot is better than a crack house.

    HT saying that today doesn’t feel like it means that much… people just waiting on eco news tomorrow.

  146. 146
    VTZ Says:

    Dman – I can comment on that GLD story later today or tomorrow. Sorry about that. Have been away from my office all day.

  147. 147
    zman Says:

    BOP – is that a new rec. from SMH on BEXP I see on the tape?

  148. 148
    BirdsofpreyRcool Says:

    BEXP — i don’t see the story… but, I don’t think so.

  149. 149
    zman Says:

    bloodymarythirty

    FSLR call in 30 minutes; results should be out in the next few.

    WLL results should be out sometime this evening.

  150. 150
    cargocult Says:

    Is it Friday yet?

  151. 151
    zman Says:

    FSLR getting hammered on the headline numbers.

  152. 152
    zman Says:

    FSLR

    $1.79 vs $1.74 expected.
    Revenue light
    Revenue guidance looks to be up so order push into 4Q?

  153. 153
    zman Says:

    more on FSLR – street reacting to top line miss but …

    Guidance Revised Higher:

    * 2009 Sales:
    o Was: $1.9 to $2.0 B 0 everything stays the same.
    o Now: $1.975 to $2.25 B
    o Implies $550 to $600 mm for 4Q, Street at $534 mm
    * Operating Margin:
    o Was: 31 to 33%
    o Now: 33 to 34%

  154. 154
    zman Says:

    FSLR – Q3 had a project underway during the quarter, $58 mm of revenue they couldn’t recognize. Would have come in at $538 vs $529 mm estimate.

  155. 155
    elijahwc Says:

    WLL – .28 + .31 hedging gain = .59 or .01 light

  156. 156
    zman Says:

    Eli – will get to it in awhile. I see they bumped their production guidance, again.

  157. 157
    zman Says:

    FSLR 3Q call starting, price $128 to $130.

  158. 158
    BirdsofpreyRcool Says:

    MARKET RECAP

    · Equities go out at session lows; SPX down 20pts to 1042 while the Nazz underperformed (down >2.5%). Why the selling pressure?? The action today really was a continuation of weakness that started to manifest itself last week; that is, while the explosive moves in names like AAPL, MSFT, AMZN helped bolster the broader indices, the SOX and TRAN both started to crack last week, sending ominous signals. The selling has broadened out, hitting the regional banks since last Fri, and now spreading throughout the whole market (materials, discretionary, etc). The nature of flow has changed some, w/buyers no longer exclusively viewing weakness as a buying oppy and now concerned more w/reducing risk and protecting profits/performance (note that we are heading into fiscal year ends for a lot of funds at the end of Oct and Nov); Mix shifting some from single stocks to ETFs and volumes picking up a bit (although not surging). A whole lot of important technical levels have been sliced through today (they tried to stage a defense @ the 50day today @ 1050, but couldn’t muster of a rally) w/people eying 1040 as the next (and among the last near-term) big level to hold. Per our futures desk this morning: whether for hedge or directional play, several market participants are back using eq futs as their vehicle of choice….these hyper-purges could get dangerous if the right data mix hits the tape and technical support continues to wane.

    · Int’l markets also quite weak today: Brazil fell 4.5% today and is now off 11% from its recent high (officially entering ‘correction’ territory); the 2% capital tax imposed last week weighing hard on asset prices.

    · Equity sectors: selling across the board. One green group – telecom carriers (VZ, T, Q all very strong; recall sentiment had been v negative on this space into earnings; YTD this is still the weakest group within the s&p). On the downside, financials are weakest major group in trading today (off 3.3%; within financials, the REITs drop 4.5%)). materials fall 3% (metals still come for sale on back of disappointing earnings, w/MT being latest, and stronger dollar). Energy, discretionary, industrials all drop more than 2%. Autos fall >5% (weighed down by GT).

    · Dollar: DXY up 0.45% on the day and ends near highs; has been higher now for last 5 consecutive sessions. Dollar gains against all major currencies except the yen….yen actually rallying >1% against the buck (the yen is up 1.7% against the Euro).

    · Commods: crude drops 2.8% to $77.30

    · Treasuries: rally on the day, combination of risk aversion, snap-back from recent selling, and strong auctions (strong TIPS Mon, strong 2s Tues, and strong 5yr sale today). one more auction for the week (Thurs @ 1pmET).

    · Corp credit: pretty weak trading (paces inline w/stocks). IG out >7bp on the day (to 108.5-109.5). HY falls near a whole point on the day

  159. 159
    zman Says:

    My notes:

    $58 mm could not recognize, purely a timing issue, with a project in Canada, that has been sold so no big surprise there. Top line guidance remains on track (and if you look at the back up slides has been revised upwards).

    Cost per watt continues to decline, down 2 cents to $0.85 c/w

    … stock at $132

  160. 160
    zman Says:

    FSLR – market environment

    Strong demand in Germany (unlocked by contracting subsidiaries), Strong in France, California, Canada.

    Positives:
    1) Market demand is seasonally stronger,
    2) inventories have fallen for the industry, says going into Q1 with more normal levels.
    3) will be able to sell all they can produce this year in a year when they have produced flat out.

    Negatives: Crystalline margins under pressure, Germany looms as an uncertainty.

  161. 161
    zman Says:

    Stimulus Watch:

    WASHINGTON (MarketWatch) — Senators have struck a deal to extend a popular tax credit for home-buyers beyond those buying their first house, Senate Majority Leader Harry Reid’s office said Wednesday. Those who have lived in their residence for five consecutive years would be newly eligible for a $6,500 credit, Reid’s office said.

  162. 162
    BirdsofpreyRcool Says:

    Wow. The redistribution of wealth just knows no end… and this from the guys who say they are going to reign in medical costs?? right.

    The monetization of the last asset class in the US continues… the U.S. Taxpayer.

  163. 163
    BirdsofpreyRcool Says:

    The mrkt may like that stuff… but, it’s a pure sugar-rush. And it is going to leave us working class people with one heck of a toothache. Sick stuff, people.

    But, Americans like “freebies.” As long as someone else is paying.

  164. 164
    zman Says:

    Q&A

    FSLR – raising guidance for the full year as previously disclosed. Stock at $130.

    Margins in 4Q sliding more than people probably thought although they have warned of this before. Estimates will be coming down slightly or hold flat, as the tax rate is moving lower as well.

  165. 165
    Dman Says:

    #161 Unbelievable. Still probably better than pouring that cash down the throats of GS etc, but …

    VTZ #146 thanks.

  166. 166
    elijahwc Says:

    “Mix shifting some from single stocks to ETFs and volumes picking up a bit (although not surging). A whole lot of important technical levels have been sliced through today ……Per our futures desk this morning: whether for hedge or directional play, several market participants are back using eq futs as their vehicle of choice….these hyper-purges could get dangerous”

    Damn Machines, devivatives, algorithms and short-term mark calls. Opps, that last one was mine. Please forgive.

  167. 167
    1520sbroad Says:

    #161 – sweet baby Jesus and the shepherds where does this stop?

  168. 168
    zman Says:

    Still listening to FSLR call. Getting a bit granular at this point.

    So browsing through the WLL pr.

    Production ahead of guidance, guidance going up for 2009.

    Notable wells:

    * Maki 11-27H with IP of 4,761 BOEpd (largest well I have seen out of them)
    18 stage frac, northeast Sanish Field
    * Tollefson 44-10H with IP of 2,636 BOEpd in the opposite corner of the Sanish

    * Kannnianen 11-5H, IP of 1,998 BOEpd, in center of Sanish

    Rig count there just went from 5 to 6 rigs and will go to 9 rigs by early 2010.

  169. 169
    bloodystupidjohnson Says:

    Dman: sorry I didn’t back to you – 124 on GMXR options. Answer is NO. When the entire energy sector has been pole axed, I am much more interested in other E&P names.

  170. 170
    elijahwc Says:

    Well 162 & 165 then how about this one:

    DETROIT, Oct. 21 /PRNewswire/ — The GMAC Financial Services board of directors declared quarterly dividend payments on certain outstanding preferred stock. The dividends were declared on Oct. 15, 2009 and are payable on Nov. 16, 2009. The dividend payment declared to holders of GMAC’s Fixed Rate Cumulative Perpetual Preferred Stock, Series G, was $17.31 per share, or a total of approximately $44.6 million. This dividend is payable on Nov. 16, 2009 to shareholders of record as of Nov. 2, 2009. This preferred stock was issued to investors in connection with GMAC’s private exchange and cash tender offers, which were completed in December 2008.

    This will go to the shareholders of yes… Cerberus …just as soon as we taxpayers fulfill their new bailout request. Bank must have told them that the wouldn’t honor the dividend until your check was on deposit.

  171. 171
    baylor3217 Says:

    No after hours action on WLL per yahoo. Headline shows huge beat. Haven’t dug into it yet though

  172. 172
    zman Says:

    Bayor – still digging through it now. They aren’t really a name that’s going to trade a lot in the AH. Production was above top end of guidance and higher than 2Q and year ago levels. Guidance for the year goes higher. Big wells in their ops update (including biggest IP in their Bakken history which means biggest IP for a Bakken well period) guidance revised up for remainder of year. Strong numbers out of their EOR stuff as well, not sexy but it puts bread on the table. Mid November for news on their Lewis and Clarke prospect.

  173. 173
    VTZ Says:

    http://www.ft.com/cms/s/0/8cda145a-c3fe-11de-8de6-00144feab49a.html?nclick_check=1

    I didn’t see that posted anywhere

  174. 174
    VTZ Says:

    Dman – I’ve read articles related to the physical gold that the US actually holds. There are many questions as to whether or not it actually exists because it has not been audited in ages. The GLD also posts the bar numbers but is not formally audited whereas the canadian ETF (CEF) is audited regularly and holds all physical gold.

    The implications are that the US is fulfilling some obligations through gold and that they are having trouble actually obtaining because like the mortgage market it’s all just paper. GLD is similarly plagued as it recently reported abnormal lists of bars and it is believed to hold mostly paper assets. The GLD trades at a discount because people do not believe they will actually receive their gold if they asked for it whereas the CEF trades at a premium because physical trades at a premium to spot and they hold all physical.

    Ultimately it comes down to the fact that the US is probably not able to deliver on all the gold quoted on its balance sheet.

    Let me know if I did not cover something.

  175. 175
    VTZ Says:

    The other implication is that a portion of the large short position was covered using ETF gold because the custodian of the GLD is a major institution and they got caught offside.

  176. 176
    Dman Says:

    VTZ – thanks for all that. It’s the “abnormal lists of bars” at GLD that intrigued me. Amazes me that it is still standing after pulling something like that. Or just another case of the US Govt pulling the strings to keep it standing?

    I’m definitely going to take a look at the CEF.

  177. 177
    VTZ Says:

    Yeah the belief is that JP Morgan used the bars to cover a short position that required delivery because there has been a move by central banks to actually move and hold their bullion. It also means that the amount of actual bullion the fund hold fluctuates and the remainder is paper putting your bullion at risk of delivery.

    Mr. Fekete also wrote an article on the backwardation of the gold futures markets a while ago and suggested that it indicated that delivery would be at risk when buying futures.

    It all goes hand in hand with all the contributing factors reducing the physical bullion in circulations:

    -New vault in Dubai that is drawing physical bullion in London (London and the COMEX is the center of the shorts
    -The difficulty people have actually taking delivery of futures contracts from the COMEX
    -The amount of futures contracts in circulation could not all be honored if everyone demanded delivery
    -Central banks are actually taking delivery
    -etc etc

    GLD is essentially a big shorting vehicle for the custodians of the fund with no implication that you’ll actually get your gold. Do yourself a favor and buy the CEF.

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