Wrap Week Ended 06/06/08


Record Move In Oil Fuels Downside In Broad Market. Sorry, just wanted to try my hand at writing Dow Jones headlines.

Holdings Watch: We've been busily raising cash as this kind of volatility has a way of ending badly. The portfolio as it stands now:

  • Cash 48%
  • Stocks 13%
  • Options 39% (94% weighted to an upward move in energy sector shares) 

Closed Trades For The Week:


Weekend Bonus Watch: QBIK run through now available free of charge here

On To The Weekly Wrap ...


Wrap Comments To Be Added Saturday...

Have A Great Weekend! 

13 Responses to “Wrap Week Ended 06/06/08”

  1. 1
    Nicky Says:

    The US energy secretary is extraordinarly complacent in my view. It soon will be a ‘crisis’ but every time I either hear him interviewed or read his comments it appears he couldn’t care less and pretty much shrugs his shoulders as if to say well its not my problem.

    Whilst I don’t advocate that it is his problem it would be nice to have someone in his position who appeared to care a little more.

    Cycles called for a 3 – 5 bull market in energy starting in 2007 with the initial phase due to peak in 2008 (interestingly upside targets for a wave 3 in unleaded were in the 3.65 region) – if this region does not provide resistance for unleaded then things could get really ugly. Crude and heating oil are already way beyond their targets for this time frame.
    As we are only in the first year of this bull market then clearly it has a lot further to run short term pulbacks notwithstanding.
    Not coincidentally a bear market is expected to take hold in the stock market for the next 2 – 3 years and which should take the markets much much lower.
    Early next week is very important for indices – a low could be seen by Monday/Tuesday which could be followed by a 2 -3 week bounce. Conversely if the current areas do not hold the markets could accelerate lower quickly.

    Oil hike sparks ‘serious concern’

    Some suggest crude could reach $150 a barrel by July
    The US and the four largest economies in Asia are to voice “serious concerns” over “unprecedented” oil prices.

    Energy ministers are meeting in Japan a day after a record one-day jump in the crude oil price, to $139 a barrel.

    Under pressure from the US, Japan, China, India and South Korea have agreed on the need to end fuel subsidies, blamed for boosting demand.

    But correspondents say there are major differences over the speed and extent to which the changes should be made.

    The soaring cost of oil is causing growing strain to economies around the world, with some governments facing protests and other pressures from consumers and businesses.

    Both the Indian and Malaysian governments have recently raised fuel prices in order to cut the subsidies they provide.

    Officials and ministers from the Group of Eight (G8) key industrialised nations, as well as China, India and South Korea, are meeting for two days in the northern city of Aomori.

    In a statement to be issued after the talks, the US and Asian countries are expected to say rising oil prices pose a great burden, especially on developing countries and are “against the interest of both consuming and producing countries”, news agencies reported.

    It will also say that “phased and gradual” withdrawal of price subsidies – blamed by some for fuelling demand in emerging economies – is “desirable”, the French news agency AFP said.

    But India insisted there was no agreement to remove the subsidies altogether, China made clear it had no time frame for moving towards lower subsidies, and Japan’s trade minister confirmed they had agreed only on the need to remove the subsidies, according to the BBC’s Chris Hogg, in Tokyo.

    ‘Economic egotism’

    Friday’s spike in oil prices coincided with a dollar slump, plummeting share prices on Wall Street and US unemployment suffering its biggest rise in 20 years.

    Russia is a global player. We understand our responsibility for the fate of the world and want to participate in forming the rules of the game

    Dmitry Medvedev
    Russian president

    Israeli minister threatens Iran
    Analysis: Growing talk of attack
    Send us your comments

    On Saturday, US energy secretary Samuel Bodman said the price surge was a “shock” but not a crisis, amid fears the oil price spike could help tip some of the world’s economies into recession.

    He also said he did not see a need for a tightening of regulation of oil markets.

    Some say market speculation, and a lack of disclosure of information over the size and nature of reserves, may be stoking the price rises, as well as concerns that demand may be growing faster than supply.

    Separately, Russian President Dmitry Medvedev blamed what he termed the US’s “economic egotism” for the current problems in the global economy.

    He accused the US of “aggressive financial policies” and said most people in the world had become poorer.

    Speaking at the St Petersburg International Economic Forum, he said Russia was a “global player” and wished to “participate in forming new rules of the game”, but not because of “imperial ambitions”.

    Iran threat

    On Friday light crude set a record high of $139.12 in after-hours trading on the New York Mercantile Exchange after hitting $138.54 at the regular session.

    Oil prices were given a boost on a report by Morgan Stanley analyst Ole Slorer, who suggested the price of oil could rocket to $150 as early as July.

    Some analysts have suggested that prices would reach as high as $200 a barrel during the next 18 months.

    The benchmark light, sweet crude oil is more than twice the price it was a year ago.

    On Friday, the market was also responding to a statement by Israel’s transport minister that an attack on Iran was “unavoidable” after sanctions to prevent Tehran from developing its nuclear capability had failed.

    Investors hedging oil against the weak dollar has also pushed up the price of oil.

    Correspondents say fears that workers at Chevron Corporation in Nigeria may go on strike and subsequently disrupt production and access to oil are also adding to market jitters, as well as Israeli threats to strike Iran over its nuclear programme.

    Oil prices had recorded losses earlier this week after doubts about future demand took hold of the market.

  2. 2
    zman Says:

    Agreed re Bodman. Reminds me of Paulson when he talks about the dollar. “we believe a strong dollar is in the interests of the U.S.” How nice, got any plan to get it there?

  3. 3
    ram Says:

    Thanks for the allocation percents of cash, stock, and options.

  4. 4
    Fred Says:

    Thanks Nicky, the whole adminstration acts lost and Bush like he’s a casual observer!

  5. 5
    bhr5491 Says:

    Z, someday can you take a look at glbl? I know the founder, Dore, is selling out but it seems they may be in sweet spot soon. Thanks for everything.

  6. 6
    zman Says:

    bhr – will do this week, they’re not in my sweet spot so that’ll be more 10,000 or 5,000 foot view.

  7. 7
    zman Says:

    Ram – no problem, thought you’d like ta know.

    Will have the major market watch stocks in the post tomorrow and will to a tab for future reference. They are not the complete list as that would be overkill but the main names will be there.

  8. 8
    zman Says:

    Holdings Wiki and Performance Tabs updated for current holdings.

  9. 9
    Nicky Says:

    Oh heck – more shenanigans from GS – don’t tell me they closed their longs too early??

    Oil’s Record Jump May Be Overreaction, Goldman’s O’Neill Says

    By William Mauldin

    June 7 (Bloomberg) — A record jump in crude-oil prices yesterday may have been an overreaction, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said.

    Oil rose $10.75, or 8.4 percent, to $138.54 a barrel in New York yesterday. It was the biggest-ever gain in dollar terms and the largest on a percentage basis since June 1996. Oil rose $11.33 to a record $139.12 during trading. Asked if that was an overreaction, O’Neill told reporters in St. Petersburg, Russia, today: “I think it is.”

    Crude surged as the dollar weakened following a report that the U.S. unemployment rate grew the most in two decades and as Morgan Stanley said prices may reach $150 a barrel within a month. Oil also rose after an Israeli minister said an attack on Iran may be necessary.

    Of all the economic indicators he follows, O’Neill said the price of crude is one of the hardest to predict and evaluate.

    “Oil is the one thing I’m really not sure about,” he said at the St. Petersburg International Economic Forum. Combined with the 3.1 percent plunge in the Standard and Poor’s 500 Index yesterday, traders will have “quite a challenging day” June 9, O’Neill said.

  10. 10
    zman Says:

    Nicky. No kidding, LOL. Overreaction, ya think!!! These guys need to stop commenting on a daily / weekly basis as it adds little value. I like how he closes out by saying oil’s price direction is hard to predict and that he’s unsure about it. Wow, very helpful.

    I know he has speaking engagements so maybe its just that the press is hanging on every word, however unimportant. Kind of like how they parse the Fed statement each month for the number of commas used.

  11. 11
    Nicky Says:

    By Simon Webb

    DUBAI (Reuters) – OPEC members saw no need on Sunday to pump more oil in response to last week’s double-digit surge in oil prices to over $139 a barrel that top exporter Saudi Arabia described as unjustified.

    More pain was coming for consuming economies hurting from record fuel costs as prices were likely to climb further, officials from the Organization of the Petroleum Exporting Countries (OPEC) said.

    Oil soared more than $16 a barrel – over 13 percent – in a two-day rally on Thursday and Friday on weakness in the U.S. dollar and rising tension between Israel and Iran.

    “I think there is enough oil in the market,” Shokri Ghanem, head of OPEC member Libya’s National Oil Corporation, told Reuters in a telephone interview.

    Top oil exporter Saudi Arabia is the only OPEC member with capacity to boost output quickly and significantly.

    But Saudi Oil Minister Ali al-Naimi and his Pakistani counterpart met on Sunday and agreed that the price rise was unjustified and unrelated to market fundamentals, the official Saudi Press Agency reported.

    Consuming governments have put pressure on OPEC, supplier of more than a third of the world’s oil, to boost output to ease the effect of high oil prices on their economies. Germany’s government voiced its concern on Sunday about the impact of oil’s rally.

    “The increase of the oil prices is becoming a real threat to the worldwide economy,” Germany’s Economy Minister Michael Glos told Reuters.

    $150 OIL?

    OPEC blames factors beyond its control, including speculation and international political tension, for the price rises. Those factors could take prices even higher soon, said Iran’s OPEC representative Muhammad Ali Khatibi.

    “I forecast that by the end of summer the price of oil will reach $150 a barrel,” Mohammad Ali Khatibi was quoted as saying by Iran’s state broadcaster.

    Iran is OPEC’s second largest oil producer and the deepening dispute with the West over Tehran’s nuclear ambitions has contributed to oil’s rally.

    Israel’s deputy prime minister said in remarks published last week that an attack on Iran’s nuclear sites looked “unavoidable,” although a senior Israeli defence official said on Sunday the remarks did not reflect state policy.

    Investors have bought oil on concern that an escalation in the conflict could disrupt Iran’s exports.

    But only a real threat to supply would stir OPEC to meet before its next scheduled gathering on September 9, an insider said on Sunday.

    Nobody within OPEC was calling for a meeting before September, Libya’s Ghanem said.

    Rising oil prices have defied swelling OPEC supplies to physical markets. Iran said on Sunday it would export over 2.5 million bpd in June as shipments recovered from a 200,000 bpd lull in demand from refiners during April and May. Iran has large volumes of crude sitting in tankers offshore waiting for buyers.

    Saudi Arabia has boosted output 300,000 bpd to pump 9.45 million bpd in June, and Oil Minister Ali al-Naimi said last month the kingdom was meeting all demand for its crude.

    Iraq expects its exports to hit a five-year high in June.

    Still, concern over long-term supplies and declining output from producers outside OPEC have also lifted the oil price. Ghanem said on Sunday that oil was getting more difficult and costly to produce and that global supplies were nearing their peak.

    “The easy, cheap oil is over,” he said. “Peak oil is looming.”

  12. 12
    Nicky Says:

    Z – as they had predicted $200 oil I am surprised he is having problems working out which direction its going!
    This move has just caught them all methinks. They had that trader Joe Terranova (not sure if that is how you spell his name) on Fast Money Friday night who has pretty much been long the oil market but switched to short last week. He said the traders on the floor are absolutely furious as they are not even trading this and nobody can see what is going on and they just can’t see how to trade it. He also added that Morgan Stanley’s call as far as he was concerned on Friday was terrible timing! These guys have been saying for weeks that this market is no longer being moved by normal trading activity by that I guess he means that its the funds behind the scenes trading electronically. This makes me think that when the rug is finally pulled you will see an absolute bloodbath as by then these traders will have been sucked back in and will not be able to get out quick enough.
    No help from OPEC see the above comment although you can’t blame them when the market has ample supplies at the moment. Again though do they need to comment every week??

  13. 13
    scottjasonm Says:

    Anyone have any comment on DUG’s behavior late on Fri? (I’m still not sure I understand exactly how these “ultra” funds work and how much manipulation must be done to keep them on track to advertised 2x performance – over the short term at least)

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