Friday … And Rome Burned

Sentiment Watch: Red. Blood red. Ship out of control. Too many captains fighting for a chance at touching the rudder. (WM) died overnight in the biggest bank failure in U.S. history. As did hopes for a quick solution to the Bailout crisis. Futures turned on a dime with the news that Congress and the White House are further apart on a deal, potentially needing to start from scratch. Once again, I'm glad I have those DUG calls. I'm so angry about the inability of leaders to lead I can't type straight. One of my trading rules is "Don't Trade Angry" which goes hand in hand with "Be Patient But Not Complacent". Taken together these rules yield something like "Don't Bet On Washington" which means I won't be throwing dollars at stocks until these guys get unclustered and find a solution. 


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Refining Watch - Low Inventories and Tepid Crude
  5. Odds & Ends

Holdings Watch:

  • (CLR) - Added CLR October $45 Calls for $3.60 on a 4% down day in the stock.

Commodity Watch:

Crude oil rose $2.29 to close at $108.02 in concert with the broad market's heightened enthusiasm for a bailout getting passed sooner rather than later. I say, "easy come, easy go" on moves like that. Crude ignored the move in the dollar and instead focused on the "hope" that Bailout = Prosperity. This morning crude is trading off sharply on the bailout sputtering.

  • The Enemy of My Enemy Is My Friend Watch: Chavez and Putin are about to pen a deal to form a new energy consortium that will see Russian development of oil and LNG facilities in Venezuela. This comes on the heals of new military deals that are expected to result in joint military maneuvers in the Caribean next year...I'm sure under close scrutiny of the newly reestablished U.S. 4th fleet. I do mean to sound alarmist when I say that the markets have all but ignored the importance of recent steps taken by Putin. Russia's involvement in South America at a time when U.S. / Russian relations are strained is another step closer to a new cold war, one that this time will be focused on resource acquisition and economic leverage.

Natural gas rallied with the move in oil having earlier in the day ignored a smaller than expected injection to natural gas storage (see next section). The October contract will go off the boards today as the front month contract in the mid $7s. November is trading higher closing at $7.93 yesterday. I continue to see gas bottoming in a range of $7.50 to $8 with maybe a near term somewhat limited rally to around $8.50 or even $9.

MMS Watch:

  • http://www.gomr.mms.gov/homepg/whatsnew/newsreal/2008/080924.pdf
  • Ike destroyed 52 platforms as of today, up from 49 last week. Looks like 13 mbopd and 90 MMcfgpd gone…that’s pretty small.
  • 29 other platforms have extensive damage and will take 3 to 6 months to repair.
  • 33 others are in the moderate damage category with 1 to 3 month repair timelines.

Other Shutins: EIA reports that nearly 1 Bcfgpd of onshore Louisiana production was shut in as of last week due to a lack of power at processing facilities.

Natural Gas Storage Review:

The EIA reported a gas storage injection of 51 Bcf, well below the Street's estimate of 62 Bcf and my own number of 65.

The smaller gas storage number is probably simply attributable to on and offshore restart problems after Hurricane Ike. Gas production from the Gulf was actually lower last than during the preceding week but is now firmly on the upswing. With that said, gas storage looks likely to peak around 3.4 Tcf. With 6 weeks left in the normal injection season the five year max, min and average injection cases can be seen in the following table. I've added a 1 and 2 Bcfgpd extra supply case to reflect high YoY production relative to historic injections. 3.4 Tcf is the Goldilox numbers for peak storage - not too high, not too low and puts winter weather firmly in charge of prices.

Fourth Quarter Gas Price Directionality: Typically Up... In fact during this decade we have had only two years when gas prices did not rise into Winter (see chart below). 2005 peaked early, a function of that season's early spike up in prices caused by storm related shut ins while 2004 is a bit of an outlier. In all years, gas prices saw a higher mid quarter peak than the start point for gas.

...And I am looking at taking on some gas calls for the 4th quarter. As I've said a lot lately, I think gas is bottoming. A friend of the blog sent over the following chart of (UNG), the natural gas ETF yesterday, and I while I will rarely buy for purely technical reasons, my sense that gas is finding a bottom, with further supply cuts on the way and this kind of saucer shaped pattern are pushing me towards going long.

Refining Watch: Cracks Shot The Moon Last Week. I don't expect it to last but the pressure on wholesale prices induced by historically low gasoline inventories and low distillate stocks is overcoming the weakness in product demand setting a strong end to what has been a horrible year for the industry. The spike in Gulf Coast cracks is obviously unsustainable but the general trend upward trend in margins probably has legs here.  I continue to hold (TSO) calls here and am seeing more evidence that the Street is warming to the refining group in general.

Odds & Ends

Analyst Watch: (TRA) and (AGU) downgraded at Citi, otherwise pretty quiet.

75 Responses to “Friday … And Rome Burned”

  1. 1
    zman Says:

    On the tropics front, a little disturbance in the southern Gulf and one out in the middle of the Atlantic but not much near term chance of development for either of them.

  2. 2
    Sambone Says:

    By Nick Heath
    LONDON (Dow Jones)–Crude oil futures fell more than $3 in European trade
    Friday as uncertainty surrounding the future of a U.S. financial bailout
    package prompted market participants to trade out of long positions and wait on
    Oil prices had firmed Thursday on anticipation that a $700 billion rescue
    package was nearing completion, but opposition from Republican lawmakers late
    in the day scuppered hopes of an agreement, stirring fresh doubts over the
    proposal’s outcome.
    The impasse plied downward pressure on crude prices Friday, and while talks
    are set to resume Friday morning, expectations are now growing that the plan
    will need to be revised to secure all-party approval.
    “It appears the plan will be watered down and (we) therefore question whether
    it will be as effective as many might previously have thought,” said Michael
    Davies, head of research at Sucden in London. “At the same time there are also
    many that feel that the plan will do nothing at all to solve the problems.”
    At 1101 GMT, the front-month November Brent contract on London’s ICE futures
    exchange was down $2.54 at $102.06 a barrel.
    The front-month November light, sweet, crude contract on the New York
    Mercantile Exchange was trading $2.72 lower at $105.30 a barrel.
    The ICE’s gasoil contract for October delivery was down $3.50 at $964.50 a
    metric ton, while Nymex gasoline for October delivery was down 705 points at
    262.68 cents a gallon.
    While debate over the proposal is expected to dominate market activity Friday,
    from an oil market perspective, doubts hang over whether any successful passage
    of a proposal will contribute to shoring up physical demand for crude amid an
    otherwise bleak economic landscape.
    “The latest political debacle will not help consumer sentiment. Even if the
    plan is passed, we are not in the camp that believes that it will do anything
    to improve oil demand,” said Olivier Jakob, managing director of Swiss
    consultancy Petromatrix. “This plan is a rescue plan to prevent a collapse of
    the financial system and not a plan to boost the economy. The rescue plan’s
    impact on the economy will be a lengthy process and will not immediately put
    the U.S. driver back on the road.”
    And signs of economic weakening elsewhere suggest demand for crude outside the
    U.S. could also wither. The German Ifo business climate index released
    Wednesday declined for the fourth consecutive month in August, promoting
    renewed talk of recession across the eurozone.
    “The United Kingdom and Germany are already in the throes of a recession,
    while France and Italy, and therefore the eurozone as a whole, can at least
    still hope for stagnation. In Japan, however, such hopes are probably finally
    passé,” said Jochen Hitzfeld and Nikolaus Keis, analysts at UniCredit in
    “It is no wonder, therefore, that physical demand for crude oil from the
    industrialized world is already falling and will continue to decline in the
    coming quarters.”
    Market participants suggested Friday that amid weak market sentiment, demand
    concerns are likely to remain the market’s dominant focus, in spite of recent
    supply-side disruptions such as hurricane-linked production shut-ins in the
    Gulf of Mexico, and militant activity in the Niger Delta.
    With traders continuing to eye developments in other financial markets,
    analysts predicted price activity will remain volatile.
    “Financial market uncertainty is likely to continue blurring the usual links
    between commodity supply and demand and price, creating the conditions for
    further high levels of volatility right across the sector,” said analysts at
    Barclays Capital.
    Given recent financial market upheavals – such as the collapse of investment
    bank Lehman Brothers and the surprise sale of Merrill Lynch to Bank of America
    – emerging over weekends, oil market participants will be taking few risks
    “Ahead of the weekend I don’t think anybody will be trading any large
    positions, on concerns over bad news or any more fallouts over the weekend like
    those we’ve seen in the last couple of weeks,” said Andy Sommer, analyst at HSH
    Nordbank in Hamburg. “Nobody really wants to go into the weekend with a long
    position – they’re waiting to see what the guys in Washington do.”
    -By Nick Heath, Dow Jones Newswires
    Dow Jones Newswires
    09-26-08 0722ET

  3. 3
    zman Says:

    Northeast about to get first blast of cooler weather.


  4. 4
    Sambone Says:

    Cash-Rich Oil Firms Snap Up Assets


    The turmoil on Wall Street is reshaping the U.S. oil industry, forcing debt-laden smaller producers to sell assets and creating opportunities for larger, cash-rich companies that until recently had been criticized by investors for spending too conservatively.

    The latest example: Occidental Petroleum Corp., one of the largest independent oil producers, Thursday snapped up the 50% interest it didn’t already own in oil and gas fields in Texas and the Rocky Mountains from smaller company Plains Exploration & Production Co. The $1.25 billion price tag was nearly 20% less than the $1.55 billion Occidental paid less than a year ago for the first half of the assets.

    The deal comes amid a rapid reversal of fortunes for many in the energy sector. In the first half of the year, energy prices skyrocketed and investors eagerly lent money to oil companies, one of the few industries still thriving in the struggling economy.

    Wall Street rewarded companies that spent aggressively on finding and drilling new wells, such as natural-gas producer Chesapeake Energy Corp., shares of which soared 77% this year, peaking July 2 with a closing price of $69.40.

    Companies that spent conservatively and built up cash saw their stock go up far less; Occidental shares rose 15% in the same period, closing at $88.42 on July 2.

    Oil prices, though still high by historical standards, have declined more than 25% from their July peak. Natural-gas prices have fallen even more sharply as rising production has led to fears of a looming glut. And many energy companies have seen their share prices plummet 40% or more from their highs in June or July.

    The shift has led to a scramble for cash just when the global financial crisis has made it hardest to come by.

    Chesapeake, the U.S.’s largest producer of natural gas by output, Monday said it would cut capital spending by $3 billion, or 17%, through 2010. To help fund its drilling program, the company said it will sell $13 billion of assets during that same period.

    But experts said the marketplace for oil-and-gas properties may have more sellers than buyers. Even some companies that want to buy are struggling to find the cash for purchases. Wednesday, Dominion Resources Inc. said it was scaling back a sale of drilling rights in Appalachia after its buyer, closely held Antero Resources Corp., had difficulty borrowing the money it would need to drill the wells.

    Antero will buy 114,259 acres for $347 million, down from its original plan to purchase rights to 205,000 acres for $552 million. The remaining acres will go back on the market where they will compete with assets being sold by Chesapeake, among others.

    “There are a lot of property packages on the market right now,” said David Heikkinen, an analyst with energy-focused investment bank Tudor Pickering Holt & Co.

    That means buyers can set more aggressive terms. Occidental President and Chief Financial Officer Steve Chazen said his company’s deal with Plains began with a phone call from Plains CEO James Flores. “We told them what the price we were willing to pay was, and [Mr. Flores] says, “Well how about more?” and we say, “No,'” Mr. Chazen recounted.

    Plains representatives couldn’t be reached for comment. But in a statement, Mr. Flores said the deal will allow the company to refocus its efforts on assets in the Haynesville Shale, an emerging natural-gas field in Louisiana and Texas where the company bought a 20% stake from Chesapeake earlier this year.

  5. 5
    zman Says:

    Regarding the OXY/PXP deal, I would again point out that while prices are lower now than they were when the first 50% of the reserves were purchased, the piece of the assets that were bought last time around had far greater production on it than what was bought yesterday. While the firms look at reserves in these deals (which were roughly 50/50) they also look at current cash flow and the package sold at the end of last year was producing quite a bit more CF than yesterday’s asset sale generates today.

  6. 6
    Sambone Says:

    Hope you like the smell of napalm in the morning. Otherwise, this will not be your sort of day.

  7. 7
    zman Says:

    Pretty historic times my friend. No more Merrill, Lehman, Wamu. I heard Goodrich, the tire company can’t get their hands on $360 million they had in a money market account. No bueno.

  8. 8
    Sambone Says:

    By Brian Baskin

    (This article was originally published Thursday)

    NEW YORK (Dow Jones)–Hurricanes Gustav and Ike are shaping up to be worse for
    the short-term outlook for the oilfield services sector than the devastating
    2005 storms, which included Katrina.
    Neither of the recent hurricanes cut quite the same swath of destruction as
    Katrina and Rita, which damaged nearly every platform and rig in the Gulf of
    Mexico before reaching land. But this year’s storms were close to a worst-case
    scenario for oilfield services firms – big enough to shut down work in the Gulf
    for weeks, but not causing the sort of damage that leads to lucrative repair
    The main impact, analysts and the companies themselves have warned, is from
    nearly a month’s worth of lost workdays offshore due to rig evacuations, and it
    will be felt mostly in the current quarter.
    Several analysts have lowered third-quarter estimates across the sector.
    Still, the hurricane’s effect on stocks has so far been lost amid a general
    slide in equities prompted by problems in the credit market, as well as
    additional losses for energy firms as oil prices hit a six-month low. Some
    investors have opted to ride out the earnings storm, in the assumption that
    business will return to normal by the end of the year.
    The effects of the storms will take up to 10 cents a share off some companies’
    bottom lines, said Kurt Hallead, an analyst with RBC Capital Markets.
    “You’re going to lose the revenue when you’re not out working on the rig, and
    you’re not cutting back costs,” Hallead said. “(Losses) may bleed over into the
    fourth quarter, depending on how much damage is done.”
    Hurricane Gustav passed through the Gulf of Mexico over Labor Day weekend,
    forcing a total evacuation of offshore facilities. Nearly all of those workers
    remained onshore as Hurricane Ike entered the region on Sept. 11. About
    two-thirds of oil and gas production was offline as of Tuesday, according to
    the federal agency overseeing offshore energy activity.
    The major well-servicing and technology companies will bear the brunt of the
    storms. Their personnel work on drilling rigs and platforms in the Gulf of
    Mexico, and most have sat idle – and unpaid by customers – onshore since the
    Gulf was evacuated ahead of Hurricane Gustav in late August. Baker Hughes Inc.
    (BHI) and Halliburton Co. (HAL) executives have both said the storms will
    likely affect quarterly results.
    “We’re going to have … five weeks or so of disruption in the Gulf of
    Mexico,” with Baker Hughes normally generating $20 million a week in revenue
    from the region, said H. Gene Shiels, the company’s assistant director of
    investor relations.
    While the short-term impact may end up greater than in 2005, the Gulf hasn’t
    seen the sort of long-term damage caused by Katrina and Rita, which prevented
    some offshore activity from restarting until well into 2006, Shiels said.
    On Sept. 13, Hurricane Ike scored close to a direct hit on the Houston area,
    where many service companies have both headquarters and manufacturing
    facilities. Some companies, such as Lufkin Industries Inc. (LUFK), were able to
    quickly restart facilities in the area, and did not see a need to change
    earnings guidance. Others were not so lucky; T-3 Energy Services Inc. (TTES)
    shut down eight Houston-area plants, responsible for 80% of the company’s
    revenue, and may have at least one facility down for two weeks.
    The storm, in fact, has been a boon for certain service companies.
    “For the transportation companies – boats or helicopters – hurricanes tend to
    be a positive … you end up moving more people in a shorter amount of time
    than you would in the normal course of business,” said Roger Read, an analyst
    with Natixis Bleichroeder. “For construction companies, it depends ultimately
    on the path of the storm.”
    The stock of Bristow Group Inc. (BRS), which operates helicopters that shuttle
    employees to and from offshore installations, is up 5% in the last month.
    Oceaneering Inc. (OII), which repairs offshore facilities, is also up 5%. But
    Baker Hughes, Halliburton and other general service company shares are down
    between 15% and 20%.
    Still, the damage to the companies’ shares is not likely to persist long-term.
    Investors tend to see hurricanes’ impact as fleeting; business lost in the
    quarter is made up later, as offshore work returns to normal.
    “It’s more of a nuisance and an inconvenience,” than a major, long-term
    earnings event, said Bob Auer, senior portfolio manager for the Auer Growth

    (Brian Baskin covers energy markets for Dow Jones Newswires.)

  9. 9
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures dropped Friday as an agreement on a
    federal bailout of financial firms fell through and a major bank failed,
    raising concerns about the immediate health of the U.S. economy.
    Light, sweet crude for November delivery traded $2.59, or 2.4%, lower at
    $105.43 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange traded $2.23 lower at $102.37 a barrel.
    Congressional leaders failed to reach an agreement overnight on a $700 billion
    bailout package for financial firms, after appearing close to a deal Thursday.
    Meanwhile, federal regulators seized Washington Mutual Inc. in the largest bank
    failure ever.
    Crude prices had risen on the prospect of a way out of the ongoing financial
    sector meltdown, which threatens to deepen the slowdown in the wider economy,
    hurting oil demand.
    Oil futures now trade close to Wednesday’s settlement, indicating that
    Thursday’s gains were largely on the assumption of a completed bailout deal.
    Traders said the vast majority of investors are unwilling to gamble on oil
    prices moving higher or lower without a clearer indication of how the financial
    sector’s problems will shake out. A successful federal rescue could jolt the
    oil market higher, while further bank failures could send oil prices plunging
    back below $100 a barrel.
    “Everyone is on the edge of their seat,” said Dean Hazelcorn, a trader with
    Coquest Inc. “Just knowing the markets could jerk really hard one way or the
    other makes people skittish.”
    With the economy front and center, oil prices are more likely to fall than
    rise, analysts said.
    New home starts and manufactured good purchases both slumped in August,
    federal agencies reported Thursday, in the latest sign that U.S. economic
    growth is slowing.
    “One gets the sense that economic growth is not only turning sharply lower in
    the U.S., but that it is spreading globally as well, with the alarmingly tight
    credit conditions providing little relief,” wrote Ed Meir with MF Global. “This
    is not necessarily a backdrop where commodities can thrive.”
    Front-month October reformulated gasoline blendstock, or RBOB, recently traded
    down 7.63 cents, or 2.8%, at $2.6210 a gallon. October heating oil traded 5.92
    cents, or 2%, lower at $2.9666 a gallon.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    09-26-08 0919ET

  10. 10
    zman Says:

    And now for something completely different:


  11. 11
    Bleemus Says:

    That got me laughing!


  12. 12
    Sambone Says:

    Heard over 50 billion outstanding on credit swaps in regards to WM. Hope the counter party can pay up.

  13. 13
    Wyoming Says:

    Smith new CEO, John Yearwood, is a great leader and manager. No worries in that transition.

  14. 14
    Dman Says:

    “McCain’s Brilliant Play: Bets Presidency on Blocking Bailout Deal”

    Interesting take by Henry Blodget and Aaron Task:


    (Is it *that* Henry Blodget????)

    Upshot: they think McCain might be onto something.

    Anyways, it’s taken me a while to figure out what I think about all this. But here goes: the question should not be “how to fill a $700B black hole”. It should be “how to invest $700B so the real economy doesn’t crater?” Of course there is a timeliness issue. But does it have to be all-or-nothing & all-at-once? If they screw it up, then what, another $700B from somewhere?

    How about, “OK we are going to spend $700B over time & the 1st 100 is on X and then we’ll work on the rest so it isn’t a gigantic screw-up”.

    I know I know, I’m just dreaming. At the moment, we have the worst of worlds: no-plan, no timetable, no nuttin’.

    Well, enough of my threadbare thoughts. Market hanging in not too badly. Energy not so much.

  15. 15
    zman Says:

    Thanks Wyo – If drilling activity comes off hard, bits and mud probably not where I’ll be.

  16. 16
    zman Says:

    Dman – Dow just marking time waiting on a deal. Credit markets are getting worse. Foreign markets worse than Dow.

  17. 17
    Sambone Says:

    DJ EIA: Drop In US July Oil Demand Twice Estimated Level

  18. 18
    Wyoming Says:

    The WH acquisition gives them a greater service base, not just a bit and mud co anymore. Especially in North America. Anyway, not the parking lot for my $$ at this time either.

  19. 19
    zman Says:

    Sam – got a link to that story? Its not time for the EIA’s short term energy outlook and I don’t see it on their website. Thanks.

  20. 20
    zman Says:

    High Island area gas production suspended as Enterprise Products says it discovers 42″ pipeline severed. Looks like most production is going to get restored for the Gulf over the next 2 to 3 weeks but I’d guesstimate we could be about 1 Bcfgpd short for the next couple of months.

  21. 21
    Sambone Says:

    Z – Not yet, just headlines scrolling

  22. 22
    mahout Says:


    The probability of the general market tanking big is growing. Our financial system is freezing up. The Bailout plans are both unpopular with the public and IMO inadequate to this dangerous situation. What we need among other things is an immediate end to mark to market accounting. It needs to be suspended for a year or so to give us time to work out workable and generally supportable actions and solutions. But I see almost no hope of this happening.

    Again, the stock market except gold is very vulnerable to a major downturn.

    I continue to sell everything I can bring myself to sell (It’s very hard to sell those dancing partner beauties. But if the market tanks they will tank too.)

    I sincerely hope I am wrong.

    Everyone: be extremely careful at this time is my recommendation. If it starts to tumble the effects will ripple and keep it going.

  23. 23
    Sambone Says:

    #22, also watch your moneymarkets. Commercial paper is freezing.

  24. 24
    zman Says:

    The dance partner list is for when commodities have stabilized. They still have not so I’m not yet in names like GMXR. The CHK I hold for the very long term. Other option positions are small and few. Still holding the DUG calls.

  25. 25
    mahout Says:


    I realize you had not turned us loose on the dance partners yet but I already owned most of them and bought a few more because I thought they were dirt cheap and wanted to try to catch a falling knife (an ego thing) which was not very bright. So I have a few and maybe I’m not the only one.

    Many thanks for your good advice to wait for the right timing.

  26. 26
    zman Says:

    Mahout. Lots of cheap stuff around. Nobody cares at the moment. This too shall pass. No advice intended, just trying to be clear on what I’m doing (or not doing).

    Market rallying on Harry Reid speech.

  27. 27
    mahout Says:


    Wrong word “advice”. It should have been your good example. Sorry.

  28. 28
    zman Says:

    Hey, no apologies from you. I thought your read on the dollar in your comments last night were spot on.

  29. 29
    douglas51 Says:

    anyone have any thoughts on selling covered calls on CHK….I’m looking at the Jan 2009 45’s at $2.75.

  30. 30
    zman Says:

    D – I write a little nearer term options on them from time to time. I generally try to do it after a green day and lately have let them expire worthless. Have done better on names like SD where the markets are thinner/premiums are fatter. My reasoning for not going further out is that at some point we will see some winter weather related pops in the group. My two cents.

  31. 31
    douglas51 Says:

    thanks for your help!

  32. 32
    zman Says:

    Refiners: one step forward, one step back. Maybe 1.5 steps. This market needs a high colonic.

  33. 33
    antrimshale74 Says:

    Just watched a highly partisan diatribe by Gasparino on CNBC. That was way over the top.

  34. 34
    Sambone Says:

    Hmmm, would you buy a used car from this guy?

    July 12th, 2007
    “This is far and away the strongest global economy I’ve seen in my business lifetime.”
    – Henry Paulson (US Treasury Secretary)

    April 20th, 2007
    “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.”
    – Henry Paulson (US Treasury Secretary)

    May 17th, 2007
    “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited,”
    – Ben Bernanke (Chairman of the Federal Reserve)

    August 1st, 2007
    “The market has focused on this. There’s a wake-up call, and there’s an adjustment to this repricing of risk, but I see the underlying economy as being very healthy,”
    – Henry Paulson (US Treasury Secretary)

    February 28th, 2008
    “I’m seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street.”
    – Henry Paulson (US Treasury Secretary)

    March 16th, 2008
    “We’ve got strong financial institutions . . . Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.”
    – Henry Paulson (US Treasury Secretary)

    May 7th, 2008
    “The worst is likely to be behind us,”
    – Henry Paulson (US Treasury Secretary)

    May 16th, 2008
    “In my judgment, we are closer to the end of the market turmoil than the beginning,”
    “I have great, great confidence in our capital markets and financial instituations”
    – Henry Paulson (US Treasury Secretary)

    May 19th, 2008
    “Our policy in this administration is that laws shouldn’t bail out lenders, laws shouldn’t help out speculators,”
    – George Bush

    July 11th, 2008
    Indymac seized by federal regulators

    July 15th, 2008
    “I think the system is basicaly sound, I truly do.”
    –George Bush

    July 20th, 2008
    “it’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”
    – Henry Paulson (US Treasury Secretary)

    September 7th, 2008
    Fannie Mae and Freddie Mac taken over by federal regulators.

    September 7th, 2008
    “Nothing about our actions today in any way reflects a changed view of the housing correction or of the strength of other U.S. financial institutions.”
    – Henry Paulson (US Treasury Secretary)

    September 15th, 2008
    Lehman Brothers files for bankruptcy

    September 16th, 2008
    Government takes over AIG (American International Group)

    September 19th, 2008
    Government bans short selling

    September 19th, 2008
    “We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses,”
    “We’re talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem,”
    – Henry Paulson (US Treasury Secretary)

    September 20th, 2008
    Bush asks congress for $700 billion to avert catastrophic, economic meltdown.

    September 25th, 2008
    Washington Mutual seized by federal regulators

  35. 35
    zman Says:

    Thanks Sam! Your tax dollars hard at…oh, never mind.

  36. 36
    BossmanG Says:

    Z, about your comment “Northeast about to get first blast of cooler weather.

    Possible effect on natural gas?

    Current stance on CHK/HK calls?

  37. 37
    Garyinhou Says:

    Any opinions on how energy e&p and oil react if deal gets done?

  38. 38
    zman Says:

    The cold should give a little boost to gas.

    As far as the calls go, those names and others are suffering from system risk, not individual company risk. I continue to hold but am not adding.

  39. 39
    Dman Says:

    Sam – I wouldn’t buy a used car from the guy, no. But a used global economy, no problemo!!

    Fine print: your used economy still runs but may contain unknown number of metastasizing black-hole cancer thingies that will form a massive sort of vortex thingy at some point which will explain the giant sucking noise you would then hear, should that eventuate. Refunds only in post-apocalypse money delivered in wheelbarrows.

  40. 40
    zman Says:

    Gary – I think we will get a bounce as we did yesterday later in the day. What makes today different is a bit of a mystery but the group is definitely underperforming today. Holding DUG calls as long as possible but I think we get a deal by Monday and also a good chance of a rate cut before the open Monday. Some of this selling in E&P, where the % losses are large today, is I am sure end of quarter get it off the books selling.

  41. 41
    Garyinhou Says:

    Thanks Z.. contemplating clr common at $40, if get a bounce in few hours/days to 45 I will write oct 50’s on them… went 100% cash few days before ike… mixed results

  42. 42
    mahout Says:

    Sambone #34,

    Great series of quotes, Sam.

    As to Paulson, it sure appears like that to a Wall Street man a solution to the crisis is to do what Wall Street would like. ‘Not really the best solution or maybe not even a solution at all, but sure would give a free pass to Wall Steet. It’s kinda like if the only tool you have is a hammer, everything starts to look like a nail.

    In China where they do not have these problems or these goofy and harmful financial instruments running wild, they think the lecturing Paulson is a bad joke.

    As to Bush: Terrible advisers.

    As to Ben: Obviously not nearly a high enough level of competance for the job.

    As to the SEC: An incredible level of harmful incompetance.

  43. 43
    Sambone Says:

    Mahout – So here we are. Wow

  44. 44
    Sambone Says:

    Makes sense to me! My advice to you is to start drinking heavily!

    12:30 (Dow Jones) Some analysis billed as “sound financial advice” is
    circulating in the Irish and British markets. An enterprising number cruncher
    has calculated that a purchase of £1,000 sterling of shares in mortgage
    lender Northern Rock, the same amount of lender HBOS and of now-bankrupt travel
    agency XL Leisure exactly one year ago would leave the purchaser about 25 quid
    (a “pony,” in local parlance.) “But if you bought £1,000 worth of Tennents
    Lager one year ago, drank it all, then took the empty cans to an aluminum
    recycling plant, you would get £214,” according to the circular. (RCC)

  45. 45
    Alhambra Says:

    Alright guys, in an effort to brighten the tone here:
    When this bill passes, which stocks would you want to be in to maximize your returns from the pop? What’s your play?

  46. 46
    zman Says:

    Shell sees majority of Gomex oil production back up within 2 weeks. Now producing 39,000 bopd, normal produces 350,000 bopd (that’s out of 1.3 mm bopd). They didn’t give a read on natural gas.

  47. 47
    zman Says:

    Al – my tones not bad, just nothing happening on a Friday that is all about watching DC, not the oil or company news.

    I like what I’m in but the more volatile names like GMXR, GDP and SWN will move with natural gas which I expect to move up a bit soon.

    I like the refiners, especially TSO and FTO for fundamentals but I also think SUN could see a good fall run due to their positioning in the northeast and low heating oil stocks.

    I saw a piece on oil service saying things are worse than people thought in the Gomex but not the kind of worse that helps the names …more of a delay of game for them but no big repair contract at the end of the day so I’m staying away from there except for RIG which is just getting hammered today.

    I think shipping will rally once it looks like some kind of economy stabilization has taken hold. Continue to watch the shipper ETF SEA fall hard and daily (down another 5% today). When it turns that could really snap back and the idea that less ships will get built is a pretty big change from what the industry has seen over the last two years. Again, being patient.

    Among the Majors, I think XOM rocks with bailout passage. Numbers should be coming up there and at COP.

  48. 48
    kiaora Says:

    Z-Given today’s senario and it’s friday, would you consider adding to the CLR position?

  49. 49
    zman Says:

    K – yes, I am considering it. I don’t see how these guys get away with not doing a deal on Monday. If no deal by Monday morning I think the market takes a header and it won’t matter if you produce crude or make Iphones, you’re going to get crushed. They know that. No one wants to look like they are the one who held it up. My biggest decision is when to sell the DUG calls right now. The losses in the oil group are big and dislocated from the moves in oil and ng which are also big. Volumes are very very light.

  50. 50
    apbd Says:

    As I get stopped out of ” longs”, I’m putting the $$ in 3 mos CD’s so I won’t be tempted to buy anything else. Too many idiots have harmed my beautiful country and helped shrink my net worth.

  51. 51
    zman Says:

    XLE – interesting.

    APBD – I hear ya. Careful what CD you go with. Bank of the local mattress becoming increasingly popular choice.

  52. 52
    Alhambra Says:

    I agree with being patient. Waiting on FRO again; really liked last weeks move from 44-54. Z, I wasn’t trying to single you out, just trying to refocus myself away from the frustration with the DC’ers. Besides, I always appreciate your dry humor. Thanks for your thoughts.

  53. 53
    zman Says:

    A – ok, I agree to step back from this here ledge because you added that last one. Hey, I know tempers are frayed. I’m just not as smart as those guys on the hill so I have little to say about what they are up to. I do long for the days (which I think will return soon) when stock risk is the focus, not systemic risk. I long to talk about wells and geology and growth rates and not counterparty risk. But I figure that right now, it’s time to read and focus. Apologies if I seem a bit quipish. And I’ll tell my wife you said I have a sense of humor as she seems to think it should be called something else….at least I’m not known for hitting parked cars.

  54. 54
    elduque Says:

    Where do I find your comments on the solar cos?


  55. 55
    BossmanG Says:

    Z, lol love the last line in 53

  56. 56
    zman Says:

    El D – I have not said much on them of late. Will do shortly.

    Boss – And I was the bad guy for just asking the question as to how one goes about doing that. Then even more angry when I sent one of those youtube links to Middle Eastern driving videos.

  57. 57
    elduque Says:

    #45- I have bt. wfr, ipi, sd and prgn during the last couple of days.

    I really think that today is the day to be buying. Sell it to them after the announcement.

  58. 58
    zman Says:

    On CNBC – pit trader saying oil down to delay in bailout. Sort of no duh there but the point is that they are not looking at new data we have not seen. Sam if you do see that story I’d like to see what they mean by that. I know they are talking the monthly data but are they talking percents or barrels?

  59. 59
    Sambone Says:

    Here’s what I got;

    10:14 DJ EIA: US July Revised Oil Use -5.8% Vs Yr Ago

    10:14 09/26 *DJ EIA: US July Revised Oil Use -1.198M B/D Vs Yr Ago

    10:16 09/26 *DJ EIA: Drop In US July Oil Demand Twice Estimated Level

    These were “Headlines”. Nothing else has come across.

  60. 60
    1520sbroad Says:

    z- #53 – couldn’t agree more. I dislike politics as it is.

    I have taken some solace in a couple of things: 1.volumes are extremely light. 2.Most of the stocks i follow are down but haven’t continued to go down thru the day, they opened down and have more or less stayed right there. 3. Oil and ng have risen into the close at the NYMEX a bit. 4. It would appear that the markets are giving the folks in DC some time to hopefully get this right the first time.

  61. 61
    douglas51 Says:

    Just watched Marc Faber on CNBC…what a Debbie Downer!

  62. 62
    Nicky Says:

    Afternoon all.

    Marc Faber on CNBC calling for 500 SPX. I suggest someone listens to him as he has been spot on so far.

    Broader market seems to be buying the fact the deal will be done by Sunday night. 1187 is the absolute line in the sand for the SPX. I cannot stress strongly enough how key this level is. If support starts to fail then the SPX will be at 1060 in a heartbeat.

    So oil gets a touch excited into the close over the thought of the bailout – will be a short lived rally I would have thought. I mean even with the bailout we are looking at the US being in a recession for at least another year maybe longer so this fact will sink in sooner rather than later.

    Interestingly gold is finely poised and pretty much closed the week where it started. So its not telling me much!

  63. 63
    Nicky Says:

    Oops sorry Douglas – didn’t realize you hadn’t already commented on Faber.

  64. 64
    zman Says:

    Nicky – got levels for on oil?

  65. 65
    douglas51 Says:

    Nicky…no apology necessary…I enjoy reading your thoughts and opinions.

  66. 66
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures dropped Friday, with the market
    concerned that even a federal bailout of financial firms would not be enough to
    restore declining oil demand.
    Light, sweet crude for November delivery settled $1.13, or 1.1%, lower at
    $106.89 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    futures exchange settled $1.06, or 1%, lower at $103.54 a barrel.
    Oil futures, like other commodity and currency markets, were in limbo Friday
    as traders waited for congressional leaders and President Bush to settle on a
    final bailout package for troubled financial firms. Investors see the $700
    billion plan as the best hope of avoiding a full economic meltdown, a fear
    punctuated as federal regulators seized Washington Mutual Inc. (WM).
    Traders nervously bid crude lower in the absence of a deal, though few were
    willing to take bets on a big price move in either direction.
    “The prospect that a deal gets done helped support the market,” said Andy
    Lebow, senior vice president for energy at brokerage MF Global Ltd. (MF) in New
    York. “It doesn’t mean the price is going to rally … the market is still
    grappling with near-term demand issues.”
    Oil prices had risen above $108 a barrel on Thursday as a deal appeared close,
    only to fall back when talks fell through overnight. House Majority Leader
    Steny Hoyer, D-Md., said Friday on CNBC that an agreement could be reached by 6
    p.m. Sunday.
    The plan is likely only to contain damage to the economy, rather than spark a
    rebound that would lift oil demand, said Addison Armstrong, with Tradition
    Energy in Stamford, Conn. U.S. oil demand has dropped for months and is off
    about 4% from a year ago, according to the U.S. Energy Information
    Administration, while European consumption is only beginning to decline.
    “(The bailout) is not big enough now … the market is going to take that as a
    disappointing sign,” Armstrong said. “It really calls into question where the
    growth will come from.”
    Armstrong sees oil prices quickly returning to the levels seen on Sept. 16,
    before the bailout talks began, when crude settled at $91.15 a barrel. Prices
    as low as $80 a barrel are possible, though at that point the Organization of
    Petroleum Exporting Countries would likely halt further declines by cutting
    exports, he said.
    The oil market has seen low trading volume this week, partly due to economic
    uncertainty but also as investors have had trouble gaining access to credit.
    The bailout should loosen up lending a bit, encouraging busier trading next
    week, Lebow said.
    Front-month October reformulated gasoline blendstock, or RBOB, settled 3.22
    cents, or 1.2%, lower at $2.6651 a gallon. October heating oil settled 3.09
    cents, or 1%, lower at $2.9949 a gallon.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    09-26-08 1521ET

  67. 67
    Sambone Says:

    Something I sent out this week to someone who was ready to jump out of a window and was concerned about his accounts;

    Big Ron,

    OK, if the overall financial market freezes up, we will see another 1929. This could happen because of a lack of “Confidence”. That is what is and has run the credit/financial markets all these years. If we have a freeze up, you will not be able to withdraw money, your company will not be able to borrow to make payroll, etc.

    So what do we do? We have a situation unlike anyone alive has ever seen. That is why you see Congress actually talking (Wow, think of that?). The “Bailout” is to free up the financial markets, to restore confidence. Will they pass it? I think so. If the credit market freezes up, then there is no place to hide. Yes, you could sell everything and go to BDP (Bank deposit program) which is FDIC insured. If we have a freeze, the US dollar will freefall, so your now savings will lose value. So what do you do? Buy Gold if you think it will freeze, go to cash and hope, hope my friend that all will be well.

    Now if our firm fails, then you are protected by SPIC which is funded and has $. It is an insurance policy for brokerages. It doesn’t allow for loss on your portfolio though. Ok, that’s the bad news and worst case.

    What I believe is that Congress will pass something to restore confidence. Also you and I have reviewed the portfolios with a fine tooth comb. Should we sell? Yea, we could raise a lttle more cash at this point, but overall you have decent companies, making money, and don’t look like they are going out of business. I’m not selling. What I want you to think of is buying. Wow, what did I just say? Buying. Not today, but soon. This market has not reached a bottom yet, but it will soon. Here is a story that I want you to read twice;

    Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a
    private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

    Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in
    that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will
    unload your interest on him.

    Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

    But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If
    you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

    Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of
    investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?

    The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business
    judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.
    Warren Buffett
    Warren Buffett just invested 5 Billion in Goldman Sacks. This guy has seen it all and learned from Ben Graham. If Warren Buffett is buying, we should also. If he thought that all was lost, he would not be buying. I believe in taking advantage of “Mr. Market” and I don’t believe that our world as we know it will disappear or that we will have a freeze up. Yes, you can raise a little more cash here, but be ready to buy soon! EOM

  68. 68
    zman Says:

    Sam, well said.

  69. 69
    Sambone Says:

    285 point swing today.

  70. 70
    Sambone Says:

    Tini time

  71. 71
    Fiveanddimer Says:

    Earlier there were a couple of posts about Marc Faber’s appearance today on CNBC. Contrary to what was posted then, he did not predict that the S&P500 would drop to 500. He did quote someone else in his newsletter who made that prediction. He believes that the stock market will rise after a bailout deal gets done, but not take out the highs of earlier this year. Then the markets will fall as the world experiences a global recession. He thinks gold will do relatively well under any scenario, but believes that it is possible that the US will outlaw the trading of gold sometime in the future. After seeing the degree of intervention during past week, who could deny that this is within possibility. Here’s the link:

  72. 72
    mahout Says:

    Sambone #67,

    So good, thanks.

  73. 73
    Nicky Says:

    Why would he quote someone else as saying SPX 500 if he didn’t concur or even print something in his newsletter that he didn’t agree with. After all he is very bearish.
    That said I apologize if I misquoted him – I was only half listening as ever to the dross on CNBC and it did seem quite in line with his view on the global economy.

  74. 74
    Nicky Says:

    Z – will do some oil levels and broader market levels over the weekend.

  75. 75
    Fiveanddimer Says:

    Re 73: I think Faber quoted the other, unnamed newsletter writer in this context: if you think I’m bearish, you should hear what this guy is saying.

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