Not To Be Trusted Dead Cat Bounce Tuesday

109 thoughts on “Not To Be Trusted Dead Cat Bounce Tuesday”

1. Occam – I read that Piece by Chris Cook. I’ve read pieces by him before on establishing new exchanges for oil to avoid market manipulation and price dollars in barrels instead of barrels in dollars. Smart guy. Seems to play on the financial and trading angles of the game and not fundamental supply demand although he does point out that he understands those too.

   I have no problem with his comment that WTI is less and less importance. I wonder however at why you would not choose a bigger benchmark than Brent. Why not Hardesty Heavy out of Canada or the OPEC blend? Anyway, WTI serves as a benchmark for light crude and the futures contracts traded around its price are no small matter but are smaller than ICE. Chris worked for ICE under its prior name so maybe that’s why he likes it.

   His point about Fannie/Freddie type risk is a good one. After Lehman, the brokerage houses stopped trading with each other and started doing trades largely with clearing house like the CME who could guarantee the other side of the trade. When I initially saw that news I took a look at CME and saw it gaining on the prospect of extra business. I have not looked into what kind of risk this exposes them too. If they were to falter it would put a severe crimp into trading of many commodities.

   However, lack of liquidity does not necessarily mean crude would tumble. It would certainly be more volatile. I think the floor price for crude remains somewhere nearby as you start running into problems with the U.S.’s #1 supplier, Canada around the $100 per barrel mark. Much lower and they don’t break even and then the growth dries up (that appears to be happening) and maybe even some current pit operations get halted (V would know better than I but they won’t run at a loss for long).

   I’ll put this in the main post and expand upon it later in the day.

2. test test test

3. See ya Petra

4. By Brian Baskin
   Of DOW JONES NEWSWIRES

   NEW YORK (Dow Jones)–Crude oil futures traded higher Tuesday as the financial
   sector paused after the previous day’s free-fall.
   Light, sweet crude for November delivery traded $2.55, or 2.7%, higher at
   $98.92 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
   futures exchange traded $3.02 higher at $97 a barrel.
   Crude prices are tracking the financial markets, which appear to hold the key
   to the health of the global economy, and therefore oil demand. Financial firms
   are plagued by bad loans and an inability to borrow, and had looked for
   Congress to approve a $700 billion bailout Monday. But the bailout failed,
   prompting the Dow Jones Industrial Average to a record plunge in dollar terms
   and oil futures to settle $10.52 lower, just a few cents short of the all-time
   biggest single-day dollar drop.
   Global stock markets have seen a small positive move Tuesday morning,
   prompting oil to rise slightly, though the day’s course was far from clear.
   “(Oil) is going to see how Wall Street does today,” said Rick Mueller,
   director of oil markets at Energy Security Analysis Inc. “The concerns are
   still there about the economy, and that’s not going to go away.”
   Mueller doubts that oil can rise above $100 a barrel without a new government
   rescue plan to replace the failed bailout plan.
   The reversal to the oil market’s direction – crude traded near $110 a barrel
   last week – marks the resumption of a long downward trend that started in July.
   Concerns about weak demand have dominated trading since futures hit an intraday
   record of $147.27 a barrel on July 11. Only the impact of two hurricanes on
   Gulf Coast oil and product inventories has delayed the slide, wrote Stephen
   Schork, editor of the Schork Report, an energy newsletter.
   “We expect the downward correction, which was interrupted by Gustav and Ike,
   to resume,” Schork wrote.
   Front-month October reformulated gasoline blendstock, or RBOB, recently traded
   4.30 cents, or 1.8%, higher at $2.4400 a gallon. October heating oil traded
   7.81 cents, or 2.8%, higher at $2.8385 a gallon. Both contracts expire Tuesday.

   -By Brian Baskin, Dow Jones NewswiresDow Jones Newswires
   09-30-08 0915ET

5. Hey Z.

   I’m waiting for VMC to touch 70 in the next wave of carnage.

   You may want to interpolate a limit order for an Oct or Nov 70 at such a reduced price and let it ride.

   I also bought some CHK calls about 3:30 yesterday that I’m feeling good about, we’ll see.

   WHEN is the next Chesapeake earnings conf?

   Q.

6. Q – They have their first analyst day mid October, earnings should be after that.

7. SLB investor day conference starting.

8. You can see the SLB conference here:

   http://www-waa-akam.thomson-webcast.net/us/dispatching/?event_id=9cee9554ca80eb5cedbbd7348465bea6&portal_id=1108046e16bfd25ac00207d65516a6ae

9. SLB Analyst Day 9/30/08

   Seeing some limited demand curtailment in OECD countries.

   In developing world, don’t see demand growth falling to 0

   Will need a much deeper drop in demand to reduce exploration and production activity.

   Oil Macro:
   IEA Forecasts have all come up short for Non-Opec production (see slide 10)

   and slide 11

   No supply response to price. Age, time taken to get new projects to market and increasing reliance on deep water.

   Natural Gas Macro:

   Technology and process work to unlock N. American natural gas supply. Need to keep drilling high

   Internationally – growing dependence on imports, increased desire to diversify.
   1) a lot more activity in increasing domestic supply – middle east
   2) LNG suddenly come into focus with accelerated time tables

   3) other countries are watching US in non conventional and considering developing their own.

   Activity cyccle of “Stronger for Longer” theme remains

10. Z- what is your thoughts on Oct40 for CLR?

11. I have the $35 and $45s there. Its due a bounce. The market, not the underlying will likely dictate.

12. note 2 – What makes them think Stronger For Longer continues?

    Exploration Blocks awarded from 2003 to 2007: 12,368 blocks an d accelerating. Not all will lead to drilling but this represent a lot of activity. smaller accumulations, more complex

    Availability of Offshore Rigs – we are about to see a tremendous increase in the fleet over the next 5 years.
    44 drill ships
    81 new semi subs – > 5,000 h2o depth
    see slide 17

    Non -OPEC – current levels of drilling activity are not enough to stem declines.
    see slides 19 and 20
    Libya, Nigeria, Saudi have yet to enter mature production phase.

    Drilling Intensity: Footage drilled / Production

    OPEC Example:Libya . Drilling intensity yields higher production. Nut, take an example like the N. Sea (that is very mature) and the increase in drilling does not offset declines.

13. SLB CEO speaking on the virtues of Paranoia with regard to technology leads. Basically promoting Andy Grove’s book.

    CRL and RIG doing ok.

    Someone sent me a piece on what makes the market think a new bailout plan will work? It’s a good question.

14. There is some resistance to this quick spike back up for CLR at 40.

15. Thanks T

    How do SLB and HAL look to you? Good opening comments from SLB at their analyst day. They are looking for fast growth next five years, faster than the overall service market.

16. ZTRADE: Entered HAL $35 Calls for $0.78 for a quick trade while listening to the SLB analyst day which is pointing to continued strong service market growth. SLB sees coming boom in exploration and they believe they can outgrow the market well into the next decade.

17. If Congress doesn’t pass something this week, I think we get Nicky’s huge pull back almost immediately. I saw last night that a coalition of businesses (Microsoft, Autonation, Office Depot, etc) are working to encourage Congress to do something. Members of the British Commonwealth are doing the same. Ironically, my doofus Congressman voted ‘no’ yesterday and yet is being strongly supported by the National Association of Realtors. I’m sure they’re quite perturbed!

18. SLB CEO said he’s comfortable with current EPS Street estimates for 2008.

19. Antrim – saw a story that Paulson’s people have been telling Congress since Sunday that no passage this week means a 3 to 4,000 point Dow haircut…this week.

20. SLB is now at about a 50% retracement of yesterday’s selloff. Profit takers will probably enter very soon.

21. Zman, I really think we have the worst politicians in the world. They’re almost making Mugabe look like an effective leader!

22. HAL touched Jan ’08 lows yesterday and has a nice bounce going. If you want a daytrade, you already missed it. If you want an investment entry, pretty sure that a price below 33 will be seen again within the month (if it goes up above 33, it looks like it will come back down again, so I am saying there seems to be no hurry to catch this).

23. Antrim, as long as we continue to elect people based on how nice their clothes look, or if they have the right haircut, or if they happened to promise people a rebate check for their vote, there sure is going to be a leadership void.

24. Thanks again T

    Good dollar and related issues piece:

    http://www.marketwatch.com/news/story/dollar-surges-vs-yen-euro-rescue/story.aspx?guid={E6984FFC-A3B3-4082-B256-45261F8F468C}&dist=hplatest

25. Meant to say on HAL, not that you necessarily “missed it” but that it has had a good run this morning and there might be a better entry point for a long trade, technically. Not trying to poop on your trade, there is more than one way to read this stuff.

26. Hey Tater, no need to explain, I gotcha. Its more of a play on the SLB guys wowing the crowd with their macro environment thoughts and then analysts publishing favorable, enough is enough type pieces, and then being forced to point out that HAL is even cheaper. Call it a 2 day trade and with much thinner option spreads than the SLB.

27. Hi Z,

    er… can you give a precis of “stronger for longer” ?

28. Just some more TA and then I am gone. Dow and S&P have retraced about 1/3 of yesterday’s declines, fully in line with Fib theory. If you believe the dead cat bounce idea, the one third is about all you can look for before sellers will enter. Good luck today

29. What are the best puts to add for downside protection in a market like this?

30. Z – I just saw the presentation & I gather it refers to their perception of this cycle

31. Dman – Sorry, been on a call. Yep, that’s it in a nutshell. They gave some reasons verbally supporting it which I highlighted early in the comments today. They reaffirmed near term estimates but like I was saying in the post, shied away from 2009 estimates.

32. Cargo – I used DUG calls on the last outing which is the same thing as a shorting the energy group but it is weighted to XOM which sometimes moves counter group (as in on DOW up, energy down days). XLE or USO puts may work as well although the premiums are pretty pricey.

33. Headlines;

    DJ EIA: US Revised July Oil Use -1.335M B/D Vs Yr Ago

    DJ EIA: US Revised July Oil Use -6.4% Vs Yr Ago

    DJ EIA: US Revised July Oil Use -736,000 B/D Vs Estimate

    DJ EIA:US Revised July Oil Use 19.412M B/D; Least Since May ’03

    DJ EIA: US Jan-Jul Oil Use Lowest Since ’02, At 19.727M B/D

    0:14 09/30 *DJ EIA: US 7-Mo Oil Use -993,000 B/D Vs Yr; Biggest Fall Since ’80

    10:18 09/30 *DJ EIA:US Revised July Gasoline Use 9.072M B/D, -5.9% Vs Yr Ago

    10:21 09/30 *DJ EIA: US July Distillate Use -8.8% Vs Yr Ago At 3.672M B/D

    10:22 09/30 *DJ EIA: US July Distillate Use Lowest Any Month Since May ’03

34. Thanks Sam, that matches the refining consumption year to date on weekly basis in my Wednesday table pretty close. That being the 993,000 bopd.

    The gasoline figure is worse than the weekly by a couple of percent.

    The July distillate number is very odd, hard to believe.

35. Oil Inventories Seen Rising

    Dow Jones Newswires

    NEW YORK — U.S. crude oil stocks are expected to rise in data due Wednesday from the Department of Energy, according to a Dow Jones Newswires survey of analysts.

    The data, released by the department’s Energy Information Administration unit and covering the week ended Sept. 26, are due at 10:35 a.m. EDT Wednesday.

    Crude oil inventories are expected to rise by 2.4 million barrels, according to the mean of seven analysts’ forecasts. Four expect an increase, two a decrease and one no change. Forecasts range from a 1.8 million-barrel draw to an 8 million-barrel build.

    Gasoline inventories are seen falling by 1.8 million barrels, according to the analysts’ average. Stocks of distillate, which includes heating oil and diesel fuel, are expected to fall by 600,000 barrels. All but one analyst expect a decrease in gasoline inventories, while two analysts forecast a build in distillate stocks. Forecasts for gasoline range from a 3.6-million-barrel draw to a 2.3-million-barrel build. Distillate forecasts ranged from a 2.6-million-barrel draw to a 2.5-million-barrel build.

    Refinery use is seen increasing by 5.5 percentage points to 72.2% of capacity, with six analysts predicting an increase.

    Oil and product inventories are likely to reflect the beginnings of a recovery from Hurricane Ike. The storm, which made landfall at Galveston, Texas on Sept. 13, shut down refineries along the Texas coast and helped send gasoline stocks to a 41-year low last week.

    “We see depleted gasoline inventories getting a respite from heavy draws this week as refinery production and imports increase,” wrote analysts with JPMorgan Chase & Co. (JPM).

    Analysts’ Estimates
    Analyst Crude Gasoline Distillates Refining
    Cameron Hanover +3 -3.05 -0.85 +5.5
    Citi Futures unch -2.5 -1.5 +5
    GA Global Markets +8 -3 +2 +2
    JPMorgan +5.8 -0.1 -2.6 n/a
    MF Global-Fitzpatrick+3 -3.6 -1.1 +6
    Ritterbusch & Assoc. -1.1 +2.3 +2.5 +4.5
    Summit Energy -1.8 -2.4 -2.3 +10

    Average Estimate +2.4 -1.8 -0.6 +5.5
    Figures in millions of barrels, except for refining use, which is reported in percentage points. Figures are rounded to two decimal places in table, one decimal place in averages and story. For analysts providing forecasts in a range, the average of the upper and lower ends of the range is used.

    —By Brian Baskin, Dow Jones Newswires

36. September Madness

    http://www.techcrunch.com/2008/09/29/september-madness/

37. XCO in the doghouse. Any idea what it did wrong?

38. Good morning everyone.

    Broader market – I had said Friday that 1187 on the SPX was the absolute line in the sand and boy was it ever!!!

    I agree with Tater re retracement levels here – I am actually looking at 1153 – 55 to provide resistance.

    I am actually ‘happy’ to see the markets working freely (??) and this capitulation is needed. I don’t think the bottom is in – its difficult to say where this is going to end but volume yesterday indicates we have more downside ahead. Once yesterday’s lows go we can watch 1060 – 70 and then 1000 on the SPX. Some time ago I mentioned a target area for a h and s pattern on the Dow which comes in at 9750. I am looking at 1430 – 50 area on the Nasdaq.

    Cycles had indicated a short term top in the 29th September time range plus or minus a day and that came in. Next cycle low is due 2nd October plus or minus a day. The larger cycles are very overextended to the downside so at some stage I still believe in a huge snapback rally.

    Gold is interesting – hardly surging to the upside as one may expect.

    Energy – I was expecting lower but not that much lower!!! As its following the broader market we may well see another shot to the downside and then I think it will rally. I will work out some fib levels….

39. Dman – nope. Started off slow, failed to gain traction with the group. Volumes on group are very low. It does not fit the bill for the high debt load names that have been hurt badly. Maybe there was a negative mention by a broker but I don’t see it. Think its just chaos theory.

40. Hey Nicky, thanks. Everything looks technical at least in energy land today. Major dearth of newsworthy news. Stocks just in drift mode now waiting on Congress to come back.

41. Okay fib levels for the Dow are as follows:

    10672 – 38.2%
    10766 – 50%
    10861 – 61.8%

    Fib levels for the SPX:

    1148 – 38.2%
    1161 – 50%
    1173 – 61.8%

    At the moment the move up today looks corrective. If we started to move above 1179 in the SPX then it may indicate something else is going on..

42. Nicky, I’ve been watching Robin Griffiths, a TA in Europe who appears on CNBC Europe, and he is saying that while there may be a brief pop if Congress ever does anything, the general trend is down through the end of October. Then he is looking for a rally through March that people will mistakenly assume is the end of the bear market. Then he is looking at another assault on the lows next year, particularly as the worldwide economy weakens. Any thoughts?

43. Z,

    Did I just see copper dropping to $2.88 ?
    This is an indication of a worldwide slowdown (with some economies growing like China, but most shrinking).

    I am thinking there will be a deeper and longer lasting reduction in worldwide demand for a lot of things, including Cl, than we thought or hoped.

    I now expect we might see $80. a barrel.
    And if so, on the way down it will probably continue to take the E&P’s (and other Energy stocks) with it, as it has done, even though they are so very cheap right now( based on our understanding of normal multipliers, i.e., PE’s.

    Sorry to be so negative but I think:
    1.This whole financial catastrophe was unnecessary and could have been easily avoided.
    2.The financial catastrophe is worse in its scope and effects than we think. Unfortunately, there is a momentum to it and the ripples in this country and around the world keep feeding the monster. CapEx’s and consumer spending will be forced down by the harsh reality
    of painful deleveraging.
    3.There will likely be a bailout plan enacted this week.
    4.It will be a bad plan from more than one standpoint.
    5.It will not “work” and will be a disappointment because it will not attack the problems in the right way.
    6.We are in danger of a “Multiplier Shift”, which we have seen in the past
    (in the early 1970’s), where normal P.E. ranges for the various types of stocks shrink down to much lower levels that become “normal”. This is why Jim Rogers is right when he says, Markets can fall lower than you think.
    7.This is a dead cat bouncing today and we will probably have another one when a bailout plan is passed. But confidence is gone and fear walks the land. Watch out for after that.

44. Z – you see T Boone on CNBC earlier? Very happy to see Paulson in charge with Buffet to assist (I bet he is!!) and still calling for $150 oil next year but acknowledging his fund is taking a lot of pain right now.

    Also they said earlier something about 15% of his clients needing to liquidate -someone correct me if I heard that wrong.

45. I think it may have been 1/3 of his clients needing to liquidate, but whatever the number it is significant.

46. HAL OCT 35’s?

47. Mahout – I don’t necessarily disagree with much of 43. Regarding oil, we have definitely seen slowing in demand although developed countries have not yet seen big builds in inventories despite high production. What does this mean? Likely that undeveloped country, producer country, and Chinese demand is higher than people thought. Given the reduction in demand (and I don’t call it demand destruction because I don’t see it as permanent but instead just economic slack and a pinched consumer) in the world’s largest consumer contrasted with very strong production out of Russia and Saudia Arabia (the two biggest producers) you would think inventories would be soaring. I do think that you will see mature oil countries like Mexico continue to struggle and higher cost countries like Canada reign in growth. So maybe on a congressional failure you get $80 but price (and OPEC) will quickly take care of that in my opinion.

    If oil were to go to $80 it would continue to deflate the E&P and service groups. I’m treading lightly now as a bet on Congress is a fool’s errand and a bet on the bailout giving Maria Bartoromo an excuse to yell everything is fixed (one more time) is even more such.

    As with the market, people get used to seeing big swings in the stocks. These are sending some names down more than others and the only thing that stops that is a concerted effort on the part of the analytical community to point it out. Right now they are keeping quiet and the hedge funds, normally friends of the energy market, are running for their lives. So until things settle, I plan to be nimble and small with trades.

48. Hi Antrim – re #42.

    I had two pops – one that would take us up into late October/early November and is now very overdue but there are some cycles that are way overextended on the downside. Then I had us down into early January and up into the Spring.

    Trying to fit that into the charts I guess its possible we see another shot to the downside in this timeframe and then stage a very good rally – maybe as a result of the bailout or some other bit of good (??) news, interest rate cut maybe (?).

    It is possible to say that whatever low we put in here could be something bigger but its not my preferred Elliott wave count as it doesn’t fit with the cycles which do not call for a low until middle of 2010 at the earliest and possibly 2011 and then a massive rally into 2013 -2015.

    I still think the 12000 – 12500 area is likely to contain the upside on any rally here and I am still looking at 8000 and lower into 2010.

49. Yes Ram, apologies for dropping the month but its kind of a two or three day trade and I wanted maximum leverage on it.

    Re TBP, I don’t know the number but have heard his losses are significant, as in most of one of the funds blown up.

    So here we sit with the market up some 200 plus points. Any idea why? Gold is down. Volumes look (a)pathetic.

50. Just a bounce I think Z plus they keep saying the bailout will get done. Didn’t they say that right up until the last minute yesterday too??? Gold looks a bit like a triangle in which case likely to break to the upside…

51. 4,000 put contracts being processed on XOM 70’s. 1,000 gone so far…

52. Anything to add to this basic list?

    Doing a little work on what happens if Obama or McCain win. Not to get political at all.

    It seems the perception will be Obama wins good for subsidies for anything green so wind, solar, the clean energy ETF’s etc and likely bad for the Majors and E&P to some small extent and maybe for coal.

    McCain – Not the opposite but not bad for the majors or coal and a boost to offshore service companies.

    I’m not suggesting anything actually changes although I’d bet on more subsidies for green energy under Obama but am looking to play a perception that something gets done on energy in terms of legislation.

    I think CNG becomes more popular under either candidate.

53. Obama = short coal, market has been killing coal in recent days on bet that Obama wins

    McCain = long coal

54. McCain might give a pop to GE on the nuclear construction concept but I really don’t see the US building one anytime soon.

55. Here’s another interesting thing. If you look at the electoral math Obama is in the lead. The clean energy stocks do not reflect that. Take a look at PBW, one of the most popular of the clean ETFs.

56. You’d get a fair bit of solar & wind infrastructure for $700B. TBP ought to scale up his earlier modest proposal …

57. Crude just hit the 50% retracement level at 101.40. Next fib level is 103.30 which is 61.8%.

    So far we have a 3 wave rally to the upside – a move below 97 would say it was done.

58. Z #47,

    Thanks for your thoughts. Your points are certainly valid and welcome. It seems very wise to be nimble and small with trades right now. For me it seems wise to continue to convert some, not all, of my stocks to cash and wait for better days.

    As to Cl going to $80., I am a whole lot less confident of it going to $80. (because of possible cuts by OPEC and cuts in CapEx by producers and other reductions in production)than I am of the seriousness of: the global deleveraging of economies and our bungling government.

    You mentioned hedge funds “running for their lives”. I think ordinary non-Wall Street citizens are very scared and also beginning to run for their lives, so to speak. This, I would think, will cut consumer spending and bring the economy down to lower levels and thereby reduce demand. The question is, how much and for how long.

59. ZTRADE: Out the RIG $140 Oct calls for a dime, down 95%. Still holding the $120s but in the market, I have little faith that those higher strike $140s would be able to wake up before expiration.

60. Z, hows your faith in the CHK’s?

61. Was on a call, what prompted the last 100 pts in the Dow? Obama speech?

62. talking about changes to marked-to-mrkt FASB rules

63. Boss – ok. I like them outperforming on the up day vs the group however yesterday was incredibly bad and I don’t recall a % drop in them like that. I think yesterday was a false capitulation in the group. So maybe we get another smaller hike in the market but Thursday and Friday could be brutal if the RNC keeps running anti-bailout adds and their is no change in the stalemate. Market obviously believes we get something done. However, if they change the $’s involved I think the plan becomes less effectual…if they don’t the votes will be tough again. Failure would mean the first 4 digit decline in the Dow. And then CHK…..well…that would be uglier.

64. What are your thoughts on PQ? Will the earnings trend continue?

65. I wonder if Ben is holding rate cuts in reserve in case nothing is passed.

    Either that or he’s still wearing his anti-inflation super-hero costume. Grown men in tights – not everyone can really make that work.

66. Thanks Bird – have taken to playing fetch with the office dog which is more productive than scanning the headlines today.

    Re PQ – I was a little disappointed in their 2Q numbers AND in the lack of newsworthy news on the call. 3Q should be interesting from a news standpoint but don’t look for any upside to production volumes as per their recent pre-announcement. The cost numbers will likely be a little high on a per unit basis and I won’t be holding into the call but will be looking to play any catalytic news they might disclose. They seem to skip a quarter with regard to news and they definitely did last quarter. Still dirt cheap, still like as a long term hold in the common but I think E&P recovers in the big caps and bigger growth names first.

67. Dman – I heard a guy say exactly your first statement on CNBC Europe this morning. They said he basically knew that doing it first would be symbolic and useless. How about a coordinated cut with Europe which looks set to cut?

68. Re Mark to Market – aren’t they just talking about changing the accounting rules for investments that are designed to be carried through to maturity? Would this mean that they would mark a pool of mortgages back to face value? Seems a little arbitrary.

69. HAL getting a boost from SLB and from the market. SLB Q&A starts in 1 hour.

70. re m-2-m…. don’t know exactly. but, one of the HF games is to push on CDS indexes that are used to mark illiquid securities. so, it’s possible to create the perception that a security is terribly distressed, when common sense says otherwise. but, try telling that to your auditor.

    really, it’s just a way to try to bring some common sense back where irrational pricing currently reigns.

71. Bird – if Paulson gets the $700B would it not be better to wait to change the accounting until he starts buying, then you have the stability brought about by liquidity and a higher prices for ones he does not buy. So in effect, he would not need to buy as much. Am I thinking about that wrong?

72. Z – I can live with CNBC plagiarizing my first statement before I even thought of it. But if you’d said they also stole my second comment, then I’d have no choice but to start wearing a tinfoil hat.

73. I’d love it if they ditch mark to market for hedges and just let them roll through the income statement as they occur or are reversed instead of the arbitrary repricing mechanism each quarter.

74. Dman – make sure you get the namebrand stuff, the private label variety is too thin 😉

75. Long lines for gas, no gas, everyone topping ever time they pass a gas station that actually has gas in the northeast being reported on msnbc now. AAA saying the shortages will continue at least until mid October and consumer behavior is making it last longer.

76. z – a market price for a security is a market price. but, when that particular security doesn’t trade, at all, “other” m-2-m methods can be used. hence, the ability to wreke havoc on a slew of illiquid securities just by manipulating an index that is used to price the individual securities.

    also, you got the Paulson plan down perfectly. You don’t have to buy the WHOLE LOT just to get the pricing back to some rational clearing price. Just trading one bond in the open mrkt prices the entire issue. So, it’s not like we (the U.S.) have to buy every single distressed piece of paper. Besides, Bill Gross is just waiting to pounce. Once a mrkt clearing price can be established, there will be a lot of private $$ buying.

77. got an unsolicited investment newsletter, so i am going to cut-and-paste (without worries about copyrights)… but, i think it does a much better job of explaining the Paulson Plan. Here goes:

    For one thing, the Paulson plan wasn’t really a “bailout.” There is a major difference between a $700 billion program to provide liquidity by buying up distressed assets and $700 billion allocated to new government spending. This is not money that would have gone to line the pockets of “Wall Street’s fat cats.” Instead, funds would have purchased distressed assets, bought equity in financial institutions or made loans that earn interest. Importantly, assets would have been bought up at unusually cheap prices. That’s why they’re “distressed.” This is standard strategy for distressed security hedge funds. In fact, as Andy Kessler pointed out in the Wall Street Journal last week, the government could have wound up buying more than $2 trillion in notional value loans and home equity and CDOs for $700 billion. But unlike any hedge fund, the Treasury and the Federal Reserve could stack the odds in their favor by pumping capital into the U.S. economy to get it moving again.

    In many ways, buying up distressed securities is a classic “carry trade”: the U.S. government would be borrowing at 3% to buy assets yielding 10% or even 12%. Bloomberg estimates that the spread on $700 billion would have generated income of $40 billion to $60 billion annually. Throw in the capital appreciation on the assets as the market stabilizes, and this plan not only could have stabilized the market, but also made money for the federal government. Instead, U.S. investors on both Wall Street and Main Street already are $1.2 trillion in the hole in stock market losses and financial contagion is threatening banking systems around the world. And that’s after only one day’s worth of trading.

78. Just noticed that TSO didn’t make a new low yesterday…

79. tempted to lose those CLR calls up 70% since yesterday purchase. normally would not be but this market…

80. Tater – would a close over $40 be good enough for you? If so, a retreat below $40 is bad I take it? Normally I’d like to see a close over the round number and above the prior day’s high which was 40.04.

81. CLR is looking awesome…i just need to follow your advice Z…do you expect the market to tread water tomorrow…i know its hard to say.

82. sell or not sell….

    1) this rally doesn’t have a lot of volume behind it (which could change quickly when Congress weighs in, of course)

    2) it’s end of quarter; they always cram into the close.

    3) think about selling during the last 10 minutes.

    just a few thoughts.

83. I was actually just looking at that. Mouthed off and wanted to see if 40 was holding. I still see the middle Bollinger Band (which is the same thing as the 20 MA) slanting down from above into this price advance. Up 12% in one day. Gap resistance looming just above from Monday’s open.
    Will you kick yourself if you sell? Try half.
    I moved in pretty hard late yesterday, and I’m back to all cash and actually looking to short some things now.

84. Gotta wonder what gives re oil vs dollar today. odd.

    Bird – thanks. Tater, yep your last…its that kind of market.

85. OII weak in the group. Any reasons?

86. Tried to punt a little in between on the CLR and it fell off…probably not going to get any off unless I tap that low bid.

87. ZTRADE: Out partial CLR $35 calls for $6.00, up 62% since entry yesterday. Hate to be so quick on the trade but this market is not to be trusted with those kind of quick profits.

88. HAL exactly pacing gains in SLB now.

89. Hmmmm…would be a little more convincing if the volume was not so light. That said we are almost back to where we started yesterday! Dow now at the 61.8% retracement level.

90. Lots of charts with gaps almost filled today. No congress action this will evaporate quickly.

91. Re OII – nothing that I saw, been weak all day. Obviously these sellers here did not listen to the opening of the SLB call when they talked about the still strong demand offshore and the sharp growth in rig building that is still going on. All of those deepwater drill ships and semi subs will need an ROV or two on them…that’s OII’s play.

92. RE OII 2, looking at the volume which is pretty big but only half of yesterday’s massive number I would attribute it to end of quarter selling on the part of somebody who really wanted it off the books today.

93. BOP #77,

    The AIG action was masterful and will work out very well for us poor tax payers IMO. I don’t see the “Bailout” or whatever we eventually call it as having that happy an outcome, unless it is substantially changed from Paulson’s plan which I and the public see as a poorly tailered socialist disaster. Absolutely key to the solution is a suspension of M2M accounting until we can deal with the blizzard of harmful instruments that never should have been allowed to exist without stringent rules and supervision and provision for transparency.

    I sincerely hope the “Plan” that probably will be passed this week will work. But I’m not counting on it. There is a pernicious momentum underway which will be very difficult to stop now. It has been allowed to go too far.

    In #77 “notional value” was mentioned. My handy-dandy dictionary has this definition of “notional”: 1.Existing in the mind only: IMAGINARY, UNREAL 2.Given to foolish or fanciful moods or ideas: WHIMSICAL. This is how the toxic assets are currently priced. Comforting, isn’t it? The only thing that makes sense to me is to use present value of cash flows to attempt to value these assets.

94. Sheeesh – what a day! Going for a run, back later. Thanks for the input today guys.

95. Z – re #84 and the $ and oil. You have to wonder whether the spiel (which imo was well overplayed as the correlation really wasn’t there) when crude was rallying about it being due to a weak dollar was just spin as the two really are detatched right now.

96. Stop making sense mahout. The emperor has new clothes on. Get with the program!
    (I can’t seem to get the vision of Nancy Pelosi running around Congress yesterday with the music from the South Park movie playing in the background “What would Brian Boitano Do?” But obviously sung with Nancy’s name replacing).

97. mahout and tater – the ONLY part I agree with is the Treasury’s ability to buy distressed securities at a reverse auction price. All the other stuff is truly “socialism.”

    The solution at it’s core is like when the Calif insurance commissioner in 1991 unilaterally declared that no insurance company could hold junk bonds. The market knew that insurance companies would be selling their holdings and bids for bonds dried up. Executive Life Insurance had to mark down the value of it’s junk bond portfolio to a ridiculous level. It’s assets no longer offset it’s liabilites and the Calif Insurance Commissioner (Gray Davis, by the way) declared it insolvant. Credit Lyonnais and Leon Black (ex Drexel, Bernham) bought the junk bond portfolio for about 50% of what it was worth… BECAUSE NO ONE ELSE WOULD. Black and CL almost immediately made a huge return on their “vulture investment.” And the market for junk bonds began to get back to more normal pricing (and junk bond funds made huge returns between 1991 and 1993).

    This is a lot like the situation today. Paulson wants to use the US Balance Sheet (us taxpayers) to put reasonable price discovery on distressed assets. This will free up banks (in theory) to start lending again.

    That is what Paulson’s plan is about. Google it and see. This is almost the same thing… just much larger scale.

98. [I intended it to mean “google Executive Life + Leon Black + Credit Lyonnais”… not google the Paulson Plan.]

99. z – looks like WLT just took another step toward becoming a pure-play coal company. got rid of that pesky finacing business. one down, homebuilding division to go next. also, increasing share buyback program.

100. BOP #97,

     I hear what you are saying, my friend. It is very logical and interesting. To put a “reasonable price” discovery on distressed assets is a noble objective.

     However, what if that “reasonable price” merely confirms that the bank in question is hopelessly insolvent and destined very quickly for bankruptcy and closing of its doors to the public? What that bank really needed was equity capital, not a purchase of some of it’s assets. I favor the Treasury of the United States buying a new issue of dividend paying preferred stock of that bank under a legal mandate that that preferred stock must be sold or otherwise disposed of in 5 years. This would save the bank and get the United States out of the commercial banking business in due course. Other reforms must take place also. But this method, if done right, would save the banks, make credit available again from the banking system, and give the taxpayer the strong possibility of not losing a dime!

101. Tater #96,

     I love it, Tater.

     Maybe I’m just having an awful time gettin with the program. Maybe that’s it.

102. mahout — rats! i appreciate your comments and wanted to continue… i just spent about 15 mins typing out a totally brilliant (ha!) extension to our discussion. but, when i hit “submit,” it logged me out. that really sucks!

     but, here’s the bottom line: I want the Paulson Plan to buy assets, not banks. That means buying difficult to value securities from bank balance sheets, not investing equity in troubled banks. If the banks are insolvant after properly valuing their assets, then the FDIC should put that bank into receivership.

     But if the assets are bought correctly, then the bank gets to properly value it’s balance sheet and lending can resume.

     I used to do distressed lending and then bankruptcy workouts. The last thing you ever wanted to do was to put more equity into a company with poor management. But, if i could buy an asset from that company at a good price, the company got cash to continue and I got a good deal on an asset. We both lived to fight another day. That is what Paulson is trying to do. Keep the good banks going and let the FDIC take over the bad banks.

103. BOP #102,

     Very good point and I hope it works out well. It sure looks like we’re going to have it.

104. BOP re 102. My sincere apologies for the occasional and seemingly random system logout. It’s even more fun when you are writing a post and it happens. I used to do a lot of re-writing before I became a fan of Save Now, Save Often.

     I agree with 102 re assets and not banks are better for buying. Somebody make a cartoon out of the process and send it to Congress.

105. Petrohawk Reduces 2009 Capital Budget By 33% to $1.0 Billion, Focused on Haynesville and Fayetteville Development

     Production Guidance for Third Quarter and Full Year 2008 Reaffirmed; Full Year
     2009 Production Target Set at 25%-35% Year Over Year Growth

     Petrohawk Completes Revolving Credit Facility Increase to $1.1 Billion, Currently Undrawn

     PR Newswire

     HOUSTON, Oct. 1

     HOUSTON, Oct. 1 /PRNewswire-FirstCall/ — Petrohawk Energy Corporation
     (“Petrohawk” or the “Company”) (NYSE: HK) today announced that it will
     reduce its 2009 capital budget by a third and reallocate spending to more
     heavily weight projects with the highest internal rates of return and
     highest potential for reserve growth, namely, development in the
     Haynesville and Fayetteville Shales.

     The shift allows the Company to further affirm its strong capitalization.
     The 2009 capital budget, which includes drilling, completions, seismic and
     facilities, is currently $1.0 billion, revised from a previously announced
     budget of $1.5 billion. The Company has no current plans or need to access
     the equity capital markets.

     The reallocation of capital reflects an increased emphasis on development
     of non-proved locations in Petrohawk’s successful Haynesville and
     Fayetteville Shale projects, with the benefit of higher expected overall
     reserve growth potential for the Company. Petrohawk’s production guidance
     for 2009 represents 25% to 35% drillbit growth over 2008 estimated annual
     production of 305 million cubic feet of natural gas equivalent per day
     (Mmfe/d).

     In conjunction with 2009 capital planning, Petrohawk completed the
     redetermination of its credit facility, which was increased to $1.1
     billion from $800 million, on September, 10, 2008. The facility is
     currently undrawn.

     Additionally, the Company is evaluating the divestiture of certain
     conventional assets in its Permian Basin region during 2009. These
     properties include interests in Waddell Ranch, Sawyer, Jalmat and TXL
     fields of West Texas and Southeastern New Mexico. The Permian Basin
     properties currently produce approximately 35 Mmcfe/d.

     Third Quarter and Full Year 2008 Production Guidance Reaffirmed

     For the third quarter, Petrohawk reaffirms its previously stated
     production guidance range of 310 to 320 Mmcfe/d. The Company also
     reiterates previously stated guidance for the full year 2008 of 295 to 315
     Mmcfe/d, a more than 25% organic increase over pro forma 2007 production.

     Petrohawk to Present at Merrill Lynch Global Energy Mid and Small Cap
     Conference

106. HK conference call starting now at Merrill Lynch

107. z- be interested to hear the blow by blow of the hk cc if you get a chance.

108. It was quick, one big well in the slides, can still grow fast with the lower budget. Another PR coming soon, details will be in the post in about 15 minutes.

109. thanks

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