Watchful Wednesday

Sentiment Watch: Continued doom and gloom in the morning with a chance of partly hopefulness later in the afternoon. A dearth of real news out of the energy patch is leaving the groups subject to the whim of the market. 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. EIA Oil Inventory Preview
  4. Stuff We Care About Today
  5. Odds & Ends

Holdings Watch:

  • EOG - $10KP Trade - Added (5) more EOG November $85 calls (EOGKQ) added for $1.25 and was able, with patience to split the bid the ask. This is pretty risky as the stock is at $80.44 at the time of the trade, the strike is 85 and we have 3 days until expiry. I expect it to recover to around $83 or $84 with a bounce in the market and this is a go along play with the safer Decembers I already hold.

Commodity Watch:

Crude oil fell $0.56 to close at $54.39 yesterday when news hit the wires that Saudi Arabia was not reducing shipments to the U.S. for the month of November. Crude seems to be showing signs of bottoming at current levels. Factors in favor of a bottoming include relatively steep contango, erasure of the net short crude position, and further OPEC and non-OPEC supply cuts on the horizon. Could it go five dollars lower with a strong dollar and a weak equity market? Sure. This morning crude is trading off slightly as OPEC downplays expectations for an end of November cut.

Natural gas fell 2 cents to $6.52 in light trading. We may see the first withdrawal of the season in tomorrow's report although next week should be the first withdrawal of size. This morning gas is trading up slightly.

EIA Oil Inventory Preview (estimates from Platts)


ZComment: Numbers are still not in the spot light however, crude stocks have been moored at current levels for 4 weeks and a continuance of that trend, attributable to a ramp down in imports while demand from refiners has picked up, would high light the lack of the expected 4Q build that EIA, IEA, and OPEC has been looking for in the US and OEDC. Demand for gasoline has been slowly filling the YoY deficit as prices have come down and I expect that trend to continue. That would be step one in lifting the gloom over the refiners. Step two would be seeing actual winter preparation related heating oil demand and higher distillate demanded for exports.

Stuff We Care About Today

PBR Cans Deepwater Rig Orders:

  • Company cancels orders for 28 deepwater newbuild rigs
  • Orders were originally placed with Brazilian shipyards
  • "These are no longer the conditions to issue the tender this year," said Jose Jorge de Moraes Jr, general manager for new business at (PBR)
  • Thought on this #1: Immediate reaction could be negative for the deepwater group (RIG,DO,ATW, NE) as the cancellation of these orders is seen as opening the floodgates for both exploration and development drilling delays in the deepwater dueto lower oil prices.
  • Thought on this #2: Near but not immediate reaction should be positive. Globally there are about 100 deep and ultra deep capable new rigs on order. Now there are 28 less. This is a net positive for long term day rates which have held up remarkably well in this segment. Or maybe well but not remarkably so as deepwater projects are extremely long lead time.
  • Thought #3: PBR is a special case. So far they are unique in canning a large number of newbuild rigs. The fact of the matter is that PBR has made an unprecedented number of large oil discoveries, subsalt to boot meaning they will be costly to develop, in the $100s of billions, and in the current economic environment (see the bit about "conditions" in the third bullet above) they need to slow down. 

NE Exchanges Debt:

  • $250 mm senior note offering
  • replaces existing debt of $150 mm + project finance debt of $23 mm + revolved borrowings.
  • Backlog is now $12.1 billion

(HK) Director Buys: 3 directors have added shares in the last week.

Odds & Ends

Analyst Watch: Deutsche cuts (SUN) to Sell from Hold. FBR cuts (FSLR) target from $170 to $120.

Housekeeping Watch: I'll be out of pocket Friday at the Haynesville Shale Expo in Shreveport. If you are going, drop me a line at zmanalpha@gmail.com.

212 Responses to “Watchful Wednesday”

  1. 1
    Sambone Says:

    By Jeffrey Jones and Scott Haggett
    CALGARY, Alberta, Nov 18 (Reuters) – Syncrude Canada Ltd
    has signed on to Alberta’s new royalty terms after holding out
    for nearly a year, but the world’s largest oil sands producer
    will get a six-year transition, it said on Tuesday.
    Meantime, Syncrude will pay an additional C$975 million
    ($792 million) to the province between 2010 and 2015.
    The deal, which follows a similar one with Suncor Energy
    Inc SU.TO in January, caps Alberta Premier Ed Stelmach’s
    quest to move his province’s main industry to a royalty system
    aimed at capturing C$1.4 billion a year more for Albertans.
    Energy companies start paying higher economic rent for oil
    and gas production under a generic system at the start of 2009,
    but Syncrude and Suncor had contracts guaranteeing terms
    through 2015, requiring the negotiations.
    “We said right from the beginning that we would not rip up
    contracts — instead we would work together to renegotiate some
    of the terms as we have done in the past,” Stelmach told
    reporters in the provincial capital of Edmonton.
    “The goal was to make sure Albertans continue to receive
    value for the oil sands development while providing certainty
    for this important industry. I’m happy that we’ve been able to
    achieve both.”
    The oil sector has been highly critical of the royalty
    changes since they were announced in Oct. 2007, and companies
    have said the recent downturn that has pulled oil to just above
    $50 a barrel from highs of $147 in July means a double whammy.
    Energy Minister Mel Knight has said the changes will go
    ahead, but he is open to discussing ways to cushion the blow.
    Under Syncrude’s deal, its joint-venture owners will start
    paying royalties based on raw bitumen, less operating and
    capital costs, rather than on fully upgraded synthetic crude,
    starting in January.
    The move will mean C$1.25 billion in additional payments
    for the province over 25 years
    Syncrude owners, led by Canadian Oil Sands Trust
    COSUN.TO, and the government also agreed to establish new
    transition terms for the project, the two sides said.
    Until the end of 2015, Syncrude will pay base royalty rates
    of 25 percent of net bitumen-based revenues or 1 percent of
    gross revenues, whichever is higher, plus another royalty of up
    to C$975 million, paid in six installments.
    Genuity Capital analyst Phil Skolnick said the changes
    should not mean a major shift in the outlook for Syncrude,
    which has said it may double its production to 700,000 barrels
    a day in the next several years.
    “There are some puts and takes in there but all in all it
    doesn’t seem to do be doing a whole lot,” Skolnick said.
    “Everyone knew they had the option to switch to bitumen.”
    Still, the agreement provides stability for Syncrude to
    proceed with day-to-day operations and expansions, and adds to
    the provincial coffers, Canadian Oil Sands Chief Executive
    Marcel Coutu said.
    In the past two months, numerous oil sands developers have
    announced delays to billions of dollars in projects as oil
    prices have fallen and financial markets have sputtered.
    Syncrude’s other partners are Imperial Oil Ltd IMO.TO,
    Petro-Canada PCA.TO, ConocoPhillips COP, Nexen Inc
    NXY.TO, Nippon Oil Corp 5001.TK unit Mocal Energy Ltd and
    Murphy Oil Corp MUR.
    ($1=$1.23 Canadian)
    (Editing by Rob Wilson)

    Tue Nov 18 23:43:17 2008

  2. 2
    bill Says:

    Bp capital bot 1.5 m shares of hk

  3. 3
    Sambone Says:

    7:34 am EST

    Oil Lower, Market Awaits US Inventory Data


    LONDON — Crude oil prices traded lower in Europe Wednesday as the dominant theme of withering demand linked to economic slowdown again weighed on prices, with weakness across European equity markets channeling additional pressure onto the energy complex.

    Nymex crude prices continued to chip away at 22-month lows Wednesday, while ICE Brent crude prices came within a cent of testing three-and-a-half year lows at $50.60 a barrel. However, caution ahead of the U.S. Department of Energy’s weekly inventory data release later Wednesday hampered any acceleration in downside momentum, and despite further indications that the Organization of Petroleum Exporting Countries won’t cut output at its Cairo meeting next week, prices retreated from their intraday lows.

    “In the absence of anything else to the contrary it just trends lower, because people expect demand to be very weak next year,” said Simon Wardell, analyst at Global Insight in London. “I should imagine it will trend lower for a little while yet.”

    At 1203 GMT, the front-month January Brent contract on London’s ICE futures exchange was down 32 cents at $51.52 a barrel.

    The front-month December light, sweet, crude contract on the New York Mercantile Exchange was trading 19 cents lower at $54.20 a barrel, having earlier dropped to $53.30 a barrel to replace Tuesday’s $53.96 a barrel, 22-month low.

    The ICE’s gasoil contract for December delivery was down $6.75 at $549.00 a metric ton, while Nymex gasoline for December delivery was down 63 points at 113.05 cents a gallon.

    OPEC won’t make an output decision when it convenes for an extraordinary meeting in Cairo next week, Algerian newspaper Al Khabar quoted OPEC president Chekib Khelil as saying Wednesday. According to the newspaper, Khelil said the Nov. 29 meeting will be an internal debate, with the Dec. 17 scheduled meeting in Oran, Algeria “the most important meeting,” when more data will be available to the group.

    With the poor health of the world’s economies still feeding oil consumption concerns, demand readings from latest U.S. Department of Energy inventory data are likely to be closely watched in the 1535GMT release Wednesday.

    According to a Dow Jones Newswires survey of 13 analysts, U.S. crude oil, gasoline and distillate stocks all built in the week ended Nov. 14. Of those surveyed, nine predicted a build in crude stocks, which are forecast to rise by 800,000 barrels on average. Analysts are more divided on gasoline, where a build of 100,000 barrels is forecast on average, while distillates are expected to have risen by 600,000 barrels on average. Refinery use is forecast to fall by 0.1 percentage point to 84.5% of capacity.

    While crude prices have continued to move lower, the failure to significantly build on downward moves has generated some caution that the sharp descent from July’s record highs may be running out of steam. It has raised some doubts over how easily the psychologically important $50 a barrel level will be hurdled, if at all.

    “We’re being presented with bad news every day but the reaction is becoming more and more limited,” said Ole Hansen, manager of futures and fixed income trading at Saxo Bank in Copenhagen. “If we take out $52.60 (on Nymex January crude), $50 is the next one, but it just doesn’t have the feel of any urgency to it. The risk of a quick 10% move is tilting to the upside. I’d be more worried about a 10% move on the upside than to the downside at these levels.”

    —By Nick Heath, Dow Jones Newswires

  4. 4
    Sambone Says:

    Palin’s Pipeline At Risk As Economy Slows


    The troubled economy that helped sink Alaska Gov. Sarah Palin’s hopes of becoming U.S. vice president now is undermining prospects for building the $30 billion natural-gas pipeline she touts as her administration’s signal achievement.

    The state faces an increasingly gloomy future if construction is delayed, since the majority of the state’s unrestricted revenue comes from energy-production taxes and royalties — a situation unlike any other state. Without a gas pipeline, the annual dividend checks Alaskans get would eventually dwindle and residents could face their first income tax.

    As Gov. Palin returns from the campaign trail, she is finding a very different landscape than when she left Juneau in August. Shortly before she was selected as Sen. John McCain’s running mate, the Alaska legislature passed a bill to jump-start preliminary work on the pipeline. Not long afterward, the state began handing out record-high annual checks to every Alaskan, sharing the state’s windfall from high oil prices.

    Today, the global economic slowdown is making it harder to maintain momentum behind the project. At the same time, the combination of falling oil production and falling oil prices has left state officials wondering if they can balance their budgets in the current or coming fiscal years.

    There is growing pessimism in Alaska that the pipeline will be built anytime soon. Mike Chenault, the incoming Republican speaker of the state House of Representatives, said he believes the odds of it moving forward in the next couple of years are less than 50-50. “In the end, it is going to be economics that drive this process and not how much we want it to happen,” he said.

    The economics of building a pipeline are deteriorating as demand for cleaner-burning natural gas slows and prices fall. “Current economic conditions are not good for the Alaska gas line, and I expect considerable delays in the initiation of its construction,” predicts Pedro van Meurs, an energy consultant who worked on the project under previous Alaska governors.

    Still, for the time being, preliminary work on two rival pipeline projects is moving ahead. ConocoPhillips and BP PLC have committed $600 million for a detailed assessment of building a pipeline. And in August, the state gave $500 million of incentives to TransCanada Corp. to do similar work on a competing plan. The projects have begun hiring employees and signing engineering contracts. But this work could end abruptly in 2010 if energy producers decide there isn’t enough demand for gas to justify the investment.

    One big hurdle is the growing success of gas producers in the continental U.S. Either pipeline would bring more than four billion cubic feet of the fuel from northern Alaska down to Chicago to feed an under-supplied market. But booming natural-gas production in the U.S. is outpacing demand. In August, wells produced 5.4 billion cubic feet a day more than a year earlier, according to federal data.

    For Alaskans, a pipeline would bring a financial bonanza — and help replenish dwindling revenue from oil production.

    Gov. Palin focused on passing the $500 million incentive package and selecting Calgary-based TransCanada to develop the 1,700-mile pipeline. But TransCanada needs commitments from the three big producers controlling the gas on Alaska’s North Slope before it can secure financing for the project. And those companies are balking. Exxon Mobil Corp. has so far refused to participate. BP and ConocoPhillips are backing their own pipeline and have expressed reservations about joining the state-backed pipeline.

    If West Coast oil prices average about $60 a barrel from today through the end of the fiscal year in June — which would require Alaskan North Slope oil to rise above the current $49.89 — the state would end its budget cycle with a small surplus. But another year of $60 prices would mean a $1 billion deficit, says David Teal, head of Alaska’s legislative finance division.

  5. 5
    nifkin Says:

    Marcellus/PA issues popping up again after a hearing last night- might be some headline weakness- but nothing new http://finance.yahoo.com/news/Drilling-companies-Pa-DEP-apf-13616640.html

  6. 6
    BirdsofpreyRcool Says:

    IG closed last night at 230 bps. It opened wider this morning, then dropped like a stone from there. We are at new wide (low valuation) levels across the board. The high yield index is pricing in an unprecidented number of bankruptcy filings (perhaps in the face of GM’s pathetic performance). Whatever.

    IG 241… we already know what this level means. I’m not sure what the next level is from here. Probably something involving getting under your desk and closing your eyes.

    Let’s hope the stock market can drag the bond market up from here. At this point, “hope” IS the investment strategy for bonds.

  7. 7
    Fiveanddimer Says:

    BOP — I once heard a very wise investor say that if “hope” is the basis of your investment strategy, you’re pretty much screwed.

  8. 8
    BirdsofpreyRcool Says:

    Fiveanddimer… i know. That is why it pained me to write that. But, we are pretty much there.

  9. 9
    zman Says:

    Oil turned positive from down a buck over night. It looks like OPEC is trying to set the expectation bar to 0 for the November meeting.

  10. 10
    Fiveanddimer Says:

    I just noticed that in the last five minutes the $US has hit a pretty good air pocket, at the same time the precious metals and crude are moving higher.

  11. 11
    orion Says:

    sold the Nov EOG’s, +45%, thanks Z

  12. 12
    Sambone Says:

    9:20 (Dow Jones) Oil could drop to $40/bbl by April, Deutsche Bank says,
    “based on a huge overhead of new, more efficient, refining capacity addition
    into an already-oversupplied market.” OPEC may need to cut production by 2.5
    million barrels per day, and refining capacity may need to be shut down, firm
    says, but those efforts will be “massively undermined by the sudden jump in
    Chinese refining profitability.” Deutsche calls this its “mega-bear” theory on
    oil, reminding us of last spring’s “super-spike” theory from Goldman Sachs
    predicting oil could reach $200/bbl. Deutsche cuts Sunoco (SUN) to sell based
    on this negative view for refiners. (EBW)

  13. 13
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil was steady Wednesday after posting a fresh
    22-month low ahead of government statistics expected to small gains in U.S.
    petroleum stockpiles.
    Light, sweet crude for December delivery was recently up 40 cents, or 0.7%, at
    $54.79 a barrel on the New York Mercantile Exchange. January Brent crude on the
    ICE Futures exchange rose 48 cents to $52.32 a barrel.
    Nymex crude earlier fell to $53.30, the lowest since Jan. 23, 2007, while
    Brent dropped within a penny of 3 1/2-year lows. Crude has spiraled downward as
    traders anticipate demand softening in a world economic slowdown.
    On Wednesday, the market is expected to take direction from the latest data on
    U.S. oil inventories, due at 10:35 a.m. EST. A Dow Jones Newswires poll of
    analysts estimates that in the week ended Nov. 14, crude inventories rose
    800,000 barrels, gasoline inventories rose 100,000 barrels and inventories of
    distillates, which include heating oil and diesel, rose 600,000 barrels.
    The rate of refinery use is seen falling by 0.1 percentage point to 84.5% of
    “It seems like everyone’s waiting for the stats,” said Peter Donovan, vice
    president at Vantage Trading on the Nymex floor.
    With oil plunging more than $90 a barrel from its July highs, the Organization
    of Petroleum Exporting Countries plans to meet Nov. 29 to discuss prices. The
    group’s president, Chekib Khelil, told an Algerian newspaper OPEC won’t take
    new action on output at the meeting.
    “I don’t think we’ll take a decision as we don’t have any data,” said Khelil,
    who is also Algeria’s oil minister, in the Algiers-based Al Khabar daily. “I
    don’t think a measure needs to be taken before making sure all countries
    implemented the previous decisions.”
    OPEC last month announced a 1.5 million barrel-a-day output cut.
    Iraqi Oil Minister Hussein al-Shahristani on Wednesday voiced support for
    lower OPEC production. “There are surplus crude oil supplies in the world
    market and we support a further output cut,” Shahristani told Dow Jones
    Front-month December reformulated gasoline blendstock, or RBOB, rose 1.14
    cents, or 1% to $1.1482 a gallon. December heating oil rose 2.21 cents, or
    1.3%, to $1.7800 a gallon.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    11-19-08 0936ET

  14. 14
    BirdsofpreyRcool Says:

    IG 238… the bond market is trying to climb out of the sub-basement and enjoy a little of what the stock market is drinking.

  15. 15
    Garyinhou Says:

    Hey Z.. nice article on coal from the Hou Chron…


  16. 16
    reefguy Says:

    CPE down 27% yesterday, 20% today…

  17. 17
    BirdsofpreyRcool Says:

    IG 237

  18. 18
    zman Says:

    Thanks Gary, will have a look.

    Reef – Re CPE – Unreal. Have not looked at debt but these guys are now trading sub 1x 2009 expected CFPS.

  19. 19
    BirdsofpreyRcool Says:

    IG 238

  20. 20
    reefguy Says:

    270 in debt against 100 in cash

  21. 21
    zman Says:

    Well, at least one fundamental truth is hanging in there. Its cold and natural gas is rallying from last weeks too large injection. Not much meaning to the stock moves this morning until after oil inventory report.

  22. 22
    zman Says:

    Reef – and no news that I see. Wonder if they caught a brokerage downgrade. Gotta love the oh so late to the party rating cuts.

  23. 23
    reefguy Says:

    CPE- funds forced selling and no buyers…yet

  24. 24
    reefguy Says:

    CPE Howard Weil cut to Market perform

  25. 25
    zman Says:

    Reef – the sub $10 crowd has gotten pounded in the last 2 weeks. Maybe it’s tied to that. Once you become a single-digit-midget everybody hates you.

  26. 26
    zman Says:

    Re 24 – which is basically a Hold recommendation which in this market means run away. Weil are smart guys, wonder what they didn’t like. I thought CPE had big deepwater development project coming on stream so pretty scheduled out production for 2009. Wonder if there is a problem with financing the development wells.

  27. 27
    reefguy Says:

    xco at $5.55

  28. 28
    Sambone Says:

    HOUSTON (Dow Jones)–U.S. petroleum demand and production is on the wane while
    imports of crude oil and gasoline are on the rise, according to monthly
    statistics released Wednesday by the American Petroleum Institute.
    U.S. petroleum deliveries dropped 4% in October, bringing the decline between
    January through October to 5%, a rate not seen since the 1980s, according to
    the the API, a trade group that represents big oil companies.
    “Not only have higher prices for much of 2008 been altering consumers’
    behavior, but more recent economic uncertainties have increasingly been putting
    a damper on demand, as well,” API statistics manager Ron Planting said in a
    news release.
    Despite the increase in contributions from Alaska, U.S. crude oil production
    in October declined by 5.1% from a year earlier, the API said.
    Although imports declined in September because of hurricane related port
    closures, imports in October rose 5.8% from a year earlier. The U.S. brought in
    13.7 million barrels a day, the highest level since July 2007.
    Gasoline imports are up 25% from a year ago, the second-highest level ever for
    the month, after October 2005’s import surge following Hurricane’s Katrina and
    The upstream and downstream sectors have recovered well from this year’s
    Hurricanes Gustav and Ike, the API said.

    -By Susan Daker, Dow Jones Newswires
    Dow Jones Newswires
    11-19-08 1000ET

  29. 29
    bill Says:

    ng up 17 cents and the gas stocks are down

  30. 30
    zman Says:

    Re 26. Probably ought to stop speculating because I’m going on memory and less than one cup of coffee and actually do some work as this may be a fantastic opportunity.

    Hey Orion, just saw #11 and while I don’t generally say your welcome because I don’t give advice I will say nice trade man.

  31. 31
    zman Says:

    Bill – if the oil inventory report isn’t a bummer I expect that to change. Unless of course the broad market falls off a cliff.

  32. 32
    zman Says:

    US$ off a percent. Why today anyone? I’ve been wondering how long you can run the presses at Treasury 24/7/365 while saying “but Europe is worse” and have the dollar rally. Maybe nothing and only a one day event but we are seeing some $ conversion in the OPEC countries and in China. This would be another item on the check list for bottoming oil. Still lacks a lot of certainty but there are signs as per the post.

  33. 33
    Sambone Says:

    Rumors of an article stating that the Chinese Central Bank will raise it’s gold reserves from 600 tonnes to 4000 tonnes, and sell USD to finance.

  34. 34
    reefguy Says:

    26- Non recourse through Ceico Energy

  35. 35
    Sambone Says:


  36. 36
    zman Says:

    Thanks Sambone. Faster response than I was expecting.

    Thanks Reef – got the presentation, will look.

  37. 37
    BirdsofpreyRcool Says:

    IG 236… stocks are holding up bonds here, albeit at ridiculously wide (low) levels for bonds.

    Bottom line for credit: freezing tighter and tigher (if possible). No thaw in sight. Some bond deals are getting done. But these are high grade, liquid companies (like Verizon, Kroger, AT&T) that are having to pay up — a lot — to get their deals done. But, money keeps flowing out of the bond market. So, in order for investors to buy these new bonds, they have to sell existing positions (or wait for coupon payments to come in). So, this continues to push the overall bond market lower.

  38. 38
    Popeye Says:

    What T Boone bought and sold:


  39. 39
    zman Says:

    Bird – NE got $250 mm spot senior deal done last night at 7.75%. That does not sound to egregious on rate.

  40. 40
    BossmanG Says:

    Z, that news about T Boone, I thought he was sitting on all cash recently? Or is that only one of the portfolios he is running…?

  41. 41
    zman Says:

    Thanks much Popeye. He’s moving up in terms of near term risk with some of the smaller names but he probably thinks they are played out. Why he sold CHK I understand although I think its a bit wimpy. Why he sold EOG I have no idea (leading Bakken producer, still quite gassy, 5 oil shale plays they have not yet talked about but will soon).

  42. 42
    BirdsofpreyRcool Says:

    IG 234… tighter = good

  43. 43
    zman Says:

    Boss – I don’t know. I know he has taken some massive hits and I heard he is shutting down 1 or maybe 2 hedge funds. That may be personal account buys.

  44. 44
    zman Says:

    Fair warning, if I see an ugly set of numbers out of the EIA I’ll punt the EOG Nov calls pretty quick.

    Wednesday morning behavior running pretty true to norm. When we get withing 15 minutes of the EIA report the stocks back way off. EOG was up $1.50 five minutes ago, now flat.

  45. 45
    BirdsofpreyRcool Says:

    z – re#39… +525 bps for an Baa1/A- rated bond is outrageous. A year and a half ago, the lowest-rated junk bonds traded around +275 bps. NE is a solidly investment grade rated. In “normal” times, NE would have issued debt at +75 to 100 bps or so. 5x normal = about $10mm/yr in interest payments higher… this is less $$ to pay for other projects, employees, capital, and of course net income.

  46. 46
    zman Says:

    Bird – but they were in part taking out higher cost project financing and revolver debt. Will look at the net impact on interest expense line after the oil numbers.

  47. 47
    Sambone Says:

    Government quadruples gold reserves
    (Shenzhen Daily)
    Updated: 2006-05-11 14:25

    Some Chinese economists are urging the government to quadruple its gold reserves to 2,500 tons from the current 600 tons because the country¡¯s foreign exchange reserves had become the world¡¯s largest, an official industry newspaper reported Tuesday.

    ¡°China should raise its gold reserves so those reserves can account for 3 percent to 5 percent of the foreign exchange reserves, instead of current 1.3 percent,¡± the China Gold quoted Liu Shanen, an expert at Beijing Gold Economy Development Research Center, as telling a conference.

    He said the suggestion was made in light of the country¡¯s economic strength and the size of its foreign trade.

    China¡¯s foreign exchange reserves rose to a record US$875.1 billion by the end of March on the back of a surge in its trade surplus and an increase in foreign direct investment.

    ¡°More gold reserves will help the government prevent risks and handle emergencies in case of future possible turbulence in the international political and economic situation,¡± the paper said, citing Tan Yaling, a researcher with the Bank of China.

    A weak dollar had also made more gold holdings necessary, it quoted Liao Yingmin as saying. Liao is a researcher at the Development Research Center of the State Council, a government think tank.

    China has been trying to gradually diversify its reserve holdings away from the dollar. But economists say fears of a collapse in the U.S. currency will prevent any dramatic shift.

    Central bank official figures showed China¡¯s gold reserves have remained unchanged since December 2002.

    Gold prices have risen 32 percent this year due to tension in the Middle East, firm oil prices and a volatile dollar.

  48. 48
    VTZ Says:

    Z- does the fair warning apply to XOMs as well?

  49. 49
    BirdsofpreyRcool Says:

    z – understood. But, the cash interest expense is still about $10mm per year higher than they would have paid, if credit wasn’t frozen so stiff. The fact that they got the deal “done” wouldn’t even cross the mind of a normal banker in normal times. If it costs this much to take out bank and project financing for a large company like NE, you don’t have to have a very active imagination to picture what it is like for smaller businesses. Something like 80% of US businesses are consisdered “small”….

  50. 50
    zman Says:

    V – I’ll be a little slower on the trigger there due to better spreads and XOM’s status as one of the last working games in town in energy. So I’ll sell it second. Also, mind you, I’ll give a little time for the initial head fake reaction to get out of the way if the numbers don’t look so bad but oil tanks anyway.

  51. 51
    zman Says:

    Hear ya Bird, I kind of look at from a “this is the reality we live in now” perspective. Will look at the $ in a bit.

  52. 52
    rlogan1301 Says:

    z – does that warning go toward UNG too? that thing has been dead money so far

  53. 53
    zman Says:

    Crude – increased 1.6 (stronger)
    Gasoline – up 0.5 (weaker)
    Distillate – down 1.5 (much weaker)

    crude was 54.60 before the report.

  54. 54
    zman Says:

    RL – no.

  55. 55
    zman Says:

    Not a bad report for refiners.

    SUN down 10% on a downgrade may be an opportunity with the drawdown on distillates.

    I’m not a seller of EOG or XOM or anything else on this report.

  56. 56
    bill Says:

    ng up 21 cents now stocks are down

  57. 57
    sane Says:

    Ok now for a funny API report

    Crude Up 8M
    Gasoline up 710K
    Distillates Up 126K

  58. 58
    zman Says:

    Reef – The market is valuing CPE (including their debt) at $1.58/Mcfe in the ground. Pretty cheap. Looks like there has been no real change to the development schedule for Entrada, their third deepwater project – still a mid 2009 event. This stock was $20 in September. 46% debt to total cap is a bit high but manageable and they have some pretty nice hedges in place for next year including about half their oil (which is just over half their production) at $110 floors.

  59. 59
    BirdsofpreyRcool Says:

    z – one last comment on the $250mm of 5 year bonds that NE just issued (gives me a way to put today’s bond market in perspective).

    NE issued these new bonds to take out subsidiary debt and to pay down their bank line. Let’s just look at the subsidiary debt they are taking out.

    NE has $150mm of 6.95% bond maturing in March 2009. They issued those bonds in March 1999. At the time of issuance, those bonds were priced at +175 bps to underlying 10 year treasury bond. These new bonds are priced at +525 bps to the underlying 5 year treasury. In 1999, NE was lower rated by Moody’s. Also, oil was $14/bbl and 10-yr treasuries were at 5.20%. So, NE issued 10 year debt at 134% of underlying treasuries.

    This new debt is shorter maturity (5 years) and was issued at 337% of underlying treasuries (the 5 yr is at 2.19% right now), and oil is over $50/bbl.

    So, oil is higher now than in 1999, NE is higher rated, the yield environment is much much lower, and NE’s stock price is about 3x higher than in it was in March 1999.

    To have to issue debt at +525 bps is like the Fed tightening 14 TIMES between now and the last time NE issued debt.

    The more $$ you have to pay to raise debt, the less $$ available to do anything else.

    Just trying to put a frame around what is happening in the credit market. IF you can get your debt placed, you are having to pay up. And those are the lucky ones… most companies have zero access to the debt market these days.

  60. 60
    antrimshale74 Says:

    And that is why Congress talking about Ch. 11 for the auto industry is a complete joke. Where is the DIP and exit financing supposed to come from? A bunch of morons are running this country.

  61. 61
    zman Says:

    Um, thanks Sane. Don’t know what to make of that one.

    Bird – I get that its not a great deal, but have not yet calculated the net impact on their costs. I wonder if they did it now because they were fearful of not being able to get it done closer to the March maturity. Do you think credit will stay frozen that long?

  62. 62
    BirdsofpreyRcool Says:

    antrim – well… the govt could provide the backing for the DIP loans… and, by the time a Ch 11 worked it’s way through (i’d guesstimate 4 yrs), the credit market will either be open… or, we won’t care about driving cars any more.

  63. 63
    antrimshale74 Says:

    That’s my point. No matter how you slice it, there needs to be a government commitment. But I certainly don’t want these morons congressmen to re-engineer an industry. They, personally, aren’t even qualified to clean toilets.

  64. 64
    VTZ Says:

    If they bail out the automakers instead of chapter 11, the US govt has lost any credibility that it has left.

  65. 65
    zman Says:

    Anybody with Howard Weil access, I’d love to see the justification for the downgrade of (CPE). It may be warranted but I’d still like to see it.

  66. 66
    BirdsofpreyRcool Says:

    z – you’re right. NE got the debt deal done now b/c they could. You can’t afford to wait until a month or two before your older debt matures (well, you can… but that was 2 yrs ago).

    I don’t think anyone knows what the debt market is going to be like in 3 months. No one ever thought it would be frozen for this long (about 1 1/2 yrs now) or this badly (even commercial paper can’t get placed).

    The problem with debt is, if you can’t roll it and your banks don’t pony up, debt can stop you cold. Game over. Finis. Ciao. Done. It doesn’t mean the company shuts down, but equity is toast in 99 out of 100 times. So, it was smart (albeit expensive) for NE to do their $250mm 5 yr debt deal while they could.

  67. 67
    rlogan1301 Says:

    Z – thoughts on OIH at these levels

  68. 68
    tater Says:

    Z – I had the rumblings of InBev grab of Bud years ago as they were doing joint work for a long time and the industry reps that I worked with were whispering. Anyway, today’s news about NOV and SLB working together…do you see this leading to a possible M&A down the road? I know anything is possible, just wondering what your thoughts were.

  69. 69
    zman Says:

    RL – I don’t care for the prospects of the OIH companies relative to the other energy subsectors. As capital budgets at the E&P companies contract, rates for most services are coming down and the falling rig count in the U.S. and potentially abroad will be a cloud over service into 1Q09.

  70. 70
    rlogan1301 Says:

    thanks z…i got into SU thinking that it was tied more to the price of oil and that oil had to stabalize soon…does th number’s today affect SU?

  71. 71
    zman Says:

    Tater – I saw it and dismissed about as quickly and didn’t even throw it in the post. I don’t think it’s a big deal. Service companies announce these kinds of things all the time so I don’t see this as a precursor to an SLB buy of NOV. Would NOV fit within the SLB family of products. Sure. Would that make sense for NOV shareholders. No, and it would get a great big sarcastic “oh, great” from the producers.

  72. 72
    tater Says:

    Thanks. I’m figuring that we are going to see companies buying growth instead of organic soon, so I’m on the lookout. Figure they will be through stock swap anyway, so probably not going to help prices.

  73. 73
    zman Says:

    Tater – I think M&A picks up sharply in 2009 in energy patch. I’ve read others thinking same. With everyone’s currency (stock) so depresses the stock deals are pretty painful (dilutive) now. And there is simply no cash available to balance the deals.

    Those oil numbers were not bad. Oil is off with this market. People are hanging on the words of a car dealer interviewing the Big 3 heads.

  74. 74
    zman Says:

    RL – oil prices impact SU to be sure but today’s numbers were pretty non-event. I liked seeing the decline in distillates as it proves people in the northeast will indeed not yet freeze to death. More importantly, at least to me, is that distillate demanded by the suppliers of heating oil is intact. Those businesses operate on cash flow and credit and there exists the possibility that they won’t be able to buy heating oil to deliver to their customers. So far, it appears the HO is flowing.

  75. 75
    zman Says:

    Seeing some more selling that looks like hedge fund liquidation. GDP and GMXR getting dropped for 11% each. Both less liquid. Both with very little debt, focused gassy plays. Both have had little runs of late. GDP 3Q was very strong and I felt I had missed it over the last couple of weeks. Now dropped in a day on light volume. That’s someone jumping out a window.

  76. 76
    BirdsofpreyRcool Says:

    z – I get the feeling that the ledge outside the window is pretty crowded right now.

  77. 77
    zman Says:

    Bird – it’s spotty though in E&P. GDP went from $20 to $33 since October. So its not day after day jumping. Which has a very different flavor from the July to September period.

  78. 78
    BirdsofpreyRcool Says:

    z – yes. Funds across the board were both raising cash and moving out of the energy sector… so, double whammy this summer. Right now, you’re seeing the affects of some funds shutting down. It’s not across the board, but it’s not over yet either.

  79. 79
    md Says:

    Report seems bearish
    Total inventories are higher 2.7M LW and higher 2.8M than LY.
    Climbing from a YOY deficit of 65M at 9/26.
    Kerosene Jet fuel +1.29M. How accurate is that cat. My understanding is that distillate and Jet is interchangeable. If distillate -1.47M from LW the overall CAT difference is negligible.

  80. 80
    zman Says:

    Pisani on CNBC making a good point. Volumes low, not rampant selling, just a buyer’s strike on. That augers for more end of day change of direction.

  81. 81
    md Says:

    Is the 11/17 HF redemptions coming home

  82. 82
    tater Says:

    I’m sure that I’m just stating the obvious, but just to make sure. We are on the edge here with the S&P. I’m using the levels on the SPY, but the price at 83.75 is the low that the market is working off of (I know it is not the exact low). Close below that and there really isn’t anything below to support until we hit 77.
    To temper that gloomy analysis, all I’m reading from the experts is that we are due for an “oversold” rally.

  83. 83
    Bob Says:

    Z-Re 75. Possibly more short selling? Both have short interest above 20%. Short interst in CHK=7%, HK=6%, SWN=4%

  84. 84
    BirdsofpreyRcool Says:

    md – don’t think so. They raised money to meet those redemptions a while back. Sadly, i’m hearing about more funds throwing in the towel. When you raise money to meet redemptions, you anticipate still having a fund, so you try to manage an orderly sale. When you sell out to close your fund and distribute what remains, your only concern is getting cash… so, it’s a different approach to the market (sell at any price).

    This is all exacerbated by relatively low liquidity in the mrkt… buyers are not not anxious to catch those falling knives.

  85. 85
    mahout Says:


    Re your 45,49,59,and 66(did i miss any?):
    Bravo for the education!

    As for NE’s decision to pay up at this time, it’s a smart move in my book. My gosh it’s only a 5 yr mat. It may even take nearly that long to get out of this mess. I don’t think so, but they are playing it safe, so to speak. If i was a CEO of a company that is able to sell bonds in this market, many can’t as you point out, i would be cracking the whip and saying sell bonds now and don’t worry about the interest rate. It will give us the almighty dollar, help us in our stock price right now , give us flexability to perhaps pick up a small bargain aquisition if it so develops, and we always have the possibility of refinancing into better rates at a later time. I think more companies that can sell bonds should be doing this right now. In amounts and maturities that make sense for them, of course. While others struggle with their capital needs and looming maturity dates, they will be high and dry.

  86. 86
    zman Says:

    Jet is part of the distillate calculation.

    I see the report as more neutral. Understand you look at total products supplied down 7% and see that as a bear but it has been down this far and the individual pieces are not falling off a demand cliff. Down 2 to 3% on gasoline from last year’s record levels is not that bad, not in this environment with rising unemployment. Lower gas prices are clearly helping. What I look for in the weekly numbers is: 1) the delta to what people were looking for for the immediate reaction and then 2) what the numbers do to the overall stocks, especially in terms of directionality.

    Right now crude and gasoline stocks are middle of the road for where they usually are this time of year and distillates are are touch low.

  87. 87
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Oil futures fell Wednesday after government statistics
    revealed that U.S. crude stockpiles rose last week and demand was still weak.
    Light, sweet crude for December delivery was recently down 59 cents, or 1.1%,
    at $53.80 a barrel on the New York Mercantile Exchange. January Brent crude on
    the ICE Futures exchange fell 22 cents cents to $51.62 a barrel.
    Gains vanished after the U.S. Energy Information Administration reported crude
    stockpiles rose by 1.6 million barrels – twice the average of analyst
    expectations – in the week ended Nov. 14. Domestic oil demand fell to its
    lowest level in more than a month, to 18.97 million barrels a day.
    Stocks of distillates registered a surprise decline of 1.5 million barrels,
    bucking expectations of a 600,000-barrel gain, while gasoline stocks rose
    500,000 barrels, a bit more than expected.
    “I don’t think it’s an especially bearish or bullish report,” said Gene
    McGillian, an analyst at brokerage Tradition Energy in Stamford, Conn. “The
    market’s pattern, that it can’t hold any rallies, continues because the primary
    focus is the deteriorating economy.”
    Early in Wednesday’s session Nymex crude had touched $53.30, the lowest price
    since Jan. 23, 2007, while Brent dropped within a penny of 3 1/2-year lows.
    Crude has spiraled downward as traders anticipate demand melting away as the
    world enters a slowdown.
    Chilly temperatures in the U.S. Northeast, the largest heating oil market,
    powered futures contracts for the fuel. December heating oil rose 1.42 cents,
    or 0.8%, to $1.7721 a gallon.
    With oil plunging more than $90 a barrel from its July highs, the Organization
    of Petroleum Exporting Countries plans to meet Nov. 29 to discuss prices. The
    group’s president, Chekib Khelil, told an Algerian newspaper OPEC won’t take
    new action on output at the meeting.
    “I don’t think we’ll take a decision as we don’t have any data,” said Khelil,
    who is also Algeria’s oil minister, in the Algiers-based Al Khabar daily. “I
    don’t think a measure needs to be taken before making sure all countries
    implemented the previous decisions.”
    OPEC last month announced a 1.5 million barrel-a-day output cut.
    Iraqi Oil Minister Hussein al-Shahristani on Wednesday voiced support for
    lower OPEC production. “There are surplus crude oil supplies in the world
    market and we support a further output cut,” Shahristani told Dow Jones
    Oil could fall to $40 a barrel about April of next year as the cost of
    production declines and the dollar strengthens, Deutsche Bank equity analysts
    said in a note. The analysts said OPEC may need to cut 2.5 million barrels a
    day in production, and noted that individual members have an incentive not to
    cut as it cuts further into needed revenues.
    Front-month December reformulated gasoline blendstock, or RBOB, fell 1.87
    cents, or 1.6% to $1.1181 a gallon.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    11-19-08 1123ET

  88. 88
    BirdsofpreyRcool Says:

    mahout – thank you for your kind words.

    And i agree 1,000% that if you can raise debt right now, DO IT. We have no idea when market will unfreeze. I just used the recent NE $250mm raise to illustrate what a credit crises looks like. NE is one of the lucky ones. Most companies can’t raise debt, at any price at all.

    But even a company like NE did not budget having to roll over $250mm of debt at those prices. Bravo! that they did. But, having to pay higher than anticipated prices means cuts in the budget elsewhere (all else equal). Less $$ for capex, employees, net income.

  89. 89
    md Says:

    IG ?

  90. 90
    zman Says:

    Bird – I appreciate your comments about higher interest expense meaning less $ for operating cash flow. What are you seeing with regarding to revolver rates. Many of these float with libor +.

  91. 91
    zman Says:

    Oil down 20 cents. Would be up on the report were it not for the equity markets in my book. Heating oil is up a percent on the bigger draw down of stocks.

  92. 92
    mahout Says:

    Z #73,

    M&A in early 2009: SD is now a single-digit-midget, having fallen from i think around $69. to about $9.50.
    Wouldn’t that make a choice acquisition for somebody? It looks so tempting to me.

    Any thoughts on SD as a takeover candidate? And maybe you might consider throwing out a few names that would make tasty aquisitions next Spring.

  93. 93
    zman Says:

    Mahout: Characteristics of the acquired going to be important, maybe hard to pick the actual name that goes first (although I suspect someone big will take out 2 or 3 small names on the same day to avoid price run up and to make enough of a size deal to be worth their while). Will include characteristics and who fits the bill for the Stuff We Care About Today portion of the post Friday. I was working on it already.

    What’s the S&P500 drop dead level?

  94. 94
    Wyoming Says:

    SLB/NOV are not a good fit. SLB hates and does a poor job of manufacturing. NOV owns a lot of the vendors who supply some products to SLB. Also, NOV is heavy onto drilling rig equipment. SLB got rid of Sedco Forex because rigs don’t fit the business model. SLB wants to be the high tech leaders, top drives is not their idea of a key technology. The data telemarty thing is like the Western Geco deal with BHI. Just a small part of the NOV business that actually fits.

    My 0.02 which is now 0.01 with deflation …

  95. 95
    BirdsofpreyRcool Says:

    md – i haven’t seen an quote on IG for over an hour. It was last 237 1/2. But just saw a new quote for the High Yield Index… even seasoned bond traders are shedding tears here. It’s a complete rout. Perhaps because of the uncertainty around the Detroit 3. The automakers have a lot of debt, if the Govt steps in with a “bailout”, bonds will be up huge. If the Govt decides to let the D-3 work it out on their own, bonds probably have further to fall. So, credit (bond) market is holding it’s breath, waiting to hear about the automakers.

  96. 96
    ram Says:

    Early Oct of 2002 we closed on the S&P right around 800. How important is that level to hold?

  97. 97
    zman Says:

    Tater – much better to hear the comment on SLB/NOV from Wyoming than from me.

    Ram – good question.

    Re Big 3: When do they stop talking and start voting whether or not to do something?

  98. 98
    zman Says:

    md – anything on the distillate side in particular you want me to look at for tomorrow’s post?

  99. 99
    bill Says:

    ng is up 25 cents now and the hk and chk are both making daily lows

    I wish a large ep company would take one out

  100. 100
    Wyoming Says:

    bull Bear battle @ 825 on SPY, E-mini.

  101. 101
    tater Says:

    Yeah, but I think he drinks more than you do.

  102. 102
    john11 Says:

    Sure feels like forced liquidation in some of these natgas stocks with the strength in the commodity.
    Also looking at mlp universe VNR yld over 30% now.

  103. 103
    BirdsofpreyRcool Says:

    z – re#90. Good question about bank loan and revolver rates. It’s something I always look for and/or ask about when I look at or meet with a company.

    Like everything else, the bank loan market is in a free-fall. But, that’s the 2ndary market (where bank loans are traded like bonds). Bank loans rates (usually a spread to LIBOR) are negotiated when the bank facility is put in place. Unless a company violates its covenants, the bank has no ability to reset the terms until maturity.

    That is part of the problem with the banking industry right now. When a company drawns down on its credit facility, it’s taking money out of the banking system and hoarding it as a cushion against uncertainty. However, the interest that is paid on that drawn revolver is a lot less than what a new loan would be made at today. So, banks are facing pressure from honoring those old commitments. This means less money available from banks for new loans.

    It used to be that an E&P could negotiate a secured facility at LIBOR +25-75 bps. I dont’ know what the going rates are today, as I don’t see many new bank deals getting done. I’ll look and let you know.

    This is really quite a mess, actually.

  104. 104
    bill Says:

    looks like the bears are winning

    dow down 233

    I guess “Change” guy will help things out with higher taxes on oil and gas companies

  105. 105
    zman Says:

    Bill – re 99. Wait for it …

  106. 106
    zman Says:

    … as oil is trying to go green. In a bear market, one of the most powerful rallies you can have is the “most favored sector 1 or 2 day rallies”. I’m not calling for one but if XOM can get back into green it could happen later today.

  107. 107
    BirdsofpreyRcool Says:

    z – re#97… i don’t know if there is any sort of a timetable to take an actual vote yet. Until they can negotiate behind the scenes to come up with something they believe will pass, I don’t think they will set a vote date.

    Most of what I’m reading right now says there is not enough support among the Republicans to pass a bailout to Detroit. That might change, with the changeover in Congress on Jan 3rd. But, Detroit has to live that long… and as this recession deepens, I think there will be less and less support amongst the American People to bailout companies with above-mrkt wages, while other taxpayers continue to lose their jobs (and more meager benefits). JMHO, of course.

  108. 108
    BirdsofpreyRcool Says:

    IG 242… back to the wides of the pre-stock market open.

  109. 109
    md Says:

    I had wanted to know if the total distillate inventory inc. jet fuel is accurate. So whether it’s in distillate or jet fuel would not matter.
    Is it possible that refineries are calling distillate as jet fuel to create a lower distillate inventory number.

    In your Friday’s report can you lend some historical perspective. With todays credit freeze would it be akin to say $20 oil and how was money made. What was the enviroment like when XO and M tied the knot.

  110. 110
    zman Says:

    md – you said: My understanding is that distillate and Jet is interchangeable. I’m saying jet is part of the total distillates number. Not interchangeable. In answer to calling it one thing or the other: no. Don’t understand what you mean by how was money made?

  111. 111
    bill Says:

    im buying hk calls…for a rally with ng up 25 cents or more and the 1 yr strp up a similar amount

    these gm hearings are painful…

  112. 112
    rlogan1301 Says:

    you buying dec calls bill?

  113. 113
    md Says:

    Txs for clarification on distillate.

    I await Friday’s comments which may answer my question.

  114. 114
    zman Says:

    md – not if I don’t understand the question. Can you clarify?

  115. 115
    antrimshale74 Says:

    Bill, I think all congressional hearing are painful. On a personal scale, politicians have hit a new low with me. I’m starting to think that this country is perpetually doomed. I look at Canada and find both their political system, as well as the discourse, to be so much more enriching.

  116. 116
    zman Says:

    Starting to see stocks gain a little traction. Group has CVX, COG, XTO green and little else although everything is well off its lows. If XOM can green up we could see a nice afternoon rally. Oil up 50 cents by the way.

  117. 117
    antrimshale74 Says:

    Volume seems tepid to me, even more so than yesterday.

  118. 118
    Sambone Says:

    Off subject, but may be of interest;

    By Palash R. Ghosh

    How low will she can go, nobody knows.
    As U.S. equities continue to spiral, it might be a good time to see if we can
    determine an “absolute floor” for this market by assessing book value.
    A stock’s book value is calculated by taking a company’s total assets and
    subtracting intangible assets (like patents and goodwill) and liabilities. It
    essentially represents how much money a company would have if it paid all its
    liabilities and then sold all its assets.
    Presumably, a healthy and growing company’s shares would trade significantly
    above its perceived book value.
    Of the 30 stocks in the Dow Jones Industrial Average,
    are trading below their book value; that is, they sported a price-to-book ratio
    below one (based on closing prices of November 17).
    In fact, GM, which may be on the precipice of a massive bankruptcy and
    carrying huge liabilities, actually has a negative book value. Not
    surprisingly, three of the other four aforementioned securities come from the
    beleaguered financial services sector.
    Most of the remaining Dow stocks are trading comfortably above their
    respective book values. On average, the Dow is trading at more than twice book
    Generally speaking, when a stock trades below its book value, it means one of
    two things: investors have an extremely pessimistic view of its near-term
    profit prospects (and are dumping it en masse); or, it’s a perfectly good
    company that investors are either ignoring or shunning because of overblown
    fears about its particular industry.
    Given the widespread fear among investors, it seems reasonable to think that
    more stocks will fall to or near their book values.
    So, hypothetically, if all the stock prices in the Dow declined in value to
    match their book values, would that then represent an “absolute floor” for the
    Index, and, hence, the overall stock market?
    John Reese, CEO of Validea Capital Management, does not think so.
    “I don’t believe it would be a sure sign of an absolute floor,” he said.
    “Firms can be trading under their book value because they simply are dogs and
    investors wisely recognize that they won’t be able to generate good earnings in
    the future, meaning that their book values are likely to decline, which could
    in turn mean further stock price drops.”
    The Dow sank to a multiyear intraday low of 7,883 on Oct. 10. Some observers
    wouldn’t be surprised to see the index decline even further, perhaps all the
    way down to the 7,286 intraday level of Oct. 10, 2002.
    Charles C. Zhang, managing partner of Zhang Financial, Portage, Mich., said
    that when a stock’s price-to-book ratio reaches one, the price would very
    likely be around the bottom.
    “The stock market is efficient, and if there is value present, investors will
    buy the stock,” he said. But he cautions that theoretically, if no one is
    willing to buy a stock, it can become worthless, regardless of its
    price-to-book ratio.
    “Therefore, a ‘price floor’ truly cannot exist with individual stocks,” he
    One of the reasons it’s so difficult to determine a market floor, Reese
    explained, is that while stocks often move in relation to their book values,
    they don’t always do so, especially in the short term.
    “Stock prices in the short term are as much about expectations as they are
    about the real book value of a company,” he said.
    “Back in the tech bubble of 1998-2000, companies’ stocks were moving far
    beyond their book values because people had such unrealistically high
    expectations for the future.”
    In today’s market environment, he countered, it’s theoretically possible that
    expectations could get so incredibly low for the future that stock prices would
    keep falling well below the book values of most companies.
    “Basically, investors would be anticipating that the firms’ earnings power and
    book values would keep dropping, so they wouldn’t be willing to pay current
    book value for their stocks,” he said.
    However, having said that, Reese does not believe that stocks in the Dow could
    trade at below their book values for a sustained period.
    “The companies in the Dow are some of the biggest and most prestigious in the
    U.S., and I think because of that many often trade above book value,” he said.
    “It would be hard to imagine a situation in which the majority of those stocks
    would keep selling under their book values for the long run. If all or most of
    them were selling under their book values, it would thus be a great buying
    Howard Kornblue, senior portfolio manager at Alpha Fiduciary Generational
    Wealth Management in Phoenix, Ariz., also hesitates to establish an absolute
    market bottom, regardless of tumbling price-to-book ratios.
    “The economy continues to weaken and people are making market bottom calls
    everyday,” he said. “Earnings will likely keep falling for the next few
    quarters, stocks will adjust likewise.”
    Kornblue added he has not seen an environment like this in which a large
    number of prominent companies are trading below book value since the 1973-1974
    bear market, which included the oil crisis and stagflation.
    If it provides any comfort at all, consider that if one took the aggregate
    book value per share of all Dow stocks as of yesterday’s close, 424.91348, and
    divided by the current Dow divisor, 0.125552709, one would get a value for the
    Dow of about 3384.
    Not even the harshest pessimist would ever conceive of a doomsday plunge of
    that magnitude.
    (Palash R. Ghosh has been writing about U.S. and international equity and bond
    markets for the past 17 years.)
    Dow Jones Newswires
    11-19-08 0735ET

  119. 119
    zman Says:

    Antrim – Canada only works for small numbers. Just not possible for everyone to a comedian.

    Re volume, yep, that’s why I’m seeing. Several stocks I watch pretty close are just now breaking their usual first hour volumes.

  120. 120
    bill Says:



    dec 15’s i bot 90 in 3 lots 2.80 to 2.95

  121. 121
    md Says:

    Based on your historical perspective what time period would you compare the current enviroment to in regards to energy. How did traders profit in those years.

  122. 122
    antrimshale74 Says:

    zman – I’m only looking out for my own self interest anyhow. LOL. I think they can handle one more person.

  123. 123
    BirdsofpreyRcool Says:

    IG 240

  124. 124
    bill Says:

    with the stock at 17.10 (todays high) there was a trade at 3.70

  125. 125
    Sambone Says:

    By Ed Welsch

    NEW YORK (Dow Jones)–Oil prices could fall as low as $40 a barrel next spring
    as an overhang of new, efficient refineries come on line, an analyst at
    Deutsche Bank said Wednesday.
    Calling it the “mega-bear” case for oil, analyst Paul Sankey said the
    combination of weak demand for gasoline and other products, coupled with the
    start-up of 2 million barrels a day of processing capacity at a new generation
    of refineries in India and China and expansion projects in the U.S. will
    combine to depress oil prices.
    Sankey’s stance, while pessimistic, still anticipates slightly higher oil
    prices than the bank’s commodities analysts, who on Friday said that oil
    futures prices could fall further to $30 a barrel under their worst-case
    scenario. Deutsche Bank’s stance stands in sharp contrast to Wall Street’s oil
    price expectations just months ago. Analysts were repeatedly forced to upgrade
    their predictions this year when prices for crude oil futures on the New York
    Mercantile Exchange surged to record highs north of $145 a barrel.
    Fundamental analysis became less relevant during the commodities boom, when
    large speculators, such as hedge funds, became more prominent players in what
    was traditionally the domain of oil producers, refiners and miners. Analysts
    who made calls that put them on the extreme end of expectations garnered the
    most attention.
    The most notable example was Arjun Murti, an analyst at Goldman Sachs who
    covers the shares of energy companies, who six months ago said oil prices could
    “super-spike” to $200 a barrel based on high demand from the Chinese and other
    emerging-market economies. The New York Times even dubbed him “An Oracle of
    Oil” on May 21, when oil prices closed at $133.17 a barrel. They peaked at
    $145.29 on July 3.
    Since then, hopes that the global economy would decouple from the U.S.
    downturn seem to have been proven false.
    Light, sweet crude for December delivery on the Nymex was recently trading
    0.9% lower on the day at $54 a barrel, down more than 60% from its all-time
    Sankey said the most underappreciated issue in the oil markets is the
    combination of weak demand with “severe” additions to refining capacity. He
    estimated that next year demand could decline by as much as 800,000 barrels a
    day, while processing capacity could grow by 2 million barrels a day.
    The additional capacity will come from new, more efficient plants that use
    about 20% less crude oil for every barrel of gasoline and distillate they
    produce, Sankey said.
    The need for oil refiners around the world to cut capacity in the face of
    declining demand will be “massively undermined by the sudden jump in Chinese
    refining profitability,” which he says will motivate Chinese refiners to add
    supply to an already oversupplied market.
    Price controls on local gasoline and diesel prices have historically meant
    that Chinese refineries haven’t been profitable. However, the combination of
    rapidly falling crude prices and controlled local product prices have
    artificially boosted Chinese refining margins, making them the world’s highest,
    Sankey said. Government controls in China may prevent the world’s least
    efficient refineries from closing, leading to further oversupply amid weak
    An oversupply of oil products could weigh on both product and crude prices,
    and this artificially high oil demand from Chinese refiners may keep large
    crude producers such as Saudi Arabia from cutting output more than they would
    In the U.S., companies without large refineries with the ability to
    efficiently process the cheapest types of crude will suffer the most if
    Deutsche Bank’s “mega-bear” thesis plays out, Sankey said, and cited Sunoco
    Inc. (SUN), Alon USA Energy Inc. (ALJ) and Western Refining Inc. (WNR) as being
    most at risk. He downgraded Sunoco to sell from hold, because the Philadelphia
    refiner operates primarily East Coast plants, which are vulnerable to
    competition from European imports, and may be hurt by a weakening market for
    exports to Europe.
    All three stocks fell in recent trading. Sunoco was 14.8% lower at $32.42,
    Alon was 12.8% lower at $8.21 and Western Refining was down 7.6% at $7.57.

    -By Ed Welsch, Dow Jones Newswires; 201-938-5244
    (Jessica Resnick-Ault and Gregory Meyer in New York contributed to this

    (END) Dow Jones Newswires
    11-19-08 1227ET

  126. 126
    zman Says:

    md – wow. There has been no environment like this in terms of the rapidity and magnitude of the drop in commodity prices, much less, when combined with frozen credit. The closest thing I could come up with would be the late 1990s when oil prices were very low and E&Ps suffered from a series of reserve impairments, borrowing base redeterminations (revised lower), and subsequent bankruptcies. Traders did not make money in that market unless they bought (equities, not options) for the long haul or were short. Things are a little different now, at least for the companies I look at as the balance sheets are in much better shape and the prospect inventories have never been larger with longer reserve lives. The importance of the is last item should not be underestimated. As capital becomes more precious the list of targets for drilling gets high graded to the highest return projects. If you have a small prospect inventory your choices are limited. That’s part of what’s hurting CPE over the last month. They are focused on development drilling and are forced to sacrifice exploration. For someone like CHK, with 40,000+ id’d drilling locations, you simply stop drilling the low return stuff and drill more of the high IRR stuff.

  127. 127
    zman Says:

    Antrim – Can’t say I blame you, their border is just a line on the map. Calgary is pretty nice, has a Denvery feel to it without the long trip from the airport. Colder though.

  128. 128
    tater Says:

    Big fake out on the $US? That could put a crimp in things

  129. 129
    zman Says:

    Tater – seem US$ is still the only game in town.

  130. 130
    VTZ Says:

    I can vouch for Calgary and the Rockies being <1 hour away 🙂 but not the Canadian govt system… appointed senate = not a check or balance.

    Also, representation by population is a joke because ontario thinks they can rule the country from their ivory tower in Toronto which suddenly doesn’t look so good now that the west is the economic driver.

    I’m going to stop there so I don’t go on a rant.

  131. 131
    BirdsofpreyRcool Says:

    yikes!! shades of things to come… Henry Waxman just voted in as the Chairman of the House Energy Committe.

  132. 132
    tater Says:

    This is really goofy. I’m sitting here trying to decide if I should put even more shorts on into a market down by this much. World seems like it could go to hell any minute and the only thing worth a poop is the green paper that even as we speak Washington wants to print more of in the form of $ to autos.
    Gold sucks as central banks sell more of (as per Bernanke’s mistake answer to Ron Paul yesterday). Soon it will be illegal to short again. But still no reinstatement of the uptick rule, so lookout at the last hour still applies.

  133. 133
    bill Says:

    we need to change our govt

    >but not the Canadian govt system… appointed senate = not a check or balance.

    neither is ours

    I like the appointment idea and govt 25 % of its current size

    Every indusrty is cutting jobs and govt employment keeps going higher and higher

  134. 134
    BirdsofpreyRcool Says:

    oops… premature… he won the vote to HAVE the vote. All the House Dems will vote on Dingell vs Waxman tomorrow.

  135. 135
    ram Says:

    If you add up almost all of the dry bulk co’s current market caps they don’t add up to where DRYS was a couple of months ago – are you kidding me? I’m not as old as you other seasoned guys and gals, but I don’t recall any point in time, even in late 1987 where it looks like an industry is getting flushed.

  136. 136
    bill Says:

    Tom DashHole is back

    Change is apponiting all the old hacks


  137. 137
    bill Says:

    135.. alot of the bulkers kept buying overpriced ships and never got their balance sheets in order

  138. 138
    zman Says:

    I’d really ask that we keep the politics to a necessary minimum.

  139. 139
    ram Says:

    You would hope that a Congress person would be required to know about energy prior to being the chairperson. It seems under the Pelosi regime, the individual with the biggest axe to grind gets the lead chair for any committee.

  140. 140
    ram Says:

    Sorry, just read 138.

  141. 141
    zman Says:

    Oil back well into the green again despite a down market and just recently, a greening of the dollar. I really did not think that report was bearish. Looks like heating oil is leading the move higher. Still a good shot the group can green as long as the market does not completely fall out of bed.

  142. 142
    cargocult Says:

    Who said ” the market can stay irrational longer than you can stay solvent”?

  143. 143
    zman Says:

    Ram – no, you’re comment is fine. As a moderator I just want to focus on energy and what impacts it, without the name calling and such. There are other sites for that. We have a broad spectrum here from Dem to Rep to Libertarian and I can be as guilty of throwing jabs as anyone but what I want to be careful of is to not denigrate anyone here. I learn from you guys every hour of every day. I hope you all feel the same way. This is not a chat room and I won’t allow it to look or feel like one.

  144. 144
    kyleandy Says:

    what is the ETF for heating oil?? like UGA is for gasoline?

  145. 145
    BirdsofpreyRcool Says:

    z – #134… sorry.

  146. 146
    zman Says:

    BOP, no problem and I think either of them would be a net negative for energy. The first from an environmental standpoint and the second from a “lets tax oil to help Detroit” standpoint.

    Kyle – I don’t know, will check.

  147. 147
    Wyoming Says:

    How about politics later tonight w/ Donny Deutsch and some alcohol? What do you say Big Z? Let the kids run with scissors.

    Remember I am a Yankee, sarcasm is our buttress, especially in the face of adversity.

  148. 148
    tater Says:

    UHN –

    Great list at link


  149. 149
    Wyoming Says:

    825 broken on the broad market, SPX

  150. 150
    tater Says:

    I told you he drinks

  151. 151
    zman Says:

    Wyoming – tempting. How about Friday night? In person, over Tequila?

  152. 152
    BirdsofpreyRcool Says:

    z – actually, Dingell has been the Chair for the last 2 years. He brings a more balanced approach to energy issues than some of the more radical members of the House (e.g. Waxman). So, he’s more “the devil we know” right now. A change of leadership on that committee could mean a major lurch to the Left. I dread the return of the “windfall profits tax” era. It’s just so wrong-headed, irregardless of whatever political flavor you favor.

  153. 153
    Wyoming Says:

    Potential is high, Mrs. Wyoming would be upset if I can’t make it back before a birthday party in the PM.

    Tequila, fun for drinkers yet scary for observationists.

  154. 154
    zman Says:

    BOP, did not know that, thanks. Guy argues against higher MPG for cars. Bit of an issue for me.

  155. 155
    Wyoming Says:

    Saturday PM, you would think I am drinking already.

    ES mini’s feels like someone just went all in and has been dealt crap. Getting cornered.

  156. 156
    BirdsofpreyRcool Says:

    z – agreed! i learned to mind my MPGs back in the late 70s. That’s a lesson I never forgot… even through the low prices of the mid 80s and late 90s. I believe in drilling for energy… but I also believe in conservation too!

  157. 157
    Popeye Says:

    Local news reports that the Ports of LA/LB are running out of room to stockpile the import autos that the dealers can’t sell.

  158. 158
    Sambone Says:

    Uncle Phil


  159. 159
    Sambone Says:

    HOUSTON (Dow Jones)–U.S. petroleum demand and production are on the wane
    while imports of crude oil and gasoline are on the rise, according to monthly
    statistics released Wednesday by the American Petroleum Institute.
    U.S. petroleum deliveries dropped 4% in October, bringing the decline between
    January through October to 5%, a rate not seen since the 1980s, according to
    the the API, an oil and natural gas trade group.
    “Not only have higher prices for much of 2008 been altering consumers’
    behavior, but more recent economic uncertainties have increasingly been putting
    a damper on demand, as well,” API statistics manager Ron Planting said in a
    news release.
    The statistics also show a slight increase in gasoline demand in October,
    though it’s still down year to date. It’s unclear if the 1% increase can be
    attributed to low price of fuel pushing demand up, said John Felmy, the chief
    economist for the API.
    “I don’t know if it will continue,” he said. “We’ll have to see.”
    Despite the increase in oil production in Alaska, U.S. crude oil production in
    October declined by 5.1% from a year earlier, the API said.
    Although imports declined in September because of hurricane-related port
    closures, imports in October rose 5.8% from a year earlier. The U.S. brought in
    13.7 million barrels a day, the highest level since July 2007.
    Gasoline imports are up 25% from a year ago, the second-highest level ever for
    the month, after October 2005’s import surge following hurricanes Katrina and
    The upstream and downstream sectors have recovered well from this year’s
    hurricanes, Gustav and Ike, the API said.

    -By Susan Daker, Dow Jones Newswires
    Dow Jones Newswires
    11-19-08 1428ET

  160. 160
    zman Says:

    Oil fading into the close of NYMEX.

    Natural gas bucking the trend and still up $6.75. Coin toss on whether that’s a buy the rumor sell the news event of tomorrow’s storage report.

  161. 161
    bill Says:

    Well..if you think energy is bad

    Drys is down another 33 % to 5 and change

    3 months ago it was 80

  162. 162
    tater Says:

    Question on FSLR. Nothing has really changed fundamentally from the logic that you used on the trade 3 weeks ago. Possibly some dollar issues, but nothing really huge. The new Congress isn’t exactly going to be holding back on spending cash. Infra and other stuff (solar) remains a no brainer. Appears to just be a TA and timing issue on trading the sectors. Has anything changed on your analysis going forward?

  163. 163
    zman Says:

    No, not at all. I traded it ok and then poorly. Should have listened to you on the get out at 180 and waited for your lower level (close to here if I remember correctly).

  164. 164
    zman Says:

    GDP is getting very interesting here, down 15% on no news other than someone or several someones needed cash to meet redemptions.

  165. 165
    nomad4x Says:

    Re #157

    Link to NYT story about cars lining up at US ports.

  166. 166
    bill Says:

    At the dedication of its new auto plant in Greensburg, IN, Honda Motor Co. Ltd. said it will transfer exclusive production of the world’s only compressed natural gas powered passenger vehicle, the Civic GX, from a Honda plant in Ohio to Honda Manufacturing of Indiana LLC in 2009

    A few ng filling stations have opened up in our area

  167. 167
    tater Says:

    No. My analysis was tentative. I appreciate that, but I don’t feel that was much to go on. It trades like a dot.com. I am trying to get a new chart up, but wife and baby have flu so not enough hands. Seems like either high 90’s or ? for next entry, but I am beginning to think sooner. Figure a bump in oil goes with a bump in S&P = huge bump in solar.

  168. 168
    rlogan1301 Says:

    you in Indy bill? i’m in indianapolis and that is good news compared to the chrysler tipton plant getting shut down.

  169. 169
    bill Says:

    im in boston

  170. 170
    Sambone Says:

    Only thing I can say is “I love my SKF”! The overall market seems to be getting ready to capitulate. All I got is a feeling. Take a look at BAC today. How about LNC, GS, C. Markets talking boys.

  171. 171
    VTZ Says:

    Question about CNG: How much do they charge per mcf where they have these stations?

  172. 172
    zman Says:

    V – at last check, on a fuel equivalent basis (and this was a couple of months ago) they were charging about 65% of what a gallon of gasoline cost. That was at a CNG fillup station. Doing it at your house cost closer to par with gasoline due to the higher at home price of natural gas and that’s before you consider the cost of buying the at home compressor (about $3,500 U.S.)

  173. 173
    VTZ Says:

    Does it vary a lot based on location?

  174. 174
    zman Says:

    VTZ – yes, it does.


  175. 175
    zman Says:

    re 174. Check out all that stranded gas in the Rockies translating into cheap prices. CNG cars should sell like hot cakes in Colorado.

  176. 176
    BirdsofpreyRcool Says:

    IG 242… let us hope this is as wide as we get today. This is starting to have no meaning as a benchmark… merely reflects the desire of everyone to get the hell out of the market.

  177. 177
    BirdsofpreyRcool Says:

    IG 244… cr@p.

  178. 178
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil closed lower for a fourth straight session
    Wednesday, depleted by fresh evidence of weak demand and growing stockpiles.
    Light, sweet crude for December delivery dropped 77 cents, or 1.4%, to settle
    at $53.62 a barrel on the New York Mercantile Exchange. Crude last settled
    below $54 on Jan. 22, 2007.
    U.S. crude inventories rose an eighth straight week in the week ended Nov. 14,
    the Energy Information Administration reported. Total U.S. oil demand fell last
    week, and in the last four weeks was 7% weaker than year-ago levels as economic
    growth falters.
    “The market’s pattern, that it can’t hold any rallies, continues because the
    primary focus is the deteriorating economy,” said Gene McGillian, an analyst at
    brokerage Tradition Energy in Stamford, Conn.
    As colder weather blew into the U.S. Northeast, heating oil futures eked out a
    gain on the day. The EIA aided buying interest when it reported stocks of
    distillates, which include heating oil, fell an unexpected 1.5 million barrels
    last week.
    December heating oil rose 18 points, or 0.1%, to $1.7597 a gallon on the
    “This the first week in the New England that it’s been really cold, in the
    30s” Fahrenheit, said Sarah Emerson, managing director at Energy Security
    Analysis Inc. in Wakefield, Mass. “Believe it or not, that seems to affect
    The EIA reported gasoline stockpiles rising by 500,000 barrels and gasoline
    demand declining by 0.4% on the week. Front-month December reformulated
    gasoline blendstock, or RBOB, fell 2.98 cents, or 2.6%, to settle at $1.1070 a
    Nymex crude settled 63% below its July all-time peak of $145.29, and has
    traded below $60 all week. Daily trading ranges have narrowed as the market
    tests further lows.
    “The market seems to have gotten to a resting point,” Emerson said.
    Oil’s decline reflects deepening concerns about the state of the global
    economy. The Dow Jones Industrial Average was down more than 200 points as
    Nymex pit trading closed.
    The Organization of Petroleum Exporting Countries plans to talk about oil’s
    direction at a meeting scheduled for Nov. 29 in Cairo. The group’s president,
    Chekib Khelil, told an Algerian newspaper OPEC won’t take new action on output
    at the meeting.
    “I don’t think we’ll take a decision as we don’t have any data,” said Khelil,
    who is also Algeria’s oil minister, in the Algiers-based Al Khabar daily. “I
    don’t think a measure needs to be taken before making sure all countries
    implemented the previous decisions.”
    OPEC last month announced a 1.5 million barrel-a-day output cut.
    Oil could fall to $40 a barrel in about April of next year as the cost of
    production declines and the dollar strengthens, Deutsche Bank equity analysts
    said in a note. The analysts said OPEC may need to cut 2.5 million barrels a
    day in production, and noted that individual members have an incentive not to
    cut, as it cuts further into needed revenue.
    January Brent crude on the ICE Futures exchange settled down 12 cents at
    $51.72 a barrel.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    11-19-08 1525ET

  179. 179
    BirdsofpreyRcool Says:

    S&P500 = lowest intraday level since March 2003

  180. 180
    Sambone Says:

    C = “Cliff diving”

  181. 181
    rlogan1301 Says:

    Can C fail?

  182. 182
    zman Says:

    DJIA going for 8K

  183. 183
    BirdsofpreyRcool Says:

    one way, or the other. they need to get the Detroit 3 situation figured out. i don’t think the market can take another day of watching the Banking Committee at work.

  184. 184
    zman Says:

    Bird. Agreed. I think someone should ask Congress what kind of salary cuts they are prepared to take to do their part in righting the ship.

  185. 185
    BirdsofpreyRcool Says:

    I’m not sure the country is in the mood to cut the auto guys a check. But, one way or the other, it’s an open issue that is crushing (what’s left of) this market.

    The mrkt wants some answers. Good or bad. Just something conclusive. Paulson’s wild gyrations on what is and is not TARP-able has driven uncertainty to a new frenzy. And — when in doubt — SELL.

  186. 186
    bill Says:

    wlt down 21 %

    i guess we dont need coal

  187. 187
    bill Says:

    into the 7’s

    where is the closet bridge.

    If this crap keeps up there wont be any wealth to spread

  188. 188
    bill Says:

    hurry up and ring the bell… this will spread overseas and more of the same tomorrow

  189. 189
    zman Says:

    Ugh. Back in a couple of hours.

  190. 190
    tater Says:

    That has to be one of my favorite things about this whole sell-off. Coal provides half of our energy needs, yet …(political edit)…and now what should be a screaming buy is going to need an energy stimulus plan in about 18 months as we don’t have enough juice in the grid to power up all the play stations for all those folks sitting home rent free collecting government “refunds”. At least the planet will be nice and chilly. Or is it warm? I forget. Global warming became climate change. It’s really difficult to get it straight.

  191. 191
    BirdsofpreyRcool Says:

    The high yield index closed down 2 1/2 points to 74 5/8. That like the DOW being down, like 850 points.

    There really aren’t adjectives that fully describe this. I think I need some new swear words…

  192. 192
    PackMan Says:

    Not only does the market suck, but you have to admit that Obama’s appointments, real and rumored completely SUCK.

    Eric Holder ? (waco, elian gonzalez, mark rich, FALN, etc.)
    Daschle ?
    Hilary ?
    James Jones ?
    Rahm Emmanuel ?
    Podesta ?

    Boy, his term is gonna suck !

  193. 193
    PackMan Says:

    oops, sorry Zman …..

  194. 194
    Fiveanddimer Says:

    PackMan — see #138

  195. 195
    PackMan Says:

    just did…

  196. 196
    BirdsofpreyRcool Says:

    IG went out at 245 – 247. New wides.

    Not much else to say at this point. We drove right through the “we’re f-d” level… and just kept going.

  197. 197
    mahout Says:

    Taterman #190,

    Didn’t you know coal is VERBOTEN!
    It’s dirty black stuff that you wouldn’t allow in your livingroom. Good riddence!
    Hmmmmmm, I wonder how much it cost to build all those coal fired electric generating plants. We’ll just have to scrap them and replace them in the new era. It shouldn’t cost much.
    The challenge is to find a way to make money in this upsidedown world. But right now i haven’t got a clue. Unreality is setting in and that is tough to deal with. Foxes are in charge of the hen house and the sky is falling. But i know you’ll figure it out and let me in on it. Won’t you? I’m hoping for another answer than: get a government job.

  198. 198
    1520sbroad Says:

    Bird – any chatter late in the day from the credit desks about C? I still have a lot of friends there and they are all pretty petrified at the moment.

  199. 199
    zman Says:

    1520 – I’ll shoot her an email re C.

  200. 200
    1520sbroad Says:

    thanks – i’ve been getting the after hours phone calls this evening from a couple of old friends there that are headed to the bunker. don’t know what is up except that they are all worried and that mgmt has been making the rounds in citismithbarney branches trying to do some hand holding.

  201. 201
    BirdsofpreyRcool Says:

    1520 – there are a lot of single headlines hitting bloomberg re: citi, post-close. They mainly involve the hugely-negative reaction by the mrkt to Citi’s announcement that it is taking in and winding down 7 SIVs. Those 7 have a market value of $17.4B, down from $49B last December. Senior bond holders in the SIVs should get paid off in full, but the junior investors are toast.

    Just to put it in context, Citi’s losses on the SIVs represent 73% of the $4.5B of financing it received as of October. Citi had no obligation to take the SIVs back in-house, but did so as they believe “it’s in their best interest given the broader relationships they had with some of the investors.”

    The street clearly didn’t like this… especially the bond market. Citi CDS spreads blew out to +325 bps. That is unbelievable for AA rated Citi and means that bondholders think there are more shoes to fall. A credit downgrade combined with increased debt costs for a bank the size of Citi will be very very costly. Still, I can NOT believe that Citi is in a death spiral… but, there will have to be a follow-up over the next few days to calm a skittish market.

    As you know, wider bond spreads mean higher debt costs mean less money for capital and employees. Since a bank is mainly composed of money assets and employee relationships, anything that reduces headcount or employee morale is bad for business.

  202. 202
    BirdsofpreyRcool Says:

    Citi just announced a “small number” of job cuts in their Austalia office… so (sadly), there might be some of the same sort of news to greet Citi employees here in the States tomorrow. But, I AM JUST SPECULATING HERE. I DO NOT KNOW THAT FOR A FACT.

  203. 203
    BirdsofpreyRcool Says:

    Guess this is all part of Citi’s announcement on Nov 17th that they will cut 15% of their 352,000 employees.

    Also, sounds like any potential vote that was scheduled for tomorrow on a Detroit 3 Bailout has been canceled. I have no idea how the market will respond to that tomorrow. But, I will point out that about 10% of the high yield bond mrkt is comprised of various flavors of F and GM debt. If bond spreads continue to blow out, equities will surely follow.

    The good news just doesn’t stop, does it?

  204. 204
    1520sbroad Says:

    Bird – thanks. Your third paragraph above sums up what the 3 guys i spoke to tonight think. They all think there is another shoe to drop and that they haven’t been told the truth, the whole truth, and nothing but the truth. Vikram Pandit thus far has impressed me by not playing the game with the press and overpromising. He does need to start making his overall plan clearer to everyone involved.

    I do think Citi has made an effort to become better capitalized (TARP helped and the sale of the German retail business should help too) and should be close to JPM in terms of capital ratio. I can’t figure the SIV take in though? Only thing i can think of is that someone told them they had to? An investor?

  205. 205
    BirdsofpreyRcool Says:

    Last little bit of sunshine for the day: Asian stocks are down, extending the global rout, as Japan’s exports decined the most in 6 yrs. Japanese strategists are saying that “concerns are rising that the US is entering a period of deflation and that the economic picture is getting bleaker.”

    Deflation is a very very scary thing. There are no tools in the monetary policy toolkit to even attempt to tinker with deflation. Hard assets take it on the chin in a deflationary environment. As an E&P investor, i have to say that really stinks. Inflation, we can deal with. Deflation…. you just have to circle your wagons and try to outlive it.

  206. 206
    BirdsofpreyRcool Says:

    1520 – that’s what it sounds like to me. Banking is a “relationship business,” as I know you know. If you lose the relationships, you lose your business. Guess one of Citi’s relationships put a gun to their head and threatened to take their global business elsewhere. If I had a list of the senior bondholders in the SIV, we could probably figure out who those (pissed off) bondholders are.

    Really, tho… it’s not much different than when various money market mangemetn firm added their own capital to not “break the buck” on their investor’s funds. Money market funds are (or should be) pretty plain vanilla… so, there is not a lot of differentiation, except for how well you handle your clients.

  207. 207
    1520sbroad Says:

    the list of pissed off bondholders, preferred holders, equity holders, employees, is no doubt lengthy.

    Interesting parallel to the money market managers “managing” their fund to =$1.00. I’ll post tomorrow if i hear more from the guys still working for the big C. Worth noting that all those guys refer to Citigroup as “SH_TTYGROUP”

  208. 208
    BirdsofpreyRcool Says:

    1520 – LOL. well… we all know that desk traders have “nicknames” for every firm, bond issuer, and buysider… typicaly, you didn’t want to know what they called you….

  209. 209
    bill Says:

    well up here in boston , the local guys dont like low gas prices, so the state is raisng gas taxes. The feds will do the same next year and gas will be 350 a gallom with 50 dollar oil,imho

    change you can live with

    oh i cant say that,sorry

  210. 210
    zman Says:

    bill sarcasm doesn’t suit you.

  211. 211
    Wyoming Says:

    No but he is a Yankee and Donnie Duetsch is now on… lets talk politics. And Tater, I have alcohol. Blame it on SLB, they took me to dinner.

  212. 212
    photoshop online shop Says:

    photoshop online shop

    Watchful Wednesday | Zman's Energy Brain ~ oil, gas, stocks, etc…

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