Monday Morning

95 thoughts on “Monday Morning”

1. Dollar poking its head for a second day, still below the old high but not by much.

   Oil was down $3 plus, a pretty orderly sell off overnight which accelerated as Europe took center stage. Rallying now. We had a short cover rally at the end of Friday which is pretty much sold off now but the language coming out of the heads of OPEC after the meeting is more bullish than much of what they’ve said to date. Does not feel like a panic.

2. By Lananh Nguyen
   Of DOW JONES NEWSWIRES

   LONDON (Dow Jones)–Crude oil futures fell more than $2 in London Monday after
   the Organization of Petroleum Exporting Countries met over the weekend without
   announcing fresh production cuts.
   The producer bloc opted to wait until its Dec. 17 meeting in Algeria to decide
   on any change to its output policy, leaving market participants to mull whether
   any change in OPEC policy could arrest the precipitous decline in prices –
   which are down around 65% since their mid-July peaks.
   “It’s fairly obvious OPEC want to assess what’s happening with (compliance to)
   November cuts…They know they have time to do something about it before the
   year ends,” said Andrey Kryuchenkov, vice president of commodities research at
   VTB Bank Europe in London.
   At 1308 GMT, the front-month January Brent contract on London’s ICE futures
   exchange was down $2.56 at $50.93 a barrel.
   The front-month January contract on the New York Mercantile Exchange was
   trading $2.86 lower at $51.57 a barrel.
   The ICE’s gasoil contract for December delivery was down $1.25 at $524.25 a
   metric ton, while Nymex gasoline for January delivery was down 424 points at
   116.72 cents a gallon.
   Oil prices plunged Monday due to slack demand and a global economic slowdown.
   Market participants were also digesting comments from Saudi King Abdullah bin
   Abdul Aziz, Saudi Arabia’s oil minister Ali Naimi and OPEC Secretary General
   Abdalla Salem el-Badri who said $75 a barrel represented a “fair” price for
   oil.
   In spite of a series of production cuts the group hasn’t yet been able to stop
   prices from falling.
   El-Badri also said Monday that the group will reduce production in December by
   a “good amount,” without specifying what that would entail. “We can’t say how
   much the output cut will be in December but for sure there will be an action
   because we’re seeing that stocks are high,” El-Badri added.
   “Markets are oversupplied, as pointed out by OPEC,” and economic gloom is
   pervading broader financial markets, said Hamza Hamza, fund manager at Sucden
   UK Ltd. in London. He also cited weak technical charts as another factor adding
   pressure to prices.
   In China, two key purchasing managers’ indices – which gauge manufacturing
   activity – fell to record lows in November, signaling the country’s economic
   growth will likely slow further in coming months.
   Market participants were also eyeing technical charts for signs of future
   price direction, with many concluding that prices would likely fall further
   from current levels.
   “The moral of the story (after Friday’s late rally) seems to be that gains are
   prime selling opportunities in the current environment, because the bulls just
   can’t cut it,” said Clive Lambert of FuturesTechs.
   Weaker European equity markets and negative economic data were also weighing
   down oil Monday. Financial markets look ahead to crucial interest rate
   decisions from both the European Central Bank and Bank of England Thursday. The
   banks are widely expected to cut rates which it is hoped will stimulate
   economic activity.

   -By Lananh Nguyen, Dow Jones Newswires (Spencer Swartz in London and Terence Poon in Beijing contributed to this
   report.)

   Dow Jones Newswires
   12-01-08 0811ET

3. Look ma, no filing. So far nothing from CHK following their Shelf last week.

4. I must have missed the comment from Bird: what does it mean for the bond market to go away in December & what’s their excuse for that? More time for Christmas shopping?

5. By Peter Brimelow
   A DOW JONES COLUMN

   A successful but still-scarred oil bull hints oil will bounce … eventually.
   In our late-summer article charting the inflation-adjusted price of oil since
   1861, Edwin S. Rubenstein and I asked: “Is oil headed for a fall?”
   We pointed out that oil had declined sharply for nearly 20 years after its
   1980 spike. But its more recent spike (oil reached $145 a barrel, remember?)
   had taken it to unprecedented highs.
   We were asking a good question, as it turned out. (Blind luck, of course). The
   January Nymex contract for light, sweet crude was $54.43 on Friday, up from its
   lows although breaking badly at the close.
   Is oil beginning a bounce? It’s much closer to its historic range. And the
   MarketVane service’s Bullish Consensus for Crude Oil was recently down to 22%,
   its lowest point since 2002, when oil made a major bottom just under $20.
   I checked in with one of the most successful oil bulls, Outstanding
   Investments. Editor Byron W. King believes energy is in a long-term supply
   crunch. But he was quick to recognize that oil prices had sustained a
   significant reversal this summer. He wrote: “Oil tested the $150 mark. But like
   Pickett at Gettysburg, this charge to $150 failed.”
   Wasn’t enough. Over the past 12 months, OI is now down negative 52.62% by
   Hulbert Financial Digest count.
   Of course, that’s devastating. But remember there’s a lot of devastation to go
   around. The dividend-reinvested Dow Jones Wilshire 5000 is down negative 36.31%
   over the same period.
   And OI does have a strong long-term record. Over the past three years, the
   letter has achieved an annualized gain of 1.79%, which looks good compared to
   the negative 5.31% annualized loss for the total return DJ-Wilshire 5000. Over
   the past five years, the letter has achieved an annualized gain of 15.73%, vs.
   0.78% annualized for the total return DJ-W 5000.
   King doesn’t exactly call an oil bounce. But he sure implies it: “I’ve been
   getting a lot of calls and emails from people asking about the falling prices
   for oil in recent weeks. The immediate explanation is that world economic
   activity is decelerating. Demand is falling. OPEC announced cuts in output. But
   the markets still believe that economic decline will trump the ability of OPEC
   to prop up the price of oil. Enjoy it while it lasts.”
   And he continues loyal to his long-term bullishness: “Absent large amounts of
   new drilling, new investment in enhanced recovery and new discoveries, the
   current worldwide oil output will decline by over 9% per year. And if it keeps
   going along this trend (there’s no reason why it won’t), the base of world oil
   output could conceivably dry up within seven-10 years.
   “Don’t get me wrong. The world won’t run out of oil in seven-10 years. That’s
   not how it works. It’s just that volumes of conventional oil are declining. The
   takeaway point is that the energy markets will tighten up, like a hangman’s
   noose around the collective neck of the oil-consuming world. We might not quite
   realize it, but when it comes to oil, we are all walking that long green mile.”
   King’s conclusion: “The investment angle for OI is that the companies that own
   oil reserves in the ground, and the oil service companies that extract oil and
   natural gas, should profit in the future. Yes, the portfolio is down. It has
   been a hard hit to everyone (me too) who bought into the market up until
   midsummer. We’ve all lived through a midsummer’s nightmare on this one … many
   energy companies in the OI portfolio are at long-term lows in share price. If
   you can afford to be patient with your funds, these firms should eventually
   stage a comeback as oil prices rise again.”
   One post-midsummer difference: King is intensely alert to possible government
   intervention in the economy. He writes: “It appears that the next U.S. Congress
   and presidential administration will be friendly toward investment in energy
   efficiency and alternative energy systems. Among other things, this means more
   and more freight will move by rail, versus truck.”
   Recently OI recommended railroad products manufacturer Koppers Holdings Inc.
   (KOP) and expressed confidence in beaten-down Canadian oil-sands play Suncor
   Energy Inc. (SU).

   (Peter Brimelow is author of “The Wall Street Gurus: How You Can Profit From
   Investment Newsletters.”)

   Dow Jones Newswires
   12-01-08 0855ET

6. Dman – just not a lot of business gets done in the bond market traditionally this time of year. Kind of like Germany in August.

   Sam – saw that article over the weekend. Not a lot of meat there but I generally agree with the author. Interesting comment at the last on the rails.

7. Service really taking it on the chin this morning which makes a little more sense as you see both rigs tumble and projects get canceled. The E&P and service names are more likely to diverge in 1Q09. SLB,NOV, HAL, WFT all down 10%+ this morning.

8. Merrill Lynch lower estimates and rating on oil service this morning. Now sees the rig count drop coming to 700 rigs which is near the high end of the range. CHK had said 600 to 800 rigs (the high I’ve heard so far) about a month ago.

9. Merrill just plain bearish on commodities period.

10. Yeah, but I agree with them on the service names, no light at end of tunnel when you don’t know how long the tunnel is.

11. OPEC To Cut December Output

    AFP

    TEHRAN — The Organization of Petroleum Exporting Countries, or OPEC, will cut its December production by a “good amount,” its secretary general Abdalla Salem El-Badri told reporters Monday.

    “We can’t say how much the output cut will be in December but for sure there will be an action because we’re seeing that stocks are high,” he said, adding that the cut would be a “good amount.”

    OPEC, which pumps 40% of the world’s crude and which is suffering from declining oil prices, decided at a meeting Saturday in Cairo to freeze its output quota.

    But any further decision regarding the cut will be decided at an upcoming meeting in Oran, Algeria Dec. 17.

    “The price of 75 USD (US dollars) is reasonable but our outlook is for between 70 to 90 USD per barrel,” El-Badri said in the Iranian capital, where he is attending an oil and gas seminar.

    He has said over the weekend that he doesn’t expect oil prices to recover before the middle of next year.

    OPEC already has slashed output twice this year by a total of two million barrels per day in response to falling prices, but fears of a global downturn continued to push prices lower.

    Crude prices are down by more than 60% from record peaks of above $147 seen in July.

12. By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil futures lost more than $3 a barrel Monday in
    the first trading session since OPEC chose not to alter production levels at a
    weekend meeting.
    Light, sweet crude for January delivery was recently down $3.65, or 6.7%, to
    $50.78 a barrel on the New York Mercantile Exchange. Brent crude on the ICE
    Futures exchange fell $3.51 to $49.98 a barrel.
    The Organization of Petroleum Exporting Countries concluded a consultation
    Saturday with unchanged output targets even as a weak global economy saps
    demand. Delegates to the meeting said the cartel will postpone any fresh action
    until another meeting Dec. 17.
    While some analysts anticipate the group will approve a cut at that meeting,
    to be held in Oran, Algeria, they are less sure OPEC will succeed in halting a
    slide in oil prices from this year’s historic peak above $145 a barrel.
    “OPEC simply appears to be behind the curve,” said Jim Ritterbusch, president
    of energy trading adviser Ritterbusch and Associates, in a note. The group
    “will be engaged in a ‘catch-up’ process for several months in an attempt to
    lower production toward sharply declining demand levels.”
    OPEC has approved cuts totaling about 2 million barrels a day in since
    September as world oil consumption falters.
    Over the weekend, both Saudi Arabia’s King Abdullah and Saudi Oil Minister Ali
    Naimi identified $75 a barrel as a fair price for crude oil.
    Returning prices to that level would be a struggle in the short term, analysts
    said. While OPEC President Chakib Khelil said early indications are that OPEC’s
    most recent round of cuts are being implemented, the cartel’s next move remains
    uncertain.
    Iran, OPEC’s second-largest producer, said the world oil market is
    oversupplied by 2 million barrels a day. Oil Minister Gholam Hossein Nozari
    told reporters the group “should study and examine market conditions” before
    making cuts in December.
    Saudi Oil Minister Naimi said the group won’t need to cut again in Algeria if
    members’ compliance with quotas reaches 80%. “If they are committed, there will
    be no need for further reduction in Oran,” Naimi told the Al Hayat newspaper in
    a weekend interview.
    At an energy conference in Tehran Monday, OPEC Secretary General Abdalla Salem
    El Badri Monday blamed the “mismanagement of the U.S. economy” for falling oil
    demand and poor global economic conditions, and said crude prices in the range
    of $70 to $90 a barrel would be “very reasonable.”
    “We’ve got a very weak demand outlook,” said Rick Mueller, director of oil
    markets at Energy Security Analysis Inc. in Wakefield, Mass. “Their power to
    influence prices is somewhat limited.”
    The dim demand picture was reinforced by data showing two key gauges of
    manufacturing in China fell to record lows in November. China is the world’s
    second largest oil consumer after the U.S.
    January reformulated gasoline blendstock, or RBOB, fell 7.46 cents, or 6.2% to
    $1.1350 a gallon. January heating oil fell 7.82 cents, or 4.5%, to $1.6489 a
    gallon. Both became front-month contracts Monday after December futures expired
    last week.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    12-01-08 0946ET

13. Whats up with chk selling more stock? I thought I heard a month ago they had plenty of cash. Selling stock at $20 a share is a lot more dillutive than selling stock at $70 a share.

14. Doc – they filed a couple of shelf registrations to be ready/able to sell stock if they need to. No sale as of yet. E&Ps typically keep shelf registrations on file and theirs was due to run out December 5.

    The smaller shelf is for lease and other acquisitions and that may be a source of continual dribbling out of shares. The large shelf would be a secondary offering, quite a bit bigger and I think they do it early next year if prices don’t improve and they are unable to close the South Texas asset sale as either a sale or VPP in the first quarter.

15. doc – I’m with you… CHK said they wouldn’t issue more stock, but would cut back capex instead to “live within cash flow.”

    Guess part of their filing was just renewing an existing equity shelf that was due to expire. But the other two shelf filings appear to be for acqtns and opportunistic sales of blocks of stock.

    Maybe it’s the new gift card! You can give a block of CHK stock with that fruitcake you usually send to Aunt Millie.

16. Re CHK, I’m not saying I’m ecstatic about the potential for sales down here but this is 1) flexibility, not a deal and 2) opportunistic timing on the lease purchase front. From a stock perspective (medium to long term) they have to stay flexible. I think they should cut capex to a point but you have to be concerned about some 3 year leases in the Haynesville Shale expiring undrilled if you cut too far. Efforts to secure more acreage with a single well do not appear to be going anywhere before 1 well holds 640 acres. So I know they are looking at the lease hold with an eye towards retention. At the same time, if they have a history of buying leases and selling them for 10x in less than 3 years, it seems that they may be able to increase that multiple as prices for gas and acreage rally again in the future.

    Also, the stock fell 21% on Friday from a 10% dilution potential. Seems a bit overkill to me.

17. Z – I think the “overkill” in CHK comes down to a trust issue. They said they weren’t gonna and now they might wanna. Hard to know where we stand with management, especially with Aubrey only a minor shareholder.

    Having said that, I’m thinking of nibbling some stock here, down another 7% or so.

18. Credit Market Update:

    OK… a weird thing happened last week. There was a LOT of debt issuance in a shortened week that is usually quiet. Something like 3x the amount of bonds got placed vs usual Thanksgiving Week issuance. The stock market loved it. The media loved it. The banks loved it. I hated it. Let me tell you why….

    There were about $17.5B in new bonds issued last Monday-Wed. On the surface, that is huge positive news. However, looking at the details suggests trouble ahead. About $17.25B of the bonds issued were under the new FDIC-backed program. This lets banks issue debt, backed by the U.S. govt. So, basically, more Govt debt, not true corporate bond debt. Investors snapped up this new debt. Who wouldn’t? It came at about +200 bps to the underlying US Treasury curve!! (in “normal” times, US govt agency debt is issued at 10-30 bps).

    So, most of the term debt done last week was actually govt debt issued thru the new FDIC-insured bond program at spreads wider than typical investment-grade bond spreads. Also, the fact that investors snapped up these cheap, virtually “risk-free” bonds implies two things: 1) they sold existing (non-FDIC-backed) bonds to raise money to buy, and 2) regular corporate bond issuance got crowded out.

    So, if FDIC-backed debt continues to be issued at a mad pace (especially for this time of year), this will orphan other forms of debt… KEY POINT: this crowding out will have the affect of intensifying the credit crisis over the next few weeks.

    We were thinking it would be the usual quiet period for bonds from now, through the end of the year. But the ability of banks to issue US gov’t backed bonds means we will continue to see banks sop up investor demand… this could mean the usual flood of pent-up corporate bond issuance that takes place in January will be met with little investor demand.

19. It begins to look as though “OPEC’s fiddling while their cashflow burns” is more-or-less priced in to the crude market.

    Z – Question on the Saudis talking about $75. Do you think this should be viewed through a lens of “The Saudis usually get their way in these things”?

20. Dman – the trust thing with Aubrey has been an issue for quite some time. It waxes and wanes. Earlier this year he appeared to shift from acquisition mode to drill ’em up mode, only to switch back again with the Haynesville. Part of this is due to a need for opaqueness with regard to leasing and competition. Part of this is due to over-confidence. The underlying value here is the problem I have with the shares falling so hard over the last few months as these are pretty much record low reserve valuation figures. And if you look to the SEC rule change for 2009 on non-conventional resources we may be talking 20 Tcfe proved reserves which is a big jump from the current 12 Tcfe and a bigger jump than most over E&Ps are going to register in that time frame on a percentage basis and the biggest jump on an absolute basis. That puts the whole company at just over $1.10 per Mcfe without considering the remaining 2P and 3P reserves, acreage, infrastructure which have substantial value. When the credit markets ease up so too will this leveraged name.

21. Thanks BOP, good insight. With that in mind, does it lower the bar for the beginning of the year signaling how the rest of the year looks based on that early appetite. I mean, if we know the reason for the problem, does it give a sort of grace period to the issue?

22. Looking at the line-up of companies seeking to raise debt this week… they are going to try to make it a busy week.

    Issuers are going to try to place $12B of bonds over the next week or so. The official tally was $18.6B last week, and $6.8B the week before. There is at least one energy issue that will be worth our watching as it is a junk-bond rated issue for a services company.

    The majority of this issuance continues to be under the FDIC-backed program, but here’s the line up for this week (so far):

    FDIC-backed =
    Bank of America
    Citigroup
    Wells Fargo
    Goldman Sachs

    Corporate bonds =
    Microsoft
    HJ Heinz
    Ion Geophysical (Jefferies-lead)
    Boeing Capital
    Ashland
    Colgate-Palmolive
    Apria Healthcare (an acqtn by Blackstone)
    BCE (Canada’s largest phone company)
    Hewlett-Packard

    For the most part, it’s a pretty high quality list. The bond issues that bear watching are Ion and Apria, both junk-bond deals (albeit, at the high-end of the spectrum at BB).

23. z – re#21… short answer: no.

    Just because we know why corporate bond issuance can’t get done, doesn’t help the situation at all. There are two absolutely KEY months for corporations to fund their longer-term capital needs in the global financial markets: September and January. Both months come after long holidays and so historically there is a lot of pent up demand. If companies can’t place or roll their debt, capital programs and jobs will be cut. And the downward spiral will continue.

    The presence of the FDIC guaranteed program is great for our banking system… but may come at the expense of investment funds available to non-banking companies.

    It’s a constantly-shifting landscape. Nothing is “normal” right now. I’ll keep you up on what I’m seeing.

24. Dman – yea, I think so although they and the OPEC SG said mid 2009 before we see a significant increase in price. By the time the data is in hand it will have already risen but of course the timing of a rally is largely up to the global economy, at least more than it is up to OPEC.

    BOP – thanks, more good color, let us know how those deals are received if you would.

    Bird re 21. So its like knowing the weather is warm and saying “see, if it had been cold, that injection would not have been so big” not really changing the position of storage? I was wondering if there was some time frame by which the FDIC backing would end or if this is the new norm.

25. FDIC no risk at 200 BPS

    What does a Heinz have to price theirs at to compete with Uncle S.
    250-300 ?

26. Z,

    What are your thoughts on what the floor will be for oil and when we will start to see it moving up.

27. MD – that’s a great question re Heinz. My next question is: how big/small is this market. In equities, a market deal done by XOM has little impact on a market deal done by CHK or by IBM. I guess what I’m saying is, is their excess demand over the FDIC stuff or is that stuff really so big in size that it crowds out the other, non FDIC deals.

28. Pete – the Kajillion dollar question eh? Somewhere close to here +/- $10. Looking at the strip, its hard to find a time when we have seen a steeper forward curve.

    Jan 2009 (the current forward month) at $50.63

    Jan 2010 at $65.25
    Jan 2011 at $74

    That’s a steep, steep contango, and usually when it gets that steep prices are bottoming, but if the economy worsens or China says, “wait, I meant 6%, now 10%” then oil will be at $40 in a two shakes of wok.

29. z – #24… i don’t see an end-date for the FDIC-backing. And, to put it in context, a banking analyst thinks banks may raise $400-600 billion under this FDIC program over the next 6 months. This compares to $752 billion in TOTAL debt issued in the US market, year to date (vs $1,080 billion at this point, in 2007). Not sure how much of the $400-600 Bs would have been issued anyway, but if investors can buy gov’t backed debt at 200 bps cheap to gov’t debt… it’s going to draw a lot of money away from the rest of us poor slobs (who don’t have the backing of the US govt).

30. BOP
    will there be more ketchup in the streets when the relatively solid players are starved for cash.

31. Z,
    Thanks,
    Saw a comment by Eric Bolling an oil trader saying he would start going long if it dipped under $45.

32. Thanks Pete, yea, I see that bald headed lex luthor looking character on Crack Money says oil will have a “three handle on it at year end”. Never hear the backup, just the projection.

33. md – re: Heinz. It’s a great consumer name… generally believed to be “recession-resistant,” so it will be a good test of the appetite for corporate debt. This Heinz debt is actually not “new debt” for the company, but debt that needs to be rolled over. It’s an $800 million issue, rated Baa2/BBB. The notes were originally issued in 2000 with a coupon of 6.43%. Those notes are currently trading to yield 11.5%. Heinz hopes to roll the $800 million with a coupon of 15.6% and a maturity of Dec 2020. That is a heck of a cash-flow hit from the 6.43% paid last time… That is about $73 million dollars per year in new interest expense. $73mm/yr that won’t be invested in capital or employees. ouch.

    This is what a credit crunch looks like, up close.

34. So when to go long the corporate and short the Uncle Sam. Where’s Merriwether of LTCM these days

35. Z – Do you know what kind of levels Nicky is looking for now? I’ve heard lots of talking heads commenting re DOW 6300-6500 possibilities in the next leg down.

36. Md- no kidding. I miss the free markets.

    V – I don’t know that. She’s been taking some time off for family stuff.

37. BOP – My underinformed opinion is that the US govt will need to keep backing corporate debt through 2009 due to the size of the derivatives markets, unemployment increases, etc. Is there a possibility that eventually the market will be saturated with the FDIC paper? \

    My other question is extreme, but what would it take for the US to lose triple a status as a lender and what would the implications be?

38. BOP – If the last statement in the main paragraph in #33 is the new norm, then I don’t see how the economy will recover because of ongoing inflation and high unemployment. Which leads me to believe that energy prices will have a difficult time going higher.

39. BOP
    What’s IG range and update today

40. NG going positive on the day. Frankly I’d rather have the big down days early both in terms of early in the trading session but also early in the week. Get it out of the way further from expiry.

41. By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil futures lost nearly $5 a barrel Monday in the
    first trading session since OPEC chose not to alter production levels at a
    weekend meeting.
    Light, sweet crude for January delivery was recently down $4.59, or 8.4%, at
    $49.84 a barrel on the New York Mercantile Exchange after falling to a one-week
    low of $49.52. Brent crude on the ICE Futures exchange fell $4.90 to $48.59 a
    barrel.
    The Organization of Petroleum Exporting Countries concluded a gathering
    Saturday with unchanged output targets even as a weak global economy saps
    demand. Delegates to the meeting said the cartel will postpone any fresh action
    until another meeting Dec. 17. The group’s secretary-general, Abdalla Salem
    El-Badri, told reporters Monday the group would cut production by a “good
    amount” in December.
    OPEC has approved cuts totaling about 2 million barrels a day since September
    as world oil consumption falters. The moves have so far failed to halt oil’s
    slide from this year’s peak above $145 a barrel. Analysts doubt another round
    of cuts will be a fast-acting brake.
    “OPEC simply appears to be behind the curve,” said Jim Ritterbusch, president
    of energy trading adviser Ritterbusch and Associates, in a note. The group
    “will be engaged in a ‘catch-up’ process for several months in an attempt to
    lower production toward sharply declining demand levels.”
    Compounding pressure on the crude market was strength in the dollar,
    diminishing exporters’ incentive to raise prices for the dollar-denominated
    oil. The euro was recently $1.2643, from $1.2707 late Friday.
    The dim demand picture was reinforced by data showing U.S. manufacturing
    activity in November was the weakest since May 1982. The Commerce Department
    reported U.S. construction spending dropped more than expected in October. In
    China, two key gauges of manufacturing fell to record lows in November. China
    is the world’s second-largest oil consumer after the U.S.
    “It’s a terrible start to the week for those who were hoping for some
    bottoming action here,” said Walter Zimmermann, an analyst at ICAP/United
    Energy in Jersey City, N.J. OPEC “is being hit by a double whammy of a
    contracting global economy and a rising dollar. It’s the worst possible
    combination for these guys.”
    Over the weekend, both Saudi Arabia’s King Abdullah and Saudi Oil Minister Ali
    Naimi identified $75 a barrel as a fair price for crude oil.
    A return to that level would be a struggle in the short term, analysts said.
    Iran, OPEC’s second-largest producer, said the world oil market is
    oversupplied by 2 million barrels a day. Oil Minister Gholam Hossein Nozari
    told reporters the group “should study and examine market conditions” before
    making cuts in December.
    Saudi Oil Minister Naimi said the group won’t need to cut again in Algeria if
    members’ compliance with quotas reaches 80%. “If they are committed, there will
    be no need for further reduction in Oran,” Naimi told the Al Hayat newspaper in
    a weekend interview.
    OPEC Secretary-General Badri Monday blamed the “mismanagement of the U.S.
    economy” for falling oil demand and poor global economic conditions, and said
    crude prices in the range of $70 to $90 a barrel would be “very reasonable.”
    “We’ve got a very weak demand outlook,” said Rick Mueller, director of oil
    markets at Energy Security Analysis Inc. in Wakefield, Mass. “Their power to
    influence prices is somewhat limited.”
    January reformulated gasoline blendstock, or RBOB, fell 9.00 cents, or 7.4% to
    $1.1196 a gallon. January heating oil fell 10.01 cents, or 5.8%, to $1.6270 a
    gallon. Both became front-month contracts Monday after December futures expired
    last week.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    12-01-08 1211ET

42. Off subject

    Wow!!!!!

    http://www.fool.com/investing/international/2008/11/26/39-trillion-was-a-drop-in-the-bucket.aspx

43. FSLR gets second 1 MW order from SCE for commercial rooftop install. Not that anyone cares on a day like today or maybe for the rest of the year but this again speaks to the consumer, in this case a utility, moving forward with solar installs.

44. Sam re 42, scary. Headline on marketwatch says Recession turns 1 year old. And Ben and Paul just found out in the last few weeks. Your tax dollars at work in an ivory tower.

45. Guess we are back to the days when the first 15 and last 15 are all that matter. Market looks frozen.

46. sorry for the news void… had to step out for a while. let me check on current mrkt conditions and get back to you.

47. Bird – feels like market is still on holiday anyway. Stocks off worst levels but barely in sideways, news deficient, light volume trading.

48. Your tax dollars doing something smart. SPR refill to resume.

    http://www.upstreamonline.com/live/article167441.ece

49. IG had a good week (relatively) last week as it let itself get pulled up with the stock market.

    Well, you can toss last week out now. Back to fear-levels in debt that just don’t mean anything.

    IG at 260 +20 to Friday’s close.

50. Bird – saw a CNBC talking head remark that that the IG was pretty meaningless at this level like you were saying last week.

51. Here’s the thing… right now, the US Govt is backing our banking system. This allows the likes of B of A and Citi and Goldman Sachs to issue debt like they were a branch of the Treasury. We need a viable banking system, or you can just pack yourself a case of beans and find a cave to crawl into. But, if the US Govt starts to back NON-banking debt, then all bets for some sort of normal recovery are off the table.

    It’s like when GM started offering incentives for people to buy cars. Pretty soon, no one would buy a car without an incentive. If the US Govt starts backing non-bank, private sector debt, then no company that can’t secure govt backing will be able to issue debt. I am hoping that is an extreme view. But, just like the flip flop on the TARP, no one knows what the US Govt is going to do. And — when in doubt — just sit on the sidelines (and watch Heinz try to issue debt with a 15.6% coupon).

    Herbert Hoover would be proud.

52. S&P Equity cuts CHK target price by $8 to $24, maintains Buy.

    Stocks just drifting sideways now. NG drifting higher, up 14 cents.

    Hear ya Bird, sad really. Wonder if they had noticed the economy slipping before it had been a recession for 9 months if it would have mattered.

53. z – thanks for the CNBC update. They are right… the level of the Investment Grade Corporate Bond Index is just a cartoon. It’s not real. It’s not sustainable. It doesn’t reflect any kind of reality that real people can live normal lives in.

    Personally, I don’t think we will have to hoard beans and collect firewood… but, this has to stop SOON.

54. By Steve Gelsi

    Energy shares underperformed a sliding broad market on Monday as oil prices
    fell below $50 a barrel and OPEC and China woes weighed heavily on the sector.
    Oil service shares fell particularly hard on a lower forecast for oil rig
    counts as operators cut their capital spending budgets and day rates dip
    sharply on the credit crunch and retreating crude prices.
    Kicking off the latest in bleak economic developments, the key gauge of
    manufacturing registered its weakest month since 1982.
    China’s currency staged a record loss against the U.S. dollar, falling to the
    lower end of its daily trading limit, in what some analysts said is a policy
    shift as authorities let the yuan depreciate against the greenback in an effort
    to help bolster the decelerating economy.
    Crude futures subtracted $4.60 to trade at $49.83 a barrel after OPEC kept
    output unchanged at a weekend meeting.
    In the broad market, the Dow Jones Industrial Average (DJI) fell more than 450
    points, or 5.1%, to 8,379, wiping out much of the gains from last week.
    Component Exxon Mobil (XOM) fell 4.1% to $76.86. Chevron (CVX) dropped 5.9% to
    $74.32.
    The Philadelphia Oil Service Index (OSXX) led losses among the three major
    energy sector indexes, down 12.5% to 121. BJ Services (BJS), Weatherford
    International (WFT) and Rowan Cos. (RDC) fell more than 16% apiece.
    Pritchard Capital Partners noted that industry estimates have grown more bleak
    for oil rig operators, with consensus expectations worsening from a 200-400 rig
    decline in late October to a 600-rig decline expected now.
    Operators are rapidly and severely reducing their capital spending budgets,
    with leading edge day rates down 10%-15%.
    The Amex Natural Gas Index (XNG) dropped 8% to 378. Component Chesapeake
    Energy (CHK) dropped 7.5% to $15.90, on top of a 15% loss on Friday. The
    natural gas producer said late last week it would issue up to $2 billion in
    stock.
    The Amex Oil Index (XOI) dropped 7.3% to 897. U.S.-listed shares of China
    Petroleum & Chemical Corp. (SNP) dropped 8% to $60.93 after Goldman Sachs
    downgraded shares of the oil giant to sell.
    Among other oil majors, BP (BP) fell nearly 9% to $44.42. TNK-BP, the 50-50
    oil partnership including BP, said Monday that founding President and CEO,
    Robert Dudley, stepped down after five years on the job. TNK-BP, Russia’s
    third-largest oil company in terms of crude oil production, named Tim Summers
    as interim CEO in addition to his current duties as the company’s chief
    operating officer.
    Summers is appointed chief executive until the appointment and commencement of
    a new non-affiliated CEO as agreed by the shareholders.
    “I depart TNK-BP after more than five challenging and immensely satisfying
    years building and leading this unique and progressive Russian oil major,”
    Dudley said. “I wish the new management team every success in continuing the
    company’s development.”
    Organization of Petroleum Exporting Countries Secretary General Abdalla Salem
    El Badri signaled Monday that crude prices in the range of $70-$90 a barrel
    would be “very reasonable,” according to reports.
    OPEC plans to meet in Oran, Algeria on Dec. 17 to take action on a possible
    production cut. Meeting with reporters in Tehran, El Badri declined to specify
    the size of the expected curtailment. El Badri blamed the “mismanagement of the
    U.S. economy” for falling oil demand and poor global economic conditions, Dow
    Jones Newswires reported.
    “Remember, what happened with the destruction of demand and (with) the world
    economy has nothing to do with oil. It’s something else. It’s the
    mismanagement of the American economy,” El Badri said at an energy conference.

    -Steve Gelsi

    Dow Jones Newswires
    12-01-08 1339ET

55. z – #52 FWIW, yes. I think it would have mattered. All their obsession with “inflation” was just plain asinine. Particularly the Dallas Fed… Academic Idiots. The Fed could have been much more active and the Treasury could have been much more consistant. But, water under the ol’ bridge now.

56. HOUSTON, Dec 1 (Reuters) – California gasoline demand fell
    8.3 percent in August compared to the same month of the
    previous year, continuing a months-long decline in consumption
    due to high retail prices, the California State Board of
    Equalization said on Monday.
    Diesel demand fell by 14.4 percent in August 2008 when
    compared to August 2007, due to the U.S. economic downturn and
    high prices, the board said.
    (Reporting by Erwin Seba)

    Mon Dec 1 18:39:35 2008

57. What exactly was the weekend OPEC meeting about anyway (since they didn’t actually do anything)? Sorry if that’s a silly question…

58. #57 – “Had adult beverages?”

59. “chairman of a large bank-holding company” – Love it!

    1:58 (Dow Jones) Dallas Fed President Richard Fisher provided only a brief
    introduction for Fed Chair Bernanke in front of about 1,700 business leaders in
    Austin, quipping that Bernanke is “chairman of a large bank-holding company.”
    On a serious note, however, Fisher added “we couldn’t have a better prepared or
    thoroughly decent chairman of the Federal Reserve,” saying the nation is
    fortunate to have Bernanke amid the current crisis. (RKS)

60. Dman – good question. Excuse to go to Cairo as far as I can tell. Maybe a trial balloon as to what happens if they hold quotas flat. Wrist slapping for the cheaters. That’s about it.

61. IG 258 +18bps

62. No wonder the market is tanking, Ben is speaking again.

63. Wow, the 10 year treas is at 2.72. It has never been that low.

64. Sam – and still it’s the hottest game in town.

65. I am not sure any stock market rally or decline will mean much for most of this week. The market will be listening to how Holiday Sales are going and watching any news out of Washington/Fed/Treasury. Other than that, we get the Employment Report on Friday. If it’s not too dismal (and right now, street is expecting a loss of 325k jobs), then we could get a year-end rally from there.

    That said, we also have to get through the Detroit Testimony that starts tomorrow. Just read that Ford’s CEO (Mulally) is eschewing the corporate jet this time and driving to DC for the hearings. That’s actually pretty funny. Wonder if Rick Wagoner will do the same. That would be really funny.

66. so we have the DJIA on its worst levels of the day with Ben speaking and Paulson will start speaking in 40 minutes? Sheesh, somebody get a hook for these guys.

67. IG 257… bond traders find the thought of F’s CEO driving to Wash DC amusing too. It has put them in a better mood, for now. Of course, Paulson can suck the life out of any party… so, could be an interesting close.

68. OTTAWA (Reuters) – Canada’s opposition parties have reached a tentative deal to form a coalition that would replace Prime Minister Stephen Harper’s minority Conservative government less than two months after its reelection, a senior negotiator said on Monday.

    Bad for Alberta…

69. V – any thoughts on energy policy and taxes regarding your last.

70. Well the Liberals were pushing their “Green Shift” over the campaign which was essentially a carbon tax for industry and redistribution to consumers. The NDP would probably be in favour of a similar policy.

71. any explanation of the move into treasuries? can’t be just a “flight to safety” deal.

72. WASHINGTON (Dow Jones)–Treasury Secretary Henry Paulson and Federal Reserve
    Chairman Ben Bernanke warned President George W. Bush that without strong
    government action the U.S. could face a depression worse than the Great
    Depression, the president said in an interview released Monday.
    “When you have the Secretary of the Treasury and the Chairman of the Fed say,
    if we don’t act boldly, we could be in a depression greater than the Great
    Depression, that’s an ‘uh-oh’ moment,” Bush said in an interview with ABC’s
    World News with Charles Gibson.
    ABC released a transcript of the interview, portions of which will be
    televised later Monday.
    Paulson and Bernanke delivered their stark assessment shortly before the
    administration asked Congress to okay the $700 billion financial-market rescue
    package in September.
    “That was, of course, the crystallization,” Bush said.
    Asked if it was a mistake to let Lehman Brothers fail, Bush said that judgment
    will be made by historians. He defended the administration’s need to make “big
    decisions and big calls.”
    “The one thing that I don’t want to have happen is people say this thing was
    in a financial meltdown and we didn’t do anything,” Bush said. “And so we’re
    moving – hard.”
    “What scared me is not doing anything, which would have caused there to be a
    huge financial meltdown and the conceivable scenario that we’d have been in a
    depression greater than the Great Depression,” he added.
    Bush suggested that he doesn’t feel responsible for the economic crisis
    occuring on his watch, but said he is upset that the administration’s effort to
    reform government-sponsored enterprises Fannie Mae and Freddie Mac didn’t
    succeed years earlier.
    “I’m the President during this period of time, but I think when the history of
    this period is written, people will realize a lot of the decisions that were
    made on Wall Street took place over a decade or so, before I arrived in
    President (sic), during I arrived in President (sic),” Bush said.
    He said he didn’t know how high unemployment would rise.
    “Too high. I mean, anybody unemployed is too much,” Bush said.
    Asked if he is disappointed in the way banks are dealing with funds they have
    received under the Treasury’s Troubled Asset Relief Program, Bush said the
    financial system is beginning to see credit flow again.
    “Obviously, in a situation like this you’d like to see instant liquidity. But
    there’s a lot of fear throughout our society and the system itself,” he said.
    “And slowly but surely the system is becoming unthawed, and it’s going to take
    time for the system to become unthawed. What the American people have got to
    know is we’ve taken the steps to unthaw it, which is the first step to
    recovery.”
    To read the interview transcript: http://abcnews.go.com/print?id=6356046
    -By Henry J. Pulizzi, Dow Jones Newswires

    Dow Jones Newswires
    12-01-08 1406ET

73. #71 – Deflation

74. Re 72. And when Ben was just asked about the current environment vs the great depression he said there is no comparison on the two.

75. I can think of one new regulation I would like to see in the financial markets:

    Ben and Hank can NEVER speak on the same day.

76. CVX Chevron: ’09 Capex announcement to be delayed until January – DJ

77. Bird – no doubt. They have nothing new to say yet they speak at different events weekly. Unreal.

    Bleemus – thanks. Can’t say I blame them.

78. Z – I think part of the reason for the monster drop in the TSX is not only oil price but also fear of new policies.

79. This is unreal. Have to either trade futures or establish your position for tomorrow right now, or the market will already be there by morning.

80. Tater- no doubt. Ben and Hank must be short b/c they couldn’t provide a show of less confidence if they were paid to. My puts on the OIH are the only thing I have working today…not much of an offset. Again, these moves are scaled for weeks or even in months in normal times, now boiled down to a matter of hours.

81. Lot of TA moves today. XOM turned back after running up to the 52 week EMA, then today’s drop is a perfect return move back to the breakout line. Too cute for my taste.

82. Need this day to end so I can drink massive amounts of straight whiskey!

83. Should have said XOM’s “was” a perfect return move. Left that in the dirt already.

84. IG 265 +25bps… at wides for the day

85. BOP
    Why buy treasuries when you can buy FDIC’s if it’s all from the same pocket.
    The answer I guess. Is it’s all snapped up.

86. Just a reminder… the widest I have seen the IG trade is 270. The widest I have seen the IG quoted is 280. The Fear Threshhold used to be 200. It’s now around 225. Keep these levels in mind when watching the IG moves over the next few days.

    Coincidently, we have Vehicle Sales for November reported tomorrow, as well as the Detroit 3 + UAW testifying before the Banking Committee again. We also have the ABC Consumer Confidence reported after close. But, clearly, all eyes will be watching The Detroit Redux: “Begging for Taxpayer Dollars” tomorrow.

87. CFTC commitment of traders out … http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm

88. md – there are a number of reasons why people, institutions, trading desks, and sovereign entities buy and sell US Treasuries. But, if you buy something that is not exactly a US Treasury, you have to explain yourself. It just may be that investing entities (and foreign countries) are tired of buying Fannies, and Freddies, and Sallies et al., only to have those bonds move wider (and their investment decline). Meanwhile, US Treasuries continue to rally. So, in part, it’s the “no-brainer” trade, to buy Treasuries.

    Once something is a “no-brainer,” watch out. The next step usually isn’t pretty. That said, I really don’t think inflation is going to be a problem in the foreseeable future. I DO think that US Treasuries (and all it’s relations) will crowd out non-US backed debt. That is a problem.

    Another reason US Treasuries are continuing to rally is that they are used to hedge bond positions on trading desks. I recently heard the theory that a lot of desks got long stuff they intended to sell to the TARP and sold treasuries against that position. Those hedged positions need to be unwound now, which involves buying back the US Treasury hedge. I’m not sure how much this is influencing the amazing moves in the yield curve over the last 30 days, but thought I would pass it along.

89. Here you go Z

    http://www.cbc.ca/canada/story/2008/12/01/coalition-talks.html

    Coalition govt in Canada:

    “There is also a commitment to “pursue a North American cap-and-trade market” to limit carbon emissions.”

90. They are saying they want an absolute cap based on 1990 levels.

91. Thanks V – good timing, eh, lol.

92. I know you don’t like political commentary but because it’s the end of the day I’ll just say that I’m pretty furious right now.

93. V- agreed. These guys just don’t get it. In fact, can’t think of many politicians who even know what it is to get. Somebody needs to send that Entrada story to Pelosi. $35 oil is enough incentive to drill???!!! Ha. Tell them that to them or to their Japanese partner who instead of taking the rest of the working interest on themselves is instead trying to sell their piece in a terrible asset market.

94. Stelmach already said that he has a course of action and a strategy for dealing with it so it could actually include a referendum for separation.

95. There is an Alberta Seperation Party and this could actually be enough to set off a western revolt by Saskatchewan Alberta and BC.

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