T.G.I.S.B.

42 thoughts on “T.G.I.S.B.”

1. bop any trader color today?

2. hey kyleandy!

   No Tech Trader (SB-ing with z), but Head Trader thinks should rally off the lows this morning, up into lunch, then off from there.

   Don’t know if he means a lower actual close, but that’s his gut, this morning.

3. thks

4. if anyone’s around… i’ll post some pre-mrkt comments (written at 7am this morning) Note: we are going to get a new HY index as of today, HY12 —

   Levels at 7amET:

   · SP Futures dn 8pts to 819 (lows of the session)

   · Europe trading dn 1% (dropping to lows following UK GDP data)

   · Credit: IG12 184 / 186 (about 6bps wider this morning)

   · US Treasuries slightly higher – 10yr yielding 2.72%..

   · USD (DXY) spiking @ 6amET (DXY +0.44 to 84.60) as the euro falls post UK GDP data..

   · Crude is off a buck to $53.50/bbl (plenty of attention given to Cambridge Energy’s call for a potential spike in prices in the years to come bc of falling investment in oil/gas production)

   · Spot Gold is dn ten bucks to $927/oz, falling to intraday lows @ 6am as the dollar spikes on the back of weaker UK GDP data..

   · Base Metals Complex is lower: copper fell 1.2% in London, aluminum dn 1%

   · Baltic Dry Index dn 1.5% y’day, its twelfth consecutive decline (our desk says the FFA market continues to trade rangebound on the back of little liquidity and physical interest)

   Today’s Top Stories

   · SP futures at overnight lows (dn 8pts) as shares in China/HK ended higher while Europe is at lows of the session.

   · A pretty quiet morning overall….a bunch of pg 1 articles wondering whether a new bull market has kicked off: From the NYT – “Hong Kong Billionaire Says It’s Time to Buy”; from Reuters – “Fed officials hint recession in final stages”. According to a UBS report, “Institutional investors plough back into stocks…UBS said average U.S. client flows for the four weeks ended March 20 turned positive for the second time this year. The previous positive flows came in January…HFs are buying, but U.S. long-only funds such as mutual funds and pension funds remained net sellers” (marketwatch). On Barclays, the FT reports that the UK’s FSA (the country’s financial regulator) will conclude, following an extensive stress test, that Barclays won’t need additional capital.

   · …..However, Not everything is bullish this morning – in addition to Accenture last night (which was the first notable neg. tech data point in the last month), the WSJ is reporting that MGM’s CityCenter could file for bankruptcy as early as this weekend.

   · The Journal also warns that the Treasury’s TARP may not have much capital left – based on Dow Jones Newswires’ reporting and calculations, it appears that Treasury has, at most, $52.6 billion left in its rescue fund. That would mean about 92% is already committed (Recall the House and Senate don’t have the White House’s request for a TARP II in their recent budget drafts, meaning the Treasury may not have a ton of resources to commit to future problems).

   · Alan Greenspan in an FT oped says the US banking industry needs substantial amounts of new equity (“The overall need appears to be north of $850bn. Some is being replenished by increased bank cash flow. A turnround of global equity prices could deliver a far larger part of those needs. Still, a deep hole must be filled, probably with sovereign US Treasury credits” – FT).

   · Hundreds of Russian banks are likely to fail by the end of the year, the president of Alfa Bank told the Financial Times. Pyotr Aven said that bad loans in the Russian banking system could reach 20 percent of the total by the end of the 2009 (Reuters).

   · From the low of 666 on 3/9, the sp500 is now up ~25% and w/a few days left before Q-end, performance anxiety is setting in; YTD, the sp500 is dwn 7.7%, financials are dwn 24.4%, tech is up 7.8%, health care dwn 7.4%, industrials are dwn 17%, consumer discretionary is dwn 4.2%, consumer staples are dwn 8.2%, energy is dwn 6%, utilities are dwn 10%.

   · Dow now up >20% from its lows; this marked its first gain of 20% or more since the bear market began in October 2007; took the Dow just 13 trading days to rise more than 20%, making it the fastest 20% rebound from a bear-market low since 1938 – WSJ

   · WSJ article this morning….”Bears Are Wary as Bull Returns”…some money managers are starting to feel obliged to participate on the long side as the run continues…..”We don’t want to be short-term in our thought process, but right now we don’t feel we have a choice. We have to just manage our clients’ risk,” (WSJ)

   · Short interest – one of the positives being pointed to as fuel for this rally is the substantial base of shorts; the last short interest data (out this past Tues night) revealed another large increase in outstanding shorts. However, Bloomberg says that arb positions relating to the Citi pref-common conversion drove a lot of the increase in SI this Tues. Citigroup shares borrowed and sold short soared almost fivefold to 999 million between Feb. 27 and March 13 (Bloomberg).

   · Credit Update – We move to Overweight on HG credit. We move Life Insurance and REITS to Overweight in conjunction as these two sectors benefit the most from the spread rally in CMBS and other fixed income asset classes, and they are two widest spread sectors in the index. We now expect $925B in issuance this year (in Dec we expected $725B).

   · HY CDX Series 12 roll is today. On the roll we calculate that CDX.HY S12 has a theoretical value $3.05 above Series 11 thanks to the higher average credit quality of its underlying portfolio.

5. Head Trader reminding me that he said there would be a selloff at open… getting it now, then will trend higher. He would sell by lunch and start the weekend early.

6. KWK – Moody’s downgraded Quicksilver Resources’ senior second-lien term loan and senior notes to B2 from B1 and its senior subordinated notes to B3 from B2. Moody’s noted that the Company was close to violating certain financial covenants in its second-lien term loan at year-end. The Company is required to maintain a 1:1 current ratio, interest coverage of greater than 2.25x. In addition, KWK’s proved PV10 plus 50% of the market value of its stake in BreitBurn Energy must be more than 1.5x total debt and 2.0x secured debt.

7. BDI -36 1678

   TED 108.51

   BDI still falling, not as fast as in the fall but direction isn’t good.

8. U of Michigan Consumer Confidence came in slightly better than expected at 57.3 for March, vs 56.8 exp’d and 56.6 prior.

9. No analyst upgrades today, but a rash of downgrades: NR, HERO, BJS, ALJ, TSO, FTO, RDC, PTEN, FSLR, STP, TSL, PBR.

10. BOP, do you have an overall view on KWK’s financial position?

11. Dman — I haven’t looked at SWN in a long time. I was not a fan of the BreitBurn investment, so I let it drop off my radar screen. I was sorry to see that BreitBurn was included in the bank covenants. Given that it is a heavy oil MLP, the volatility there could hurt KWK. BBEP is currently paying out a 29.6% dividend yield… the forecast on bloomberg seems to think that is sustainable, but it does add an additional element of ucertainty to KWK, at a time when the banks do not want any more uncertainty.

    Other than that, I am really not up-to-date enough on the name to be of much use to you.

    Perhaps someone else follows KWK more closely these days? I’ll try to find a broker’s comment (from someone i like) to post for you.

12. Dman — here’s one from 2/26/09 that I like. As long as KWK (and others) can live within cash flow and — this is key — do NOT have to use their bank revolver to pay interest on sub-debt, then the company is a survivor. Doesn’t mean there isn’t a covenant violation or two along the way, but as long as the underlying assets are providing positive cash flow, the banks will just charge an usurous fee, waive the covenant, and let the company keep operating with the existing cap structure. It looks like KWK falls into that category.

    KWK Reports 2008 Results

    Quicksilver reported recurring 4Q’08 EPS of $0.23, ahead of our $0.18 estimate and Street consensus of $0.21. Cash flow per share of $1.16 also blew out both our estimate of $0.52 and consensus of $0.72. Production of 30.1 Bcfe was preannounced, but higher-than-expected realizations and lower-than-anticipated G&A contributed to the financial outperformance.

    During the quarter, KWK took a $935 million impairment charge for its investment in Breitburn Energy Partners (BBEP/NASDAQ-Not Rated), as well as a charge related to its oil and gas properties. This had the effect of increasing the company’s debt-to-cap to 70% at the end of 4Q’08 from 62% in 3Q’08. Although the market perceives KWK as having liquidity problems, KWK is living within cash flow and has $369 million available under its revolving credit facility. Further, with the credit market thawing, we would not be surprised to see the company term out debt, which the market would likely view positively.

    Quicksilver previously announced that proved reserves increased 47%, to 2.2 Tcfe. This equates to an all-in F&D cost of $2.50 per Mcfe for 2008 and is among the best in the industry. Excluding acquisitions, the company’s F&D cost approximated $2.14 per Mcfe.

    In the Barnett, KWK grew production approximately 96% year-over-year, including about 40 MMcfed attributable to the Alliance acquisition. The company should drill 180 wells during 2009, turning 100 to sales, which, along with its Canadian program, should allow the company to maintain total production flat with fourth-quarter volumes.

    We are maintaining our Accumulate rating and $10 price target, which is based on our 2009 proved NAV, predicated on long-term $5.70 Mcf natural gas.

13. Dman — #11… make that KWK, not SWN.

    I’m thinking about SWN this morning, so did a little typing without the brain fully engaged. Other than that, the comments hold.

14. KOG is starting to look like short-covering and/or somebody-knows-something. Trying to get some color on the situation there, but company is pretty tight-hole right now. And my source of information (outside the company) is MIA (on spring break). Could be as simple as they have finally moved a completion rig onto their first pad… could be the drilling from the second pad is gushing oil (joke… but, lovely thought).

    Still, KOG at 20 cents was valuing their Bakken acreage TOO CHEAP. All else equal, I think 40 cents is more appropriate at this point…. but, sure took a portfolio hit (not to mention an ego-bashing) at 18 cents.

15. thanks BOP. Regarding the covenant violation: a broker actually predicted something! Wow, I’m impressed.

16. Dman — ha! no.
    The first paragraph was my comments. The broker’s comments start after 2008 Results… but, it’s from a guy who I think is pretty good (and got PQ right recently… even before z!)

17. Thought it was too good to be true 🙂

18. BOP – scary movie (see the March 26 video):

    http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html?_i_referralObject=567134059&fromSearch=n

19. Dman — classic macro economics. Thanks for the link. That is why the mrkt sold off on Wed’s 5-yr treasury auction (which was on the weak side, but not “failed”) and rallied on Thur’s 7-yr auction (which went OK).

    Probably the most important data to watch over the next 10 yrs will be foreign flows of funds into (or out of) our markets. With deficits as far as the eye can see, we are at the mercy of Other People’s Money. Not a good place to be… but, it doesn’t see to bother Nancy and her friends.

20. what time does rig count come out?

21. background on BBEP: I looked at 6 months ago and was impressed (negatively) that mgt’s geological experience was narrow, and in only one kind of rock/structure (I forget which). They made a large acq. for big price in another unrelated geology and immediately started having problems. Have not paid attention since.

22. Way to go, Abby! Kinda like my predicting “the sun will come up tomorrow morning.”

    Goldman Sachs’s Cohen Predicts More Bad News on Banks (Update1)
    2009-03-27 12:51:43.871 GMT

    By Ken Prewitt and Gareth Gore
    March 27 (Bloomberg) — There may be more bad news on banks even as the U.S. economy improves in the second half of 2009, Goldman Sachs Group Inc.’s Abby Joseph Cohen said.
    “We’re certainly not yet in the clear — whether in the U.S. or around the world,” the 57-year-old strategist said in a Bloomberg Radio interview in New York today. “While we have had a great deal of bad news on banks, we think there is still more to come.”
    The U.S. economy is looking “less bad” and may post positive growth by the end of the year as the government’s efforts to stimulate the world’s largest economy feed through, Cohen said. “The situation in Europe is of concern to us and economic activity in many countries is still lackluster.”
    The Standard & Poor’s 500 Index has clawed back 23 percent since reaching a 12-year low on March 9 as banks from Citigroup Inc. to JPMorgan Chase & Co. said they made money in the first two months of 2009 and U.S. Treasury Secretary Timothy Geithner unveiled plans to rid financial firms of toxic assets.
    Stock prices got “too cheap” about a month ago, according to Cohen. “Recessions are difficult and uncomfortable when you are going through them, but they do end.”
    Cohen was replaced in March last year by Goldman Sachs as the bank’s chief forecaster for the U.S. stock market. She is known for her bullish predictions during the 1990s stock-market rally. Her year-end forecast of 1,675 for the S&P 500 at the beginning of 2008 was second only to the prediction of 1,700 from Bear Stearns Cos.’s Jonathan Golub, HSBC Holdings Plc’s Kevin Gardiner and UBS AG’s David Bianco.

    S&P 500 Forecast

    The S&P 500 has a 12-month fair value of 1,025, Cohen said today. That’s 23 percent above yesterday’s closing price of
    832.86 and is based on “fundamental” value of stocks in the benchmark, according to the strategist. Profits in the measure will be near $40 a share on average this year, she added.
    Cohen’s forecasts came a day after Nouriel Roubini, the New York University professor who predicted last year’s economic crisis, said U.S. stocks will fall and the government will nationalize more banks as the economy contracts.
    In contrast, Templeton Asset Management Ltd.’s Mark Mobius and Traxis Partners LLC’s Barton Biggs said earlier this week that equities are poised to rally as government efforts to revive the economy and banking system begin to work.

23. Anybody have any thoughts/opinions on just how low can we go with NG prices? At what level does the continuing diminished rig count really impact the current oversupply imbalance so we get more in line with demand, and prices can head north? Thanks.

24. isleworth — i can’t answer that question… but maybe someone else can.

    But I just read an interesting comment in a Goldman Sach’s Credit Research macro piece on the unconventional gas E&Ps. Basically, GS fixed income is lowering their 2009 and 2010 nat gas price deck for 2 reasons: 1) actual YTD prices, and 2) their view that lower coal prices have lowered the theoretical floor for natural gas prices through the summer. GS is using $4.75 as their 2009 and $5.50 for 2010 nat gas price forecast.

    Anyway, interesting in that it’s the 4th leg to the nat gas pricing stool — current supply (and effect of less drilling), industrial demand, LNG imports, and coal prices.

25. Anyone privy to reasoning behind Goldman’s moving PXD from Sell to Buy?

26. Good afternoon all.

    I am still following the count I gave yesterday. Yesterdays move up was corrective and likely we are in the early stages of wave 2 or B correction. Eventually I think this resolves higher but not before a decent retracement.

27. MIDDAY Overview

    · Equities open lower following a very strong Thurs (and on back of a ~25% advance since the 3/6 lows), but tape remains very resilient w/a lot of people waiting on the sidelines for any weakness to gain some long exposure. USD strength today (DXY +1.1%) is pressuring commodities (crude dn $2/bbl, gold off $14 to $924/oz) as treasuries move higher (10yr yield down to 2.706%) and credit a few bps wider. Tech, which has been the star performer of the market (up nearly 8% YTD as of Thurs night) is the weakest group today, falling ~2%+ on back of the Accenture disappointment last night (that stock is off >10%), although selling is more profit taking than people giving up on the group (although SOX flattish at noon, off lows and continuing strong move higher). Health care and consumer staples are outperforming. Financials act OK (banks are actually up 1% but insurers in the red). KBH rallies 10% on the day after reporting earnings this morning. Overall very quiet all around the St. Levels of skepticism around the move still high and performance anxiety only growing. Those “buckets” of good news still being filled: 1) eco #s (“stabilizing” is the word of the weak, something this morning’s consumer spending figures confirm; the last few housing data points have all been strong, inc. this morning’s KBH report); 2) substantial gov’t action (the highlight of the week being the Treasury’s PPIPs); 3) improved corporate news (actually on this front the news last night from Accenture is a step back); 4) strategic M&A (aside from this Mon’s Petro-Canada/Suncor deal, activity has been quiet; we are still waiting on something from IBM/JAVA).

    · Eco data this morning not a big deal, but points toward a continued stabilization in consumer spending. The Michigan sentiment index steadied some in the final March survey, moving to 57.3, up from 56.6 in the March preliminary and 56.3 in the February final. Current conditions slipped to 63.3 and expectations firmed to 53.5. While its good news that the plunge in sentiment appears to have halted, the level of sentiment is still near historical lows. Also out this morning were the Feb. Consumption figures… key takeaway is that while consumption falls in February it remains on track to rise in 1Q (although income resumes its decline). Real consumption declined by 0.2%m/m, but it is still tracking an increase of around 1.0%q/q annualized in 1Q, a much better outcome than the roughly 4% annualized pace of decline in the 2H08. February real consumption could be revised down, but the basic story of stabilization in consumer spending will remain.

    · Comments from ECB officials getting a lot of attention and hurting the Euro today (was off ~2% at one point); note the ECB meets next Thurs; the ECB continues to send signals that it could get more aggressive on the monetary front, although (so far) it is shying away from the QEing of the Fed, BOE, and BOJ. ECB Vice-President Lucas Papademos mentioned buying private sector debt as an option to ease stress in the banking sector, although he stressed no decision had yet been taken. Papademos said lending banks funds for longer in the ECB’s liquidity operations was another option (i.e. beyond the current max term of 6 months). ECB Governing Council member Nout Wellink said the ECB could take steps similar to the U.S. Federal Reserve’s purchases of commercial paper and asset-backed securities (DJ); the London Telegraph published an article late Thurs talking about the new stance coming from ECB officials….”After much pious posturing – and criminal wastage of time – the European Central Bank at last seems ready join the Anglo-Saxons, Japanese, Swiss, and Isrealis in printing money to fend off disaster”

28. RMD — I don’t know why GS equity upgraded PXD, but I can tell you why GS fixed income upped PXD bonds to “buy” yesterday —

    o PXD and NFX have the best overall hedge positios for 2010.

    o Long lived assets, significant oil exposure (45%) = defensive in a weak mrkt

    o Production can be held flat in 2009 with capital spending as low as $200m

    o Current assumptions have PXD spending about $350mm and still generating about $200mm of FCF in 2009, the strongest cash flow profile in the group.

    o Even under the $4 gas/$40 oil downside case, PXD ends 2010 with over $300mm cash and revolver availability.

    o Mngmt’s past indicates that they might use excess cash flow to buy back stock (instead of paying down debt).

29. I’ve heard mention of LINE on this site before. Does anyone here have a view on the stock today?

30. Just doing a flyby:

    Rig Count:

    Oil: UP 2
    Natural Gas: DOWN 47 to 810 vs 1,447 a year ago.
    Horizontals: DOWN 20.

    That’s all gas bullish. Many thought last weeks slowing of the rate of rig declines for gas and the slight (+4) uptick on horizontals was a sign that rigs are leveling out. One week does not a trend make.

    I said yesterday a build in storage would be a near term tragedy and 15% in 2 days is about what I was thinking.

    How low can it go? The first test is last week’s low ($3.74 which we defended this morning), then $3.50, then $3. At $3 pretty much all of the U.S. except for maybe part of the Haynesville and Marcellus are uneconomic to drill. Gas and oil always overshoot the mark (the pendulum swings too far) and its doing that now. Next catalyst Tuesday afternoon when the January supply data comes out.

    Re PXD because I was thinking about the same thing, I have to go back to their earnings report and the drastic cuts to capex they took at that time. High leverage meets a 0 or near 0 rig count for the company and excess cash flow. Goldman is playing it safe with that pick and its not a bad idea at all. Like the story longer term, near term think its gets a bit lost in the maelstrom.

    Re Coal and Natural gas. There is pricing correlation. You can’t prove causality as in Coal prices fall and so then do gas but their is a heat rate conversion that helps determine summer natural gas demand. One thing about recessions is that in past occurrences, people have been unwilling to sweat much. Demand continues to improve yearly and while we are down now probably due to industrial electricity demand and uptick in the economy will benefit both coal and natural gas prices.

31. LINE – I like it, I own. 100% hedged for 2009 – 2011 on expected oil and gas. Distribution has always been a smaller than industry portion of distributable cash flow and management has ensured there won’t be a cut this year so that 17% yield is safe.

    Been monitoring comments and I am no fan of BBEP.

    I’ve been told to step away from the computer. Have a great weekend.

32. Z: Many thanks

33. Nat gas – I had thought that we would see a bigger correction to the upside even though the move up off the lows was not clear. As we are now retesting those lows clearly that was wrong and it looks like we are now spiking lower in a wave v. Whether we can get as low as the 2.7 area which is multi year support remains to be seen. The low seen on this wave down should be a meangingful low.

34. BOP: thanks for PXD explanation in #28.

35. Just hang in there …. for 5 more years.

    http://tinyurl.com/djppsw

36. Would that American politicians were this articulate on the looming deficit situation. (of course, a British accent awards the speaker with about 10 extra IQ points… but, this guy gets it)

37. Thanks Z for your thoughts…glad you “flew by” 😉

38. BOP–re#36 I wish out congress had the “stones” to talk to the administration like that….instead we get a love-in

39. kiaora — and he gave that speach without a teleprompter!!

40. Friday Movie Quote Watch:

    “I did nothing. I did absolutely nothing, and it was everything that I thought it could be.”

41. Interesting article:
    http://www.theatlantic.com/doc/200905/imf-advice

42. Attention getting article in The Atlantic. “Anything that is too big to fail is too big to exist” makes a lot of sense. Thanks Occam.

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