Tuesday Morning – Already Time For A Rebound

103 thoughts on “Tuesday Morning – Already Time For A Rebound”

1. CHK upped to Overweight at Morgan Stanley

2. Good morning. Fairly random credit thoughts —

   Credit had an awesome day, yesterday. You couldn’t see it from the indices, but 13 deals got done, the most in 11 months. Even Icahn is switching from equities to focus on “distressed debt,” which he calls a “once in a generation opportunity” right now. (With Carl, you can’t say “once in a lifetime” as that seems to span 100s of years). Anyway, this credit thaw is good for big and mid-cap companies. The little guys are still getting dissed by their bankers… and who wants to be beholden to a banker these days? Those guys are in pissy moods… having discovered that “TARP” really stood for “Roach Motel.”

   Anyway, the stock market is getting very very nervous again. As it should. So fast, so far. With so much bad stuff still abounding. Andy Kessler makes some intellegent observations (as Andy Kessler often does) in the WSJ this morning

   http://online.wsj.com/article/SB124208415028908497.html#mod=todays_us_opinion

   There is a $34B Treasury Bill sale today… but it’s for 4-wk bills, so shouldn’t cause the mrkt any gas pains. Other than that, banks are making tons of money off each other, as many of them are engaging in capital raising activities.

   So, what’s next? My crystal ball is murky. Looking for an old guy with a lantern to tell me truthfully what to do.

   Meanwhile, the new SD 9.875s due 2016 are trading right around issue price of 95.77. So, looks like they scooped up all the marginal dollars they could there, when the $300mm deal was upsized to $365mm. Stock likes it tho… keeps the pissy bankers off your back for a while.

   IG 149 after trading as wide as 152 this morning

   HY 81.5 after trading as low as 81.25

3. By Nick Heath
   Of DOW JONES NEWSWIRES

   LONDON (Dow Jones)–Nymex crude oil futures Tuesday traded above $59 a barrel
   for the first time since November driven by a weaker dollar and technical
   buying.
   While news of strong Chinese April crude imports provided some support for the
   gains, much of crude’s fundamental backdrop remained bleak, analysts said.
   Weekly U.S. Energy Information Administration data due Wednesday will likely
   show U.S. crude stocks built for the tenth straight week.
   However, crude’s recent ability to advance in spite of questionable near-term
   fundamentals continued to encourage a steady flow of investment, much of which
   has been based on equity market gains and hopes the worst of the economic
   slowdown may have passed.
   “The break of $59 a barrel has little to do with internal fundamentals,” said
   Hamza Hamza, fund manager at Sucden Financial in London. “Rather, direction
   continues to be steered by developments in the equity markets. This results –
   albeit by a lack of its own initiative – in an improving technical landscape
   that whets the bulls’ appetite.”
   At 1155 GMT, the front-month June Brent contract on London’s ICE futures
   exchange was up $1.17 at $58.65 a barrel.
   The front-month June light, sweet, crude contract on the New York Mercantile
   Exchange was trading $1.21 higher at $59.71 a barrel.
   The ICE’s gasoil contract for June delivery was up $10.75 at $492.25 a metric
   ton, while Nymex gasoline for June delivery was up 128 points at 169.30 cents a
   gallon.
   While the overflow from other financial markets has helped crude’s sharp
   climbs, projections for oil demand remain distinctly bearish. Several agencies
   publish their latest demand outlooks this week, with reports from the EIA,
   Organization of Petroleum Exporting Countries and the International Energy
   Agency due Tuesday, Wednesday and Thursday respectively. Crude’s resilience
   could be tested if those point to a continuing straitened demand outlook.
   U.S. demand has thinned as a result of the wider economic slowdown, leading to
   nine consecutive weekly builds in U.S. oil inventories. Already standing at
   375.3 million barrels, the highest since September 1990, analysts expect
   Wednesday’s EIA data to show inventories built again last week.
   “Oil stocks are at record levels and there is a mountain of oil floating
   offshore to be disposed of,” said London-based brokerage PVM Oil Associates in
   a note. “Oil prices are where they are because of economic expectations, not
   because of supply/demand realities. Nothing wrong with that, but if these
   expectations are dashed there is no second line of defense.”
   While demand from the world’s largest consumer remains depleted, some
   fundamental support came from the world’s number two importer Tuesday. China’s
   April crude imports rose 13.6% year-on-year to 16.17 million metric tons, the
   second-highest monthly crude oil import volume ever on a daily basis, data from
   the General Administration of Customs showed.
   Higher refinery operation rates and buying to fill commercial crude reserve
   tanks helped drive China’s demand for foreign oil, although analysts were wary
   how much price support China’s imports could have given the extent of slower
   global crude.
   “I think an improvement in China alone will not suffice to offset the
   contraction in the rest of the world,” said Harry Tchilinguirian, senior oil
   market analyst at BNP Paribas in London, adding a trend of similar figures
   might be needed to harden fundamental support.

   -By Nick Heath, Dow Jones Newswires Dow Jones Newswires
   05-12-09 0811ET

4. $60/Bbl
   By Dan Molinski
   OF DOW JONES NEWSWIRES

   NEW YORK (Dow Jones)–The dollar is down sharply Tuesday after crude oil
   prices popped above $60 a barrel, signaling a global rise in risk appetite that
   is causing investors to shop for foreign currencies that could offer meatier
   returns than that of the buck.
   The dollar fell to a seven-week low against the euro Tuesday morning in New
   York, a four-month trough against the U.K. pound and a two-week low against the
   yen.
   Data out Tuesday showing the U.S. trade deficit for March was smaller than
   economists were expecting did little to boost confidence in the greenback.
   Investors also seemed to ignore a strongly worded defense of the U.S. currency
   by Federal Reserve Chairman Ben Bernanke late Monday.
   Analysts say that if the euro can move above $1.3739, an important high
   reached in March, then that may signal more rapid U.S. dollar weakness. It has
   reached as high as $1.3708 so far Tuesday.
   “I would not expect it to bomb straight through (that key level) without good
   reason, like a sharp push higher in risk appetite,” said Alan Ruskin, an
   analyst at the Royal Bank of Scotland.
   Tuesday morning in New York, the euro had pared some of its gains and was at
   $1.3659 from $1.3582 late Monday. The dollar was at Y97.15 from Y97.41,
   according to EBS. The euro was at Y132.72 from Y132.31. The U.K. pound was at
   $1.5296 from $1.5120. The dollar was at CHF1.1049 from CHF1.1099 late Monday.
   Following a prepared speech in Georgia Monday night, the Fed’s Bernanke told
   the audience that the dollar will stay strong “because the U.S. economy is
   strong,” and because “the Federal Reserve is committed to making sure we have
   price stability in this country.”
   But if the comments were meant to bolster the buck, they failed. Investors
   watched European stock markets rise overnight, saw oil prices moving up, and
   decided that the reasons to hold on to the greenback as a safe-haven were
   dissipating.
   “Markets have appropriately shrugged (Bernanke’s) comments off,” said currency
   analysts at Scotia Capital.
   The concern over the dollar is that the U.S. government’s hyper-spending
   habits in recent months to save the banking industry will lead to higher
   inflation, reducing the dollar’s value.
   Meantime, the Canadian dollar is higher in the wake of twin Canadian and U.S.
   March merchandise trade reports released earlier. Canada’s trade surplus
   unexpectedly widened to C$1.1 billion during the month, adding to a recent
   string of positive data surprises.
   Combined with negative global momentum for the U.S. dollar after Monday’s bout
   of correction, optimism about economic recovery flowing from the data is
   expected to restore the recent strengthening trend for the Canadian unit as
   well as other commodity-linked currencies.
   Currency strategists at Scotia Capital in Toronto said that recent price
   action confirms that U.S. dollar “bears are still in control.”
   They suggest there is still a downside bias for the dollar against its
   Canadian counterpart, and look for the U.S. currency to retest downside support
   at C$1.1478.
   Early Tuesday, the dollar was at C$1.1562 from C$1.1633 late Monday.
   -By Dan Molinski, Dow Jones Newswires (Paul Evans in Toronto contributed to this report.)

   Dow Jones Newswires
   05-12-09 0906ET

5. It might be time to consider adding some more bonds to one’s holdings. No reason to sit in cash, paying 20 bps.

   Just a thought. From a cross-asset class strategist, who isn’t buying into the Bearish Mood here… at least, not in corporate bonds.

   http://www.capmarkets.com/ViewFile.asp?ID1=117020&ID2=321532753&ssid=1&directory=6571&bm=0&filename=05.12.09_Push_Bearish_Populism_Aside.pdf

6. Good stuff on hedges z…

   i think chk took off most 2010 hedges and now only 22 % hedged for 2010.

   This may be aubreys greatest move

   each $1 in ng will bring chk another 700 m in 2010 on unhedged volumes

   I dont see pxp on list, they have 70 % hedged for oil (puts) so they have 100 % on upside and 80% ng hedged at 10.00

7. Stifel initiates PQ at Buy, target $7.50.

   Thanks Bill, I forgot to put PXP on there.

8. Mixed bag opening for E&P, sort of up market combined with at least 5 debt and equity deals which are pulling group leadership lower on the day.

9. PQ… seems like only yesterday that it hit 61¢. As I recall, you bought around $1, z. Those are the kinds of trades that make your site invaluable.

10. Thanks, but you’re not too shabby yourself with that KOG call. Also know that I own some PQ from the previous cycle in the $8s.

11. Good morning to all.
    Z – sorry not to get back to you yesterday – however I just checked yesterday’s posts and see Tater’s question.
    Not much has changed from last week for me. Indices – We are oh so close to a turn but I think the count shows we need one more up. I think we could test the 900 level on the spx and then bounce and touch that pesky 200 dma before the meaningful correction. Its possible the top is in and we are going to need to bust through 900 for that. Options expiry Friday is likely to lead to volatile swings which would fit nicely with the wave pattern for a higher high!
    Oil is trading in step with the Dow. A high is likely this week and will likely coincide with the top in the Dow – I am still targetting the $62 – 65 area.
    The $ – I said a couple of weeks ago that we look likely to test the December lows of 78. We did go through trendline support in the 83 region. I am not entirely convinced that we go too much lower here. The euro has resistance at 1.3740.

12. From The Business Insider, May 11, 2009:
    Merrill’s economist David Rosenberg left the firm Friday, May 8 (planned for several months). And he went out swinging. David has maintained from the beginning that the recent rocket rally off the lows is just a suckers’ rally, and he reiterated that view as he walked through the doors.
    Some excerpts from his swan song, which was published Thursday:

    Market likely to peak the end of the week [Friday]. Just as the clock is winding down on my tenure at Merrill Lynch, the equity market is winding up with an impressive near-40% rally in just nine weeks. For those that were still long the equity market back at the March 9 lows, a good ‘devil’s advocate’ exercise would be to ask yourself the question whether you would have taken the opportunity, if the offer had been presented, to have sold out your position with a 40% premium at the time. What do you think you would have said back then, as fears of financial Armageddon were setting in? We haven’t conducted a poll, but we are sure at least 90% of the longs at that point would have screamed “hit the bid!”

    Are we at risk of missing the turn? Fast forward to today, and within two months optimism seems to have yet again replaced fear. Are we at risk of missing the turn? What if this is the real deal – a
    new bull market? This is the question that economists, strategists and market analysts must answer.

    Risk is much higher now than it was 18 weeks ago. The nine-week S&P 500 surge from 666 at the March lows to 920 as of yesterday has all but retraced the prior nine-week decline from the 2009 peak of 945 on January 6 to the lows on March 9. We believe it is appropriate to put the last nine weeks in the perspective of the previous nine weeks. To the casual observer, it really looks like nothing at all has happened this year, with the market relatively unchanged. But something very big has happened because the risk in the market, in our view, is much higher than it was the last time we were close to current market prices back in early January, for the simple reason that we believe professional investors have covered their shorts, lifted their hedges and lowered their cash positions in favor of being long the market.

    Employment, output, income, sales still in a downtrend. Considering what transpired from an economic standpoint, the decline in the first nine weeks of the year was rather appropriate in the midst of the worst three-quarter performance the economy has turned in roughly 70 years. The rally of the past nine weeks appears to be rooted in green shoots. While it may be the case that the pace of economic decline is no longer as negative as it was at the peak of the post-Lehman credit contraction, the reality is that employment, output, organic personal income and retail sales are still in a fundamental downtrend.

    Need to see an improvement in the first derivative. We have evidence that the consumer, after a first-quarter up-tick that was front- loaded into January, is relapsing in the current quarter despite the tax relief (didn’t we see this movie last year?). Not until improvement in the second derivative morphs into improvement in the first derivative with respect to the important economic data will it really be safe to declare what we are seeing as something more than a bear market rally, as impressive as it has been.

    This is a bear market rally that may have run its course. The investing public is still holding tightly to their long-term resolve, but much of the buying power at the institutional level seems to have largely run its course, in our view. That leaves us with the opinion, as tenuous as it seems in the face of this market melt-up, that this is indeed a bear market rally and one that may well have run its course. We have “round-tripped” from the beginning of the year and there is real excitement in the air about how these last nine weeks represent evidence that the economy will begin expanding sometime in the second half of the year.

    Growth pickup will likely prove transitory While it is likely that headline GDP will improve as inventory withdrawal subsides and fiscal policy stimulus kicks in, our view is that whatever growth pickup we will see will prove to be as transitory as it was in 2002, when under similar conditions the market ultimately succumbed to a very disappointing limping post-recession recovery. So yes, there may well be some improvement in the GDP data, but it is based largely on transitory factors. We strongly believe it is premature to totally rule out the end of the vicious cycle of real estate deflation – residential and now commercial – that we have been experiencing since 2007. Balance sheet compression in the household sector will continue to pressure the personal savings rate higher at the expense of discretionary consumer spending. This is a secular development, meaning that we expect it will last several more years.

    Chances of a re-test of the March lows are non-trivial. To reiterate, it seems to us likely that the risk in the market is actually higher today than it was back at the same price points in early January, and we say that with all deference to the stress tests (which given the less-than-dire economic scenarios, along with the changes to mark-to-market accounting, were destined to reveal healthy results). While the consensus seems gripped with the burden of trying to decide if there is too much risk to be out of the market, we actually still believe that the chances of a re-test of the March lows are non-trivial, especially if the widely touted second-half economic rebound fails to materialize…

    The data flow is less relevant this cycle than in the past. This was not a manufacturing inventory cycle, which makes the data flow less relevant than in the past. Real estate values are still deflating and the unemployment rate is still climbing; these are critical variables in determining the willingness of lenders to extend credit. And as we just saw in the Fed’s Senior Loan Officer Survey, while there may be a ‘thaw’ in the financial markets, banks are still maintaining tight guidelines. In fact, the weekly Fed data are now flagging the most intense declines in bank lending to households and businesses ever recorded.

    The best case is that this is a bear market rally. All of this has not precluded an elastic band bounce from an egregiously oversold low in the S&P 500, and perhaps we will even test the 200-day moving average of 960 (as the 10-year note yield and NASDAQ just did). But we still do not believe what we are seeing fits the hallmark of a new bull market. In our view, the best case is that this is a bear market rally, but one that clearly has more legs than its predecessors this cycle.

13. Thanks much Nicky

14. GST call in 5 minutes, could be an interesting one if they can hang on for higher prices.

15. KOG — in all sincerity, hoping it drops back to 85¢. Might shift a few more funds in at that price. Thinking about it, don’t think they will make an announcement after they test well #3 (end of May). Think they will wait to report 3 and 4 (mid June) as 3 is a 4,500 ft lateral, but 4 is a 9,000 ft lateral. 4 could be one of those “game changing” wells for them. But, maybe everyone is already thinking the same thing. We shall see…

16. BOP – on the extended lateral, did they say something along the lines of targeting twice the reserves for 2/3rds of the price of 2 wells or something similar. WLL has drilled some really long laterals and some dual and tri-laterals up there to good effect. I too think it is a good thing if they don’t get into the habit of press releasing each well.

17. Story out saying OPEC’s president does not see calling for further cuts in production quotas at the May 28 meeting.

18. The resilience in the service names continues. Just can’t get excited about more puts in the space when the stocks pop on the slightest bit of green in the broad market but only shallowly participate on the down days despite their recent stout gains. The Street continues for the most part to pump these names up … they must see a round of deals around the corner in the space if they can get them up high enough.

19. #16 KOG — they were totally tight-hole on wells 3 and 4 on the conf call. Not giving the public any data or setting any expectations. However, the institutional buyers in this last equity round had to sign a 90-day confidentiality agreement. So, there is clearly stuff swimming below the surface here.

20. BOP..Any words of wisdom from TT or HT this morning?…TIA

21. TT gave it another 50/50 day… so, nothing useful there. Will check with HT now (he had nothing to say pre-mkt).

22. http://321energy.com/editorials/west/west050609.html

    Lot of discussion lately pertaining to the strengthening uranium market-above article cites a couple of reports.

23. GST – going through the yada, yada now on the call, will let ya know if they say anything interesting.

24. HT thinks we bounce here to, maybe, slightly positive on the indices. But not enough to trade it.

25. GST – not getting excited here.

    Last six wells at $10 mm a pop, down from early last year at $14mm , not a big surprise there.

    Do see some bump up in production later in the year due to workover but they are not really drilling so it will be lumpy with 2Q down from 1Q and then back up later in the year.

    They have $30 mm of debt coming due this year so the story really hinges on their ability to either pay that off (can’t with cash flow) or do a deal to refinance it. They really need higher gas prices.

    Analysts sound bored, but there appear to be more of them on the call than in past recent quarters.

26. bkx weakening considerably, vix edging up.

27. Oil and NG just gave up the day’s gains.

28. GST call = uneventful.

29. Nicky/tater – Should I be reading anything into the fact that many are looking for turning points in S&P, Oil, Gold and the USD at the same time?

    I’m hearing lots of calls for S&P to turn down, USD to turn down, Gold up and Oil caught in the middle between the USD bears and the S&P bears.

    It seems like a critical inflection point for all markets.

30. ZTRADE: HK – Added another (20), the last piece, to my so far ill-fated HK May $26 call trade for $0.20. Brings average cost down to 42 cents. High risk trade label still applies as expiration is Saturday.

31. z – any thoughts on GMXR and how this offering changes the redetermination math? I figure they can raise $80m net on their 5.75m shs @ $14ish. This goes against $150m outstanding on their revolver. What does all this + gas recovering slightly do to their redetermination?

32. 1520 – it helps, maybe they get a small bump. According to management they were in little danger of seeing their borrowing base reduced. It gives them more breathing room and the ability to quickly add a rig in the latter part of the year should gas prices improve in the fall. I guess no one really cares about the dilution which is thumping large. Just focus on the 4P reserve potential as they call it and small the ugly pill. BOP is right, you don’t want your banks holding an anvil over your head these days.

33. CNBC Watch:

    Addison Armstrong calling the recent move in oil a momentum move. Can’t argue with that.

    Says oil can trade up into the lower $70s … that sounds like a bit of a stretch, guess it depends on the time frame.

34. Agreed on the anvil avoidance.

35. “The previous administration’s failure to apply the law has resulted in widespread uncertainty in the oil and gas industry and put reliable conventional energy production from offshore areas at risk,” Interior Secretary Ken Salazar said in a statement released late last night.

    “We must fix the problems the court identified and put oil and gas leasing decisions back on firm scientific footing.”

    Who is he kidding?

36. gmxr said in their release that they have only about 65m left to spend in 2009 (net of a sale of pipe). Seems like that after the offering and a redetermination that stays the same roughly that they can live within their means and fund the remaining capex via the drill bit (more or less). Also gives them some ramp up capital if things improve.

37. VTZ – 29. Agreed. Which is why I’m playing pretty conservative on cash after the run we’ve had. Seems like we could round trip 100 points on the SPX and no one would be able to say much about it other than “oh, well, it had had a good run”.

38. #35 = “double-speak”… something that is being perfected these days.

39. BOP – I just find it more than hugely ironic that Salazar, with his designs to pillage the hydrocarbon based energy industry in the U.S. has the gall to make that kind of statement.

    Looks like market is waiting on retail sales tomorrow to make a decision on what to do next. Volumes in most things I’m looking at are very light.

40. Maybe we need a “Gall Meter” along with our “Irony Meter” these days.

41. VTZ = I’m hearing exactly the same things. Yes, I believe that we are at one of those points, but I think that Nicky has some very valid ideas as to how difficult it is say what/when there may be a turning point. I believe the market has been pushed by traders who had a craptastic 2008. They absolutely NEED to hit every rally or they are out of work. Same may be true of a possible reversal. There may be a pile into that direction if we head back down. I figure that there is no need to be early. Let it turn around and jump in for the ride.

42. We used to have a “give a crap” meter. When that one felt low, it was time to get out of the market, which had become too complacent. I’m really surprised to not see more profit taking here in the broad market.

43. We are in a pretty famous “news vacuum” time of year. Where the mrkt can be pushed to the FEAR side of the ledger with relative ease.

    IG 152.5 moving wider

    HY 80.625 moving lower

44. I’m pushing Websters hard to add craptistic to their list. No other word conveys quite the sentiment.

    CRR edging lower but its tough going, feels a bit like a slow, continuous cover.

45. Thanks tater, just wanted to see if you had the same perspective as me. Great charts as per usual. I vote whenever I visit.

46. Oil hit $60.08 at the open and backed quickly away which is pretty typical of a momentum trade. Products are down today on continued perceived weak demand and that should tug oil lower if we don’t see a pickup in at least gasoline demand tomorrow.

    Did see a couple of stories on summer trips (expected to be down this year but was not broken out by flying vs driving) and another story saying travel for Memorial Day would be up.

47. Moody’s rates Linn’s proposed notes offering B3; outlook is stable

    Approximately $450 million of debt securities affected

    New York, May 12, 2009 — Moody’s Investors Service assigned a B3 (LGD 6;
    91%) rating to Linn Energy, LLC’s (Linn) proposed $200 million eight-year senior unsecured notes and affirmed its existing B1 Corporate Family Rating (CFR), B1 Probability of Default Rating (PDR), and existing B3 (LGD 6; though the point estimate is changing from 92% to 91%) senior unsecured note ratings. The note ratings are assigned under Moody’s Loss Given Default notching methodology. The SGL-3 Speculative Grade Liquidity Rating was also affirmed. The outlook is stable.

    Note proceeds from the pending offering along with the pending $75 million equity offering will repay a like amount of outstandings under Linn’s first secured borrowing base revolver. Under Moody’s Loss Given Default methodology, the rating for the proposed senior notes offering is two notches lower than the B1 CFR. This is the result of the company’s estimated $1.2 billion outstanding balance under the revised $1.7 billion borrowing base revolver, constituting nearly 72% of the capital structure as determined by the LGD methodology pro-forma for the $200 million notes offering and $75 million equity offering.

    The affirmation of the B1 CFR reflects the company’s overall sizeable and durable asset base comparable to similarly rated E&P companies. Although Linn’s property base has undergone significant change over the past two years, it consists of long-lived durable assets needing relatively low levels of capital spending to sustain production and contains prospects for near-term growth.

    The ratings are further supported by seasoned management; sound liquidity due to effectively 100% of production being hedged through 2011 with significant proportion extending further into 2014; and sound production and productivity trends.

    The B1 CFR is tempered by the company’s LLC corporate structure which contains the burden of not only sustaining, but also growing its regular cash distributions to unit holders, and the need to supplement organic growth with acquisitions. This distribution obligation amplifies the relatively high reinvestment risk for the company but is compounded by having a depleting capital base underpinning a depleting asset base.

    The B1 CFR also incorporates the company’s relatively high leverage on the proven developed (PD) reserve base approximately $8.86/boe pro-forma for the equity offering which is on the higher end of the B1 rated exploration and production (E&P) peers group. Moody’s expects that leverage will likely remain on the higher end for the rating as the LLC model does not lend itself to much debt reduction given that cash flow after maintenance capex will be paid to unitholders instead of debt reduction. In addition potential acquisitions may also result in sustained higher levels of debt within the company. However, given the company’s scale and diversification, the B1 rating can handle some incremental leverage.

    The stable outlook assumes that the company will be able to continue to demonstrate stable production trends, while maintaining a manageable cost structure. The stable outlook also reflects the expectation that leverage on the PD reserves remains within the $9.00/boe range and future major acquisitions will be adequately funded with equity,

    The speculative grade liquidity rating of SGL-3 primarily reflects Moody’s expectation that Linn will have adequate liquidity to cover its planned capital spending needs, interest expense, and working capital requirements over the next twelve months. Given its LLC structure, Moody’s does not expect Linn to have much free cash flow after unit distributions, but will have adequate availability under its senior secured revolving credit facility to cover any funding needs.

    Moody’s last rating action for Linn Energy, LLC dates from June 17, 2008, at which time Moody’s assigned a first time B1 corporate family rating (CFR), a B3 (LGD 6; 92%) rating to its senior unsecured notes, a B1 probability of default rating, and an SGL-3 speculative grade liquidity rating.

    The principal methodology used in rating Linn was the Global Exploration and Production (E&P) rating methodology which can be found at http://www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Range can also be found in the Credit Policy & Methodologies directory.

    Linn Energy is a Houston, TX based independent energy company engaged in the development, production, acquisition, and exploitation of long life crude oil and natural gas properties in the United States. The company’s reserves and production are located in California and Mid- Continent regions.

48. Just to add to that idea, the line in the sand is likely to be somewhere between 904 and 899 for people to really get that tight feeling in their gut again. Sentiment-wise, I tend to believe that so many people got scorched, just absolutely burnt up in the last year that they will be very quick to pocket a positive return for their fund and sit on it until they have reason to re-invest.
    Imagine a trader who could sell now and sit out until November and then claim to have gotten a 38% return for his fund this year. I’m sure that it would be a big marketing point for a fund. For an industry that makes its living off of commissions, I think that will play a part.
    Just my ramblings, but charts really are just a physical manifestation of crowd behavior, nothing more or less.
    Thanks for the kind words (and though I appreciate the vote, that was just for a little bet that I had going with a friend. No need to bother anymore, but thank you for the effort).

49. EIA STEO:

    revised global crude demand from a drop of 1.35 mm bopd to a drop of 1.8 mm bopd for 2009.

    revised non-OPEC supply up to growth of 100,000 bopd from flat for 2009.

    Just came out, pushed crude a touch lower.

50. HK looks to targeting $24. No news, sinking with the market, group, resurgent rumor that they are going to do a deal.

51. Credit indices weakening, with stocks…

    IG 154.5

    HY 80.5 down a full point

52. I really don’t listen to the news during the day. Did this just come out, or is it old?
    http://www.bloomberg.com/apps/news?pid=20601068&sid=aKkPN8keugMw&refer=home

53. Z-maybe you should send an e-mail to XOM and COP that things may not be so rosy on the LNG deliveries (sorry about the long link):

    http://www.thepeninsulaqatar.com/Display_news.asp?section=Business_News&subsection=Local+Business&month=May2009&file=Business_News2009051215446.xml

54. Tater – I think it came out about an hour ago, recall seeing it scroll by.

    Choices – I hear ya but don’t think they’d listen, lol. They bet a big chunk of their future growth on a scattering of LNG projects as they gave up on trying to grow volumes in the U.S. quite some time back. XOM from time to time has commented on what a poor market the U.S. market is for natural gas…they’d rather deal with the Russians on multi-billion dollar projects than have to contend with the boom-bust winter centric cycle in N. America. That decision is also part of why I have trouble listening closely to buyout rumors on names like CHK with XOM as the cash rich buyer, since XOM has shown such a predilection for international ops and as recently as late last year punted either some or all of its Barnett position.

55. NEW YORK (Dow Jones)–A highly uncertain economic outlook could keep a lid on
    oil prices this year and next, the Energy Information Administration said
    Tuesday.
    Even while actual markets have risen, the U.S. agency lowered forecasts for
    benchmark U.S. crude prices in 2009 and 2010, citing cloudy prospects for an
    economic turnaround.
    In its monthly short-term energy outlook, the EIA said U.S. light, sweet crude
    will average $51.70 a barrel this year, slicing 94 cents from its prior
    forecast. In 2010, the agency sees crude averaging $57.75 a barrel, a
    projection $5.17 below its April view.
    “EIA’s forecast is based on a macroeconomic outlook that assumes the U.S. and
    global economies begin to stabilize in the coming months and show signs of
    recovery late in 2009 and into 2010,” the outlook said.
    The agency is the statistics and analytical wing of the U.S. Department of
    Energy. Its forecast is the first of three highly anticipated oil market
    reports due this week. The Organization of Petroleum Exporting Countries is
    scheduled to release its report Wednesday, to be followed Thursday by the
    International Energy Agency.
    The EIA’s downward revisions come as oil markets have seemingly hit bottom.
    U.S. crude futures have climbed more than $9 a barrel, or 18%, since the EIA’s
    last outlook was issued April 14.
    This report’s price revisions were relatively modest in comparison with past
    months, when the EIA was forced to catch up with crude’s plunge from highs
    above $145 a barrel last year.
    The EIA warned, “Both recent experience and the sizable participation in
    near-term crude oil futures options contracts at strike prices that are
    significantly different from current futures market prices clearly demonstrate
    that crude oil prices can move within a wide range in a relatively short
    period.”
    A stronger-than-expected recovery from recession or lower production from
    countries outside OPEC could precipitate a “faster and stronger rise” in
    prices, the EIA said.
    The EIA said retail gasoline should average $2.21 a gallon this summer, down
    about $1.60 from last summer. For all of 2009, gasoline will likely average
    $2.12 a gallon, rising to $2.30 in 2010.
    For refiners whose profits on turning crude into gasoline have been pummeled,
    margins should stabilize at low levels as demand slowly recovers and supplies
    of ethanol grow more slowly, the EIA said.
    In the second quarter of this year, crude will likely average $53.22 a barrel,
    rising to $55 in the third quarter, the EIA said. Together the two quarters
    comprise the summer driving season.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    05-12-09 1248ET

56. NEW YORK, May 12 (Reuters) – The U.S. Energy Information
    Administration said Tuesday it lowered its estimates for
    domestic natural gas production and consumption in 2009, as
    weak economic conditions continue to pressure drilling and
    usage.
    In its May Short-Term Energy Outlook, EIA forecast U.S.
    marketed natural gas output this year would average about 57.98
    billion cubic feet per day, down 1.0 percent from last year’s
    daily rate of 58.59 bcf.
    In recent months, EIA has steadily pared back its estimates
    for U.S. gas production as low gas prices this year prompted
    production curtailments and a record slide in the number of
    rigs drilling for gas.
    EIA also said the sharp drop in drilling activity and the
    declining productivity of wells already in place will cause
    production to drop again in 2010.
    In 2010, EIA expects total U.S. marketed natural gas
    production to decline another 2.8 percent to 56.36 bcf per day,
    despite expectations for higher gas prices.
    EIA also projected domestic gas consumption this year would
    fall 1.2 bcf per day, or 1.9 percent, to 62.32 bcf per day,
    slightly more than the 1.8 percent decline forecast last
    month.
    The outlook for continued economic weakness in 2009 was
    expected to take its greatest toll on industrial demand, which
    is expected to fall 7.9 percent this year, up from EIA’s
    previous estimate for a 7.3 percent drop.
    EIA also expects slight demand declines this year from
    commercial and residential consumers, where consumption is
    influenced more by weather than economics.
    But it expects a 2.1 percent increase from the electric
    power sector as low gas prices, particularly in the Southeast,
    cause some power generators to switch from coal to cheaper gas.
    EIA expects consumption next year to increase 0.3 percent,
    but said the forecast gain is highly contingent on the timing
    and pace of economic recovery.
    In its price outlook, EIA said the Henry Hub spot price was
    expected to average $4.06 per thousand cubic feet this year,
    down from its previous estimate of $4.24 and nearly 56 percent
    below 2008’s $9.13 average.
    For 2010, EIA sees prices at Henry Hub, the benchmark
    supply point in Louisiana, rising 28 percent to $5.21 as the
    expected improvement in the economy lifts demand.
    (Reporting by Joe Silha; Editing by Walter Bagley)

    Tue May 12 16:44:33 2009

57. EIA STEO

    On natural gas they now see consumption growth of 2.1% in the electrical segment, up from 0.7% in last month’s forecast, as natural gas takes more share from coal.

    Gas Production Forecast:
    2009 was expected down 0.3%; now down 1.0%
    2010 was expected down 1.0%; now down 2.8%

    LNG – They inched up their import forecast from 1.32 Bcfgpd to 1.37 Bcfgpd

    Canada – they raised their forecast for imports from an expected decline of 11% to a decline of 7%. That makes little sense since the data continue to worsen out of Canada.

58. Thanks for posting Sam, I was just looking over the EIA’s latest bone toss.

59. Z, are you still of the mind that it is very unlikely HK does an offering here?

60. John – yes, I am. But the last time I said that (and I mean after the 4Q call and not in the last couple of days) they proved me very wrong. They have $0 drawn last data available, but they also stepped up the capital program last week which will absorb the cash from their high yield deal. I just think Floyd would be pushing his installed base of shareholders over the brink were he to do one in the next 3 to 6 months unless the stock is at least $30.

61. Thanks Z.

62. John – most of the May call trade is going to hinge on the direction of the market, more than fear of deal, unless of course they do one, over the next 3 days. NG continuing to march up helps but its not enough without the SP500.

63. NG up another dime now. Interesting to see SWN apparently responding.

64. Blackbery question. Somehow got shunted to the bottom of 30 days of emails. Anybody know how to get back to the top or do I have to wear out my thumb?

65. Z, press “T” for top, “B” to get to bottom.

66. Thanks much Boss, will do when it stops deleting a couple of weeks of emails.

67. US April budget deficit at $20.9B

    First April deficit since 1983.

    This is TAX COLLECTION month… and our Govt is ALEADY in the red?? Somebody, pls stop this. Now.

68. Can’t stop bailout nation… pensions funds… medicare… 401Ks all need propping up. Don’t count on surpluses for the foreseeable future.

69. Gold closing above 920 is bullish for a move to 960.

70. Time for a little Bank Stress Test Humor break… if you didn’t see this, it’s a hoot.

    http://www.nakedcapitalism.com/2009/05/saturday-night-live-grades-stress-tests.html

71. Thanks BossmanG.

72. BOP – RE 70, that’s a must see, thanks for the laugh!

73. Greenspan sees signs of bottom in market; says Fed policy did not cause boom

74. Greenspan is not dealing from a full deck.

75. Impressive end of day run in natural gas to close up 17 cents near the $4.50 mark. Feels like short covering as it is very streaky.

76. Good afternoon
    For any interested has been covering his shorts today Mr K
    -seems he is in a market nuetral mode

77. Also everyone I read buying gold

78. Thanks for the color D

79. Denise — what do you think about buying gold? I never get that one right. And i’m still more worried about deflation + high govt interest rates, than inflation + high govt interest rates… don’t know how gold behaves in that scenario.

80. BOP-I am never comfortable buying gld always late but occasionally join the crowd. I went small aem long for possible 55 pin on options expiration.

    agree with you

81. Denise — thanks for sharing. I just can never get gold (or airline stocks) right. One has to know one’s limitations, I guess.

82. There is a newletter by Lance Lewis
    (not sure think Daily Market Summary is the name) He posts columns on Minanville and seems to get it pretty right.

    I believe he was with David Tice-I do not subscribe (only because of my lack of fondness for gold)

83. For what it’s worth I essentially have a tinfoil hat.

    Deflation is a short term concern and there’s no way rates are going up unless they want to crush the economy. Most serious cases of inflation are caused by actions taken in depressions.

    QE can only lead in one direction. The monetary base is huge and there’s no practical way to reduce it without further decimation of the economy. The deficits (that are ongoing for a decade?) will be monetized and this has been predicted correctly by many. You can’t monetize a large part of 3 trillion dollars of your deficit over 2 years without impacting purchasing power of your currency.

    Asset deflation and monetary deflation are two different things. Cheap money does not solve a problem caused by cheap money.

    You know those banks that everyone is saying are so great right about now because of the steep yield curve… well not so much… treasuries? Not so much…

    The flight to gold as a currency rather than commodity will be fierce. Call it a bubble if you want, but I’ll take gold because it has always and will always act as the ultimate reserve backing.

    In order to back all the EU and American currency, gold has to reach a number between 5000 and 10000 depending on who you ask.

    Why does anyone hold gold as a reserve if it’s not a currency? Also, what’s backing the USD is the USD if the world’s currency? You can’t debase the whole system because other countries (read China) won’t have their reserves, crushed.

84. A bit off subject, but since there are lots of engineers here:

    Wisdom Of A Retiree!

    I’ve often been asked, “What do you old folks do now that you’re retired?”

    Well … I’m fortunate to have a chemical engineering background, and one of the things I enjoy most is turning beer, wine, Scotch, and margaritas into urine..

85. VTZ — we might be talking about the same things. When i say i worry about deflation, it’s wages, home prices, commercial realestate (not oil, gold, or other imports). When I say I worry about high interest rates, it’s not at the front end of the curve, which is the only place the Fed can really control.

    So, I worry about a continued decline in wages in the US, to more of a world-scale… with Govt providing a lot of services that Govt didn’t used to provide (and taxing a lot that they didn’t used to tax) + higher interest rates in the 2 – 30 year range. Guess gold goes a lot higher, in that scenerio… but I don’t know.

86. BOP – We are on the same page… There’s no way the Fed can raise short term rates, but everyone knows that the longer the rates on the short end stay low combined with QE, the higher the long end should go.

    At some point, oil will punish the US consumer (and the economy) as a function of bailout nation dollar destruction.

    If they don’t continue monetizing debt, they will not be able to finance their deficits. Bernanke and Obama have indicated by their actions that this isn’t an option.

    Gold can only go up.

87. BOP-I worry about China not buying our debt!

    It seems to me we will be in an exquisite trading environment for the next decade. But not make much headway.

    RMD-read depressing tibit yesterday that China and India graduated 975,000 engineers last year and we had 70,000.

88. VTZ — thank you. I guess I am personally more comfortable with oil, than gold… but both will go up for similar reasons, all else equal. When it comes to the Armageddon currency of choice, I’ll take shot gun shells. They serve a dual purpose… I can’t eat gold! But, glad to be on the same page.

89. Denise — exactly. China fueled our housing boom by reinvesting our exported dollars and keeping interest rates low (why that was a conumdrum to Greenspan, I’ll never know). They can take away the punchbowl at any time. If US consumers pull back (and not buy Chinese imports) at the same time our Govt needs the Chinese to fund ever higher deficit spending, the Chinese are going to require a lot higher rates to buy our debt. We are basically enslaving ourselves to making the Chinese happy, with all this deficit nonesensical spending.

90. BOP – You can’t eat gold, but you can’t eat oil either and gold is easier to store.

    Denise- China has already indicated that they are not going to fund US debt forever… as demonstrated by their talk and their well-documented and publicized accumulation of gold.

    RMD- The older guy beside me has that cartoon on his door.

91. I guess we all are in agreement commodities and energy are the preferred asset class.

    I notice the ag/fert names are doing well today

92. CF loves TRA. AGU loves CF. SAC loves TRA…

93. Beerthirty. Someone let me know when they see API.

94. What a day. Head Trader points out that longs are just not all headed to the door, like you think they would be. Also, there is a lot of money still sitting on the sidelines, wanting part of the game.

    Credit closed back about where it opened. Maybe we just scoot sideways from here… nah. Too much headline risk, govt involvement, and frazzled nerves. Summer should be volatile.

95. INTC — CEO on the tape saying “2Q better than expected so far.”

96. TXCO – COO and CFO terminated.

97. One of my rules of investing — Never buy stock in a company who’s CFO has a name that rhymes.

    TXCO = Mark Stark, ex-CFO.

98. BOP – I gotta, well, bop. Can you post those API numbers?

    Jat can you post imports and utilization.

    Looks like we got across the board draws, oil up post close.

99. According to Bloomberg — API Report

    Crude Oil Inventories -3130k
    Gasoline Inventories -2006k
    Distillate Inventory -1757k

100. END OF DAY WRAP

     Levels

     – SPX dn 1pt to 908

     – Credit flattish; IG12 147 / 149 (tighter 1bps)

     – Commodities mixed: Crude briefly hit $60/bbl this morning, breaking thru January levels, but ends back under $59.. Spot gold acts well, trading up ten bucks to $923/oz.. Copper reversed course to the downside after initially trading higher on the back of China import data..

     – Baltic Dry Index rises 1.7% (highest level since early Mar)

     Overview

     Markets stage strong rally off their worst levels as the financials cut their losses into the bell. While the move higher was nice, the defensives are the strongest sectors today (health care, staples, telco carriers), not the types of stocks you would like to see lead a rally, and a lot of the late day buying in financials was mostly just a burst of short covering (and fins couldn’t hold their gains into the bell). That said, the tape remains resilient and the financial sector is hanging in well despite a huge rally and a huge uptick in fresh supply.

     Some of the headlines that hit during trading today that helped equities:

     · Greenspan comments helping (they hit just after 2pmET) – says seeing “seeds of bottoming” in housing….says US eco running “very well” in recent weeks

     · Financials started to rally – a lot of short covering help – the early sell pressure when deals brook price completely abated in the early afternoon and flow became pretty even

     · HUD sec makes pos comments on housing initiative – HUD says that FHA going to permit its lenders to allow homeowners to use the $8K tax credit as a downpayment….”the Obama administration plans to further stabilize the housing market”

     · Russian Central Bank (on Bloomberg) also said today they have no plans to reduce US treasury holdings; “Of course there are lots of problems in America, but the American economy is fundamentally big and flexible,” they said

     · GE’s Immelt said improved credit markets have brought stabilization to the economy but it is still not clear when growth will resume

101. Utilization:
     DOWN 1.7% from 83 to 82

     Imports:
     DOWN 985 from 9,708 TO 8,723

102. Huge drop in imports there…

103. Thanks BOP and Jat. Yeah, that is a monster drop in imports, kind of what we’d call a “low quality” beat on the numbers. Not nearly as bullish as imports can be flighty and you’d rather have a crank up in demand. However, on the other hand, the gasoline dip is like a bit of increased demand AND softer production. The increase in demand is important and the softer production means less crude demand but also keeps gasoline inventories out of the spot distillate inventories have found them in. This time of year, we start to see gasoline prices start to wag the crude price dog so even though crude demand is weak, any possibility of a reduction in gasoline inventories will be supportive of crude prices. More on the morrow …

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