It's expiration Friday and I would expect pinning action to set in well before lunch. Futures for the broad market were called lower early although a slightly better Empire State index may boost shares modestly . The Energy Groups are moving in loose association with the broad markets and are trading on extremely light volumes in a post 1Q09 news vacuum. This happens every quarter but effect following the first quarter is generally the worst. To be clear, I'm not saying we are always down post first quarter results but rather that the stocks are quicker to retake their directionality from the broad market than in other quarters. Next week I'm likely to start adding more to names that have near term catalysts (like a PXD) or that I think have retrenched enough  / more than their fair share in this pullback.

Housekeeping Watch:

  • Item #1. ZBlasts via Text. If you want this, at no additional charge from me (but potentially at a fee from your carrier), send an email to Petra at zmanadmin@gmail.com with TEXT ME in the subject line. Include your cell number with area code and your carrier.
  • Item #2. We've added a few new folks this week. Please check out the Bios tab at upper left and if you feel like it, submit one to Petra and we'll get it added. Also, this is one of the slow seasons in the market and I'm more than happy to answer questions about the site so don't fail to use the the comments section.
  • Item #3. Movie Quote Friday Watch: Today's quote relates to the recent move up in the markets:

Too Fast Vasili, Too Fast

  • Item #4.  Have a great weekend!

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Review
  4. Stuff We Care About Today
  5. E&P Chart Update
  6. Odds & Ends

Holdings Watch:

  • No trades yesterday.
  • The $10KP is now at $30,300.
  • 82% is in cash. This has been rising this week through a combination of sales and because the option component of the portfolio has been sliding in the face of a weak broad market. Patience pays just as well as busy trading days, in fact, it pays better in a down market.
  • Potential scud list: (May options held by me that may go off the board worthless)

    • HAL $16 puts - been in that category a long time, doubtless a $0.
    • HK $24 and $26 Calls. The $24s could squeak out above $0 given an early bounce or a bounce in gassy names on the rigs numbers around noon. Given the direction of futures this morning I have my doubts whether the buyers needed for that bounce will show up in time.
    • CLR $30 Calls. Toast.
    • Those last three were listed as a high risk trades for a reason. Market has become much more tentative this week on the heals of 10 weeks of heady gains. Hence the big cash position.

Commodity Watch

Crude oil edged up $0.60 to close at $58.62 yesterday with a reluctantly stronger equity market. This morning the dollar is catching a little bit of a bounce (but still looks to be breaking down technically to me and why shouldn't it?) while futures are called lower and as a result crude is trading off a little over a buck.

Natural gas fell early but recovered most those losses closing down $0.04 at $4.29 yesterday after the EIA reported a slightly better than expected injection into gas storage (more on that next section). This morning gas is following crude around by the nose, trading off by the same percentage in pre market action.

  • Rig Count Watch: We are likely to get flat to slightly down reports from Baker Hughes on rig counts in coming weeks (today as well but the individual reports can be noisy), especially on the gas directed side. Having listened to a swarm of E&P conference calls over the last week I'd put the number of companies increasing their active rigs counts at about 5% with most flat a few reducing activity further. Prices simply don't warrant a bump in activity at this time. Today's report, even if it shows a large decline in gas rigs (which again, I don't expect) probably will have little impact on gas today as it has for months now. 


Natural Gas Review


  1. Gas inventories rose by the same amount as last week, 95 Bcf
    1. this report came despite milder weather
    2. and is likely a function of increased cooling load and slipping imports from Canada
  2. The report was slightly better than Street expectations
  3. At 2,013 Bcf in storage, this is not the highest level of gas storage for this week of the year ... it is the second highest.
  4. The highest storage for this week of the year goes to 2006, then
    1. storage was at 2080 Bcf
    2. and gas prices were at $6.25.
  5. Cumulative gas injections have run high to norms due to the combination of strong production and weak demand. There is still little doubt U.S. inventories get "full" by October and we are likely to set a new storage record somewhere  above the 3.5 Tcf mark.



Stuff We Care About Today

BEXP Expects To Close Massively Dilutive Offering And Then Ramp Capex

  • Unable to sell acreage for cash, BEXP decided to ink a deal to dilute the share count by 30+% yesterday
  • Today, they are on the tape talking about being excited about getting back to work in the field, only setting aside enough money to pacify their bankers in the short term.
  • As I said yesterday, I'm staying away but will continue to watch it and may ultimately take puts here as I'm not impressed with their lack of capital discipline and not overly impressed with their well results to date.

E&P Chart Update

Brief Comments On The Following Graphs:

  1. I use these graphs as a quick reference along with other materials on the E&P tab; check that tab for a description of each of the graphs below.
  2. Depending on your liking for risking you can see that a number of E&Ps are still underfunded for their 2009 capital budget given analyst estimates of their cash flow, which is essentially based on a premium to strip pricing for gas and is in line for oil. Most of these have available revolver capacity to fund the gap for 2009. 2010 may see further spending reductions if prices don't pick up in 2H09.
  3. Most of the names have had a strong runs since the March 9 market low. Looking at the strongest runner, PQ, you can see the move to the downside was overdone and despite the big run up in the last 2 months, the stock is still in the hole for the year. Note also that it still trades at a significant discount both to its historic multiple and to the group on forward cash flow. This kind of position I find difficult to trade via options but I do hold the common for that valuation gap closure in the future.
  4. NFX is ridiculously undervalued on a $ / Mcfe basis but that is fairly normal, just worse than usual at this time. I like that name on weakness.
  5. Note that the names that are normally pricey on a forward cash flow basis (SWN, HK, etc) are largely higher growth expectation names (except for CLR) and in hot plays (Haynesville Shale,  Fayetteville Shale, Bakken) that offer repeatability and fairly low risk.
  6. On debt, the new debt to cap average seems to be 40%; early this year anything above that level caused a great deal of concern as the debt markets sputtered. Now the focus has turned more to EBITDA/ Interest (ability to pay your interest) so unless you have term debt coming due this year or a redetermination that will put you above your availability on your revolver and can't get a deal done now at exhorbitant rates, the market is giving you a pass for now.
  7. Anyway, these charts are just a quick reference to use when thinking about the stories and to put them in context with each other. I'll have the Big Caps out on Monday and will add both sets to the E&P tab then.

Odds & Ends

Analyst Watch: Pretty quiet.

  • Scotia upped its target on AXC.to from C$27 to C$31


63 Responses to “T.G.I.Expiration”

  1. 1
    Sambone Says:

    By David Bird

    NEW YORK (Dow Jones)–Crude oil futures prices were lower early Friday, under
    pressure from signs of continued demand weakness.
    Nymex June delivery light, sweet crude, which expires at Tuesday’s settlement,
    was down 89c at $57.73 a barrel. The contract hit a six-month high of $60.08
    early in the week, but retreated amid worries over weakening oil demand.
    Forecasts from widely watched agencies this week all lowered their demand
    outlooks for this year, with the International Energy Agency projecting the
    biggest year-to-year dropoff since 1981.
    Demand concerns heightened Friday after data showed a larger-than-expected
    drop in first quarter euro-zone gross domestic product. Gross domestic product
    shrank 2.5% on the quarter and 4.6% on the year between January and March, the
    biggest contraction in both measures since records began in 1995, the European
    Union’s Eurostat statistics agency said.
    Edward Meir, analyst at MF Global, said he expects crude prices will settle
    into a trading range of $54-$61 ahead of the May 28 meeting of the Organization
    of Petroleum Exporting Countries. OPEC had made good on about 80% of its pledge
    to trim output by 4.2 million barrels a day since the autumn, but weak demand a
    huge inventory overhang are keeping pressure on prices.
    Market focus is turning to gasoline ahead of the May 23 Memorial Day holiday,
    which starts the summer driving season in the U.S. Forecasters are calling for
    a slim 0.7% rise in gasoline demand from a year ago, though early-May
    indications are lagging.
    June gasoline futures prices hit a seven-month high on Thursday, but were down
    early Friday. Nymex June RBOB gasoline was down 2.12 cents at $1.7025 a gallon.
    June heating oil was down 3.17c at $1.4630.

    -By David Bird, Dow Jones Newswires
    Dow Jones Newswires
    05-15-09 0911ET

  2. 2
    tater Says:

    Natgas –
    I spent a little time with the chart last night. I don’t have any real opinion on the price other than to say that I found the 4.45 (4.47?) level to be fairly significant. Quite a bit of action around that number in Jan/Feb then again at the end of March. Would like to see a close above that to believe it’s going higher. (It’s an end of day chart, so it won’t update until well after the market closes).

  3. 3
    zman Says:


    Late trade. CRR – sold the 6 June $35 puts yesterday apparently, just got notice. $2.70 for an 11% gain. Did not like how this one was trading, will revisit if it spikes up again on short covering.

  4. 4
    zman Says:

    Thanks Tater, will have a look. I think an advance here will be a slow grudging one.

  5. 5
    zman Says:

    Tater – thanks for the chart read. Natural gas during normal times is one of the more volatile of the widely traded commodities. I would rather see it trade between $3.75 and $4.25 than attempt a V-shaped recover. So I’m with you on the need to stop going down vs the idea of a real reversal. I think it has the ability, due to a large short position, to see big spikes up that could take out higher levels and get more technicians on board. Two things will happen if that occurs too soon, before the coming wave of evidence of production declines is at hand. That move would quickly fail apart. More LNG would arrive soon, pushing storage up more quickly this summer. Neither is desirable from a trading standpoint.

    From a company standpoint, any strength should be used to hedge enough gas in 2010 to protect capital spending plans. I’m seeing more comments along those lines as the group is for the most part thinly hedged next year. So, either prices have got to rise, or capital budgets will be much weaker 2010 vs 2009, (2009 having been weak so far relative to the spendy levels of 2008). The E&P tab has a list of the hedged vs unhedged for 2010 and analysts are increasing looking to the more hedge names as they still fear a move lower in prices (saw one yesterday with a year end price of $2.50).

  6. 6
    BirdsofpreyRcool Says:

    [Comment delayed; conf calls this am]

    Good morning — HT and TT never offer comments on option expiry day. That said, it might be a good thing, as they have been a bit “off” this week. In their defense, the mrkt is taking it’s cues from the daily shifting of tones in Washington. That is tough to input into tech models.

    Credit a tad weaker, even though eco-#s came in “less-bad”

    IG 157 1/2

    HY 78 5/8

  7. 7
    tater Says:

    “I am no one to be trifled with,” replied the man in black. “That is all you ever need to know.”

    That probably relates to this market as well.

  8. 8
    BirdsofpreyRcool Says:

    KOG — closed on their self-managed 2ndary offering last night. Stock might have sold off wed-thurs on some doubt that it would get done. At the last minute, mngmt was unable to buy stock (as they said they would do) as it would have delayed the funding. Anyone who has worked with the SEC will understand the delays involved when insiders try to do anything alongside outside investors. So, not a surprise.

    Stock up today on funding completed.

  9. 9
    zman Says:

    Thanks BOP, yep getting back to CNBC acting like CSPAN…market despises that.

    Tater – P.B.

  10. 10
    BirdsofpreyRcool Says:

    Speaking of Washington… just got off the phone with a guy who’s son works for a company involved in “infrastructure projects.” Anyway, this kid’s job has been to fly around the country and talk to customers about their infrastructure/CapEx projects. What he has found is that everyone is ON HOLD… waiting for what is going to come out of Washington. No one wants to spend money and then find out that they were eligible for “stimulus funds” or some other govt program. So, companies are just sitting on their hands.

    This is exactly what happened under FDR. Uncertainty about Washington keeps the private sector from investing and delays the recovery. History repeats.

  11. 11
    zman Says:

    BOP – reminds of the foreclosure stories from a couple of months back. Banks not taking low bids at auctions because they saw chance the feds would pay more for houses and commercial properties. So nothing happens.

  12. 12
    zman Says:

    By the way, if you want to see some rants, check out Wyoming’s comments last night.

  13. 13
    Sambone Says:

    (Adds comment from local people, army.)

    LAGOS (AFP)–The rebel Movement for the Emancipation of the Niger Delta, or
    MEND, Friday declared “all-out war” in Nigeria’s southern oil-producing region.
    “MEND is declaring an all-out war in the region and call upon all men of
    fighting age to enlist for our freedom,” the armed group said in a statement to
    the media, reiterating an earlier warning to oil companies to evacuate the
    Delta area before the weekend.
    “The Nigerian armed forces today launched indiscriminate aerial bombardment on
    the defenseless civilians in the Gbaramatu region of Delta State,” the group
    A MEND activist and former ethnic Ijaw youth leader, Jonjon Oyeinfie, said “a
    fierce battle” was raging along the Warri-Forcados river, with the army
    deploying 13 gunboats and helicopter gunships.
    A military source declined to comment but said the army had been carrying out
    “cordon and search” operations in the area.
    A Warri resident reported seeing having seen clouds of smoke rising from the
    Chanomi Creek area in Gbaramatu.

    Dow Jones Newswires
    05-15-09 1022ET

  14. 14
    zman Says:

    HK looks to be getting pinned to 22.50.

  15. 15
    choices Says:

    BOP or Z-could I get that bond list that BOP made available a few days ago.



  16. 16
    zman Says:

    Market going all happy, happy, joy, joy, don’t see a reason for that.

  17. 17
    zman Says:

    SWN looking like it will give a good opportunity for a end of expiry period trade if this broad market rally can drive crude, then gas into the green.

  18. 18
    zman Says:

    Choices – I think BOP just sent you that.

  19. 19
    BirdsofpreyRcool Says:

    choices — I just sent it to you. let me know when you get it, ok?

  20. 20
    cargocult Says:

    It is nice to see the Democrats back in the White House. What Republicans do best is criticize govt. and with their own party in control they seem to line up and shut up, even when headed down the wrong path (war is a very sophisticated way to burn money).

    Somehow when the guy from Goldman Sacks was throwing all that money around with Bush in the WH nobody said anything. Now that the former Pres. of The Federal Reserve of NY (hardly a socialist) is throwing all the money around it is time to wail. My own view is this: because of the short sighted greed of big banks etc, huge quantities of money simply disappeared creating a liquidity crisis and recession. Adding money to the system is like a blood transfusion to a bleeder. The alternative is more economic chaos and severe deflation. Once again (think FDR) the so called socialists come to the rescue of the capitalist system.

  21. 21
    zman Says:

    Not a Ztrade as I would no more tell you I’m betting on black next time I’m at the tables but playing a hunch on SWN in the $40 strike Mays.

  22. 22
    choices Says:

    BOP-got it! It will take me a while to study it-obviously, I want high yield and no risk (heh) but will take your advice on grade level.

    Thanks again!


  23. 23
    VTZ Says:

    Z – Do you have a standing “ZBig Picture” view on uranium. I can’t remember talking/reading about it here?

    Comments on it as a substitute to some baseload and the effect on NG prices? I realize that NG is used more for peaking, but I was just interested in your thoughts.

  24. 24
    BirdsofpreyRcool Says:

    choices — That is why i like that data package. Not only bonds and pricing, but lots of financial information too. So, takes a good amount of time to go through. But, you can pick your level of risk vs return based on fundamental and market metrics. All else equal, pick bonds with smaller issues outstanding. If you intend to buy-and-hold, those bonds have more of an illiquidy premium. I.e. professional money managers don’t want to buy them as those smaller issues are more difficult to get out of, when you want to sell. Typically, any deal that is $300mm or less. So, gives the buy-and-hold guy a gift there.

    Pls, ask any questions you might have. Bond investing is different. You might want to buy a bond of a company whose stock is of no interest to you. Bonds want free cash flow. “Growth” is secondary to paying your interest and being able to roll-over your debt, when it matures.

  25. 25
    zman Says:

    V – I don’t. I look to Occam for that. I have been thinking about coming up to speed on uranium pricing.

    I used to follow the 98 to 100 active reactors in the U.S. quite closely as refuelings and unplanned outages often overlapped leaving a void only gas could fill. When they are up, they run flat out and generate 20 to 21% of U.S. capacity. No new ones coming on in the next probably 10 years. They do get uprated occasionally, allowing them increase their nameplate capacity but those are pretty small increments. Gas also produces about 20 to 21% of U.S. power needs in a normal year. That leaves coal at half and then everything else making up the other 10%. In coming years, some of those nukes will have to get there licenses extended as they are getting old but they have not had a problem doing that of late. I do know that in 2010, many utilities will be done with large portions of their old uranium contracts. Upon expiration of those contracts, we are likely to see nuclear come up the cost chain but still be cheaper than coal and gas for generation.

  26. 26
    Popeye Says:

    DRYS may be a POS but it sure can make some moves.

  27. 27
    zman Says:

    DRYS – agreed. This time its a waiver on the terms of their debt. Almost makes you want to say “silly investors”.

  28. 28
    zman Says:

    WSJ story on analyst price decks coming down in 2010. They use the word “slashing” but 11% is really not much of a reduction in analyst speak in a month, especially since this is 2010 and they have held it aloft for so long.


  29. 29
    elduque Says:

    BOP – I am still behind the curve in my bond purchases. I feel like some of my former clients who couldn’t pull the trigger.

    Would you please send me the bond list as well.

    BDI +112 2544

  30. 30
    BirdsofpreyRcool Says:

    elduque — my pleasure. However, my email-capable computer has just gone all “Blue Screen of Death” on me. First time ever. True IT emergency. So, will send as soon as I am email-able again.

    Since both the IG and HY mrkts are weaker today, waiting hasn’t hurt you.

  31. 31
    BirdsofpreyRcool Says:

    While I am waiting for the computer ambulance to show up… few comments on the mrkt in general today.


    It’s not just here. You can hear crickets chirp on the trading desk. Think it’s a combo of earnings exhaustion, options expiry, Washington uncertainty (more govt is not good for mrkt stability), Friday, Spring, and just plain exhaustion in general.

    That said, with the Blue Screen of Death staring me in the face, perhaps it’s time to go walk the dog.

  32. 32
    RMD Says:

    A commodities piece notes a strong correlation between the SPX and WTI prices since 9/08, with 50 points of SPX movement equating to $7.00 of oil price.

  33. 33
    Sambone Says:

    By Ian Talley

    WASHINGTON (Dow Jones)–House Democratic energy leadership is planning to give
    away around 85% of the greenhouse gas emission credits – the right to emit – as
    part of an agreement to win moderate support for a major climate and energy
    By giving away the majority of the credits, instead of auctioning them, Reps.
    Henry Waxman, D-Calif., and Ed Markey, D-Mass., increase the likelihood of the
    legislation passing in the House by meeting lawmakers’ concerns for
    emission-intense industries and protecting low-income households from energy
    price rises.
    That’s in contrast to President Barack Obama’s push for a 100% auction of the
    credits, a trillion-dollar revenue raiser in the Administration’s budget. Many
    in the industry are likely to applaud the deal, but some environmental
    organizations say it won’t reduce emissions enough to prevent what many
    scientists say is a trend toward global warming.
    According to a document reviewed by Dow Jones Newswires and written by the
    Energy and Commerce Committee Chairman Waxman and his chief lieutenant Markey,
    35% of the credits will be allocated to the power industry. While most of that
    will be distributed through the local distribution companies to protect against
    windfall profits, 5% will go to merchant coal generators.
    Energy-intense industries such as the cement, glass and paper manufacturing
    sectors will get 15%, 9% for the natural gas sector, 2% for refiners, and 1.5%
    for home heating oil.
    Another 15% will be auctioned to help low-income households with expected
    energy bill price rises.
    Most of the emission allocations will phase out between 2026 and 2030.
    The energy committee will begin next Monday to debate and vote on the bill.

    -By Ian Talley, Dow Jones Newswires
    Dow Jones Newswires
    05-15-09 1236ET

  34. 34
    zman Says:

    Good luck with the blue screen BOP … you are not missing much.

  35. 35
    tater Says:

    Anybody wanting some excitement, take a peak at the S&P 60 min. Looks like we are hanging on the brink.

  36. 36
    zman Says:

    Tater – oil looks like its trying to lead the SP lower instead of the normal reverse.

  37. 37
    zman Says:

    Tater – by your way of doing TA, is the level at the close or just that it was broken during the day?

  38. 38
    ram Says:

    Are the HK’s or the CLR’s “toast”?

  39. 39
    zman Says:

    Rig Count Watch:

    Oil, down 9 to 181 vs 381 a year ago

    Nat gas, down 2 to 728 vs 1,471 a year ago

    Horizontal, down 1 to 378 from 528 last year.

    Louisiana saw rigs added but Tx lost 13 and Arkansas lost 4 (Fayetteville shale)

  40. 40
    zman Says:

    38 – yes, the may HKs and CLR positions are toast.

  41. 41
    tater Says:

    Both. I know that’s a lame answer, but as of late I’ve tried to be less strict about exact lines and paid closer attention to momentum swings/efforts when a price hits a line in the sand. Having more success by incorporating the fundamental arena at those points. (Also helps me to deal with the stop gunning).
    So a more clear answer is that I think that the pragmatic approach is what is necessary. Use what works for that particular name, much in the way you are experienced with how something trades after they announce and have their call.

    It’s art and I am a flowery artist eligible for government money 🙂

  42. 42
    zman Says:

    Re 41. So its either and not both. So, if you look at your line in the sand on SP at 885 a break during the day is as telling to you, even if it bounces back to 890 close?

  43. 43
    bill Says:



    The moonbats shot it down even though it meant billions to the bankrupt state of calif.

    Now that soros is in PXP, some are rethinking position

  44. 44
    zman Says:

    Bill – it’s a shame too because the risk of an accident is very low and they can make those platforms look like anything from shore, from a puffy cloud to a glass and steel condo.

  45. 45
    tater Says:

    1. Any break is a warning that we have to pay extra attention. Something, the line, that defined our playground has changed.
    2. Is the break/warning real or fake? How does it play into the macro environment, does it make sense, or is it more like stop gunning? To attempt to answer this question I go to different time charts. How does the break play on the shorter term chart? Does it hit certain landmarks there, like the Fib grid, or trend lines on that time period? Or does it make absolutely no sense there?
    3. I then do the same thing with the momentum indicator (RSI) and see whether the break make sense in the different time periods.

    Very long answer, and I kid around about it being art and not science, but that’s the truth. There is no one way. Sometimes the breaks are telling and sometimes not. The best answers can usually be found when you get a confluence of multiple indicators stacking up to tell you to lean one way or the other.
    Not going to defend TA, but it’s much the same as when there is discussion as to what “multiple” the street “should” assign to a name, and therefore what price it “should” trade at. It all depends.

    If it is of any help, I posted a 15 min chart for the S&P. Compare it to the 60 min chart and then reference the red box and red line within the box on both charts. Those red lines are sell signals generated because the second pop up (the most recent) was too strong/too fast. When the price then began to flirt with the bottom of the channel on the 60 min chart, I personally find that to be a good indication that we might get even more selling.
    Obviously I have to have a trade failure level at which I have to get out no questions asked.

  46. 46
    zman Says:

    Thanks Tater, just looking for your perspective, obviously not expecting a warranty on it, lol.

  47. 47
    tater Says:

    Yep. whipsaws are great fun. I just screwed up a FAZ trade. Was on the right side, then I wasn’t. Now I’m licking my wounds and watching the train leave without me. Thanks for playing!

  48. 48
    BirdsofpreyRcool Says:

    U.S. Stocks Drop as Bair’s Comments on CEOs Push Lenders Lower
    2009-05-15 18:09:00.589 GMT

    By Eric Martin
    May 15 (Bloomberg) — U.S. stocks fell as Federal Deposit Insurance Corp. Chairman Sheila Bair predicted the heads of some banks may be replaced, snuffing out an early rally spurred by signs the contraction in manufacturing is abating.
    Bank of America Corp., Zions Bancorporation and Fifth Third Bancorp led declines in 23 of 24 companies in the KBW Bank Index after Bair said some chief executive officers may need to be replaced in the next few months. She didn’t say the government would replace the CEOs. Chevron Corp. and Exxon Mobil Corp. lost more than 1 percent as oil retreated from a six-month high of $60 a barrel. FirstEnergy Corp. fell 9.4 percent, leading utilities lower, after Barclays Plc cut its rating.
    The Standard & Poor’s 500 Index slipped 1.1 percent to
    883.55 at 2:06 p.m. in New York, poised for a weekly loss of 4.9 percent. The Dow Jones Industrial Average decreased 58.14 points, or 0.7 percent, to 8,273.18. The Russell 2000 Index of small companies declined 1.2 percent. More than two stocks fell for each that rose on the New York Stock Exchange.
    The S&P 500 has rallied 31 percent since March 9 as expectations for a recovery in the global economy and better- than-estimated earnings at companies from Ford Motor Co. to Citigroup Inc. fueled speculation the worst of the financial crisis is over. The benchmark index for U.S. equities traded at
    15.1 times the earnings of its companies at the end of last week, a six-month high.

    Economic Data

    Industrial production in the U.S. fell in April at the slowest pace in six months and less than forecast, signaling manufacturing may be stabilizing. Output at factories, mines and utilities decreased 0.5 percent last month, according to the Federal Reserve. The central bank’s Empire State index, which gauges manufacturing in the New York region, rose to minus 4.6, better than forecast, from minus 14.7 the prior month.
    Europe’s benchmark index advanced 0.6 percent even after a report showed the region’s economy contracted 2.5 percent, the fastest pace in at least 13 years, in the first quarter as companies cut output and jobs to survive the worst global slump in more than six decades.
    UBS AG recommended investors reduce their holdings of stocks, saying hopes of an economic recovery are “likely to fade.” The brokerage cut its global equities allocation to “neutral” from “overweight.”

    ‘Good Job?’

    Zions Bancorporation lost 5 percent to $15.32 and Fifth Third lost 4.4 percent to $7.19. The KBW Bank Index lost 2.4 percent after climbing 1.4 percent earlier.
    The U.S. is scrutinizing lenders subjected to tests to evaluate their financial strength, and “management needs to be evaluated,” Bair said today in an interview for Bloomberg Television’s “Political Capital with Al Hunt,” to be broadcast this weekend. “Have they been doing a good job? Are there people who can do a better job?”
    Chevron dropped 2 percent to $65.86 and Exxon slid 1 percent to $69.06, leading energy shares to the steepest decline among 10 industries in the S&P 500. Oil retreated on concern the global economic recovery may falter, reducing demand for fuel.
    Crude futures may decline next week as the recession saps demand and bolsters U.S. supplies, a Bloomberg News survey of analysts showed.
    Crude oil for June delivery fell $1.84, or 3.1 percent, to
    $56.78 a barrel on the New York Mercantile Exchange. Oil reached
    $60.08 on May 12, the highest intraday price since Nov. 11.

    Utilities Slump

    FirstEnergy, the owner of utilities in three states, fell
    $3.83 to $36.51. Barclays cut its rating on the stock to “equal weight” after Ohio state regulators accepted results of a power auction yesterday that will lower rates charged by FirstEnergy’s generating unit.
    Blockbuster Inc. dropped 29 percent to 81 cents. Total revenue for the quarter ended April 5 was $1.12 billion, less than the average $1.28 billion estimate of six analysts in a Bloomberg survey.
    Chemed Corp. fell 5.9 percent to $38.78. The health-care company owner, which also provides Roto-Rooter plumbing services, said a unit received an administrative subpoena from the Department of Justice requesting documents on hospice services.
    Agilent Technologies Inc. dropped 4.5 percent to $17.50.
    The biggest maker of scientific-testing equipment said it expects fiscal 2009 revenue to decline 25 percent from a year earlier.

    Earnings Watch

    Earnings at 444 companies in the S&P 500 that have reported results since April 7 shrank 37 percent, Bloomberg data show.
    During the period, about two-thirds of those profits beat analysts’ estimates.
    Hartford Financial Services Group Inc. jumped 1.7 percent to $15. The Connecticut-based insurer won preliminary approval for $3.4 billion in capital from the Treasury’s Troubled Asset Relief Program. Prudential Financial Inc., Allstate Corp., Principal Financial Group Inc., Lincoln National Corp. and Ameriprise Financial Inc. are also eligible for funds, according to Treasury spokesman Andrew Williams.
    Principal Financial and Lincoln National also rose, while Prudential, Allstate and Ameriprise drifted between gains and losses.
    Nordstrom Inc. added 9.3 percent to $22.29 as the U.S.
    department-store chain with more than 100 namesake locations raised its annual earnings forecast and posted first-quarter profit that fell less than analysts estimated after controlling inventories.

  49. 49
    zman Says:

    So, if Chrysler isn’t going to buy back the 40,000 vehicles it has on the lots of the 789 dealers it just axed, does that mean one could get a good deal on a jeep right now? Not that I want a jeep but it seems the Chrysler deal is going to punish the local dealers. I understand they must sell their inventory by June 9 since that’s the affiliation cut off date.

  50. 50
    zman Says:

    Re 49 – just trying to stay awake.

  51. 51
    BirdsofpreyRcool Says:

    Libor Drops; TED Spread at Lowest Since Crisis Began (Update3)
    2009-05-15 15:55:30.103 GMT

    By Anna Rascouet
    May 15 (Bloomberg) — The cost of borrowing in dollars between banks fell, capping its biggest weekly decline in four months, as government cash injections and interest-rate cuts led by the Federal Reserve began to thaw credit markets.
    “Interbank rates are heading lower, at an accelerating rate,” Rob Carnell, chief international economist at ING Groep NV in London, wrote in a report today. “If these trends continue, the Fed is likely to conclude that it is winning the battle to save the economy and financial markets.”
    The London interbank offered rate, or Libor, for three- month loans in dollars decreased almost two basis points to 0.83 percent today, the British Bankers’ Association said. The TED spread, the difference between what banks and the U.S. Treasury pay to borrow for three months, narrowed to the lowest level since August 2007, when the credit crisis began.
    Bank borrowing costs slid as the U.S. government and the Federal Reserve committed $12.8 trillion to stem the longest recession since the 1930s and central banks around the world cut interest rates to near zero. Libor, used to set borrowing costs on about $360 trillion of financial products globally, according to the BBA, jumped to 4.82 percent in October, following the collapse of Lehman Brothers Holdings Inc.
    The TED spread, the difference between Libor and the three- month Treasury bill yield, dropped three basis points to 67 basis points today, the least since Aug. 8, 2007, the day before France’s BNP Paribas SA halted withdrawals from three of its funds because of losses related to subprime mortgages.

    Still Wary

    Today’s drop in three-month Libor was the 33rd consecutive day of declines, the longest sequence since Jan. 24 last year.
    The rate declined every day since May 5, when it fell to an all- time low of 0.99 percent.
    Some measures show financial institutions are still wary of lending on concern their counterparts won’t be able to honor their commitments. Banks racked up more than $1.4 trillion of writedowns and losses since the start of 2007.
    The difference between the Fed’s target rate for overnight bank loans between banks and three-month Libor was at 58 basis points today, compared with an average of 22 basis points in the five years before credit markets froze. It widened to 332 basis points on Oct. 10, from 82 basis points just before Lehman filed for bankruptcy.
    “We can link Libor’s fall to a reduction in risk aversion, better economic data and the sentiment that we are headed towards stabilization,” said Nordine Naam, an interest-rate strategist at Natixis in Paris. “Money markets are relaxing, even if the path to recovery will be bumpy.”

    ‘Less Fear’

    The Libor-OIS spread, a measure of the unwillingness of banks to offer each other cash, narrowed three basis points to
    63 basis points, its lowest level since March 24, 2008. Former Fed Chairman Alan Greenspan said in June last year he wouldn’t consider money markets back to “normal” until the spread was at 25 basis points. The average in the five years preceding the credit squeeze was 11 basis points.
    Contracts in the forward market show traders are betting the spread will fall to 52 basis points by December, according to data compiled by Tullett Prebon Plc, the second-biggest broker of interbank transactions after ICAP Plc.
    “Money-market safe-haven spreads continue to narrow significantly, suggesting less fear in the banking system and more liquidity creating a less restrictive lending environment,” Greg Gibbs, a currency strategist in Sydney at Royal Bank of Scotland Group Plc, wrote in a note today. “The excessive fear phase of the credit crisis is coming to a close.”

    Deposits Jump

    The drop in Libor coincided with a surge in customer deposits. Cash placed in U.S. banks jumped almost $400 billion in the past six months, reducing demand for the interbank market, according to FTN Financial.
    Libor is derived from a survey of banks conducted by the BBA each day in London. Institutions are asked how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies from dollars to euros and yen. The BBA then calculates averages, throwing out the four highest and lowest quotes, before publishing them.
    Royal Bank of Canada quoted the highest rate today for three-month dollar loans, at 0.91 percent, while Deutsche Bank AG contributed the lowest, at 0.70 percent, a difference of 21 basis points. That compares with a dispersion of 26 basis points yesterday.

  52. 52
    gaamblor Says:

    was thinking the same re 49, cnbc says they are transferring inventory to other dealers but will they be willing to accept?, i’m sure we’ll see lots of advertising about amazing going out of business deals

  53. 53
    zman Says:

    Gaam – yep. Flipside is, they won’t be taking trade ins in most cases so its a cash buyer’s market.

  54. 54
    BirdsofpreyRcool Says:

    Considering all the restrictions, oversight, and auditting of mutual funds by the SEC, I find the information in this article astonishing. The “honor system”?? Recall when Eliot Spitzer went after mutual funds b/c he claimed some of the manager allowed “timers” in and out of funds? (99% of that was just greenmail, by the way.) Well, this kind of insider trading is much much worse.

    Just something to think about, as we hand over more and more of our private sector to govt agencies.

    Two SEC Lawyers Investigated by FBI on Insider-Trading Concerns
    2009-05-15 04:05:17.871 GMT

    By David Scheer and Jesse Westbrook
    May 15 (Bloomberg) — U.S. prosecutors and the FBI are investigating whether two Securities and Exchange Commission lawyers illegally used nonpublic information from the agency to bet on stocks, SEC Inspector General David Kotz said in a report.
    Kotz, who told Congress last year he was examining whether frequent trades by the pair broke agency rules, referred the case to the U.S. Attorney’s Office in Washington after finding evidence the bets might amount to insider trading, he wrote in the March 3 report released by Senator Charles Grassley. Both lawyers still work for the agency and denied improper conduct.
    The report faults the agency for inadequately monitoring trades by employees and relying on an “honor system.” The lawyers frequently discussed stocks at work, traded in at least one company under investigation and didn’t properly disclose some transactions, it says. One lawyer made 247 trades in the two years ending January 2008, and the other made 14.
    The agency “has essentially no compliance system in place” to ensure employees don’t abuse the “tremendous amount of nonpublic information they have at their disposal,” Kotz wrote.
    The SEC is already working on steps to guard against potential misconduct, and the report doesn’t conclude that insider trading occurred, agency spokesman John Nester said. The SEC’s new chairman, Mary Schapiro, has “made it a priority to significantly improve the agency’s ethics and compliance programs around employee stock ownership,” he said.
    “We take seriously even the suggestion that any SEC employee would engage in insider trading,” Nester said.

    ‘Hard to Imagine’

    The regulator is developing a new computer system to collect and review reports of employee trades, Nester said. It is also hiring a chief compliance officer and “clarifying”
    rules on stock investments by personnel.
    The 51-page report, redacted to remove names of employees and the stocks in which they traded, details stock bets. One of the SEC employees sold all her shares in a “large health-care company” two months before the agency began investigating the company, the report says. She also sold stock in a “global”
    oil company two days before the SEC opened an inquiry.
    “It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities,” Grassley, an Iowa Republican, said in a May 14 letter to Schapiro.
    He asked what disciplinary action the employees will face and what the SEC has done to determine how “systemic” insider trading by agency staff may be. He also asked what systems the SEC has to “flag” suspicious transactions and whether the agency will impose further restrictions on employees’ trading.
    Grassley requested a briefing by agency staff by May 28.
    Kotz has stepped up internal probes at the agency since he was appointed in December 2007, questioning the regulator’s policies, personnel decisions and handling of investigations.
    The SEC inspector general is responsible for conducting independent probes to detect waste, fraud and abuse.

  55. 55
    tater Says:

    OK. I admit it. I really am R.M.
    (From a letter to a paysite. Not a column, so I’m thinking it’s ok to post. If not, very sorry. He stole my Wimpy hamburger line anyway, so I figure I was there first).

    A Gimmick Economy for a Wimpy Populace
    5/15/2009 2:39 PM EDT

    Something about our whole economic condition keeps gnawing away at me, as if all is still not close to right. And I hear the talking heads treat our situation as a super-sized version of a traditional recession with a return to economic normalcy right around the corner. I wonder if I am missing something.
    However, the conditions which created the mess in the first place are little changed or improved. Stupid bankers still run insolvent banks. Overlevered consumers still purchase away and live paycheck-to-paycheck without a viable emergency fund. Politicians guarantee even more of our financial system and intervene even more in what once was a free market economy. They abrogate contract law and property rights and many cheer because it “saves” things. In fact, in order to thwart the great recession, politicians and citizens have in fact added more leverage to the mother of all leverage bubbles, more intervention into the mother of all interventions. And the people were comforted.

    This national acquiescence perplexed and annoyed me until it hit me. We have become a Wimpy populace in a gimmick economy. We don’t seek substance and real improvements, we desire painless gimmicks that make us feel better in the short run, but offer no lasting solutions.

    A lot of things have changed in this country in the past 50 years in my opinion. We went from doing the right thing for the right reasons to cutting corners to blatant government/citizenship manipulation and deception. The spin gets worse with each Administration. Today, a bankruptcy filing represents a “new lease on life” and government data manipulation is a science. How many jobs do we need to hit the Employment Report? Better crank up the birth-death factor and throw in 60,000 new business jobs. Don’t like the budget deficit? Take the war expenses off but keep the Social Security surpluses in.

    In our Wimpy society, we’ll gladly borrow/print trillions on Tuesday for our hamburgers today. We gladly embrace the charade to make us feel better, ignorant or dismissive of the real issues and solutions. Few note or complain these gimmicks or imbalances. No one wins from the implosion of a housing crash or leverage debacle. Few get praised for predicting dire outcomes.

    So we muddle through as the government creates more programs/bailouts to generate the appearance of fixing things and the population goes about wishing/believing things will improve. Yet we know deep down inside that things still aren’t right. We are “kicking the can down the road” (thanks Barack)printing/borrowing trillions to prevent a natural, cyclical delevering of the economy.

    I may have this whole Great Unwind thing wrong. We may be onward and upward from here as the recession fades into a distant memory, and the greatest country/economy in the world may come roaring back. The debt will just keep growing, the presses keep printing. We solved the problem the easy way, some electronic cash and a few Chinese I.O.U.s.

    But that doesn’t work for me. Call me a skeptic. Call me a butthole for such “unpatriotic” verbiage. Call me a stupidly wrong hedge fund manager. Just don’t call me dishonest or disingenuous. I am not blowing smoke where the sun doesn’t shine. I’m not selling TV time with hyperbole or fully invested mandates for mutual funds. I am just trying to invest my capital prudently for decent returns, all things considered.

    And when I look at the numbers, they ain’t pretty, and things ain’t fixed. The leverage, the housing crash, the unemployment rate, and the gutted manufacturing ecoonmy are all still there. It seems to me that we need to delever and reengineer this entire economy. So little of that has been accomplished.

    This doesn’t mean we meet Armageddon or that the sun doesn’t shine again. However, it does mean that delevering and restructuring an entire economy will take a lot of time and heavy lifting. I don’t know if America is really prepared for the task ahead. I know that talking heads and the politicians are not.

  56. 56
    Denise Says:

    Good afternoon,

    BOP-would it possible to also send me the bond list?-I am in the process of buying some corporates in a retirement acct. (first time ever)Thank you for your insight and education in the credit markets. Much needed by me.
    Thank you

  57. 57
    BirdsofpreyRcool Says:

    Denise — will do right now. No problem!

  58. 58
    zman Says:

    Pretty iffy looking market, see no reason to grab any June calls into this weakness in preparation for next week.

  59. 59
    rkbos Says:

    Z – Thinking that since you know GMXR well I wanted to make you aware of some fresh buying by the ceo and an evp (posted today). The buys may not be news to you but they seem worth mentioning as the buys represent a significant increase of their respective holdings. CEO purchase was for approx. $1.7 M.

  60. 60
    Denise Says:

    Z- since it is so quiet-have you considered starting to follow some international names? Might be a nice addition to the board?

  61. 61
    zman Says:

    Despite the higher than normal cash position, took a bit of a haircut this week. Going to get a haircut myself now, declaring beerthirty early. Have a great weekend.

  62. 62
    zman Says:

    Thanks for pointing that out RK.

  63. 63
    bill Says:

    more on 43


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