Tuesday Morning And All Is Quiet

First Lowes and now Home Deport buoy the markets. Makes sense if people aren't buying new homes they can at least go deeper into debt fixed up their old ones. I have read more stories that start off something like "crude rises as indications U.S. recession easing" in the last 24 hours than I care to recall. I think the job of many journalists these days can be summed up in three words: copy and paste. Honestly, the U.S. economy may be showing some signs of stabilization but I don't see much "easing" unless by easing you mean "retailer meets guidance / beats substantially reduced estimates" and then yeah, I'd say we are easing. To me, a recovery means among other things job creation and increased demand for goods and services. Perhaps a better phrase would be something like "stops falling apart at such an alarming rate"; that one I'd buy. Oops. Housing starts came in at 458,000 this morning vs forecasts of 520,000; yep, "easing" may not be the right word at all.

But I digress. Turning to "crude rising" from above, you can primarily thank a refining fire and Nigerian rebels who are promising to block access to export points and keep Bonny Light from the worlds markets. Bonny Light is the stuff the U.S. and Europe like to make into things like gasoline. If they do manage to further curtail production via piracy instead of their typical sabotage/hostage taking MO I wonder if the response will be as swift as it has been to container ship piracy on the other side of Africa. Until some relief of tensions is found for this new twist to the old MEND story I expect crude prices to continue to make runs on $60. I also have a hunch that we see a stocking effect    

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Odds & Ends

Holdings Watch:

  • $10KP is at $27,800;
  • 72% cash
  • The Wiki Tab is updated
  • Added 10 HK June $25 Calls (HKFE) for $0.95 with the stock at $23.20.
  • Added 5 SWN June $40 Calls (SWNFH) for $2.60 with the stock at $40.35.
  • Added a KWK Call position, a bit higher risk, going with (25) of the KWK June $12.50 calls for $0.25 with the stock up 14% on a JV with Eni in the Barnett. A more conservative posture would be the $10s for $0.90.
  • Added (5) KWK June $10 Calls (KWKFB) to start for $1.10.

Commodity Watch:

Crude oil jumped $2.69 to close at $59.03 yesterday. Blame the end of week sell down last week, the proximity of contract expiration (today), a weak dollar, a fire at a Sunoco refinery which jacked up gasoline prices and more trouble in the Nigerian Delta. Looking ahead to tomorrow, traders expect a further declines in crude and gasoline inventories. This morning crude is trading up slightly

  • SUN Fire Watch: Sunoco's Marcus Hook refinery fire was extinguished last night. Gasoline prices jumped to a seven month high on Monday as the fire forced the closure of an unspecified amount of gasoline production capacity leading to speculation that their could be shortages this weekend in the northeast as driving season begins.

Natural gas closed up $0.04 yesterday at $4.14, fighting off the beginnings of a surge in LNG imports. This morning gas is giving back yesterday's gains in early trading.

  • Imports Watch: up 0.4 Bcfgpd from last week and down 0.4 Bcfgpd from year ago levels.

    • Canada: remained flat at a low 5.7 Bcfgpd, down 1.3 Bcfgpd from last year at this time.
    • LNG: rose to 1.9 Bcfgpd, a two year high and 0.9 Bcfgpd above year ago levels.


Crack Spread Update:

Refiner Multiple ----


  1. You know how enthusiastic I am about the E&P sector. I am at least as unenthusiastic about U.S. independent refiners at this time.
  2. This will change with an increase in end product demand.
  3. Summer driving season starts this weekend which in the past has provided a  boost in gasoline prices which in turn has boosted the refining group. This year, more than most, we need to see demand pick up with Memorial Day.
  4. Expectations for the group continue to inch lower but they could on the brink of flattening or even rising slightly if refiners maintain output discipline.
  5. But again, without an increase in demand, the stocks of the refiners find themselves will remain between a rock and a hard place. Keep volumes low to keep product inventories from bursting at the seams and you also depress oil prices. Depress oil prices, somewhat counter-intuitively since this is their primary cost, and you depress the stocks as they correlate well with higher, not lower crude prices.

Odds & Ends

Housekeeping Watch: I think we have worked the bugs out of the text blast system. If you want to get text blasts send Petra an email at zmanadmin@gmail.com with TEXT ME as the subject line and include your cell number with area code and your cell carrier. There is no additional charge from us for this service but please know that your carrier my dock you 20 cents or so.

Analyst Watch: Mostly quiet on the analyst front and not just for the energy sector. Looks like the Street is beginning to dream of a 5 or 6 day holiday weekend.

  • (ECA) target raised from $50 to $57 by Scotia. 
  • (KWK) neutral rating reiterated by Credit Suisse.
  • Dahlman Rose upgrades Dry Bulks:
    • DSX, EGLE, GNK, PRGN, SB, SBLK all go from Hold to Buy
    • EXM goes from Sell to Hold.

Interesting Big Picture Oil Sands Article



106 Responses to “Tuesday Morning And All Is Quiet”

  1. 1
    zman Says:

    JY – still looking for that quote.

  2. 2
    BirdsofpreyRcool Says:

    cargo — this is the day I have been waiting for, in the dry bulk sector… for Omar Nokta to go positive on the bulkers. He picked the absolutely right time on the oil tankers, last time around. I don’t want to miss his call this time.

    So… given his “buy list” of DXS, EGLE, GNK, PRGN, SB, and SBLK, do you have any comments and or prefered companies in that list?


  3. 3
    jy Says:

    Thanks Z I still haven’t found it.

  4. 4
    BirdsofpreyRcool Says:

    post #2 applies to anyone following the shipping sector. Thank you!!

  5. 5
    BirdsofpreyRcool Says:

    Tech Trader says today will be “choppy with low odds”… but he thinks the mrkt will end in negative territory.

    Head Trader agrees with the “choppy” part, but he thinks we close positive.

    First time in a long time I’ve seen any disagreement between the two. So, not a lot of help today.

  6. 6
    BirdsofpreyRcool Says:

    Housing eco-data came in on the disappointing side of the expectations this morning. That said, I am seeing the sector flip to the positive now. I know it’s early, but thinking Head Trader might have the right call today. Focus has shifted from the Banks to Housing, Consumers, and Commercial RealEstate.

  7. 7
    zman Says:

    Thanks for the updates BOP, had to step out for the open. Mixed bag re the open I see. Housing starts didn’t really impress nor did permits. I have to say building less homes is a good idea, not sure why people think that building more is a gauge of a strengthening economy. If you build they will buy it doesn’t apply any more. So I’d think sales matter a lot more than actually building things for some time.

    Don’t yet have any details on the shipping upgrade…not doing a whole lot for the stocks yet.

  8. 8
    zman Says:

    Can’t blame HT and TT for being a bit wishy washy on the day. This is a light volume, light data week. It gets easy for the market to move in big swings like yesterday on momentum and little else.

    Congrats on the KOG, BOP, just keeps striding higher.

  9. 9
    bill Says:

    I wonder if chk had an offer to ENI and lost to KWK

    CHK blew thru alot of cash in Q1 and monetized 2010 hedges. They need to sell some assets or be cash constrained.

    I cant bring myself to buying shares with ng in the 4’s

  10. 10
    bill Says:

    on # 2

    I like dsx the besst..they have no debt and good management.

    avoid at all costs drys and to a lesser extent exm due to manager conflicts

    Free is an interesting name in the space with more risk, market cap is only 30 m. They bought some ships at the top of the market and cut their divy. They have the smaller bulkers handysize ..still making money and cash flow positive

    Current spot prices are at about break even level

  11. 11
    zman Says:

    Dahlman Rose brief comments on shipping sector upgrade

    “growing more positive on the outlook for the dry bulk shipping industry”

    “substantial leverage to an improvement in steel demand outside China which seems likely during the second half of 2009”

    “firming Chinese steel prices have spurred Capesize rates”

    Sees dry bulk stocks rising 20%

    SEA up 1.4% this morning, so people are being pretty cautious.

  12. 12
    BirdsofpreyRcool Says:

    z — you call me out on KOG… you know you’re gonna get a comment. So, here goes.

    First of all, I think I was wrong. I don’t think KOG is going to see 80¢ again. I think the stock dipped a bit on worries that the private placement wouldn’t get funded. Mngmt had promised to participate, but this requires a lot of paperwork with the Amex that would have delayed the funding. So, mnmgt stepped aside, this time around. The institutional investors still stepped up, and KOG got $7.15mm of the $7.50 they were going for.

    Also, got some more info from the company. This round of financing will take them fully through the end of 2009. That is a good thing. Also, they will report wells 3&4 (drilled north and south from the same pad) together. They are currently completing well 3, expect to have well 4 completed and report both IPs by “end of June.” They don’t want to get into the habit of reporting single-well results. That is a good habit not to set.

    Also, while no production details on the TFS well that Peak drilled in the middle of KOG’s acreage, that well was completed and is a commercial success. The decline curve for the TFS appears to be more gradual than the Middle Bakken, so where IP rates are not as high, the EURs could come close.

    Finally, got some geology on the TF/S. They are two separate formations, of course. The Three Forks is more like the Middle Bakken, geologically. While the Sandish is more of a clean, sorted, sandstone (like a more traditional reservoir). Just putting on my geology hat for a moment, I would say that this means if you encounter the TF, you can expect it to cover a wide area. If you encounter the Sandish, you can get up to 1mm barrels from a traditional, vertical well from that formation alone, but it’s more difficult to predict it’s presence. Don’t know what kind of sand it is (turbidite fan?), but it’s not the same type of reservoir as the Middle Bakken and Three Forks.

    Any additional geologic help/comments here would be greatly appreciated.

  13. 13
    BirdsofpreyRcool Says:

    bill — thx for your comments. couldn’t agree more on DRYS. no reason to jump into bed with bad mngmt. too many other fish in the sea. of that group, who has the best asset mix, ignoring capital structure for a minute.

  14. 14
    zman Says:

    Thanks Bill.

    On your spot price comment, I’m a bit confused. Cape rates are in the mid 30s, that’s well above daily costs (which should be $6 to $9,000 per day). If you look at last quarter for DSX operation costs were about $5,500 average for the fleet. Are you adding something else in?

    As far as utilization goes, I have not kept track of the individual fleets since people started talking about the fact that the largest fleet of vessels to ever grace the surface of the planet is dry bulks anchored off Asia. Have not looked into contract breakage but it was high last I checked.

  15. 15
    zman Says:

    Since when is paying someone a compliment “calling them out”, lol?!

  16. 16
    BirdsofpreyRcool Says:

    hmmm… i didn’t take it as a negative… guess “calling out” wasn’t the right response. But, you know what I mean. thx for the compliment!

  17. 17
    zman Says:

    Thanks for the updated KOG thoughts. Still waiting on a pullback. The stock is going through that ugly, prepubescent phase, lots of fits and starts and volatility. Up 10% one minute, down the next.

    PQ striving for $5 again as the group shows some sea legs an hour into trading.

  18. 18
    zman Says:

    NG trading off back close to $4. If it breaks look for a technical sell down to at least $3.50. Just not a lot of catalysts to hold it up this week other than the equity market and oil. Rig counts are easy to ignore, especially this Friday. I do think we need another 90 to 95 Bcf injection this week to keep gas above $4. Triple digits = look for $3 handle. Next big data point for natural gas is May 29 EIA data.

  19. 19
    zman Says:

    GST halted as they propose rolling another 36.5 mm shares off the bathroom stall wall. Ahhh, the sweet smell of massive dilution. CHK is partnered with them in Texas on a number of deep Bossier wells which may be explaining the little bit of outperformance they are seeing this morning.

  20. 20
    BirdsofpreyRcool Says:

    More evidence that the Banks are no longer at the center of this three-ringed circus.

    ibor Falls Most in Four Months on Bank Optimism (Update1)
    2009-05-19 12:46:17.249 GMT

    By Lukanyo Mnyanda
    May 19 (Bloomberg) — The cost of borrowing in dollars between banks had its biggest two-day drop in more than four months amid confidence record low interest rates and a recovery among financial institutions is unlocking credit.
    The London interbank offered rate, or Libor, for three- month dollar loans declined three basis points today to 0.75 percent, the British Bankers’ Association said, bringing its drop in the past two days to seven basis points, the most since Jan. 13. The rate has decreased in each of the past 35 days.
    “The tension has disappeared and we are gradually normalizing,” said Patrick Jacq, a senior fixed-income strategist in Paris at BNP Paribas SA, the biggest French lender. “There’s less stress in the market and banks know they will get liquidity.”
    Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley applied to refund a combined $45 billion of U.S.
    government money, people familiar with the matter said. That would mark the biggest reimbursement to taxpayers since the $700 billion Troubled Asset Relief Program, or TARP, began.
    Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, forecast a return to profit, adding to evidence the worst of the financial crisis may have passed.
    The availability of credit has improved as 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. Congress established the TARP program to stave off turmoil after Lehman Brothers Holdings Inc. collapsed in September.

    TED Spread

    Libor, used to set borrowing costs on about $360 trillion of financial products globally, according to the BBA, rose to
    4.82 percent in October, after Lehman’s failure.
    The TED spread, the difference between what banks and the U.S. Treasury pay to borrow for three months, narrowed six basis points 57 basis points, the lowest level since August 2007, when the credit crisis began. The Libor-OIS spread, another gauge of banks’ reluctance to lend, narrowed three basis points to 55 basis points, the least since Feb. 26, 2008.
    The Libor-OIS spread may reach the 25 basis points in the “next few weeks,” according Ivan Comerma, head of treasury and capital markets in Andorra at Banc Internacional d’Andorra, which manages about $1.6 billion in fixed-income assets. 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.

    Bank Contributions

    “Liquidity is in the banks’ balance sheets already and there’s no reason for the spread to stay at current, abnormal levels,” said Andorra-based Comerma.
    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 before noon.
    Royal Bank of Canada quoted the highest rate today for three-month dollar loans, at 0.88 percent, while Deutsche Bank AG, HSBC Plc and JPMorgan contributed the lowest, at 0.70 percent, a difference of 18 basis points, down from 20 basis points yesterday.

  21. 21
    zman Says:

    Cost of new emissions standard to the new car buyer = $1,300. I really have to wonder how they calculate that one. Lots of math involved including economies of scale, fuel prices, etc.

    Don’t get me wrong. I have always said the “get us off foreign oil” dilemma is an equation. Produce more and use less. Conservation is a good, necessary thing. So applaud the administration’s push on 35.5 fleet standard MPG. But I have to wonder about the costs.

  22. 22
    bill Says:

    In my mind its all capital structure at the moment.

    The “best” asset class would be what asset brings in the most money in the “spot” mkt vs vessal value..but as you know that changes over time

    I dont know what best asset mix is but i think capes have excess supply. I personally like the smaller to mid size vessals

    capes are large
    panamax mid size
    and supra max and handymaz the smaller size

    egle specializes on supramax
    dsx has 13 panamax’s and 6 capes

    the other factor, how much of the business is locked in fixed charters vs spot market and who they charter too

  23. 23
    BirdsofpreyRcool Says:

    Funny… yesterday the Credit Market was skeptical… only rallying a bit at the end of the day. Today, the stock market is wishy-washy, but Credit is having a very nice rally.

    IG 145

    HY on a tear… 80 1/2

  24. 24
    bill Says:

    i bot 2000 shares of dsx today and hedged with covered calls

  25. 25
    BirdsofpreyRcool Says:

    #22… I just like to start with the asset base, then work down from there. In addition to too much debt, the thing that will get you every time is “too much excess capacity.” But, of course you can’t ignore capital structure and contracts. thanks for your comments.

  26. 26
    BirdsofpreyRcool Says:

    bill, you and z are of the same mind, it seems, on DSX. double-recommendation, if you will.

  27. 27
    zman Says:

    Thanks Bill. I’ve noticed in the past that the group turns up when ships are bought and sold well, in a fluid market. When not, everyone looks at last sale and compares that price to fleet and then to total enterprise value. Hard for the stocks to get unmoored until they start swapping boats.

  28. 28
    cargocult Says:

    BOP, thanks for your confidence in asking me but I haven’t been so smart other than not selling at the bottom. Now if I could only learn to sell at the top. I own in drybulk DSX, NM, and yes DRYS(my AH is smarting), and in tankers FRO, SFL, and NAT. I am hanging in there in hopes that China will bid again on another Olympic hosting. I think Bill did warn us, I haven’t forgotten.

  29. 29
    zman Says:

    CNBC had Carol Browner on earlier to discuss the new MPG proposal, she’s the former EPA head under Clinton and now assistant to the President Energy and Climate Change.

    She used to work for Al Gore and also for a group called The Mission For A Sustainable World Society. Those guys espouse shrinking developed country economies to fight climate change. Her name was removed from their website when she accepted Obama’s appointment but that’s who she is.

  30. 30
    bill Says:

    I like nm as well

    On the tanker side , i like tnp and nat but spot prices are too low so im out.

  31. 31
    BirdsofpreyRcool Says:

    thanks, cargo.

    Looking at the 3 largest market cap companies, on the Dahlman buy-list: DSX, EGLE, and GNK.

    DSX = 0.9x Leverage (Debt/EBITDA) and 44x Coverage (Interest/EBITDA) for their last quarter, annualized.

    EGLE = 6.5x Leverage and 5.2x Coverage. So, lots of debt, but low interest rates, it seems

    GNK = 3.4x Leverage, 5.5x Coverage. Not too hot, not too cold, if we are at (or near) the dry bulk shipping bottom.

    That is using ratios from Bloomberg and says nothing about the quality of their assets or contracts.

  32. 32
    zman Says:

    NG broke $4. Now news, just a lack of momentum and oil coming back in a bit.

  33. 33
    elduque Says:

    BDI +39 2644

    I have had a position in PRGN for too long. Next time around when Bill tells me to do something, not only once but several times, I only hope I am more responsive. I digress.

    PRGN has their 1st quarter earnings announcement this afternoon and conference call tomorrow morning. There should be enough info. there to help with due diligence.

  34. 34
    zman Says:

    ELd- roger that, he’s made some good calls on the bulkers.

    I am in no hurry to follow the Rose analyst which may be to my own detriment but I’d rather wait for the first real pull back in this market before going long the bulks. The big pix items highlighted above are not really new, so his call can get countered by another sector analyst tomorrow. BOP, I know you like the Rose analyst but I just need a little more time to buy into it. Happy to miss the bottom 10% if the group is going to really recover. The charts do look good, I just wonder at the recent recovery in rates being something that is more a function of China which may or may not be sustainable. If those rates pull back 50% they’d still be up huge on the year (see Weekend Wrap) but the stocks would get clocked.

  35. 35
    elduque Says:

    Re EGLE, I believe that they have a large amount of new ships that were ordered when times were better.

  36. 36
    zman Says:

    El-d – Yep the did have a number of ships on order. I have a chart of who has what I’ll post tomorrow.

  37. 37
    AAA Says:


    Thanks for comments last night on MS Howells. Interesting firm.

  38. 38
    zman Says:

    re 37: Ditto that.

    NG holding just under $4, down 17 cents. No big sell down so far. The 12 strip is down about half as much.

  39. 39
    cargocult Says:

    I remember that Diana Shipping DSX lowered their dividend with the idea that they were building capital for some distressed asset buys when the time was ripe. It sounded like a smart move at the time.

  40. 40
    BirdsofpreyRcool Says:

    cargo — do you think DSX would take on debt to finance an acqtn? Or, are they debt-adverse? They have only been public since 2005, so tough to get a gauge on what they might do, without knowing mngt.

  41. 41
    BirdsofpreyRcool Says:

    Apparently, the US Supreme Court yesterday agreed to hear a case against Sarbanes-Oxley, brought by a small company. Dennis Gartman thinks that might be the reason behind the mrkt’s sharp upturn yesterday. I don’t know. But, I agree with Gartman, anything that would turn that law around and throw it out the door on its butt, would be a good thing. It treats every company as if it was an Enron… and makes them pay to prove they are not. Puts an undue cost and constraint on US biz.

    Hey, I’m all FOR prosecuting criminal managements. But SarBox throws EVERYone in jail and makes them pay to prove they are not a criminal, every year. That is just plain wrong.

    rant over.

  42. 42
    Dman Says:

    Z – there was a downgrade of SPWRA a few days ago. Did you see it & if so, any view?

  43. 43
    zman Says:

    Yes, someone took it to a sell. All I saw was a headline. I’d have to guess the traditional photo-voltaic solars are getting hit with a combination of increased pricing pressure and rejected orders.

  44. 44
    zman Says:

    … and FSLR has a sliding piece of their backlog, about 10 to 15%. It is sliding in the sense that someone order it, then canceled due to the economy and FSLR’s sales staff are finding new homes for it. That is going to pressuring the other guys further.

    I’ll see if I can get more details about why the stock was cut.

  45. 45
    zman Says:

    HK cracking above $24, KWK back above $10 after the weak Credit Suisse comments, group looking higher in general

  46. 46
    BirdsofpreyRcool Says:

    PQ… tough to believe that stock was 61¢ just 2 1/2 short months ago. $5.00… heck of a run.

  47. 47
    isleworth Says:

    Z – all the E&Ps are running strong with NG down 18 cents. Wassup?

  48. 48
    BirdsofpreyRcool Says:

    isle — z had to step out… he’ll be back and answer you soon.

  49. 49
    isleworth Says:

    tks BOP. Amazing strength in the gassy names with NG getting hit………..

  50. 50
    Wyoming Says:

    Have to play Mr.Mom today, How do you folks stand it? As I understand, this yahoo is on almost everyday. Can’t wait to go back and drink the work Kool Aid.

    Was the “Energy Crisis” of the 70’s the Embargo or lack of infrastructure investment in the late decade?

    3 years for Joe 6 to pay off the “investment”. Want to bet over the next 5 years Joe never even thinks about going to a car dealership. Not that there will be many around. Oh he must be talking about the New Joe, aka UAW Joe 6.

    Nice to see the the States putting on the Federal Feed Bag are well represented in the peanut gallery.

    Nuf, I’m done and I have to pick up the kiddo’s in a couple, so no cerveza for me.

  51. 51
    BirdsofpreyRcool Says:

    isle — i read somewhere that demand drives nat gas prices more than storage levels. So, if there is a perception that economies around the globe are on an upswing, then nat gassy kids should go up. You can see it in the chemical, power generators, machinery, and commodity names. The mrkt thinks global eco-activity is rebounding. That is what is going to drive nat gas prices, in the longer-run.

    just my two cents.

  52. 52
    cargocult Says:

    Any call or covered call ideas in shipping?

  53. 53
    BirdsofpreyRcool Says:

    There is a great line in the Gartman Letter today, it goes something along the lines of keep the Big Picture in mind when investing… “minutia is for the young.”

    loved that.

  54. 54
    isleworth Says:

    Tks BOP. With that logic of global recovery, you’d think we’d see commodity NG up, not down almost 5% on the day. 🙂

  55. 55
    isleworth Says:

    Gartman is long Nat Gas, at least he was last week. Is he still bullish?

  56. 56
    zman Says:

    BOP – Re PQ, yep, pendulum definitely swung too far in the red direction there, still way cheap on forward cash flow.

    Isle – I think part of the move on the E&P front is just relief after last week’s profit taking. The gassy names really didn’t make a big move after gas topped $4 so they are a bit out of sync. I think people are feeling a lot better about balance sheets and also you have a hint of M&A in the air with the two Barnett deals in the last week. Also, the direction is green but the volume is light and the move is pretty modest so all in all, its not really blowing my skirts up.

    Cargo – I’m sort of warming to DSX (more it than anything else) although I like NM as well. Will have a set of tables and thoughts on the morrow but I’m reluctant to just blithely follow Dahlman right now.

    BOP – good line in 53

  57. 57
    BirdsofpreyRcool Says:

    Gartman was talking about the housing sector, when he made that comment. Demographics drive housing demand, so at some point, the homebuilders will rebound. His point was that he didn’t know if Housing Starts today would be 600k or 500k or 400k. +/- 100k doesn’t really matter. It’s the longer-run trend that one has to get right. Guess that’s what i mean with respect to demand and nat gas prices. Nat gas could be up 5%, down 5%, or flat today. The short-run doesn’t mean much.

    What is your long-run view? Stick with that.

    Gartman plays things in the pairs trade world, long/short things. He is “long one unit of energy and one unit of Ag vs short two units of gold.” They put that position on April 27th and added to it on April 30th, believing gold to be expensive relative to other commodities. He uses DBA for ag and GLD for gold… doesn’t mention what he uses for energy in that paired trade. But he mentions later that he is long PBR and SU while short XOM.

    It’s a good read today.

    And boy, does he think our politics and policies are on the wrong track vs the rest of the world. (the US is “lurching leftward; abrogating contracts; raising taxes; increasing the nation’s debt at an astronomical rate and generally doing all things economically wrong, while Canada, Australia and New Zealand are, at worst, holding the line on all these things while exporting more and more goods and services to the one strong economy in the world, China.”)

  58. 58
    isleworth Says:

    BOP – I tried The Gartman Letter once. I must have hit a bad month – if a subscriber did the opposite of everything he did that month, you’d have made zillions. Oh well……

  59. 59
    BirdsofpreyRcool Says:

    z — ha! I’ll blithely follow Dahlman… i’ve seen the tonnage balance model there. Couldn’t even begin to replicate that work myself. So, willing to take a “head’s up” from an analyst I respect.

    That said, one still ALWAYS does one’s own work and picks one’s own risk-tolerance. So, one never really completely blithely follows… but, you get my point.

  60. 60
    BirdsofpreyRcool Says:

    isle — Gartman is only up 7-something-% year-to-date. I think z’s 10k Portfolio is outperforming Gartman there. So, not taking his recommendations down to the minutia level. So to speak…

    Just looking for the big picture from Gartman. I don’t like pairs trading. You have to be twice as right. I don’t buy that it “reduces risk.” I think you have all the downside and less of the upside… but, JMHO. Dennis has a lot more money than I do.

  61. 61
    zman Says:

    Tom – got the note on KWK from CS. Thanks. I pretty much agree with the “this a pretty good deal, a bit overdue them”. I think their $7 NAV is low but they seem to use flat prices in perpetuity.

    BOP – You know that I did not mean to imply that you blithely do anything, lol.

  62. 62
    BirdsofpreyRcool Says:

    z — methinks youthinks i have thinner skin than i do. I didn’t think you implied that… just hinted at it. So, made a few additional comments. “Challenge the recommendation/information/timing”… it’s all about just trying to make $$ (while trying not to lose it).

  63. 63
    zman Says:

    BOP – Couldn’t agree more on the pairs trading thing. I do it occasionally. Even more rare that it works out. As VTZ said yesterday, most of the market trades charts. That’s been true for a long time but it does seem more so now than ever. So if you like Service Company A and go long and you dislike Service Company B and go short, chances are go that both will move up or down with the sector which is also likely to move up or down with the broader market. Like now, I think VLO and SUN will outperform other refiners in the group this summer, like a WNR. But I’m not thinking good thoughts about the group right now and I doubt if I paired those up I’d come out ahead.

  64. 64
    Nicky Says:

    Good afternoon everyone. Well judging by the number of people I saw at the end of last week saying a correction was overdue etc etc there must be a lot of people scratching their heads at the strength of this market last few days – including Gartman. Volume has been absolute crap but breadth okay. There were about 11 Elliott wave counts on the table at the end of last week! So not too hopeful but corrections are hell to trade any which way you look at it.
    In either of my two prefered counts we are now in wave v and still need a couple of small moves higher. Resistance is at 918 on spx, gap at 924, and 200 dma average now at 934.

  65. 65
    zman Says:

    KOG – getting pushed around a bit, did you get any feedback on who took the new shares? Did they largely go to existing holders, was there one or two big holders that are new. Just wondering if it has a chance to be flipped below $1.

  66. 66
    BirdsofpreyRcool Says:

    z — re KOG, CEO said they all went to existing large shareholders. Also, the buyers had to sign a 90-day confidentiality agreement. So, they are not supposed to sell before the 90-days is up. But, some people take contracts more seriously than others, these days.

  67. 67
    zman Says:

    BOP – do you know if Wellington and Evergreen participated. I only vaguely familiar with some of those bucket shops they have as shareholders but W and E are quality holders.

  68. 68
    BirdsofpreyRcool Says:

    KOG — i think you have about a month, before the next big news event… wells 3 and 4. But, info there has been leaky in the past… so, wonder if they can keep a lid on the results from 3, before they get well 4 tested. We shall see.

    One thing we do know, wells 3 and 4 ain’t dry holes. Fingers crossed that they get frac stages done. Well 3 has 5 frac stages. Well 4 is a long (10k ft) lateral, with 10 stages… takes 3-4 days to frac.

  69. 69
    zman Says:

    Nicky – thanks for the levels. Pretty amazed by the resilience in oil today given the modest market action. Surveys looking for crude and gasoline draws tomorrow. People will probably take tonight’s API numbers more seriously after last week as they are pulling closer into alignment with EIA (or at least they have been for the last couple of weeks).

  70. 70
    BirdsofpreyRcool Says:

    lol… i’ve seen Wellington make some bucket moves themselves…. but, they would honor the lock-up agreement, for sure.

    didn’t ask specifics about who participated. could probably find out, tho…

  71. 71
    Dman Says:

    BOP #57

    Was that last comment in the context of the recent strength (versus the USD) that can be seen in CAD, AUD, NZD?

  72. 72
    BirdsofpreyRcool Says:

    Dman, #57 yes. Exactly correct.

  73. 73
    cargocult Says:

    Any thoughts re: HGT?

  74. 74
    zman Says:

    SUN saying damage assessment at Marcus Hook will take a week. That fire burned at least 24 hours. Probably some long down time there. Glad none were injured. In the past, these kind of events have been inflection points for the group, see Feb 2007 and the BP fire. So while I’m less than enthusiastic about the fundamentals right now I am still watching what the Street thinks of this. Gasoline up another 4 cents.

  75. 75
    bill Says:

    onav cuts it divy..stock down hard


  76. 76
    zman Says:

    Cargo – re HGT. Nothing very current. They are letting their distribution I see which is hard on a yield stock. I have not looked at them in some time, used to favor SJT in the RT space but have been a much bigger fan of the big MLP’s of late. LINE is more diversified than HGT and is 100% hedged so their fat dividend is going to stay fat through this year and, given their recent deal which gives them a little breathing room and potentially firepower for a small bolt on acquisition, most likely next. But I’d be happy to get up to speed on HGT if you’d like. Is this a legacy holding or is there another reason for the inquiry?

  77. 77
    cargocult Says:

    I own it and am wondering if I should trade it for something with more potential or just tough it out.

  78. 78
    isleworth Says:

    Looks like we may be headed to test the NG M9 $3.25 low

  79. 79
    zman Says:

    Cargo – willhave some thoughts for you tomorrow’s post.

    Isle – maybe … but I doubt it.

  80. 80
    PackMan Says:

    just parachuting in … wassup w/ UNG today ?

  81. 81
    zman Says:

    Pack – natural gas down about 6% on the first six months of contracts. Profit taking from the recent plus continuation of the spooking we had yesterday with the rally in LNG volumes. We are still importing less gas now than we were a year ago as Canada is off more than LNG is up. But once NG fell through $4 the selling started in earnest. I think worst case right now is probably $3.50.

  82. 82
    zman Says:

    Canaccord raised their KWK target from 7.50 to 11 but maintained their Hold. From what I’m reading from the few broker comments I’ve laid hands on post Barnett disposition, analysts seem to be saying good deal, more please. The deal helps debt slightly but not a lot, and cuts production by a bit more. So it might be a couple of pennies to the bottom line benefit on saved interest expense but little more. The company has not changed its budget putting them in the slight short fall camp to their current projected cash flow. Stock inching higher now at $10.20 after a bout of early morning profit taking.

    On NG, I’m still seeing the frequent mentioning of NG falling into the $2s this summer as LNG piles up. It could happen. I don’t think it will. If it does most of the hit list around here is well hedged and the recent runup afforded companies with the opportunity to add more 2010 hedges. One thing is certain…little if anything is profitable at a $2.50 Nymex gas price. Rigs and service would be absolutely crushed.

  83. 83
    BirdsofpreyRcool Says:

    Pretty significant rally in High Yield Credit today… definitely outperforming stocks here.

    HY 80 1/2 up 1 1/8 points

  84. 84
    Nicky Says:

    Until we see some signs of $ strength I don’t seem much chance of weakness in equities. Pound, Euro, AUD all strong today.

  85. 85
    Nicky Says:

    Am also wondering when all the talking heads will realize that higher gas prices are not a sign of an improving economy and certainly should be the kiss of death to a real improvement in the economy.

  86. 86
    zman Says:

    Re 85. Very true. You can see the price elasticity has moved to somewhere about $1.90 in the demand figures. Less commuting, less shopping. Not going to be helped by $2.25 gasoline. Part of this is a normal run up into the holiday weekend, part is the SUN fire.

    Double the above goes for diesel prices. If you look into the data, little is being shipped. Spoke with a friend in the truck line insurance business a couple of weeks back. She covers a lot of mom and pops and small fleets. She said she covers quite a few less now as they have been filing BK left and right.

  87. 87
    Nicky Says:

    200dma for VIX is at 26 – 27. This should provide at least a bounce.

  88. 88
    zman Says:

    Couple of new people this week. This is the slow season so I suggest taking your time and familiarizing yourself with the site. As questions. Take note of Bios tab at upper right and if you are inclined to give a little anonymous piece about yourself great, it helps with context knowing a little about people’s backgrounds.

  89. 89
    Nicky Says:

    Ending diagonal on the Dow and SPX – making hard work of the upside.

  90. 90
    BirdsofpreyRcool Says:

    Tech Trader vs Head Trader…. both called for a choppy mrkt today. Both are right about that. But TT said mrkt indices would end in the red. HT thought they would end green. Coming down to the wire….

  91. 91
    zman Says:

    Re 90 – yep, and we have a rare mid week economic data void tomorrow as well, not a lot of news to hinge on. Should be an energy focused day as the oil report will be just about the biggest news of the day. Could see a pickup in gasoline demand due to a re-stocking effect last week as gas stations take on more inventory than normal in front of the holiday and in advance of the usual holiday run up.

  92. 92
    bill Says:

    vq, oily name will have a new outlook after hours.

    fidelity had ma activity under news with no story…hmmm

  93. 93
    choices Says:

    Nicky-do you have any opinion on gold-usually, with the USD as weak as it has been, gold firms up-curious as to what levels you see for support and resistance.


  94. 94
    BirdsofpreyRcool Says:

    We get ABC Consumer Conf at 5pm today… and MBA Mortgage Aplications early tomorrow morning. Not a lot of meaty eco-data.

  95. 95
    zman Says:

    Bill – will look at VQ, been awhile since I looked at them, EGY and BPZ. All interesting little oilier than not names.

  96. 96
    zman Says:

    Re 94. I’d guess people will look hard at the mortgage numbers. We also get API post close today, again should have more swing on oil than past reports as it has been turning into a pretty good predictor of EIA results.

  97. 97
    bill Says:

    looks like a cc call

    Venoco, Inc. – Special/M&A Call
    09:43 a.m. 05/19/2009 Provided By CapIQ

    To reflect actual results from the first quarter of 2009 — which were released on May 7th — as well as updates to annual projections incorporating those actual first quarter results

  98. 98
    bill Says:

    They already had a call on earnings..said they want to extend 2014 loan one way or the other

  99. 99
    bill Says:

    vq at ipaa


    if i heeard right

    100 % hedged in 2009 and 2010

    and 60 % hedged in 2011

    equity got wiped out with non cash write down

  100. 100
    Nicky Says:

    Hi Choices – gold has been weak I think compared to silver which is giving me the heads up that any upside is limited. We are coming into what is seasonally a weak time of the year for gold too. I have resistance from here at 935,950,967 and 980. Support is at 892,880,865 and then 850. It has been very choppy and sideways for weeks which looks to me like a wave 2 so when we roll over it should be a big move.

  101. 101
    BirdsofpreyRcool Says:

    ABC Consumer Confidence came in at -45 vs -42 expected.

  102. 102
    gaamblor Says:

    fast money guy says API today was bullish “for the first time in a long time” guess its been a long week? anyone have the numbers?

  103. 103
    isleworth Says:

    NEW YORK, May 19 (Reuters) – U.S. crude oil futures firmed
    above $60 a barrel in post-settlement trading on Tuesday after
    the American Petroleum Institute said that domestic crude
    stocks fell much more than expected last week.
    Gasoline futures extended gains, hitting a new seven-month
    high, as the API data showed gasoline inventories fell much
    deeper than forecast.
    “The API reported a larger-than-expected,
    4.5-million-barrel drop in U.S. crude oil inventories, as crude
    oil imports remained low for a second consecutive week,
    apparently offsetting a 1.3 percent drop in refinery operating
    rate,” said Tim Evans, energy analyst at Citi Futures
    The API said that for the week to May 15, crude stocks fell
    4.5 million barrels to 366.2 million barrels, gasoline stocks
    dropped 5.4 million barrels to 206.2 million barrels and
    distillate stocks, which include heating oil and diesel fuel,
    rose 1.4 million barrels to 145.8 million barrels. [API/S]
    A Reuters poll of analysts had forecast that crude stocks
    fell 200,000 barrels, gasoline stocks dropped 1.2 million
    barrels and distillate stocks rose 1.0 million barrels.[EIA/S]
    Earlier, June crude futures, which expired at the close,
    settled at a fresh six-month high on as a refinery fire lifted
    gasoline futures to a new seven-month intraday peak.
    Flint Hills Resources said a fire in the east plant of its
    Corpus Christi, Texas, refinery was out.

  104. 104
    zman Says:


    crude down 4.5 mm barrels
    gasoline down 5.4 mm barrels – that could be the re-stocking effect at gasoline stations I mentioned above, we’ll see tomorrow.
    distillate up 1.4 mm barrels

    July contract takes over as front month tomorrow, trading at 60.28, up slightly post close.

  105. 105
    zman Says:

    Jat also sent this from API:

    Utilization down 1.6 % from 82 to 81
    Imports up 110k from 8723 to 8833

    Odd numbers.

  106. 106
    choices Says:

    Thanks, Nicky.

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