Monday Morning And All Is Red

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Sentiment Watch: Cautious. This is expiry week. Last week saw what can only be described as light volume, listless summer trading, a buyers vacation if you will. Expect more of the same this week with shocks brought to the market by more sweeping financial system changes from the administration. So I will ere on the side of caution taking losses and profits off the table in the near month contracts a little more quickly than normal (probably beginning in earnest Wednesday) morning well after we have recoverd (I think) from this morning's ugly open.

The Week Ahead:

  • Monday 6/15: Empire State index, homebuilders index
  • Tuesday 6/16: PPI (exp 0.5%), Core PPI (exp 0.1%), Housing Starts (exp 485 K), Industrial production (exp -1.0%)
  • Wednesday 6/17:  EIA Oil Inventory Report, CPI (exp 0.3%), Core CPI (exp 0.1%), Intern #2 turns 6 months old.
  • Thursday 6/18: EIA Natural Storage Report, Initial jobless claims (exp 607K), Leading indicators (exp 1.1%), Philly Fed for June (exp -15)
  • Friday 6/19: No U.S. data release
  • Saturday 6/20: June equity option expiration

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today
  • Odds & Ends

Holdings Watch:

  • $10KP: $37,000.
  • 52% Cash.
  • The Wiki Holdings Tab is updated.


Commodity  Watch:

Crude oil rose 5.4% last week to close at $72.04. The 12 month crude strip is now trading at $75.37, over $75 for the first time in nearly 8 months. My advice to the E&Ps who are unhedged or lightly hedged in late 2009 and early 2010 ... hedge a little. For more of my thoughts on crude in the wrap click here.This morning crude is trading off $0.50 to $1.25 ... there is not a sense of panic in the air, only profit taking. 

  • Ahmadinejad Is A Cheating Nutbag Watch: Mahmoud is claiming victory, his opponents are claiming voting fraud. Big mess. Doubt the "official" election results get tossed out although plenty of students will likely be tossed on their heads. Some things just don't change.
  • MEND Watch: The Movement for the Emancipation of the Nigerian Delta hit a Chevron pipeline over the weekend and pumping station on Monday. Chevron indicated there was no reduction in flow from the first attack since it was already out of action due to an earlier attack and we're still awaiting confirmation from the company on the second attack. CVX has yet to bring the 100,000 bopd of lost production back on line from an attack on May 24. MEND said it is looking to extend its attacks to platforms offshore.
  • Dollar Watch: The dollar is continuing to bounce this morning as it rides a new, tight range around 80.

Natural gas fell just under a percent last week to close at $3.86. The 12 month strip is now trading at $5.39 but it is a sharp run post summer that gets us there:

  • September gas is trading at $4.24
  • January gas has run up to $6.16.
  • This is one of the steepest contango's in recent memory and the prudent should be hedging just in case we do see that LNG gas tsunami later this summer.

This morning gas is trading are up slightly. More voices are calling for a bounce gas than I recall doing so in quite some time. The multiple of oil to gas prices has reached record levels and many point to a narrower historic ratio as the basis for their perceived coming jump in gas prices. I think gas prices will rise by mid summer into the mid $4s to $5 but think that will be the result of production data and warmer weather and not some perceived tug from the crude markets. 

  • Weather Watch #1: Cooling degree days came in at 39 vs normal of 44 and 29 last week. All other things being equal this should bode for a withdrawal right around and perhaps just under the century mark this Thursday.  The forecast for this week finally shows some warmer than normal weather at 57 CDDs, especially in Texas and surrounding southern states where a number of new record highs were set over the weekend.
  • Weather Watch #2: La Nina Shifting to El Nino. See pictures of shifting sea surface temperatures here. My experience with El Nino's indicates that they need to be on the strong side of things to be predictive of weather in the U.S. The strong ones generally result in hotter summers and/or milder winters so while at this stage it is early to judge it bears watching.
  • Tropics Watch: Zip, nada, nothing brewing.

Rig Count Watch: Gas directed count continues to slip. Gas production rollover still looms as the futures are noting, full storage sure, but the slide in production is inevitable.

Stuff We Care About Today

Barron's Touts (RRC)

  • Barron's says share poised to "take off"
  • CEO says company will be 10x size if Marcellus works like they think it will
  • Sanford analyst saying they have one of the best growth profiles in the group
  • Pretty obvious stuff but typical for a Baron's pump job. I could say the same about SWN, HK, GMXR with a little more spending

Mini Reports This Week Watch: ROSE, ATPG

Shareholder meetings this week: PXD, HK, CHK

Enercom's London Oil & Gas Conference:

  • June 18th, quite a few interesting names presenting including SWN, GMXR, PQ, END. 
  • See schedule here.

ECA Adds 2010 Hedges:

  • 35% of expected 2010 gas volumes hedged at $6.21
  • They're commenting that this gives them a 20%+ ATROR, not bad
  • They also have two-thirds of their summer gas hedged in excess of $9, which is pretty strong
  • I don't follow ECA closely, I do find it interesting that they went ahead and pulled the trigger on the 2010 gas hedges now and I think you will see more of this soon. Analysts are starting to talk about the relative lack of 2010 hedges in E&P land and you can see a short list of the most and least hedge on the hedges tab under the E&P tab (I've been doing a little reorganizing of the E&P tab and will wrap that up this week)


Odds & Ends

Analyst Watch:

  • (NE) upped to Outperform and (RDC) cut to Underperform at Credit Suisse
  • (JASO) cut to Hold at Lazard
  • (SPWRA) target bumped up from $30 to $40 at Lazard

97 Responses to “Monday Morning And All Is Red”

  1. 1
    zman Says:

    Empire state index very low to expectations, down 9.4 vs down 3.0 expected.

  2. 2
    zman Says:

    Natural gas up 9 cents now, looks to be jumping on heat wave forecast.

  3. 3
    zman Says:

    Dollar comments after G8:


    Russians sound less harsh on dollar, I wouldn’t trust that, to me they are talking their dollar denominated oil reserves book.

    Note also the comment about a “concerted effort to not dollar bash”

    The dollar is up 1% this morning, I would not expect the artificial support of Geithner and the G8 to hold up.

  4. 4
    zman Says:

    Crude down 20 cents now from off $1.20 about an hour ago, NG up 12 cents and aimed at $4 now. Interesting to see a counter SP futures early morning rally here. Could lead to energy group running to green after a red open and counter to the broad markets today. If that is the case I will begin selling June contracts (depending on the strength of the move and how its apparent staying power) a little earlier than I had indicated in the opening of the post.

  5. 5
    zman Says:

    I think BOP is out today so no comments from head or tech traders.

    Dahlman Rose raising targets on drybulkers

    DSX from 20 to 22 (and it has retraced its move since they got warm again on the sector a couple of weeks ago)

    EGLE goes from 10 to 11
    GNK goes from 28 to 33

  6. 6
    zman Says:

    Red open as expected, already seeing a bit of a bounce as NG rallies 3.5% to test $4 from below. Personally, I don’t mind the red open nearly as much as the small unsustainable bounce open. The dollar has been weakening from its overnight highs already setting expectations that this move is unsustainable as well. Finally, Pisani on CNBC saying the commodities move is over probably means that it is, in fact, not.

  7. 7
    zman Says:

    WRES getting whacked for 10% on no news, back to where I added my second set of shares.

  8. 8
    jat Says:

    Hearing rumors that KWK might be near terming out 2nd lien debt if anyone is interested. I’m not playing mid/small E&P so am agnostic.

  9. 9
    BirdsofpreyRcool Says:

    Good morning. I’m out… but checking in.

    TechTrader agrees with your near-term outlook, z. Thinks we see a “decent sell-off” into Thursday. So, might be a good time to watch in the weeds for your favorite antelope to come “too close” on Thursday.

    I’ve got my KOG. But, wouldn’t mind adding to my BAC at the right price. Energy and Financials. It’s never boring.

  10. 10
    zman Says:

    BOP – agreed. I just wish “they” wouldn’t attempt to rewrite the rulebook on a weekly basis.

  11. 11
    Dman Says:

    Z – crude selloff despite chaos in Iran certainly suggests a significant correction under way.

    It looks like the mullahs panicked… instead of a planned heist, it seems to have been a last minute decision, hence the absurdly fake polling numbers. This in turn suggests that they thought another result was a serious threat to the Islamic Republic, which speaks to future instability. I wouldn’t have thought that was priced into crude… but the market disagrees!

  12. 12
    BirdsofpreyRcool Says:

    “they” being “those-who-cannot-keep-their-sticky-fingers-out-of-other-people’s-pockets”?

  13. 13
    BirdsofpreyRcool Says:

    “They” being the crazy world we live in?

  14. 14
    BirdsofpreyRcool Says:

    TechTrader back with additional color — thinks day’s high will be around 10:30 EDT

  15. 15
    Nicky Says:

    Morning all – would be surprised if sell off last until Thursday…

  16. 16
    zman Says:

    Dman – depends on what you mean by significant. I think this is just market related profit taking at this point. Iran decision should be a mixed bag. Oust Mahmoud and you may tone down the rhetoric out of the country but he always cheated, he was quick to call for cuts, as long as they were cuts by others.

  17. 17
    BirdsofpreyRcool Says:

    Talking to HeadTrader… not seeing accounts selling this morning. Frankly, another “no volume” day. So, I side with Nicky. Don’t think the sell-off has significant legs.

  18. 18
    zman Says:

    Nicky – me too.

    BOP – thanks for the comment from HT. Any thoughts on yields before you run? And you know very well who “they” are. Did you see the bit about the new powers for the Fed extending into the realm of breaking up companies?

  19. 19
    zman Says:

    Re 17 – yep, looks more like a buyer’s strike than some kind of panic. With regard to oil and the dollar, I think Treasuries supportive comments over the weekend are a desperate attempt to manipulate the dollar and crude prices and that they will fail. Want to support the dollar? Stop printing so many.

  20. 20
    Dman Says:

    Z – I mean a 10-15% correction.

    But my question is: if Iran is paralysed for several weeks or months by instability, would its exports be unaffected? Maybe they would & that’s what the market is saying (?)

  21. 21
    BirdsofpreyRcool Says:

    z — got to check in on credit mrkts on Bloomberg. About to do that now. Will be back in a few.

    There is a significant portion of the population who really seem to want to hand the keys to our car to “The Govt.” One only has to watch how well The US Post Office runs in the race against FedEx and UPS to wonder why anyone would want to ride shot-gun with Our Govt at the steering wheel. It’s a head-scratcher for me.

  22. 22
    zman Says:

    Dman – I see mid $60s as the low. As to Iran, every indication is that their exports are inching higher. In the big scheme of things, Saudi is more important than ever now, with their increased productive capacity as of last week. They are probably less likely to balance a move to increase exports by Iran. So a little softness there on crude as well.

    Nigeria is the offset right now to Iran as MEND is carrying out their “all out war” threat, target Chevron like they used to go after Shell. That flow station they hit this morning was operational as far as I can tell so we could be looking at another big cut in volumes announced by tomorrow.

    As long as the dollar doesn’t spike, and I can’t see a big spike, I think crude drifts with the SP. If the SP rallies, so will crude.

  23. 23
    West Says:

    The KOG report was just posted to weekend report as I had started it yesterday. I hope it is helpful,thx

  24. 24
    choices Says:

    Z-any thoughts on why Nat Gas strong this morning-up over $0.20 to $4.06 jul contract


  25. 25
    zman Says:

    West’s comment from the wrap post:

    KOG: Buy, Sell or Hold, Do we have a Caddy with no money for gas?……….Z like disclaimer: Please do not use any information that I provide as a financial advice, please do your own research. (1) Probably the foremost item that we need some type of update on from KOG would be the status of the 2nd rig that they have contracted from Unit Corporation on a take or pay contract. Logic says they are able to work out some kind of a deal, since the 1st qtr cc Lynn said they were in discussions and had also been able to get a rate reduction on the current Unit Rig #117. I would not expect any news from the parties until an agreement is reached. It must be noted that a 5 million $ rig penalty guts their bank account and price movement would have a downward bias. (2) They are using several different drlg orientation ideas to see if they can match direction and length with this area. Please reference the way EOG and WLL drl different length horizontals in the Parshall and adjoining Sanish Fields to the North of this area. A cursory look at the NDIC site https://www.dmr.nd.gov/oilgas/ with gis map section will show there have been a great many different type of well orientations tested. Most would agree that the theory is to intersect as many stressed cracked or fractured zones in the formation as possible. There are many here on this site that can better describe this aspect than me. There is not a standard completion technique for the Bakken/TFS formations. MRO drills a long horizontal and does a large single stage frac that cost less money. BEXP has recently done a 20 stage multi-stage frac that is suppose to frac each of the 20 different areas individually. The undisputed king of the frac is EOG, in the Parshall most laterals are in the 4500′ range with 6 to 10 multi-stage frac. Some would say EOG’s success has to do with their advanced internal fracing knowledge and correct fracing fluids based on formation. This is a highly guarded secret, but as EOG has said it is not patentable. EOG fracing knowledge began with the Barnett Shale and they have stepped out and used this knowledge on many other shale basins in North America. XTO is said to have some of the best fracing knowledge also from the shale areas such as the Barnett . XTO is a partner with KOG on the 3,4 5, & 6 wells in the Two Shields Butte area, so it would be natural to think that they would be incorporating their knowledge into the design of these wells. Each completion should provide them with valuable information and act as an additional building block as they go forward. (3) Fort Berthold Indian Reservation…KOG acquired most of their present acreage at one of the first O&G lease sales held on the reservation in over 20 years per information from KOG’s website. This particular area is complicated by the fact that we have the Three Affiliated Tribes (Mandan, Hidatsa,and Arikara), individual ownership, the Missouri River and Lake Sakakawea ( with mineral ownership by North Dakota and The Federal Goverment). The following information is gleaned from the Rocky Mountain Oil Journal dated June 6, 2008. The presence of Bakken potential under the reservation has been known for years but several barriers to development have existed. The slow moving process of permitting by the Bureau of Indian Affairs (which has now supposedly been streamlined). There has not been an agreement between the Three Affiliated Tribes and the State of North Dakota concerning tax and royalty issues. After reviewing an agreement for 1 1/2 years, an agreement was signed June 10, 2008 between the state and the Tribal Council. According to Governor John Hoevem, the agreement “will provide economic development, jobs, and revenue for the Three Afiliated Tribes and its members, WHILE RECOGNIZING AND MAINTAINING TRIBAL SOVEREIGNTY.” KOG has 13 permits currently approved. A partial list of active companies on the Reservation include: KOG, XTO, MRO, EOG, WLL, HES, STR, Zenergy, Peak NorthDakota, and Slawson Exploration. “No Due Process” is probably not accurate legal description for Soverign Nations proceedings, but I’m not an attorney so I would have to defer that to someone else…..This provides some basic information on the 3 issues brought up Friday afternoon……As a side note and up date , One of the local investors made a trip to the FBIR and had the following information to share about the lease. The flare on TSB #16-8-7H (4th well) has been spotted, TSB 16-8-16H (3rd well) is waiting on completion to begin towards end of the month . The TSB 14-33-6h %th well) has been finished drilling with reported strong shows of gas and green oil over the shaker during drlg (from a very good authority). Unit 117 has slide over and is currently drilling the TSB14-33-28h their sixth well in a row. I continue to believe in the Company and the prospect. If you have ever participated in a wildcat well this is still a much better feel. I am going to go ahead and post this with additional information to follow when it becomes available. Sorry about the length, all comments good and bad are appreciated. thx ,West http://groups.google.com/group/bakken-shale-discussion/browse_thread/thread/9318088a7801208

    This will be added to the KOG Notes link on the ZEB Reports Tab. Thanks West.

  26. 26
    bill Says:

    Tankers and oil prices…


  27. 27
    reefguy Says:

    Gas up .23 ratio now 17.7 down from 19.3 last week

  28. 28
    zman Says:

    Choices – best guess is a short cover early that go out of hand due to CPC forecast for the week of a heat wave in the south. In the past this kind of volatility has indicated a shift in sentiment for gas, makes life hard for the shorts who know the clock is ticking on their somewhat tired play. I don’t expect a big run up in gas to be sustainable past a few days but it should give some E&P names cause to think about adding to their hedge positions for 3Q to 1Q.

  29. 29
    zman Says:

    See lots of headlines saying energy sector dragging market lower. I think they have that backwards. Not matter, stocks not liking Empire index and I’d bet not liking the extended powers of the Fed. Funny how last week people were saying high oil was going to kill the recovery (check last week’s math on that as it just doesn’t add up but I guess it sounds nice) and now we have oil falling and still an unhappy stock market.

  30. 30
    zman Says:

    Given the size and speed of the drop in the broad market and the upward move in gas and lack of panic in oil I’m inclined to conduct a few opportunistic, short term trades into this weakness.

  31. 31
    BirdsofpreyRcool Says:

    west — #23 — who needs the TeddyBear Cam in the Doghouse when they’ve got you. Great report on the history of KOG, the involved players, the other companies, the technology, issues and concerns, timetable, and most excellent Scout Report.

    So, haven’t heard about the frac job on well 4… it was 10 stages (if i recall correctly, don’t have my notes here). They (HAL) didn’t screw up this time? Would be great to have an IP test what the true potential here is. 2kopd is not out of the question.

    From what I hear, the frac job on well 3 is set for June 20-22. We could hear an operational update sometime after June 24th, would be my guess.

    Excellent report. thank you!

  32. 32
    zman Says:

    Nicky – where do you see next support on the SP?

  33. 33
    BirdsofpreyRcool Says:

    Credit Market not panicking either. GM was taken out of the HY index, so that is quoted a bit higher. IG sold off a bit this morning, but still trading with a 120-handle. This might be the range for a while. Until some of the uncertainty over who is driving the car is resolved. If you stop and think about it, we are voluntarily handing over more and more ownership and control of private companies to The Govt and Union Pension Plans. Probably the two entities the LEAST likely to make good (free market) business decisions in a world that just gets ever more competitive. Rant over.

    IG 128 1/2

    HY 85 13/16

  34. 34
    zman Says:


    Added another (20) HK June $25 calls (HKFE) for $0.55 a trade on weakness with the stock at $24.60. This one will likely be a one to two day hold.

  35. 35
    cargocult Says:

    Am I right to conclude that it has been the weak dollar that pushed the price of oil up, and not supply/demand issues. What happens when the floating storage is full and/if demand remains weak?

    Also is there any meaningful correlation between the price of oil and natural gas?

  36. 36
    zman Says:

    re 35

    1) weak dollar has helped crude higher. Also, light at end of tunnel on global economy,
    also China/India import increases
    also supply project delays/cancellations

    2) in the event floating storage gets full and demand remains weak prices will likely take more of a pause.

    3) re correlation. On a btu basis they should be about 6 Mcf to 1 barrel. On a pricing basis they are much more loosely linked. At the current 17x to 19x range the linkage is stretched much further than normal. Oil generally has a pull on natural gas but due to the weak U.S. demand on the industrial side and resulting high storage, gas has not participated with the crude rally. This linkage is likely to get tighter sometime in the fall when gas supply in the States is going to show more easy to read signs of decline.

  37. 37
    zman Says:

    Oil just below $70 with a 210+ drop in the DJIA. Expect to see whole dollar support at $69, $68, etc with quick drops in between.

    At some point today, given the weak volumes so far this morning with big drops in prices, I would expect the bottom fishers to step in.

  38. 38
    Nicky Says:

    Hi Z – 923 WAS support in SPX! 915, 909/910 and of course absolutely huge support at 880.

    This count is hell. I am still not convinced the top is in (me who is always bearish too!). It looks to me like it could be a c wave for iv.

  39. 39
    zman Says:

    Thanks Nicky. Agreed, don’t think its the top nor this the start of the big decline you have been looking for. Selling so far has been pretty orderly, especially in the larger names and in crude. Makes me think money on the sidelines will soon get comfortable with buying in. Probably psychologically important for crude to not tank into the close and probably goes higher if crude can retake $70. Same for NG if it can hold $4 into the close.

  40. 40
    Nicky Says:

    Agree Z – the action of crude into the close will be important.

  41. 41
    Nicky Says:

    Silver way weaker than gold interestingly. 4.6% drop in silver and 1.22% in gold

  42. 42
    VTZ Says:

    It was like that last Friday too.

  43. 43
    Nicky Says:

    What do you reckon VTZ. How much lower? For me the highs are not in for metals (can you believe I am saying that????)

  44. 44
    VTZ Says:

    It will either stop around these levels or 880 in my opinion then we move to break 1000.

  45. 45
    Nicky Says:

    I wouldn’t want to see it break 865 for the bullish count.

  46. 46
    zman Says:

    Market flat lining down 200, or 23.50 off SP. Not a lot of news out there so I’d bet the longer we hold down here the greater the chance for a buy in rally. Just my sense on a quiet, boring summer day.

  47. 47
    zman Says:

    ZTRADE: Added another 20 HK $25 June calls for $0.40. with the stock at $24.28. This goes along with the earlier trade and will be short lived. High risk in the sense that these expire at the end of the week. Selling in the group and the market seems fairly light on light-ish summer volumes. I would expect bargain seekers to come into the group and name either later today or this week. We also have the slightly elevated potential for an operational update as we approach the shareholder’s meeting here later this week.

  48. 48
    zman Says:

    Another potential catalyst is natural gas. This move seems to have some legs, may be short covering but there are a lot of shorts to cover (see wrap). NG is now up 28 cents or a whopping 7.4% on the day. HK is 92% gas.

  49. 49
    BirdsofpreyRcool Says:

    MIDDAY Overview

    · Equities on track for a very weak trading session, falling ~2.5% as noon passes (a close at these levels would be largest % fall for sp500 since May 13). While the tape ended in the green on Friday, the tone to trading has been poor ever since the sp failed to hold the 950 technical level on Thurs (recall it briefly traded north of that level on back of the strong 30yr auction on Thurs but never could hold – Thurs and Fri were both technically positive trading sessions, but the market’s tone has deteriorated since Thurs’ failure). After a couple weeks of reduced volatility, today is on track to be the first 1%+ move in the sp500 (in either direction) since June 4 and the first 2%+ move since June 1 (VIX up 8%, largest single day increase since Apr 20). Volumes however aren’t spiking so much w/the volatility – at mid-day, we are tracking about inline w/what we have been doing over the last few days. Despite the large losses, things remain relatively “quiet” and newsflow is still on the quiet side.

    · Corp credit – IG outperforming stocks – Credit lower with equities as HY12 trades dn 1pt to 85 5/8ths and IG12 out +4bps to 128.5.

    · Slew of negatives being pointed to for today’s selling: 1) technicals (since failing to hold 950 last Thurs tape has had a neg. tone; the break below 929 support today being viewed as important negative for near-term assuming we hold here or lower by the close); 2) more worries about European banking – Germany’s Soffin bank-rescue fund warned that lenders may face capital shortages because of rating downgrades on structured products, Handelsblatt reported this morning. The ECB published its twice-annual Financial Stability report and said Euro-zone banks could face ~$283B worth of additional losses; 3) neg. eco readings (Empire Manufacturing and European employment); 4) some hesitation ahead of the Obama regulatory overhaul due out this Wed (the Washington Post had an oped which talked about higher capital standards and forcing banks to retain an interest in all securitizations); 5) investors weren’t thrilled to hear the G8 statement this week talk about withdrawing stimulus measures

    · US$ – VERY strong trading session today (DXY up >1 to 81.17 and at highs since mid-May), helped by a number of factors: 1) less worries ahead of tomorrow’s BRIC summit – officials from some of the BRIC countries have said they won’t spend a lot of time talking about leaving the US$/TSYs; 2) Russian officials this morning made supportive comments re the dollar and Treasuries (in contrast to last week when there was talk about the country moving a larger % of its reserves into IMF debt); 3) worries around the European banking sector hurting Euro.

    · Sectors – weakness is really across the board today, even in those groups that staged strong rallies on Thurs/Fri (utilities, drugs). Most major groups are on pace for 2%+ declines (inc. tech, HC, discretionary, financials). Commodity-linked are getting hit on back of the stronger dollar – sp500 materials & energy both off ~3%+. Transports are the weakest group today, falling nearly 5% ahead of the FDX report this Wed morning.

    · Treasuries rally for a 3rd day, the longest climb in a month; helping today were comments from Russian Finance Minister Alexei Kudrin, who said that he has confidence in the dollar and no immediate plans to switch reserve currencies. Mortgage bonds also rallied, signaling lower mortgage rates could come later this week – Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds dropped 0.17 percentage point to 4.75 percent as of 11:35 a.m. in New York, the low since June 3 (Bloomberg)

    Intra-day headlines

    · US Empire Manufacturing – The regional manufacturing data for June got of to a disappointing start, as the Empire State business activity index fell to -9.4 from -4.6 in May. The ISM-weighted composite was basically unchanged at 43.0, compared to 43.3 in May. The pullback in this survey suggests that manufacturing, which has seen its rate of decline moderate, will have to wait at least a little longer before finding some semblance of stability.

    · European employment report came in weaker – As expected, Euro area employment declined sharply in the first quarter of 2008, with 1.22 million jobs lost (JPMorgan 1.20 million), and a 0.8%q/q fall from the fourth quarter, after -0.4%q/q in Q4. A great part of the decline in the employment took place in Spain (52% of the total loss), while the three largest economies, Germany, France and Italy lost cumulatively 24%of the jobs.

    · ECB publishes its financial stability report; headline that Euro banks face further $282B in write-downs getting a lot of attention. The ECB Financial Stability Report provides an overview of the possible sources of risk and vulnerability to financial stability in the euro area. This gets published 2x per year – last one came out in Dec ’08. Some headlines getting attention from the report – says banks face further 283B worth of write-downs in ’09-’10; says credit cycle hasn’t reached a trough; risks to Euro zone’s financial stability remain high. See pg 103 of the report for the 283 number http://www.ecb.int/pub/pdf/other/financialstabilityreview200906en.pdf?6bd2546f215a6492dd02aa3aeb67a12a

    SP500 Performance Breakdown (source: Bloomberg)

    · Best performing stocks in SP500: HBAN, LM, DFS, S, THC, RX, CEPH, AMP, WFR, COH.

    · Worst performing stocks in SP500: MEE, AIV, AKS, LNC, DYN, RDC, KIM, WYNN, TIE, HST.

    · Contributing the most to SP500: S, HBAN, DFS, LM, CEPH, RX, AMP, COH, MA, THC.

    · Weighing the most to SP500: XOM, CSCO, GE, CVX, T, PG, WMT, PFE, QCOM.

  50. 50
    zman Says:

    Oil trying to reclaim $70 despite a dollar rally that now has the dollar index up 1.4% to 81.25. Oil seems quite willing to move more with the S&P500 than the dollar.

    NG now up 8%. While it looks like the gassier stocks have not noticed they are in fact down substantially less than the oilier names. If gas holds into the close north of $4 we may see a little rally in the gassy names but it probably will not amount to much unless the broad market shows some sign of a bounce. Staying awake by working up ROSE mini report.

  51. 51
    nifkin Says:

    Gunmen fire at persons at pro-Mousavi rally, one death reported, multiple wounded, citing witness

  52. 52
    kyleandy Says:

    west – thks much for the KOG info. much appreciated

  53. 53
    zman Says:

    Stepping out for 30 minutes, can’t imagine I will miss much.

  54. 54
    elduque Says:

    I hate to put a damper on your comments about NG and the natural gas stocks. However, I do believe that most nat. gas stks have significantly outperformed NG during the last 3 months. So it is conceivable that some improvement in NG will not be followed by the stocks, especially if the overall market drops 10%.

  55. 55
    isleworth Says:

    Hot Natural Gas ETF Faces Trading Snag

    Mon Jun 15 11:37:41 2009

    By Ian Salisbury

    NEW YORK (Dow Jones)–One of the hottest investments on Wall Street may have

    gotten too big for its own good.

    With investors betting on rising gas prices, assets in the United States

    Natural Gas Fund (UNG) recently swelled to almost $3.7 billion from about $670

    million in February, even sparking fears it could be disrupting the futures


    Now the popular exchange-traded fund is days away from another potential

    problem: Funds that hold commodities typically face stiff restrictions on the

    number of shares they can issue to meet investor demand, and United States

    Natural Gas is running out fast. Securities and Exchange Commission filings

    show managers want to increase the number of shares available nearly 10-fold.

    But such requests can take weeks and there is no telling when the SEC will act.

    If the fund can’t issue enough shares to meet investor demand, its shares

    could begin trading at prices higher than the underlying value of their

    holdings, breaking a key promise ETFs make to investors and possibly

    influencing prices in the natural-gas futures markets.

    Exchange-traded funds resemble open-end mutual funds but trade on an exchange

    like a stock. The issue is the latest in a string of surprises that have

    trailed more exotic types of ETF, especially ones that hold commodities. It

    also highlights the friction between ETF firms and regulators, such as the SEC,

    whom fund company executives often complain misunderstand and unnecessarily

    delay many requests regarding ETFs.

    SEC spokesman John Heine declined to comment directly on the case of the

    natural gas fund but said the Commission is sensitive to issuers’ time


    The SEC’s position involves trade-offs, says Michael Berenson, a securities

    lawyer at Morgan Lews in Washington. If the regulator ignores the ETF’s

    predicament, it could risk harming the fund’s shareholders. But rushing might

    not be fair to other ETF firms with business before the SEC. “It puts everyone

    else back in the queue,” he says.

    Commodity ETFs have proved wildly popular with investors but have had their

    share of growing pains. Investors were initially dismayed to discover some

    funds, including ones designed around oil and natural gas, match returns of

    futures contracts, not spot prices, which can be substantially different.

    The funds also became embroiled in last summer’s controversy over whether

    speculators were creating an energy price bubble and by other worries about

    whether large investors have taken advantage of the funds’ need to roll

    holdings each month, profiting at fund-holders’ expense.

    ETFs accommodate investor demand by essentially creating new fund shares

    whenever investors want to buy them. But commodity funds, with a unique legal

    structure, don’t have the same flexibility in this regard as stock ETFs.

    Anticipating a spike in demand earlier this year, managers of U.S. Natural

    Gas Fund filed with the SEC to boost the number of shares the fund kept

    available by about 300 million in late March. By early May, the SEC had yet to

    act, and the company made another filing warning it had only about 8 million

    shares in reserve and could soon run out.

    The original request was granted a few days later, but only after the fund

    had been unable to meet investor demand for about two days, nearly imperiling

    its operations.

    It turned out the fund’s problems weren’t over. Demand has continued to

    swell, and early this month managers filed for one billion more shares. This

    time the fund is in danger of being unable to issue new shares for a much

    longer time, unless the SEC moves much more quickly than it did before. By one

    estimate, the fund retained about 120 million shares in reserve at the end of

    last week, a supply that could be used up in as little as 10 business days, if

    the ETF continues to expand at recent rates.

  56. 56
    zman Says:

    Eld – Can’t argue with that if you have a 10% assumption for the broad market drop. I was thinking pretty short term when I wrote that, like today and this week. The XNG is up but it has lagged the OIH. If gas puts on a sustainable rally I think a lot of people without futures accounts will start to discount a further rally and bring the stocks higher. I never look for a 1 to 1 ratio of a group of stocks to the index because that’s not how their cash flow statements work. A dime increase on gas from the aggregate break even level on gas will be worth quite a bit more as operating costs decline. Add to that the comfort that a higher strip price gives to the group and more press releases like ECA’s today, adding to hedges while they can and I can see the gassy names outperforming and taking away the lead from oil service which has run too far too fast.

  57. 57
    Nicky Says:

    The $ may be having a big move today but it sure looks corrective – most likely v of C. If this turns out to be the case the next big move for the $ is down.

  58. 58
    VTZ Says:

    Nicky – It’s a Russian jawboning based rally. Wait to see if the Fed is forced buy more treasuries to ease the increases in yield then watch the dollar continue to get trashed. The BRIC meeting and the Fed are my short-term catalysts and if it continues to sell off like this itll be oversold in no time.

  59. 59
    VTZ Says:

    I meant if gold continues to sell off and dollar rally. Make no mistakes that the next move is to crack 78.30 on the index then down to 72.

  60. 60
    zman Says:

    Re 56 – And I’m not trying to shout you down or anything like it. I just don’t think the group has discounted a sustained gas price above $4 with the implications it has for a $6 + strip for hedging.

  61. 61
    zman Says:

    BOP – Your KOG is at $1.08, you got all you want?

  62. 62
    Nicky Says:

    I am only looking for about 76 but it could extend. But what is encouraging is that this bounce in the dollar can only be corrective so it is clear.

  63. 63
    BirdsofpreyRcool Says:

    Buy on down days, sell on up.

    Today, tomorrow, Wed… might see some nice prices for some names you want to hold. July-Sept is probably going to be bouncy (volatile) tho, so need courage of conviction about what you are buying, what you think it will be worth, and why you want to own it.

    This is the first time in recent history that Active Portfolio Managers have beaten the Market Indices. Tells you it’s a stock-pickers mrkt.

  64. 64
    zman Says:

    Nicky – do you have resistance points on the dollar?

  65. 65
    VTZ Says:

    I actually see the move down in the $ as supportive for the S&P as it should attract more money from the sidelines as a result of inflation worries and foreign investment.

  66. 66
    BirdsofpreyRcool Says:

    Active Mutual-Fund Managers Beat S&P 500 by Most in 26 Years
    2009-06-15 16:01:37.364 GMT

    By Charles Stein
    June 15 (Bloomberg) — Mutual-fund managers who pick stocks are beating the Standard & Poor’s 500 Index by the widest margin in 26 years by buying shares of midsize companies such as Sun Microsystems Inc. and Seagate Technology.
    Active U.S. equity funds returned an average of 7 percent through May, compared with a gain of 3 percent for the index, a benchmark of the largest U.S. companies. The gap is the biggest since 1983, when funds beat the market by 4.3 percentage points in the first five months, according to Morningstar Inc.
    “We’ve been through a period of extraordinary volatility, and that creates opportunities for managers to find mispricings,” said David Kelly, chief market strategist for New York-based JPMorgan Funds, a unit of JPMorgan Chase & Co. that oversees $438 billion.
    The agreement last week by New York-based BlackRock Inc. to acquire Barclays Global Investors for a record $13.5 billion put renewed focus on the long-running debate over whether active or index funds produce better returns for investors. San Francisco- based BGI, the world’s biggest money manager, oversees $1.5 trillion, with more than 70 percent in accounts pegged to indexes, including exchange-traded funds.
    Diversified U.S. equity index funds declined 38 percent in 2008, less than their active peers, which fell 39 percent. That helped persuade more investors to move to passive investing.
    Investors withdrew about a net $230 billion from all U.S.
    stock and bond funds in 2008, while putting $34 billion into index mutual funds, according to the Investment Company Institute, a Washington-based trade group. Exchange-traded funds, which also follow indexes and trade throughout the day like stocks, added $177 billion through new sales.

    Mid-Cap Stocks

    Jeff Tjornehoj, a Denver-based senior research analyst at Lipper, said active managers benefited this year from holdings of mid-capitalization companies, those with market values from
    $3.5 billion to $9 billion.
    Tjornehoj said active funds hold a smaller proportion of the largest 100 companies, as measured by market value, than represented in the S&P 500 and a greater amount of the bottom 300. Every company in the lower 300 has a market value of less than $9.8 billion, said Howard Silverblatt, senior index analyst at Standard & Poor’s in New York.
    Stocks in the bottom 60 percent of the index rose 12 percent through June 7, Lipper found. Stocks in the top 20 percent lost 4.79 percent.
    Sun Micro, the Santa Clara, California-based software maker that agreed in April to be acquired by Oracle Corp., more than doubled in that period. Cayman Islands-based Seagate, the world’s largest maker of hard-disk drives, rose 99 percent.

    More Tech

    Active managers own more technology stocks and fewer utility shares than represented by the S&P 500, Tjornehoj said.
    Information technology stocks rose 19 percent through May, making them the best-performing group in the market benchmark, Bloomberg data show. Utilities lost 8.74 percent, the worst performance among the 10 industry groups in the index.
    John Schonberg, lead portfolio manager of the $592 million RiverSource Mid Cap Growth Fund, rode technology to a 39 percent gain this year, tops among mid-cap growth funds, according to Chicago-based Morningstar.
    “Last year, a lot of tech stocks were selling at extremes we haven’t seen since the tech bubble crashed,” Schonberg said in a telephone interview from Minneapolis.
    Schonberg’s fund had 34 percent of its assets in software and hardware stocks at the end of March, according to Morningstar. The fund’s largest holdings include Tibco Software Inc., a Palo Alto, California software firm, PMC-Sierra Inc., a Santa California, maker of semiconductors, and Ciena Corp., a Linthicum, Maryland, producer of gear for communications.
    Michael Marzolf, a portfolio manager on the fund, said mid- cap stocks have gained with signs of recovery in financial markets. The S&P 400 Mid-Cap Index rose 11 percent this year through June 12, while the S&P 500 Index rose 4.8 percent.
    “When fear is increasing, people move up the capitalization scale,” he said. “When fear wanes, people will move down the scale and take more risk.”

  67. 67
    Nicky Says:

    VTZ – agree. For me it will coincide with wave v up in the indices.

  68. 68
    zman Says:

    Nicky – I tell ya nothing is going to tick the shorts off more than if they take this flat line of paint drying day and rally it into the close.

    Oil is trying to hold $70 with 15 minutes to go in the Nymex day.

  69. 69
    Nicky Says:

    Z – 81.60, 82,83

  70. 70
    zman Says:

    Thanks for the levels Nicky.

  71. 71
    Nicky Says:

    Yes very constructive Z. For me the SPX can work a bit lower. I think it very likely that if we were at the 908 level between now and Wednesday it bounces hard.

  72. 72
    West Says:

    Supposedly, Pumpjack and tank battery are being installed this week at 2Shields Butte 16-8-7H. Also if reports are correct on the mostly recently drld well# TSB 16-8-7H it took approximately 25days to drill 10,560′ tvd with a 4034′ horizontal leg with 15,794 tmd. It looks like their drilling times keep improving.

  73. 73
    zman Says:

    Oil at 70.40, looking pretty strong (all things considered) into the close of Nymex (5 minutes). Now down the exact same percent as the DJIA.

    NG looking to close over $4.15. Tomorrow will be the test to see if we can hold $4 as the last few of these snap back rallies have last less than 24 hours.

  74. 74
    zman Says:

    Imports Watch:

    Imports were flat with year ago levels at 7.4 Bcfgpd (vs 7.3 in the year ago week) and 7.2 Bcfgpd last week.

    LNG was 1.6 up 0.1 from last week
    Canada was 5.8, up 0.1 from last week but still conspicuously low.

  75. 75
    Nicky Says:

    Huge bounce in oil into the close. That may give us the heads up.

  76. 76
    BirdsofpreyRcool Says:

    west — sounds like they have their head down and are executing according to plan. Good to hear. Thanks.

    Tank battery not needed, if not planning on producing oil… so, looking forward to that “end of June” operational report.

  77. 77
    zman Says:

    Nicky – yep, gasoline actually green on the day now too. Dollar showed a little dip end of day which helped and the indexes looked like they were going to move before resuming their flat line routine. Looks like it breaks one way or the other by last 15 minutes.

  78. 78
    West Says:

    I wrote the wrong description down for pj location as it is the northern well #4 long horizontal. Hey BOP did they get close enough to the weeds for you. I completed my buy program today so we should have a little more pullback in store.

  79. 79
    BirdsofpreyRcool Says:

    west — figured you were referring to #4 location. Anyway, my buy program is also completed. So, figure it goes to z’s 99-cent-only, valu-store price target. Thats OK. You picks your points, you buys your stocks, you are in the game.

    Keep up the operational observations. You’ve got way better ground control here. Thanks!

  80. 80
    zman Says:

    CLR on the tape hedging some gas, crude production remains unhedged.

  81. 81
    nifkin Says:

    clr was hedging mid con production- not a bad price

  82. 82
    zman Says:

    Yep, they are a Woodford gas player and differentials have been lousy in the mid-continent so best to err on the safe side and lock in some more gas when you can for a decent price.

  83. 83
    zman Says:

    Market trying to shake off some losses late in the day, very tentatively so far.

  84. 84
    zman Says:

    EGN also on the tape saying its added gas and oil hedges. Glad to know the E&P guys are with it on the conservative approach to futures prices right now.

  85. 85
    West Says:

    EOG, continues to act well chartwise. Supposedly they have 50 Parshall Bakken wells that they r waiting to complete. I guess that is both good and bad. The rail transport may give them an upper edge in Bakken in that can transport to area with highest price and not be pipeline constricted.

  86. 86
    zman Says:

    West – here ya there. They also said they plan to sell volumes on their rail capacity to other Bakken operators. Will be interesting to see the LOE fall in 2Q (a little) and more in 3Q.

  87. 87
    tater Says:

    HK – This level at 24.50 is fairly significant for the trade on those 25’s. Looks like if it can get through here it could make the run back up to the gap from this mornings open at 25 -25.11 as I don’t see a whole lot of resistance between here and there. Larger market obviously controlling the game for now, but just wanted to note the 24.50 level.

  88. 88
    zman Says:

    ECA on the tape saying they are shutting in gas wells due to low prices. Says a couple of hundred Mcfgpd in the U.S. and Canada each.

    Company says in some places they are getting below the lifting cost so you pretty much have to shut them down…statement runs counter to what some others have said but good to see someone else besides CHK stepping up to the plate.

  89. 89
    zman Says:

    Thanks Tater, kind of what I was thinking. Also have a hunch they have news but its just a hunch that they will talk about this week before or on the day of their shareholder meeting.

  90. 90
    choices Says:

    Z-any info on the percentage and price of clr hedges.


  91. 91
    Nicky Says:

    John Najarean saying hold off doing anything until late Tuesday, early Wednesday and then stand by for the bounce.

  92. 92
    choices Says:

    Re-CLR: tape says 600,000 MMBTU at $5.27 for Dec 09 and 600,000 MMBTU per month at $5.68 for 2010

  93. 93
    choices Says:

    LINE, EOG holding up well in a down day. I do not own but plan to consistent with BOP’s thoughts in #63, prob also SWN, HK

  94. 94
    zman Says:

    Beerthirty – for all you contractors don’t forget today is qtly tax payment day for Q2.

  95. 95
    zman Says:

    Choices, gotta bop for a bit, be back with that in an hour.

  96. 96
    zman Says:

    Choices – those 2010 hedges are about 10% of production of total production (about half of expected gas production).

    BBG – on the tape with a good sized acquisition in the Rockies, no details on proved but they are saying 2 Tcfe probable and possible, that’s size for the $60 mm price tag. Bill Barrett still runs that company and he is one gas finding CEO.

  97. 97
    choices Says:

    Thanks, Z-hedge % does not seem to provide substantial protection unless they are “banking” on the belief that the price of gas is headed higher in 2010.

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