G.D.P. Friday

Posted on by zman

 

Both earnings plays I had on for today (SWN and FSLR) reported nothing less than stellar results. Guidance however for both was less desirable.

  • In the case of SWN, it was a pipeline issue that is temporary and not harmful to reserves, NAV, etc. Given the large beat for the quarter, the yet again improved drilling results in the Fayetteville shale which suggest finding costs have fallen below $1 / Mcfe on recent wells and much improved results from their second E. Texas Haynesville test this kind of issue should be fairly readily forgiven by the Street. Besides, if you cut your rating over stuff like this, management will and should remember you  (or fail to remember you as the case may be) when its deal time.  Case in point, RBC took their target price up on last night's news.
  • In the case of FSLR, it was the initiation of a rebate program in Germany, the mention of which, in true "snatching defeat from the jaws of victory" style, sent the shares tumbling from $190 (which they ran to from $173 at the close on the strong quarterly results) to $165 within minutes. Operationally they turned in a great quarter with rising sales and falling cost per watt metrics as expected. But I will only add to this one if it really gets slaughtered but honestly it won't be a size just yet as I think the concept of a rebate program that applies to some but not all customers (see details below) may not go over that well with those customers who don't make the grade to receive a lower price. Looking at price target changes from the Street it is apparent the jury is still out on how much damage this kind of program could do to their bottom line and what it really says about demand in their largest market. 


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today - CHK Ops Update; Earnings Watch: SWN & FSLR
  5. Odds & Ends

Holdings Watch

  • $10KP:

    • $28,000
    • 33% Cash
    • The Wiki Holdings tab is updated.
    • I will update the $10KP tab on Monday.
  • Yesterday's Trades:

    • WLL - Added (10) WLL September $50 Calls (WLLIJ) for $1.05 with the stock at $43.80 See yesterday’s post for results of their quarter.
    • SWN - Added (10) SWN August $42 Calls (TKQHC). Obviously risky with earnings tonight and their call tomorrow.

Commodity Watch

Crude oil rallied $3.59 to close at $66.94 yesterday on a weaker dollar and a strong equity market. This morning crude is trading off slightly following the GDP down 1% report.

  • Mexico Watch: Production Continues To Slip. Pemex cut their guidance for Mexico's oil production from 2.75 mm bopd to 2.65 mm bopd.  In June, production fell to 2.519 mm bopd, its first drop below 2.6 mm bopd since 1990. Their key Cantarell fell to 689,000 bopd in June, down a stunning 37% YoY. 

  • GOMEX Leak Watch: A pipeline transporting 100,000 bopd from Eugene Island in the Gulf of Mexico has been shuttered for up to three weeks for repairs and restart. All but 20,000 bopd has been rerouted so there shouldn't be much impact on pricing but I wouldn't walk barefoot on a Texas beach right now.

Natural gas jumped 20 cents to close at $3.74 yesterday after the EIA reported an inline injection to storage (see below). This morning gas is trading off just under a dime.

  • Tropics Watch: All quiet on the Southern front.

Natural Gas Storage Review


ZComment: Never before have we seen 3 Tcf in storage in July. Not a shocker this year. What is a bit surprising is the string of smaller than expected storage injections over the last four weeks. They're surprising because the weather has not been cooperative and at least through May, production remained resilient. I think we will see further price weakness later in the third quarter ($3 test) as regional gas storage becomes full and gas on gas competition heats up. See more gas comments in the CHK section next.

 


 

Stuff We Care About Today

CHK Operations Update - just the high points that I think matter to them and to the macro:

  1. 2Q09 Production of 2.453 Bcfepd; CHK said they are not currently curtailing production which is surprising.
  2. 2Q Reserves of 12.5 Tcfe - resuming the growth track here
  3. Play Updates:
    • Haynesville:
      • 2Q production up 85% from 1Q to 135 MMcfepd net
      • Now 175 MMcfepd, sees 275 by YE09; 450 by YE10
      • announced 3 bruiser wells here; IPs ranging from 23 to 29 MMcfepd; more impressive is the 30 day averages around 15 mm/d
      • Still sees EURs of 6.5 Bcfe - sounds like they may upgrade this number in the near future
    • Marcellus:
      • Now producing 30 MMcfepd net, sees 80 by YE09, 200 by YE10
      • recently upped EUR here from 3.75 to 4.2 Bcfe
      • Acreage now at 1.45 mm acres
      • makes good point that net of partner deals, their Marcellus leasehold cost them a low $80 per acre.
      • They list a few highlight wells here, not as big as RRC recent wells
    • Barnett:
      • Scary Quote Watch: "If Chesapeake is successful in finding a joint venture partner in the second half of 2009 for some or all of its Barnett Shale leasehold, the company plans to significantly increase Barnett drilling activity and production in 2010 and beyond" ~ as if we need more gas right now.
    • Fayetteville Shale
      •  EUR boosted from 2.2 to 2.4 Bcfe. (cost $3 mm a piece so SWN has the upper hand in acreage and well technique here so far - see next section).
    • Colony Granite Wash (Oklahoma)
      • Announced 3 monster wells similar in IP to NFX last week (20 to 23 MMcfepd); strong 30 day average numbers as well.
      • Current production of 90 MMcfepd net; 105 by year end and 140 by ye10. 
  4. Nutshell: Good update for Chesapeake, probably not so good for natural gas prices. CHK nearly brags about the fact that they remain the nations most active driller. In this low price environment the only reason you want to accelerate drilling is because you have lease or partnership commitments that make you drill up your acreage to get it into HBP status. Or you believe in production growth for production growth's sake which is not good and something I know CHJ does not espouse. Either way, the production results from most of CHK's plays continue to "exceed expectations", as do the results of many of their peers. With gas near full storage that doesn't bode well for prices as it will take longer for the conventional volume declines to be noticed in the face of so many "monster well" hookups.  call.

Earnings Watch:

SWN Beats Numbers, Fayetteville Wells Improve (Again), Company Guides Production Down Due To Temporary Pipeline Constraint In 2H09.  

Nutshell: Much better than expected 2Q results, minor disappointment due to the pipeline constrained guidance reduction but this is one of those "out of their control things" that institutional shareholders will often give managements (and stocks) a "get out of jail free pass for", maybe today, maybe it’ll take a little longer. The key points are:

  1. the reserves are still in the ground (not a problem to sell them later when prices are presumably higher), 
  2. drilling results continue to get better quarter after quarter after quarter,
  3. the 2nd well in the Haynesville is encouraging and this could certainly emerge as a second core area for them.
  4. at the end of the day, even with reduced guidance, they will have one of the highest growth profiles in the domestic E&P universe, this year and next.
  5. CFPS estimates likely to come down slightly, not substantially.
  6. In my book, reducing the growth rate from 49% to 45% is not worthy of analyst downgrades, especially since the cause has no impact on net asset value.


The 2Q09 Numbers:

  • Production of 74.3 Bcfe (816 MMcfepd) ; well above the top end of the guidance range of 70 to 71 Bcfe
    • up 16% from 1Q09
    • up 65% from 2Q08
    • Last quarter I wrote in reference to production guidance:  "My sense is that these are all ranges they feel they can handily beat."  I was more than right and the record volumes of the quarter were attained despite transportations during the quarter.
  • Revenues of $477 mm vs $387 mm expected

    • Differentials continue to show vast improvement at $0.60 off Nymex in 2Q vs
      • $1.08 in 1Q09 and
      • a whopping $1.80 in 4Q08
      • this $0.60 deficit to NYMEX is below 4Q07 differentials when their was less cause for concern about takeaway capacity from the Fayetteville shale.  
  • Costs continue to decline on a per unit basis
    • LOE of $0.73 per Mcfe vs $0.95 per Mcfe in 2Q08 and down from $0.79 last quarter.
    • G&A per Mcfe of $0.34, up slightly from $0.31 at 1Q09 - could be a bit of a personel ramp included here to handle the large number of new wells in the Fayetteville and in scaling up in the Haynesville.
  • EPS of $0.35 vs $0.35 expected
  • CFPS of $0.93 vs $0.88 expected

Production Guidance: Down for 3Q and 4Q Do To Pipeline Snafu: This is what upset the stock after the close last night.

  • The Fayetteville Lateral of the Boardwalk Pipeline is in need of repairs. These are set to begin in September and could last anywhere from 1 to 5 months reducing SWN and others’ takeaway capacity from the Fayetteville shale.

Production Guidance Reduced Accordingly:

  • 3Q09 goes from a range of 75 to 76 Bcfe to a range of 66 to 68 Bcfe (note that this is still above production from 1Q09 or 63.9 Bcfe).
  • 4Q09 goes from a range of 80 to 81 Bcfe to a range of 74 to 82 Bcfe (so the worst case is that the 4Q will be see volumes as big as this quarter which were a record.)
  • Net effect is that the year goes  from a range of 289 to 292 Bcfe to a range of 278 to 288 Bcfe or a reduction from 49% YoY growth to 45% YoY growth.
  • They are notoriously conservative "guiders" . I’ve never seen them set the bar too high for themselves, especially on production.

Operational Update Highlights:

  • Fayetteville Shale:  Gross production at 1.0 Bcfepd, vs 850 MMcfepd in 1Q09.
    •  Drilling Results:  Well Costs Down, IP’s Up.
      • Lateral lengths:  Averaged over 4,000 feet for the first time vs an average 3,874′ last quarter.
      • Time to drill 11 days, vs 12 days last quarter
      • IP rates resumed their upward trajectory reaching a new average high of 3.6 MMcfepd.
      • Completed Well Cost: $2.9 mm vs $3.1 last quarter
      • Looking at the decline rates of the recently drilled long lateral wells they match up well (just above actually) a 3.0 Bcfe type curve well meaning finding costs are now at or below $1 / Mcfe.

 

  • East Texas: 

    • As announced on the last conference call, SWN’s first  E. Texas Haynesville well had initial produciton of 7.2 MMcfepd - good rate, nothing out of the ordinary for this eastern part of the play.
    • Second well IP at 13.4 MMcfpgd. This well should have been put on production in late April or early May and is now (end of July) producing 7.8 MMcfepd. That’s a good well by any of the E. Texas players’ standards.
    • A third well has been completed (no production data available yet) and a 4th well has been spud.
    • SWN has 32,800 net acres in the play.

  • New Ventures:
    • Nothing new on their Marcellus and other nascent projects.

 

Balance Sheet:  Debt to cap of 28% vs 24% as of March 2009. They remain one fo the very few E&P companies outspending cash flow in 2009.

 

Conference Call: Today, 10 AM EST.

I currently own three sets of August dated Calls here. 

FSLR Beats 2Q Numbers; Announces Rebate Program Which Scares The Shares

 

  • The 2Q09 Numbers:
    • Production of 290  MW
      • vs 219.5 (MW) in 1Q09
      • vs 114.1 (MW) in 2Q08
    • Revenues of $525.9 mm vs $459 mm expected
      •  
    • Gross Profit of 57% vs last quarter’s 56% and the year ago quarter of 54%
    • Operating Margins of 39% vs 40% last quarter and 33%  a year ago
    • EPS of $2.11 vs $1.62 expected.

 

  • Operations and Thought Process Update:
    • Cost per Watt: $0.87 vs $0.93 last quarter, another record low.This should come down more in the 3Q.
      • Reflects ramp of lower cost lines in Malaysia as well as a slight increase in efficiency
      • You need this lower price point to enter a non-subsidized market like you have in the U.S.  (unlike in Europe) because you are competing with other renewable type energy.
    • Risks: Management walked through how they see risk at this time:
  • Guidance Unchanged: This is top line guidance, gross margins to decline as result of the rebate program, change in mix, lower foreign exchange rate:
    • Net sales $1.9 to $2.0 B 0 everything stays the same.
    • as does their margin expectation for the quarter of 31 and 33% margin. This implies a steep slide in margins in the back half of the year. 

Germany - Rebate Program Initiated:

  • In the past always matched supply to anticipated demand; not a spec player
  • In Q2 they saw:
    • big reductions in crystalline silicon prices
    • saw slow installation rate and build up of inventory in the channel - not sure how long this will last
  • Rebate program will be initiated in Germany - as they are installed the rebate will be issued only in inst
    • Only rebating where price is the constraining issue on installation
    • So it will be done on a case by case basis during this uncertain time
  • net guidance - remains unchanged but they see an impact on earnings of $40 to $60 mm here in the back of the year.

Nutshell: Great quarter, flat top line guidance, but uncertainty regarding the impact of the rebate program (at least on the part of the Street). In the past FSLR has said that if they didn't discount because if they offered a discount to one customer they would have to offer it to all customers. This was asked on the Q&A last night and the answer was not really satisfactory to me in a "this is different" kind of way.

Earnings Next Week: I'll add conference call times over the weekend.

Odds & Ends

Analyst Watch:

  • OII target raised from $80 to $87 at Morgan Stanley, who, despite the high price target has this in a neutral rating.
  • OII target raised from $54 to $58 at RBC, rating stays Outperform.
  • OII target raised from $54 to $60 at Jefferies, keeps at Buy
  • WLL price target raised from $45 to $53 at Barclays, they maintain their Equalweight rating
  • SWN target raised from $45 to $51 at RBC, maintains Outperform
  • FSLR price target cut from $215 to $200 at Jefferies, maintains Buy rating
  • FSLR pt cut from $175 to $140 at Barclays, keeps equal weight rating
  • FTI price target raised from $45 to $50 at Jefferies
  • APA price target upped from $90 to $94 at Barclays, maintains Overweight

 

136 thoughts on “G.D.P. Friday”

  1. Analyst Watch Addendum:

    Wedbush raises FSLR target from $170 to $195, rating outperform.
    Morgan Stanley cuts CRR to Equal weight

  2. sgy reported good numbers and is poised to pop on the opening

    z do you follow them

    maybe the “upside earnings plays” are in the lesser known names

  3. bulker stocks are starting to report

    drys a penny better and acts like a bell weather-

    3 names i like are

    egle
    nm
    dsx

    bdi is down a little last 2 days. Main concern are future ship deliveries and china imports

  4. Bill – nope, I used to but I’m not much for Shelf players, high decline rate and low R/P natural. These guys and the rest of their kind got pushed off the cliff last fall so maybe they are do a deadcat bounce but if gas and oil prices stay low for the medium term I want to be in long lived, lower decline rate names.

  5. adding to 4… The results to date this quarter have been exceptional in the well know names. NFX, RRC, WLL all did very well. SWN was much better than expected, only the pipeline news was a landmine. As TPH put that this morning, it wasn’t exactly news that there were pipeline issues and the stock has been underperforming the group and they’d buy weakness.

  6. and adding to 5. When there is more visibility on natural gas price firmness then I think that is the time you go to the more levered names and the names with shorter reserve lives and that is when you should see the really big gains out of the Gulf of Mexico shelf players. (CPE, ME, MMR, SGY, WTI)

  7. TechTrader is taking one of his famous 4-day Summer Weekends… but, he said yesterday that yesterday’s close did not bode well for going long over the weekend.

    HeadTrader thinks you short any bounce this morning.

    But, no one is really rabid about the mrkt falling off a cliff here. Just “best trade” seems to be from the short side here, and for over the weekend.

  8. SWN call in 30 minutes. Stock well off the overnight lows. From what I hear, the Street is recommending buying the dip.

  9. Thanks

    in Sgy case half their revenue is oil and unhedged. On the ng side they have good ng hedges

    I favor the oily names at the moment

    Id like to own chk but dont. I have HK though

  11. 10 EST.

    Hear ya on the CHK. All good stuff in there. Aubrey is his own worst enemy though as I was commenting.

    SWN green!

  12. nice post on seeking alpha this morning on SWN – i sent the link out to a bunch of buy side energy neophytes

  14. Thanks BOP – did you see Packman’s video trader piece last night? Makes a lot of sense re yesterday’s action.

    Bet the guys at CHK are wondering what they have to do to get their stock up.

    OII upgrades helping the name this morning.

  20. HeadTrader pointing out that his call to “sell the morning bounce” worked. But he thinks it’s a tough call from here as there is very little volume and tough to pick a sustainable trend. That said, he thinks the mrkt closes a bit down from here.

  21. SWN CC #1

    17 rigs drilling – 13 for hz, 4 for vertical portion.

    Where gas was going – midwest. Greenville lateral placed in service on April 1 sent gas east.

    They have been experiencing curtailments on a day to day basis.

    Still have 45% production growth

    …

  23. SWN CC #2

    Hayensville – first 2,718′ lateral 7.2 mm/d in 1Q,

    five miles to southeast, 3,800′ lateral, 13.4 MMcfepd.

    3rd well completed in St Augustine Country, 4,000 foot lateral

    4th well spudded

    May do 4 more wells this year. No comment yet on costs but I’d guess north of $10mm each.

    ….

  25. Z: Would you still recommend buying into SWN at this point? I got out of the 45,s
    and thought I’d wait till CC to reload if you still see upside potential.

  26. RS – I don’t make recommendations. I’m not buying it right now, still listening to the call. I’m likely to add a little with a strike closer to the current price but I have not yet.

  27. SWN Q&A 1

    First two wells had a lot of science = “well past $10 mm” – that’s pretty typical answer for the start of a new play.

    Third well for $9 and $10 mm. Think that’s the go forward range, can take more out as time goes by.

  29. Z – do you have any sense of where SWN’s haynesville/bossier acreage sits relative to others in that play on the Texas side?

  30. Gary – I don’t see anything but I don’t get all the broker notes. Stands to reason given the outlier performance it is something like that.

    RS – I know you knew that as you’ve been around here for a couple of years. I just say that so the new folks won’t develop bad habits, lol. Still listening to the call, still mulling an add.

  31. 1520 – They are a bit south of much of what I’ve been seeing. I think EOG’s test is down around these parts but I need to go bird dog that.

  33. LINE continuing the breakout through $22.

    RMD – I will look at that other MLP over the weekend and get back to you but my sense is bigger is better here.

  35. I think it’s just the computers trading amongst themselves today. Hope *they* are having fun with it.

  37. ZTRADE:

    SWN – Added another 5 of the August $42 Calls (TKQHC) for $1.20 with the stock at $40.90. See post for details on the quarter and thoughts here.

  38. WLL fought off a pretty sharp attack earlier. I am looking to take profits in the August calls there either today or Monday.

  39. SWN – They plan to lay a 200 MMcfgpd gas line in late September. In this area, they have 100 MMcfgpd to put in the line, this project was planned for the end of 2010 but they accelerated it to bypass some of Boardwalk pipeline capacity.

    Boardwalk will add compression by April in 2010, on schedule.

  40. SWN Gas Price Comments:

    They think lower rig count should translate into gas price increase in the “future”, think its going to be “very volatile for the next year or so”

    Said they will add hedges when they can.

    Not hugely insightful gas price comments there.

  41. SWN on 2010 program

    Very early to discuss

    They planned their 2009 and 2010 program as they entered 2008 to withstand low prices for the whole period. They see being modest borrowers in that situation and would still have significant borrowing capacity at the end of 2010.

  42. Seems like SWN has a lot of flexibility to adapt to the market. A good thing in my book

  43. SWN Comments of Fayetteville spacing

    Most of the infills are at 55 acre spacing, split their old 110s.

    They have a smaller subset of wells that are down to 28 acre spacing. They are in early stages of understanding how to get away with this. Wyoming or TEXW feel free to add your comments here on “frac hits”.

  44. SWN Q&A

    Marcellus update? Picked up a little more acreage, not much else to update, permitting wells, getting water rights, pipeline right of ways getting ready for drilling program next year. Didn’t quantify size of next year program – sure they don’t know yet.

    Fayetteville shale – see well costs falling by another $100K per well to $2.8 mm by year end.

    Hayensville – choke on 13/64 soon after test due to take away capacity.

    Don’t know choke on second 2nd well, pressure is now 3,800 pounds at the 7.8 mm/d rate, still pretty high.

  46. SWN Q&A

    Fayetteville wells: how do they behave post shut in? no damage seen, little bit of a pop up, “storage effect”. Good to alleviate post shut in concerns on the existing wells.

    What’s problem with the line: new tool is finding more anomalies than previously seen by older inspection tool. They are trying to determine if the anomalies they are seeing are significant or not. They have to run this by a government agency (insert ugh here) who will determine what does and what does not have to be replaced.

    Where you bumping up against high line pressures due to generally high storage? No.

  47. SWN call ending now. It will be telling to see the post squawk box action in the stock. Price now $41.09. I suspect it rallies as analysts let them off the hook for the pipeline and tout the strong results of the quarter and more than that, of the drilling program.

  49. VNR: suggest listening to 11/08 RBC and then WB 12/08 presentations and notice how much more “with it” the 2nd was. I figured that’s when they ‘went public’. Don’t miss the humor of them being on the panel of “over 30% yielding MLPs”.

  50. Dman – for the most part they will be speak to the sales force, right after the call, especially at the institional only type shops. At the more “retaily” outfits like a Merrill it might be something added to the lunch call. If the news was hot, we used to break it during the Q&A.

    But I think for the most part today’s stuff will be in the 5 to 10 minutes after the call as the analyst sits down and basically says “deep breath, everything ok, they’ll get through this, no impact on future and look at those results yada, yada”

  51. i would anticipate no new buy reccomendations on SWN but also no downgrades. Likely a ride it out call from the anlaysts.

  52. re 51 – probably so, I think the stock gains conviction with higher prices if that makes sense. Get it positive and it may run as I’ve seen some buy reiterations this morning and at least one price target going up.

  53. i would like to see SWN get green today. Looks like there has been some buying of the dip in the first 2 hours.

  54. Oil up a buck now, far outperforming the market.

    Congress goes away and the speculators can play.

    Re SWN – I like it for an up day as long as the market doesn’t snap. I’m not real hung up on what it does today. I think its good to have digested the pipeline news which is just a bump in the road and then the news that the play keeps getting stronger. That last is the real news. Last quarter they had some issues that caused them to break their string of longer laterals = higher IPs. They resumed that this quarter. The cost of drilling one of these wells is below $1 /Mcfe which is what we need in this gas price environment. On top of that, their operating expenses are low.

  55. Just got the Barclays comment on WLL. Thanks for that.

    The CFPS goes:

    2009: from 7.50 up to 8.65
    2010: from 9.20 to 10.75

    Current Street is:

    2009: 7.34
    2010: 11.60 (Barclays most likely has a lower oil price deck for ’10)

    I wrote this re CFPS estimates going up after they reported:

    Meanwhile, the stock is relatively cheap at 5.8x 2009 estimated CFPS of $7.34, a number that will be rising by at least $1 to take into account this quarter’s outperformance and the lower costs in the second half of the year. As to 2010, the Street is already looking for the first half acceleration of activity management alluded to in the press release and is already forecasting a stout $11.60 CFPS target.

  56. WLL cresting $46. Getting time for me to let some go.

    I understand the president is speaking at 1:15 EST, on the economy.

  57. ZTRADE:

    WLL – Sold half of my August $45 calls (WLLHI) for $2.50, up 94%. Continuing to play the remainder essentially with house money. Continuing to hold the higher strike September calls as well.

  59. Z any thoughts on next week’s erngs especially, eog, clr and kog ? Rmoj had an article about Stetson’s wildcat. They noted that they had redone their spacing units from 1280 ac to 640 ac. Zenergy has three 1280 ac standup units 3 miles south on the shore of the Lake Sakakawea. The nearest established production is at STR’s recently completed MHA #1-18H-150-90, ne-nw 18-150n-90w, McLean County, with an IPF of 880 bopd, 415 mcfgpd, and 6,806 bwpd, this well is approximately 14 mi to the NW. That ip has either a lot of water or frac fluid.

  61. That bwpd sounds like clean up

    EOG and CLR I like for earnings although both have been strong. EOG is cheap for EOG but not for a big cap. Question is do they have anything catalytic to report. My thought would be they have a big well in S. Texas, they have a much watched Hayensville E. Tx well, and they can probably throw a couple of big rate wells at you from the N. Barnett and the Bakken for oil and it has been too long since they spent much time talking about the Horn River Basin, especially since everyone, even XOM and the Emirates to APA are stepping up interest there.

    CLR – I think you covered that well. Once and for all definitive separation evidence of the m Bakken from the TFS. If I were them I’d be taking a look at slides on reserve potential but I bet they don’t until 4Q when they have more (longer time) data. That one has held up better than I thought and I left some cash on the table but will play it for earnings if we get an oil dip first.

    I’ll have a list of things about next weeks earnings in bullets next week. Things like PXD really talking to the crowd about the EFS well and its plans, of course HK and its efforts there with impact potential on names like SM and ROSE. etc, etc, …

  65. Decided to hold the OII into next week, every comment I’m seeing is more positive that usual. I liked the quarter and the call. Looking for mid $50s but may not stick around in the August calls for that.

  67. MIDDAY Trading Update

    · Pretty quiet in equities at mid-day; all the major indices relatively unchanged, a victory of sorts given the sloppy close on Thurs. earnings season is pretty much over as far as the bulk of the important sp500 calendar Q companies are concerned and eyes will now turn towards the kickoff to the Jul reporting season (which CSCO starts on Wed). The GDP numbers today not having a big impact (they came in better and JPMorgan is raising Q3 forecasts on back of the release) w/investors really looking towards next week’s jobs report (for the month of Jul). Technically, ~982 is a level to watch today. Big moves today occurring elsewhere – dollar, TSYs, and corp credit.

    · Sectors – sp500 materials is up ~1% and best performing major sector (weak dollar and cash-for-clunkers extension helping some of the metals). Industrials, tech, and discretionary also strong. SP500 auto index is up ~5% and extending very strong rally from last few days – the clunkers extension today helping (there have been a handful of pos. auto parts earnings in the last few days).

    · Dollars and commodities – the US$ is getting hit today (DXY is off more than 1%) and approaching multi-month lows. The Euro is accounting for a lot of the dollar weakness – the Euro is up ~1.4% against the buck at noon (the dollar is down ~0.8% again the yen). Commodities are rallying as the dollar falls – gold is up more than 1.5% (to $951) and crude is up ~1.7% (adding to yesterday’s 5.6% ramp). Crude is actually on track for a flat week (despite falling 1.6% Tues and 5.7% on Wed).

    · Credit near best levels of the session and outperforming equities – IG12 -2.5 to 110/111; HY12 +1pt to 90.5/90.75.

    · Treasuries – TSYs are rallying today, w/10yr yields falling ~8bp on the day; auctions are out of the way and won’t resume until Aug 11.

    Calendar for Friday

    · Congress debating clunkers extension this afternoon..

    · White House: Obama To Make Remarks On Economy At 1:15 PM ET

    · Sen Dodd holding a press conf in Hartford at 2pmET to discuss a “personal health issue” – 2pmET (Reuters)

    Economics update

    · Real GDP declined at a 1.0% annual rate in the second quarter, in line with expectations and a moderation from the revised -6.4% rate in the first quarter. Much of that improvement owes to business capital spending, which went from falling at a 39% rate to declining at a 9% pace. Consumer spending actually weakened in the second quarter to a 1.2% pace of decline after increasing at a 0.6% rate in the first quarter. One surprise in the report was the strength of the pace of inventory shedding: real private inventories fell at a $141 billion pace in the second quarter. This is a positive going forward and we have revised up our projection of third quarter GDP to 3.0% from 2.5%. (JPMo)

  69. Sounds like Senator Dodd is going to play the cancer sympathy card… interesting timing… as pressure on him for his various real estate dealings heats up…

    call me cynical, eh?

  70. Friday movie quote watch:

    Now, a few words on looking for things. When you go looking for something specific, your chances of finding it are very bad. Because of all the things in the world, you’re only looking for one of them. When you go looking for anything at all, your chances of finding it are very good. Because of all the things in the world, you’re sure to find some of them.

  72. SGY Conf Call Notes — What to watch for

    o Management indicated that at $4.50-$5.50 gas some of its gas offshore start to become economic
    o Management guided to preliminary allocation of 2010 capex: 50% continental shelf/25% Appalachia/25% deepwater
    o Amberjack (Mississippi Canyon 109) will be the bulk of the 2010 shelf drilling plan
    o Company has significant inventory of deep shelf drilling locations

  73. SGY — it’s those offshore b/e costs that are troublesome. z… any idea what % of SGY’s production/reserves that represents? Just curious…

  74. It just occurred to me that we got used to crude tracking the SPX, but it sure isn’t doing that today. Looks somewhat like it is coiling for a move higher, which would certainly drive a lot of people nuts.

  76. HK calls waking up as the stock mounts a move on recent highs. Earnings mid next week. Who knows if they pull a Chesapeake and release their ops update a day or two before the call. Kind of doubt it but you never know.

  78. For those keeping a scorecard on the credit indices…

    IG 112 bps

    HY 90 3/4 pts

  79. I guess most of the crude move today is the dollar cracking lower & that might explain the rush for CLR.

  82. 1520 – nice try but much further off the beaten path. It’s a Ben Stiller flick. And, by the way, that quote represents my entire investment methodology.

  86. Anyone know something about HTE? I own some and am wondering if now is a time to add shares.

  90. REMARKS BY PRESIDENT BARACK OBAMA SUBJECT: DEPARTMENT OF COMMERCE REPORT ON
    GROSS DOMESTIC PRODUCT IN THE SECOND QUARTER LOCATION: THE WHITE HOUSE,
    WASHINGTON, D.C. TIME: 1:25 P.M. EDT DATE: FRIDAY, JULY 31, 2009
    ——–
    PRESIDENT OBAMA: Well, I just wanted to say a few words about the economic numbers that we received this morning.

    The gross domestic product or GDP is a measure of our overall economic growth as a nation. This morning, the GDP revealed that the recession we faced, when I took office, was even deeper than anyone thought at the time.

    It told us how close we were to the edge. But the GDP also revealed that in the last few months, the economy has done measurably better than we had thought, better than expected. And as many economists will tell you, that part of the progress is directly attributable to the Recovery Act.

    This and other difficult but important steps that we’ve taken, over the last six months, have helped us put the brakes on the recession. We took unprecedented action to stem the spread of foreclosures, by helping responsible homeowners stay in their homes and pay their mortgages.

    We helped revive the credit markets and open up loans for families and small businesses. And we enacted a Recovery Act that put tax cuts directly in the pockets of middle-class families and small businesses, extended unemployment insurance and health insurance, for those who’ve lost their jobs, provided relief to struggling states, to prevent layoffs, and made investments that are putting people back to work, building bridges and road, schools and hospitals.

    Now, I realize that none of this is much comfort to those Americans who are still out of work and struggling to make ends meet. And when we receive our monthly jobs report next week, it’s likely to show that we’re still continuing to lose far too many jobs. As far as I’m concerned, we won’t have a recovery as long as we keep losing jobs, and I will not rest until every American who wants a job can find one.

    But history does show that you need to have economic growth before you have job growth. And today’s GDP is an important sign that the economy is headed in the right direction and that business investment, which had been plummeting in the last several months, is showing signs of stabilizing. This means that eventually businesses will start growing and will start hiring again. And that’s when it will truly feel like a recovery to the American people.

    This won’t happen overnight. As I’ve said before, it took us many more months to fully dig ourselves out of a recession that we now know was even deeper than anyone thought. But I will continue to work every single day and take every step that’s necessary to make sure that happens.

    I also intend to make sure that we don’t return to an economy where our growth is based on inflated profits and maxed-out credit cards, because that doesn’t create a lot of jobs. We need a robust growth based on a highly educated, well-trained workforce, health-care costs that aren’t dragging down businesses and families, and clean- energy jobs and industries. That’s where our future is, and that’s where the jobs are.

    Now, one of the steps we’ve taken to boost our economy is an initiative known as Cash for Clunkers. Basically, this allows folks to trade in their older, less fuel-efficient cars for credits that go towards buying fewer more — newer, more fuel-efficient cars. And this gives consumers a break, replaces dangerous carbon pollution and our dependence on foreign oil, and strengthens the American auto industry.

    Not more than a few weeks ago, there were skeptics who weren’t sure that this Cash for Clunkers program would work, but I’m happy to report that it has succeeded well beyond our expectations — and all expectations — and we’re already seeing a dramatic increase in showroom traffic at local car dealers.

    It’s working so well that there are legitimate concerns that the funds in this program might soon be exhausted. So we’re now working with Congress on a bipartisan solution to ensure that the program can continue for everyone out there who’s still looking to make a trade.
    And I’m encouraged that Republicans and Democrats in the House are working to pass legislation today that would use some recovery act funding to keep this program going — funding that we would work to replace down the road. Thanks to quick bipartisan responses, we’re doing everything possible to continue this program and to continue helping consumers and the auto industry contribute to our recovery.

    So I’m very pleased with the progress that’s been made in the House today on the Cash for Clunkers program. I am guardedly optimistic about the direction that our economy is going, but we’ve got a lot more work to do. And I want to make sure that all the Americans out there who are still struggling because they’re out of work, or not having enough work, know that this administration will not rest until the movement that we’re seeing on the business side starts translating into jobs for those people and their families.

    Thank you very much, everybody.

  91. OII outperforming the OIH a little over 4 to 1 again. I do think I’ll hold for that low to mid $50s level.

  93. understandably, the traders on the bank trading desks are all a-twitter about this…

  94. …wonder if you get bonuses for installing solar panels as quickly as possible. Better not. That could be risky as said hastily installed panel could fall off the roof and onto a tax payer’s head.

  95. raise your hand, if you think the House should set your performance pay… anyone? anyone?

  96. Oppenheimer said dinner held in NY by VLO last night pointed to “bleaker than ever” industry outlook.

  98. Weird combo… headline: US Stock Gain, Dollar Slumps After GDP Beats Estimates.

    You’d think the dollar would rally on the prospect of a better economy. Unless there is a worry about inflation and/or ballooning deficits with the “better” GDP report.

  99. … and oil is off to the races, Wednesday’s numbers completely forgotten up over $5 since the Wednesday close.

  100. BOP – I think you are officially a cynic. Congrats. Of course, there will be a tax on that until you are healed.

    HK at 24.62 is right on one of Tater’s lines for a breakout.

  101. Rats… cynics rarely get invited to Democratic Fund Raising Cocktail Parties. Gonna miss that.

  102. seeing signs that another programed sell order just kicked in… let’s see…

  103. #95 – i am fairly sure i am a cynic. I am also fairly sure that the government got about 40 cents of every bonus dollar i ever got.

  104. 1520s — good point… how are they going to pay for all these programs, unless they can “tax the rich.” From what I’ve seen, Wall Street salaries are actually pretty low… it’s the performance bonus that pays the big chunk in taxes.

  105. 1520s — so, I won’t be bumping into you on the “Charlie Rangel Re-election Fund Raising Cocktail Parties” circuit, I take it…

  106. HK
    60 min chart Fib lines aren’t really determinative of anything at the present. They may (or may not) be short term resistance. Problem with trading off of them is that the direction of the trend on the daily view is really actually only sideways. The shorter term vacillations (60 min view) are at a place on the Fib grid where all that can be said of a move above 24.62 zone is that it would likely (only slightly more than a 50% chance) mean that price will get all the way back up to 25.75 area.
    The most recent high from (July 27th?) is also acting as short term resistance.
    Not trying to equivocate. Just trying to say that TA trades are done on probability. The “probability” here is not good enough in my estimation to put any money into play on the basis of the chart/price movement. Just seems to me that price could go up or down from here for the name.

    Still looking for a better set up TA-wise for HK.

  108. #105 – that would be a no.

    I live in NJ and you won’t run into me at any Corzine re-election cocktail parties either. I could go on but it’s friday and i don’t want to depress anyone with my take on the current state of NJ politics.

  110. Pelosi on the tape saying “Health industry’s profits are ‘Obscene’ ”

    I could say the same about her tuna-packing business in American Samoa too… but, i’ll bet the press wouldn’t pick it up.

    Funny thing, usually see those headlines about Exxon and friends.

  111. [silly me… i’ll bet she just got the latest bill from her plastic surgeon… i should be more empathetic…]

  112. Not that I’m not listening T, but the TA is a slice of my decision, not the whole pie.

    ZTRADE:

    HK – Adding another 20 HK August $25 calls (HKHE) for $0.80 on the mid with the stock at $24.30 and earnings mid next week.

  113. Added LINE
    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

    Looks to me to be at a short term resistance area. Weekly chart shows a possible Fib area reasoning and the Daily chart shows resistance from the June ’08 high. Looks like an easy sell decision as you can always buy it back should price press above the 22.35 level. Downside risk appears to be higher than the upside potential as this level.
    Granted, my idea doesn’t take into account transaction costs or other factors like taxes.

    Broader market ideas (I know I’m currently the perfect greasy haired FastMoney goofball anti-barometer at present), I think we top around 1000, go sideways for the month of August, then we turd (a legal term of art, I learned it this last week from my lawyer friends).

  114. CLR – never did see a reason for this rally, seems people are front running earnings thinking that if WLL did so well, so too must CLR.

  116. Oh no, not a problem. As you know, I’m just using a bunch of words to say that I have no clue 🙂

  119. BOP –
    Do you think I should call up my congress-person and ask her if I am permitted to change my brand of TP? I’ll probably get added to some kind of watch-list.

    movie quote:
    “I’m the milky way man, I know everything!”

  120. Ok, mine was the Zero Effect. Must watch if you like to laugh.

    Tater – no idea, movie about a cave man perhaps?

  121. Sam: Oh my God! Oh my God he’s killing her!
    Maggie: Yeah, he’s killin’ her all right, and she’s loving every minute of it!
    [hearing Anton and Linda screaming with ecstasy]
    Sam: No, she’s not like that! She likes to make love quiet and slow and gentle…
    Maggie: Are you kidding? That girl of yours is a carnival ride

  123. Addicted to Love – Kind of a chick flick, but worth renting. Sorry, can’t help myself, just one more.

    Maggie: When I was a kid, my father had this dog that started to get all weak and sickly. He takes it to the vet, he examines it and says a maggot must have laid eggs in the dog’s butt. The baby maggots have crawled up, now they’ve started to grow, and eventually they’re gonna eat the dog alive from the inside. He says it should be put to sleep, because it’s an old dog anyway. But father won’t do it. He takes the dog home, he puts it on the bed, he reaches up into the dog, picking out the maggots with his finger, one by one. It takes him all night, but he gets every last one. That dog outlived my father. That’s love, Sam.

  127. I have a quote: “POT ROAST! Real food, for real guys!”

    [hint: CNBC needs to refresh their commercial line-up, methinks]

  129. OK… that was bad. It’s friday. Five straight days of CNBC. Looking forward to the weekend.

    By the way, I’ll be out Mon-Tues. So, the level of cynicism on the board should drop, measurably! 😉

  130. BOP, did u ever hear whether KOG had started that frac on their 5th well. Probably will not have anyhting to report before the cc on Friday. Just checking, THX

  131. Tater, #113. ok, what dies turd stand for? It’s late and my thinker is turned off.

  132. Tater, #113. ok, what dies turd stand for? It’s late and my thinker is turned off.

  134. West — I’ve been playing phone tag with KOG. Mngmt was out of the office for a lot of this week and I’ve missed their calls (and v – v). Sorry excuse, I know… but true.

    I really hope that they have the results from well #5 by the conf call. As the plan (as of 3 weeks ago) was to begin completion operations on well 5 “the first week in August,” and completion/testing takes only 3 days (guesstimating), then I think there is a very good chance they will have something to say on the conf call. Would be nice to have that confirmed, I know. I’ll try again on Monday. Out of the office Monday – Tues, but still near a phone.

    Thanks for keeping on me abou this. Have a great weekend!

  135. z — #133… saw that this morning… but glad YOU said that. Thought the same thing.

    “Gee… you stepped on my friend’s toe 5 years ago, I’m not going to play on your dodgeball team. Nah, nah, nah!”

    Only, “dodgeball,” in this case is a National Energy Policy. Kinda important, don’t you think, Al??

  136. I was golfing Friday, I haven’t followed HTE for a while.

    Dollar index right at the breaking point… 78.30… ready to collapse. 76 then 72.

    Good week again Z.

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