T.G.I.F.

Posted on by zman

We get existing home sales at 10 am (5.0 mm expected for July vs 4.89 mm in June) but the real watch object of the day will be Bernanke's speech later today (one of his last?) from Jackson Hole, Wyoming. Jackson Hole is a nice place, so I guess it makes sense the Fed flew out there, to get away from it all in pampered luxury instead of meeting in Kansas City. If they were CEOs their heads would be on pikes by now over such a trip, but maybe they all drove their in plug in hybrids. Regardless, we'll be listening for any noises out of the Fed chief that could affect the dollar in a positive way (anything that suggests quantitative easing will slow).

Housekeeping Watch: Now we're on Twitter. Click the link at right to find out how to "follow" via Tweets.   I plan to publish trade notifications with no details other than "Hey, did a ZTRADE, see site for details and/or check your email for a ZBLAST". I'm just too chatty to get it said in 140 characters anyway. It has been pointed out to me that this could be handy for those of you using phones and Twitter in combination. I may also use the system to send the occasional earth shatteringly important bit of news. I would remind folks that the standard terms and conditions apply regarding "what happens at Zman's Energy Brain, stays at Zman's Energy Brain" so no ReTweeting please. 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today
  5. Odds & Ends

Holdings Watch

  • $10KP:

    • $19,100
    • 53% Cash
    • The Wiki Holdings tab is updated.
  • Yesterday's Trades: None

Commodity Watch

Crude oil fell $0.92 yesterday to close at $72.91 for the October contract, which takes over as the front month contract today. This morning crude is trading up a buck on a weaker looking dollar.

  • Dollar Watch:  This looks weak to me on chart. We are breaking back down through 78 on the dollar index this morning; the recent low was 77.43.

 

Natural gas fell $0.17 to close at $2.945 yesterday after the EIA reported a slightly better than expected injection to gas storage (see below). This is the first close for the the front month contract at this level in 7 years. This morning gas is trading off nearly a dime; support continues to be a tough call. The recent move down is overdone. Gas is down 29% in twelve sessions and is down 54% year to date and I'm looking for a sharp bounce back ... once it stops falling. First chance for this may come at months end when we get another read on supply, this time for June 2009. The futures strip is now at $4.93 with nearly $1.40 spread from the September to the November contract.

 

  • Tropics Watch: Bill is not a concern to the Gulf of Mexico. Nova Scotia is a different matter. XOM is evacuating its Sable Island production facilities. Exxon said the facility was already down for twenty days of scheduled maintenance. Sable Island brings in about 0.5 Bcfgpd to northeastern Canada, most of which makes it to Maine and then New England.

Natural Gas Storage Review


ZComments: So we got the number I was looking but the reaction was cast early as we are going to get full, very full and 5 Bcf more or less aren't going to make a bit of difference in the big scheme of things. But there are degrees of "fullness". Many analysts and traders now think the 4 Tcf level is about to be breached for the first time. I suspect that will not happen. Take a look at the following chart. It shows the current trajectory of storage build in 2009 (the grey bubble line) to the present date. This is followed by a veritable hydra of data from 2001 to 2008 showing from here what the storage builds in those years through the end of the season (roughly the end of October) would leave us at this year. 

So that looks like we could see some massive gas in storage come Halloween. But also note the table below. Note that in the years were storage was ahead of average at this point in the season (these are highlighted in orange in the table) you saw a smaller storage build into the waning weeks of the injection season. 

 

Comments For The Gas Graphs:

A) Same story, different week; a record for this time of year, same story, different week.

B, C) We saw slight improvements in the surpluses to last year and the five year average. This will likely be reversed out on the YoY number next week as our weather has turned mild this week and last year was hot.

D) Injections have been tracking better than would have been expected versus the five year average for weeks now. This is important when looking at that hydra graph above. My sense is that production has continued to slip from the most recently available data (May) and industrial demand has picked up from the price sensitive components of the mix.

Regional Storage


 

Stuff We Care About Today

SWN Boardwalk Pipeline Update:

  • SWN has estimated 1 to 5 months for the operator of the Boardwalk Pipeline (BWP) to complete repairs to its system. The wide spread there was attributable to finding all the spots in the pipe with anomalies and repairing them.
  • BWP put this notice on their system yesterday which says they think repairs will take 3 months
  • This takes some uncertainty out of SWN's estimate range and is the reason for yesterday's outperformance in the shares.
  • I'll be looking at SWN long once natural gas trades sideways for a few days.

Otherwise, pretty quiet on the energy news front. I plan to have an update piece out on KOG's cash call for the remainder of the year early next week as well as a piece on ATPG.

Odds & Ends

Analyst Watch:

  •  YGE upped to Overweight at HSBC
  • SPWRA upped to Buy at Merriman
  • Jefferies cut ratings and targets on all the solar. Across the board slashing.

Interesting Reading Watch:

123 thoughts on “T.G.I.F.”

  1. Nothing from TT (who takes Fridays and Mondays off in August) and HT refuses to comment on options expiry day… but, this from JPMo’s equity trading desk this morning —

    Equities color – from futures desk (M Gaffney) – it seems like the entire market was calling/waiting for a broad market pullback. However – the pullback just won’t materialize and summer is coming to an end. What if the investing public comes back w/Q4/year-end in the crosshairs, piles of cash, and an underinvested portfolio? Patience is wearing thin for a pullback and the technical picture targeting heavy downside is fading. From JPMorgan’s M Krauss – Would not be shocked to see marginal new highs above 1018 fail/diverge badly (1025?). We still then would see an anticipated Sept correction. However, now we’d say weeks of sideways above the key 956 June high/H+S neckline is most likely.

  2. This really makes me sick

    >Nowhere is the irony more clear than off Florida, where U.S. companies are forbidden to drill. Cuba announced earlier this month it signed contracts that would allow Russia to explore for oil and natural gas as close as 45 miles from our shores.

  3. anyways, Black Gold on Tru TV is back on.

    Its great tv and every politician be required to view it to see what e&p go thru to get energy for us.

    Also good viewing for students, maybe they would get a different view on the evil oil companies

    Ice road truckers shows trucking to support oil industry in prudoe bay, nothing up there but an occasional moose.

    We should be drilling there like crazy instead of chasing windmills like don quiote

  4. Bill – yep, that’s in that Chron.com article at the bottom of the post. So its ok to have some of the sloppiest drillers in the world, Russia, China, Iran drill off Cuba / Florida but not U.S. companies. Check out that story, shows Hillary was telling Angola to produce and send more to the U.S. which has been our policy/message to OPEC forever. Very nimby. Thought it was a “global” thing we were concerned about. Also has a good quote from Hackett at APC talking about current cap and trade policy setting up exactly the wrong kind of incentive, one that promotes foreign oil while we say we want off of it.

  5. Headline going across on Market Watch, saying crude trades at new high for 2009. Not technically accurate as we switched contracts and this contract trade a bit higher than this in June but the point is we are at the highs on oil so I won’t at least be eating a hat on that one.

    NG fell nearly a dime in the early hours, now closing on flat. My sense is that the shorts will get nervous at some point, feeling this now 14 month long trade has grown long in the tooth. They know that production declines are not an “If” but a “When”. Natural gas is the worst performing commodity I can find and I would imagine that others will notice that and the giant short position and decide to jam them. One does have to wonder if they will be prosecuted for “manipulation” at that point however. Ugh.

  6. Want to congratulate you on the first use of Tweeter that would seem to make complete sense! (I’m just not that interested in knowing when Britney Spears is contemplating a BM).

  7. Z is all atwitter, but I’m not bitter!

    No, not me, not bitter at all, now that I’m the LAST PERSON IN THE WORLD who refuses to tweet!

  8. ZTRADE:

    HK Sold the August $22 Calls for 0.95, up 135% with the stock at $23.

    I continue to hold $23 (waking up) and $24 strikes (not much hope) in HK Augusts and am holding Septembers as well here.

  12. … asks a bird. I get it, ha, ha, very funny. Hey the site even has a facebook page, oh yes, we’re in 2009 now baby! Of course, that page just says to come over here.

  15. Has anyone in the media been talking about oil hitting $80? I’m guessing fund managers aren’t positioned for that.

  16. Dman – two months ago they were, good bet you hear that kind of talk crop back up next week. I for one think it needs to stay in the $65 to $75 range through year end, assuming the dollar doesn’t fall out of bed. Otherwise, the hangover will be worse than the party.

  19. Existing Home Sales for July —

    5.24mm vs 5.00 expected

    +7.2% MoM vs +2.1% expected

    wowowowow

  20. Existing homes sales of 5.24 mm vs 5.0 expected, the expected month to month was on 2%, big numbers. This has got to be just killing the shorts.

  21. Seeing some size offers KOG, just below yesterday’s high. I have not seen the Form 4s come through yet on sec.gov. BOP, have you seen any more sales?

  22. #20 – i bought some puts on the S&P late last week – something i do not do often. I will accept all thanks and praise for my ill timed trade.

  24. 1520s — you are not alone in that trade!

    Also, once Congress and the Prez return, could be some nasty volatility.

  25. i bought Decembers with that in mind. Still lots of water to cover before they expire.

    i have been getting text messages every 2 minutes from the guys i work with pointing out my degree of wrongness so far.

  26. 1520 – I never make light of another’s losses. My intent was only to point out that a lot of people I talk to keep trying to pick a top and getting burned and reburned. I did the same last October/November trying to pick a bottom. I have a buddy who is in the same boat and was giving me a little grief over my “quick trades” earlier this week.Very tough, dicey market.

  29. re: size offers on KOG… a lot of people watched it run to 1.48… twice. They don’t want to miss out this time.

    That’s OK. KOG will go higher. Too much oil under their acreage. Only fly in ointment is timing and amount of stock 2ndary. But, think KOG will have to wait until at least well 7 is IP’d. 1/3 of their acreage is south of the river and this is the first well to test it. We KNOW they had oil shows, drilling the well. But, so what. It’s SHALE… there are going to be oil shows. Question is, how much and how nicely does it flow? Only an IP test can answer that question. And not scheduled to run that until some time in Oct.

  30. VTZ – You sir are good luck! Welcome back. My return from vacation was less auspicious in the markets. I put that dollar chart vs crude in the post for ya.

  31. Petition circulating to extend congress summer vacation to 60 days..overwhelming support expected.

  32. #26 – i hear you and no pain here – this is an outdoor, contact sport. I’ve never been good at timing tops and bottoms. I just try and be right more often than wrong.

  34. Right more than wrong is all you need. Do the homework, admit when you are wrong or at least not right yet and keep the emotions out of it and generally things work out well.

  35. No questions about the hydra chart or the attached table on gas in the post? Hmmm. Maybe I should just do twitter, lol.

  36. ZTRADE:

    EOG – Sold the August $75 Calls, (EOGHO) for $0.70, up 89% with the stock at $75.45. My $80s here will almost certainly expire worthless so this just offsets that trade. I continue to hold September $80s here.

  38. VTZ – It’s not a hard ceiling. There is base gas used for pressure support that clouds (so to speak) the issue. 10 years ago I would have said 3.6 Tcf because we really thought it was there (you are dealing with salt caverns here). I’ve seen estimates from 3.8 to as much as 4.5 Tcf. I don’t recall what the EIA’s last number was, will go look and report back.

  40. Another TA friend pointing to a possible bounce in FSLR. I’m going to take another look when it stops falling. Don’t like to see industry bull analyst give up like today. Of course, capitulation is often a sign things are about to reverse.

  41. Z, regarding “full” storage, is there a breakdown by region?

    producing at 43% over the 5 year avg has to be more “full” than east at 10

  42. HK for the day

    $22s outta here
    $23s – mulling how big a loss to take (this is a smaller position than the $22s)
    $24s – 40 worthless calls right now.

    Thought is to watch it walk up and first sign of weakness to clip $ on the $23s and ride the $24s into the bitter end.

  44. Thanks for the comment on storage. I think I’ve read 4.2 somewhere but I wasn’t sure if that was current, or if it was working inventory only, or if it included the base gas.

  45. VTZ – Definitely just the working gas. Base gas is about 4 Tcf now. It looks like EIA thinks working gas storage capacity is your 4.2 Tcf number (so total of about 8.2 Tcf)

    Gaam – that chart showing East, West, Producing and Total storage has been added to the post.

  47. Gaam – No, I think it was more of a chart to start watching and not imminent. I usually ask for feedback if it is something I care about and will do so in this case.

  48. Crude just did a quick retreat from near its highs. Unlike the Dow and SP which are now at new highs for the year, crude bounced off just short of its high.

  50. By the way, HK back up through its deal price here. This should give it some breathing room if it can close over $23.

  52. Ok, latest presentation didn’t show a rig on and NDIC has no spud date listed. Will check the well number. As per your comment 29, would they not drill 8 before completing both wells?

  53. KOG — they are completing well-pairs 5/6 right now. They have either finished drilling 7, or are pretty darn close. Then they will drill #8 from the same pad. Then the rig will scoot over to begin drilling at site #9. At that point, they will move a completing rig onto pad 7/8 and complete #7, test it, shut it in, complete #8, test it, and then bring both wells onto production. I expect both wells (assuming no problems) will be producing by the end of October.

  54. I found #7, spud on 7/21 so should be done. So if they drill 8, then complete it would be at least 60 days before we have news on those two.

    When do you think we hear on 5/6?

  59. Cargo – I’m no help there, no longer in touch with the story. Reef mentioned it the other day quite a bit lower.

  67. BOP – sent you an email re 58. I think I worked it out in my head how they don’t need a deal until or maybe just after #9

  68. ZTRADES:

    Sold the (10) HK $23 August Calls (HKHT) for $0.25, down 80%

    Added the HK September $24 Calls (HKIO) for $0.95.

    Both trades with the stock at $23.20. I continue to the think the stock will start to trade better with a close above its recent secondary offering price of $22.86 and that the improved guidance and well performance exhibited in the 2Q press release and conference call will begin to get some footing. Last time around it took 2 weeks for the stock to base and hold the level of its secondary price before it was able to recover. We have just gone through a digestion period of similar length.

  69. kyleandy — the index dropped back a bit. But, for a “good” reason… there has been a FLOOD of new high yield issuance. When that happens, existing deals trading above par sometimes get sold to buy new issues. So, it’s normal to see some prices come down and spreads widen in a “good high yield mrkt” (just like after HK did its 2ndary, the stock dropped back a bit for a while).

    CHK is just a victim of it’s own success (trading above 100) + investors wary of the low nat gas prices/full storage. Where did you buy those bonds again?

  70. Funny how important TA is some times. NFX is stuck at its previous closing high of the year, $41.29. This is a solid, cheap name which traded at that high on news at lower oil but higher natural gas prices. Well hedges, acceleration growth in 2010 from a number of deepwater wedges that come on, they have a large acreage position in the Bakken, then they have those mid 20MM/d IP granite wash wells, strong performance in the Woodford and they trade at a group low sub 4x 2009 and 2010 CFPS.

  71. Afternoon. Gartman now talking $80 oil on CNBC.

    Broader market now in a v blow off spike which is rapidly turning into an ending diagonal by the looks of things. Possible target 1042 – 1045 SPX.

    White House issues a statement saying the housing market has bottomed. Hmmm this is the same White House who said they weren’t worried about the Florida housing market in 2005??? This is all total BS of course.

  74. MIDDAY Trading Update (from a NY Trading Desk)

    · SP500 powers to fresh high for this rally (SP500 +1.6%/16 points to 1023, surpassing the prior intra-day high of 1018 set back on Aug 7; we have been hanging out at the ~1023-1025 level since 10:30am). Nasdaq +1.3% and Dow +1.48%. Europe is outperforming the US today (the European PMI out early this morning for Aug was very strong and powering stocks higher) – the DJ Stoxx +3%, FTSE +2%, CAC +3%, DAX +2.8%. YTD, the sp500 now +13.3%, Dow +8%, Nazz +27%.

    · From the desk – combination of the European PMI, the existing home sales, and to a lesser extent Bernanke, all helping power stocks higher. Institutions are def. better to buy, although there isn’t any panic buying occurring and a lot of over-to-day orders. Pretty illiquid, esp. for an expiration Friday, which is prob. helping to exacerbate the move higher. In terms of sentiment, a lot of the same views still being expressed: investors were pretty hopeful that the Mon selloff (sp500 off 2.4% that day) would be the start of a broader move lower (~7-10%) in order to create better entry points. However, that hasn’t happened (stocks were up Tues-Fri and sp500 now up 1.8% on the week) and many are starting to wonder/fear that 2-3% is about all this tape will concede on the downside.

    · Sector trading – financials, industrials, energy, materials, discretionary all up >2%. Tech, health care, staples all up ~1%. Crude is up >1% on the day and approaching the important $75 level (which has been resistance going back to May).

    · Corp Credit – staging a strong rally today (moving in lockstep w/equities). HY up more than 1 point (HY north of 89). IG is ~5bp tighter (to ~115).

    · Treasuries – TSYs were higher earlier this morning but are coming for sale as equities ramp; 10s are down nearly a full point (recall longer duration TSYs rallied yesterday despite risky assets also rallying, so they are giving back some of that). 10yr yields up 12bp on the day to 3.55%. 30s falling more than a full point (30 yields up 10bp on the day to 4.34%). 2s are very weak – yields jump from 0.98% to 1.1%. 10s and 30s yields still down on the week (2 yields are up on the week).

    · DXY – the DXY is down 0.3% on the day (has been down now for 4 consecutive days). The Euro is up 0.36% against the dollar while the pound is flattish. The yen was higher vs. the dollar until the existing home sales hit @ 10am and then sold off (dollar now up 0.44% against the yen).

    Eco update – strong #s from Europe, US; Bernanke speaks

    · US Exiting home sales – Existing home sales were strong in July. Sales increased from an annualized pace of 4.89 million in June to 5.24 million in July, the highest level since August 2007. Sales had been steadily edging up from the January low of 4.49 million in recent months, but the latest increase looks more substantial, as it goes beyond simply reversing the drop in sales that occurred in the fourth quarter of last year (Abiel Reinhart). The White House said today that it appears like housing is bottoming out and stabilizing.

    · European PMI reading this morning shows big gains – The Euro area flash PMI rose much more than expected in August, driven by impressive gains in services. At 50.0, the composite PMI is now fully consistent with a return to positive GDP growth in the current quarter; the no-growth level of the composite PMI has historically been at around 47.5. Two aspects of the release were particularly encouraging. First, the details showed a 3.1 point increase of the composite employment component, suggesting that the pace of job cuts is moderating quickly. Second, the large improvement of the services PMI in August suggests that the sources of growth are looking quite balanced, given that the inventory dynamics which are boosting industry play less of a role in the service sector.

    · Bernanke speech – hit at 10amET at the Jackson Hole conf. On the whole not a whole lot incremental – the Fed chief recounts the events of the last year and the actions taken to avert financial disaster. Bernanke repeats that the US economy is on the path of recovery.

  75. Rig Count Watch

    Oil up 8 to 280 vs 395 year ago
    Gas up 7 to 695 vs 1594 yoy
    Horizontal up 7 to 428 vs 603 you

    Oil service running hard here.

  76. Has Tom Darden of KWK been any better than anyone else at predicting gas prices, or is that just “noise” in #60?

  77. RMD – Not that I know of. I think you give credit to those guys who hedged early and high. This may turn your stomach but that includes Aubrey.

  79. bop – bot at 97.62 my question wasn;t about them , have been waiting for the index to back off as i want to buy some more bonds, and have been hoping yields would climb a little. miss your index report every day. any ideas?

  80. CHK’s point and figure, and also that of oil, looks wonderful the way it make up the July leg down to 17 back up to 24 in one line; this usually means upside breakout coming. fwiw.

  81. More upside to this “recovery”? I guess they need to get ma n’ pa to buy in before they drop everyone.

  84. kyleandy — #79 thank you for your response. I just wanted to update my brain to make sure you are making $$ on those bonds.

    As much bond issuance as there has been in August (which is absolutely UNHEARD of… NO ONE ever issued bonds in August — unless they were a pathetic loser — b/c you had to pay up to get anyone’s attention), there is going to be a FLOOD of issuance hit in Sept and Oct. Just like companies doing 2ndary stock issuance, this will have the affect of pushing spreads out a bit on existing bonds (as investors sell the old bonds to buy the new deals, which are typically priced “cheap” so that they pop a couple of points on the break). Anyway, you might want to wait until spreads widen in Sept/Oct, then add to your holdings. Of course, the dynamic tension is if people pour more money into the high yield sector (as they become more comfortable that we are not headed back to the Abyss), then spreads overall will tighten. Even in the face of new bond issuance. We will watch this. And I’ll post index info again, to keep you updated.

    Be glad to offer any help i can. Thanks for asking.

  85. sign of the times:

    Libyans are having a national holiday celebrating return of a terrorist..talking head on cnbc says this means we should get off oil

    bho closes gitmo and americans say nothing

  87. re 85

    As I understand it, Momar’s son arranged that little soiree, and to me, it is like pandering to your constituents, as he prepares to take the reigns from dad in leading Libya.

    That talking head was John Kilduff. He said we should sanction them for it. Why, because it has worked so well in the past? That would just boost the price of oil over a staged rally by a 1,000 teenagers. Not worth it.

  92. agreed – i was thinking more broad equity wise. Feels like a sucker rally. Low volume, options expiration, B-team likely manning the desk…

  94. 1520s — lol… heard that The Street is absolutely deserted… leaves blowing in the gutters, empty food carts, echoing valleys between buildings, as NO ONE is at their NY desk. So, B-Team Rally, for sure!

  97. HT pointing out that the mrkt may come in… but at this rate, PMs will be chasing any pullback.

    Will need some sort of nasty eco-data and/or Washington decree to derail this for a bit, it looks like.

    That said, trees don’t grow to the sky… fundamentals matter.

  98. Sorry Z just saw your question re support and resistance. I have two levels I am watching for this rally to end. Dow 9700 and 10300 – 10600 – if we see the latter in the next 3 weeks it should be the short of a lifetime! I have never seen a rally built on so few fundamentals and there are going to be plenty of catalysts to take it down imo. The other worry is once they know its done they are all going to hit the sell button at the same time and we will see absolute freefall. The memories of last October are still very fresh and they are all going to be very happy to cut and run I would think.

    Anyway this cycle is due to top out no later than the 27th August and there is another one that tops out mid September.

    There are so many levels up here on spx that could top it 1028 ie here and now! 1032, 1044, 1050 and 1055.

    I was wrong about nat gas moving up today but hey sticking with it.

  99. Thanks Nicky and I’m with you on gas. I’ll have the wrap out early in the morning with a couple of housekeeping items.

    Declaring beerthirty early as the interns are restless. Have A Great Weekend!

  100. I can think of plenty of things to de rail this namely cash for clunkers is now done so they can stop talking about that, that housing stimulus of 8k for new buyers is nearly done and no doubt contributed to the housing data as they all rush in to buy, and then how about 3rd and quarter earnings and how they heck they are going to make them? And then I am wondering if GS who apparently are extremely worried about their image and have hired a firm to work on it (!) may feel they have had enough days making 100million on the upside and can start shafting everyone who has come to the party late.

  101. Thoughts on SPY puts with October expiration at this level? Let’s say the 103 strikes? On the lows of the day now or thereabouts

  105. On Friday people check out early, also summer, also post earnings season lull.

    CHK – hedges, partners paying the bigger slice of their tab in the Haynesville, Fayetteville, Marcellus.

  106. Seems CHK is near it’s top end of the range here with prices plummeting from 3.50 recently down to 2.80 so I’m having a hard time wading into to the stock at nearly $24 (which it was above when NG was $3.50)

  107. baylor — reading every word you write!

    also, heard something about CHK entering into some new VPPs a week ago (?)… Question, is that a bullish or bearish indicator for nat gas from Aubrey?

  108. I’m in the CHK common in a couple of accounts but have been away from the common. They only have a small % of their portfolio exposed to hedges so their income and cash flow statements will not suffer nearly as much as you’d think. It’s 2010 that matters now. Also, the prepayment of $1B by PXP the other day has to be taken into account. They brought that present value forward with minimal discount. Not defending them, just saying I don’t think the recent fast drop in natural gas should be immediately reflected to the same degree in the stock prices of the natural gas producers. The same hedges that prevented CHK from participating in the rally to a greater extent last year are now protecting their capital budget. The freeing up of the capital markets (which continues) is another issues that takes pressure of these stocks. So while gas prices may be depressed, other factors for their business have improved (they being the industry and not just CHK).

  109. BOP – It does not relate to his sentiment towards natural gas. The VPPs are planned well in advance, a string of them to reduce debt on the balance sheet. I say it that way because a VPP is a form of debt. Anyway, these are lower upside, stable cash return assets that they can monetize and use to reduce debt and fund higher IRR projects like securing their Haynesville acreage via the drillbit.

  110. Hey BOP and Z, I appreciate y’all being out there for me 🙂 Y’all have a great weekend.

  112. He paid a pretty penny for the VPPs… heard 15%. But, also heard the mrkt for VPPs is 10-20%… so, paid mid-mrkt. Thanks for your insight there.

  113. Yes, do have a great weekend. There will be a couple of changes announced in the wrap tomorrow. Don’t forget to sign up to follow on twitter so you can see how boring I am on the weekends.

  115. HA! The world has changed. Remember those Kansas City Southern RailRoad bonds i was screaming about last December? The ones with the 13% coupon, issued at a 88.4 discount to yield something like 17.5%. Anyway, those bonds are now quoted at almost 120 for a 7.6% yield.

    A “couple of months ago” the world was a different place.

  117. (you assume i bought the bonds… i didn’t… just pointing out how far we have come from the edge of the Abyss)

    ‘Tini Friday… make that a little “dirty” with TWO olives…

    cheers!

  118. Terranova on Fast Money – ‘nat gas is going below 2’. Please! This from the guy who told us to buy it on 17th July! Anyway I guess his next call is for it to go to zero!

  119. 31 …. sounds like something I would say ! LOL.

    Z … what’s your Twitter name ?

    Market … ridiculous again. GS probably made a billion $$ this option expiration week.

    My JPM go to guy on homebuilding:

    Homebuilding: July Existing Home Sales’ Rise a Positive, However, Like Rise in Inventory a Negative

    July existing home sales rose 7.2% sequentially to 5.24 mil. from 4.89 mil., well above the Street’s 5.00 mil. estimate for a 2.1% gain. Foreclosures represented roughly 31%, in line with June’s level. Importantly, however, and offsetting this positive to a good degree in our view, total absolute inventory rose 7.3% seq. to 4.09 mil. While months’ supply remains flat at 9.4, given that home sales and inventories rose at a similar rate, we are more concerned with the rise in absolute inventories, given our view that a high level of foreclosures in 2H09, combined with a still highly elevated overall level of housing inventory, remains the biggest risk to home prices over the next 6-12 months. Additionally, we note that: 1) through mid-August, inventory levels in the 23 markets tracked in our Bi-Weekly Inventory Watch have risen 1% on average; and 2) RealtyTrac recently reported a 6.7% rise in foreclosure filings in July to 360K, which marks the fifth straight month of filings over 300K. Accordingly, we believe this should drive further home price declines and large impairment charges for the builders in 2H09, and thus we maintain our negative sector stance.
    Total inventory rises strongly, and remains highly elevated; single-family inventory rises as well. Total absolute inventory rose 7.3% to 4.09 mil., while single-family homes available for sale also rose 3.1% to 3.30 mil. While total months’ supply was flat at 9.4 mos. and single family months’ supply fell 3.4% to 8.6 mos., supply remains elevated, in our view.

    Existing home sales rise strongly, well above Street. Following a 3.6% rise in June, total existing home sales rose 7.2% seq. to 5.24 mil, well above the Street’s 5.00 mil. estimate. Similarly, single-family sales of 4.61 mil. rose 6.5% seq. following last month’s 2.6% rise. We note distressed sales rep. roughly 31% of sales, in-line with June’s 31%. On a YOY basis, total and SF sales both rose 5.0%. However, given a still relatively weak macro environment, featuring continued job losses and a more tentative consumer, we do not expect continued strong growth in 2H09 for existing home sales.

    Prices fall modestly. Median prices fell modestly, down 2.0% to $178K, while average prices rose 4.2% to $237K. However, on a YOY basis, median and average prices still fell 15% and 6%, respectively. Importantly, we believe prices need to fall at least another 10% in order for inventories to fall more meaningfully.

    Maintain negative sector stance. We note that the larger-cap builders are currently trading at 0.93x P/B (ex-FAS 109, incl. MDC), above the 1990 trough of 0.7x. However, we believe today’s markedly more challenging housing and macro environment supports even lower trough valuations for the current cycle. Specifically, given our outlook for higher unemployment, still tight credit, rising foreclosures, and elevated inventory levels, our estimate for impairment charges to represent another 30% hit to builders’ book values could easily prove conservative. As a result, we believe large impairments should continue to prevent investors from gaining confidence in asset values, resulting in depressed price-to-book multiples, as well as drive further erosion of book values.

Comment below here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

s2Member®