18
May

Tuesday Morning … Time For A Bounce

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Market Sentiment Watch: Sitting on cash in the ZCAT except for a few positions that have been rendered worthless by the market swoon of the last two weeks. In the ZIM I've been adding to positions and taking hits on the continued drop in the market. I will be looking to take losses and /or profits today and tomorrow on many of those.  This is one of those times just after the end of earnings when the group has little news out, analysts are dreaming of summer vacations and we don't have a major energy conference for at least a week  (we get the UBS Global Oil & Gas conference next week). So it's a bit slow. During the slow times I knock out data crunching jobs to be prepared for the coming time when the market will trade in a bit more logical fashion and I've included the Orange Charts for the Mid Cap E&P group. The Small Caps will be out later this week as well. I planned on adding a new Catalyst today but am trying to pin down a couple of dates and will have it out later this week. In energy land, BP said it's catheter is collecting about 2,000 bopd from the riser now and that it plans to attempt a top kill of the well by then end of the week. BP called the pressures above and below the wellhead "fairly low" and said they have been dropping, giving them confidence the top kill (pumping heavy mud, then cement into the well) can work.

Ecodata Watch:

  • PPI of -0.1% vs -0.2% expected (core was 0.2% vs 0.1% expected)
  • Housing starts of 672K vs 650K expected; permits fell sharply, down 11.5%


In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today –  Mid Cap E&P Orange Charts
  5. Odds & Ends

Holdings Watch:

  • ZCAT (Zman Catalyst portfolio):

    • $7,900
    • 94% Cash
    • The Holdings Tab Is Updated for the Quick View portion.
    • Yesterday’s Trades:

      • None

 

  • ZIM (Zman Inefficient Markets portfolio)
    • $17,600
    • 63% Cash
    • Yesterday’s Trades:
      •  Added (100) HAL $29 May calls for $0.16 with the stock at 27.20, down 3% in a weak tape. I expect the name to recover disproportionately on a market bounce but plan to be quick here. See site for comments on the BP spill. Obviously a high risk trade but oil appears oversold and the liability for HAL increasingly appears to be less than for BP and RIG.


Commodity Watch

Crude oil fell $1.53 to close at $70.08 yesterday, after hitting a low of $69.27. By most appearances oil is now oversold having fallen 20% (peak to trough) in the last 10 trading sessions. This morning crude is trading up $2.20.

  • Early Read On Oil Inventories:
    • Crude:  UP 0.625 mm barrels
    • Gasoline: DOWN 1.0 mm barrels
    • Distillates: UP 1.0 mm barrels
  • Iran Watch: Time For More Sanctions. The White House said yesterday it is moving through the process of at the U.N. of getting more sanctions heaped on Iran. Expect more anti-West rhetoric out of the regime in the near future.
  • Refinery Fire Watch: Lyondell's Houston 270,000 bopd reported a minor fire yesterday and it appears the crude units are already restarting so I would not expect a disruption to gasoline production from the event.
  • Drilling Ban Clarification Thoughts Watch:  The ban is for all drilling starting from 3 miles offshore. The Shelf &P players and rig names like ESV, RDC, and DO may jump if Department of the Interior allows begins approving new permits on May 28th.

Natural gas rose $0.09 to close at $4.40 yesterday and the prompt month currently looks like this. I would not expect much more near term upside (maybe a trade up to $4.80 on early cooling related demand in the south and heating demand in the northeast and Rockiees) but the stocks have utterly ignored this 10+% move off the recent shoulder season lows.  This morning gas is trading up slightly.

  • Imports Watch: Not available this week. 

Crack Spread Update


Key Takeaways:

  1. Increasingly it looks like we are going to see the first year over year rise in quarterly margins and earnings for the independent refiners in over a year.
  2. I'm not looking for a long term turn to higher margins, but a seasonal rally.
  3. VLO and SUN remain on my radar for adds. I plan to move this week if demand data, especially on the distillate side show another strong week tomorrow.

Stuff We Care About Today

Mid Cap E&P Orange Charts

 


Key Takeaways:

  1. First, this is just a reference piece, a good starting place for making comparisons
  2. Valuations in the mid caps are within normal levels
  3. Balance sheets are healthier than they have been in quite some time with a few exceptions
  4. Performance year to date and growth expectations (and even making your numbers) have been far from hand in hand. Reference HK which has one of the fastest growth rate targets for 2010 and which has made it's targets, is lower cost and I'd add well hedged and yet it is the second worst performer on the list. Natural gas comes to mind along with Street bias against the name. 
  5. Ongoing Bias Against Gas. Aside from HK, XCO, the only name in this cap range with more gas in their production profile is only name to perform worse than HK year to date.
  6. Balance Sheet Still Matters. The lower the debt to cap and or more oil you have in the production profile, the more love you've seen from the Street. The Buy side of the Street I mean, as there are a dozen Buy recommendations out there now for HK but the Buy Side and the Sell Side aren't seeing eye to eye there or anywhere where gas is such a big factor AND where the balance sheet is even somewhat leveraged.
  7. This update will be placed on the Mid Cap tab at upper left.

Other Stuff:

AEZ Reports 1Q Results

  • Production of 15,402 BOE vs 12,347 BOE a year ago, with growth coming from a doubling in oil volumes
  • Revenue of  $860 M vs $790 M expected
  • EPS of $0.46 but this includes a gain on the sale of properties and changes in accounting treatments.
  • Balance Sheet:

    • $73.9 in cash
    • No long term debt
  • No operational highlights were included in the release.
  • Nutshell: It's not really about the numbers just yet (other than the strength of the balance sheet and their strong results from their first two Bakken tests). I plan to work these guys up in the near future as a potential position for the ZLT.

 

 

Odds & Ends

Analyst Watch:

  • None

 

165 Responses to “Tuesday Morning … Time For A Bounce”

  1. 1
    isleworth Says:

    Raymond James downgrades WHX to Underperform from Market Perform

  2. 2
    zman Says:

    Thanks Isle, I see the headline but don’t have the story. Wonder what gives with that.

  3. 3
    nifkin Says:

    RBC downgrades WHX this AM as well. Production in line, lease operating costs 2% higher than expected. Price realizations 4% better than our model. WHX is a depleting royalty trust that will terminate around mid-2017. At the Trust’s termination, WHX will end with a value of $0/unit >> there will be no terminal value remaining as the assets revert to Whiting Petroleum. The Trust was established with a fixed cumulative amount of production (9.11 MMboe). The trust’s year-end reserve indicated a balance of 6.0 MMboe or 6.3 years remaining.

  4. 4
    baylor3217 Says:

    Gold “way” down overnight. Might get scared out of my position there today.

  5. 5
    zman Says:

    Nifkin – thanks. When I ran the model I had $21 / boe for LOE which was conservative and they came in around that number. The 2% higher number would indicate the analyst didn’t get the trend properly there.

  6. 6
    zman Says:

    A DO rig had an accident off Brazil killing two of the crew. Tough year for safety on and offshore in energy this year.

  7. 7
    Nicky Says:

    Morning all.

    SPX has resistance at 1150/1153. Both bearish and bullish counts still on the table. I am still leaning in favor of a move back to 1170 area this week. This ultimately favors the bullish case.

    Gold I think is in a large wave iv. Could zig zag down to the 1180 area before moving higher but likely to go up to 1120-/25 first.

  8. 8
    zman Says:

    Thanks much Nicky. That last sentence should be 1220-/25 correct?

  9. 9
    zman Says:

    Bill – re SB – seeing more people initiate there and say favorable things about management.

  10. 10
    zman Says:

    STR board OKs E&P unit spin off.

  11. 11
    zman Says:

    STR running pre market, probably going to run all day, maybe all week. Low debt, strong resource base E&P in the making.

  12. 12
    zman Says:

    JB – can I get a very short term (this week) read on HAL? I’m thinking resistance is simply the 200 day SMA at about $29.20 but wanted to get your thoughts. Thanks.

  13. 13
    jiveyjr Says:

    I took WHX at 19 and 19.77….trying to take more at 18…

  14. 14
    zman Says:

    Nice open for the market and group. Watching HAL / CAM closely at the moment, letting them run for a bit and the market settle into something like a bullish groove before taking anything off the table.

  15. 15
    Nicky Says:

    re #8 – yes 1220/25

  16. 16
    zman Says:

    Nicky – very nice calling of the ball lately by the way! Both market and crude.

  17. 17
    zman Says:

    If anyone gets the RBC report on WHX I would like to see it, thanks. zmanalpha@gmail.com.

  18. 18
    zman Says:

    Thanks guys, got the RBC.

  19. 19
    Nicky Says:

    Z – thanks you. However, I did not call that move to 1065! I had the low at 1110 which was a long way off and I certainly did not see the crash coming. The market looks like it is going to be super volatile to me for the next couple of weeks. Very short term we are working on making a high for a couple of the minor cycles. There is the 20 day cycle which should not top prior to the 19th May and could be several days later. Once that occurs I am concerned about the the next cycle down which is going to be the one that finally gets us our low for the larger cycles. Therefore the downdraft could be pretty strong.

  20. 20
    Jerome Blank Says:

    #12 HAL, no question, the 200 day is first resistance, but if the mkt stays stong HAL could try and test lower daily trendline resistance near $30, this also corresponds with 200 period resistance on the 30 min…30 min chart posted

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3724280

  21. 21
    zman Says:

    Nicky – the directionality of the call and the timing of the cycle highs is what I was referring to. And you bottom ticked crude within about 25 cents yesterday. Keep it up.

    JB – thanks much, going to go vote.

  22. 22
    Jerome Blank Says:

    #21 Zman, thank you…

  23. 23
    zman Says:

    Energy lying down alongside the S&P action a little more tightly than usual. Not a lot of independent thinking going on out there at the moment.

  24. 24
    VTZ Says:

    RE WHX and #3: At what price deck to they say the trust will have a $0 terminal value?.

  25. 25
    zman Says:

    Went through the RBC piece. They come up with an NAV of $11, stating the obvious that the trust will have $0 value in 2017. I’d tell them that with higher oil prices over the next several years that they are missing the value of the distribution chain. I think they underestimate the ability of the vehicle to trade off yield. There is nothing new about the terminal value so I don’t get the downgrade to Sell given the yield but it does provide me with an opportunity to game them. I’ll be adding today or tomorrow.

  26. 26
    Nicky Says:

    Need to keep an eye on the euro which is looking a bit weak again. The SPX is keying off this right now and nothing else it seems.

  27. 27
    zman Says:

    V – they are using the strip for the next two years and say this gets them the $11 NAV declining to $0 at 2017. They said yesterday’s price near $23 assumed $150 oil (I guess held flat).

  28. 28
    zman Says:

    Nicky – right. Like I was saying, everything seems very black and white, all or none, green or red right now. Not a lot of actual thinking going on.

  29. 29
    zman Says:

    Analyst Watch:

    FST – Suntrust starts with Buy, $45 target. Little late.

  30. 30
    VTZ Says:

    The WHX call seems really weird to me although I understand where they are coming from. I just don’t get why it ceased being valued however it was before today at this moment.

  31. 31
    zman Says:

    V – I’d bet the yield guys are worried about oil prices. I would note that he had it at basically a Neutral rating prior to this slap, don’t know if he’s been on the sidelines long with that rating. I’d also note that they have some pretty good hedges in place but that hedges or no, energy stocks will move in the direction of oil most of the time.

  32. 32
    zman Says:

    Thanks, just got the RJ downgrade on WHX.

    They were so far off the mark on the distribution it is laughable. They were looking for 77 cents, we got 70. If you are going to be that wide off be on the low side like I was with everything tilted to the conservative side. Their model does not work at this point so they downgraded. The fact that they thought it could make that big a number and they were only at market perf is also telling of someone who is “away from the story”. It’s not rocket science, it’s back of the envelope style modeling. Sheesh.

  33. 33
    zman Says:

    And RJ sees trust termination in 2015. Not likely according to the trust documents. 2017 is too early as well.

  34. 34
    1520sbroad Says:

    anyone see any follow up to that EOG new bond issue? Reason why?

  35. 35
    zman Says:

    Why did the Nasdaq go red?

    1520 – no comment out of the company.

  36. 36
    1520sbroad Says:

    Drive-by-billion I guess.

  37. 37
    zman Says:

    RE WHX – Actually 2017, is the right number for now, was thinking 2018 but the trust docs have been pointing to 2017. Don’t know where RJ is coming up with 4Q15 for termination but best guess is that they are taking a straight line approach to declines based on the most recent quarter. Not real life that approach.

  38. 38
    zman Says:

    S&P about to go red.

  39. 39
    Nicky Says:

    Support at 1135/36 and then more important support at 1126.

  40. 40
    zman Says:

    re 36. I think what BOP said yesterday was probably it; they had the opportunity to do the deal and bolster cash on the balance sheet at a time when credit markets are looking a bit frail again.

  41. 41
    reefguy Says:

    egy- Ebouri 3H workover successful at 3500 BOPD. FPSO now at 25,000 BOPD capacity….

  42. 42
    zman Says:

    Analyst Watch:

    ROSE – Global Hunter initiates with a Buy and $35 target.

    EGY out with a brief operations update, nothing major, still interested.

  43. 43
    bondbuddha Says:

    JB, voted and thanks for all your efforts, they are appreciated.

  44. 44
    zman Says:

    Reef – just saw that, need to re work that story up. Lot of apparent bargains out there suddenly. TAT back below $3.50.

  45. 45
    West Says:

    Anyone have an opinionon SM ?

  46. 46
    Jerome Blank Says:

    Re: #43 bondbuddha, thank you…

  47. 47
    BirdsofpreyRcool Says:

    EGY — some comments on the news release….

    Frankly, you got to love a company that tells you what they are going to do, then does it. So far, both wells have come on within predicted production ranges (3,500 to 4,000 bpd for the 4H and 3,000 bpd for the 3H) and on schedule (3H done by “mid-May”). I expect they will choke back (or rather, not pump) the 3H with as much pressure, to keep the FPSO at its 25kboe/d processing capacity. They have no incentive (tax-wise) to exceed that 25kboe/d.

    Next up is the Big Well (of the 4 permitted for this year), the SE Etame wildcat. EGY says they expect the well to be TD’d by “end of June” and will test both the Gamba and the Dentale sandstones. If this well is successful, it will require the construction of a separate production platform (estimated to take 18months), but it will also establish the next trend of fields to be explored over the next few years. More immediately, if the SE Etame wildcat is successful within projections, then this one well would add 7.6mm boe of net new reserves to EGY’s 7.3mm of existing proved reserves. Quite the reserve pop, for this little company. Will be exciting to “well watch” for results here.

  48. 48
    zman Says:

    re 45, this is what I wrote on May 4th. Note the bit about the Niobrara well, should here on that soon:

    SM Reports Much Better Than Expected 1Q10 Results, Raising Guidance

    * Production of 285.8 MMcfepd, vs guidance of 255 to 278 MMCfepd
    * Revenue of $360.1 mm vs $200 mm expected
    * EPS of $0.45 vs $0.26 expected
    * CFPS of $2.07 vs $1.79 expected
    * Highlights:
    o Production guidance range increased from 92 to 100 Bcfe to a range 98 to 104 Bcfe.
    o Eagle Ford Shale – 10 additional wells completed; rates intentionally constrained on all as they test optimal production procedures.
    o Niobrara – first well drilled and casing set (meaning they have a discovery as it produced from natural fractures while drilling) and the well will be completed in May.
    o Granite Wash – first well drilled and completed but was still cleaning up at press time.
    o Capex sticks to the original plan with more money being directed to the Eagle Ford and less to the Haynesville and Woodford.
    o This is the most interesting press release of the day.

  49. 49
    zman Says:

    West – I was just working through a Cat List update and was at SM when you inquired.

  50. 50
    zman Says:

    Re SM – Best guess is they release results on a Niobrara well and a Granite Wash well at a conference before month end.

  51. 51
    West Says:

    Thx Z

  52. 52
    zman Says:

    re 47. Thanks.

  53. 53
    zman Says:

    Goldman, BP, CVX getting sued by a large number of E&Ps over hedging conspiracy allegations with Semgroup.

  54. 54
    zman Says:

    Back to a weak, weak tape. Not big selling action, just more of the buyers strike feel to it.

  55. 55
    zman Says:

    Most of the energy sector has stayed green on the day so far.

    Crude still up $1.40; NG up 4.5 cents.

    Dollar up again is pressuring everything.

    Tech off especially hard, with HP earnings tonight.

    WHX is down 9%, off the 13% levels from earlier.

  56. 56
    Jerome Blank Says:

    HAL closed this mornings opening gap on light vol with numerous tails, HAL wants to go higher, if MKT would help just a little..

  57. 57
    zman Says:

    JB – I just tried to buy some at yesterday’s prices and just missed. Will add more if it dips again to about $28.10.

  58. 58
    zman Says:

    ZTRADE – ZIM – HAL – High Risk

    HAL – Added (200) HAL $30 May Calls for $0.05. The position is now full and though its a lot of contracts, it’s not a lot of money.

  59. 59
    zman Says:

    Iran Sanctions watch: Deal reached

    http://news.yahoo.com/s/ap/20100518/ap_on_go_ca_st_pe/us_us_iran

  60. 60
    Nicky Says:

    Dennis Gartman saying sell gold:

    http://www.cnbc.com/id/37209570

  61. 61
    zman Says:

    Nicky – I guess 1126 next stop.

  62. 62
    Nicky Says:

    For the more bullish count the SPX has to hold the 1126/27 area. It would set up an inverse head and shoulders and target the 1165 – 80 area.

  63. 63
    zman Says:

    re 62. Thanks much.

  64. 64
    Nicky Says:

    Richard Russell taking the opposite stance to Gartman:
    “Just as for years I asked, cajoled, insisted, threatened, demanded,
    that my subscribers buy gold, I am now insisting, demanding, begging
    my subscribers to get OUT of stocks (including C and BYD, but not
    including golds) and get into cash or gold (bullion if possible). If
    the two Averages violate their May 7 lows, I see a major crash as the
    outcome. Pul – leeze, get out of stocks now, and I don’t give a damn
    whether you have paper losses or paper profits!”

  65. 65
    zman Says:

    On AEZ – CK Cooper taking their numbers up substantially for CFPS post quarter.

    2010 goes from $0.18 to $0.87;
    2011 goes from $0.75 to $0.92.

    7 analysts tracking now have:
    2010: $0.12
    2011: $0.65

    That’s pretty aggressive, will take a look to see if that’s warranted based on the proposed Bakken program.

  66. 66
    RMD Says:

    LINE: I had a “duh” moment as I wondered why the market didn’t care about LINE’s G Wash drilling. Since LINE’s valuation is higher than E&Ps and it sells mostly on yield, the stock won’t care until they drill enough wells for the cash flow to exceed the capx and lead to an increase in the distribution. My (unknowledgable) guess is 2-4 quarters away.

  67. 67
    bondbuddha Says:

    Did anyone see this Harry Dent forecast from the 12th, a client of mine sent it to me, WoW :
    Harry S. Dent, Jr. of HS Dent Warns: Major economic turmoil looms ahead which should once again shake up the markets TAMPA, Fla.- May 12 – HS Dent releases the May 2010 issue of The HS Dent Monthly Economic Forecast as the markets approach a major economic upheaval likely to occur in the next 3-6 months unlike anything Americans of this generation have ever seen. In the May 1st issue Harry S. Dent, Jr., company founder, forecasts a substantial market correction (has as has occurred) but forecasts that the market will see new highs between late June and early August, before a much larger selloff later in the year. “Between July and August there’s going to be a major turn and if you aren’t out of the markets it could happen so fast that you won’t have time to back out,” states Mr. Dent, “We are going to see the stock market go down rapidly to as low as Dow 3,800 by the end of this year, just like the oil market bubble burst in 2008 that dropped 78% over 4 months. I fear this is where we are headed and we are warning you now.”

  68. 68
    elijahwc Says:

    CHK – Carl Icahn disclosed a new 2.1 mln share position in CHK. Whats up with that?

  69. 69
    jiveyjr Says:

    he and Aubrey should have one hell of a love match with their respective egos wouldn’t you think?

  70. 70
    tomdavis12 Says:

    Z: Carl Icahn bot 2.1M shares of CHK in the first quarter. Look out Aubrey. 🙂

  71. 71
    zman Says:

    re 67. Man there are a lot of people trying to make names with wild claims these days. Panic now or you won’t have time to panic later. I don’t know Dent, is he good? Does have reason’s attached?

    Eli – He’s going to need a lot more share than that to get into activist mode, sounds like an investment.

  72. 72
    zman Says:

    CHK = 651 mm shares out, so 2.1 mm is not quite 1/3 of 1%.

  73. 73
    elijahwc Says:

    Z ,Carl doesn’t make investments. Just says he does.

  74. 74
    zman Says:

    OK, well he’s going need more of a thorn than that.

  75. 75
    jiveyjr Says:

    regarding Dent, he lays a lot of groundwork for his directional calls based on demographics…he used to be at Bain Capital before he struck out into his own biz.

    Not sure what I think of him. In some sense he’s another sensational “call maker” who has been right a time or two and therefore has a stage.

    I don’t have any idea whether these sensational calls will bear themselves out but I read his books and stuff because it merits some attn. in the thought process.

  76. 76
    zman Says:

    Thanks for the context J.

    Here’s my sensational call of the moment then:

    If the MMS keeps the ban on drilling through the summer look for $90 oil by summers end and average US gasoline prices of $3.50.

    That’s probably not sensational enough to get any notice but there ya go.

  77. 77
    VTZ Says:

    I haven’t ruled out a retest of the 666 on the S&P.

  78. 78
    jiveyjr Says:

    not even in the ballpark of sensational…you shouldn’ve watched Joe Granville in the old days get a venue, pull his pants down and then start his spiel

  79. 79
    VTZ Says:

    Granville is a really smart dude. I respect that guy a lot, even more now that I know he doesn’t care about talking with his pants down.

  80. 80
    VTZ Says:

    RE gold: It seems every single technician is calling for a pullback to 1075-1080.

  81. 81
    Nicky Says:

    re # 77. Agree. Just not yet. I think these guys are a bit premature. Likely to be a wild year with some big swings but if history is anything to go by then a big rally kicks off in the Fall.

  82. 82
    zman Says:

    I have noticed over the years that guys that pound the table every time they make a comment generally break their hands in a highly public and career ending manner sooner or later.

    VTZ – you didn’t say if the crash would be this week or next. To be truly sensational, one must have timeline, otherwise I won’t know if there is time to take a leak or not before I sell everything.

  83. 83
    bondbuddha Says:

    Dent is a demographer by trade and made his reputation while at Bain with boom calls based on his research of the ” Baby Boom ” generation. He made sensational bullish calls in those days, which everyone seems to have forgotten in the last 3/4 years, like Dow 20,000 etc etc. Just thought I would throw it out as a conversational piece. You have to remember, he is selling newsletters and mutual funds!

  84. 84
    VTZ Says:

    I agree that the bears are premature as well. I just wanted in on the sensationalism. We need to see the bond markets in panic again for 666.

    I’m also in the gold *could* be 5000 in 5 years camp (however it’s a lock to be roaming between 1500-2000 in the next 2 years). Now that’s sensationalism WITH a timeline!

  85. 85
    zman Says:

    Re 84. That’s all I ask.

    S&P trading very spottily (jerky) again today.

  86. 86
    zman Says:

    Proposed market halt rules:

    http://www.marketwatch.com/story/sec-set-to-propose-unified-stock-halt-system-2010-05-18

  87. 87
    BirdsofpreyRcool Says:

    OK… reading all the Cassandra Newsletters, I didn’t know what to think. I am not seeing that they are seeing, reflected in the credit market. I find it a little amusing… that stock letter writers communicate in such stunningly excitable modes. If you went around with a bullhorn in panic mode in the bond market with those types of statements, you would be laughed out of the biz. Not that people don’t listen to the Armaggedon View in the bond market. But pul-leeeeze, back it up with a few facts, will you guys? Then we can have a conversation. What I am reading, seems to me to be a bunch of Elaine Garzarelli wanna-bes. You “call a market crash” (by intellegence, luck, timing, whatever) and you get to sell your newsletter and be invited to Talk Shows for the next 20 yrs. The incentive is to predict BIG BAD THINGS… then sit back and see if you get it right.

    That said… as I mentioned at the start of this rant, I didn’t know what to think… what I was missing. So, just had a long chat with XAC Strategist #1. Other than what we are seeing in the GS CDS curve (inverted and very steep), credit market people are just not in the PANIC MODE that is whipping stock market news letter writers into a tizzy. Sure, we are seeing some credit market weakness here, we have come so far since the Dark Days of Fall 2008. But, this is still the early inninings of the next credit cycle. And credit cycles run for 6 yrs or so. Hearing JPMo actually talking about instituting a stock buy-back program later this year. Jamie Dimon is a pretty smart guy…

  88. 88
    zman Says:

    Thanks BOP.

    Oil gave up all of the days gains as the dollar lifts and the market comes off post lunch.

  89. 89
    VTZ Says:

    RE 87: Is it even possible for the credit market to get into that big of a tizzy with 0% borrowing costs? No matter what you’re going to have a steep yield curve.

    Let me borrow at 0% and I’ll start getting credit to people no problem! Let’s get this ball rolling!

  90. 90
    BirdsofpreyRcool Says:

    Midday OVERVIEW

    Market Update – quiet trading so far but w/a negative bias towards the tape – good news being sold (see retail) while “old” bad news continues to weigh (i.e. Dodd). From a macro point of view, the situation in Europe remains calm (European equities trended well today w/the important bank stocks outperforming), w/Spain getting off a bond sale this morning and Greece due to make its redemption tomorrow on schedule. There were a few headlines about members of Merkel’s coalition defecting over the European bailout, although it doesn’t seem as if this will be enough to imperil the plan. A Spanish finance official commented that the country’s growth rate for ’11 would be lowered b/c of austerity measures, confirming one of the market’s big fears, although other EU fin mins downplayed this worry earlier today for Europe as a whole. While Chinese equities were able to bounce (and we are also seeing strength in some of the key industrial metals, like copper), investors remain very worried about the country’s growth rate (and potentially adding a new wrinkle – Sen Schumer and some of his colleagues have sent a letter to Geithner urging the TSY Sec to release a report next week at the strategic US-Beijing talks that would reveal China to be an FX manipulator; if anything, the recent decline in the euro has reduced China’s appetite for an adjustment and this latest Schumer development may re-heighten tensions). Stateside, the Dodd regulatory process remains a big overhang on the financials and few people are really willing to step up and buy the group until some clarity is reached on the issue (despite Reid calling for cloture last night, there are still a bunch of major amendments left to come) – see the action in stocks like V, GS, etc, all of which remain for sale in large part b/c of the regulatory overhang. On the earnings front, we actually received a handful of decent retail reports this morning, but the group is coming for sale (w/the exception of WMT, the other names like HD, SKS, ANF, TJX, etc, all moving lower after bouncing at the open). Tech is the market’s weakest group, falling ~1%, as investors continue to worry about capacity expansion, slowing Europe, and inventory (see broader tech below). Similar to retail, Agilent shrs are off 3-4% despite reporting decent numbers last night. One last negative that some people are keeping in mind – the FOMC minutes due out Wed @ 2pmET are from a meeting (Apr 27-28) that took place prior to the European credit crisis reaching a peak and therefore may read more hawkish vs. current market sentiment. The market’s logistics are also on uncertain ground w/the SEC due to unveil new circuit breaker rules later today while Germany could unveil fresh short selling restrictions tonight.

    Trading color – not a whole lot has changed from Mon; trading conditions remain choppy w/a very short-term bias. Larger long-onlys are sitting on the sidelines for the most part. Technically, we are in technical purgatory somewhat, w/big support not down until ~1120 and then ~1114 area (we bounced from the later area on Mon). Investors want clarity on a lot of issues (Dodd, Europe, new circuit breakers, etc) before stepping in.

  91. 91
    BirdsofpreyRcool Says:

    VTZ — the Credit Markets hit TIZZY mode on MLK Day (Jan 2008) and ex-Lehman day (Oct 2008). TED just about blew his brains out, those days.

    It’s one thing, for the tail to wag wildly (the stock market). It’s a whole
    ‘nother thing, to see the entire body go into spasms. That is the diff between equity (tail) and credit (body). The tail can’t live without the body.

  92. 92
    BirdsofpreyRcool Says:

    By the way… credit is still way too tight. That said, it is in losening mode (as defaults on new loans are way too low… yes “too low.” Banks and lending institutions are actually leaving money on the table! But, that is a different topic for a different day). And as the economy gets a smidge better, credit loosens more… and it becomes a Vituous Spiral. Eco-improvement, credit-improvement… rinse and repeat.

  93. 93
    VTZ Says:

    Interest rates were much higher in Jan and still 1% in Oct. I’m arguing that at 0% the credit markets have more inherent stability no matter what happens so, like you said, the credit market won’t wag wildly when there are issues that may cause panic to the equity markets.

  94. 94
    zman Says:

    Tarballs in the Florida keys (along with the market in general) seems to coincide with the slide in BP, then RIG, then HAL today.

  95. 95
    BirdsofpreyRcool Says:

    But, not to be all cheery today… seeing credit market spreads fluctuate in a much broader swing than equity today. Responding to EU stuff and Dodd stuff. But, short answer is, speaks to more downside to stocks today.

    IG was -5bps tighter this morning… now +3bps wider. An 8-pt move in IG is like a 30-35 pt move in the SPX (accoring to XACS’s model).

  96. 96
    Nicky Says:

    Germany announcing a ban on naked short selling on certain stocks and government bonds.

  97. 97
    Nicky Says:

    credit default swaps (of some type but which I am not sure) also to be banned. Santelli says will kill the CDS market.

  98. 98
    1520sbroad Says:

    nat gas stocks up in a bad tape – been a while. SWN – up, EOG – up, HK – up, GMXR – up, CHK – flat

  99. 99
    zman Says:

    Oil and natural gas back to even, slightly red on day. S&P continues to make a series of lower lows and highs on the day. If I had to choose I’ll take it early in the week, especially after the last two weeks as opposed to later in the week (with expiry in mind).

  100. 100
    Nicky Says:

    Just my opinion but i think the euro is close to a short term low. Should see a bounce back towards the 1.30 area. Must hold area for oil….

  101. 101
    BirdsofpreyRcool Says:

    Credit Indices pushing out wider… worth watching here, as they are indicating that stocks could (should?) be headed lower.

    IG +6 1/2 bps

  102. 102
    zman Says:

    US Govt. may delay August lease sale for Gulf. No kidding.

  103. 103
    zman Says:

    S&P hit 1125.15, then started to bounce.

  104. 104
    BirdsofpreyRcool Says:

    We might see stocks wake up to the fact that we are seeing a credit spike down. This is not saying the “mrkt is going to crash”… but it is saying that credit volatility is indicating that equities should be trading a lot lower right here.

    This could all change in the last 30 mins today. But, for now, it’s looking dangerous.

    IG +7 3/4 bps

  105. 105
    BirdsofpreyRcool Says:

    IG +6 1/2 bps…. can’t get the stock market Bears to come out to play… so, taking back some of the losses.

    Headlines from EU driving all this… thanks for posting the reasons, Nicky.

  106. 106
    BirdsofpreyRcool Says:

    IG +5 1/2 bps.

  107. 107
    zman Says:

    Here’ some more of Russel’s thoughts.

    http://finance.yahoo.com/tech-ticker/dow-theorist-richard-russell-sell-everything-liquid-487564.html?tickers=dia,spy,xlf,^dji,^gspc,^ixic&sec=topStories&pos=4&asset=&ccode=

    If we get another reversal off the lows to close even slightly higher today I think you start to get more of this kind of talk instead of the former.

    http://www.marketwatch.com/story/sp-500-survives-second-test-of-major-support-2010-05-18

  108. 108
    zman Says:

    Nope, there went 1125.

  109. 109
    Paul in Kansas City Says:

    RMD; i agree with you regarding LINE

  110. 110
    Paul in Kansas City Says:

    Harry Dent I believe wrote “Dow 35,000”; market calls like that aren’t helpful

  111. 111
    zman Says:

    re 110. Funny how these guys get press after a few days when the market has been off and yet no one points out things like that. Have they trotted Prechter out yet? Going for a walk.

  112. 112
    Nicky Says:

    This move out of Germany really is not constructive. It shows a complete lack of confidence in the measures they already have in place.

    The move down does look corrective at the moment – that could all change…

  113. 113
    AAA Says:

    I find it interesting that BP has publicly stated that it will pay all legitimate claims and is apparently taking the position that it will not take advantage of the statutory liability limit. By contrast, RIG has already filed a court petition to consolidate all claims in one court and limit its exposure to a relatively small sum.

    Clearly, two very different strategies. In the case of BP, “gross negligence” would cause them to lose the statutory limit on liability. They aren’t admitting that, probably in part because it could be relevant to punitive damages. If they decline to use the liability limit, they will clearly have to face shareholder suits for waste of corporate assets. Courts typically give managements wide latitude in such matters, but this liability is so open-ended it could break BP. I can’t imagine a court would say management has the right to put the company into bankruptcy to “do the right thing.”

  114. 114
    tomdavis12 Says:

    Z: Can we sue BP for losses in our portfolios? lol

  115. 115
    BirdsofpreyRcool Says:

    XACS pointing out that CDS Index traders are not doing a very good job of making markets… so, allowing mrkts to push them around. Not comforting, to market participants.

  116. 116
    Nicky Says:

    euro has support at 1.22… nearly there.

  117. 117
    Gmlgdc Says:

    re 113 how about working interest owners in the well. Will the opt out of paying their bills past the statutory limit.

  118. 118
    zman Says:

    Approaching yesterday’s lows.

    GMLGDC – re APC as an interest owner, Hackett is very much in the “do what’s right” camp. That said, he doesn’t have the deep pockets of a BP even on a relative to basis. This is why I’ve stayed away from the name through this. Same for BP, where I now see some estimates for the total bill as high as $12 B. Two weeks ago the highest number I saw was half that. And it obviously still could grow.

  119. 119
    zman Says:

    … and yet APC is the only large cap E&P up now. Go figure.

  120. 120
    AAA Says:

    Obama has already nationalized banks and auto companies. Why not an oil company? I think the claims will expand to consume whatever BP can pay. They could well be legitimate claims as well, if the oil starts fouling Gulf Coast beaches as well as killing seafood, etc.

    I fault BP for its approach. It took them a couple of weeks to do anything, other than watch oil spew out. I understand there are immense difficulties and you don’t want to make things worse, but come on. How would Red Adair have handled it?

  121. 121
    zman Says:

    Market U turn started.

  122. 122
    BirdsofpreyRcool Says:

    Euro, U.S. Stocks, Oil Tumble as Germany Bans Naked Short Sales
    2010-05-18 19:15:22.621 GMT

    By Michael P. Regan and Elizabeth Stanton
    May 18 (Bloomberg) — The euro slid to a more than four- year low against the dollar, U.S. stocks extended declines and commodities trimmed gains as Germany’s ban of certain bearish investments fueled concern the region’s debt crisis will worsening.
    The euro slid below $1.22 for the first time since April 17, 2006, at 3:12 p.m. in New York. The Standard & Poor’s 500 Index tumbled 1.4 percent, erasing a rally of more than 1 percent triggered by better-than-estimated housing starts and results at Wal-Mart Stores Inc. Oil erased a 3.5 percent rally, falling 1.5 percent to $69.04 a barrel in electronic trading.
    Treasuries rallied, sending the benchmark 10-year note’s yield down 12 basis points to 3.37 percent.
    The euro and stocks extended losses as Germany’s BaFin financial-services regulator said that it will introduce a temporary ban on naked short selling and naked credit-default swaps of euro-area government bonds starting at midnight. The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, BaFin said today in an e-mailed statement.
    “It makes it look as if the Germans are worried about something behind the scenes that the market’s not aware of,”
    said Michael O’Rourke, chief market strategist at BTIG LLC in Yardley, Pennsylvania, which provides trading services to institutional investors. “It almost looked panicked, which further undermines confidence in the markets. They’ve done as poor a job as one can do in delivering a message.”
    Short selling involves the sale of borrowed securities in the hope of profiting by buying the securities later at a lower price and returning them to the owner. When securities are sold naked, the trader fails to borrow the assets before sending an order to sell. Investors own naked credit-default swaps when they don’t hold the bonds the derivatives are linked to.

  123. 123
    ratberto Says:

    Does anyone even care whether BP survives? Not me: anyone who impinges on my ability to eat oysters at Felix’s earns my enmity.

  124. 124
    BirdsofpreyRcool Says:

    [by the way… Michael O’Rourke is “BedTime Mrkt Strategist… shhhhhhh]

  125. 125
    zman Says:

    re 120. Re Red Adair, he probably would have put nitro down the hole. He definitely would have punched the congressman.

  126. 126
    Popeye Says:

    If the report on 60min is true, that the BP suits on the rig over ruled the engineers, IMHO the suits should go to jail.

  127. 127
    zman Says:

    re 126. I’ll leave that thought to Wyoming or some of the others here who drill wells for a living.

  128. 128
    jat Says:

    Re 126, when I watched the 60mins piece it sounded like the on board BP operational head overruled RIG operations, that was my understanding.

  129. 129
    Gmlgdc Says:

    All the well fighter companies have the same idea show up bill everyday and hope it goes out by itself. This is usually what happens the first 5 days or so.

  130. 130
    zman Says:

    Jat – which in part leads me to my adds to my HAL position.

  131. 131
    zman Says:

    Like clockwork, Whitney on CNBC saying avoid the financials at all costs.

  132. 132
    Nicky Says:

    Not quite sure how we are going to stage a rally from a fundamental point of view if they pass they financial reform bill. Surely it will crucify the financials.

  133. 133
    BirdsofpreyRcool Says:

    And especially crucify the smaller financials. You know… the ones who make small business loans.

    WSJ said it this morning… it’s SarBox for banks. Doesn’t do what it is intended… but costs a whole lot of $$.

  134. 134
    Nicky Says:

    What are the chances it doesn’t get passed?

  135. 135
    zman Says:

    Read a bit about that today, very mixed opinions:

    http://www.theatlantic.com/business/archive/2010/05/will-financial-reform-pass-this-week/56901/

  136. 136
    BirdsofpreyRcool Says:

    #134 — something will get passed. Just a matter of “how bad will it be.” Nothing they are doing actually addresses what caused this to begin with. It’s like the “Stimulous Bill.” It sounded good… but was just a Bucket List of Democrat’s Pet Projects.

  137. 137
    BirdsofpreyRcool Says:

    Reid saying he has his 60 votes.

  138. 138
    Nicky Says:

    If they pass it we should get a look at that 200 dma at 1100 spx

  139. 139
    zman Says:

    Too bad there’s no blowout preventer for congress.

    beerthirty.

  140. 140
    Hoss Says:

    BOP,

    This may sound naive, but do you follow the individual CDS’s such as those published by Markit when looking at indivdual equities? I personally don’t have the credit market acumen to benefit properly, but I would think one could gain some insight by noting the changes in the indivdual issues and possibly creating something like an individual CDS yield curve for each equity of interest.

    There is a breakout by industry i.e. Oil & Gas in following link:

    “Last Quote for the most Liquid Credit Default Swaps”( 5-year tenor only)

    http://www.markit.com/cds/most_liquid/markit_liquid.shtml

  141. 141
    BirdsofpreyRcool Says:

    Hoss — that is not naive at all! As a matter of fact, that is the investment thesis of a number of hedge funds. Also, that is something that XACStrategist does on a daily basis… and the reasons he made some of the bold (and correct) calls that he did, last summer… saying to go long the specialty finance companies and bond insurers. It wasn’t “energy,” so I didn’t post them here… but XACS made a lot of people a lot of $$ on those calls. Thank you for pointing it out.

    Actually, just keeping an eye on how something changes from day-to-day can be a good education.

  142. 142
    1520sbroad Says:

    A use for that EOG billion –

    http://investor.shareholder.com/eogresources/releasedetail.cfm?ReleaseID=471133

    Ship it out.

  143. 143
    jat Says:

    APIs out

    crude inv down -.794
    gas +.981
    dist -331

    imports + 2.592 b/d
    refinery runs +301kpd; +1% utilization

  144. 144
    elijahwc Says:

    FTK sheees….so much for an improvement in underlying business.

    Delaying 10Q. “Company is in the process of completing its evaluation of the accounting treatment of recently completed senior credit facility transaction, including the equity component and convertible notes exchange related to outstanding convertible notes. The Q1 results of operations will be below Q1 2009 results of operations due to a decline in revenues related to y/y ear decline of sales fundamentals and a weaker business cycle.”

  145. 145
    elijahwc Says:

    CHK redeeming three pieces of Sr paper. 1.3billion

  146. 146
    1520sbroad Says:

    #142 – I was hoping they were going to buy HK for $50 a share. Maybe next time…

  147. 147
    Nicky Says:

    SPX futures already well down….

  148. 148
    ram Says:

    Maybe HPQ will pull equities up tomorrow.

  149. 149
    choices Says:

    This site may be of interest. The more I see Congress thrash around with their hands out for the biggest bribes, er campaign contributions, the more I am convinced that they can never fix the real problems, just more posturing, sound bites, band aid solutions which have serious unintended consequences.
    This site may offer opportunity to provide meaningful and intelligent input from knowledgeable people in the industry before the damage is done but I am not optimistic.

    http://www.partnershipforenergy.com/default.aspx

  150. 150
    choices Says:

    BOP-hopefully a quick question-have you run across First Data bonds-most if not all are selling below par. Noticed some bond funds hold them but they probably carry more than a fair amount of risk.

    Thanks.

  151. 151
    baylor3217 Says:

    Where did gold finish the day?

  152. 152
    choices Says:

    I have June contract at 1224

  153. 153
    BirdsofpreyRcool Says:

    choices — i don’t follow First Data at all… but, you’re right, bonds are trading below par and risky. That said, given where we are in the credit cycle, if FDC can cover their interest payments and fixed costs, they could be OK. Looking at the junkiest of them, the 11.25% due 3/16 trading around 74 (for a yield to worst of 18.7%)… rated Caa2/CCC+. If they cover interest after mandatory capex by 3-4x and total leverage to EBITDA is 5x or less, the bonds could be interesting here. Several “smart” bond funds hold FDC debt… but bond funds can also use CDS to offset some of the risk of bond holdings… so you don’t know exactly what they are thinking all the time.

  154. 154
    baylor3217 Says:

    Closed my gold positions today. Seems we are starting toward the throwing of the baby and the bath water.

    Will have a larger than normal list of scuds this month barring a miracle

  155. 155
    Jerome Blank Says:

    $bpener, bullish percent energy, holding trendline support, $bpnya, still holding bear alert status, and the McCellan is getting oversold again, -88 today…dips at or below -100 have most recently preceeded sharp ralliies…EXXI is trading on long term P&F trendline support

  156. 156
    zman Says:

    S&P fut down 9, honing in on the 200 day.
    Oil fut down $1.30 at $68.13 (API showed a nearly million barrel build at Cushing and a gasoline build – doubting both but with the dollar rally and equity futures its going to be a soft open).

  157. 157
    Nicky Says:

    Just popping in late with a couple of thoughts. Futures look awful. 200 dma is at 1101. 1107 is a 62% retrace of the rally since May 6th. 1091 is a 78% retrace. Even the more bearish count has us finding a support at one of these levels before staging a bounce. Clearly we look like we are going to have an awful open. I am not so convinced that the close will look as bad.
    I am wondering whether tomorrow is the day gold has its rocket ride…..

  158. 158
    zman Says:

    Nicky – am thinking same, watching the dollar waffle about tonight, off earlier post close highs. U.S. exporters ought to beware this much strength in the dollar over such a short period.

    Could also be a good day for natural gas (maybe not until Thursday) which has run counter to crude over the last two weeks as demand has picked up. Street looking 79 Bcf number on northern cool, southern heat and constrained imports, for Thursday’s number.

  159. 159
    choices Says:

    Thanks again, BOP!

  160. 160
    Nicky Says:

    Z – if the more bearish count is playing out (many are calling for the most deadly wave ie the iii of iii)then we could see a horrendous day from start to finish but even so by the end of the day we should be forming a low.
    I am struggling with the most bearish count as the move down is very orderly and really does not look impulsive at this stage. Therefore I am leaning in favor of this being a wave 2C. C waves can be vicious but they are corrective.

  161. 161
    BirdsofpreyRcool Says:

    BedTime Market Stratigist

    Dummkopfs Delivery.

    German politicians are making Washington D.C. look like a well oiled machine. In a bout of schadenfreude, it may be somewhat inspirational for Americans to observe the ineptitude of some foreign political leaders and finance ministers. Around mid-day, newswires started running headlines that German Finance Minister Wolfgang Schaeuble said Germany would ban naked shorting on various financial instruments but did not specify which ones. As was Germany’s obstinate attitude toward Greece, this is likely simply a political move to gain support for passage of Germany’s portion of the EU-IMF “Shock & Awe” package. The larger problem was the method more than the message.

    A random headline lacking specifics is just the type of uncertainty investors like, if they are short. It was nearly two hours later that the German Ministry of Finance finally got around to releasing details. Over the past several months, Schaeuble has demonstrated an uncanny ability to send both the Euro and the Equity markets swooning. Evidently, Schaeuble is not fond of those Sunday night announcements that were commonplace here in the U.S. in the fall of 2008. You know, the ones designed to be made while all markets were still closed so investors had the opportunity to digest the news. To top it all off, nearly 3 hours after spooking the markets and sending the Euro to a new 4 year low, Schaeuble try to reassure markets that the Euro is a “stable” currency. All in a day’s work.

    Whether one agrees or disagrees with the methods of Paulson, Bernanke and Geithner in late 2008, most would likely agree that they were well intentioned. When it comes to Merkel and Schauble of Germany and their perpetual fumbling through this crisis, it is hard to say the same. But there has been a lone beneficiary to their continued foibles, German exporters. Interestingly, last night we noted the biggest beneficiary of the weakened Euro is Germany, but in the same respect, they would be the biggest loser if the Euro were to be dissolved, which is why Sarkozy’s threat to pull out of the Euro (if true) would have been so impactful. From our perspective the fact that markets are placing so much faith in German bunds is misguided. The leadership there is either inept or malicious, and neither is good in the long run for Germany. Those bunds may be a better short than Euro. Wait – you can’t do that anymore.

    The irony of the German short ban as it relates to equities is that their short ban from September 2008 was still in existence until the end of January of this year. For that matter, France’s regulator, the AMF, still has the short sale ban for selected financial companies in place “until further notice.” BaFin’s release today goes further than the previous equity ban. “The Federal Financial Supervisory Authority has on Tuesday temporarily banned naked short sales of debt securities issued by Eurozone countries for trading on domestic stock exchanges in the regulated market. It has also temporarily banned so-called credit default swaps (CDS) where the reference bond and liability are from a Eurozone country, and which does not serve to hedge against default risk (naked CDS).“ On one level, can the markets really be surprised by such an action when Schaeuble is the same policy maker who stated in March that the German government should use spies to go after speculators. In addition, most of the equity market crowd would not object to banning naked CDS positions. The real solution in all of these cases is not to ban the short sales, but to raise the margin requirements. Allow people to make the trades, just make it harder to leverage them. We digress, what is done is done and Germany continued its pattern of delivering its message in the most haphazard, unsettling form possible. It fuels the appearance of a policymaker panic, and although we don’t buy into it ourselves (we are sticking with ineptitude), we can understand how it would cause damage in an environment lacking confidence.

    The hits did not stop with the short sale ban. Equally important was Chancellor Merkel’s proposal of a financial transaction tax to pay for the Sovereign debt crisis, which is a measure she plans to propose to the G-20. At least President Obama had even a modicum of ground to stand on when he called for a TARP tax (the liquidation fund that has already been stripped out of the current FinReg reform bill). Even though TARP is not expected to lose money on its bank investments, since the banks were the center of the crisis, there was a connection. Making the argument that financial institutions (globally) should be financing irresponsible governments is a much harder sell.

  162. 162
    zman Says:

    re 160 thanks

    re 161. Very well put.

  163. 163
    baylor3217 Says:

    The best indicator for gold going up $100 dollars tomorrow is that I closed my positions today.

    You need no better barometer than that.

  164. 164
    zman Says:

    Dollar off slightly late, futures well off lows now.

  165. 165
    zman Says:

    Futures back to worst levels of overnight session as Europe falls 3%.

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