Friday Beach Bullet Post

122 thoughts on “Friday Beach Bullet Post”

1. Market Commentary from 7:45 am

   Morning Levels:

   · SP500 futures are off 5 points

   · Europe levels: DJ Euro Stoxx off 0.7%; FTSE/CAC/DAX off 60-70bp.

   · Europe – On the earnings front, another busy morning – some of the standouts are Alcatel (up 8%), EADS (up 3.7%), Schneider Elec (up 1.5%), and Total (up 1.2%); overall though European equities are down on the day (led by Spain, which is down 1.4%). Financials are off 1.4% and seeing some profit taking after a v strong week of gains (nothing major out in Europe on the financial front but there was some neg. data points in Australia w/Macquarie and in Japan w/Nomura). Also we are coming into a very busy week of European financial earnings (thinking among investors is that after the big run and w/sentiment so bullish b/c of the stress tests, the earnings could cause a “sell-on-the-news” type of reaction). With that said, selling mild and more profit taking driven. Only major group outperforming in Europe is oil/gas (b/c of TOT). Some of the biggest laggards – Telecom Italia, Santander (selling off for a second session after it posted earnings Thurs morning), AXA, ING, Aegon, GDF, Arcelor, BNP, Sanofi. In London, utilities are strong on M&A news.

   · Asia: Japan dn 1.7%; China dn 0.4%; Hong Kong dn 0.3%; India dn 0.4%; Australia dn 0.7%

   · European sov CDS – some widening today; Greece +5bp, Portugal out 5bp; Spain continues to tighten (in 5bp).

   · European bank CDS – widening today – Santander/BBVA both +7bp, Unicredit +5bp, UBS/RBS out 2bp each, Commerz/CS/SocGen out 1bp.

   · Commodities – copper off 0.8%, crude off 0.8%, gold up 0.3% (gold has crept higher over last three sessions).

   · FX – dollar up small (+0.4%); eur off 0.7% and falling back under $1.30; GBP off 0.3%; yen up 0.5% and hitting multi year highs vs. the US$ (this weighed on the Nikkei).

   · Treasuries – 2s up and yields back to record all time lows (~0.55%); 10s and 30s higher this morning (but yields on both still above recent lows).

2. Last night’s BedTime Market Strategist… for breakfast!

   “Seven Faces of ‘The Peril'”

   When the Federal Reserve Bank President authors a paper with a title that sounds like a Stephen King novel, it is certainly going to garner some attention and rightfully so. “Seven Faces of ‘The Peril'” is the title of St. Louis Fed President James Bullard’s latest research. Bullard did not pull any punches in the abstract, he states “I emphasize two main conclusions: (1) The FOMC’s extended period language may be increasing the probability of a Japanese-style outcome for the U.S., and (2) on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.” The importance of these statements is remarkable. This is a relatively new (2 years into the post) Regional Bank President producing research concluding that the current trajectory of FOMC policy may increase the likelihood of an outcome that we all know we don’t want. If you read between the lines, it sounds like he is really saying, “Ben, I think you are wrong, and now that I have called you out on it, if you don’t adjust policy you will be subject to very serious hindsight risk.” We are accustomed to hearing Richmond Fed President Jeff Lacker and Kansas City Fed President Thomas Hoenig dissent on FOMC policy all of the time, almost always simply in favor of being more hawkish, and usually provide some balance to the debate. Bullard appears to be staking out the ultra-dove ground with his conclusions. If we wind up in a Japan scenario, regardless of the cause, this research will be used to blame the Fed.

   The policy Bullard is advocating and the stance he is taking is not new. As early as last November he advocated using Quantitative Easing (asset purchases and sales) to administer monetary policy much in the same way the Fed has traditionally used the Fed Funds rate. He was opposed to allowing the Fed’s asset purchase program sunset in March. Bullard wanted to leave the program open in order to buy and sell assets as deemed necessary by the state of the economy. He was unsuccessful in his attempt, now it appears he has gone back done additional homework and is re-opening the debate backed by research.

   This is an attempt to overcome the debate surrounding the zero bound of interest rate policy. The essence of Bullard’s work is that the zero interest rate policy “would also be consistent with the low nominal interest rate steady state in which inflation does not return to target but instead both actual and expected inflation turn negative and remain there.” In that scenario the policymaker risks being perceived as running out of ammunition because they are locked into the perception that interest rates are the primary tool of monetary policy. Here in 2010 we have witnessed a good example of the dilemma Bullard highlights. When the market was rallying early in the year, everyone was discussing when would the Fed begin the exit strategy. As the economy hit a soft patch and the market sold off over the past few months up prior to last week there was little conversation about what the Fed would/could do. When the topic emerged the debate centered around the Fed being out of bullets. Case in point for Bullard. His proposed solution is as follows. “To avoid this outcome for the U.S., policymakers can react differently to negative shocks going forward. Under current policy in the U.S., the reaction to a negative shock is perceived to be a promise to stay low for longer, which may be counterproductive because it may encourage a permanent, low nominal interest rate outcome. A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”

   You have to give Bullard credit for creativity while remaining within the realm of reality. Simultaneously, we can imagine the German’s at the Bundesbank thinking this is heresy in the almost cavalier way Bullard talks about adding liquidity to the system. “We can double the monetary base one day, and return to the previous level the next day, and we should not expect such movements to have important implications for the price level in the economy. Base money

   can be removed from the banking system as easily as it can be added, so private sector expectations may remain unmoved by even large additions of base money to the banking system.” A statement like that alone should fuel an uptick in inflation expectations. Nearly everyone fears the slippery slope of creating money seemingly at a whim. On some level it is a fear of the unknown , but sometimes that is a good thing. In this age of transparency we believe one of the largest threats out there is predictability of policy. Bullard’s approach prevents the FOMC policy from becoming what he calls “passive,” a euphemism for inconsequential. It allows carry traders to lever and permits investors to put on marginal positions where the risk does not match the reward. A little uncertainty keeps the market honest, and if you have a position it is because you like it and not simply because the Fed is not tightening until 2012 or vice versa because rates can’t go any lower. We can’t wait to see where Bernanke weighs in.

3. Today’s Top Stories

   · Japan underperformed after a) weaker IP & Employment data, b) continued strengthening on the JPY and c) lawmakers need to push PM Kan to shift the focus of his eco policies more towards growth vs. fiscal restraint.

   · In Europe, Spain underperforms (dn 1.4% vs. Europe dn 0.7%) as the unemployment rate rose to a 13-year high of 20.09% in Q2 and a Sr. Moody’s credit analyst warned that Spain’s rating is “likely to go down a bit.” UK Consumer Confidence & German Retail sales (Eurozone CPI & Unemployment came inline).

   · Fed update in NYT – says a “subtle but significant” shift is occurring within the Fed as members worry more about deflation – Times acknowledges the Bullard remarks from Thurs; says Bullard, who has been associated w/the “hawkish” camp at the Fed, appeared to change his tone on Thurs. NYT

   · Apt REITs – another “beat and raise” Q (from CPT this time); we have been seeing “sell on the news” reactions to these types of reports.

   · Insurance – MET #s out overnight look strong and being taken well this morning; GNW was more mixed, w/the MI biz showing further improvement but other parts of the business falling short. The life insurance space was v strong in Thurs trading on back of the LNC release.

   · Gold swaps confusion revealed – the FT says three big banks (HSBC, BNP, and SocGen) were the ones who recently swapped bullion at the BIS; the BIS wanted to earn a return on its large dollar-denominated deposits and made inquires to the banks; however, there was a desire/need at the banks for dollar funding, so the deal was mutually beneficial. FT

   · Q2 earnings season – JPMorgan’s T Lee raising ’10 SP500 EPS from $81 to $84; we stay $90 for ’11 but likely to see $3-4 upside to that number.

   · Global Manufacturing Update – from B Kasman – The global manufacturing downshift has begun – it should come as no surprise that global IP growth is now poised to moderate. All signs are that production levels have normalized with demand in recent months and that global manufacturing inventories are starting to build. The stage is set for a downshift in output growth, which should be a dominant element of the macroeconomic landscape during 2H10.

   · “2011 starts on Mon” says Cramer – “money managers will stop thinking about 2010 and focus largely on next year. And that should be good news for stocks” – CNBC

   · BP/GOM “static kill” may start sooner than anticipated as preparations are moving in the right direction; had said may start Sun or Mon, but could be moved forward; now little chance the oil will reach the East Coast; Time Magazine headline – “Has the Damage Been Exaggerated?” (AP)

   · GOOG – the co’s search engine was fully blocked in China as of late Thurs; GOOG said however that the blockage could have been the result of its own technical glitch that overstated the problem; GOOG says that it appears like users in China are accessing its properties normally – Reuters

   · Big week of eco #s starting this weekend w/China’s manufacturing PMI; next week we get US Jul PMIs and the US Jul labor report (next Fri); Goldman has a note out today saying that their proprietary predictor is predicting a collapse in the ISM next week f or the US (per Clusterstock).

   · SP500 technicals – Pull-back from the 1121 July 27 high continues with a bearish outside day. A Friday close below 1102.66 would confirm a bearish reversal week. Thurs sees a new daily momentum diverging sell signal. Sustained closes below 1100 would seek 1085-1088. Bulls need to push back above the 1114 200 day moving average to resume the July rally towards the 1131 June peak (Kasman)

   · Fund Flows – from E Beinstein – HG bond funds had $489mm in inflows for the week ending July 28th. This is down from $1.7B and $2.1B of inflows the prior 2 weeks, but is still a solid positive figure. HY fund inflows were $976mm which is an increase over last week’s $700mm result. Equity funds had strong inflows of $8B, following $2B of outflows last week. Equity fund flows have been particularly volatile week to week with 4 of the past 6 weeks being outflows

4. Our friend TED has taken a dramatic change — for the better! — this morning. Even though US treasuries continue their recent rally (2 yr USTs are at an ALL TIME LOW YIELD this morning… let’s pause here for a sec and just say “wow”), USD LIBOR rates have come down even more. LIBOR is the best global measure of non-govt “business risk,” as it is the rate at which banks outside the US Banking System (and Federal Reserve) are willing to lend to each other. If you’re worried about the business environment and therefore what your neighbor bank has on HIS less-well-managed-balance-sheet (than YOURS, of course), then you jack up the rate at which you are willing to lend him a few smackers for a short time. The LIBOR lending rate.

   Anyway… TED clocking in at +30.8 bps. Getting closer, closer to that magical (for me) +25 bps level.

5. Credit indices doing a few steps of the Fugly Dance this morning. Seeing them widen out over the morning with equity futures. What constitutes a GREAT BIG SCARY MOVE? For IG, anything over +5bps and for HY, anything over -1 1/2 pt. So, we are in the realm of scary this morning… but nothing like BIG SCARY yet. Also, ligher volume trading means you can probably add (or subtract) a few points from a move… so, let’s just say that BIG SCARY this morning will be if we see the IG CDS index move out wider than 8 basis points for the day.

   IG +3 bps to 107.25

   HY -15/32 points to 97.5

6. hmmm…. seeing the credit indices shake off a bit of the worry and start to turn the other direction.

   In basis points moves, IG is now wider by 2.5 bps and HY wider by 11 bps.

   That relative widening (2.5 vs 11) is also a good thing to note… gives you an idea of how much more sensitive high yield bonds are to risk vs investment grade. HY is 4.4x more sensitive, at least on the down side, than IG (which is why we pay attention here).

7. skimo — thank you for the “hackles” lesson last night. Yeah…. that is EXACTLY what stands up when i hear “absolute” comments about “non-definitive” subjects.

   (Like “he’s the best writer in the world, NO ARGUMENT.” Well… that is just a dumb-ass statement, if you ask me. You can say “I think he’s the best writer in the world.” But to add, “no argument” is just SO NYT. heh heh heh)

8. If someone else doesn’t pitch in here soon… i’m gonna start singing. And — trust me — you DON’T want to hear me singing… especially first thing in the morning.

9. IG backing down to +2 1/4 bps now.

10. What was the basis for Suntrust to cut WLL to neutral?

11. BOP:
    If you sing as well as you think, I’d love to hear you.
    You’re a true benefit of this site

12. rseidman — they always put me at the far back in the Christmas Play… but, thank you for your kind words.

13. ram — I don’t have details on the downgrade (maybe someone else does), but SunTrust has the 12 month PT on WLL at $96/share. So it’s probably just a relative value thing.

14. Other than RBC (at $95), SunTrust has the lowest PT on WLL. Most others see $105 and higher.

15. Anyone remember the words to “Tie Me Kangaroo Down, Sport”? I’m fixin’ to start humming a few bars….

    IG at +2bps now. Could we go green on stocks today? End of month… anything could happen.

16. So, is WLL too expensive at this level?

17. Does HT give any credence towards the CC stuff?

18. ram — run that by z, when he gets back. I don’t follow the name closely enough. Unless someone else would like to chime in.

19. ram — ran that by HT this morning… he hadn’t even HEARD of the CC. That tells me a lot. He says that TechTrader listens to the astrologers… but it’s just one of many inputs to his model.

20. BOP: Comments from the sell side. With the 914 data out, the accepted gospel is supply is exceding demand for NG. Even Z’s comments this morning indicate that it is difficult being a NG bull. Therefore does it make sense to switch HK and other primarily NG guys to more Bakken type names such as the dance card names listed by Z after the most recent AEZ news. Or will HK be able to prove they will be a liquids play quickly and has this type of thinking already old news? Any thoughts?

21. Ram: 16 Based on the WLL CFPS put out by Z for 2011, I would say WLL is still very cheap. FWIW

22. Thanks BOP and TD12.

23. Top Hedge Funds That Dodged Crash, Rode Market Back Turn Gloomy 2010-07-30 04:00:07.0 GMT

    By Saijel Kishan
    July 30 (Bloomberg) — Shawn Bergerson, founder of Waterstone Capital Management LP, made money when most hedge funds didn’t: in 2007 and 2008, as the housing-market collapse turned into a global financial rout, and in the recovery that has followed.
    Bergerson said he bet against convertible bonds of Advanced Micro Devices Inc. in June 2007. More than a year later, he reversed course and bought the securities. After riding the rebound by markets in 2009, he’s wagering against consumer- related stocks because he sees Americans curtailing spending and reducing debt amid high unemployment.
    “While I’m not expecting a major economic crisis or a disaster, the consumer is in a weak position,” Bergerson, 45, said in a telephone interview from his office in Plymouth, Minnesota, where he oversees $1.17 billion.
    He’s one of a small minority of hedge-fund managers, including Alan Howard and Colm O’Shea, who haven’t had a losing year since 2007 as they navigated the credit-market freeze, Lehman Brothers Holdings Inc.’s bankruptcy, the biggest stock- market rally in six years and the uncertainty over the direction of the global economy that has marked 2010. It’s a feat that eluded investors with top long-term returns, such as Steven A.
    Cohen, Louis Bacon and Ken Griffin, who each posted the worst losses of their careers in 2008, as well as almost 3,300 hedge funds that have shut since the start of 2007.

    Economy Losing Momentum

    In interviews and investor letters, managers who dodged the financial crisis said they expect the U.S. and European economies to slow. David Gerstenhaber of the Argonaut Macro Partnership fund and Xerion fund’s Daniel Arbess favor investments tied to emerging markets. O’Shea, who runs COMAC Capital LLP, and Laurence Benedict of Banyan Equity Management LLC said they have reduced the size of their investments because it’s hard to know how markets will behave.
    Gerstenhaber is planning to bet against industries that do poorly when the economy loses steam, such as materials, energy and homebuilders.
    “Our expectation is that we will continue to see downward revisions to growth forecasts in advanced economies,”
    Gerstenhaber, 49, said in a telephone interview. The $1 billion Argonaut Macro returned a cumulative 48 percent from the start of 2007 through June 2010.
    Gerstenhaber, who founded New York-based Argonaut Capital Management in 1993, said he’s keeping his long position in China’s yuan, an investment he’s had for more than a year that will profit if the currency rises.

    Emerging-Markets Faith

    “A small number of emerging markets can decouple, particularly those that are able to generate strong domestic demand such as China, India, Brazil and Indonesia,”
    Gerstenhaber said.
    While slowing U.S. and European economies may trim growth in emerging markets, New York-based Arbess said he’s investing in companies that benefit from demand in developing countries.
    “I believe in the resiliency of the emerging markets,” he said in an interview. “They have the balance-sheet strength to continue funding their development, whereas we in the West are over-stretched.”
    Arbess, 49, a partner at Perella Weinberg Partners LP, said he was betting against “over-leveraged entities” in European and Group of Seven nations, declining to identify the securities he was using to execute the trades. His $2.1 billion Xerion fund returned 95 percent from the start of 2007 through May 2010.

    Opposing View

    Scott Ramsey, founder of Denali Asset Management, which has
    $206 million in assets, doesn’t see emerging markets bailing out the U.S. or Europe.
    “It’s hard for me to believe that the rest of the world has enough aggregate demand to offset the sluggish U.S. and euro zone,” said Ramsey, whose Denali Partners fund returned 45 percent in the 3 1/2 years through June 2010.
    The $1.65 trillion hedge-fund industry, after posting its worst second-quarter performance in a decade, is taking less risk, using less debt and making fewer trades, according to data from securities exchanges and brokers including Credit Suisse Group AG and JPMorgan Chase & Co.
    Hedge-fund clients of Zurich-based Credit Suisse held 24 percent of their assets in cash in June, compared with 19 percent three months earlier. Daily trading volume for the Standard & Poor’s 500 Index of the largest U.S. companies averaged 1.09 billion shares in June, 20 percent less than in May.

    ‘Schizophrenic’ Market

    U.S. stock-market volatility as measured by the Chicago Board Options Exchange Volatility Index tripled in May from April as equities plunged on concern that European leaders couldn’t control the region’s debt crisis. The VIX measures prices paid for S&P 500 index options.
    “The markets have been schizophrenic,” Ramsey said.
    Ramsey, 52, said he expects stocks to decline this quarter as a U.S. unemployment rate of 9.5 percent and austerity measures in Europe curb consumer demand.
    “Based on current policy, what have been fiscal tailwinds are now fiscal headwinds,” he said in a telephone interview from his office in Christiansted, Virgin Islands. “Private payrolls need to increase and we need to get a lot more of the 8 million lost jobs back.”
    Ramsey, like many of the managers that fared well from 2007, runs a macro fund, which seeks to profit from broad economic trends by trading stocks, commodities and currencies.
    He holds his trades for an average of a week. The HFRI Macro Index climbed 20 percent from January 2007 through June 2010.

    O’Shea Pessimistic

    O’Shea, whose London-based hedge-fund firm oversees $5.9 billion, shares Ramsey’s pessimism.
    The budget crisis faced by state and local governments in the U.S. is likely to hamper the nation’s growth, O’Shea said.
    To balance budgets, state and local governments may have to fire workers, which will increase unemployment rates and have “significant knock-on effects to aggregate demand,” O’Shea, 40, said in an investor letter this month. O’Shea’s COMAC Global Macro fund has returned 73 percent since the start of 2007.
    O’Shea also said that were “medium-term downside risks”
    to growth and inflation in Europe as monetary and fiscal policies were becoming “less supportive.” He didn’t list his trades in the letter.
    Waterstone’s Bergerson, who started the Waterstone Market Neutral Master Fund in 2000, mainly invests in convertible bonds, securities that can be converted into shares at a preset price, as well as corporate bonds and equities. The fund returned 84 percent from the start of 2007 through June this year, according to an investor letter.

    Industry Returns

    It’s one of 321 hedge funds that were agile enough to make money for investors every year since the onset of the financial crisis in 2007, according to data compiled on 2,799 funds by PerTrac Financial Solutions, a New York-based investment- software company.
    The hedge-fund industry on average returned a cumulative
    6.6 percent in the 3 1/2 years through June, according to Chicago-based Hedge Fund Research Inc. The S&P 500 lost 22 percent in the period. U.S. Treasuries returned 27 percent, according to Bank of America Merrill Lynch index data.
    Hedge funds gained an average 10 percent for investors in 2007, lost a record 19 percent in 2008 before rebounding 20 percent last year, according to Hedge Fund Research. The industry has lost 0.21 percent this year through June.

    What Worked

    The winning-streak managers made money through a combination of prescient investment calls, having smaller trades for shorter periods of time, which enabled them to get out of unprofitable positions sooner, and raising cash before markets slumped in the second half of 2008.
    Perella’s Arbess started shorting, or betting against, collateralized-debt obligations tied to subprime mortgages at the end of 2006. Howard, 46, co-founder of London-based Brevan Howard Asset Management LLP, raised cash in February 2008 in anticipation that the housing collapse in Europe and the U.S.
    would cause credit markets to seize. Gerstenhaber bet in the middle of 2008 that European interest rates would fall and in September of that year shorted the euro.
    Benedict, founder of $804 million Banyan Equity Management in Boca Raton, Florida, said he’s reduced the size of his trades to about a third of what they usually are, and to the lowest since October 2008, because of uncertainty over the economy.
    “It’s difficult to get conviction in this environment,”
    said Benedict, 48, who holds trades for no longer than five days and whose Banyan Capital fund returned 56 percent since the start of 2007 through June this year.
    “There will be more clarity by the third quarter following the release of economic indicators.”

    Below is a list of some of the hedge funds that profited each year since 2007. Brevan Howard, COMAC, Denali, Galena, Brownstone, Argonaut, King Street and BlueCrest have made money in every year since they started.

    *T

    Hedge Fund YTD* 2009 2008 2007 TOTAL
    RETURN**

    Rubicon Global 15.2 14.9 44.8 6.8 105
    Perella Xerion*** 3.4 35.3 0.3 38.8 95
    Bluecrest Capital 9.3 45.4 6.3 10.8 87
    Waterstone 2.4 49.3 12.1 7.5 84
    Brevan Master 1.5 18.7 20.4 25.2 82
    COMAC Global Macro 4.1 14.9 30.7 10.7 73
    EMF Fixed Income 0.8 11.2 22.0 16.6 59
    Banyan Capital 5.1 11.5 14.4 16.5 56
    Capula Relative Value 6.7 12.3 9.6 18.0 55
    Galena 6.3 12.7 21.6 2.9 50
    Argonaut 1.5 10.1 12.3 18.1 48
    King Street Capital 1.4 20.1 2.5 17.3 46
    Denali Partners 9.6 4.2 19.2 6.7 45
    Caxton Global 4.0 6.2 12.9 1.1 26
    Brownstone Catalyst 0.6 7.5 7.0 6.8 23

    *through June 2010
    **total=cumulative return from January 2007 to June 2010 ***YTD and total through May 2010

    Source: investors

24. Doing a flyby. WLL is not expensive, WLL is the cheapest of the Bakken players.

    See the Small Cap Table here:
    http://zmansenergybrain.com/subscriber-data/e-p/metrics/small-cap/

    Middle of the range on the small caps in termsw P/CFPS and TEV/EBITDA buyt that’s lower than the Bakken peers.

    I have not seen his note but my guess is he adjusted the price target down for a lower oil price forecast going forward. There was nothing company specific that would have triggered such a large PT downgrade ($177 –> $96). Also, can’t imagine what the bloke was looking for with the quarter and call that he didn’t get unless he was looking for further evidence that the TFS works at Lewis and Clark. It does and we will get more evidence of that in the next few weeks if they release it early or at latest on the 3Q call. My thought also is that he is looking to generate trades as he is a Sellside guy and that is part of how they get paid. The other part being banking and he probably isn’t looking for much from there in that way. So it’s most likely a profit taking oppy for him to generate some trades for his sales force.

25. Ram: 16 PS the option premiums in WLL have stayed very high over the last two months. Very illiquid but high. That is another reason I have much less hair with my HK position. Last 4 weeks very little premium to try to hedge.

26. eptember natural gas futures are expected to open a penny higher Friday morning at $4.84 as traders continue to grapple with the uncertainties of August weather and note two areas of interest in the Atlantic Ocean. Overnight petroleum markets fell.

    The uncertainties of near-term weather are considered a more important price driver than the known quantity of storage. “While supply remains large historically with storage still about 240 Bcf above average, we will continue to note that the large supply is well known and, consequently, discounted. In contrast, the hot weather dynamic doesn’t appear fully discounted and is currently driving pricing. Until this warm weather pattern subsides, upside price risk will easily exceed downward price possibilities in our view,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.

    Analysts who follow seasonal trends in natural gas prices are trying to interpret recent price action. The jury is out as to where present price action falls within a normal seasonal framework, and the question is whether a typical summer decline is still in play or if the fall advance may have started. “If this year’s summer-to-fall decline is still in progress, natgas will turn lower from the $4.849-5.002 area,” calculates Brian LaRose, an analyst at United-ICAP. If that doesn’t happen, the minimum upside target from here “will be $5.617-5.674. If this year’s summer-to-fall advance has already begun, we suspect $5.002 and $5.617 will only provide minor resistance.”

    The National Hurricane Center (NHC) is following two areas of interest in the Atlantic. At 8 a.m. EDT NHC reported a tropical wave over the southeast Caribbean associated with showers and thunderstorms. It was moving to the west at 15 to 20 mph and NHC gave it only a 10% chance of becoming a tropical cyclone in the next 48 hours.

    Off the west coast of Africa a small area of disturbed weather has been identified and if that combines with a tropical wave it is given a 20% chance of developing in the next 48 hours.

27. Want to chime in on the FBR HAL downgrade, b/c I always love HAL of course!

    This is the same analyst who downgraded HAL on 4/30 at $30.00. Then he upgraded it on 5/13 at $29.00.

    Now, of course, the stock is at $29.00, so let’s downgrade it again! FBR must be hard up on commissions.

28. http://finance.yahoo.com/news/Recession-was-deeper-than-apf-3247751846.html?x=0&sec=topStories&pos=8&asset=&ccode=

    And the US talks about faulty stats out of China.

29. IG only 1 1/2 bps wider now…

    Could we go green? Heading that way…

30. HT says “paper buying in the pit… emini strategist sees 1103-1105 if 1091 holds” (futs levels)

31. Jat: A comment made to me by the president of a regional wire house this week is that in house research is NOT for the public and brokers. It is paid for by institutional ortder flow business. I was surprised only slightly.

32. Ive been looking at SD for this past week and noticed that the hedges show up below the line and reported net income includes the mark to market change in value in the hedged position.

    This coming qtr (q2) oil fell to 72.25 when opening at over 80. Sd will have a huge non cash mark to market gain in its hedged oil giving it a earnings beat. Reuters and others always report actual vs expected and expected doesnt have this gain..ergo a beat. I know we back that kind of stuff out but i like the headlines, lol

    Sd is moving more to oil and cut its gas production to match production.

    Oil production will be 70 % of the revenues and we should see increase in production for oil from arena and fst and sd focus on oils wells vs ng wells

33. TomDavis #20 — i’m still long HK (and way way underwater). But not willing to go 100% oily/onshore (Bakken).

    My “balanced” LT portfolio includes shallow offshore with upside (EXXI), Bakken (KOG… although there are probably better/faster horses there), nat gassy without being Marcellus (HK) — not a fan of the Marcellus, Eagle Ford (GST), and larger-cap diversified areas (EOG). Also own DBLE (legacy position). The have a lot of Niobrara-prospective acreage… if they could ever get around to actually doing something about it.

    And just to live life in the fast lane, TAT and some EGY.

    Long answer… but, I would not swap entirely outta HK into the Bakken. Like to keep numerous irons in the fire.

34. Michigan Index and Chicago PMI have helped to turn the market around.

35. wowsters. HY CDS index only +4 bps wider on the day now. Or, -5/32 pts.

    We have to go green soon, in order for Pit Trader to feel good about his 1105-1109 level.

36. Meant to say

    cutting its gas production to match its hedges. No use producing, if there is no ebitda contribution

    the risks are

    huge level of debt which is costing them $2 per mcf

    2011 ng is unhedged

37. BOP: Would you agree with the concept that if you have areas for liquids EFS, NIOB and you can prove you are moving in that direction EOG, you get alot more love. Therefore can HK prove that next week enough for a tradeable event?

38. Analyst Watch:

    WLL – Scotia raised target from $95 to $105.

    Off to the beach, can someone post where to grab lunch again in Charleston, maybe near the Yorktown? Thanks.

39. intersting price action in WLL options. with the stk at 86 the 80 puts should sell slightly higher than the 95 calls, yet the puts are .90 and the calls are 1.40.

40. PitTrader = didn’t go positive by 10:15… so recalibrating.

    HeadTrader says his gut is pointing to a higher close. But he refuses to lay out a minute-by-minute road map.

    (must be an odd feeling to have your gut pointing at something… hmmmmmmmm)

41. TomDavis — one thing I can say about HK… is that I can’t say anything about HK (anything intelligent, anyway). I seem to be a better contra-indicator there. So, I don’t comment on it. But, LOVE to hear your thoughts!

    You thinkin’ “tradeable event”??

42. BOP: I do not have the high risk trade Z gene. I leave that to him. I am only a lowly position builder.

43. TomDavis — i hear ya there. I don’t do options very often. When I do, I lose money. So I lay off doing them for a while. Until I do them again. And lose money. So I lay off them for a while. (I am a much better swing-trader, where I am comfortable being “caught” in a position for a while.)

    As a reminder… one definition of “insanity” is doing the same thing over and over, expecting a different outcome.

44. IG +1bps now.

45. BOP: Got a quote on your EXXI bonds today. Still firm. Bot small RIG 5.25 ’13 @ discount. Hard to find discount paper.

46. Reading all of your comments from Bransom, MO. Maui is definitely better.

    Thanks for all your input.

47. BDI inching up 10 days in a row

    http://www.tradewinds.no/drycargo/article564207.ece

48. Andy: 39 I noticed a little of that with EOG as well. May the astrology signs have people running scared.

49. IG only +3/4 bps wider now. This has the CDS trading desk confused. They are worried. heh heh heh. It’s always fun to “worry” a NY trading desk.

50. “Why is it fun to ‘worry’ a trading desk?” you might ask… well, markets climb walls of worry.

51. On WLL, apparently the SunTrust person had to invent something hense they suggest that spending money on new and exciting prospects is not a good idea. Only on Wall Street.

    From Briefing: WLL Whiting Petroleum: Downgrade details (85.80 -1.38)

    As mentioned earlier SunTrust Rbsn Humphrey downgraded WLL to Neutral from Buy and lowered their tgt to $96 from $117 based on the likely step-down in capital productivity as Whiting transitions from Bakken to Three Forks development in the Sanish Field next year and the Lewis & Clark area thereafter.

52. Prichard on the other hand is taking WLL north raisng both estimates and target price.

    “Investment Summary

    WLL has a leading position in the prolific Sanish Field in the oily
    Williston Basin of North Dakota. Positive results from the Lewis &
    Clark prospect in the southwest part of the Basin, where the companyhas built a large acreage position and just recently started drilling,could act as a catalyst for the stock.

    Event: WLL beat Q2 2010 estimates on better than expected production
    growth. The company also increased full year production guidance.
    We are raising our estimates and price target.

    Investment Thesis
    • The Sanish Field Keeps on Keepin’. The Q2 2010 production beat
    was heavily driven by Sanish Field results. Net production in this
    core field was 20,045 Boe/d, up 86% Y/Y and up 32% sequentially.
    • Excitement Building Over Lewis & Clark. At the up and coming
    Lewis & Clark (L&C) prospect in the southwest portion of the
    Williston Basin, three wells have reached TD and completion
    operations have begun on two. The company has increased its L&C
    position to 225,685 net acres, up from 211,128 net acres published
    in our WLL initiation dated July 20, 2010.
    • Strong Financial Position. WLL, a consistent cash generator, had
    $130 million of excess cash flow and paid down an additional $70
    million of bank debt in Q2 2010, leaving only $30 million
    outstanding at June 30 on the $1.1 billion facility, resulting in a low
    20.9% debt-to-capital ratio.
    • Increasing Estimates. We are raising our 2010 estimates driven
    mainly by the Q2 beat, higher production growth, and lower
    assumed DD&A. Production, EPS and CFPS go to 64.6
    MBoe/d/$5.82/$16.54 from 63.3 MBoe/d/$5.19/$15.97. 2011
    estimates increase as well. Our NAV increases to $115 from $112
    to account for additional Bakken and Niobrara acreage and we are
    raising our price target to $104 from $96. Reiterate ‘Buy’ rating.
    Valuation/Risks
    Given it is oily, generates positive free cash flow, and should post
    double-digit production growth for the foreseeable future, we think
    WLL should trade more inline with the group. Our $104 price target
    is a 6.3x multiple on 2010 CFPS, in line with the overall E&P median
    but a discount to the oily 8.0x median. The implied EV/2010
    EBITDA multiple of 5.0x is still a discount to the group and oily
    medians of 7.3x and 8.4 x, respectively. Risks include, but are not
    limited to, declines in oil prices and uncertainties inherent in enhanced recovery methods.

53. PSE call 7/28: (not familiar with mgt so consider the source, which is probably PXD-weighted): Spraberry-Wolfcampp acq. market is “overheated, out-of-hand” at $120m-150m boe/d which yields a 10% ROI if you are lucky.

54. RMD #52 — hearing that every teensy bit of acreage is leased up in W. TX. You want acreage? You gotta BUY somebody.

    At some point, that will become very interesting….

55. make that “RMD #53″…

56. UPL call started at 11 ET

57. nifkin — can you post any good comments from that call??

58. ill pass along if i hear …not on personally

59. From Briefing trader,..hearing tier1 firm added XEC to buy list and EOG added to sell list.
    Trying to find out who this is.

60. AEZ: reasons for selling from a guru; lease expiration issues, stock was selling for less than cash a yr. ago, price of $4,500-5,000/ac. derisks whole acrage block w/o drilling.
    Thinks valuation message is getting to mgt of GEOI who spuds 1st operated well 9/15 in their REN jv. as 23,300 net acres @$5,000= $117mm or about a third of EV.

61. Have not seen anything on this “hybrid model”

    Fairly good summary of potential of fields-FWIW

    http://seekingalpha.com/article/215822-independents-discover-an-attractive-natural-gas-investment-model?source=yahoo

62. #59-John11-would like any info you obtain as to reasons for both XEC and EOG

    Thanks!

63. choices #61 — thanks for posting.

    Don’t see why they bother to call it a “hybrid” play tho. It’s just the oil or condensate window of a resource play. If you cook organic material to a certain temp, you get oil… higher temps, condensate… go higher and you break the hydrocarbon molecules down into nat gas. The deeper you go, the hotter it gets. Texas geology slopes from NorthWest to SoutEast, as you head into the GoM. So, the shallower part of a productive formation would produce oil… the deeper it gets buried (as you head down to the coast), the less liquid and more condensates/nat gas you get.

    What’s so “hybrid” about that? Maybe i’m missing something (I usually am).

64. bop – any thoughts on what KOG has to say ncxt week?

65. andy — i am worried about 2 things with KOG. One affects all the micro-minis. The ability to get a frac crew to pay attention to them. KOG has two rigs, but you can only complete as fast as you can get a frac crew out. This is getting to be more and more of a problem. Causes delays and pushes out NAV realizations.

    Second, I would like to hear something about what is going on in their off-the-Rez acreage (RedRiver, GrizzlyBear, and Koala prospect areas). Not sure about the quality of the Bakken there. Want to hear more.

66. ugh — CIGX doing it’s Prairie Dog Dance again. Popping it’s head up to look around. Still have shares to buy. Thought I could get them around 1.88. Apparently, I thought wrong.

67. andy — that said, i think it’s pretty easy to come up with a $4 NAV for KOG (at the least). So, it’s not like i think the stock is overvalued here.

68. bop – do they have any completions to announce, and jf so u have good feeling about them?

69. Re: #66, CIGX, daily looks great, tested topside ascending triangle trendline support and bounced, right now the chart structure suggests an add’l .60 upside first target from here

70. We have been waiting for KOG to complete 3 operated wells. 2 are in their Moccasin Creek area, which has been good area for them (where they drilled their 1st Bakken well). I would expect the results of those two wells to be good.

    It’s the off-the-Rez stuff that I have the most questions about. Also, given that their TFS well has been pushed out, would love to hear about results from other operators, offsetting their acreage.

71. JB — where would you try to snag CIGX shares on any pullback?

72. Analyst Watch:

    WLL – Cannacord reit Biu, ups target to $106 from $100. They should have an oppy to up again in next several weeks if L&C wells get pr’d.

    Andy – see Catalyst List for KOG.

    LINE trying to work higher

73. MIDDAY OVERVIEW

    Market Update – stocks rallied from their opening lows and are doing their best to hug the flat line as we head into the afternoon; the market overall has spent most of this week giving back Mon’s rally (sp500 was up 1.12% on Mon). There were a bunch more earnings releases overnight/this morning and a few economic releases from the US (GDP, Chicago, confidence), but activity is very quiet as traders wind down the last session of the month of Jul. Technicals (1105-10190) are dominating most of the action. The tape overall remains resilient given some headwinds, like the continued sell-off in techland – the SOX is now off ~4.5% for the week, and very strong TSYs (2yr yields hit another all time low this morning).

    Best performing sp500 stocks: MFE, EXPE, MWW, MET, KG, K, EMN, CBG, AON

    Weakest: WFR, GNW, TLAB, FSLR, ITT, MU, DTE, AMD, PTV

    Equity sectors – Materials are the top space in the market today, rising 0.35% on strength in base metals (particularly aluminum names) and chemicals on earnings out of EMN. Discretionary is up close to 0.25% on strength in EXPE’s earnings and on strength in SHLD. Financials are up slightly, rising on earnings out of MET and AON, although GNW (-15%) is weighing on the group on earnings. Telecom is up 0.15% on strength in AMT and VZ, although S lags. Staples are slightly higher, outperforming on a bounce back in K, MJN, and DPS, which lagged yesterday on earnings. Healthcare is flattish on the day, juggling between strength in KG and CVH, while MRK and PFE are lower on MRK’s earnings. Industrials are mostly in line with the tape as homebuilders and ag names outperform, while a few defense names and waste stocks lag. Energy is lagging the tape, off 0.25%, on a slide in crude, CVX’s revenue miss, and weakness in solars due to FSLR’s weak guidance. Tech is off over 0.25% on continued weakness in semis (SOX off 1%) and also earnings out of WFR. Utilities are the worst space in the market today, falling over 0.5% on earnings out of DTE and PEG.

    Commodities: Commodities are trading near their highs as the dollar peels back; though Crude is still dn. ~0.2%. Natural Gas is up ~0.7% while copper and gold are up for the third day in a row.

    FX: USD (DXY) has sold off since the open and has turned negative. The euro and the pound have both rallied and are trading near their highs (though the euro is still down a bit on the day) The yen is up ~0.4%, though off its highs.
    Corp. Credit: Corp Credit has pared its gains from yesterday; HY 14 has dropped 5/32 of a pt. while IG 14 has widened 1bp.

    Treasuries: Treasuries have rallied this morning. The 2s hit their lowest yields of all time following the GDP number (Bloomberg); the 2s are yielding 0.558% while the 10s are yielding 2.92%. The 2-10 spread is yielding 2.36%.

    Europe: Europe pulled back alongside the S&P500, with the Spanish IBEX driving the losses. A Moody’s credit officer said that Spain’s credit rating is “likely to go down a bit” (Bloomberg) Additionally, Spain’s unemployment rate hit 20.1% in Q2 (Bloomberg) Worst performing stocks in the IBEX included Gamesa and Acciona. The German DAX was one of the strongest indices, led by Consumer services.

74. http://www.marketwatch.com/story/us-2-year-yields-back-to-record-lows-after-gdp-2010-07-30

    Treasury 2-yr yield falls to lowest level on record-so much for the “recovery”

75. Re: #71, CIGX, updated the 30 min, if CIGX does not run away without us, I’m thinking $2.05-$2.10 depending on price action intraday…

76. choices — Teddy wants to break free and run around the Dog Park… but BG is still standing on his lease.

    http://townhall.com/cartoons/cartoonist/LisaBenson/2010/07/10

77. JB — thank you. I voted.

    People think that NEXT WEEK could be the CigRX launch. Maybe it is. I was told we are “good to go at any time” about 3 weeks ago. But I honestly do not know. The company is being very very tight-lipped about it (which is a good thing).

78. ha! been in the oil biz too long… “lease” should be spelled “leash”

79. EOG continues to get whacked-earnings next week

80. #76-agree, BOP-probably both spellings would work now for the O % G industry.

81. RE: #77 BOP, thank you much for the vote, and thank you for your outstanding work…

82. re #61
    Excellent Seeking Alpha article……..but it seems to miss the point that all the Gassy names have done little (up until now) to hedge their bets and get more liquids or more oily………..and now they ‘INVENT’ the hybrid model to attempt to rescue themsleves from the low prices and oversupply situation which will likely endure for a protracted period of time.

83. p.s Felt compelled to post to keep BOP from previously threatened ‘singing’.

84. “Today’s release on manufacturing activity by the Richmond Fed is pretty ghastly, as you would expect given that the effects of fiscal stimulus are now wearing off at accelerating pace – before the happy handover to the private sector is safely consummated – and given that the structural East-West imbalances that lay behind the global crisis are getting worse again.”
    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007034/drip-after-drip-of-deflation-data/

85. oh. man, crys… you SO read my mind!!

    If it get’s too quiet… i swear, I’M NOT KIDDING here. Don’t MAKE me do it. It won’t be pretty… 🙂

86. OK. Have to run out for about an hour. If I don’t see post #100 by the time I get back… it’s SHOWTIME!!

87. hmmm…. so far

    >crickets<

    not good.

    (not back yet)

88. SSN – just told that the last few uncredited accounts at Merrill get proceeds tonight. Still nothing at Schwab. All other custodians have paid. Merrill excuse was “they just recieved the check” which is possible as the other firms may have (most do) a policy of fronting divi’s, int and reorg’d securities. If this is the case Schwab should credit similarly.

89. Z, you doing anything on the EIA 914 released?

90. Haven’t received SSN funds in Etrade yet either, Fidelity credited me over a week ago.

91. Jat – re 914 data. I came, I saw, I sighed. Nothing really to add to my brief post comments as my excel files are at the office but the data was unremarkable so if you picture an upwardly tilted line with a sort of flattish tail to it you have gas supply at the moment. Too many rigs drilling for gas, too many more now in search of oil and other liquids producing too much casinghead gas that doesn’t care what price gas is at.

    Rig Count Watch:

    Oil up 10
    Gas down 12
    Horizontals down 5 but I’m sure they are just moving locations as the horizontal count has shown no indications of topping any time soon.

92. Beerthirty already came and went here.

    Local brew Palmetto amber gets two thumbs up.

    My trading/lounging digs for the next few days are for sale. Photos don’t do it justice

    http://www.realtor.com/realestateandhomes-detail/1885-Omni-Blvd_Mount-Pleasant_SC_29466_1109249677

93. Analyst Watch:

    LINE

    Barclays raises target from $30 to $33

    UBS maintains Buy, bumps target and estimates slightly, saws strong performance all around.

94. Thad “Always Overly Optimistic” Allen now says the Static Kill operation will be done Tuesday, not the “earlier than expected” comment he made a day ago, due to the need to clean out debris from the well. Hence, the stock is not running up into the Friday close.

95. WLL fought its way back to green.

    Re EOG being down pre call makes me more interested in taking some risk there. Lots of big events this coming call.

96. RE: new FRAC Technolgy

    Does anyone have any insight into the comments by SLB on their CC about their new ‘FRAC TECHNOLOGY’?

    Zmay have mentioned, but it purportedly is ‘LOW ENERGY……does NOT massive amounts of water as currently used with EXISTING HYDRUALIC FRACTURE methods and overcomes the current environmental concerns……….and will purportedly b introduced in 2011.

    My questions are:
    ~Does SLB have much infrastructure in the US Shale Plays?……..but perhaps a ‘BETTER MOUSETRAP’ will bring the customer base to them.
    ~From a Geophysics aspect the only technology that seems to apply would be some type of Ultrasound. NOTE: Ultrasound (at 25,000- 40,000PSI)is being used to crack large molecules in the pharmaceutical field……..but this work is being done under very controlled condions in reactor pressure vessels………

97. z, crys, jat, john, elijah… good try. But didn’t quite make it to 100.

    So, here goes. One from The Vaults!!!!!!!!

98. God bless whoever downgraded EOG I’d been trying to repurchase shares I sold several weeks back….can never quit being a flipper

99. jivey — that is such the right way to think about it. Thanks for posting.

100. WHX rapidly coming back from the grave

     UBS commenting that they like SLB and WFT over HAL at the moment.

101. Re 98, 99 yeah, that’s my way of thinking on that as well.

102. You expecting EOG to bounce off the 200 day ma?

103. well, if this SOB turns green, on the rest of the indices, I’m gonna sing here at the office and I bet it won’t take long to clear the place out on a hot Friday afternoon here in TX

104. jivey — and i’ve got just the song for ya….

105. re 97, darn, I was hoping for your voice over the net. 🙂 However, I really enjoyed Tie Me Kangaroo Down. I think they sang this on Art Linkletter in the afternoon in 63 or 64. At that time, I certainly enjoyed this over the Beatles, nothing like tanning somebody’s hide to get young boys thinking of how to get in trouble next.
     Still don’t have money from SSN in Schwab account.

106. I played that one to ’em and they thought I’d jumped the moon…

107. 106 — ROTFL over that one. TY!

     My neighbors had that song on a 45 in their poolhouse, when I was a kid. We used to play it over and over. Didn’t know what the whole “tan me hide” meant… but used to sing it at the top of my lungs. Always makes me smile.

108. skimo — i am prevented by law from posting my singing on the internet. It is considered to be an act of “terrorism.” 😉

109. Z: Nice digs

110. Party At z’s Rental House This Weekend… free beeeeeeeer!!

111. NE confirmed their quarterly and special dividend. ex-div 8/5 payable 8/19. Will come to approx .66/sh US$. Because Swiss, it is treated as return of capital. But like Yogi Berra said cash can be used as money.

112. Hey everyone. Thanks for playing today. Sorry about all the SILLINESS… but it’s a FRIDAY and the end of a long, hot month.

     Will see y’all in August. Have a good one!

113. Thanks much to BOP,Nicky and all.

     The Charleston Cocktail:

     6 oz Tito’s Vodka
     2 Cups pink grapefruit juice
     1 cup lemonade
     8 sprigs lemon verbena
     Add a few blueberries /strawberry slices for color
     Let steep in a pitcher for at least an hour, serve over ice.
     Serves 4 (or so they say)

114. BOP et al,
     Speaking of Terrorism:

     http://news.yahoo.com/s/yblog_upshot/what-nearly-punched-a-hole-in-this-japanese-oil-tanker

     This took place in the heavily traveled and heavily patrolled St. of Hormuz…….and the perp’s got away.

     FRO, NAT and other Crude Carriers will not be happy….thank goodness it was double hulled ……as the fluid would have likely trransmitted the shockwave to (and through) the other side.

115. have a good weekend everyone…I like silly especially on Friday…..

116. Oil up 51 cents
     ng up 8.1 to close at 4.91

     sd even feels like i had an up day, lol

     time for the charleston cocktail

     have a good week end

117. 114 – from the pictures, it appears consistent with airblast. I agree re the 2x hull; the airspace allowed the outer layer to deform (note how the skin deformed around the support structure) and absorb energy. That the windows blew in is consistent with airblast. Might have been a lower-order explosive like anfo, and not necessarily a whole lot of it. Or they didn’t get close enough. A mine would have pierced the skin… just my opinion though.

118. House votes to end moratorium

119. Thanks to all re: comments on EOG-I’m waaay underwater but had layered covered calls which cushioned-bailed on those at a gain when I thought decline was over-obviously too early but with Z’s confidence, I’m also going to hang in-projected earnings growth in out qtrs is huge.

120. House also voted to bar BP from new off-shore leases-do not see how that can stand-goodby UK/US “close relationship,” particularly if they enforce new safety and environmental standards on all off-shore drilling.

121. No wrap today as I away without my files but I’ll have a post out early Monday.

122. Z – Still holding the BP Aug 40’s and some 45’s, have been adding to the position all the way through this last week on the 40s. Let’s hope we see something worth moving on.

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