Monday Morning – Welcome To August

Posted on by zman

Another Bullet Post As I'm Still At Beach:

  • House Watch:
    • The House passed legislation to end the deep water drilling moratorium Friday afternoon.
    • The Bill still as to be merged with a Senate version that has not yet passed and then signed by the President and that can't happen before September due to the congressional recess.
    • BP was also banned from obtaining new leases offshore U.S. for 7 years.
    • The bill eliminates the liability cap. If this part of the bill remains look for:
      • less competition for leases so a lower haul for the government
      • less drilling overall, so less production from the Gulf and declining jobs
      • few if any players that aren't Majors given the fact that the next well you drill could be your last
  • Speaking of the House: Rangel committee recommends "reprimand" by the full house for his 13 ethics transgression. This is the lowest penalty they could have weighed on him with others being censure, fine, and expulsion. Caesar and the Roman Senate were above the law too.
  • BP Spill Watch:
    • Static kill now set for as early as tonight.
    • Cementing of last section of casing should be complete this week which puts commencement of  the bottom kill operation at between 4 and 6 days from now.
    • EPA says BP used too much dispersant. BP points finger at Coast Guard which approved each and every request.
    • Skimming crews are reporting very little crude left on the surface at this point and BP is scaling that effort back.
  • Tropics Watch: something wicked brewing in Central Atlantic but it looks like an East Coast event
  • Other Weather Watch: Hot
    • CDDs came in at 84 last week, about 10% above normal
    • The forecast this week jumps back up to the season peak of 97
  • SSN Update - not thinking of selling the second half of my position at these levels. Our next important date should be Aug 6th (deposit of the $10 mm on the Niobrara acreage sale)
  • Calendar for the week:
    • Ecodata:  Focus this week will worry into Friday's jobs number
      • Monday- ISM manufacturing index, construction spending
      • Tuesday- auto sales, factory orders
      • Wednesday- ADP employment
      • Thursday - jobless claims (F = 455K)
      • Friday - July payrolls (F = -70,000)
    • Earnings:
      • Monday - CRK, SM, FST
      • Tuesday - APC, BBG, BEXP, CHK, XCO, HK, and HERO, SGY, and WTI which should have interesting comments on the Gulf of Mexico business environment.
      • Wednesday - ANR, CXO, CLR, DVN, EGLE, GMXR, GDP, MUR (interesting in that they will speak about dumping their downstream segment), SD, WRES
      • Thursday - CRZO, EOG, KOG,PQ, SFY
      • Friday - none

88 thoughts on “Monday Morning – Welcome To August”

  2. Market Snapshot From 7:45 am thing morning —

    Morning Levels:

    · SP500 futures are up 12.5 points to 1110 (near highs of the morning).

    · Europe – DJ Euro Stoxx up 1.8% (right under its 200day MA), FTSE _2.05%, CAC +2%, DAX +1.6%.

    · Europe trading – materials + financials leading Europe higher (both groups up 2%). BNP up ~4.5% and HSBC up 5% both after earnings. Other banks act well in Europe – ING, SocGen, Agricole all up more than 2.5%. Arcelor bouncing (up 3.5%). On the downside, Daimler falls ~0.7% (UBS out cautious on the stock this morning. In London, banks v strong (Lloyds, RBS all up ~3-4%) as are miners (Vedanta, Anglo, Xstratra all up more than 3%).

    · Asia: Japan +0.4%; China +1.3%; Hong Kong +1.8%; India +1%; Australia +1.1%

    · Treasuries – lower across the board this morning; 10yr yields up ~3bp this morning.

    · Commodities: copper up another 1% this morning and nearing highest levels since late Apr; crude is up 1% (just under $80); gold off small.

    · FX – DXY continues to creep lower – off fractionally this morning (has closed lower for last 4 sessions); euro up 0.25%; pound VERY strong, up 0.8% (closing in on 1.60). GBP helped by earnings (HSBC and anticipation of strong results from all the UK banks out later this week) and manufacturing data. Yen off 0.3% vs. the dollar today (first decline in last 3 days).

    · European sov – major countries tighter – Greece 11bp tighter, Portugal 3bp. Spain is out 8bp.

    · Euro bank CDS – major banks ~3-4bp tighter on back of strong earnings (HSBC and BNP).

  3. Today’s Top Stories

    · Equities rally around the world with Europe/SP Futures outperforming Asia (which was also strong). Rally being driven by 1) Continued strength of the July eco #s inc. a stronger Eurozone July Manufacturing PMI, Japan car registrations, Australia Manufacturing PMI, China July Car Sales and India Manufacturing PMI, 2) strong earnings reports, 3) China PMI was no worse than feared and 4) Optimism around the Australia mining tax as PM Gillard’s opposition leader Abbott pulled ahead in the latest poll.

    · China PMI – In China, the official NBS manufacturing PMI fell from 52.1 in June to 51.2 in July vs JPMorgan 51.6 and the consensus 51.4. While the PMI did fall to a 17 month low, it was pretty much as expected and there are signs that the pace of decline in certain components is starting to slow. Also out of China, the PBOC released a statement on Sun and reiterated a lot of the same commentary it has been providing for a few months now (that it will continue w/its expansionary policy into the second half of the year) and Bloomberg notes that the weaker PMI reading is being interpreted positive as it raises the prospect of an end to further tightening measures (this is also helping HK real-estate related stocks).

    · European financial earnings coming in v strong – UBS and DB started things off last week and this morning both BNP and HSBC came in well ahead of St expectations. European financials are v strong accross the board, extending their recent gains (Euro fins have been on a tear in the last couple wks, helped by the stress tests + Basel capital rule clarification). This is a big week for earnings in the group, w/Barclays, RBS, Lloyds, and others, set to report in the next few days.

    · In Australia, the current PM Gillard appears to be falling behind in the polls and now is on pace to lose the elections being held later in Aug (related to this, small and medium mining companies in Australia on Mon are going to be resuming their advertisements criticizing the proposal mining tax).

    · Two speakers to watch – Bernanke @ 10:15pmET and Geithner @ 4pmET – both on Monday

    · technicals getting some attention as a number of major indices are near key levels w/the DJ Euro Stoxx 50 on the verge of breaking out above its 200day MA and a Bloomberg article today says that technicals show the Shanghai index may be set for another “wave” of gains.

    · Big name investors starting to brace for deflation – the WSJ notes that several prominent investors are starting to position their portfolios for a deflationary environment; PIMCO’s Bill Gross has been “aggressively buying US Treasuries” in recent weeks according to the Journal (WSJ)

    · Supply chain woes threaten global recovery -industrial companies posting strong earnings (CAT, FDX, HON, Siemens, etc) but are being hampered by inability to secure vital components; supply chains have become so weakened by the downturn that suppliers can’t increase production fast enough to meet demand (FT) (a separate article in the London Times discusses how shipping rates are doubling in some cases as retailers attempt to ensure product availability for the Christmas season)

    · US mortgages – MBS investors have started to scale back their positions following strong recent gains and market speculation that the government may offer automatic refinancings on all FNM/FRE/FHA mortgages. The US Treasury is planning a conference this month to discuss the mortgage market. FT

    · Semi Sales – SIA publishes its Jul sales on Aug 1 – first big miss in semi sales since Dec ’08 – the SIA announced June monthly sales of $27.2 billion or a MoM increase of 13.1%, well below the average June MoM increase of 20.8% and well below our estimate of a 20.8% MoM increase or $29.0 billion. Danely

    · LCDs – cautious article re NA TV inventories – LCD TV inventory levels in the North America market have piled up to 2-3 weeks higher than normal, sending channels and vendors cutting orders and system makers lowering shipment goals; Philips, LG, and Samsung have all been cutting orders lately b/c of the inventory pileup (Digitimes)

  6. Re: SLB’s new ‘LOW ENERGY’ technology for fracturing shale which they alluded to in the 2Q CC and said it would be ready to deply in 2011:
    ~Searched SLB’s Patents issued for last 4 years………nothing apparent.
    ~Searched Patent pplications, but question if my database source is complete and accurate (not enough applications)…..nothing apparent.

    Perhaps Wyoming or otherr completion knowledgable members have some insight, as this would be a major technical step forward since it would apparaently resolve many of the Environmentalists issues:
    ~low or no fresh water consuumption
    ~low energy reduces risk to formations and seals betweeen formations.

  8. Ram – yes. I took a look at what’s left last week, pretty interesting MUR as a large cap E&P only.

    Passed on Magnolias as the interns were restless. Got any kid-friendly Charleston food suggestions? Is Poogan’s Porch?

  9. BP – big week ahead, stock breaching $39, would think it goes higher as progress is made. Storm in the Atlantic tracking East Coast a plus for them.

    EOG – you may see a trade here pre earnings. BEXP to benefit if Montana Bakken well is a success which it should be.

  10. Opening indications on LINE above $31, good for the $30 and $31 strike August calls. Energy yield names a whole pretty strong. WHX rising into its dividend too.

  11. Well, I guess if you want to improve the bottom line in the future, you could dump your unprofitable or lowest margin part of your business. I don’t know if it’s healthy to have a couple of people left in refifing.

    Unfortunately, my definition of a kid-friendly place is when you arrive at the entry of an eating place and next to the menus is a pile of crayons and papers for coloring. Poogan’s Porch has great food in a cool renovated home, but it could be kid-friendly if you eat early and bring your own crayons and paper :).

  14. From BedTime Market Strategist last night —

    July Fireworks

    Friday was an interesting finish to an interesting month. July’s performance for the S&P 500 was the best monthly performance since July of last year. It was the 4th best monthly performance since February of last year and the market lows. Each of those prior strong performances was followed by another strong month, the weakest of which was a 3.36% gain in August of last year. More important, the positive for the month is that the market has shown it can trade in two directions as many of the fears fueling that negative feedback loop that started in the spring have abated, or at least the headline cycle has passed for now. Goldman Sachs* has settled with the SEC, at least a month earlier than even the most optimistic would have believed possible. The BP oil spill in the Gulf of Mexico was brought under control much earlier than expected and continues to move towards resolution. FinReg legislation, which had more lives than a cat, was ultimately passed but the intermediate term result has primarily been to set the clock ticking for1 ½ -2 years to complete 47 studies and 74 reports to decide what the actual new rules will be. Last but not least is the sovereign debt crisis in southern Europe. Although the problem still exists and will take years to correct, the market’s immediate obsession has passed and although they have not reached “healthy” levels, spreads and Credit Default Swaps have contracted respectably and at least there are mechanisms in place to attempt to put out future fires. In addition, the weakened Euro appears to have been a boon to Germany and thus, the strength of the largest EU member has provided a degree of stability to the Eurozone.

    The other key area of investor angst, and the most important one in our minds, was the softness that occurred in the economic data in the spring. While the data has not ramped up by any means, there were meaningful signs of progress. Initial Jobless Claims registered a new recovery low and 4 week moving average has moved to its best level since early May and is within 5,000 claims of its best level of the recovery. After witnessing a number of July misses among the regional Fed manufacturing surveys, it was a big bonus to see the Chicago PMI and the Milwaukee NAPM beat expectations by a wide margin. The real test is tomorrow’s ISM Manufacturing report. The additional bonus investors received was a solid earnings season and the realization that corporations are flush with cash.

    On Friday, the Bureau of Economic Analysis released its annual revisions to GDP along with the Advance Q2 GDP report. There is a touch of irony in the government telling everyone that the economy during 2007, 2008 and 2009 were all worse than previously reported. Real GDP was revised lower by 0.2%, 0.4% and 0.2%, respectively, for the three years. The key area of weakness was Personal Consumption Expenditures, which were revised down 0.2%, 0.1% and 0.6%. On the positive side of the ledger is that personal income and disposable income were revised higher. “For 2006-2009, the average annual rate of growth of real disposable personal income was revised up 0.3 percentage point, from 1.2 percent to 1.5 percent.” The reduced consumption boosted savings. The personal savings rate was revised up for all 3 years from 1.7% to 2.1% for 2007, from 2.7% to 4.1% for 2008, and from 4.2% to 5.9% for 2009. The main reason that the combination of revisions resonates with us is the result of Hyman Minsky’s work regarding the 1973-1975 and the 1981-1982 recessions. The two recessions were tied for the record of longest post war recessions prior to this one. In Stabilizing an Unstable Economy, Minsky notes “If a pause takes place in the rate at which consumer credit is extended, even as disposable income is sustained or increased, then the savings ratio will be high as in 1975, and an improvement in the liquidity positions of households will take place. With a lag, this accumulation of household liquidity will lead to a jump in consumer spending. Those households that have not been strongly or directly affected by unemployment during a recession tend to increase the ratio of spending to disposable income once an accumulation of liquid assets and a decrease of debt relative to income takes place. As a result of this impatience to spend, a recession with a high savings ratio, such as that of 1975, is followed by a recovery where the savings ratio is low. When the ratio of saving out of disposable income falls, the consumer becomes a “hero” in leading the economy out of a recession. The heroism of the consumer, however, is a lagged response to the high savings ratio of the recession” (p. 34-35). The 2009 savings rate of 5.9% is not that of the 8.92% of 1975, but it is a larger relative jump from the pre-recession savings rate. While we are confident nobody out there today is prepared to buy into the potential for the consumer to be a “hero,” there is a ring of familiarity to Minsky’s words and it is a very welcome sign that ingredients for such an event, albeit lagged, are emerging.

  15. Thanks Ram – Looking for something like LuLu’s. Probably going to pass then on Poogan’s, son tried to throw wine bottle like a molotov cocktail last night.

  16. From Madison Wms morning note. (Musing… why do adults have to pin “cute” names on bills they want us to take seriously. I mean… “FRACA” for a fraccing disclosure bill? Sheesh.)

    US Energy Bill – Sen. Bob Casey said he convinced Senate Majority Leader Harry Reid to fold disclosure provisions of his Fracturing Responsibility and Awareness of Chemicals Act into the energy bill. A provision to require disclosure of all chemicals used in fracturing Marcellus Shale to extract natural gas could wind up as part of the scaled-down national energy bill the U.S. Senate might consider soon. Senate leaders are hoping to pass the bill before the summer recess Aug. 6, after realizing they did not have the votes to pass a more comprehensive energy bill. Even if the smaller energy bill gets through the Senate, the House would have to pass it before President Barack Obama can sign it. Neither is assured.

  19. On a P/CF it is still WLL in that group, don’t really track PXP though. CLR would be toward the high end. OAS lower, and BEXP not nearly as exp as it has been.

    Off to the beach, back around lunch.

  21. re 15- Perhaps your accomodations provide an intern training seminar available during the evening hours so that you can have some adult time.

  22. Quick Credit Market Update

    IG is 2 1/2 bps tighter

    HY is 12 bps tighter

    TED is south of 30… +29.9 bps (YAY!!!)

  24. Good morning. Many apologies for not being around on Friday – I had an emergency and it took me out for the day.

    It looks as if the cycle low due on the 2/3 August came a day early but we did get down to the suggested support area and have staged a good bounce. Again we have resistance at 1120 that we need to get above and then next stop after that should be 1137.

    I am still looking for the 1150 – 1170 area which should come later this month. Between now and then we have an up cycle playing out into 8/9th August and then we should see a sharp down into options expiry the week of the 16th August before moving higher again later into the month.

  25. Just returned from a Disney Death March with my 6 yo grandson, ugghh but fun seeing it through his eyes. Mortgage Collateral continues to trade higher making in our minds unbelievable highs.

  26. Article on B2 of WSJ highlighting CAM as beneficiary of moves to make offshore drilling safer.

    Duh. But making stock an outperformer today.

  28. I ran across an article about Lucas Energy(LEI). They are in the business of acquiring abandoned and shut-in wells. I mention this because someone on this site, I think choices?, was interested in this business. The article was in The Bull & Bear financial report. More oil is leaking from the BP cap every day than Lucas’s market cap, btw.

  29. bondbuddha, how do we harness the energy of a 6 yo? Amazing renewable energy source. Maybe treadmills while watching cartoons.

  30. Crysball,

    SLB will take an older patent and modify it to a “New Technology”. This can extend the original patent when it may come due to expire. What you are probably looking for is simply a Marketing ploy.

    On another note, driving thru Wyoming, it appeared that Wamsutter is pretty dead but Pinedale had over 10 rigs drilling with HAL cement crews on the road to and from. The Pinedale rigs must be turning to the right.

  31. Ford just got their corporate credit rating raised by S&P from B- to B+.

    Although still junk-rated at single B, there is a world of difference between B- and B+.

  32. Congrats to anyone who took advantage of the EOG downgrade present on Friday. Outperforming today.

  33. Of course, oil over $81/bbl now is the rising tide that is raising a lot of boats this morning.

  35. Aloha

    All is well here in Branson. Temp going to 100. That should help Natural Gas. Don’t know why the gold stocks are trading like the natural gas stocks- barely surviving.

  38. Comments from MS today: The underperformance of the low cost, higher growth natural gas producers has been amongst the most important ( and surprising ) YTD trends for E&Ps. The scarcity premium for low cost NS assets has been eroded by the proliferation of new plays, reduced barriers to entry, and downward pressure on the commodity.

  41. BP………TOO POOPED TO POP!

    The Static Kill (if successful) will likely not produce mcuh of a ‘POP’ in share price.
    ~1 day before the Static Kill begins the volume run rate is 1/3 of normal,
    ~The Technical Indicator MFI has been treending down for several days,
    ~Option volume is lethargic,

    suggesting the positive effect of a successful static kill may be minor and short lived.

  44. Regarding energy market price movement correlation suggested by bill in 43………could it be due to BOP’s ‘singing’ on Friday?

  45. crys — interesting… wonder if there is a direct correlation there. Musing….

    Credit still up strong, IG now 4 1/2 bps tighter. Nice move.

  47. 36 – true, if it goes to the eastern seaboard it will likely dampen gas demand.

    37 – thanks, thought that would work

    43 – duly noted, will take off more often.

    46 – and still it remains cheap.

    Locklears on Folly Beach gets 8 thumbs up. As does Kona Longboard lager.

    Oil closed up 3+% at 81.50ish on strong equity markets.

    NG down 4+% on lots of heat but the potential storm bending the wrong way.

  48. LINE hitting new highs as well today for this cycle. The $30s and $31s are alive and kicking.

    Other energy yield up too.

    Missed my easy shot at EOG. Oh well, not going to cry over that one.

    WLL – probably should quite the call position as the premium on the $80s is gone now.

    The switch from HAL into WFT worked pretty well, another one I should quit though as the market is the only driver of the name at the moment.

  49. Anyone thinking of playing the EOG calls pre-CC? They are up over 5% today, so I was thinking of holding off to see if we get a dip.

  51. Those BP 45’s should come alive tomorrow or Wednesday, assuming the market holds gains

  52. BG – thinking $115 if they get everything right on the call. No surprise on earnings, thinking flat with estimates or slight beat or slight miss, within a few pennies. If they get a good results at either Niobrara or Montana Bakken though, it’s off to the races for the recent high at least in my way of thinking.

    BEXP tomorrow should be interesting but I will not get to listen. If they announce their Rogney well, this too could boost EOG.

  53. Actually BEXP call is on Wednesday.

    OAS tapping new highs in here as well, still no 2Q report date announced, should have some good wells near some of BEXP’s high IP wells in the south eastern flank of Rough Rider.

  55. Crys – Just for the record, I think a successful kill of the well would add 2 to 5 more points to the shares, not withstanding the SEC trading and disclosure probes that have recently been announced, and the disperssant charges by the EPA and any other witch hunt the powers that be want to throw at them in the near term.

  58. Z: VNR new high as well. Their numbers came out today. When you get back, if you have a chance to go over the quarter and make any comments, I’m all ears.

  64. Thanks John

    If my calendar is right, we get CRK, SM, FST after the close. SM probably the most interesting of the bunch. Will be on the road part of the day tomorrow so may or may not be able to listen to those calls. FST could also say things to drive LINE higher.

  65. Z – I got cold feet and bailed out of my APC Aug 49s, they did their running today. One of those “don’t regret taking profits too early” moments

  67. …this morning I saw Hackett was listed as the best paid CEO in Houston and thought that would bring the shares in a bit.

    The rig for the static kill had a leaky valve, repairing now, static kill to start tomorrow.

  71. Re 70 I wonder if the decreased treating pressure they talk about in the end of the article is the new SLB frac

  73. on chk

    full speed ahead

    During the 2010 first half, Chesapeake continued the industry’s most active drilling program, drilling 687 gross operated wells (440 net wells with an average working interest of 64%) and participating in another 562 gross wells operated by other companies (73 net wells with an average working interest of 13%). The company’s drilling success rate was 99% for both company-operated wells and non-operated wells.

  74. 43.8 in the granite wash

    Three notable recent wells completed by Chesapeake in the Texas Panhandle Granite Wash are as follows:

    * The Ruby Lee 104H in Wheeler County, TX achieved a peak 24-hour rate of 25.3 mmcf and 2,920 bbls per day, or 42.8 mmcfe per day;
    * The Dowell 1-31H in Roger Mills County, OK achieved a peak 24-hour rate of 16.2 mmcf and 2,440 bbls per day, or 30.6 mmcfe per day; and
    * The Zybach 2010H in Wheeler County, TX achieved a peak 24-hour rate of 8.0 mmcf and 1,270 bbls per day, or 15.6 mmcfe per day.

  75. aubrey can spin a a tale

    “Our strategy to accomplish this goal is set forth below:

    * Reduce drilling of natural gas wells except for those required to HBP leasehold or to use a drilling carry provided by a joint venture partner until such time as natural gas prices rise above $6.00 per mcf;
    * Lease and develop substantial new liquids-rich plays in which the company can acquire very large leasehold positions of 250,000-750,000 net acres;
    * Within one year of acquisition, sell a minority interest in a new play, recovering all or virtually all of the cost to acquire the leasehold in the play and to fund approximately a significant portion of Chesapeake’s future drilling costs in the play;
    * Accelerate drilling of liquids-rich plays until year-end 2012 when the company’s drilling capital expenditures are balanced approximately 50/50 between natural gas plays and liquids-rich plays;
    * Continue adding proved reserves, net of monetizations and divestitures, of approximately 2.5 – 3.0 tcfe (415 – 500 mmboe) annually; and
    * Accomplish these goals without the issuance of additional equity and with a reduction of debt levels such that the company becomes investment grade within the next few years.”

  77. I also like how issuing preferred stock with a pretty low conversion price doesn’t count as issuing equity.

  78. 76 yes
    the annual plan has about 5 b of cash flow and 5 b of cap ex

    Operating cash flow before changes in assets and liabilities(d)(e)
    $4,900 – 5,000 $5,300 – 6,000
    Net leasehold and producing property transactions $1,300 – 1,700 $1,000 – 1,300
    Drilling capital expenditures ($4,100 – 4,400) ($4,300 – 4,600)
    Dividends, capitalized interest, cash income taxes, etc. ($350 – 400) ($500 – 600)
    Other ($500 – 600) ($250 – 300)
    Projected Net Cash Change $1,250 – 1,300 $1,250 – 1,800

  79. 77 it does count as equity and thats why they are doing it

    They will use it to pay off debt helping their debt to equity ratio and lowering int exp/pref dividends

  82. Z nice line play I think I will sell options before they go ex-divy on Wednesday.

    I still need one last piece of CIGX, the time seems trciky. I waited to long.

    I am sniffing around HK even though they have burned every time.

  83. mimster — i’m looking to see if CIGX falls to around 2.05 (JB’s level) or — happy day — to 1.98. We shall see. I got “too cute” with filling my complete order at lower levels.

    HK put out a rather nyatt-phfft 2Q report… so, they haven’t disappointed. They are the same old HK.

  84. Good evening…Energy, S&P and NYSE bullish percents remain in bull confirmed status, the McCellan, $NYMO closed at 66.40, so the indicator is getting closer to reaching over-bought again, but there is still upside based on recent history, all eyes on S&P resistance at 1130…SLB printed a quad top break-out buy signal today, also breaking out above P&F trendline resistance, looking at the daily SLB backed off the 200 day SMA at $63.24, but there is support at the 100 day SMA at $62….

  87. Mim – re LINE options, yes me too.

    Thanks JB

    HK quarter – not great

    FST quarter – pretty good

    Re CHK and P/S, I count that stuff as debt.

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