(dipping into my macro vat…)

But OF COURSE a debt ceiling deal will occur in time. It is so obvious that America can still pay its bills and walk the dog and wash its windows that it is inconceivable America would fail to pass such a provision. We have learned our lesson. There is no way another Lehman-like event can occur. Simply, we are motivated by recent history to act in time to prevent another end-of-the-world breach.

I mean, look at the precedents. First and foremost is Bear Stearns, immediately after which Old Man Bernanke warned banks to shore up balance sheets against potential disaster. Good thing they listened to him before Lehman occurred, right?

Right?!?

Finally we get around to the oil and gas folks. Gotta say, not what I was expecting.

First off, here is the entire data set in case you feel like getting snappy all by yourself.

As before, the missing data is likely an issue with my data provider and not a real indication of missing sales or capex (which would be a little sticky in real life…). There are 68 tickers here after deleting all the ones with no data at all. An industrious individual is encouraged to dig through the 10Ks to fill in the blanks and collect all available information. A caffeinated hedgie would be up until 3am filling in the blanks for fear of missing that one golden nugget someone else might find tomorrow. I am neither.

A word about capital intensity before we dig into the list. After looking at all the other groups over the past few weeks, we have seen some that cycle in a range (utilities) and some that show decline but still invest heavily (telecom). In reality, when looking through these groups the thing we are looking for is abnormally low capital intensity whereupon we can make our assessment as to whether there is a coming investment cycle.

Now that we are smarter about the search, let’s look for a recently low level and from there look for declining investment. We will say “low” is anything less than 20%, but my feeling is less than 10% is low. Here we go, cleaned up and easy to read.

Look at this list. We whittle it down to a reasonable 15 tickers from 68 and get a whole lotta nothin’ for it. This is terrible. Let’s hope our good man Po Pimp can set us straight here and tease a pattern out of it.

If there is anything we might quickly get out of this, we have COP, BP, XOM, CVX and TOT with an average capital intensity of 8% over this time period which is not that far off from 2010. If sales are expected to go up for these big boys, then constant capital intensity means capex is going up. But that is too easy and not indicative of something folks don’t already know.

We don’t even find help by looking at how capital intensity trended for this group around the 08/09 timeframe. You would think a trough occurred then, but in fact capital intensity troughed in 2004 for these five companies. Again, maybe we are looking in the wrong spot or in the wrong way?

Y’know, I am beginning to think this whole “declining capital intensity leading to an investment cycle” thing is a bust. It sounds cool and like it might be a sexy way to identify a coming trend, but so far the only group we have examined that looks like it might fit our thesis is refiners. At this point we have gone through quite a few examples and busted a few ideas. I would therefore caution readers to be skeptical the next time you hear some sell-sider babble anything about capital intensity as some sort of leading indicator.

Stay tuned – there will be one last thought on how to play investment cycles when considering capital intensity.

Well, now, in light of the new rules about this here fine establishment, I guess I will not talk about when I am entering or exiting a position using The PPT overbought and oversold indicator. I did need to wipe a little sweat off my brow last week, but as I look at my purchases now I am quite happy. Y’all will simply need to be content listening to me crow about the magic.

I mean, we can’t have ME getting banned, can we? You would miss me, right?

Bueller? Bueller? Bueller?

Ach, I am hurt.

Dipping my toe back in the water here on this oil and gas bit. If something doesn’t bite it off I might put a foot in later.

BIG gas injection last week of 95BCF. Way above average and way above estimates. And this in the middle of summer. Definitely not a bullish injection.

I am actually not here to argue a bull or bear thesis on natgas as I think it simply trades alongside coal as a driver, and actual storage is not in the precarious situation it was a couple of years ago. What I wanted to do was smash a bullish natgas note as I think it is representative of what will happen this earnings season as analysts are proven consistently wrong across the next month.

CS popped off with the following on Pg1:

We believe the stalling of the horizontal natural gas rig count and the decline in the natural gas rig count (down 12% since recent peak in Aug 2010), should lead to a moderation in the growth of natural gas production going forward.

Under this chart on Pg1:

Now, I am cherry picking my quote here as he does put words around this quote describing the next chart. But, the next chart is not on the front page with all these words that eventually lead to his bullish conclusion. His conclusion is carried in the chart above.

I will put the whole quote below, but look at the following chart and keep in mind it was on Pg4. Not even on Pg2, but on Pg4. Does this look like a chart that adequately describes a coming decline in natgas production?

Looks more like a chart showing increasing oil production. He says down 12% since aug10 – is this referring to the top chart of gas rigs as a % of total? If so, this is a gross misrepresentation because gas rigs in the second chart are def not down 12%, and the only reason “% of total” is down is because so many oil rigs have come up.

Get ready for a whole bevy of manipulation like this in the coming season.

Anyway, here is the full quote from the first page:

Horizontal Gas Rig Count Growth Moderating. More efficient horizontal rigs continue to climb to record highs (up 65% to 1,073 from the recent trough of 650 in August 2008). Notably, the horizontal natural gas rig count has remained relatively steady increasing by only 5 rigs year-to-date (up 1%) and down by 2 rigs (essentially flat) year-over-year to 614 rigs. We believe the stalling of the horizontal natural gas rig count and the decline in the natural gas rig count (down 12% since recent peak in Aug 2010), should lead to a moderation in the growth of natural gas production going forward. On the other hand, the horizontal oil rig count has increased significantly to 459 rigs from 338 rigs (up 36%) at the beginning of 2011 and 233 rigs (up 97%) from the year-ago period driven by higher oil prices.

Alrighty then. Nothing like a quick trip across country to get some stuff done.

Like pondering “What is the point of that space between I-5 and I-95?” I guess something needs to keep the edges from falling off, but aside from good skiing what is the point? I guess it is kind of like our brains using only 10% of their capacity even though the other 90% still exists?

Hmmm…all I know is that there isn’t a decent beer brewed in New York but you can throw a stick west of I-5 and hit a hobby brewer doing a better than any $12 six pack at Gristedes. And on that, WTF is up with the beer prices in New York?

Here is another way to view the “space in between” issue. Near this lovely town of San Diego, how many folks west of I-5 can sing the correct national anthem? How many folks east of I-5? See how this point can be proven again and again?

Instead of being bored silly staring out a window for six hours, I spent my time chasing another project that many of you might deem as ridiculous as my view of “the space in between.” Moving on to my capital intensity project.

This time we look at refiners and telecom. I wanted to look at these as prices here are definitely going up, and for telecom stocks there are distinct suppliers of equipment that can be singled out as investment targets.

First refiners, but only because they have been getting lots of love on this site recently. Honestly, I don’t think there is any way in hell these guys invest in such a way to add meaningful capacity. The market and public has screwed these companies for so long it is very easy for them to step back and say “What have you done for me lately?” while quietly not adding capacity. Luckily, capacity is cheap if they do decide to invest – just don’t expect them add enough to lower prices anytime soon. Also lucky for them is NIMBY, which is alive and well in the good ol’ U S of A. All the refiners need to do is allow some explosion to happen every once in a while and Voila! the barrier to entry is permitting and legislation, not the low cost of capex. But I digress. Here you go. These guys are going to bank some serious coin if they keep up this capex trend.

In actuality, there is really no trend to see here other than these guys barely invest. (The blanks are merely missing datapoints. I am sure these companies had sales and capex, it just isn’t flowing through to my spreadsheet.)

Next is telecom. This is a little trickier because there are only a handful of viable wireless carriers out there, and comparing them against the landline folks is not meaningful given gov’t mandates to maintain existing wirelines in rural areas while most of the customer adds and plan increases are in wireless. The poor wireline folks – heaven help them as they fight the good fight.

I think it is more meaningful to consider the wireless folks by themselves. There are clear suppliers of equipment to the wireless providers, and many who do serve other markets still have high concentrations in wireless infrastructure. Unfortunately, this is not a new theme as everybody and their uncle is on to the idea. Despite this concentration, my feeling is we are about to have a huge investor shakeout in the coming months where folks become disenchanted with the idea and conclude “meh, this trade is done.” More on that some other time.

Once again, not good signals in here. There is no consistency across names. Looking only at T, VZ and S we see a decline but it is really nothing meaningful – these guys still spend a lot. At the very least this confirms why everyone is so jiggy about chasing towers and chips aimed at wireless infrastructure.

Next up: the big bad O&G folks. Our man at large – the Good Mr. Po Pimp – has supplied a good number of tickers to make sure I don’t miss anything. I am sure I will anyway. I am easily distracted by a good beer.

What happened to shoot first, ask questions later?

The more I dive into this retail bit, the more it becomes apparent the industry will have its CTJ during this back-to-school season as it grapples with the idea of passing on HSD/LDD price increases. It seems a foregone conclusion to many folks that unless these price increases stick, retailer margins are about to nosedive. Last I looked, Consensus estimates do not expect lower retailer margins in the coming quarters. Last I looked, people weren’t getting raises (though they don’t seem to be getting laid off as much these days). That equals uncertainty to me, but these stocks are still ripping to new all-time multiple and stock price highs.

Just wandering about musing.

Lots of chatter about how great this earnings season is going so far. I am skeptical, of course, but willing to let a sell-sider do the tabbing work for me. I figure the sell-siders reporting this stuff can’t really fudge the numbers this time around. It’s in the news and recorded in the cloud for all to see, for heaven’s sake. So I gander at the first one I come across.

Turns out it is this thing from JPM dated June 27 and is authored by a team led by Mislav Matejka, some dude with a +44 country code. It has a cute little section on the earnings season so far that starts “Earnings season might not need to disappoint.” I am already put off. Fucking man-up and say whether this season will or will not disapoint. I am the one who is supposed to be wishy-washy, not some mamby-pamby metrosexual greaseball author/analyst in London who may or may not have female aspirations. I am already leaning the wrong way on this note and I haven’t read a word of the only thing that interests me.

Before going further, does anyone know the reason some of these notes have “Cazenove” slapped across the top of the note next to “J.P. Morgan” like it is something special? I sure did not. Shame on me. Turns out JPM bought this company in 2000 that supposedly has a royal pedigree. I am not here to argue whether or not the pedigree is warranted, just throwing it out there that “Cazenove” is supposed to mean something special. It appears this Mister Mislav is supposed to be something special, too. Again, just throwing this out there.

I get to Table #3…

Huh, pretty sure more than 13 have reported so far. The text with the chart says “Out of the 13 companies that have reported, 12 have beaten estimates, by an aggregate of 10%.” I know MU is smack in the middle there and am wondering how this +10% is possible. I think I will make a list to check this out. And then along comes Table #4…

OK, so he says 13 because he is tabbing through June 23 and, given the presence of LEN, CAG and DFS, including June 23. Let’s look at my list. I count 18 reports through June 23, INCLUDING MU. Wait! It says “May-end,” maybe that’s the reason. Nope, KR’s quarter ended Apr 30. Enough of this shit. I am doing this myself.

We will tab all SP500 companies that have reported during the month of June. We will note when a company beats EPS estimates for the current quarter based on the data coming from this Marketwatch/Briefing.com website. We will also note how much next quarter, 2011 and 2012 EPS estimates change. This is another reason to use only reporters in the month of June. I want to capture changes since the earnings call – if someone reported in May and we look at “mean % chg past 30days”, we may not capture the right data.

So here we go. It took me all of an hour to put this together and I don’t even get paid to do this. There is a good chance I missed one or two as I thumbed through the earnings calendar on Marketwatch.com, which looked a lot like Briefing.com but whatever. Google works. I come to 26 reports in June.

Because if the market is a discounting mechanism, I could give a rat’s ass if a company beats estimates that may or may not have been adjusted at the end of the quarter and ~30days before the report; a real surprise is one that makes an analyst change his forward estimates. Given how piss-poor analysts have been about revising estimates lately, we can probably give them a mulligan this season and say “Hey Jackass, you really were surprised by last quarter’s results,” but we have already gone over that one previously.

Yeah, I am a little fired up. This is already feeling like the beginning of last summer when BAML came out and increased his 2011 SP500 target by creating a nightmare version of an SP500 non-GAAP EPS estimate – right before the market fell off a cliff (this note was precious – among other things, check out what was tucked neatly at the end of the note’s text on Pg14). I am beginning to feel like this task of “tabbing results so far” was passed around the table and the US-based analysts, with black eyes and arms in slings, said “No way man, I ain’t doing that. I am getting beaten up enough as it is.” It makes it to Mislav’s seat which was occupied by his associate who, fresh off a bender, said “Sure, Ma-aaan, we’ll do it.” Really, it’s the only way to explain such shoddy work.

Finally, let’s define a “beat.” Using the traditional definition of the reported quarter, I propose a beat is better than Consensus by >1c. We have a column for that. Then we have columns for how much next quarter, 2011, and 2012 EPS estimates were revised, and then another set of columns to identify when 2011 or 2012 EPS was revised higher by >1%.

Agreed, on the traditional definition of an EPS “beat,” reports so far are better than expected 16:10. However, when we change the definition of “beat” to refer to a >1% change in 2011 EPS, suddenly we are worse than expected by 16:10. If our euphoria is based on the expectation 2011 SP500 EPS goes higher after this earnings season, we are off to a bad start.

Back to our boy Mislav. He says 12 of his 13 beat estimates by an aggregate of +10%. I come up with 16 of 26 beating for an aggregate of +5.9%. I am sure if we excluded the losers we could get a much better number. Meanwhile, the average 2011 EPS revision is (0.02%). Looks like a wash to me, not something to crow about. Finally, he pops off with the phrase “These stocks that delivered positive EPS surprises were rewarded by the market.” Does that mean if you missed by the traditional measure that you should not be rewarded by the market? Does that mean FDO should not have been rewarded with a 4.3% gain since it missed on all metrics outlined above?

OK, now I am ready for the metrosexual argument that this is all priced in. Bring it on.