When Will the Commodity Nightmare End?

I remember the good old days of 2007, when oil was going to $500, copper and gold to Pluto, and cotton would get so expensive–people would resort of traveling around naked or in burlap bags.

Over the past year, the sector has been decimated–Great Depression style. These are the sort of moves one would expect during a depression.

Coal -53%
Natty -45%
Oil -42%

Yet my electricity bill is still $600 per mo. How the fuck does that work?

Coffee, Copper and Palladium all down more than 30% for the year.

Over the past two years, oil, natty and coal are down upwards of 60%.

Stocks have faired much worse, with 90% losses in BTU, 85% losses in ZINC. FCX, CLF, X, UPL and CHK have declined upwards of 70% in 2015.

Some argue that the drop in commodities is a good thing, as it saves the consumer money, to be spent elsewhere. But that’s horseshit, since retail numbers are abysmal and haven’t moved all year. So where is the extra savings going?

Is everything just going to Apple and Amazon?

Last year was a horrid year for commodities. Had you bought that dip, thinking 2015 would recover, you got your face eaten off for you, Miami Zombie style.

Stocks are mixed, early going. However, my stocks ae doing well, with gains in SHAK, PAH, FCX and VRX. Also, I am quite pleased that I sold COST last week.

Of course they slashed their dividend. You didn’t think they’d keep paying it, all the while their core business sunk into the ground, did you? It’s absurd the way this stock has “performed”, down 30% in the past month.

Boy, I can’t wait until we get those fucking rate hikes.

Oil & Gas Review

As previously reported, co is deferring investments in several long-term projects in response to oil and gas market conditions. Following an ongoing review, capital expenditures for 2016 and 2017 have been reduced further from $2.0 billion per year in 2016 and 2017 to $1.8 billion in 2016 and $1.2 billion in 2017, including idle rig costs. Initiatives are expected to add low cost oil production, enabling cash production costs to decline from $19 per barrel of oil equivalents (BOE) in 2015 to less than $16 per BOE in 2016 and 2017. Under the revised plans, FM O&G’s cash flows would substantially fund its capital expenditures at $45 per barrel of Brent crude oil in 2017.

As previously reported, the FCX Board is engaged in a strategic review of its oil and gas business to evaluate alternative courses of action
Mining Review

FCX previously announced a 25 percent reduction in its capital spending for its mining business for 2016. FCX is undertaking further actions involving plans for a full shut-down of its Sierrita mine in Arizona and adjustments to its operating plans from its primary molybdenum mines, which will increase its curtailments to approximately 350 million pounds of copper and 34 million pounds of molybdenum per annum.

FCX is also evaluating other financing alternatives, the potential sale of minority interests in certain mining assets and other actions to provide additional proceeds for debt reduction.

Dividend on Common Stock

FCX also announced that its Board has suspended its annual common stock dividend of $0.20 per share. This action will provide cash savings of approximately $240 million per annum and further enhance FCX’s liquidity during this period of weak market conditions. FCX’s Board will review its financial policy on an ongoing basis and authorize cash returns to shareholders as market conditions improve.

Assuming prices of $2.00 per pound for copper and $45 per barrel Brent crude oil for 2016, FCX estimates consolidated operating cash flow would exceed capital expenditures by more than $600 million.

Amendment to Bank Credit Facility

Following recent declines in prices for its primary products, FCX has reached agreement with its bank group to amend the Leverage Ratio (Net Debt/EBITDA) under its revolving credit facility and $4 billion term loan from the previous limit of 4.75x to 5.5x at December 31, 2015, 5.9x for the first half of 2016, and stepping down to 5.0x by year-end 2016 and 4.25x in 2017. The Leverage Ratio is unchanged at 3.75x thereafter.

It’s everything you’d expect from a company trying to stay alive, in the middle of the deflationary vortex. In a rational world, the stock should rise on this news.

Bond King, Jeff Gundlach, was out today condemning the Fed for what he called ‘unthinkable’ policy of raising rates into an economy as penurious up as this one.

I’ve been saying this for the better part of 5 years: the United States can and should never raise rates, unless of course we’re able to pay down a large portion of the $20 trillion debt load we’re saddled with.

I read guys like Gundlach, a man who does it big in real life. He doesn’t just talk the game; he lives it. He’s saying the Fed is absolutely nuts for even thinking about hiking. Janet Yellen, and her butterscotched candies, is fucking delusional and should be looking to EASE into more QE, rather than tighten. Look at the shares of CHK, FCX and X for Christ’s sake.

From the moment I laid eyes on here and heard her Woody Allen accent, I knew we were fucked. The rest of the board governors are idiots, always have been. Bernanke put them in check. But Janet is an absentee Fed Chair and she’s letting the hawks form the policy.

Back to Gundlach:

U.S. stocks are “whistling through the graveyard,” according to Jeffrey Gundlach. He’s the founder of Doubleline Capital, which manages over $70 billion in assets.

“There are plenty of markets that are falling apart and freaking out,” said Gundlach Tuesday afternoon on his monthly webcast.

While stocks are moving sideways, the bond market is in trouble, he argues. Junk bonds are at their lowest point in six years and leveraged loans are tanking.

On top of that, emerging market equities are down close to 30% since September 2014.

Then there’s commodities. Oil hit a 7-year low this week and copper and lumber look anemic too.

The Federal Reserve is about to make a mistake
Gundlach called Fed action “unthinkable” given where many parts of the market are right now.

He predicts the Fed will raise rates now and regret it.

Fed chair Janet Yellen and other central bank officials have been stressing in recent speeches that they will move “gradually” to raise interest rates.

But Gundlach says their talk doesn’t match reality. The Fed’s own projections — the so-called “Dot plot” — shows interest rates will be about 1.38% in a year. That’s a big increase from the near zero rates the U.S. has today.

“They are not talking about ‘gradual’ in the Dots,” says Gundlach.

As many investors know, it’s a tough environment. There aren’t many bargains out there and Gundlach calls the Fed a “steamroller” that is about to come through and change the game.

“It’s getting harder and harder to make money,” he says.
Gundlach manages the DoubleLine Total Return Bond Fund.

Did you read that part about the dots? What rational central banker describes policy like that? For the life of me I cannot fathom why the Fed is willing to push $500 billion in oil and gas debt over the cliff; because that’s exactly what they’re going to do.

Mark my words: this Fed is going to leave this economy in tatters. If you thought the past two years were tough, wait until you see what 2016 brings forth–fucking centaurs and the four horsemen of the apocalypse are going to broadcast live from the NYSE, kicking the severed heads of their guests around like soda cans.

I haven’t done free trials for you misers in a while. Consider this your sneak peak into a world of winship.

Let me preface the recent OS signal by Exodus with the fact that it’s missing all of the classic tenets of a truly horrible tape. The commodity debacle is the primary reason for the oversold condition, as evidenced by the lack of OS signals in some of the major ETFs. We did not get an OS in SPY, QQQ or even crude. As a point in fact, ERY, 3x bear oil, was OS just a week ago and is working swimmingly since.

The only notable ETFs that are OS are IYT (trannies) and FEZ (euro stoxx 50). In the case of FEZ, the 12 mo track record for our algos are 14 wins, 1 loss, with an avg return of 3.65%.

However, it’s important to note, despite the absence of big ETF signals, the overall hybrid score is flagging oversold. As such, we must adhere to the non-negotiable laws of mathematics, supremely and sublimely perfected by the Exodus algorithms, and remain long and add to this treacherous market.

The 36 mo track record for the principle oversold algorithms stands at an impressive 77%.

I am certain this is a 500 year plan, something that will position these two companies to profit, immensely, from the rapidly changing landscape.

The companies may announce a merger in the coming days and it would be followed by a three-way breakup of the combined company, the newspaper reported. A deal has not yet been finalized and the talks could fall apart, the people said.

Dow Chemical’s Chief Executive Officer Andrew Liveris is expected to be executive chairman of the new company and DuPont’s Edward Breen will remain CEO, according to the newspaper.

For those unfamiliar with House DuPont and their influence on the founding of our country, its wars, and subsequent rise to become an American form of royalty, immune from such trifle things such as laws, I suggest picking up a book or two about them.

Trust in this: House DuPont wins again.

I had high hopes for the Grossest man on Wall Street. After leaving PIMCO, I thought Bill would regain his swagger and annihilate the catamites who thrusted him onto the streets looking for a job. Well, sadly enough, that’s not going to happen.

Bill had a good run. But all good runs must end.

For the month of November, the fund saw outflows of $73 million, with assets at $1.3 billion at the month’s end, Morningstar said.

So far this year, the Janus Global Unconstrained Bond Fund is posting negative returns of 2.01 percent and lagging 72 percent of its peer category, according to Morningstar.
In November, Soros Fund Management LLC, which billionaire investor George Soros chairs, pulled its roughly $500 million from an account run by Gross at Denver-based Janus Capital Group Inc.

The cash withdrawals are particularly significant for Gross as his Janus Global Unconstrained Bond Fund, which Gross began managing in October 2014, holds more than $700 million of Gross’ personal money.

Bill is down 3% for the year, clownishly lagging behind 72% of his peers. More than half of Bill’s assets under management are his own. Time to call ot quits, Bill. Go lick your fucking stamp collection.

Shares of WYNN are down 60% for the year, thanks to the Chinese ruining gambling in Macau. Not having the powers of fortune telling, Steve Wynn had focused all of his companies resources on Macau, building a giant casino and praying to the Chinese gods that the communists would let him win.

Well guess what Steve? They didn’t let you win.

Macau used to represent 70% of the companies revenues, now just 25%. Essentially, Steve fucked up on a gargantuan scale. Sales and earnings have plummeted in recent quarters, alongside share price. But even with sales dropping 25% YOY, the price sales ratio of WYNN is at its lowest level since the 2008 crisis, just 1.5x

News just hit the tape that Steve Wynn stepped up to the plate and bought 1,003,977 shares in the open market, increasing his stake to 11,070,000. This is a significant and bold statement by the old school CEO.

Shares are up $6 or 10% in after hours trade.

I knew this would happen. The contrarians are attacking, for the sake of their fucked high yield bond books of course. Both Barclay’s and JP Morgan are defending crude here, pointing towards 2016 as the bottom in crude. All is well. Nothing to see here.

“Our overweight recommendation for the sector is clearly a non-consensus call with elevated credit spreads, an expected double-digit default rate next year, high short-interest and the Street’s stock ratings are the lowest in more than 10 years,” Lakos-Bujas, JP Morgan

Markets are being whip-sawed today with the price of crude.

This tight correlation between NASDAQS and crude offers opportunity for fast fingered traders. The play is simple: if crude spikes, get long some QQQ or your favorite NASDAQ stock. Or, if you’re super aggressive, buy FCX in anticipation of a rally. Should we rally with crude, the beaten down commodity names, like FCX, CHK and X will rally the most.

I know you peopole will think I have a vested interest in promoting StockTwits. I do not. My relationship with them is collegial, tenuous at times, often incidiery towards my person. A few weeks ago, I was accused by someone there of calling him a catamite. I’d never do such a thing. Shame on you for saying that to me.

I recall meeting H. Lindzon at some dump NYC hotel with his smarter partner, Soren Macbeth, pitch the idesa of StockTwits and the lunatic ‘cash tag’ concept via Twitter. This had to be 2008, before the site had launched. At first, I thought the idea was lunacy. Who’d want to corral stock traders and clean up after them? Little did I know, Howard and Soren were about to change the finance world with StockTwits.

When I was starting out in the business, the internet was new, so most feedback and rumors were faxed to me via Jag Notes every morning. Then there was the office water cooler, literally. After the internet got popular, the Yahoo message boards was the shit. But Yahoo fucked that up, allowing it to turn into a cesspool filled with spam giving shit heads.

Today we have StockTwits. I use the product every day and find it invaluable. Do I hate it sometimes and want to kill every person on it?

Absolutely. But that’s finance, filled with gurus and assholes. The true value in ST is the trending page.

This page produces the most talked about stocks in their giant ecosystem (more on that later), which I find to be great for gleaning news items as to why XYZ is lower or higher.

I once pitched H. Lindzon to include a StockTwits in house news feed for the most actives, doing quick video takes on why a stock was moving. The project died after Howard saw a mosquito on the wall, distracting him and causing him to forget we ever had the conversation.

As per the StockTwits staff, the site is growing pretty fast, jumping to 1.3 mill unique views per mo from 600k in 2013. They also generate about 1.5 messages per month.

It’s like a human ticker tape of information. Sometimes you have to be patient and comb through the nonsense; but it’s a great resource for traders.

(cue the I HATE STOCKTWITS comments in 5,4,3,2…)

Oil is firming here, which means equity markets should follow suit. Since we’re on the topic of commodities, I’d thought now would be a good time to inform those who are unfamiliar with the oil and gas debt markets how fucked they truly are.

The commodity landscape is in ruins. As such, the collateral behind the loans is a moving target–down–which at some point will pose as a problem. I’m thinking sooner rather than later. Many of the small time players will simply wash away, never to be seen or heard from again. But the bigger ones will not go so easily, potentionally causing ripple effects in the markets.

Here are the names to look out for. The market, more or less, hates these stocks–mainly due to their debt load and rising debt/eq levels. You will want to watch these ‘canaries in the coal mines’ very carefully. On a bounce, these will be the best performers.

Here is the next layer of risk. These companies aren’t distressed like the above list. However, given enough time with cheap crude and share price depreciation, these can hunt you in your nightmares and make you wished that you had never bought a commodity related stock.

Finally, this is the last list you will ever want to worry about. Because if these companies ever fall into danger of defaulting on their debt, the stock market will be the least of your problems.