nOPEC

601 views

Oil just got beat again when it became public that OPEC is a dysfunctional organization. Who could have imagined that disparate oil producing nations with deep, cultural differences (read racism) might have trouble working through competition?

I never would have guessed it would crop up this quickly. But the demise of OPEC is hardly unforeseen. I myself penned an article this July discussing the possibility of the oil markets being upended.

But it is funny, reading through those thoughts going on just five months old, and seeing how violently they have diverged from what I expected.

I expected the development of US oil and gas reserves would create trouble for the old guards. I did not expect that oil would collapse 30% in two months. While you could say that those price swings were to be expected – just simple economics – I had expected the US might actually do more legislatively to erect a wall between us and the oil nations altogether. Obviously this happened much too quickly for any of that.

I had also guessed that when things started to get tough, OPEC would at least try to band together first. They’ve been successful at this in the past, so failing to construct even symbolic production cuts this round is certainly worse off along than I would have ventured.

The fallout in oil and energy names, following August, is not something I truthfully believed in. This may sound strange, but I was actually betting against myself when I made those sales of my oil and gas positions. And I never would have believed we’d fall so far. BAS is off 60% peak to trough, for crying out loud. Even when I knew we were experiencing a correction, I didn’t think it would be this extreme.

Now let’s put some context into all of this. Some of these energy names are trading at prices as bad as or worse than they were in 2010-2011 (when oil prices were pretty much where they are now); and lots of these energy companies were losing money back then, whereas they are making money today. I’m talking about BAS explicitly as an example.

So what happens now?

Well, I think that the prices of oil & gas plays are pretty compelling here. Yes oil is a bummer and there is big talk about $30 oil being right around the corner. And it’s no coincidence that I think this talk is stupid and that those responsible should be viciously ridiculed. I think the price drop is temporary, unremarkable and indistinct from any other major selloff that has gripped the price of oil in the past five years.

I think competition will continue to do real damage to the major oil nations in the world bringing about the greatest power shift of our lifetimes. But as apart from my peers, who seem to believe that a Venezuela or Russia has the ability to ramp up production into this price drop, leading to a deflationary spiral that ushers in 1990’s prices for all Western nations, I tend to feel this is silly.

You can’t call for the death of the Bakkens and simultaneously think that oil stays this low. Actually I have a hypothesis that the events that would have to converge to keep oil this low are few and far between. The big question here is timing as to when oil goes higher.

So my guess – and this is definitely just that – is that the US shale boom lives. And here’s what will enable that to happen.

These oil exporting countries have all made brazen moves with their budgets. Places like Russia, Saudi Arabia, or Iran are barely holding it together. Places like Venezuela can’t even muster that; oil prices for Venezuela are kind of like mattresses or trampolines to a guy already falling off a roof – a point of hope.

But if oil prices keep falling, you’re going to see one of these places – and Venezuela is definitely near the top of my list – buckle. Venezuela is probably the easiest case to get back to $100 oil, because one Venezuela is good enough to offset new US production. But it could just as easily be a combination of other smaller oil exporters. A half dozen of the smaller to mid size guys, or even a combination of Syria and Iraq plunging back into darkness. IS is obviously a possible trigger here; a bunch of pissed off twenty year olds, armed with rocket propelled grenades, trying to operate oil machinery? Sounds like a nice, safe combo.

What we’ve seen, repeatedly, is that when a place like, oh, Syria or Libya plunges into anarchy, it’s not just a small setback. Rather, the entire oil infrastructure gets taken offline for years at a time.

Another civil war or resurgent fighting could easily get us back to lower oil production in these places. Some US legislative work (now freed from the concerns about access to supply thanks to the US domestic advances) could help keep our own oil expertise from setting those places back up again after they tumble.

Why would we want to do this? Rome is sick of Carthage.

Just think about the sheer number of problems that these countries have dealt us over the past fifty years. We already know that the US can withstand $100 oil. We’ve been doing it for a few years now. And $100 oil benefits the US economy directly, whereas $80 oil is the worst of all worlds; too cheap or expensive to care about.

With the GOP in Congress and looking to juice the US a little, and with Obama increasingly looking for a major win, sticking a stake in the middle east is probably the lowest hanging fruit around. Kill IS by letting them destroy their own oil infrastructure, then restrict the companies that have usually bailed that region back out (Shell, Exxon, etcetera) from doing that. Lower Russia back into 1993 conditions, then tell Blankfein to keep out this time.

That’s how I see things playing out. Sure we could watch the US shale revolution just go to waste completely. But I think at this junction the US has a pretty vested interest in not letting that happen. It’s a new dawn, after all.

Market Gains Ebbing, But We’re Going Higher From Here

393 views

China’s big rate announcement and other saber rattling from central bankers sent the market higher this morning, but now the gains are starting to retrace into the afternoon.

This is classic central bank trading.

After all the other rate and QE announcements I can recall, we experienced the same behavior – a big immediate push followed by a strong settling (and even occasionally the markets correcting lower). Historically, this lasts for about a week before we take off like the Hounds of Hell are hot on our heels.

On the news Brent is back above $80, and WTI is following. We’ll get about a week (half week for the holidays?) of puttering around, probably lower. This is going to suck all the shorts and panic money into the fade (“They failed!”). Right in time for next Tuesday or perhaps the Monday thereafter, when approval to increase allotments gets pushed down from management and markets begin the happy process of murdering anyone caught short. Just in time for Christmas.

See you in December.

Not Getting Cocky

225 views

Alright, today was a big day. I was up almost 5%. Strong moves in the oil and energy space and shorts unwinding. Leverage pressed the envelope. Almost everything I had ended higher, in a big way.

But it’s too early to celebrate. BAS is down almost 60% from the top. I sold out quite a lot of the position at the top, which is the only reason I’m still alive. HCLP is flirting with $50 again, but that’s a 30% drop from the highs (again, I was lucky as hell selling out near those). VOC is down 50% from the highs.

This isn’t enough. Big up days need follow through to repair the charts. Short sellers need to be checking their backs at every street corner. That’s the only thing that will scare the carrion birds off the backs of these stocks. And we need the price of oil to carry us along. We need Brent back above $80 and WTI needs to tag along playfully behind (but can’t get too close or the spread will be damaged).

The rest of the market is acting healthy and, despite the exact same concerns about the economy that have been there for five years now, there doesn’t seem to be a fresh wave of cascading data to fret over.

Added To SXCP

144 views

I made purchases of SXCP for $24.64, adding to my position.

My current account balance stands at 118% margin.

My wash sale of NADL was total luck. I got pissed off at them for failing to close the deal with Rosneft so I spiked the ball and stormed off the field. That locked in a 15% loss. Well, the stock is down another 42% from that point. That would have been another 5% loss on the account. Not pretty but I’ll take it.

There is good strength in my positions this morning. BAS is up almost 8%; I’d take that with a grain of salt, it has been flipping 10% week over week, lately. But HCLP and VOC are both up about 4%, CCJ is up another 1%, and BTU is higher by 2%. AEC is taking a breather, now nearing $22. So is ETP, pushing on $68.

My holdings are AEC, CCJ, HCLP, BTU, BAS, ETP, VOC, SXCP, and physical silver.

Uranium Spot Prices Continue To Soar

230 views

Approximate prices for the uranium spot market lifted another 5% from last week. We’re now well back into the $40’s.

This is what I have been waiting for, for years now. CCJ is still one of my larger holdings, and there is still time left in the year to have it be a big hit. But even if it doesn’t work out before 2014 comes to a close, 2015 will work fine too.

Japan set off the stampede. It ends gloriously.

AEC Up 7% Today

164 views

I mostly got out of the multifamily trade earlier this year, by selling out of MAA. MAA was a position built from shares of CLP that were swapped out in a merger between the two companies. CLP and AEC were an investment I had made in the multifamily space in 2011, betting that rental occupancy would remain at record highs and rents would experience pressure, while more generally mortgage generation and homeownership would continue to languish.

That worked out pretty swimmingly.

But I did make one…I wouldn’t call it a mistake, per say, but…misjudgment. I did not anticipate how much the street hates AEC.

I guess AEC’s CEO got on the dark side of Wallstreet back in the late 90’s. Not just Wallstreet; I had some people perchance on my articles hyping up AEC who hated the CEO so much, they took the time to tell me and anyone else reading. I guess I can respect that. Blackballing those that have crossed you is an American tradition of sorts. I do it all the time. No big deal.

But I was willing to give AEC a chance, and it has mostly paid off as well. In addition to collecting 5% annually for four years, AEC is now up about 35% from my entry price. Not an APC or RGR or HCLP by any means, no. But respectable.

AEC is up 7% today, continuing a big push it has been making in the second half of this year. AEC has been trading at a serious discount to its peers in terms of stock premium, but has been making moves to force recognition of that value.

If AEC can hit above $23, that will have put AEC at effective returns of about 16% compounded annually, since 2011. Not bad, I can live with that.

nOPEC

601 views

Oil just got beat again when it became public that OPEC is a dysfunctional organization. Who could have imagined that disparate oil producing nations with deep, cultural differences (read racism) might have trouble working through competition?

I never would have guessed it would crop up this quickly. But the demise of OPEC is hardly unforeseen. I myself penned an article this July discussing the possibility of the oil markets being upended.

But it is funny, reading through those thoughts going on just five months old, and seeing how violently they have diverged from what I expected.

I expected the development of US oil and gas reserves would create trouble for the old guards. I did not expect that oil would collapse 30% in two months. While you could say that those price swings were to be expected – just simple economics – I had expected the US might actually do more legislatively to erect a wall between us and the oil nations altogether. Obviously this happened much too quickly for any of that.

I had also guessed that when things started to get tough, OPEC would at least try to band together first. They’ve been successful at this in the past, so failing to construct even symbolic production cuts this round is certainly worse off along than I would have ventured.

The fallout in oil and energy names, following August, is not something I truthfully believed in. This may sound strange, but I was actually betting against myself when I made those sales of my oil and gas positions. And I never would have believed we’d fall so far. BAS is off 60% peak to trough, for crying out loud. Even when I knew we were experiencing a correction, I didn’t think it would be this extreme.

Now let’s put some context into all of this. Some of these energy names are trading at prices as bad as or worse than they were in 2010-2011 (when oil prices were pretty much where they are now); and lots of these energy companies were losing money back then, whereas they are making money today. I’m talking about BAS explicitly as an example.

So what happens now?

Well, I think that the prices of oil & gas plays are pretty compelling here. Yes oil is a bummer and there is big talk about $30 oil being right around the corner. And it’s no coincidence that I think this talk is stupid and that those responsible should be viciously ridiculed. I think the price drop is temporary, unremarkable and indistinct from any other major selloff that has gripped the price of oil in the past five years.

I think competition will continue to do real damage to the major oil nations in the world bringing about the greatest power shift of our lifetimes. But as apart from my peers, who seem to believe that a Venezuela or Russia has the ability to ramp up production into this price drop, leading to a deflationary spiral that ushers in 1990’s prices for all Western nations, I tend to feel this is silly.

You can’t call for the death of the Bakkens and simultaneously think that oil stays this low. Actually I have a hypothesis that the events that would have to converge to keep oil this low are few and far between. The big question here is timing as to when oil goes higher.

So my guess – and this is definitely just that – is that the US shale boom lives. And here’s what will enable that to happen.

These oil exporting countries have all made brazen moves with their budgets. Places like Russia, Saudi Arabia, or Iran are barely holding it together. Places like Venezuela can’t even muster that; oil prices for Venezuela are kind of like mattresses or trampolines to a guy already falling off a roof – a point of hope.

But if oil prices keep falling, you’re going to see one of these places – and Venezuela is definitely near the top of my list – buckle. Venezuela is probably the easiest case to get back to $100 oil, because one Venezuela is good enough to offset new US production. But it could just as easily be a combination of other smaller oil exporters. A half dozen of the smaller to mid size guys, or even a combination of Syria and Iraq plunging back into darkness. IS is obviously a possible trigger here; a bunch of pissed off twenty year olds, armed with rocket propelled grenades, trying to operate oil machinery? Sounds like a nice, safe combo.

What we’ve seen, repeatedly, is that when a place like, oh, Syria or Libya plunges into anarchy, it’s not just a small setback. Rather, the entire oil infrastructure gets taken offline for years at a time.

Another civil war or resurgent fighting could easily get us back to lower oil production in these places. Some US legislative work (now freed from the concerns about access to supply thanks to the US domestic advances) could help keep our own oil expertise from setting those places back up again after they tumble.

Why would we want to do this? Rome is sick of Carthage.

Just think about the sheer number of problems that these countries have dealt us over the past fifty years. We already know that the US can withstand $100 oil. We’ve been doing it for a few years now. And $100 oil benefits the US economy directly, whereas $80 oil is the worst of all worlds; too cheap or expensive to care about.

With the GOP in Congress and looking to juice the US a little, and with Obama increasingly looking for a major win, sticking a stake in the middle east is probably the lowest hanging fruit around. Kill IS by letting them destroy their own oil infrastructure, then restrict the companies that have usually bailed that region back out (Shell, Exxon, etcetera) from doing that. Lower Russia back into 1993 conditions, then tell Blankfein to keep out this time.

That’s how I see things playing out. Sure we could watch the US shale revolution just go to waste completely. But I think at this junction the US has a pretty vested interest in not letting that happen. It’s a new dawn, after all.

Market Gains Ebbing, But We’re Going Higher From Here

393 views

China’s big rate announcement and other saber rattling from central bankers sent the market higher this morning, but now the gains are starting to retrace into the afternoon.

This is classic central bank trading.

After all the other rate and QE announcements I can recall, we experienced the same behavior – a big immediate push followed by a strong settling (and even occasionally the markets correcting lower). Historically, this lasts for about a week before we take off like the Hounds of Hell are hot on our heels.

On the news Brent is back above $80, and WTI is following. We’ll get about a week (half week for the holidays?) of puttering around, probably lower. This is going to suck all the shorts and panic money into the fade (“They failed!”). Right in time for next Tuesday or perhaps the Monday thereafter, when approval to increase allotments gets pushed down from management and markets begin the happy process of murdering anyone caught short. Just in time for Christmas.

See you in December.

Not Getting Cocky

225 views

Alright, today was a big day. I was up almost 5%. Strong moves in the oil and energy space and shorts unwinding. Leverage pressed the envelope. Almost everything I had ended higher, in a big way.

But it’s too early to celebrate. BAS is down almost 60% from the top. I sold out quite a lot of the position at the top, which is the only reason I’m still alive. HCLP is flirting with $50 again, but that’s a 30% drop from the highs (again, I was lucky as hell selling out near those). VOC is down 50% from the highs.

This isn’t enough. Big up days need follow through to repair the charts. Short sellers need to be checking their backs at every street corner. That’s the only thing that will scare the carrion birds off the backs of these stocks. And we need the price of oil to carry us along. We need Brent back above $80 and WTI needs to tag along playfully behind (but can’t get too close or the spread will be damaged).

The rest of the market is acting healthy and, despite the exact same concerns about the economy that have been there for five years now, there doesn’t seem to be a fresh wave of cascading data to fret over.

Added To SXCP

144 views

I made purchases of SXCP for $24.64, adding to my position.

My current account balance stands at 118% margin.

My wash sale of NADL was total luck. I got pissed off at them for failing to close the deal with Rosneft so I spiked the ball and stormed off the field. That locked in a 15% loss. Well, the stock is down another 42% from that point. That would have been another 5% loss on the account. Not pretty but I’ll take it.

There is good strength in my positions this morning. BAS is up almost 8%; I’d take that with a grain of salt, it has been flipping 10% week over week, lately. But HCLP and VOC are both up about 4%, CCJ is up another 1%, and BTU is higher by 2%. AEC is taking a breather, now nearing $22. So is ETP, pushing on $68.

My holdings are AEC, CCJ, HCLP, BTU, BAS, ETP, VOC, SXCP, and physical silver.

Uranium Spot Prices Continue To Soar

230 views

Approximate prices for the uranium spot market lifted another 5% from last week. We’re now well back into the $40’s.

This is what I have been waiting for, for years now. CCJ is still one of my larger holdings, and there is still time left in the year to have it be a big hit. But even if it doesn’t work out before 2014 comes to a close, 2015 will work fine too.

Japan set off the stampede. It ends gloriously.

AEC Up 7% Today

164 views

I mostly got out of the multifamily trade earlier this year, by selling out of MAA. MAA was a position built from shares of CLP that were swapped out in a merger between the two companies. CLP and AEC were an investment I had made in the multifamily space in 2011, betting that rental occupancy would remain at record highs and rents would experience pressure, while more generally mortgage generation and homeownership would continue to languish.

That worked out pretty swimmingly.

But I did make one…I wouldn’t call it a mistake, per say, but…misjudgment. I did not anticipate how much the street hates AEC.

I guess AEC’s CEO got on the dark side of Wallstreet back in the late 90’s. Not just Wallstreet; I had some people perchance on my articles hyping up AEC who hated the CEO so much, they took the time to tell me and anyone else reading. I guess I can respect that. Blackballing those that have crossed you is an American tradition of sorts. I do it all the time. No big deal.

But I was willing to give AEC a chance, and it has mostly paid off as well. In addition to collecting 5% annually for four years, AEC is now up about 35% from my entry price. Not an APC or RGR or HCLP by any means, no. But respectable.

AEC is up 7% today, continuing a big push it has been making in the second half of this year. AEC has been trading at a serious discount to its peers in terms of stock premium, but has been making moves to force recognition of that value.

If AEC can hit above $23, that will have put AEC at effective returns of about 16% compounded annually, since 2011. Not bad, I can live with that.