Sunday, February 7, 2016
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Mr. Cain Thaler

Stock advice in actual English.

Nibbled On More BAS

Go To HELL

I added another percent or two to BAS, because at $2.00 any recovery will yield 1,000% style returns and at this junction a few percent doesn’t greatly affect my risk profile. The over half of my account that’s in cash is going to sit tight until we get more clarity.

The rally in oil last week was great, but I have bad news. This run on oil companies isn’t done yet.

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As an aside, this is interesting

Hi-Crush Partners LP and Liberty Oilfield Services Partner to Increase Completion Efficiencies in Colorado`s DJ Basin

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The Energy Services Are Now Picking Their Core…And The Losers

oil

Here’s a fun article. I expected this sometime last year, as it shows the largest oil sector firms understand what must be done.

In order to regain stability of the oil market, production needs to be brought in line with consumption. That is not rocket science. What is considerably more difficult is how that process is permitted to play out.

It’s the overpopulated island problem. Two men are stranded on an island with just enough food for one to survive. How many men survive?

No men survive. They both eat just enough food to ensure they both die, fighting each other the whole way. That’s just instincts.

Baker Hughes and Schlumberger are two of the biggest players in the services space. And they’re old and well connected and staffed by pretty smart people. I’m comforted that someone is finally forcing the weakest hands to wrap up their deaths, as in the long term this is going to minimize the damage to the US energy sector.

Hopefully the more stable services firms can come together, pick the US supply that needs to be idled, and shut it down. Waiting for these zombie oil companies to keel over themselves is growing tiresome.

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Japan Reactor Restarts Continue

nuclear-power-plant

I’ve held a growing position in CCJ since the Fukushima reactor melted down and outlook on nuclear power soured. It has done poorly, but I remain wedded to it. Within the next few years we are going to see pricing for uranium recover and the suppliers are going to do very well indeed.

The Japanese, continue their “patient” process of reactor restarts with courts finally clearing two more this month for reactivation. And of course, by “patient”, I mean “the Japanese are the slowest most irritatingly conservative people on the God damn planet”. But we are finally getting there nonetheless.

A Japanese court on Thursday ruled that two nuclear reactors could be restarted after the operator said in an appeal that they were safe. The Fukui District Court in western Japan lifted an April injunction that was filed by a group of residents who said that an earthquake exceeding the reactors’ quake resistance could cause a disaster similar to the Fukushima crisis set off by a March 2011 quake and tsunami. The order paves the way for a resumption of the Takahama No. 3 and No. 4 reactors, operated by the Kansai Electric Power Company.

The declaration of nuclear power’s death was more than premature. Nuclear power is not dying at all. At this phase, it looks like U308 pricing has set a bottom and the real price for uranium (actually recorded by non-distressed companies like CCJ) has remained higher than the quotes being pushed around on the internet.

For the moment the collapse of hydrocarbon pricing is actually taking the most immediate pressure point off the table for keeping nuclear around, but there are still plenty of reasons why the power source isn’t going anywhere.

The most basic of these reasons is just the broad need of power we have. The planet is advancing; the rest of the world is no longer content to let the West live in the lap of luxury, free from all hunger and cold to work on the most pressing problems of micro-aggressions, while they dig in the mud.

The population of Earth is heavily concentrated in the East. India and China alone make up somewhere around 37% of Earth’s population. As they progress into the late stages of a technological revolution, their demand for power is going to soar. Do you really believe the Chinese care where that power comes from?

China, India, the lot of them, are going to build out EVERY power source available. Coal, nuclear, oil, hydroelectric, wind, solar …if it can turn on a light bulb, it’s getting done. They aren’t going to restrict themselves because some uppity American twat really loves polar bears and aspires to maybe go see some one day.

Now some people are making the case that the recent UN agreement is actually paving the way for more nuclear. I’m not going to buy into that. I’d actually make the case that the UN climate agreement is 99% talk and hype and that there really isn’t such a thing as international law anyway, so only a handful of suckers are going to follow through with what’s written on that paper. The climate agreement’s primary purpose is to funnel billions of hard earned American dollars overseas to bank accounts of the well connected.

But the climate deal does highlight an interesting point. Countries have made pledges to halt emissions growth but those pledges are not completely imaginary. They do seem to be based on emissions expectations for the next few years. And those expectations have a lot of nuclear power built into them.

China is already in the process of doubling their nuclear fleet. Their goal is to quadruple that this decade.

On the Western front, faux-concerned rich people continue to insist that free power come from nowhere especially, which is ironic seeing the West is where Kelvin, Hess, Maxwell, and Gibbs were all born. But if the power flow is actually disrupted I would imagine the pitchfork (or more aptly AR-15) carrying mobs will snap these lunatics out of it. So if we are actually going to attempt to hit these emissions numbers, then there aren’t that many ways to do it.

There is a report floating around that says the US could be almost 100% renewables powered. Of course nobody actually read the report, because if they had you’d realize the extent of madness needed to get there. The point of that report was to discredit the “base load” argument, but the content of the report does a better job of supporting it. In order to completely phase out the traditional power sources, you would need to vastly overbuild the wind and solar sources. It would be extremely wasteful. Otherwise, the variance of power generation would cause problems in the grid.

So my guess is that, for instance, Germany’s insistence they’ll be completely nuclear free (and coal free, and natural gas free, and thermodynamics free) by the early 2020’s in complete crap. Actually, my guess is Merkel’s party gets thrown from power (for unrelated reasons) and reneging on that particular promise will be one of the first orders of business for whoever triumphantly stands over her.

In the US, natural gas generation growth and the sudden collapse of commodities is taking some nuclear power out of commission. I’m not sure if anything is going to reduce this trend, since the GOP doesn’t seem to be going anywhere and they don’t give two fucks about gimmicky fad concepts like “clean energy”.

But big picture, I think US and European reactors will experience only marginal decommissioning (from market pressure and equipment aging). I’m not betting those reactors get replaced just yet, but on the Eastern front, you’re going to see every reactor the West lets idle be replaced by 2 or 3.

These new models have even better safety records than the old 70’s and 80’s models running in the West – which are already basically mortality free – and my guess is seeing them operate will pave the way for a fleet upgrade here at home.

The goal of most countries should be to have a diverse mix of energy sources. In the US, entrenched coal generation has been challenged very effectively. But coal isn’t going away, it’s just going to drop to its even share of the load. Once other sources claim enough market share, they’ll hike prices until equilibrium takes incentives for further conversion off the table. Unfortunately for coal producers, that isn’t a good thing right now. But following enough bankruptcies, there will be room to edge back into the coal industry.

Globally I expect that to be a consistent theme. East countries need more nuclear power to get there (but they need more of everything anyway). South America has very little nuclear capacity and I wouldn’t be surprised if some build out occurs there as well. Europe and North America will slide as they let aging reactors be decommissioned and can’t work up the effort to replace them. The Middle East will continue to push for nuclear because it’s a nice fix to their geographical location, because competition between countries will pick up as one or two implement the source (and because each time they do, America freaks out and showers them with billions at the bargaining table). Africa just needs every source it can possibly get.

Global markets are still experiencing weakness, and demand is soft. But once we work through this patch, it’s back on. Energy is a great place to be for the next 10 years, if you can look past the pain right now. And uranium specifically is a good bet.

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Nibbled On BAS For $2.60

Man on phone

I made a small addition to my BAS position this morning for $2.60. It’s experiencing a low volume relief rally today but that is irrelevant, big picture. As far as I know BAS is going to $1.00 before any sector recovery and I am prepared for that.

I couldn’t just let the $2 price range go completely un-bought, could I?

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My Guess….Another 6 Months Of The Oil Chaos

detroit

As 2015 comes to a close, now pushing this period of torment into 15 months, I am preparing myself mentally for another 6 months of oil price weakness. 2015 has seen a steady beat of oil and gas company bankruptcies which will turn into pseudo permanent decommissioning of oil and gas assets.

These assets will be absorbed into other corporate bodies at fire sale prices where they will remain economically idle for years. Their old masters will leave and not return to this industry.

Much of what happens next hinges on foreign nations. State owned oil companies usurped with the political appointees of increasingly desperate and mostly unelected rulers have been ratcheting up production, trying to stave off judgment day. The US oil production is one of the more fascinating social phenomenon of our time, as it lay bare the level of reliance that these places had on oil revenues keeping populations passive.

Would you have guessed that Venezuela’s Chavismo would be driven from power inside of 7 years, back in 2009? Most of us knew that the structure was unstable and expected something like this eventually. But US oil growth is almost single handedly responsible for deconstructing Chavismo and it did so in the pace of 15 short months.

As the next level of pain ratchets up, those of us with high cash levels sit tight and bide our time, while the less scrupulous who rode into late 2014 with none (or God forbid margin positions) get swallowed into the abyss.

After they are gone let’s see what’s left in 2016.

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OPEC Happily Pens Own Eulogy

Mideast Saudi Culture Janadriyah

I had figured that OPEC would at least, at this junction, try to act and save their own skin. Instead, they gave the weakest press release known to man, then smiled gaily about it.

The problem with OPEC’s strategy is that they are conflating oil share with profits. Somehow, they have gotten it into their heads that they can never make as much money with, say, a quarter of the market as they could with a third of it.

But at the end of the day, price can matter an awful lot too. Saudi Arabia in particular has decided that, for whatever reason, they must preserve the old production levels. Maybe it’s a status symbol. Maybe the new king is a moron. Maybe they just can’t add very well. But they are prepared to take on US levels of indebtedness in exchange for bragging rights.

It’s really coy. I just don’t know what to make of this. I bet a lot that they wouldn’t do something this deranged, yet here we are.

Saudi Arabia is saying that they won’t cut production unless non-OPEC members do. Uh huh…and how pray tell do they expect to organize that meeting? So much of the new production is private business, it’s not like you just call them all up on the phone.

For some unfathomable reason, Saudi Arabia thinks they can call the shots and have this all under control. Why such a small and widely disliked country would think that is beyond me. So my best guess is before this flood is over, the Saud family will be drowned by it. It takes a special variety of stupid to shoot holes in your own life boat.

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