Although my 40% cash position may create the illusion that I am missing out, such a view would be misplaced. Careful allocation and selection on my part is gifting me full participation in today’s excess in spite of recent reservation.

BAS is up 7.29% at the time of this writing, as the natural gas cycle makes full leaps and bounds forward. As I told you it would transpire, this is where your money must be at for the next 10 years. Companies and partnerships like BAS and HCLP will grow at unprecedented rates, facilitating the United States of America back to Her rightful status as Greatest Country and Loan Superpower on planet Earth.

HCLP is also up 2% and taken altogether, my portfolio is up .9%.

As for the excitement about Yellen, I don’t fully understand the sentiment. If you go back and read or listen to anything from Yellen, it’s pretty clear she has been consistently more in favor of Federal Reserve supporting markets and the economy than Bernanke was.

Despite that, there is good reason to believe a deep pullback may come soon enough (first half of 2014). We can’t all be millionaires.

UPDATE If you followed my initial purchase of BAS on 8/16/2012, you are presently up 65% on the position. If you’ve been trading along with me inside The PPT, you are up far more.

Comments »

I usually am a little skeptical about the usefulness of guidance. Executive guidance can be some of the worst – people who are intimately wrapped up in a business tend to have a hard time knowing when to say “yeah, this ship is going down.” In fact, business school strictly forbids it.

But the most recent guidance from BAS, for whatever it’s worth, beat expectations. December was supposed to be a heinous month. Instead, it was merely a horrid month. Take that with a grain of salt.

Well rig service hours were unchanged, at about 61%. My long term thesis involves that number catapulting back to 80%+ eventually, which is why I own the name.

Fluid service truck count is up to 1,003 units. Fluid service truck hours are up 8% this year.

The company saw surprise strength in December (which is really just less flaccid weakness, pretending). Instead of the forecasted 7-8% drop in revenues that were expected, they anticipate they only saw a 6-7% drop.

This is all good and well and hearsay. What caught my eye was that they are also reporting their customers are reporting increases in 2014 spending. Now that’s useful to me.

The natural gas/well servicing industry was more or less crushed in 2011 thanks to generally bad dealings by one Aubrey McClendon. That and a half dozen other idiotic moves saddled CHK investors with 60% equity losses, taking the company to par with the lows set in 2009 (which is saying something).

This left most small well servicing firms in quite a predicament. You see, as a group they were pretty much a “no cash on hand” industry. There were only a few, like BAS, that had adequate financing to weather the storm.

A sea of mergers and acquisitions later (not to mention a few major bankruptcies; looking your way PSN.TO) and we may be ready to get back to fair weather. The natural gas spot price has largely recovered. And now BAS is reporting that client spending is looking up.

Comments »

The fed decision to test the waters with a taper while I was away did surprise me, somewhat. Yet it did not phase me much and so I elected to remain on vacation, silent on the issue.

I would state now in hindsight that a $5B per month taper (with as much as another $5-10B in the works) would still put the Federal Reserve on path to add another ~$800B to its balance sheet in 2014. This remains colossal and would have the Fed assets outstanding at just under $5 Trillion by 2015.

They may very well have tapered by $5B/month just because they were running out of things to buy…(laughter)

If I were to state things that concern me as potential impediments to the US economy and growth, they would list (1) consumer slowdown from budget impacts (pension, healthcare costs, rents/mortgage, increased retirement contributions, etc), (2) foreign existential shocks (EU breakup, Asian crisis, similar collapse that disrupts foreign trade) – where exactly did the EU government debt go and why is it now suddenly not an issue? Who is buying it (ECB, Fed, banking scheme, inter-government trade imbalances, etc)? And what stops non-payment concerns from popping up again in the future? and (3) the election of a Republican majority

But banking solvency just isn’t on that list right now. Neither is inflation, really, although long term prospects of an uncontrollable outbreak of inflation remains a viable possibility. With credit expansion in this country limited to growth of government balance sheets, deflationary pressure is set to commence…until it doesn’t. In the meantime, another ~$1 Trillion of free money to those closest to the trough will keep a major disruption of financial assets here at home as a low probability outcome. Of course, this bodes ill for the “wealth equality” lot, but they’re too dumb to call the system out on that, so we maintain the course.

Concerns aside, I am optimistic. Recessions don’t last forever, and my concerns are outweighed by hope in outlook. I am very long (no margin) and prepared to reap the rewards of economic growth. It’s been almost six years; the system has been on a hyperactive outlook for problems which greatly reduces the likelihood that a real “Black Swan” manages to crop up. It could still happen of course, but with hundreds of thousands of financial professionals calling bubbles as quickly as problems crop up, and a full time central banking staff armed with an unlimited supply of money attacking them at first sight, how exactly is a crisis supposed to materialize from all of this?

The only room for crisis in the US is rampant commodity/asset appreciation, which remains benign. That or an elsewise major shock to the consumer. Financial assets and liquidity issues are covered.

Now, that being said, historically we haven’t had a period longer than 10 years without a recession since at least 1789 (and probably not since long before that either – I just lack records to verify a more robust claim). I’d say the expectation of a correction since the Great Depression is 5-10 years with occasional 1-3 year shocks intermittently. We’re past the small shocks phase, which would put the expectation at right about where we’re at.

These times are unprecedented and the support the Fed is willing to lend the markets (unlike any time in recorded history) makes me think we blow through the averages. I want to say this ship will have the wind to sail to years seven, eight or nine, uninterrupted. We may even match the record holder of 10 or above.

However, it would be foolhardy to doubt another recession will most likely crop up before 2020. The ever growing levels of margin debt to buy equities may well be the first sign of the beginning of the final run before that. Of course it could be nothing.

My belief then is that a long commitment remains the way to go. I have been positively surprised by recent developments that have overridden prior comments on wanting to have a larger cash position by about this time (end of 2013) that I made late last year. However, as gains are taken, a portion should begun to be set aside, starting sometime mid 2014 to early 2015. This should create a reserve build-up of steadily marching intervals (10-20%, with a 1-2% increase every month topping out at around 40-50% of ones account value) sometime around late 2015 to early 2016.

At such time, a second hard look should be had. Earlier and exceptional strength should trigger a reassessment of these statements. Casual to quality growth does not necessarily change them. A major weakness (such as a shock of a GOP majority and fear of monetary policy interference) of course may necessitate a sudden course change.

My most hated places to invest are land/real estate (excluding multifamily or renting derived), oil companies (excluding natural gas predominated), and retail (excluding facilitation to the ultra-rich).

My favorite places center around natural gas production expansion, uranium, coal, multifamily REITs, and I remain interested in holding physical precious metals in a full position in the event an inflation shock from significant expansion in credit hits the economy.

I’m indifferent to the insurance market – especially health insurance. It could swing either way; they crawled into bed with the devil so it’s all political at this point. On the one hand, the entire market is shifting in wild and unpredictable ways. On the other, the feds are rigging the game in the insurance companies favor. Just stay away.

Comments »

If you missed it, the Wall Street Journal came out today with a centerpiece on fracking sand. This is great exposure to the space.

If you’ve been paying attention, I took a position in the partnership HCLP this summer for $24-26, with some adds and trading around the position since then. They sell exactly this sand to well services companies.

A few recent big developments with HCLP include a settlement with Baker Hughes and inclusive six year supply agreement that helped send it to the $32 price it’s at today. Other developments include an almost million share issuance from a parent/sibling company (non-dilutive).

The share price has come under downward pressure (from the million share issuance); however, this exposure is exactly what’s needed to get more money flowing into the position. The partnership is expensive and small, but I love the positioning and think it’s in exactly the right place for major growth over the next decade.

Another position similar to HCLP (and Chuck Bennett honorable mention) is SLCA. They specialize in a similar alternative to the fracking sand HCLP offers.

Comments »

I bit into the 8% selloff this morning. By the time I got a nibble, it was a 6% selloff.

I don’t expect this to last. The earnings miss is a non-issue for a small company in a rapidly growing industry. And the hit was largely one time items that shouldn’t be a recurrent problem.

HCLP is a buy here on any dip. Especially as validation of the growing demand for frac sand continues to come in.

Comments »

BAS is up 4% this morning after announcing earnings last night. The earnings themselves were unspectacular, but I think capital is beginning to catch on to the idea, judging by the gap up.

BAS has managed to close earnings losses by about half (so far) while keeping revenues approximately flat (-4% year over year), which in this environment with such steep competition for rig hours is an impressive feat.

The real story here is BAS’ cash position, which actually increased despite everything else. They now are sitting on $100 million, up from $96 million last quarter – and keep in mind that this time last year they were only sitting on $104 million.

The company has made a few big acquisitions over the last couple quarters, including a salt water disposal company last December. Total capital investment was $139.9 million for the last 12 months. During that same time, BAS’ long term debt increased by $82 million. So I think I can see clear value being created by the operation, the losses notwithstanding.

The real game BAS is playing here is best laid out by their CEO Roe Patterson (emphasis mine):

“With respect to acquisition opportunities, seller expectations still remain high. We expect valuations to come more into balance over the next two quarters so we will continue to conserve our liquidity until we see those opportunities. We currently anticipate spending about $165 million for capital expenditures in 2013, adding mainly higher margin rental equipment and salt water disposal wells, along with maintenance and sustaining capital.”

BAS is positioning themselves to buyout the competition at fire sale prices. That’s the real play. I first got on to this company, actually, when I was looking through the space for potential investments, and realized nobody had any cash on hand.

BAS was the first company, after checking a few dozen, that actually had suitable cash reserves.

The natural gas price collapse that occurred throughout 2011 (nice work, Aubrey…) struck the well services industry hard. I’d say BAS has a hunch a subset of their competitors might start to get in trouble here shortly – why else wait? It’s not like energy services firms (at least the publicly traded ones) are commanding high multiples these days.

The rig services guys are killing themselves right now to stay in business. This cut throat competition can’t hold up indefinitely. BAS has a mark of it falling through sometime in the next two quarters. That’s when they’ll make their big moves.

Comments »