The Big Question Then: How To Play EU QE?

1,260 views

The Swiss bank just announced that the ceiling they have been maintaining against the euro is to be dropped. That would make sense, since the euro is now trading below 1.17, down from almost 1.40 just earlier. In terms of the exchange rate, that had to be getting very expensive.

But the timing here should be viewed as a sign that the ECB is really about to start QE. This should be the stance because if they don’t, the impact would be minimal, but if they do you can’t be on the wrong side of the trade.

In terms of what this QE will look like…well, that is the question. What is the ECB going to buy? Not public debt, surely. How much more financing can these governments stomach with yields already negative in many countries. Even the worst countries, like Greece, are borrowing at rates that an average citizen would envy.

My guess here is two fold: (1) they buy up private financial assets similar to the mortgage program the Fed had in place, but that it will center on short term bonds, while also working with banks to create a long term financing window (EU companies and banks in particular have notoriously short term financing arrangements) and (2) they take the opportunity to absorb whatever mechanisms exactly they have been using, before now, to hide the massive debt loads that should have been coming due over the past three years.

If you forgot, Europe ended up pulling some master BS, using a combination of trade accounts to gobble up the garbage so that the markets wouldn’t have to see it default. I’m hazy on the exact specifics, but I would gamble that those imbalanced accounts are still outstanding; and my guess is they’re about to get totally monetized.

So the big question now is, where do you park money? I think that it would be very stupid to try and be short right now with central banks making big noise and seemingly readying the cannons.

If this is like past central bank action, then any longs will do – equity, commodities, debt, whatever you like. Oil could get a huge boost since it’s been so ravaged. ECB action will give the Fed room to play, especially if deflation keeps up. Yellen is no Bernanke…yet, but she also hasn’t been tried either. If the Fed coordinates, all boats get lifted.

But the safest low key play is probably just to hug U.S. dollars until things are a little more clear.

I am ~78% cash, with positions in CCJ, BAS and VOC, down roughly 3% in the first two weeks of the year.

BAS Keeps The Lights On

931 views

Take this with a big grain of salt, as there is most definitely a tradeoff occurring here, but BAS just reported this morning that their rig count numbers were…unchanged. There was a drop in rig utilization but all other service numbers were higher than in November.

Now, BAS is about to get whacked hard on margins, as they had to offer steep discounts to customers to keep the lights on. Of course, trading at $6.00, it’s also hard to argue that apple’s not baked in the pie.

BAS is cutting deep and hard here. Their goal is to get expenses below $100 million, which basically gives them a few years of clean life. As long as they can break even (or even just restrict the pain to small losses), they’ll be staying in business.

I really do like this company quite a lot. I bought back much of my position in December, after going 100% cash and mentally picking myself up. So we’re having a little intermission? It’ll be alright.

BAS’ competition is dead. I don’t believe they’re in the same league and we’re about to watch the tide go out for many of them. What’s left will be a stronger industry and for the moment, I’m betting BAS will be a part of that.

BAS also announced they were buying back some stock down here. I’d say terrific but I think that’s mostly symbolic. BAS will need to conserve much cash to survive this.

Put 25% Cash To Work

379 views

Okay today is strong. There are dark spots, like the dollar and bonds. I know I said I would wait, but if I apply just 25% cash at these levels, I could get back to even quickly enough.

So I bought BAS, HCLP, and some VOC.

75% cash.

Cash To 50%

748 views

Something is just…wrong here. Isn’t it?

A supermarket chain in the UK dropped that much? Wouldn’t oil have helped them? Greece plunged 11%? The EURUSD is dead, plumming along at 1.24.

These are 2009 type moves we’re seeing here. I’ve been looking at each of these events in a bottle, because I was blind to the obscene money I was making. Taken together, they spell a rather dark picture.

I didn’t sell any BAS, just CCJ, VOC and HCLP. If we get a good relief rally, well…let’s just say, I’m skittish now.

Restructuring

689 views

Something had to be done.

It is December, so I cleared my head and made some tough choices. I sold completely out of AEC, ETP, and BTU. AEC and ETP are the only two positions I have that have held up (made money, really). I don’t want to part with them, but it’s the best move.

There will be immediate cries about selling winners and doubling down on losers. This is nonsense. I’m not doubling down on anything.

The sheer magnitude of this calamity has left me with an enormous, outstanding loss for the year. It’s December – no way in hell I can absorb that loss in less than 30 days.

The only way I can view this is as a window of opportunity to cash out my winners tax free.

Cash now stands at 25%.

I’m sitting on the cash. My preference, obviously, would be to deploy into a sector not at all tied to oil and gas. But if my worst fears come to fruition, that may not be a real thing.

Board Up The Windows

393 views

Some of you may say this carnage is contained in the energy sector. It is not. The selling is across all fronts of commodities, currencies, and being sustained by a rally in bonds. It’s time to stop dicking around and call it like it is.

The market is pricing in another recession.

The past week has been the most painful I have ever experienced. The idea that just a week ago, I was flat for the year is preposterous to me. But it is true. In one week, the market has gone completely insane. Or perhaps it sees everything clearly and I have the blinders on.

Let’s create a hypothetical recession and talk about it. What would it look like? I think it’s safe to say that it would be much less severe than 2009. Every recession cannot be the worst recession ever, that would defy the statistics. I would also say that the central banks would step in much faster and more forcefully. We are watching the total dismantling of business right now. If you aren’t winning, you are losing…badly.

If we catch a recession, I am guessing it would last no more than 8 months and set us back just a few percentage points in growth. A mild trough, setting up for a quick recovery. This is the best guess I can offer, looking at the historical distribution of other recessions, as no data has yet presented itself that the US is in a recession.

As for cash, I have decided not to raise any. But…and this is a big “but”…I do not trade for a living. I have a job. The money I manage on this site is my own money and I can afford to watch it go through 50% swings. My demise is spared simply by not having any margin and picking positions that don’t fold.

My greatest fear is that BAS gets dragged into bankruptcy. That would be tragic. Understand that I am betting against this, knowing full well it could happen. I do not want to marginalize the risks here; this is GKK all over again (a company I once rode from $32 to $3). If you are mindlessly following me, you are in severe danger.

I’m probably right 60/40. That means I’m still wrong 40.

CAPEX budgets have started to reflect realities, for oil and gas development. That makes sense. If 20% reduction is to be extrapolated, no question we are about to watch many many names fold. The question is, are any of mine amongst them?

If the CAPEX cuts are handled skillfully, then producers will rally around a few favorite services firms, passing tough love judgment on the others, ushering about their ends. This is a normal occurrence, which we see in many industries that rely on suppliers/services firms.

If the CAPEX cuts are handled daftly, the entire E&G sector gets plunged into a black hole, and they don’t recover for a decade.

Let the game of chicken commence.

The Big Question Then: How To Play EU QE?

1,260 views

The Swiss bank just announced that the ceiling they have been maintaining against the euro is to be dropped. That would make sense, since the euro is now trading below 1.17, down from almost 1.40 just earlier. In terms of the exchange rate, that had to be getting very expensive.

But the timing here should be viewed as a sign that the ECB is really about to start QE. This should be the stance because if they don’t, the impact would be minimal, but if they do you can’t be on the wrong side of the trade.

In terms of what this QE will look like…well, that is the question. What is the ECB going to buy? Not public debt, surely. How much more financing can these governments stomach with yields already negative in many countries. Even the worst countries, like Greece, are borrowing at rates that an average citizen would envy.

My guess here is two fold: (1) they buy up private financial assets similar to the mortgage program the Fed had in place, but that it will center on short term bonds, while also working with banks to create a long term financing window (EU companies and banks in particular have notoriously short term financing arrangements) and (2) they take the opportunity to absorb whatever mechanisms exactly they have been using, before now, to hide the massive debt loads that should have been coming due over the past three years.

If you forgot, Europe ended up pulling some master BS, using a combination of trade accounts to gobble up the garbage so that the markets wouldn’t have to see it default. I’m hazy on the exact specifics, but I would gamble that those imbalanced accounts are still outstanding; and my guess is they’re about to get totally monetized.

So the big question now is, where do you park money? I think that it would be very stupid to try and be short right now with central banks making big noise and seemingly readying the cannons.

If this is like past central bank action, then any longs will do – equity, commodities, debt, whatever you like. Oil could get a huge boost since it’s been so ravaged. ECB action will give the Fed room to play, especially if deflation keeps up. Yellen is no Bernanke…yet, but she also hasn’t been tried either. If the Fed coordinates, all boats get lifted.

But the safest low key play is probably just to hug U.S. dollars until things are a little more clear.

I am ~78% cash, with positions in CCJ, BAS and VOC, down roughly 3% in the first two weeks of the year.

BAS Keeps The Lights On

931 views

Take this with a big grain of salt, as there is most definitely a tradeoff occurring here, but BAS just reported this morning that their rig count numbers were…unchanged. There was a drop in rig utilization but all other service numbers were higher than in November.

Now, BAS is about to get whacked hard on margins, as they had to offer steep discounts to customers to keep the lights on. Of course, trading at $6.00, it’s also hard to argue that apple’s not baked in the pie.

BAS is cutting deep and hard here. Their goal is to get expenses below $100 million, which basically gives them a few years of clean life. As long as they can break even (or even just restrict the pain to small losses), they’ll be staying in business.

I really do like this company quite a lot. I bought back much of my position in December, after going 100% cash and mentally picking myself up. So we’re having a little intermission? It’ll be alright.

BAS’ competition is dead. I don’t believe they’re in the same league and we’re about to watch the tide go out for many of them. What’s left will be a stronger industry and for the moment, I’m betting BAS will be a part of that.

BAS also announced they were buying back some stock down here. I’d say terrific but I think that’s mostly symbolic. BAS will need to conserve much cash to survive this.

Put 25% Cash To Work

379 views

Okay today is strong. There are dark spots, like the dollar and bonds. I know I said I would wait, but if I apply just 25% cash at these levels, I could get back to even quickly enough.

So I bought BAS, HCLP, and some VOC.

75% cash.

Cash To 50%

748 views

Something is just…wrong here. Isn’t it?

A supermarket chain in the UK dropped that much? Wouldn’t oil have helped them? Greece plunged 11%? The EURUSD is dead, plumming along at 1.24.

These are 2009 type moves we’re seeing here. I’ve been looking at each of these events in a bottle, because I was blind to the obscene money I was making. Taken together, they spell a rather dark picture.

I didn’t sell any BAS, just CCJ, VOC and HCLP. If we get a good relief rally, well…let’s just say, I’m skittish now.

Restructuring

689 views

Something had to be done.

It is December, so I cleared my head and made some tough choices. I sold completely out of AEC, ETP, and BTU. AEC and ETP are the only two positions I have that have held up (made money, really). I don’t want to part with them, but it’s the best move.

There will be immediate cries about selling winners and doubling down on losers. This is nonsense. I’m not doubling down on anything.

The sheer magnitude of this calamity has left me with an enormous, outstanding loss for the year. It’s December – no way in hell I can absorb that loss in less than 30 days.

The only way I can view this is as a window of opportunity to cash out my winners tax free.

Cash now stands at 25%.

I’m sitting on the cash. My preference, obviously, would be to deploy into a sector not at all tied to oil and gas. But if my worst fears come to fruition, that may not be a real thing.

Board Up The Windows

393 views

Some of you may say this carnage is contained in the energy sector. It is not. The selling is across all fronts of commodities, currencies, and being sustained by a rally in bonds. It’s time to stop dicking around and call it like it is.

The market is pricing in another recession.

The past week has been the most painful I have ever experienced. The idea that just a week ago, I was flat for the year is preposterous to me. But it is true. In one week, the market has gone completely insane. Or perhaps it sees everything clearly and I have the blinders on.

Let’s create a hypothetical recession and talk about it. What would it look like? I think it’s safe to say that it would be much less severe than 2009. Every recession cannot be the worst recession ever, that would defy the statistics. I would also say that the central banks would step in much faster and more forcefully. We are watching the total dismantling of business right now. If you aren’t winning, you are losing…badly.

If we catch a recession, I am guessing it would last no more than 8 months and set us back just a few percentage points in growth. A mild trough, setting up for a quick recovery. This is the best guess I can offer, looking at the historical distribution of other recessions, as no data has yet presented itself that the US is in a recession.

As for cash, I have decided not to raise any. But…and this is a big “but”…I do not trade for a living. I have a job. The money I manage on this site is my own money and I can afford to watch it go through 50% swings. My demise is spared simply by not having any margin and picking positions that don’t fold.

My greatest fear is that BAS gets dragged into bankruptcy. That would be tragic. Understand that I am betting against this, knowing full well it could happen. I do not want to marginalize the risks here; this is GKK all over again (a company I once rode from $32 to $3). If you are mindlessly following me, you are in severe danger.

I’m probably right 60/40. That means I’m still wrong 40.

CAPEX budgets have started to reflect realities, for oil and gas development. That makes sense. If 20% reduction is to be extrapolated, no question we are about to watch many many names fold. The question is, are any of mine amongst them?

If the CAPEX cuts are handled skillfully, then producers will rally around a few favorite services firms, passing tough love judgment on the others, ushering about their ends. This is a normal occurrence, which we see in many industries that rely on suppliers/services firms.

If the CAPEX cuts are handled daftly, the entire E&G sector gets plunged into a black hole, and they don’t recover for a decade.

Let the game of chicken commence.

Previous Posts by Mr. Cain Thaler