The Damage Was Done

1,528 views

Oil is bouncing nicely. God, almighty, take it back above $70.

But for oil and energy names it was too little too late. I am already at my 20% loss limit, getting carved up by those same energy names and down another 5% today. Oil did the trick; you don’t have energy services companies cut 50% in a single, short holiday trading session and not have follow through.

The margin calls are flooding in. If you were out in front of me, there is a very good chance you are already dead. If you’re alongside me, make no mistake I am afraid. It is only through sheer force of will that I haven’t buckled yet, watching a +25% year twist into a -20% year in the span of a quarter. Actually, I am not watching it too closely.

If oil can prove to have bottomed, we will correct sharply higher. I have been through pages upon pages of research reports, and all calls for further downside predicate on price action, whereas all fundamentals predicate on a return to higher pricing. However, if the oil price should be prolonged from recovery, the situation shall become most dire. For now, hedging and reality, I pray, show up in time.

As for those of you on the Twitter, talking about how obvious this move in oil was and how your service just absolutely nailed this move…choke.

I have the list of traders I follow that actually called this collapse, or at least have been on it from September. My name used to be there, but has since been scratched off. The list has dwindled to a small select number. You are probably not on it.

There was nothing easy about this move. Nor was it obvious in any way. It has spun far past rational into erratic. It has destroyed fortunes in the blink of an eye. It is deceptive by its very nature.

I implore you, if you follow such a person, making half-ass lazy references to such a move as this, to “fire” them. They are a dark voice in your mind, that will lead you to ruin. This move was hard; very hard. It was painful and emotionally draining. I may appear calm, but that is an illusion, spun from proof reading everything before I post. In fact, in the moment, I am nervous and weary.

Demeaning this truth with cheap talk is insulting. There is no method on Earth that could have absolutely caught the extent of this decline. People I know with barely a toe in the sector have lost 5%, just because. If you were diversified but enthusiastic, you’re down 10%. And if you were anyone actually invested in the US fracking boom, you lost 20-40%, inside of 3 months.

But if you can talk about that without batting an eye, you aren’t invested at all. And I know it.

Get Ready For The Second Leg Down

575 views

I had thought, before Thursday evening, that we were preparing to end this correction. I cannot in good faith believe that now.

The sheer level of devastation – and devastation is in no way hyperbole – that hit the tape Friday does not just flutter away. We are in pure panic mode, based on an as of yet still unseen enemy.

That I can’t see what is causing all the panic frightens me more. The only thing – the only thing – that even comes close to setting off alarm bells for me is the EURUSD and reports out of Europe. The market is trading like it’s 2010-2011 again. That actually makes sense to me. I had figured Europe’s troubles had been masked but not addressed.

But there’s not much data here to back up the fear. It’s not like European yields are blowing out again. The EURUSD is the only visible piece to the puzzle. There’s some churning GDP numbers as well. How can I sell out based on a single indicator and what is still just noise?

The oil blowout itself doesn’t make any sense. I spent the weekend reading through research reports analyzing the situation. The main takeaways are that oil could go a lot lower, no one thinks oil can stay a lot lower for long, no one saw this coming, everyone is pretending like they aren’t surprised by it, and sell everything just in case.

That’s crazy. I can’t follow that kind of logic. And that’s exactly why every worry presented is going to happen.

We are so far past logic on the road to crazy at this stage, it’s almost illogical bringing up logic at all. We just blasted oil 40% based on 5% excess capacity, the only second largest supply build in five years, a conspiracy theory, and a sneeze.

How can you possibly hope to plan for that!??

So here’s the deal; don’t follow me. I’m not your financial adviser, I’m a guy on the internet who’s trading his own net worth for real. And like a real person, I sometimes choose to do stupid stuff. Today, I’m deciding to hold my death basket a little longer. A wiser man, seeing the pack of lunatics closing in on him, might opt to retreat. But I just can’t; maybe I’m too tired of this nonsense to move.

When will I retreat?

I made (I can’t recall exactly) 25-28% last year. I’m down a little more than 15% right now. A complete retrace of 2013 puts me at (20%)-(22%) to breakeven. I’m willing to go there, back to last year, because that would be okay in my book. I’ve been buying most of my old positions back for far less than I sold out in August. Hell, I’ve been buying some of them back for less than I bought them in the first place…

Breakeven at 2013, and I’ll regroup. That’s actually not bad, considering I’d be way past that had I not sold down at the end of August. If we bottom between then and now, I’m still up for 2013, which would be kind of remarkable in and of itself.

My Worst Day In Three Years

1,783 views

Last night, following the second round of feasting, I took a minute to flip open my phone to see how the OPEC meeting went. Looking at the price of oil, I hit a sudden case of indigestion. That was when I knew how bad today would be.

And it hasn’t disappointed. My entire book is down 10% right now. I’m down almost 15% for the year. The energy & gas sectors are solely responsible for this slaughter, taking me from +25% to -15% in a quarter.

Jim Cramer wins, folks. This is brutal. But I’m going to hold fast through it.

I can’t believe that Saudi Arabia is actually waging a price war against the USA. Why the hell would they? We don’t even export, and don’t use barely any of their oil.

If I were Russia or Venezuela or an Iran puppet nation, I’d be looking at the Saudi’s with crazed, lunatic fringe conspiracies ringing in my ears. I don’t know who Saudi Arabia is trying to kill off, exactly. But the most prescient answer may just be “tomorrow’s oil and gas projects”.

The projects that are online now are set for a few years. Hedging has been erected to support them. None of my positions have seen any change in business – that’s the only thing keeping me sane and focused right now. I want to panic, but I just can’t yet.

Check out this report on oil in the Permian Basin (page 14). Average cost per barrel has declined to $55 per barrel. The $80-90 number only applies to new projects.

The average cost per barrel of the Bakken, Eagle Ford, and Permian formations together is estimated at $60 per barrel.

Business Insider posted this graphic awhile back (by Morgan Stanley) that breaks down the extraction cost per barrel (presumably as of 2013-2014, BI is notoriously horrible about leaving off critical information). You can see the first victims of the oil price decline are Arctic drilling and oil sands (read Canada).

You will also notice that North American shale is not so different from so much oil and gas production elsewhere in the world. Yes, the “average” cost of production is higher. But look at the band; it is contained inside the same maximum range as so much else of the world’s oil and gas production. After Arctic and oil sands plays get cut in half, the next round of production cuts will presumably fall fairly even handed, across the highest cost developments, globally. That hardly spells the end times of the USA fracking boom.

Here’s a supporting set of data from Business Insider, provided by Citi. This post is more interesting, because there is a second graphic that shows the cost of every international oil and gas project, by location.

All this trouble for what really isn’t even a problem in the first place. The EIA short term outlook for crude consumption vs. production shows what can hardly be called an issue – a million barrel a day surplus in historical context. The largest gains in the oil supply surplus came from the first two quarters of 2014. You can hardly call those unprecedented; we experienced a much worse supply shock back in the first half of 2012.

Also look at the historic unplanned crude shortages from the Middle Eastern countries (page 15). In the past year alone, half a million barrels a day came back online after having been unexpectedly dropped off. You can see the effect of two separate war times breaking out in Libya. Saudi Arabia is suddenly popping up. Add another country to the mix, or an expansion in lost production from one of those already on this list, and pretty quickly the million barrel global surplus is absorbed.

But the best blessing of all may just be the effects of low oil prices themselves. Globally growth has been terrible and Europe has been our poster child. But with the euro so low and cheap energy prices coming, we may just finally see old mother Europe do something…anything.

This is going to hurt very badly. I was too quick to add back to positions and far to willing to take on margin. But I’m going to stay calm, and wait to see what comes up next.

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

404 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

233 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.

Up For The Week, Somehow

198 views

The market may be down, but somehow I ended up a small sum. My account is up 3% today, erasing the nasty tumble I had play out over the past 48 hours.

I’m constructive in oil and energy names, but that applies more to energy services and complement plays than it does to pure oil bets. I’m also very adverse to deep sea drilling, because it’s expensive and easily priced out of competitiveness.

I’m getting excited about uranium for the first time in years. I’ve been enthusiastic up until now, but there was something missing. The fuel run is exactly what the doctor ordered.

Enjoy your weekend, my good man or lady. The 9th floor is closed for business, until Monday.

The Damage Was Done

1,528 views

Oil is bouncing nicely. God, almighty, take it back above $70.

But for oil and energy names it was too little too late. I am already at my 20% loss limit, getting carved up by those same energy names and down another 5% today. Oil did the trick; you don’t have energy services companies cut 50% in a single, short holiday trading session and not have follow through.

The margin calls are flooding in. If you were out in front of me, there is a very good chance you are already dead. If you’re alongside me, make no mistake I am afraid. It is only through sheer force of will that I haven’t buckled yet, watching a +25% year twist into a -20% year in the span of a quarter. Actually, I am not watching it too closely.

If oil can prove to have bottomed, we will correct sharply higher. I have been through pages upon pages of research reports, and all calls for further downside predicate on price action, whereas all fundamentals predicate on a return to higher pricing. However, if the oil price should be prolonged from recovery, the situation shall become most dire. For now, hedging and reality, I pray, show up in time.

As for those of you on the Twitter, talking about how obvious this move in oil was and how your service just absolutely nailed this move…choke.

I have the list of traders I follow that actually called this collapse, or at least have been on it from September. My name used to be there, but has since been scratched off. The list has dwindled to a small select number. You are probably not on it.

There was nothing easy about this move. Nor was it obvious in any way. It has spun far past rational into erratic. It has destroyed fortunes in the blink of an eye. It is deceptive by its very nature.

I implore you, if you follow such a person, making half-ass lazy references to such a move as this, to “fire” them. They are a dark voice in your mind, that will lead you to ruin. This move was hard; very hard. It was painful and emotionally draining. I may appear calm, but that is an illusion, spun from proof reading everything before I post. In fact, in the moment, I am nervous and weary.

Demeaning this truth with cheap talk is insulting. There is no method on Earth that could have absolutely caught the extent of this decline. People I know with barely a toe in the sector have lost 5%, just because. If you were diversified but enthusiastic, you’re down 10%. And if you were anyone actually invested in the US fracking boom, you lost 20-40%, inside of 3 months.

But if you can talk about that without batting an eye, you aren’t invested at all. And I know it.

Get Ready For The Second Leg Down

575 views

I had thought, before Thursday evening, that we were preparing to end this correction. I cannot in good faith believe that now.

The sheer level of devastation – and devastation is in no way hyperbole – that hit the tape Friday does not just flutter away. We are in pure panic mode, based on an as of yet still unseen enemy.

That I can’t see what is causing all the panic frightens me more. The only thing – the only thing – that even comes close to setting off alarm bells for me is the EURUSD and reports out of Europe. The market is trading like it’s 2010-2011 again. That actually makes sense to me. I had figured Europe’s troubles had been masked but not addressed.

But there’s not much data here to back up the fear. It’s not like European yields are blowing out again. The EURUSD is the only visible piece to the puzzle. There’s some churning GDP numbers as well. How can I sell out based on a single indicator and what is still just noise?

The oil blowout itself doesn’t make any sense. I spent the weekend reading through research reports analyzing the situation. The main takeaways are that oil could go a lot lower, no one thinks oil can stay a lot lower for long, no one saw this coming, everyone is pretending like they aren’t surprised by it, and sell everything just in case.

That’s crazy. I can’t follow that kind of logic. And that’s exactly why every worry presented is going to happen.

We are so far past logic on the road to crazy at this stage, it’s almost illogical bringing up logic at all. We just blasted oil 40% based on 5% excess capacity, the only second largest supply build in five years, a conspiracy theory, and a sneeze.

How can you possibly hope to plan for that!??

So here’s the deal; don’t follow me. I’m not your financial adviser, I’m a guy on the internet who’s trading his own net worth for real. And like a real person, I sometimes choose to do stupid stuff. Today, I’m deciding to hold my death basket a little longer. A wiser man, seeing the pack of lunatics closing in on him, might opt to retreat. But I just can’t; maybe I’m too tired of this nonsense to move.

When will I retreat?

I made (I can’t recall exactly) 25-28% last year. I’m down a little more than 15% right now. A complete retrace of 2013 puts me at (20%)-(22%) to breakeven. I’m willing to go there, back to last year, because that would be okay in my book. I’ve been buying most of my old positions back for far less than I sold out in August. Hell, I’ve been buying some of them back for less than I bought them in the first place…

Breakeven at 2013, and I’ll regroup. That’s actually not bad, considering I’d be way past that had I not sold down at the end of August. If we bottom between then and now, I’m still up for 2013, which would be kind of remarkable in and of itself.

My Worst Day In Three Years

1,783 views

Last night, following the second round of feasting, I took a minute to flip open my phone to see how the OPEC meeting went. Looking at the price of oil, I hit a sudden case of indigestion. That was when I knew how bad today would be.

And it hasn’t disappointed. My entire book is down 10% right now. I’m down almost 15% for the year. The energy & gas sectors are solely responsible for this slaughter, taking me from +25% to -15% in a quarter.

Jim Cramer wins, folks. This is brutal. But I’m going to hold fast through it.

I can’t believe that Saudi Arabia is actually waging a price war against the USA. Why the hell would they? We don’t even export, and don’t use barely any of their oil.

If I were Russia or Venezuela or an Iran puppet nation, I’d be looking at the Saudi’s with crazed, lunatic fringe conspiracies ringing in my ears. I don’t know who Saudi Arabia is trying to kill off, exactly. But the most prescient answer may just be “tomorrow’s oil and gas projects”.

The projects that are online now are set for a few years. Hedging has been erected to support them. None of my positions have seen any change in business – that’s the only thing keeping me sane and focused right now. I want to panic, but I just can’t yet.

Check out this report on oil in the Permian Basin (page 14). Average cost per barrel has declined to $55 per barrel. The $80-90 number only applies to new projects.

The average cost per barrel of the Bakken, Eagle Ford, and Permian formations together is estimated at $60 per barrel.

Business Insider posted this graphic awhile back (by Morgan Stanley) that breaks down the extraction cost per barrel (presumably as of 2013-2014, BI is notoriously horrible about leaving off critical information). You can see the first victims of the oil price decline are Arctic drilling and oil sands (read Canada).

You will also notice that North American shale is not so different from so much oil and gas production elsewhere in the world. Yes, the “average” cost of production is higher. But look at the band; it is contained inside the same maximum range as so much else of the world’s oil and gas production. After Arctic and oil sands plays get cut in half, the next round of production cuts will presumably fall fairly even handed, across the highest cost developments, globally. That hardly spells the end times of the USA fracking boom.

Here’s a supporting set of data from Business Insider, provided by Citi. This post is more interesting, because there is a second graphic that shows the cost of every international oil and gas project, by location.

All this trouble for what really isn’t even a problem in the first place. The EIA short term outlook for crude consumption vs. production shows what can hardly be called an issue – a million barrel a day surplus in historical context. The largest gains in the oil supply surplus came from the first two quarters of 2014. You can hardly call those unprecedented; we experienced a much worse supply shock back in the first half of 2012.

Also look at the historic unplanned crude shortages from the Middle Eastern countries (page 15). In the past year alone, half a million barrels a day came back online after having been unexpectedly dropped off. You can see the effect of two separate war times breaking out in Libya. Saudi Arabia is suddenly popping up. Add another country to the mix, or an expansion in lost production from one of those already on this list, and pretty quickly the million barrel global surplus is absorbed.

But the best blessing of all may just be the effects of low oil prices themselves. Globally growth has been terrible and Europe has been our poster child. But with the euro so low and cheap energy prices coming, we may just finally see old mother Europe do something…anything.

This is going to hurt very badly. I was too quick to add back to positions and far to willing to take on margin. But I’m going to stay calm, and wait to see what comes up next.

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

404 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

233 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.

Up For The Week, Somehow

198 views

The market may be down, but somehow I ended up a small sum. My account is up 3% today, erasing the nasty tumble I had play out over the past 48 hours.

I’m constructive in oil and energy names, but that applies more to energy services and complement plays than it does to pure oil bets. I’m also very adverse to deep sea drilling, because it’s expensive and easily priced out of competitiveness.

I’m getting excited about uranium for the first time in years. I’ve been enthusiastic up until now, but there was something missing. The fuel run is exactly what the doctor ordered.

Enjoy your weekend, my good man or lady. The 9th floor is closed for business, until Monday.

Previous Posts by Mr. Cain Thaler