iBankCoin
Stock advice in actual English.
Joined Sep 2, 2009
1,224 Blog Posts

Breakeven For The Year…

You have to be kidding me with this right now.

I just went from a plus 20% year to flat, in the matter of a few short weeks. This blow up in the oil sector is vicious. It is the legacy of the collapse this spring – the tech debacle’s bastard twin. I can only look on in a state of minor shock, watching this unfold for…really no particular reason.

Some people just woke up one morning and said “I think billions in market cap should vanish”.

Then they did.

There is no data driving this. The Fed data is not showing a slow down. Europe data is as bad as ever…but no worse. Oil demand estimates have been revised lower…to a still larger number.

This near total collapse is being fed by the end of QE, a half cocked conspiracy theory concerning Saudi Arabia and the Russians, and fear.

And it is getting so bad, the sector is actually at risk of sustaining real damage, should the hearts of energy producers seize. What is at stake here is nothing short of the US recovery, all thanks to some investors getting wobbly legs.

BAS is trading back in the $16 range. HCLP is a $40 stock again. Are you joking? To the best of my knowledge, both of these companies has not seen a single cancellation of business. Actually, contractually, HCLP cannot see such a thing, unless their customers all go out of business.

The only word that even adequately describes what we are seeing is – panic.

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Margin

Watching the oil market today was simply too stupid for my brain to handle. It is ground zero of a frenzy that is being fed by the weak. This is the time when predators should be having an all you can eat Retail Trader buffet.

In that spirit, I dipped into a 5% margin balance, this being for the first time in years.

I added to HCLP for $41.32.

I bought more BAS for $17.76.

And then I threw some VOC on top for $10.90.

It is incredible – indeed almost unthinkable – but I have gone from being up more than 20% this year to gains inside of 5%.

Now is the time to press the envelope.

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The Entirety Of The Saudi Arabia Rumor Is Complete Hogwash

There is a tale floating around that Saudi Arabia is somehow single handedly collapsing the price of oil to destroy Western reserve development. And it is total nonsense.

Reports last month show Saudi Arabia is actually cutting production to maintain pricing.

Meanwhile, Saudi Arabia, the biggest oil producer in the Organization of the Petroleum Exporting Countries finally appears to be responding to the lower demand outlook.

According to the IEA, Saudi Arabia cut its oil output by 330,000 barrels a day last month, apparently in response to lower demand from its customers and a shift in the oil producer’s focus toward Asian markets. The Kingdom’s oil exports are likely to have run below 7 million barrels a day for the last four months, their lowest level since September 2011, as domestic consumption ratcheted up over the summer and supply to the U.S. fell, the IEA said.

I would have called bull on this sooner, but I was a little out of the loop and figured the oil selloff was just a correction anyway.

As for demand concerns, IEA reports have demand for oil growing every year for the foreseeable future. They cut the steepness of this growth and now there’s a jockeying move in markets to price out certain projects. But correcting the plunge in oil is going to be as easy as some field development getting publicly mothballed.

There is absolutely no credibility to this tall tale. Saudi Arabia is not going to be able to single handedly destroy the Bakken’s. They probably wouldn’t want to anyway. The US fields need expensive oil to justify development. Expensive oil plays directly into Saudi Arabia’s hand, since they have very low cost extraction.

If Saudi Arabia insists on meeting the demand that the US fields otherwise would have provided, they’re going to do so at a price per barrel closer to $60. Up until recently, they were getting $100 just by leaving some room on the field. That means Saudi Arabia was getting the same revenue for almost half the production levels, geniuses.

What do you think that does for Saudi Arabia’s oil field life expectancy?

The Saudi’s need the fracking oil because it justifies high prices. High prices buy Saudi Arabia vastly more time. Saudi Arabia would be stupid to try and beat down newer methods of extraction because they would exhaust themselves quicker and ultimately those sources would just come back on line anyway down the line.

Hmmm…step aside for newer extraction methods, get the same revenue for half the effort (weighs the one hand)…try and physically drive these methods out of business, exert double the effort with nothing extra to show for it (weighs the other).

Quit trying to be so cute with these conspiracy theories. Jimmy can go fuck himself.

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Added To NADL

I put another 5% into NADL for $6.51. Now NADL is a full sized position.

That’s it boys; fully invested here with a small single digits cash position.

If we go much lower, I will consider playing with margin, but that is like a 1987 style event.

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A Lone Bright Spot

Somehow, in the midst of all that is terrifying and sad in today’s stock market, ETP is a singular beacon of hope. I don’t understand how, but ETP is still making new highs.

They are a terminal company for energy products, so lower oil prices helps them. But if we were really on the precipice of something horrific, don’t you think demand concerns would hit them also?

Or perhaps ETP is just that needle in the proverbial haystack?

I am going to go out on a limb and say we are not about to experience another major meltdown of the magnitude of 2008/09. I believe the Federal Reserve is currently “all in”. They could not tolerate such a decline as it would undermine their entire authority as central bank. The Keynesian line simply cannot lose on such a big test of their expertise. It would be the end of them.

So in that respect, I believe financial markets would continue to have a permanent bid under them. If commodity prices are allowed to get too low, government tax receipts would fall and debt burdens would become untenable. It’s not enough to have a recovery; people have committed to a recovery where more dollars trade hands for goods and services, not fewer. It’s a completely arbitrary distinction, but important now nonetheless.

Besides, when I look through the operations of many of these energy names getting dismantled…they’re fine. I don’t see huge slowdowns materializing or cash problems or even demand problems. Unless this is still winding its way down from the manufacturing and consumer sectors and hasn’t appeared yet in the actual energy names?

It’s possible but I’m putting my chips on the table. I think this blows over. We will probably have a nasty correction, because of bad bets in market valuations. But by and large I think we just stumble through this and work our way back to new highs.

What has surprised me is that I can still find positions I want to buy. It’s not like I’m going out there and coming up empty handed. There are still plenty of good companies reasonably priced. You just need to filter the high flying tech and low yield financial product crap off your screen to find it.

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Two New Positions: NADL & SXCP

Yesterday I started two new positions at 5% of assets each. They are NADL and SXCP.

NADL is a deep water drilling company that is coming into serious Russian money later this year, and I am effectively betting that the world does not wage sanction war when it comes to oil. My price for NADL was $6.29.

SXCP is involved with the nice clean process of manufacturing coke for metallurgy. They are just a good value buy. My price for SXCP was $28.98.

While it would have been my preference to tell you yesterday that I initiated these positions, it was not sadly within my time constraints.

Cash position stands at 8%.

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