What A Wonderful Day

I am 70% long, and this is what my day looked like:

BAS +12.61%
CCJ +7.56%
HCLP +3.42%
ALDW +1.99%
VOC +1.76%
TIS +1.48%
OMAB +0.70%

It’s difficult to scoff at a day like that.

Yes I am still down from 2014. I have no desire to hide behind spin. 2014 was a horrible year. But as I said to those of you asking why I was still hanging around BAS, it was because BAS had 100% of upside…at least. And now here we are, closing in on $10 from $5.

I like all on the list. I’ve carefully vetted these positions and wouldn’t it be something if it was these same positions that ultimately redeemed me? I’m not wedded to the thought (for fear it will kill me) but it’s certainly quite possible.

As a token of goodwill and affection, I have decided to hand out a free page from the Income Investment Report.

Feel free to click on the link to preview the research behind my ALDW position. Unfortunately, not all of the functionality will be operational, but that is the penalty of free.

To see the report in all of its raw glory, sign up for the service.

I have a working theory that the EURUSD move precipitated the collapse of oil prices (and the strength of the dollar against other currencies more generally), with the currency move starting at the beginning of 2014 and finally being brought to a head in oil prices in the second half of the year.

It is difficult to fully disentangle the parts because everything is so complex and we cannot fully rule out that oil demand is or would have been soft without the dollar strength. Perhaps it would have been regardless.

But seeing the EURUSD fall while oil bids hold up is encouraging, as it at least breaks the conventional trends that have held so well for nine months.

One thing that does strike me; if currency exchanges were the primary cause of the disruption, then you can expect the pricing swing to correct itself abruptly either when those exchange moves halt or, possibly, just because a majority of the damage escalating from the move has been absorbed or priced in and so the continuation of the cause has a diminutive effect going forward.

For the moment, euro-dollar parity feels like a forgone conclusion and it also seems that oil traders have made their peace with that. But maybe it is too soon to tell.

OMAB operations continue the ascent as traffic in March rose 22.9% year over year. Total traffic in the first three months of 2015 compared to 2014 rose 17.5% across domestic and international travel. This compares to February passenger growth of 17.0% with total traffic growth in the first two months of 14.5%. January traffic growth, 2015 from 2014, was 12.2%.

OMAB is on fire right now, and the name is on nobody’s watchlist. The stock is in a long uptrend and still cheap. It’s paying out over 7% annually, which in this interest rate environment is some sort of crime.

I cannot wait for the next quarterly earnings report. It is going to be gangbusters.

9th Floor, out.

The inventory build in oil was about three times greater than what the market was expecting. Oil prices slid fast throughout the day and the sector by and large reversed the recent move. But going into the final hour of trading, there does seem to be some minor strength ticking up. BAS notably was flat just about an hour ago and could tread water some more.

My guess: oil returns sub $50 for a spell and weak players get slapped around some more until someone finally closes shop. The inventory builds are big but the overall market imbalance is much less so, in the grand scheme of things. US inventory is building rapidly but only partially due to overproduction. Recent currency moves have contributed to the problem by trapping US crude with uncompetitive manufacturing and refinery businesses behind an export barrier, which is why oil companies are banging the drum so loudly on crude export rules. My guess is that at least half the build is probably from dollar strength pricing US competition out of foreign goods markets.

There is no reason to think the Fed will just sit by while the US economy slides into a recession. They’ll have to defend the dollar at some point (or what do you call intentionally making it weaker anyway?). But in the meantime, things could get rough. Oil majors are only halfheartedly looking to fix the problem; they’d really like to gobble up all the small competition for pennies on the dollar first to keep their proven reserves stacked. So yeah this could get worse before it gets better.

Still, I’m thinking now is a perfectly good time to start building positions in known survivors. The majors themselves are cheap, given how huge they are and that they aren’t going anywhere. Everything that made oil majors a crappy investment when they had a premium attached makes them the perfect choice now that they’re going for no premium. If you pick the right foreign oil major, you can even get paid in non-dollars and – God help us when the Fed finally delivers a weaker dollar – make a second strong killing on the exchange back into the US.

Thank you for a wonderful week and best wishes to you and your family from here in the 9th Floor.

As the summer weather sets in, as much as it pains me to do so, I simply must insist you spend a little less time here. Check in once a day, but no more. You are excused to spend all day loitering about my office in rain showers.

Life is short friends, so free yourself to enjoy it.

I made just one move this week, buying ALDW. I have also identified a position which I may short, either directly or synthetically. I’ll decide next week what I want to do.

The next issue of the IIR will be out this weekend. Make sure those of you who are paying members check in to collect your issue. You can reach me either on my wall or at [email protected].

Want to become a paying member? Simply click on the link to the Income Investment Report and follow through to receive 100 analyses per year over quarterly installations. We detail which high yielding positions you should and should not be buying.