Archive for the ‘Oil’ Category

Unless you’re short — and other than the great St. Patrick’s Day holiday where we all get to be green — not many silverlinings these days.

Except one big one:  The planet Earth is happier.

Maybe shutting down everything will give the planet a chance to breathe again?

After all, in terms of our stewardship of Earth, we’ve all acting like kindergarteners…

… so it’s fitting that the solution to climate change might very well be a global time out! 

Everyone is weighing in on Coronavirus prognostications.

I will try to keep mine to just the ones I feel are fairly unique.

My theme?  We couldn’t be better prepared for exactly the crisis we’re going to be going through.

*  This isn’t like the last two great crashes.

The 2001 “Dotcom Crash” was based on massive valuations with zero profits — and in many cases, zero revenues.

The 2008 “Great Recession” crash was based on artificially pumped up real estate prices, not real productivity gains.  (It was also exacerbated by skyrocketing oil prices, due to political, not fundamental, issues… and had twice the unemployment we have now.)

Whatever we’re calling 2020 — The Corona Crash? — we’re starting with real businesses, with real revenue growth, making real profits, involved in real productivity gains, historically low unemployment, and extraordinarily low oil prices.

In other words, we’re already starting with a much stronger hand.

*  Ironically, many of the productivity gains of the last decade involve remote technologies, i.e., letting employees work from home, ordering pretty much anything online, and, as important, socializing from a far.

So, in many ways, the last decade or two has been great practice for this exact situation:  Remote working, remote living, and social distancing.

*  Not only are the remote technologies in place, but the entire millennial generation prefers to socially distance.

Half the time millennials have their heads buried in their phones — even when they’re sitting right next to each other.  So do you really think they care whether they’re in the same room or a different state?  Not at all.

*  While older generations panic about bailouts and handouts and such, the entire millennial generation knows nothing but bailouts and handouts.

So do millennials think we’re in a crisis?  Absolutely not.  Feels pretty normal to them, like it’s just something we go through every once in a while.  What’s the fuss?

*  And finally:  The market needed to be popped.  Markets aren’t supposed to go straight up, like they did almost the entire month of February.

So we’re down 20%?  I can easily make the case we were 30% overvalued.  Because markets aren’t supposed to go straight up.

I’m not saying it’s not going to be rough, but I am saying we seem to be particularly prepared for this crisis.  It’s like a lot of what we need to do is already done.

We’ll see.

There’s a lot of noise in the market.

But there’s usually a lot of noise.

By definition — at any point in time — 50% of people think there’s enough bad in the market to sell their shares to the other 50% who thinks there’s good.

Can’t have a market otherwise.  That’s why I always scoff when someone refers to “easy” trading periods.  It’s never easy.

What helps guide you through the noise is whether your fundamental investment thesis is still intact.

Is mine?  I think the two biggest drivers of corporate profits — which drive the market — are the price of oil and interest rates.  Let’s see where they stand:

* While oil took a little run to the upside, I wouldn’t call it misbehaving.  In fact, it’s shed much of its 2018 gain

* Interest rates are spooking everyone… but 10-year is sneaking back down… and Trump’s on fire about the Fed messing things up — so much so that a few Fed governors have had to reiterate that they won’t, uhm, mess things up (i.e., “will still be accommodative for quite a while”)

* Sentiment is negative.  While that’s not comfortable, as a contrarian I prefer this

So, for me, at least right now, the noise is… just noise… and what we’re seeing is some healthy “letting some air out of the balloon”… which we like… so it doesn’t pop.

 

P.S.  A great example of “noise” was Caterpillar earnings.  They beat top & bottom line.  But everyone was fretting about China and tariffs… and the stock got pounded… even though if you read their commentary, you find CAT itself wasn’t so worried about the effect of China or tariffs on its business.  Here’s some commentary from their 10/23/18 earnings call:

* CATERPILLAR SAYS FEEL GOOD ABOUT EQUIPMENT DEMAND IN CHINA NEXT YEAR

* CATERPILLAR SAYS EXPECT BUSINESS TO CONTINUE TO IMPROVE IN 2019 VERSUS 2018

* CATERPILLAR SAYS CONTINUE TO EXPECT INDUSTRY SALES IN CHINA FOR 10-TON-AND-ABOVE EXCAVATORS TO BE UP ABOUT 40 PERCENT FOR THE FULL YEAR

* CATERPILLAR SAYS EXPECT IMPACT OF 25 PERCENT IMPORT TARIFF ON ADDITIONAL $200 BILLION CHINESE GOODS TO BE ‘QUITE MINOR’

These are all good things, right?!

For some reason, I thought shale was invincible… that is, a technology-enabled, found source of additional oil for many decades into the future.

But I just read a ZeroHedge piece — The Shale ‘Miracle’ & The Reality-Optional World Of Bizarro Finance — and apparently shale isn’t going to be the grand savior after all.

The two original big shale plays, the Bakken in North Dakota and the Eagle Ford in south Texas, have now apparently peaked and the baton has passed to the Permian Basin in west Texas. If the first two bonanzas were characteristic of shale, we can look forward not very far into the future when the Permian also craps out. There are only so many “sweet spots” in these plays.

The unfortunate part of the story is that the shale oil miracle only made this country more delusional at a moment in history when we really can’t afford to believe in fairy tales.

Let’s not give up on renewables quite yet!

 

I kinda grew up with Ron Insana, back when he was a news anchor with FNN (Financial News Network)… that eventually become CNBC.  My wife (girlfriend at the time) often remarked that he was our morning alarm clock.

He wrote an editorial today about Trump and pollution and the Paris Treaty that I think is spot on.

It’s short and worth reading, but there’s one point he makes that I often use myself:

Ron said it like this:

I am not a “tree hugger.” I don’t have the necessary scientific background to claim expertise in this area. I don’t know if the changes we are seeing are the result of natural cycles that occur in geologic time, or if they are governed by solar cycles, or are, as many worry, anthropogenic (caused by humans).

To me, it doesn’t really matter. It seems obvious that whatever the reason, we, as humans, should act responsibly when it comes to the care and cleaning of our habitat.

Bravo, Ron.

I like to say it like this:  I don’t care if global warming is real or not… who the hell wants to live in smog-infested cities like LA and Beijing?

It scares me that OPEC is so quiet.

OPEC countries usually love to grab the spotlight during big meetings (and the media loves to shine the spotlight on anyone that looks anywhere close to being an oil minister!).

That’s not happening for the big confab tomorrow, though… where everyone universally believes OPEC will extend their production cuts.  After all, the leading OPEC members said as much in a press conference on Monday.

Quiet is a bad sign… as is the Middle East unanimously agreeing on anything.

Could there be some hugely negative surprise tomorrow?

There have been little chirps here and there about Iran (the #2 player in OPEC) not wanting production cuts to apply to them…

… but nothing disruptive.  Indeed, everything seems civilized… which is a word not many would associate with the players involved.

Unbelievably, I think there’s a really good reason why OPEC may be in agreement:  The production cuts seem to be working.

Crude oil is trading about 15% higher than before the production agreement was announced last Nov.  Maybe more significantly, it dramatically changed the trend line.  Before the announcement oil was spiraling downward, everyone (there’s that “universally” thing again) was sure it would soon be trading in the 30’s.  OPEC’s agreement seemed to single-handedly stop the decline in its tracks…

… and there in lies the major motivation for cooperation:  Oil in the 50’s is a lot better than oil in the 30’s.

Guess we’ll see how it plays out in the next 24 hours or so.

 

OPEC Games?

Posted: May 22, 2017 in Business, Farros, Oil, OPEC, Royal
Tags: , , , ,

To say the oil market is sensitive to news coming out of the Middle East is an understatement.

In November I wrote, “If I Were A Bad (Oil) Guy“… essentially wondering if countries in the Middle East might be jerking oil markets around on purpose to earn a little side money.

Guess we’ll find out this week… there’s another very big meeting on Thursday… and while everything seems quite hunky-dory right now… it will be interesting to see if anyone tries to upset the oil cart this week.

Stay tuned.

P.S.  It’s quite possible that something like this already happened… UWT (which tracks crude oil 3x) was trading just under 23 about a month ago… about two weeks ago it his just above 13.50… that’s a pretty sizable drop in such a short period of time.