Thursday, December 28, 2006

Ah, breaker one-nine, this here's Rubber Duck...

What the heck happened to the Convoy?

ATA: ATA Truck Tonnage Index Plummeted 3.6 percent in November.


“November 2006 marked the single worst month for for-hire truck tonnage since the last recession,” said ATA Chief Economist Bob Costello. “Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesn’t make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.”


All jokes aside, the peak in truck tonnage was around January of 2005 [see chart on linked page], which is a few months before the housing situation reached it's own climax. The downtrend from Jan 2005 to now is pretty clear, and the recent numbers don't suggest a near term turnaround. Focusing on energy, in addition to the fuel that trucks themselves burn, the fact that there is less truck traffic (less trucks hauling stuff) also indicates that the economy is cooling down. The economy cooling down means less demand for energy, which generally means energy prices would fall. Of course, OPEC wants $60 and is trying to hold it there with production cutbacks. 2007 is going to be very interesting.

Look's like we got a bit more to worry about than some Smokies.

Hat tip:

The Big Picture: Truck Tonnage Plummets.

Wednesday, December 27, 2006

Shark Bait 2007.

CNBC had several interviews today discussing the future for energy in 2007, the upside for select energy stocks, and the possibility of takeovers.

I've heard speculation over a takeout of Suncor (SU) before, and Tim Guinness (manager of the Guinness Atkinson Global Energy Fund) mentions it in the first video, but it doesn't strike me as likely. How can we determine an acceptable value for Suncor's 30 years of reserves? There aren't futures that far out; thirty years of production even takes you past CERA's peak and into their fabulous 'undulating plateau'. The value a purchaser could justify for Suncor would probably be unacceptable to Suncor stockholders, and a value acceptable to Suncor shareholders would probably be unacceptable to a purchaser. So I don't see it, personally.

In the second video, the analyst highlights 6 stocks he believes have significant upside. He mentions Occidental Petroleum (OXY) as a possible takeout candidate. I was daydreaming the other day and came up with the idea that Royal Dutch Shell should do an Anadarko and purchase both OXY and Nexen (NXY), which was once Canadian Occidental. That's probably a bit more bold/big than Shell is looking for. Husky Energy might be more Shell's style. I expect ExxonMobil to jump in to, but not until a whiff of recession is in the air, and I'm thinking XOM takes out either Devon (DVN) or Anadarko (APC).

Other names mentioned are Ultra Petroleum (UPL), CNX Gas (CXG), XTO Energy (XTO), EOG, and Range Resources (RRC).

CNBC Video: Tim Guinness

CNBC Video: Oil Patch Plays 2007

Goldilocks, meet Baby Bear.

I'd frankly never heard of this gentleman until about 4 or 5 months ago when I saw him on CNBC. His name is Hugh Moore, his firm is Guerite Advisors, and he appears to be gaining more notice in the press with his predictions for a mild recession in 2007 based on a model that he believes can predict recessions with very high accuracy rates. Mr. Moore claims the model has predicted recessions over the last 50 years with very few false alarms. It's not explicitly mentioned here, but I assume the model was developed with back tested data, which raises the question of whether the investigator just kept playing with the data until they got something they liked, which can lead to some questionable conclusions.

According to this interview, the data that go into the model are the inverted yield curve, housing construction rates as a percent of GDP, leading economic indicators, and their own in house indicator, 'the Guerite indicator', which he doesn't elaborate on further.

The interview is short, but his prediction is for a mild recession coming in mid to late 2007. Of the predictions for an upcoming recession, I would say this is one of the milder ones and one I find easier to mull over than the fairly dark views of people like Nouriel Roubini or, even more depressing, Warren Brussee.

CNBC Video: Hugh Moore, Guerite Advisors


"We don't believe in the soft landing, but then we also don't think that the world is going to hell in a handbasket either."

Friday, December 22, 2006

They Shoot Journalists, Don't They?

So, the inevitable happened, and Shell and it's Japanese partners caved in and let the Russian government Gazprom buy a stake in Sakhalin 2. Basically, they had absolutely no choice.

If you ask the Russians, they will say that the West took unfair advantage of them when they were down, and that now these deals will be renegotiated, one way or the other. And to some extent, these events are not a huge surprise, as this Russian re-nationalization of it's resource industry is just another in a fairly long line of re-nationalizations that have happened in resource rich countries.

The scary part though is that at the same time this is happening, other unsettling events are occuring inside and outside Russia, including a takeover/intimidation of the media, murders/intimidation of prominant opposition members, etc. It is basically the Wild West there, and the danger is that something spins out of control at some point, and you get serious foreign capital flight as a result. And with the general popularity of emerging markets these days, you have to wonder if something were to happen in Russia, would it trigger a more widespread sell off in emerging markets in general?

A year ago I suggested Gazprom was worthy of a speculative investment and the stock has gone up since then. There is probably more upside to this stock in the future and to Russia in general.

But seriously here: caveat emptor.

New York Times: Russians Buy Control of Oil Field.

[Note the article headline says "Russians" and not "Gazprom" in a sly reference to the fact that Gazprom is basically an instrument of the Russian government.]


Gazprom, the Russian energy monopoly, bought control of the world’s largest combined oil and natural gas development Thursday after a highly publicized campaign of pressure on its foreign operator, Royal Dutch Shell.

Shell’s sale of 50 percent plus one share followed months of accusations against the project by a Russian environmental regulator — a problem that President Vladimir V. Putin, in announcing Gazprom’s entry, said would now most likely be resolved.

Critics of the sale called it the first effective nationalization of a large foreign oil or gas project in Russia, which this year surpassed Saudi Arabia in oil production.

Tuesday, December 19, 2006

Smokey the Bear says: "Only you can prevent portfolio losses."

The stock market has a tendency to zig when everybody expects it to zag. This is partially due to the fact that when everybody is optimistic, usually they have already invested most of their money, leaving them with less new cash to invest. At the same time people tend to be most optimistic on the stock market after a period of steadily rising markets. But that may well be at a time when stocks are priced fairly richly, due to the rising market. People tend to turn most bearish on stocks after a period of steadily falling stocks, which because of falling stock prices, turns out to be the time that values are low or reasonable.

Thus, the fact that the top market strategists are uniformly bullish is...?

... a warning sign.

Bloomberg: Stock Strategists Raise Alarms With Call for Rally.


Strategists at 12 of the biggest Wall Street firms agree that U.S. stocks will rally next year. The last year that happened was for 2001, when the Standard & Poor's 500 Index dropped 13 percent.


``People are bullish, and the strategists are too,'' Bernstein, 48, said in an interview. ``We all are.'' The New York-based forecaster expects the index to reach 1570, up 10 percent from its current level, in the next 12 months.


``I'm an old believer that when everyone believes something is going to happen, the opposite happens,'' said David Kotok, who oversees $850 million as chief investment officer at Cumberland Advisors Inc. in Vineland, New Jersey. ``That causes me concern because I'm bullish too.''


I leave you with the wisdom of Warren Buffett:

"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

Saturday, December 16, 2006

Turn-ons: Hydrocarbons, my G4, honesty, brunettes.

Ah, okay, so that last one is mine. But whoa boy, am I a little nervous right now.


Well, first up, the Playboy interview in the January 2007 issue [link good only till they update with next month's issue] is with Boone Pickens. (Along with, natch, a cover of Pamela Anderson. Do we need to see any more of her? No.) Boone Pickens is of course these days probably the most familiar mainstream proponent of peak oil, as well as the head honcho of several very successful hedge funds focused around energy.

Secondly, the January 2007 issue of Bloomberg Markets magazine has a cover shot and profile ['Macro Man' - pdf warning] of my other favorite hedge fund manager, Peter Thiel, who's performance has also been remarkable over the past few years, and naturally his peak oil views are mentioned in the article.

Okay, so it isn't quite like Time Magazine picked James Kunstler for Man of the Year or something, and it's not on the level of the famous BusinessWeek cover proclaiming "The Death of Equities", or even the Economist's cover in 1999 predicting $5 oil as far as the eye could see.

But when two major media outlets pick up on our two favorite fund managers and prognosticators simultaneously after both having had a significant period of out performance under their belts, wow, it's really got to raise your contrarian hackles something awful. The herd, my friends, is gazing our way with a longing sort of look. We can only hope they get distracted by Miss January, who, interestingly enough, has the word "Respect" tattooed right over her.. Well, I'll leave that little detail to be uncovered in your research. Remember folks, since it's all about your investments, it's not only tax deductible, but you can actually justify it to the wife.

What does it all mean? Maybe nothing, maybe something. Keep an eye out. Stops in place. Discipline rules.

[Sidenote: Oddly enough, reading the Bloomberg profile, I discovered that Peter Thiel and I share a similar background. We were both born in Frankfurt, he in 1967, I in 1966; his family moved a lot, and he attended 7 elementary schools in different countries, similarly, I attended 5 elementary schools in assorted countries; he eventually settled in San Francisco and attended a local college (Stanford), I eventually settled in Los Angeles and attended a local college (UCLA), he drives a Mercedes McLaren SLR, I drive a... okay, so we diverged a little bit somewhere in the middle.]

I leave you with the contrarian wisdom of Groucho Marx:


Thursday, December 14, 2006

OPEC: "No more Mr. Crooked Guy."

OPEC has preliminarily agreed to a further oil production cut of 500,000 barrels a day starting in February, on top of an earlier agreement to cut 1.2 million barrels a day. Apparently, they mean business on the idea of a floor of roughly $60 a barrel or so. (Most OPEC oil sells at a discount to light sweet oil like WTI, so whatever price is being bandied about in the press, most OPEC producers are seeing something several dollars below that.)

Traditionally, an output cut from OPEC was treated as a joke because there was so much cheating. (Highlighting, by the way, the lack of reliable production statistics from around the world.) However, according to the article below about two thirds of the earlier cut has been implemented, and so we are talking about meaningful amounts of oil production being pulled from the market.

I see people interviewed regularly on various business programs who say "Hey, there's too much oil, it's going to $50. (or $40 etc)." They seem to be ignoring the fact that OPEC earlier this year clearly stated it wanted $60 and that this time, they have the means and apparently the will to hold it there.

CNBC: OPEC Agrees to Cut Oil Ouput In February by 500,000 Barrels a Day.


OPEC ministers agree the market is oversupplied -- stocks in the U.S., its top consumer, are the highest since 1998 for the time of year -- but some fear cutting during peak demand could drive prices further above $60 and hurt consumer nations.

The opinion of leading exporter Saudi Arabia is key in determining OPEC output policy. Oil Minister Ali Al-Naimi told reporters on his arrival the market was in better shape than when ministers last met, at October's emergency talks.

"The fundamentals of the market are much better than they were in October," he said, adding: "We probably have a little work to do to make it an even better, more stable market."

"We have to work together as a team," Naimi said. "We have done well so far, we may have to do some more."

U.S. Energy Secretary Sam Bodman and International Energy Agency head Claude Mandil have called on OPEC to wait until next year before deciding on further supply reductions.

A delegate from one of OPEC's Gulf members said there was a strong case for holding fire. "No cut, compliance -- this is the view up until now from the Gulf members," the delegate said.

Wednesday, December 13, 2006

Gazprom issued License to Kill.

Deals, that is.

Wow, fascinating statistic from the below CNBC video: 78% of the top energy executives in Russia are ex-KGB.

And we thought the Cold War was over. Nah, it just took on a whole new meaning.

By the way, watch Mr. Shuvalov (a senior economic advisor to Russian President Vladimir Putin) being interviewed here closely. He expresses himself pretty clearly in this video.

CNBC Video: From Russia, With No Love.

Which is why I find the following interesting: When interviewed by Forbes magazine, Mr Shuvalov answered a question about ExxonMobil's status in Russia in a somewhat ambiguous way, if you ask me. Well, let's hope Rex Tillerson [ExxonMobil's CEO] is current on his pledges to the St. Petersburg ballet. [Not that they need any money over there, it just pays to hang out with the right crowd.]

Forbes: Russia's Western Strategy.


Q: I'm interested to hear you had such positive interactions here. A lot of people are troubled about Russia's role in the oil and gas sector--and that worry is increasing. From an investment perspective, Lukoil, TNK-BP, we're starting to see government influence.

A: Government influence in these companies?

Q: There's discussion that TNK-BP is going to be forced to give up the [East Siberian] Kovykta field. Lukoil is doing business with Gazprom. Within that context, following what happened in Ukraine, people are starting to worry.

A: TNK-BP and Lukoil, they have nothing to do with government influence. We welcome [Lukoil's] partnership with the American company ConocoPhillips. If [Lukoil has] other partnerships to exploit something new, not existing ones, it's OK. To be honest, it's a kind of nonsense. There is no government influence or interference in their business.

It's true we're working with Lukoil and Rosneft and Sakhalin and others--they were told by environment agencies to fulfill environment laws. But not the business as a whole. Again, for me, TNK-BP and Lukoil, they're completely private companies. I know the investors and the management of the companies pretty well.

There is a lot of speculation that the Russian investors of TNK-BP are going to sell the shares. It's not true. I spoke with [majority shareholders Victor] Vekselberg and [Mikhail] Fridman. Their position is that they are strong, long-term strategic investors. They are not giving up; they don't want to sell their shares. They think that the value of them is growing also. There were a lot of articles about possible change in investors, but it's not true.

Q: What about Lukoil? Is ConocoPhillips' stake safe?

A: [Looks surprised.] I think so. Why not?

Q: What is it you think we don't understand?

A: For you, I think in general Russia is an unpredictable partner. Whatever you get from my country, any kind of signal, you would like to interpret it in a negative way, because you don't understand what's going on, so any kind of information for you is bad, first, and then you would like to find justification for better things. But we may have mismanaged our explanation of what we aimed at the beginning, why we raised the gas prices, why we behaved like this with Sakhalin and everything else.

But again, we support the principles outlined in the G-8 strategy first, and we internally changed our plans for energy strategy. And we announced plans for growth to raise gas prices by 2011, to build new coal power stations. Everything is changing in Russia--and changing toward a positive scenario.

If our Western clients and consumers would like to get enough gas on time, they need to understand we need cash to maintain the reserves and exploit the fields. It's our commodity, and we would like real cash for that. We would like to be seen--and we will be pursuing this--that Russia is the most reliable partner for energy for the United States and other G-8 countries.

Q: Do you see how people can be panicked after all the scandals that happened in Sakhalin? Companies invested billions of dollars, they're working fine, and suddenly--

A: But not suddenly. First, they knew exactly what they did, and possible outcomes. Everything was obvious. I met with one of the top managers of the Shell company, and they're meeting [this] week with the minister of energy in Russia, and they're quite positive they will be able to resolve the issue.

Q: So do you think Shell will be able to stay?

A: No doubt about that. Shell will stay, and it is one of the biggest and best investors in Russia with a good reputation. We accept that Sakhalin is a very important project for Russians. There are difficulties, and they have to resolve them. At the end, it will be a successful story. Exxon had cost overruns, but Shell's was twice more than planned.

Q: So Exxon has no problems?

A: [Shakes head.]


The squeeze starts:


AP: Gazprom Nears Deal to Join Shell Project.


Earlier Tuesday, Oleg Mitvol, of the state environmental watchdog Rosprirodnadzor, said Sakhalin-2 had caused environmental damages worth $10 billion, news agencies reported.

He said a final evaluation of the damages would be completed by fall next year and that by March he would be ready to sue the company in Russia and in the Arbitration Institute of the Stockholm Chamber of Commerce, which settles such disputes.

Mitvol and other Russian officials say that the Shell-led consortium developing the energy project has silted rivers and felled trees illegally.

Representatives for the consortium, Sakhalin Energy, were not immediately available to comment.

Mitvol also said he planned to begin an inspection of the Sakhalin-1 project, which is 30 percent-owned by Exxon Mobil Corp.


Oh, and Lord Browne [BP's CEO]. I suggest an appearance as Santa at the St. Peterburg's Childrens hospital, and a whole lot of Elmo TMXs.


Further quotes from AP article above:

If control of Sakhalin-2 does eventually go to Gazprom it could set a precedent for BP PLC's Russian joint venture: Prosecutors have threatened to revoke TNK-BP's license for the giant Kovykta gas field in Russia's Far East for alleged underproduction.

Tuesday, December 12, 2006

Gazprom: "No more Mr. Nice Guy."

Well, it looks like it's going to get very interesting in Russia soon. This is not good news for ExxonMobil, BP, and ConocoPhillips, all of which have fairly substantial investments in Russia.

WSJ: Shell May Cede Control of Project To Russia's Gazprom. [$]


The person close to Gazprom also said gaining a controlling stake in Sakhalin-2 would set a precedent for Gazprom to press for control of other big Russian gas projects, such as the Kovykta field in Siberia, currently owned by the Anglo-Russian venture TNK-BP Ltd.


Be all that you can be. Sign up for Operation Alberta Freedom now.

Monday, December 11, 2006

From Russia With Love.

Shell finally throwing in the towel on this thing and ceding control to Gazprom? Not entirely unpredictable, but wow.

Reuters: Gazprom yet to decide on Shell Sakhalin offer.


Russian gas monopoly Gazprom said on Monday it had yet to decide on Royal Dutch Shell's offer for it to take majority control in the Sakhalin-2 project due to ecological concerns.

CNBC Video (free for 24 hours): Gazprom to control Sakhalin-2?

Sunday, December 10, 2006

Same as it ever was..

I'm not sure.. Do they start these Gulf get togethers with the same toast every year? Because nothing has changed in the past 30 or so years.

So, while on the one hand it sounds sort of newsworthy that the Saudi king suggested the Middle East is on the verge of exploding, on the other hand, when you review the names, the places - Israel, Palestine, Iraq, Lebanon - they have a certain familiar ring to them and the thought has to creep into your mind (along with that beat):

Same as it ever was... same as it ever was... same as it ever was...

What does this mean for oil prices? The usual, volatility.

AFP via Yahoo! News: Gulf summit opens with warning of regional explosion.


RIYADH (AFP) - Saudi King Abdullah opened the annual summit of Gulf leaders with a warning that the Arab world was on the brink of exploding because of conflicts in the Palestinian territories, Iraq, and Lebanon.

[Ever wonder if this thought enters President Bush's mind? I do.

My God! What have I done?

Note: Not a political statement, just sort of a reflective question.]

PS. Select lyrics from the Talking Heads: Once in a Lifetime.

Let it snow, let it snow, let it snow..

A follow up on Chesapeake Energy's predictions for winter: Two Resources for Energy Insights.


Watch the Weather

One of the more important variables in predicting energy-commodity prices in the month of December is weather. Winter officially begins the middle of the month, and bone-chilling cold is bullish for the energy markets. In fact, last year's historically warm winter was the primary cause of the swoon in natural gas prices this past summer.

Hence, all energy investors have at least one eye on the forecasts, especially the longer-range forecasts for January and February. So I decided to check in with Chesapeake Energy (CHK - commentary - Cramer's Take - Rating), the large natural gas producer, which has its own uncannily accurate meteorologists. Cheapeake's meteorologists were some of the few who accurately predicted last winter's warmth.

The accuracy continues. My sources suggest Chesapeake's forecasters were spot-on in predicting last week's cold-and-snow snap through the upper Midwest. The Chesapeake gang's forecast for the coming week suggests slightly warmer-than-normal temperatures, followed by a holiday cold snap that, if it happens, could help rally energy prices.

More important, the Chesapeake weather team sees a more normal winter season come 2007, compared with the past 30 years. That means that, when compared with the last 10 years (which have been consistently warmer than longer-term norms), winter weather should be colder than normal, a positive for energy investors.

You can keep an informal eye on the weather via these links.

Tuesday, December 05, 2006

Oh the weather outside is frightful..

And owning energy is so delightful..

Keep an eye on this chart, it's going to determine the price of oil and natural gas for the next couple of months. So far, we've had a couple of good cold blasts run through, but in between temperatures have been mild. Still, a lot of natural gas was burned, and it's still fairly early. USA Current Temperatures.

Additional charts showing temperature deviations from normal highs and showing deviations from normal lows will highlight where we are versus prior year averages. Lots of negative numbers, particularly in the Mid-West and Northeast are good.

Monday, December 04, 2006

Bare Naked Capitalism.

Bloomberg: Cerberus May Buy Delphi Car-Parts Plants, People Say.

Ben Stein on Cavuto on Business (Fox News) keeps making this suggestion, and it is sort of interesting, so I thought I'd bring it up.

So, here's the pitch:

A money losing auto parts making operation, currently in bankruptcy, desperately in need of major restructuring, saddled with sky-high union salaries, serious pension obligations, spun off from a parent automaker (General Motors) that is in similar shape.

Sounds awesome, right? It's Delphi. (DPHIQ.PK - the 5 character symbol and .PK because it is in bankruptcy and booted off the major exchanges)

Well, maybe.

Normally, you should run for the hills from this kind of investment (I hesitate to call it an investment, let's call it a speculation.) Or perhaps you buy the bonds. Never, never, never, ever buy the stock. Except maybe this time.

All kidding aside, normally when a company goes into bankruptcy, the stock is ultimately worthless, anyone holding the stock loses everything, and the bondholders end up owning the company with newly issued stock (think Kmart). So even though you may see stocks trade during bankruptcy, it is almost always people flushing their money straight down the toilet.

However, in Delphi's case, you have a major hedge fund - Appaloosa Capital - with a very sharp manager - David Tepper - as a major holder of the stock, trying to work a deal here where the unions accept lower pay rates, various factories are sold off to interested parties, other costs are rationalized, etc. etc. [Note that the article highlights Cerebrus. I'm more interested in Appaloosa, which is also mentioned.] Obviously though, getting people to take huge pay cuts is not easy. If things go wrong, the stock will be worthless, the bondholders will end up with everything. And, we'll also note, Kirk Kerkorian, an investor who knows a few things, just dumped his entire stake in General Motors when he lost faith in their ability to make the major changes he was seeking. So Mr. Tepper has his work cut out for him.

I will note that in response to Ben Stein's suggestion to buy the stock, former hedge fund manager Jim Rogers suggested buying the bonds instead, which is safer. But if this works out for Appaloosa, the stock is going to give you much more juice than the bonds.

I leave you with the wisdom of Oingo Boingo:

There's nothing wrong with Capitalism
There's nothing wrong with free enterprise
Don't try to make me feel guilty
I'm so tired of hearing you cry

There's nothing wrong with making some profit
If you ask me I'll say it's just fine
There's nothing wrong with wanting to live nice
I'm so tired of hearing you whine
About the revolution
Bringin' down the rich
When was the last time you dug a ditch, baby!