Wednesday, February 28, 2007

So many experts, so little time.

A round up of the more interesting insights today.

CNBC Video: Stephen Schork on Energy.

Summary: Sees oil trading in a range of $55 to $65. If we go above $65, he feels we will likely quickly move to $70, and he believes $65+ oil is serious trouble for the economy; he believes the slowdown in GDP growth we saw at the end of last year was a lagged effect of the highs (~$78) we saw in oil prices last summer.

CNBC Video: Hugh Moore on the slowdown.

Summary: Continues to believe the US enters a recession in late 07 or early 08, also believes we are about halfway through the aftermath of the housing bubble.

Bloomberg TV: Jim Rogers on China's market.

Summary: China's fall is not unexpected, as China's investors were in a mania/bubble. He's not selling in China, but he's not buying either, it's run up too much. The US is probably in a recession, or will be soon, and stock markets will decline. Housing and autos in the US are already in recession. He believes this is the way stock markets begin a decline, with marginal markets, like China and emerging markets going first.

Bloomberg TV: Marc Faber on the overvaluation of all markets.

Summary: All markets are extremely extended, overbought, not particularly attractive in terms of valuations, and vulnerable to some type of disappointment. He points out that this is not a dramatic decline in historical terms, for example in 1987 the Dow Jones fell 21% in one day, other markets have fallen 30% in one week. We haven't had any corrections in the US in a long time, so everybody's leaning in the same direction. We're seeing liquidity being withdrawn in the US sub-prime market, in the Indian stock market, and this could continue like a financial bushfire. Suggests caution/raising cash, since we can't tell the difference between a crash, a bear market, or a correction yet; then check back in 3 months time.

CNBC Video: Saut & Sowerby debate the future.

Bloomberg TV: Robert Shiller on housing.

Bloomberg TV: Boone Pickens on oil.

Summary: Likes deepwater drillers, sees a shortage of deepwater equipment, believes (but sounds less confident than before) that we see $70 oil this year, it's also possible we go higher given the right (or wrong..) events, believes there will be more consolidation in the energy sector; his firm, BP Capital, has positions in Suncor, Valero, EOG; his major worry is a worldwide recession, which his analysts are keeping a very close eye out for.

Friday, February 23, 2007

Housing: The Worst is Yet to Come.

Richard Manoogian, the chairman and CEO of Masco, a company intimately involved in homebuilding, is guest host on CNBC this morning and he stated his view on housing pretty clearly: the housing situation is worse than most people realize and the worst is yet to come.

Does this eventually take it's toll on the rest of the economy? It seems likely to me.

CNBC: The Worst is Yet to Come.

Wednesday, February 21, 2007

Some follow up on earlier posts.

On the idea of having some exposure to agricultural commodities via, for example, the DBA ETF as a play on the ethanol boondoggle and the vagaries of the weather:

Bloomberg: Corn Farms Replace New York Lofts as Hottest Property.


Marc Faber, a Hong Kong-based investor who manages about $300 million, says one of his favorite stocks is Cresud SA, a landowner in Argentina's Pampas region. The shares jumped 63 percent last year. Farmland is ``very inexpensive in a world of inflated asset prices,'' he said in an interview Feb. 4 from Bermuda.


Farm Bulls

Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade.

``Because of the disruptions, agricultural prices will go through the roof,'' he told reporters in Melbourne on Feb. 7. ``I am extremely bullish on agriculture.''

Australian crop production is the worst in 20 years due to an extensive and lengthy drought. The article suggests that rice production will be down 90%, as rice is an extremely water intensive crop.

A hotter summer this year in the American mid-west? That's all we need.


On Apple, the iPhone looks like a gamechanger and the demand appears to be there:

CNBC: iPhone Outlook.


The housing 'hangover' rolls on:

Bloomberg: Housing `Hangover' Kills Jobs as Spending Wanes; More Cuts Loom.


Housing and related industries account for about 23 percent of the economy, according to the center.


``The fallout in the early 1990s was much worse than what we've seen so far, but this downturn is not over,'' said Puryear, the head of real estate research for the unit of St. Petersburg, Florida-based Raymond James Financial Inc. ``The full impact hasn't hit yet.''


First Marc Faber said he sees a strong correction in the near future, now former hedge fund manager Michael Steinhardt is concerned the rally may be over sooner rather than later.

Monday, February 12, 2007

I'm with Art.

Art Smith, the head of John S. Herold, an energy research firm, was interviewed in Barron's this weekend, and it turns out he agrees with me on everything. [Okay, okay, so I agree with him on everything, calm down.] If you're into investing in the energy sector, I recommend buying a copy and reading the entire interview, but the highlights have been summarized in a post on Seeking Alpha.

Seeking Alpha Energy Stocks: Barron's: Oil Guru Art Smith's Picks for 2007.

My own summary:

- Big oil is struggling with exploration for various reasons, they will eventually have to step up to the plate to increase their reserves, most likely by takeovers of mid-size companies.

- Buy companies with large North American natural gas reserves. They are cheap and the natural gas situation in North America appears headed for a squeeze.

- Buy Canadian oil sands companies for their long term assets and relative lack of political risk.

In terms of specific stock recommendations, the Seeking Alpha post highlights Mr. Smith's stock picks. My favorites of that list are NXY, CNQ, APC, CHK, SU. Mr. Smith also highlights NXY and SU as likely to be taken over. NXY I think is a goner, highly likely to be acquired at some point, but I am skeptical of the idea that SU will be bought, due mostly to the fact that the price would be too high for any acquirer except somebody who desperately needs oil sands assets. (Think BP.) I think APC is also a good takeover candidate, once it finishes tidying up after it's recent purchases of Kerr-Mcgee and Western Gas Resources.

Wednesday, February 07, 2007

Nelly on sub-prime mortgage losses accelerating.

It's getting hot in here, so write off all those loans.

Near the end of the recent US housing bubble enthusiasm, loan standards appear to have gone out the window. Now, the most vulnerable of those loans, in the sub-prime arena, are going bad at an increasingly faster pace. Combine this news with the warning from the CEO of JP Morgan, and I'd say you build a pretty good case for the housing market not yet having bottomed and for further interesting times ahead.

Although there is no way to predict exactly how this could play out, the general rule when you start to smell something burning in the financial markets is to reduce risk, make sure your bets are spread around, and not be afraid to let a little cash pile up.

Bloomberg: HSBC to Boost Loan-Loss Provisions on Bad Mortgages.


HSBC Holdings Plc, Europe's biggest bank, said it's setting aside 20 percent more than analysts estimated for loan losses in 2006 because the company's U.S. mortgage business is deteriorating.


Home loans to risky borrowers in the U.S. are going bad faster than HSBC expected just two months ago, the London-based company said yesterday in an e-mailed statement.


Home loans to borrowers with poor credit ratings or large debt burdens are defaulting at a faster rate than during the U.S. recession six years ago, according to calculations by Friedman Billings Ramsay Group Inc.

``The impact of slowing house price growth is being reflected in accelerated delinquency trends across the U.S. sub-prime mortgage market,'' HSBC said in the statement. ``It is clear that the level of loan-impairment provisions to be accounted for as at the end of 2006 in respect of Mortgage Services operations will be higher than is reflected in current market estimates.''

Tuesday, February 06, 2007

Chesapeake's Winter Call.

It looked like a pretty bad call when people were strolling around in shorts and sandals in New York City in mid December and many (probably most) analysts were suggesting another warm winter, but now Chesapeake Energy's weather team is looking pretty smart with their calls (notes here and here) for a more normal (i.e. cold) winter in 2007. Other natural gas stocks are looking stronger (XTO, COG for example), but CHK ought to be getting a bit more credit here, I think. The market feels CHK has been a bit too busy with deals and financings though.

Bloomberg: Crude Oil Rises as Cold Temperatures Signal Higher U.S. Demand.


Temperatures fell to 10 degrees Fahrenheit (minus 12 Celsius) in Boston overnight on Feb. 4-5, when 22 degrees is the normal low at this time of year, Michael Palmerino, a forecaster at Lexington, Massachusetts-based Meteorlogix LLC said yesterday.

``It will stay below normal and much below normal for the next week to 10 days,'' Palmerino said. ``It will take time for the weather pattern to change and for the cold air mass to retreat back into Canada.''


Disclosure: I own CHK and XTO; not an endorsement.