Boone Pickens was interviewed this morning on CNBC and he spoke for a while about the long term challenges for energy in America, how none of the presidential candidates had any kind of reasonable plan for really dealing with this, and the fact that we are sending a half a trillion dollars a year overseas to pay for oil to people that we don't know, and who may not be our friends. His solutions include wind and solar, natural gas as a transportation fuel, clean coal, and ethanol (which appears to be a notable change of heart).
He's also currently short both oil and natural gas as he expects them to fall over the next couple of months. Oil he said might drop $10-15 into the second quarter, but he predicts it will be back above $100 in the second half. Natural gas he believes is unusually high due to the weather and will back off.
CNBC: Pickens Expects Oil, Natural Gas Prices to Fall.
Thursday, February 21, 2008
Tuesday, February 19, 2008
Go Aggies!!
My slightly tongue in cheek prescription for 2008:
Buy ag and natural gas and take the rest of the year off.
Bloomberg: Food Is a Great Asset -- Minus the Fund Manager: Andy Mukherjee.
Quotes:
Investors can't afford to ignore food. As a hedge against a possible U.S. recession, and direct exposure to rising urbanization and wealth in Asia, it's an asset class that's tailor-made for the present times.
As Jim Rogers of New York-based investment firm Rogers Holdings puts it: ``If you're in agriculture, you don't know that there is a recession, you don't care.''
....
Global food inventories are running thin.
The amount of wheat, rice, corn, barley and other grains stored at warehouses around the world is enough to meet less than 60 days of global demand, a 35-year low, according to Merrill's analysis.
High Returns
Shortages are also emerging in the supplies of soybeans, palm oil and other oilseeds.
Slaughter rates are rising as cattle-feed prices soar.
All this should mean tidy profits for those investing in agricultural-commodity futures, provided they have the appetite for the higher risk of price volatility that's often seen in commodities where the stockpiles are small.
Gary Gorton, a University of Pennsylvania finance professor, recently demonstrated that inventories play a significant role in determining returns on commodity futures.
Gorton and his colleagues studied the performance of futures contracts on 31 commodities from 1969 through 2006, grouping them in portfolios of lower-than-normal and higher- than-usual inventories; the former returned more than 13 percent annually, while the gains from the latter were less than 5 percent.
`Chindia' Effect
Eventually, food supplies will rise to match the present elevated levels of demand. But it may take time because of the ``Chindia'' effect.
Millions of Chinese and Indian households are becoming a little more prosperous every year, and demand for protein is very income-sensitive.
That's bound to put further pressure on stretched food supplies. Investors have a chance to profit from agricultural commodities because their prices are still ``relatively low,'' Marc Faber, the Hong Kong-based investor and publisher of the Gloom, Boom & Doom report, said earlier this month.
Buy ag and natural gas and take the rest of the year off.
Bloomberg: Food Is a Great Asset -- Minus the Fund Manager: Andy Mukherjee.
Quotes:
Investors can't afford to ignore food. As a hedge against a possible U.S. recession, and direct exposure to rising urbanization and wealth in Asia, it's an asset class that's tailor-made for the present times.
As Jim Rogers of New York-based investment firm Rogers Holdings puts it: ``If you're in agriculture, you don't know that there is a recession, you don't care.''
....
Global food inventories are running thin.
The amount of wheat, rice, corn, barley and other grains stored at warehouses around the world is enough to meet less than 60 days of global demand, a 35-year low, according to Merrill's analysis.
High Returns
Shortages are also emerging in the supplies of soybeans, palm oil and other oilseeds.
Slaughter rates are rising as cattle-feed prices soar.
All this should mean tidy profits for those investing in agricultural-commodity futures, provided they have the appetite for the higher risk of price volatility that's often seen in commodities where the stockpiles are small.
Gary Gorton, a University of Pennsylvania finance professor, recently demonstrated that inventories play a significant role in determining returns on commodity futures.
Gorton and his colleagues studied the performance of futures contracts on 31 commodities from 1969 through 2006, grouping them in portfolios of lower-than-normal and higher- than-usual inventories; the former returned more than 13 percent annually, while the gains from the latter were less than 5 percent.
`Chindia' Effect
Eventually, food supplies will rise to match the present elevated levels of demand. But it may take time because of the ``Chindia'' effect.
Millions of Chinese and Indian households are becoming a little more prosperous every year, and demand for protein is very income-sensitive.
That's bound to put further pressure on stretched food supplies. Investors have a chance to profit from agricultural commodities because their prices are still ``relatively low,'' Marc Faber, the Hong Kong-based investor and publisher of the Gloom, Boom & Doom report, said earlier this month.
Sunday, February 10, 2008
Boone Pickens: The answer, my friend, is blowin' in the wind.
NewsOk.com: Boone Pickens shares his views on energy, politics, the Olympics, OSU's new president.
Quotes:
Before 2010, the price for a thousand cubic feet of natural gas will be $10, Boone Pickens predicts. And oil prices will reach $100 a barrel again before the end of this year.
For those and other reasons, Pickens is betting on alternative energy for the future.
"We are importing 62 percent of our oil now, and the two largest producers are Saudi Arabia and Russia,” Pickens said. "And the two largest consumers of oil are ourselves and China.
"When you look at that, you say, ‘We have kind of got ourselves in a bit of a spot that is going to get even more uncomfortable.'”
Pickens said the U.S. will spend trillions of dollars to get the imported oil, and that the nation can't be sure where that money is headed.
"Now, that is a real transfer of wealth. We have got to figure out something different than what we have,” Pickens said.
"Different,” he told The Oklahoman on Tuesday, means using natural gas to power vehicles and wind and solar sources to generate electricity.
....
"I promise you, natural gas will be a real transportation fuel. If I am successful about what I am doing, it will make a difference in Oklahoma because natural gas will sell at a higher price than it is now for heating homes and for electrical generation,” he said.
He also is busy building what he calls the nation's largest wind farm, capable of generating 4,000 megawatts of power once it comes online. He predicts similar projects could be built between the Texas Panhandle and the U.S.-Canadian border, providing jobs, income and a secure environment for a significant piece of the nation's energy infrastructure.
Power transmission corridors are needed to get the power from the farms to East and West Coast communities, and he said private industry will provide the infrastructure if the government gives it suitable incentives.
"I think that it is very realistic that it can be done,” Pickens said.
He noted that in his Mesa Power project alone he has been approached by 20 potential partners, each of whom has provided studies on the wind farm project at his own expense.
"All of them have a plan for how this can be accomplished,” Pickens said.
"We have not picked any banker and we have not picked any partner,” he quickly added. "It is kind of nice ... I have decided I can get pretty far down the track” before having to make those choices.
Pickens said his company will start buying turbines — from 1,700 to 2,000 — next month at a cost of $200 million to $300 million.
In all, it will cost the company $11 billion to build the field and get its power from the Texas panhandle more than 300 miles south and east into the Texas area's power distribution system, he said.
A video interview is available here. He thinks it's possible we'll see a softer oil price at the beginning of the year, as low as $85 a barrel, but then it'll rise back up to $100.
Quotes:
Before 2010, the price for a thousand cubic feet of natural gas will be $10, Boone Pickens predicts. And oil prices will reach $100 a barrel again before the end of this year.
For those and other reasons, Pickens is betting on alternative energy for the future.
"We are importing 62 percent of our oil now, and the two largest producers are Saudi Arabia and Russia,” Pickens said. "And the two largest consumers of oil are ourselves and China.
"When you look at that, you say, ‘We have kind of got ourselves in a bit of a spot that is going to get even more uncomfortable.'”
Pickens said the U.S. will spend trillions of dollars to get the imported oil, and that the nation can't be sure where that money is headed.
"Now, that is a real transfer of wealth. We have got to figure out something different than what we have,” Pickens said.
"Different,” he told The Oklahoman on Tuesday, means using natural gas to power vehicles and wind and solar sources to generate electricity.
....
"I promise you, natural gas will be a real transportation fuel. If I am successful about what I am doing, it will make a difference in Oklahoma because natural gas will sell at a higher price than it is now for heating homes and for electrical generation,” he said.
He also is busy building what he calls the nation's largest wind farm, capable of generating 4,000 megawatts of power once it comes online. He predicts similar projects could be built between the Texas Panhandle and the U.S.-Canadian border, providing jobs, income and a secure environment for a significant piece of the nation's energy infrastructure.
Power transmission corridors are needed to get the power from the farms to East and West Coast communities, and he said private industry will provide the infrastructure if the government gives it suitable incentives.
"I think that it is very realistic that it can be done,” Pickens said.
He noted that in his Mesa Power project alone he has been approached by 20 potential partners, each of whom has provided studies on the wind farm project at his own expense.
"All of them have a plan for how this can be accomplished,” Pickens said.
"We have not picked any banker and we have not picked any partner,” he quickly added. "It is kind of nice ... I have decided I can get pretty far down the track” before having to make those choices.
Pickens said his company will start buying turbines — from 1,700 to 2,000 — next month at a cost of $200 million to $300 million.
In all, it will cost the company $11 billion to build the field and get its power from the Texas panhandle more than 300 miles south and east into the Texas area's power distribution system, he said.
A video interview is available here. He thinks it's possible we'll see a softer oil price at the beginning of the year, as low as $85 a barrel, but then it'll rise back up to $100.
Tuesday, February 05, 2008
The Recession Will Be Televised.
This article explains a little more on ECRI's thinking on the window of opportunity of averting recession.
MSN: Where's a safe harbor now?
Quotes:
There's an odd paradox at work, you see. Lakshman Achuthan, the head honcho of the Economic Cycle Research Institute, which has successfully called the past several U.S. recessions, notes that all the recent pessimism about the economy may actually have had a beneficial effect. He says that the biggest negative impetus in any recession comes from the manufacturing sector, which is in turn driven mostly by the inventory cycle.
Unaware of an approaching recession, he observes, businesses typically produce goods in anticipation of rising demand. When, to their surprise, demand for their products starts falling, inventories mount, forcing production and job cutbacks, thus reducing income and spending power. The spending cuts force further production cutbacks to work off the excess inventory, and a vicious downward spiral ensues.
At present, Achuthan says, we have the opposite scenario. Prolonged pessimism about the economy and a surprise acceleration in growth through last summer has resulted in a sharp drop in business inventories, taking the inventory-to-sales ratio to a record low. Thus there is little inventory left to whittle down in response to slackening demand, blunting much of the downward impulse for recession.
This is where Congress and the president come in. They can still throw American retailers, manufacturers and service providers a lifeline if they pass a $150 billion package of tax rebates quickly and cut checks in the next two months. If a timely stimulus results in a quick burst of consumer spending, manufacturers will boost production instead of reducing inventories, thus preventing economic Armageddon. Time is of the essence: The Economic Cycle Research Institute suggests even a three-month delay in getting rebate checks out could spell the difference between a bone-crushing recession costing thousands of jobs and a nice, soft landing.
MSN: Where's a safe harbor now?
Quotes:
There's an odd paradox at work, you see. Lakshman Achuthan, the head honcho of the Economic Cycle Research Institute, which has successfully called the past several U.S. recessions, notes that all the recent pessimism about the economy may actually have had a beneficial effect. He says that the biggest negative impetus in any recession comes from the manufacturing sector, which is in turn driven mostly by the inventory cycle.
Unaware of an approaching recession, he observes, businesses typically produce goods in anticipation of rising demand. When, to their surprise, demand for their products starts falling, inventories mount, forcing production and job cutbacks, thus reducing income and spending power. The spending cuts force further production cutbacks to work off the excess inventory, and a vicious downward spiral ensues.
At present, Achuthan says, we have the opposite scenario. Prolonged pessimism about the economy and a surprise acceleration in growth through last summer has resulted in a sharp drop in business inventories, taking the inventory-to-sales ratio to a record low. Thus there is little inventory left to whittle down in response to slackening demand, blunting much of the downward impulse for recession.
This is where Congress and the president come in. They can still throw American retailers, manufacturers and service providers a lifeline if they pass a $150 billion package of tax rebates quickly and cut checks in the next two months. If a timely stimulus results in a quick burst of consumer spending, manufacturers will boost production instead of reducing inventories, thus preventing economic Armageddon. Time is of the essence: The Economic Cycle Research Institute suggests even a three-month delay in getting rebate checks out could spell the difference between a bone-crushing recession costing thousands of jobs and a nice, soft landing.
Monday, February 04, 2008
Top Things We Don't Want to Hear - #2.
ECRI indicating the risk of recession is very high, and the window of opportunity to avoid it is about to "slam shut". ECRI has a pretty good track record of calling these things.
Reuters: Gauge of economy falls, recession looms: ECRI.
Quotes:
A weekly gauge of future U.S. economic growth fell hard and its annualized growth rate plunged to a six-year low, a research group said on Friday, indicating the risk of recession is very high.
....
"WLI growth has dropped back to the six-year low seen in early January," Achuthan said.
"While the economy and employment did continue to grow through the end of 2007, the window of opportunity to avert a U.S. recession is about to slam shut."
Reuters: Gauge of economy falls, recession looms: ECRI.
Quotes:
A weekly gauge of future U.S. economic growth fell hard and its annualized growth rate plunged to a six-year low, a research group said on Friday, indicating the risk of recession is very high.
....
"WLI growth has dropped back to the six-year low seen in early January," Achuthan said.
"While the economy and employment did continue to grow through the end of 2007, the window of opportunity to avert a U.S. recession is about to slam shut."
Sunday, February 03, 2008
Weeden Oil Analyst Charles Maxwell on Moneytalk.
Last night, Charles Maxwell, senior energy analyst at Weeden and Co., was again a guest on Bob Brinker's Moneytalk radio show.
[You can listen to this show for the next 6 days at KGO-AM 810 radio here.]
There wasn't a lot of new stuff in the discussion, but a caller asked him to project oil prices going forward and his new projections are incrementally higher than they were in the past. (Some prior projections from 2005 are here.)
Mr. Maxwell projected that oil prices could fall for a little while, perhaps getting as low as the $70's area, but then would continue in their relentless uptrend due to the peaking of world oil production, which he believes will happen around 2013-2015.
His price projections:
2008 - average of $80 a barrel
2009 - high $80 to $90 range
2015 - $180
2020 - $300
Again, he believes the peak in oil production will fall around the 2013 - 2015 time frame, with perhaps a 2 year plateau, and then we begin a downward trend in oil production.
He spoke briefly about how we will cope with this issue, and he suggested we find our way through via a combination of efficiency/conservation and alternative forms of energy production (natural gas, clean coal, uranium, etc), but he also felt that energy in the future will be "much, much more expensive".
Bob Brinker has increasingly caught up with the issue of peak oil in the past few years. A couple of weeks ago he had on a former professor from Berkeley, Bill Wattenburg, who believes we must urgently begin a program of building nuclear power plants to be able to shift natural gas from power generation to transportation, as well as to avoid some of the serious downsides to burning coal. (You can read more on this here.)
[You can listen to this show for the next 6 days at KGO-AM 810 radio here.]
There wasn't a lot of new stuff in the discussion, but a caller asked him to project oil prices going forward and his new projections are incrementally higher than they were in the past. (Some prior projections from 2005 are here.)
Mr. Maxwell projected that oil prices could fall for a little while, perhaps getting as low as the $70's area, but then would continue in their relentless uptrend due to the peaking of world oil production, which he believes will happen around 2013-2015.
His price projections:
2008 - average of $80 a barrel
2009 - high $80 to $90 range
2015 - $180
2020 - $300
Again, he believes the peak in oil production will fall around the 2013 - 2015 time frame, with perhaps a 2 year plateau, and then we begin a downward trend in oil production.
He spoke briefly about how we will cope with this issue, and he suggested we find our way through via a combination of efficiency/conservation and alternative forms of energy production (natural gas, clean coal, uranium, etc), but he also felt that energy in the future will be "much, much more expensive".
Bob Brinker has increasingly caught up with the issue of peak oil in the past few years. A couple of weeks ago he had on a former professor from Berkeley, Bill Wattenburg, who believes we must urgently begin a program of building nuclear power plants to be able to shift natural gas from power generation to transportation, as well as to avoid some of the serious downsides to burning coal. (You can read more on this here.)
Sunday, January 27, 2008
The recession is in.
I'm not quite sure what to make of this statistic that Google searches dropped month by month for October, November and December of last year. The article mentions that normally searches drop around Christmas, but I don't consider October and November to be 'around Christmas'. And I am not aware of another search engine that is taking that kind of market share from Google.
Some are saying a recession started late last year, and something has definitely gotten both the Fed and Administration motivated to stimulate the economy in a hurry.
I suspect this statistic is telling us something important.
Investor's Business Daily: Even Vaunted Google Ad Business Susceptible To Recession.
[If you can't view that, also available at CNNMoney.]
Quotes:
Some evidence suggests a search slowdown. The average number of daily Google searches in the U.S. fell from 4.4 million in October to 4.2 million in November to 4 million last month, says Nielsen.
The average number of topic searches per user also dipped, falling to 37.9 in December from 40.8 in November, Nielsen says.
Analysts say it's too early to make much of these figures, since search activity typically falls around Christmas, but a continued decrease in search traffic likely will mean consumers are buying fewer products online, Parr says.
Update:
Reading a bit more about search and Nielsen's work, it seems there may be two factors that confound this bit of data [I think here of the quote about 'lies, damned lies, & statistics'..].
One, Microsoft appears to have taken a bit (a small bit) of market share away from Google in December via the giveaway of trinkets.
Two, Nielsen apparently changed their methodology for rating search share in.... October. Since the data cited above begins in October, this means the data could be suspect.
The observation though, is about the trend of lower searches and I can't find a statistic on overall searches. But I did find an article and search data provider (Comscore) that indicates that a related item, paid search, decelerated recently. (See 'Why Google Got Crushed Today'.) So the general theme is alive.
I'd also highlight this observation about the shipping index:
Financial Post: What could rattle Canada?
Quotes:
One statistic stood out. The Baltic Dry index, a composite index of shipping costs for dry bulk items such as cement, sugar and coal, posted record drops two days running.
Having lost 20% last week, the index is now down 42% from its November peak.
"The recent collapse in the Baltic Dry Index ... is a warning sign that the commodity boom could be about to come to an abrupt end," warned Julian Jessop, chief international economist at Capital Economics in London in a note.
The index is considered a good proxy for global growth, although it must be pointed out the declines last week were magnified by disruptions as a Brazilian miner cancelled 30 large cargoes of iron ore in a pricing wrangle with China.
Some are saying a recession started late last year, and something has definitely gotten both the Fed and Administration motivated to stimulate the economy in a hurry.
I suspect this statistic is telling us something important.
Investor's Business Daily: Even Vaunted Google Ad Business Susceptible To Recession.
[If you can't view that, also available at CNNMoney.]
Quotes:
Some evidence suggests a search slowdown. The average number of daily Google searches in the U.S. fell from 4.4 million in October to 4.2 million in November to 4 million last month, says Nielsen.
The average number of topic searches per user also dipped, falling to 37.9 in December from 40.8 in November, Nielsen says.
Analysts say it's too early to make much of these figures, since search activity typically falls around Christmas, but a continued decrease in search traffic likely will mean consumers are buying fewer products online, Parr says.
Update:
Reading a bit more about search and Nielsen's work, it seems there may be two factors that confound this bit of data [I think here of the quote about 'lies, damned lies, & statistics'..].
One, Microsoft appears to have taken a bit (a small bit) of market share away from Google in December via the giveaway of trinkets.
Two, Nielsen apparently changed their methodology for rating search share in.... October. Since the data cited above begins in October, this means the data could be suspect.
The observation though, is about the trend of lower searches and I can't find a statistic on overall searches. But I did find an article and search data provider (Comscore) that indicates that a related item, paid search, decelerated recently. (See 'Why Google Got Crushed Today'.) So the general theme is alive.
I'd also highlight this observation about the shipping index:
Financial Post: What could rattle Canada?
Quotes:
One statistic stood out. The Baltic Dry index, a composite index of shipping costs for dry bulk items such as cement, sugar and coal, posted record drops two days running.
Having lost 20% last week, the index is now down 42% from its November peak.
"The recent collapse in the Baltic Dry Index ... is a warning sign that the commodity boom could be about to come to an abrupt end," warned Julian Jessop, chief international economist at Capital Economics in London in a note.
The index is considered a good proxy for global growth, although it must be pointed out the declines last week were magnified by disruptions as a Brazilian miner cancelled 30 large cargoes of iron ore in a pricing wrangle with China.
Thursday, January 24, 2008
Here's the fairly substantial financial incident.
Little quicker than I thought, but it appears to explain that torrent of selling overseas Monday.
Bloomberg: Societe Generale Reports EU4.9 Billion Trading Loss.
Quotes:
Societe Generale SA said bets on stock index futures by a rogue trader caused a 4.9 billion-euro ($7.2 billion) trading loss, the largest in banking history.
Jerome Kerviel, 31, was the trader responsible, the Paris- based bank said today. Societe Generale plans to raise 5.5 billion euros from shareholders after the loss and subprime- related writedowns depleted capital. The Bank of France, the country's banking regulator, is investigating the alleged fraud.
The trading loss exceeds the $6.6 billion Amaranth Advisors LLC lost in 2006, and is more than four times the $1.4 billion of losses by Nick Leeson that brought down Barings Plc in 1995. An offer by Chairman Daniel Bouton to resign after the trades were discovered this past weekend was refused by Societe Generale's board, the bank said.
``At first this seemed like a joke,'' said Nicolas Rutsaert, an analyst covering European banks at Dexia SA in Brussels. Societe Generale ``was a leader in derivatives and was considered one of the best risk managers in the world.''
Bloomberg: Societe Generale Reports EU4.9 Billion Trading Loss.
Quotes:
Societe Generale SA said bets on stock index futures by a rogue trader caused a 4.9 billion-euro ($7.2 billion) trading loss, the largest in banking history.
Jerome Kerviel, 31, was the trader responsible, the Paris- based bank said today. Societe Generale plans to raise 5.5 billion euros from shareholders after the loss and subprime- related writedowns depleted capital. The Bank of France, the country's banking regulator, is investigating the alleged fraud.
The trading loss exceeds the $6.6 billion Amaranth Advisors LLC lost in 2006, and is more than four times the $1.4 billion of losses by Nick Leeson that brought down Barings Plc in 1995. An offer by Chairman Daniel Bouton to resign after the trades were discovered this past weekend was refused by Societe Generale's board, the bank said.
``At first this seemed like a joke,'' said Nicolas Rutsaert, an analyst covering European banks at Dexia SA in Brussels. Societe Generale ``was a leader in derivatives and was considered one of the best risk managers in the world.''
Tuesday, January 22, 2008
A Random Run Down Wall Street.
Note to self:
A stampede eventually tires and gets pretty hungry. Keep an eye on the grains. Not saying buy, just keep an eye.
e.g. DBA, RJA.
A stampede eventually tires and gets pretty hungry. Keep an eye on the grains. Not saying buy, just keep an eye.
e.g. DBA, RJA.
There will be blood.
Note to self:
Do not buy any financials or any major market average that is dominated by financials until you see a fairly substantial financial incident.
Do not buy any financials or any major market average that is dominated by financials until you see a fairly substantial financial incident.
Friday, January 18, 2008
Walks like a duck, talks like a duck..
Pretty obvious, really. The question is, does it get worse, stabilize, or gradually recover? A week or so ago I thought to myself as I listened to interviews on CNBC and Bloomberg that, boy, most of these people sound pretty cavalier. Now the mood has changed. I just heard Bob Pisani say on CNBC that the Street wants to see more fear, which is to say it will probably get worse. That sounds right.
MarketWatch: A long-time bull throws in the towel.
Stock market bulls lost an important ally on Wednesday: Dan Sullivan is now convinced that we are in a major bear market.
Sullivan is editor of two newsletters, The Chartist and The Chartist Mutual Fund Letter. Sullivan has been publishing the first of these since the late 1960s, nearly 40 years ago. Very few others have been continuously editing an advisory newsletter for any where close to that long a period.
Sullivan, therefore, has seen lots of different kinds of market environments, which is why we should place more than the usual weight on what his intuition tells him. And right now, as he said in an interview Thursday afternoon, his "gut feeling" is that we're in a bear market that we will need to let "run its course."
....
Sullivan mentioned two major factors. The first is technical: In recent days, all of the major market averages convincingly broke below their August lows.
The second is the breakdown of the industry groups that were previously leading the market. Sullivan believes that each bull market is dominated by groups with exceptional relative strength, and that the bull market's end is often signaled when those groups lose that strength. As recently as early January, Sullivan had argued that these market leaders were still bucking the downdraft. He says that they are doing so no longer.
As a result, Sullivan has liquidated his two model stock portfolios and gone completely to cash. The last time he was in an all-cash position was in early April 2003, nearly five years ago.
MarketWatch: A long-time bull throws in the towel.
Stock market bulls lost an important ally on Wednesday: Dan Sullivan is now convinced that we are in a major bear market.
Sullivan is editor of two newsletters, The Chartist and The Chartist Mutual Fund Letter. Sullivan has been publishing the first of these since the late 1960s, nearly 40 years ago. Very few others have been continuously editing an advisory newsletter for any where close to that long a period.
Sullivan, therefore, has seen lots of different kinds of market environments, which is why we should place more than the usual weight on what his intuition tells him. And right now, as he said in an interview Thursday afternoon, his "gut feeling" is that we're in a bear market that we will need to let "run its course."
....
Sullivan mentioned two major factors. The first is technical: In recent days, all of the major market averages convincingly broke below their August lows.
The second is the breakdown of the industry groups that were previously leading the market. Sullivan believes that each bull market is dominated by groups with exceptional relative strength, and that the bull market's end is often signaled when those groups lose that strength. As recently as early January, Sullivan had argued that these market leaders were still bucking the downdraft. He says that they are doing so no longer.
As a result, Sullivan has liquidated his two model stock portfolios and gone completely to cash. The last time he was in an all-cash position was in early April 2003, nearly five years ago.
Tuesday, January 08, 2008
Tough call.
The economy is clearly slowing, and the market is getting fearful, but, as this note points out, it's a crap shoot whether this is medium term negative or positive for the market. Basically, it depends on how long and hard this slump is, which is tough to predict in advance.
The beginning of this year does not look like fun though. The stuff that's been working? Health care, consumer staples. Think ESRX, CL, MO.
NY Times: Bad Start, Recession Near?
Quotes:
The maven of S.&P. numbers, Howard Silverblatt, points out that today ranks No. 6 among the worst first days of a year for the S.&P. 500. The index fell by 1.4 percent.
Every one of the previous five came when the economy was in a recession, or not far from one.
Here’s the list:
1. 1932, down 3.7% on the first day. Thus began the last year of the worst part of the Great Depression. The National Bureau of Economic Research thinks the recession that began in August 1929 lasted until March 1933.
2. 2001, down 2.8%. A recession began in March.
3. 1980, down 2.0%. A recession began that month.
4. 1949, down 1.6%. A recession had begun in November 1948.
5. 1983, down 1.6%. A recession had ended in November 1982.
Now even if you make the leap that this somehow forecasts the economy, it doesn’t do much for the stock market investor. The stock market had great years in 1980 and 1983, and a good year in 1949. On the other hand, getting out at the beginning of 1932 or 2001 turned out to be a wise decision.
The beginning of this year does not look like fun though. The stuff that's been working? Health care, consumer staples. Think ESRX, CL, MO.
NY Times: Bad Start, Recession Near?
Quotes:
The maven of S.&P. numbers, Howard Silverblatt, points out that today ranks No. 6 among the worst first days of a year for the S.&P. 500. The index fell by 1.4 percent.
Every one of the previous five came when the economy was in a recession, or not far from one.
Here’s the list:
1. 1932, down 3.7% on the first day. Thus began the last year of the worst part of the Great Depression. The National Bureau of Economic Research thinks the recession that began in August 1929 lasted until March 1933.
2. 2001, down 2.8%. A recession began in March.
3. 1980, down 2.0%. A recession began that month.
4. 1949, down 1.6%. A recession had begun in November 1948.
5. 1983, down 1.6%. A recession had ended in November 1982.
Now even if you make the leap that this somehow forecasts the economy, it doesn’t do much for the stock market investor. The stock market had great years in 1980 and 1983, and a good year in 1949. On the other hand, getting out at the beginning of 1932 or 2001 turned out to be a wise decision.
Friday, January 04, 2008
Death to the housing oil bubblers!
Tech, housing, oil.. all great bull markets come to an end at some point.
And this was my year to sell, I started to think. Maybe sell 'em all. That's right, sell everything.
Adios.
Auf wiedersehen.
Hasta la vista, baby.
I came in pretty nervous, after all. A bull market that dates (with brief respites) back to 1998, which major mojo starting in 2003. 2006 was a little so-so, but 2007 was another barn stormer. And everybodys now talking about oil.
Money Magazine [the most mediocre of the finance magazines by a long shot], for crying out loud, a huge skeptic of oil in 2004 (and a housing bubbler till the bitter end), even getting bullish.
And the kicker: CNBC turning to all oil, all the time lately.
And now Doug Kass.. - DOUG *&^%$#@ KASS - [do you have ANY idea how skeptical this guy is?!], called for $135 oil in his 2008 Surprises (See "20 Surprises for 2008.", it's number 15.
Number 15..? After a huge bull run we can't even make the *&^%$#@ top 5?!)
But then, I ran across this video:
CNBC: Sector Stars for 2008.
And I listened to the survey on how many money managers believe energy will repeat as the best sector this year.
Go ahead, what percentage would you guess?
Half?
A third?
A quarter?
One or two?
How about - none. Yep - no money managers believe in energy this year.
Energy is back, baby!
Ok, I'm kidding. Even I don't think energy will be the best sector of 2008. But zero - that has got to get your contrarian hackles up a bit.
I'm a little skeptical on financials being the best performing sector of 2008, but I've had GS on my potential buy list for a while, and maybe this is my year to buy it. Not sure I'm buying until somebody big blows up there though.
What's looking healthy right now? Bought a little TEVA (generic drugs) the other day .
And this was my year to sell, I started to think. Maybe sell 'em all. That's right, sell everything.
Adios.
Auf wiedersehen.
Hasta la vista, baby.
I came in pretty nervous, after all. A bull market that dates (with brief respites) back to 1998, which major mojo starting in 2003. 2006 was a little so-so, but 2007 was another barn stormer. And everybodys now talking about oil.
Money Magazine [the most mediocre of the finance magazines by a long shot], for crying out loud, a huge skeptic of oil in 2004 (and a housing bubbler till the bitter end), even getting bullish.
And the kicker: CNBC turning to all oil, all the time lately.
And now Doug Kass.. - DOUG *&^%$#@ KASS - [do you have ANY idea how skeptical this guy is?!], called for $135 oil in his 2008 Surprises (See "20 Surprises for 2008.", it's number 15.
Number 15..? After a huge bull run we can't even make the *&^%$#@ top 5?!)
But then, I ran across this video:
CNBC: Sector Stars for 2008.
And I listened to the survey on how many money managers believe energy will repeat as the best sector this year.
Go ahead, what percentage would you guess?
Half?
A third?
A quarter?
One or two?
How about - none. Yep - no money managers believe in energy this year.
Energy is back, baby!
Ok, I'm kidding. Even I don't think energy will be the best sector of 2008. But zero - that has got to get your contrarian hackles up a bit.
I'm a little skeptical on financials being the best performing sector of 2008, but I've had GS on my potential buy list for a while, and maybe this is my year to buy it. Not sure I'm buying until somebody big blows up there though.
What's looking healthy right now? Bought a little TEVA (generic drugs) the other day .
Monday, December 31, 2007
No sex. No drugs. No wine. No women.
Or perhaps, more wine. Lots more wine.
Via the excellent housing blog, Calculated Risk:
Times: Top economist says America could plunge into recession.
Quotes:
Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times.
Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.
Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”
P.S. The Vapors.
P.P.S. Love Heebner, but I'm worried like Schiller.
Via the excellent housing blog, Calculated Risk:
Times: Top economist says America could plunge into recession.
Quotes:
Losses arising from America’s housing recession could triple over the next few years and they represent the greatest threat to growth in the United States, one of the world’s leading economists has told The Times.
Robert Shiller, Professor of Economics at Yale University, predicted that there was a very real possibility that the US would be plunged into a Japan-style slump, with house prices declining for years.
Professor Shiller, co-founder of the respected S&P Case/Shiller house-price index, said: “American real estate values have already lost around $1 trillion [£503 billion]. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”
P.S. The Vapors.
P.P.S. Love Heebner, but I'm worried like Schiller.
Friday, December 28, 2007
Heebner: I'm Cuckoo for Petrobras.
Kenneth Heebner of CGM Funds apparently really likes Brazilian oil producer Petrobras (PBR), and he's bullish on the economy of Brazil in general. The Fortune article I highlighted earlier mentioned Heebner is a fanatical researcher, that's on display in these videos.
Note: I believe there is an error in the CNBC video. CNBC displays the chart of PZE, which subsequently rose 15% today. But PZE is a subsidiary of Petrobras, and I believe it is focused on Petrobras' Argentina properties. PBR is the right symbol for Petrobras, and it is the symbol that Bloomberg uses.
CNBC: Focusing on Return$.
Bloomberg: Kenneth Heebner.
P.S. As mentioned before, I own Petrobras.
Note: I believe there is an error in the CNBC video. CNBC displays the chart of PZE, which subsequently rose 15% today. But PZE is a subsidiary of Petrobras, and I believe it is focused on Petrobras' Argentina properties. PBR is the right symbol for Petrobras, and it is the symbol that Bloomberg uses.
CNBC: Focusing on Return$.
Bloomberg: Kenneth Heebner.
P.S. As mentioned before, I own Petrobras.
Tuesday, December 25, 2007
Wolves in mutual fund manager's clothing.
Both Kenneth Heebner of CGM Funds and Robert Rodriguez of FPA Funds run mutual funds, but they are both by nature hedge fund managers; highly intelligent with strong opinions, they are not afraid of going against the grain (or tides) by concentrating their bets in certain areas or avoiding certain areas entirely, and neither one toes the 'I must remain diversified" line.
There are differences; Heebner is a growth oriented manager, with an 'anticipate and ride the momentum' style, while Rodriguez is value oriented and generally more conservative. Both have participated in the energy sector over the past few years, Heebner with a mix of production and service, Rodriguez a little more tilted to service. Both also managed to avoid the housing/financial debt crisis, Heebner by riding and then shorting the homebuilders, Rodriguez by dumping his mortgage bond related investments before the slaughter.
Of the two, Heebner has the super hot hand right now, up 60%+ this year, and up a Warren Buffet like 24% over the past 10 years. Rodriguez is having a bad year this year, but has a solid long term record.
It's interesting to note how different their calls on 2008 are. Heebner believes the economy will escape recession in 2008, and continues to be bullish on global growth and the energy sector in particular. His favorite energy stock right now is Petrobras, but note that Heebner can and does change his mind on a dime. Rodriguez, on the other hand, believes a recession in 2008 is likely a certainty.
Personally, I am leaning more towards Robert Rodriguez's outlook, but I will let the market guide me in my positions. Disclosure: I also own Petrobras.
Kiplinger.com: Heebner's World View.
Quotes:
Ken Heebner played the market like a fiddle in 2007. His CGM Focus fund (symbol CGMFX) gained nearly 70% to November 12 (when the January issue went to print), crushing the S&P 500 by 65 percentage points. As of December 17, the fund was up 66%. We visited Heebner at his office, high above Boston Harbor, to get his take on the current environment.
Although the U.S. housing market is mired in a depression, says Heebner, he thinks the economy will still escape recession in 2008. "It really takes a sledgehammer blow to turn this economy down, and I don't think the housing market itself is that blow," he says.
....
His favorite sectors -- energy, industrial raw materials, infrastructure builders and agribusiness -- satisfy the voracious appetites of fast-growing emerging markets. For instance, he recently had 30% of his fund's assets in oil-production and oil-services companies. "As people go from bicycles to motorcycles to cars, there is a big increase in fuel consumption," he says.
Heebner is bullish on Petrobras, an oil giant half-owned by the Brazilian government. He reckons that Petrobras will be able to raise production significantly over the next five years, based on deep-water offshore discoveries. It announced recently that one of its deep-water sites may contain up to eight billion barrels of oil and natural-gas equivalents. Heebner also likes oil-services outfits, such as Baker Hughes and Schlumberger, that are able to sell globally to national oil companies, such as Saudi Aramco. "The oil-services company has really replaced the international oil company as the Western face of oil production," he says.
Fortune: The best stocks for 2008.
Quotes:
Petrobras
We're on record as saying that $95 a barrel is not a sustainable price for oil. Yet The Hottest Fund Manager in America - a.k.a. CGM's Ken Heebner- now has us hedging our bets.
For those unfamiliar with Heebner, understand that his stock picking over the past eight years has been genius (as it has been for much of his 30-year career). He made a bundle short-selling tech and telecom stocks in 2000. He bet big on homebuilders in 2001 only to get out just before they crashed. He plowed his homebuilder profits into energy stocks in 2005 and eventually doubled down on commodities with a big bet on copper.
The result: His CGM Focus fund was up 66% through early December - while juicing his returns with short positions on Indymac and Countrywide Financial, mortgage lenders whose stocks have been circling the drain.
With that kind of track record, we listened when Heebner laid out an argument that $100 oil is not only coming but will be here to stay. "There is still strong growth in Latin America, China, India, and a host of smaller countries like Poland and Thailand," he says.
That means a need for some 1.5 million more barrels of oil a day. The problem, Heebner explains, isn't just finding another 1.5 million barrels; it's finding them even as some of the most productive oil fields in the world are declining.
Heebner, who is a fanatical researcher, questions the conventional view that OPEC has enough spare capacity to fill much of that void. Heebner cites one Saudi Arabian source whom he declines to name who asserts that output at Ghawa r- a legendary Saudi field that produces about 6% of the world's oil - is declining at 9% a year. (The Saudi authorities vociferously dispute this.)
"So I'm connecting all the dots," Heebner says. "It's a tight situation to start with, but add to that a loss of a million barrels a day for the Saudis, and suddenly it gets very interesting on the upside for the price of oil."
That brings us to Petrobras (PBR), Brazil's largest oil company and the stock Heebner thinks is the best way to play oil right now. With petroleum prices so high, a big risk for oil companies is that host countries will demand a bigger and bigger share of the profits in the form of taxes or royalties. "One way you can avoid this," says Heebner, "is if the government owns half the company you've invested in. That's Petrobras."
Petrobras is cheap enough, at 16 times earnings, that it can be a winning investment even if Heebner is proven wrong about $100 oil. The company just announced a huge find offshore from Rio de Janeiro, a field said to have up to eight billion barrels of recoverable oil. (See correction.)
Morningstar: Top Value Manager Even Gloomier on 2008.
Quotes:
Just when you thought Bob Rodriguez couldn't get any gloomier, the highly regarded value investor has become even more downbeat.
Rodriguez, the hugely successful manager of FPA Capital, recently announced he put a halt to purchases of stocks and high-yield bonds at both portfolios on Dec. 14. His decision is a reaction to the subprime mortgage-induced credit crunch, which he expects to worsen in coming months. Rodriguez says he'll review his actions weekly, but he doesn't anticipate any change in course until February or March 2008.
Rodriguez's move is virtually unprecedented. Many investors, including Rodriguez himself, aren't shy retreating to cash when they're nervous. But few money managers have ever publicly foresworn stocks and bonds altogether.
....
As a result, Rodriguez's prognosis for the economy in 2008 is grim. In his September 2007 letter to FPA Capital shareholders, he wrote that the odds of a recession were 50% or greater. But in a conversation with Morningstar, he noted that as recently as a month ago, he would have placed the odds at 70%. Now he says the odds are closer to 100%.
There are differences; Heebner is a growth oriented manager, with an 'anticipate and ride the momentum' style, while Rodriguez is value oriented and generally more conservative. Both have participated in the energy sector over the past few years, Heebner with a mix of production and service, Rodriguez a little more tilted to service. Both also managed to avoid the housing/financial debt crisis, Heebner by riding and then shorting the homebuilders, Rodriguez by dumping his mortgage bond related investments before the slaughter.
Of the two, Heebner has the super hot hand right now, up 60%+ this year, and up a Warren Buffet like 24% over the past 10 years. Rodriguez is having a bad year this year, but has a solid long term record.
It's interesting to note how different their calls on 2008 are. Heebner believes the economy will escape recession in 2008, and continues to be bullish on global growth and the energy sector in particular. His favorite energy stock right now is Petrobras, but note that Heebner can and does change his mind on a dime. Rodriguez, on the other hand, believes a recession in 2008 is likely a certainty.
Personally, I am leaning more towards Robert Rodriguez's outlook, but I will let the market guide me in my positions. Disclosure: I also own Petrobras.
Kiplinger.com: Heebner's World View.
Quotes:
Ken Heebner played the market like a fiddle in 2007. His CGM Focus fund (symbol CGMFX) gained nearly 70% to November 12 (when the January issue went to print), crushing the S&P 500 by 65 percentage points. As of December 17, the fund was up 66%. We visited Heebner at his office, high above Boston Harbor, to get his take on the current environment.
Although the U.S. housing market is mired in a depression, says Heebner, he thinks the economy will still escape recession in 2008. "It really takes a sledgehammer blow to turn this economy down, and I don't think the housing market itself is that blow," he says.
....
His favorite sectors -- energy, industrial raw materials, infrastructure builders and agribusiness -- satisfy the voracious appetites of fast-growing emerging markets. For instance, he recently had 30% of his fund's assets in oil-production and oil-services companies. "As people go from bicycles to motorcycles to cars, there is a big increase in fuel consumption," he says.
Heebner is bullish on Petrobras, an oil giant half-owned by the Brazilian government. He reckons that Petrobras will be able to raise production significantly over the next five years, based on deep-water offshore discoveries. It announced recently that one of its deep-water sites may contain up to eight billion barrels of oil and natural-gas equivalents. Heebner also likes oil-services outfits, such as Baker Hughes and Schlumberger, that are able to sell globally to national oil companies, such as Saudi Aramco. "The oil-services company has really replaced the international oil company as the Western face of oil production," he says.
Fortune: The best stocks for 2008.
Quotes:
Petrobras
We're on record as saying that $95 a barrel is not a sustainable price for oil. Yet The Hottest Fund Manager in America - a.k.a. CGM's Ken Heebner- now has us hedging our bets.
For those unfamiliar with Heebner, understand that his stock picking over the past eight years has been genius (as it has been for much of his 30-year career). He made a bundle short-selling tech and telecom stocks in 2000. He bet big on homebuilders in 2001 only to get out just before they crashed. He plowed his homebuilder profits into energy stocks in 2005 and eventually doubled down on commodities with a big bet on copper.
The result: His CGM Focus fund was up 66% through early December - while juicing his returns with short positions on Indymac and Countrywide Financial, mortgage lenders whose stocks have been circling the drain.
With that kind of track record, we listened when Heebner laid out an argument that $100 oil is not only coming but will be here to stay. "There is still strong growth in Latin America, China, India, and a host of smaller countries like Poland and Thailand," he says.
That means a need for some 1.5 million more barrels of oil a day. The problem, Heebner explains, isn't just finding another 1.5 million barrels; it's finding them even as some of the most productive oil fields in the world are declining.
Heebner, who is a fanatical researcher, questions the conventional view that OPEC has enough spare capacity to fill much of that void. Heebner cites one Saudi Arabian source whom he declines to name who asserts that output at Ghawa r- a legendary Saudi field that produces about 6% of the world's oil - is declining at 9% a year. (The Saudi authorities vociferously dispute this.)
"So I'm connecting all the dots," Heebner says. "It's a tight situation to start with, but add to that a loss of a million barrels a day for the Saudis, and suddenly it gets very interesting on the upside for the price of oil."
That brings us to Petrobras (PBR), Brazil's largest oil company and the stock Heebner thinks is the best way to play oil right now. With petroleum prices so high, a big risk for oil companies is that host countries will demand a bigger and bigger share of the profits in the form of taxes or royalties. "One way you can avoid this," says Heebner, "is if the government owns half the company you've invested in. That's Petrobras."
Petrobras is cheap enough, at 16 times earnings, that it can be a winning investment even if Heebner is proven wrong about $100 oil. The company just announced a huge find offshore from Rio de Janeiro, a field said to have up to eight billion barrels of recoverable oil. (See correction.)
Morningstar: Top Value Manager Even Gloomier on 2008.
Quotes:
Just when you thought Bob Rodriguez couldn't get any gloomier, the highly regarded value investor has become even more downbeat.
Rodriguez, the hugely successful manager of FPA Capital, recently announced he put a halt to purchases of stocks and high-yield bonds at both portfolios on Dec. 14. His decision is a reaction to the subprime mortgage-induced credit crunch, which he expects to worsen in coming months. Rodriguez says he'll review his actions weekly, but he doesn't anticipate any change in course until February or March 2008.
Rodriguez's move is virtually unprecedented. Many investors, including Rodriguez himself, aren't shy retreating to cash when they're nervous. But few money managers have ever publicly foresworn stocks and bonds altogether.
....
As a result, Rodriguez's prognosis for the economy in 2008 is grim. In his September 2007 letter to FPA Capital shareholders, he wrote that the odds of a recession were 50% or greater. But in a conversation with Morningstar, he noted that as recently as a month ago, he would have placed the odds at 70%. Now he says the odds are closer to 100%.
Sunday, December 23, 2007
A chicken in every pot, and $1.5099 oil for every SUV in the garage.
When the race first started, I heard from a lot of people that this woman was going to win. I couldn't see it then, and I don't see it now.
This news byte is hilarious to me either way. Oil prices flit around in the short term, but longer term they are ultimately determined by supply and demand, not by speculators or pandering politicians.
If they really wanted to cut oil use they would put a straight tax on it, a significant one, as they do in Europe. But because they don't like to take tough measures (as we don't - they are elected by us), our politicians do quarter measures like raising the MPG requirements.
Daily news: Elect me and oil prices instantly drop, says Hillary Clinton in Iowa.
This news byte is hilarious to me either way. Oil prices flit around in the short term, but longer term they are ultimately determined by supply and demand, not by speculators or pandering politicians.
If they really wanted to cut oil use they would put a straight tax on it, a significant one, as they do in Europe. But because they don't like to take tough measures (as we don't - they are elected by us), our politicians do quarter measures like raising the MPG requirements.
Daily news: Elect me and oil prices instantly drop, says Hillary Clinton in Iowa.
Thursday, December 06, 2007
Charles Nenner: 2008 to be rough.
In a bit of a hurry, but Charles Nenner predicting a stock market rally into the end of the year, then a pretty rough 2008, and a deflation scare.
There are no absolutes, but under most scenarios, a deflation scare doesn't have bullish implications for oil or oil stocks.
There are no absolutes, but under most scenarios, a deflation scare doesn't have bullish implications for oil or oil stocks.
Tuesday, November 27, 2007
Goldman: Sell Smoke 'em if you got 'em.
Goldman Sachs basically downgrading the US economy, saying there's a 45% chance of a US recession next year, and turns neutral on integrated oil and oil service ['oil service' corrected from earlier 'refiners' sorry.], among other things.
Oh, but they figure everybody will be stressed out enough that they'll smoke more. Think MO. Actually, that stock just makes money no matter what happens, even as they kill their best customers. I digress..
CNBC: Goldman Turning Bearish on US.
More available here.
Oh, but they figure everybody will be stressed out enough that they'll smoke more. Think MO. Actually, that stock just makes money no matter what happens, even as they kill their best customers. I digress..
CNBC: Goldman Turning Bearish on US.
More available here.
The fat lady gets a Prius.
Note the prediction of an oil price drop to $60 to $80 over the next several years as consumption actually declines. Note also that Henry Groppe has a track record of solid predictions. (search for his name, I'm in a rush right now).
The Aspen Times: Where virtue, market meet.
Quotes:
And it's happened. Americans have responded. People who don't need trucks to visit the mall are looking for more fuel-efficient vehicles, and the guzzlers are sitting on the lots. Seems to be a recent change.
To find out how recent, I consulted an oil-price analyst — not just any energy expert, but Henry Groppe, a Houston-based veteran and independent thinker. "All our work indicates consumption has actually been flat these three years," he said.
In 1980, when the Iranian revolution sent oil prices soaring, everyone else — Exxon, Shell, the U.S. Department of Energy — predicted that a barrel of oil would soon cost $80, $85, $100 a barrel. In a contrarian forecast, now legend, Groppe said that oil would fall below $15 a barrel. And that's what happened.
Why did his firm, Groppe, Long & Littell, expect the price collapse? "We thought there would be a significant drop in consumption," he said.
Groppe sees consumption dropping now. "Everybody is still in denial about the magnitude of the changes." He predicts the annual average price of oil will fall back to $60 to $80 a barrel in the next several years.
The faulty forecasts, Groppe says, reflect a reliance on the flawed work of the International Energy Agency. His group gathers its own data.
For example, the IEA last year forecast a major rise in production by nations outside of the Organization of Petroleum Exporting Countries. The actual increase was tiny.
"The Saudis made a mistake taking the IEA forecast seriously and cutting production when they should not have done it," Groppe said.
That raised prices to the point where consumers started using less energy. The Saudis want us hooked.
As for the Americans' part in this, Groppe thinks that "the most important thing is more efficient usage — particularly greater mileage performance of our vehicles."
The Aspen Times: Where virtue, market meet.
Quotes:
And it's happened. Americans have responded. People who don't need trucks to visit the mall are looking for more fuel-efficient vehicles, and the guzzlers are sitting on the lots. Seems to be a recent change.
To find out how recent, I consulted an oil-price analyst — not just any energy expert, but Henry Groppe, a Houston-based veteran and independent thinker. "All our work indicates consumption has actually been flat these three years," he said.
In 1980, when the Iranian revolution sent oil prices soaring, everyone else — Exxon, Shell, the U.S. Department of Energy — predicted that a barrel of oil would soon cost $80, $85, $100 a barrel. In a contrarian forecast, now legend, Groppe said that oil would fall below $15 a barrel. And that's what happened.
Why did his firm, Groppe, Long & Littell, expect the price collapse? "We thought there would be a significant drop in consumption," he said.
Groppe sees consumption dropping now. "Everybody is still in denial about the magnitude of the changes." He predicts the annual average price of oil will fall back to $60 to $80 a barrel in the next several years.
The faulty forecasts, Groppe says, reflect a reliance on the flawed work of the International Energy Agency. His group gathers its own data.
For example, the IEA last year forecast a major rise in production by nations outside of the Organization of Petroleum Exporting Countries. The actual increase was tiny.
"The Saudis made a mistake taking the IEA forecast seriously and cutting production when they should not have done it," Groppe said.
That raised prices to the point where consumers started using less energy. The Saudis want us hooked.
As for the Americans' part in this, Groppe thinks that "the most important thing is more efficient usage — particularly greater mileage performance of our vehicles."
Monday, November 26, 2007
Please God, not the cover.
Making the cover is usually a great contrarian signal. Not there yet, but if oil slices through $100 too easily, look out for the Man of the Year (also a contrarian signal) to be oil or alternative energy related.
Time: Peak Possibilities
Quotes:
In July 2006, the world's oil rigs pumped out crude at a rate of nearly 85.5 million bbl. a day. They haven't come close since, even as prices have risen from $75 to $98 per bbl. Which raises a question of potentially epochal significance: Is it all downhill from here?
Time: Peak Possibilities
Quotes:
In July 2006, the world's oil rigs pumped out crude at a rate of nearly 85.5 million bbl. a day. They haven't come close since, even as prices have risen from $75 to $98 per bbl. Which raises a question of potentially epochal significance: Is it all downhill from here?
Sunday, November 18, 2007
Page A1, with a bullet.
It's not really polite for me to quote the whole article, so I suggest you buy a copy to read. And for posterity, of course.
The Wall Street Journal: Oil Officials See Limit Looming on Production.
Quotes:
A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.
Some predict that, despite the world's fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.
The world certainly won't run out of oil any time soon. And plenty of energy experts expect sky-high prices to hasten the development of alternative fuels and improve energy efficiency. But evidence is mounting that crude-oil production may plateau before those innovations arrive on a large scale. That could set the stage for a period marked by energy shortages, high prices and bare-knuckled competition for fuel.
....
The emergence of a production ceiling would mark a monumental shift in the energy world. Oil production has averaged a 2.3% annual growth rate since 1965, according to statistics compiled by British oil giant BP PLC. This expanding pool of oil, most of it priced cheaply by today's standards, fueled the post-World War II global economic expansion.
....
Compounding the problem: Most of the world's biggest fields are aging, and production at them is declining rapidly. So, just to keep global production at current levels, the industry needs to add new production of at least four million daily barrels, every year. That need is roughly five times the daily production of Alaska, with its big Prudhoe Bay field -- and it doesn't assume any demand growth at all.
Rate of Decline
Mr. Simmons scoffs at estimates that production from proven fields will decline only 4.5% a year. He thinks a more realistic rate of decline is 8% to 10% a year, especially because modern technology actually succeeds in depleting fields faster.
If he's right, the industry needs to add new daily production of at least eight million barrels -- 10 times current Alaskan production -- just to stay even.
The Wall Street Journal: Oil Officials See Limit Looming on Production.
Quotes:
A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.
Some predict that, despite the world's fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.
The world certainly won't run out of oil any time soon. And plenty of energy experts expect sky-high prices to hasten the development of alternative fuels and improve energy efficiency. But evidence is mounting that crude-oil production may plateau before those innovations arrive on a large scale. That could set the stage for a period marked by energy shortages, high prices and bare-knuckled competition for fuel.
....
The emergence of a production ceiling would mark a monumental shift in the energy world. Oil production has averaged a 2.3% annual growth rate since 1965, according to statistics compiled by British oil giant BP PLC. This expanding pool of oil, most of it priced cheaply by today's standards, fueled the post-World War II global economic expansion.
....
Compounding the problem: Most of the world's biggest fields are aging, and production at them is declining rapidly. So, just to keep global production at current levels, the industry needs to add new production of at least four million daily barrels, every year. That need is roughly five times the daily production of Alaska, with its big Prudhoe Bay field -- and it doesn't assume any demand growth at all.
Rate of Decline
Mr. Simmons scoffs at estimates that production from proven fields will decline only 4.5% a year. He thinks a more realistic rate of decline is 8% to 10% a year, especially because modern technology actually succeeds in depleting fields faster.
If he's right, the industry needs to add new daily production of at least eight million barrels -- 10 times current Alaskan production -- just to stay even.
Tuesday, November 13, 2007
Will the wolf bull survive?
A very serious question. Trendlines, support lines, and the next week or two are very important, as are stop losses.
Barron's: Are Energy Stocks Out of Energy?
Quotes:
THE AMAZING RUN IN THE ENERGY SECTOR has hit a ceiling. While the much-ballyhooed $100 per barrel price for oil is very near, it looks as if it is going to have to wait just a while as the market shakes out some of its excesses.
....
The questions now are, "How far down can the ETF fall?" and "Is the energy bull market over?"
The answer to the latter question is "no." The long-term trend is still very much in place and the trendline that defines it can help us answer the former question. A correction of another five or six points would place the ETF squarely on that trendline, as well as on key chart support from last summer. In other words, a drop to the mid to high 60s should be viewed as a buying opportunity at this time.
....
If we make the fundamental assumption that energy demand is not going away and the technical assumption that long-term trends are still intact then we have a sector to watch for bargains in the near future. The only caveat is that energy stocks are still stocks and will be affected by the major trend in the stock market. If you don't think the market is heading into a bear then energy stocks should provide opportunity soon.
CNBC: Commodities Bubble?
Louise Yamada, Louise Yamada Technical Research Advisors.
Quotes:
We think that commodities are still in structural bull markets, so, I would say correction at this point, because the overall market has been looking like it's wanting to correct.
On the bear case, Jim Melcher, up 175% this year on bets against subprime and housing:
NY Sun: Talk of Worst Recession Since the 1930s.
Quotes:
Mr. Melcher, a market bear, had some pretty discouraging words. "What I think is not good for the country, but good for me." he says. His basic advice to the country's roughly 80 million stock players: Run for the hills — the worst is far from over. An investor's stock portfolio now, he believes, should be only about half of what it might normally be.
With the housing market in a state of collapse — and he says he believes it is far from over — Mr. Melcher argues that average homeowners will not be able to withstand the kind of recession he sees, given the added burdens of rising energy and food costs, and continued deterioration in the credit markets.
....
Asked how he could conceivably give credibility to such an ominous forecast, Mr. Melcher observes: "I've never seen a market with more risk and what's significant is that risk is not yet priced in."
Given his grim expectations, he says there is no equity market in the world he would play right now. "When the American market goes down, other equity markets around the world should follow," he says.
As of now, his portfolio is pretty much devoid of stocks, save for an exchange-traded fund focused on leading companies in oil services, which he regards as an ongoing growth industry. The ETF, the Oil Services Holders Trust, trades on the American Stock Exchange under the symbol OIH. Although enthusiastic about the industry's growth prospects, Mr. Melcher says he would be reluctant to recommend oil services stock because he believes the price of oil could easily drop 50% in the recession he envisions.
Barron's: Are Energy Stocks Out of Energy?
Quotes:
THE AMAZING RUN IN THE ENERGY SECTOR has hit a ceiling. While the much-ballyhooed $100 per barrel price for oil is very near, it looks as if it is going to have to wait just a while as the market shakes out some of its excesses.
....
The questions now are, "How far down can the ETF fall?" and "Is the energy bull market over?"
The answer to the latter question is "no." The long-term trend is still very much in place and the trendline that defines it can help us answer the former question. A correction of another five or six points would place the ETF squarely on that trendline, as well as on key chart support from last summer. In other words, a drop to the mid to high 60s should be viewed as a buying opportunity at this time.
....
If we make the fundamental assumption that energy demand is not going away and the technical assumption that long-term trends are still intact then we have a sector to watch for bargains in the near future. The only caveat is that energy stocks are still stocks and will be affected by the major trend in the stock market. If you don't think the market is heading into a bear then energy stocks should provide opportunity soon.
CNBC: Commodities Bubble?
Louise Yamada, Louise Yamada Technical Research Advisors.
Quotes:
We think that commodities are still in structural bull markets, so, I would say correction at this point, because the overall market has been looking like it's wanting to correct.
On the bear case, Jim Melcher, up 175% this year on bets against subprime and housing:
NY Sun: Talk of Worst Recession Since the 1930s.
Quotes:
Mr. Melcher, a market bear, had some pretty discouraging words. "What I think is not good for the country, but good for me." he says. His basic advice to the country's roughly 80 million stock players: Run for the hills — the worst is far from over. An investor's stock portfolio now, he believes, should be only about half of what it might normally be.
With the housing market in a state of collapse — and he says he believes it is far from over — Mr. Melcher argues that average homeowners will not be able to withstand the kind of recession he sees, given the added burdens of rising energy and food costs, and continued deterioration in the credit markets.
....
Asked how he could conceivably give credibility to such an ominous forecast, Mr. Melcher observes: "I've never seen a market with more risk and what's significant is that risk is not yet priced in."
Given his grim expectations, he says there is no equity market in the world he would play right now. "When the American market goes down, other equity markets around the world should follow," he says.
As of now, his portfolio is pretty much devoid of stocks, save for an exchange-traded fund focused on leading companies in oil services, which he regards as an ongoing growth industry. The ETF, the Oil Services Holders Trust, trades on the American Stock Exchange under the symbol OIH. Although enthusiastic about the industry's growth prospects, Mr. Melcher says he would be reluctant to recommend oil services stock because he believes the price of oil could easily drop 50% in the recession he envisions.
Thursday, November 08, 2007
See Dick Run [From the Financials].
In case you get the urge to buy the financials. He's not advocating shorting, but he sure isn't buying them either.
Bloomberg: Dick Bove of Punk Ziegel.
Bloomberg: Dick Bove of Punk Ziegel.
Tuesday, November 06, 2007
John Roque: Oil Good, Financials Bad.
Bill Miller of Legg Mason called the other day for buying the financials. That was a call he must have placed from his yacht off a very sunny coast somewhere. Though some of them may have seen the worst of their downside, I'd say financials have a long road ahead of them. Jim Rogers says avoid the financials like the plague, and apparently he's still short.
John Roque of Natexis Bleichroeder is a technical analyst, he looks at charts to try to determine trends.
CNBC: Fast Money Chartology.
Quotes:
"We agree that the financials now, and this might be a bold call, are actually akin to what the semis were in 2000 when they broke. The Street wasted a lot of energy and time trying to pick the bottom, the better thing to do is just to leave them alone, they're going to be underperformers for a long time."
....
"The trend for oil, for gold, for silver, for all commodities remains up. The last three major commodities cycles are 14 years in length. You could start this one in 1999, this is the eighth year, if history is some guide, we still have some time."
John Roque of Natexis Bleichroeder is a technical analyst, he looks at charts to try to determine trends.
CNBC: Fast Money Chartology.
Quotes:
"We agree that the financials now, and this might be a bold call, are actually akin to what the semis were in 2000 when they broke. The Street wasted a lot of energy and time trying to pick the bottom, the better thing to do is just to leave them alone, they're going to be underperformers for a long time."
....
"The trend for oil, for gold, for silver, for all commodities remains up. The last three major commodities cycles are 14 years in length. You could start this one in 1999, this is the eighth year, if history is some guide, we still have some time."
Monday, November 05, 2007
$94 oil? Still sorta cheap..
Somebody forgot to mention that:
- crude oil, natural gas or coal is an input to some (many?) of the 'alternative' fuels.
- most of them don't scale well, particularly not to the volumes we use (currently..)
- the current infrastructure was built for and around oil; if you need to build an infrastructure for an alternative, you're going to have to factor that into the cost too
There's always the possibility of dramatic breakthroughs, but oil is still amazingly useful and relatively cheap, as Matt Simmons would be quick to point out.
Wall Street Journal: Biofuel Costs Hurt Effort To Curb Oil Price.
Quotes:
Rising costs of biofuels and other alternative energies are making them less viable as substitutes for crude oil, a development that could frustrate efforts to bring oil prices down in the years ahead.
A few years ago, many energy economists predicted that higher oil prices would ensure the success of alternative energies such as biodiesel or wind power by making them more financially attractive. In many cases, though, the opposite has occurred: Even as crude-oil prices approach $100 a barrel, some alternatives look less attractive than in the past.
One reason: Energy demand is now so intense that supplies of just about every kind of fuel are in short supply, driving up prices of the raw materials involved in making many alternative energies. Some biofuels also rely on agricultural commodities that already are facing higher demand as foodstuffs, a situation which drives up prices further.
The problem is most acute for crop-based alternative fuels, like ethanol and biodiesel, though it has also proved true to some degree for solar power, nuclear power and other competing energy sources.
Biodiesel, a fuel made from farm crops like soybean oil and palm oil, was in some cases supposed to be economically competitive with crude-oil prices as low as $50 a barrel, according to analysts who studied the industry.
But a sharp rise in the price of biodiesel raw materials -- including a more than 90% jump in palm-oil prices over the past three years -- has dramatically altered the economics of the industry. M.R. Chandran, former head of the Malaysian Palm Oil Association, says crude oil would now have to be as much as $130 a barrel before palm-oil-based biodiesel is competitive.
- crude oil, natural gas or coal is an input to some (many?) of the 'alternative' fuels.
- most of them don't scale well, particularly not to the volumes we use (currently..)
- the current infrastructure was built for and around oil; if you need to build an infrastructure for an alternative, you're going to have to factor that into the cost too
There's always the possibility of dramatic breakthroughs, but oil is still amazingly useful and relatively cheap, as Matt Simmons would be quick to point out.
Wall Street Journal: Biofuel Costs Hurt Effort To Curb Oil Price.
Quotes:
Rising costs of biofuels and other alternative energies are making them less viable as substitutes for crude oil, a development that could frustrate efforts to bring oil prices down in the years ahead.
A few years ago, many energy economists predicted that higher oil prices would ensure the success of alternative energies such as biodiesel or wind power by making them more financially attractive. In many cases, though, the opposite has occurred: Even as crude-oil prices approach $100 a barrel, some alternatives look less attractive than in the past.
One reason: Energy demand is now so intense that supplies of just about every kind of fuel are in short supply, driving up prices of the raw materials involved in making many alternative energies. Some biofuels also rely on agricultural commodities that already are facing higher demand as foodstuffs, a situation which drives up prices further.
The problem is most acute for crop-based alternative fuels, like ethanol and biodiesel, though it has also proved true to some degree for solar power, nuclear power and other competing energy sources.
Biodiesel, a fuel made from farm crops like soybean oil and palm oil, was in some cases supposed to be economically competitive with crude-oil prices as low as $50 a barrel, according to analysts who studied the industry.
But a sharp rise in the price of biodiesel raw materials -- including a more than 90% jump in palm-oil prices over the past three years -- has dramatically altered the economics of the industry. M.R. Chandran, former head of the Malaysian Palm Oil Association, says crude oil would now have to be as much as $130 a barrel before palm-oil-based biodiesel is competitive.
Supply constrained = peak?
This Bloomberg article is about coal, but what I find interesting is the comparisons between coal and oil use and prices dating back to 1998 and 2002.
Both coal and oil are energy sources, but they are not perfect substitutes for one another; coal is used mostly for generating electricity, while oil is mostly used for transportation. However, a growing world economy would (and has) demanded more of both.
Economics tells us: With demand up, prices or supply should rise. If prices get too high, demand will likely fall.
While apparently coal use (demand) has grown 27% since 2002, or three times faster than crude, oil prices have risen much more than coal; according to this article, from roughly parity in 1998 to where oil is now 5 times as expensive as coal.
So coal supply is growing in response to the price rise.
With oil on the other hand, we are seeing a much larger price response (rise). This suggests supply is a problem (i.e. supply has not risen in response to much higher prices), and demand is, so far, not backing off much.
Those pundits who believe the oil price rise is unjustified/temporary suggest that the oil price rise is due to (pick any 3):
- speculators
- terrorist/war premium
- OPEC
- oil companies manipulation
- oil companies refusing to invest
We can't rule those out, and they all probably add a little something to the mix, but these facts suggest that supply is the constraint, just as it would be as we get closer to a global peak in oil production.
Bloomberg: Gore Nightmare Wins as Europe Pays to Ship U.S. Coal.
Quotes:
Now that the price of coal is at a historic low relative to oil, there's no stopping consumers and producers alike from embracing Al Gore's nightmare.
A ton of U.S. coal is so cheap at about $47 that European utilities will pay $50 to ship it across the Atlantic, according to Galbraith's Ltd., a 263-year-old London shipbroker. While oil and coal cost the same as recently as 1998, West Texas Intermediate crude is five times more expensive after climbing to a record $96.24 on Nov. 1.
Peabody Energy Corp., Consol Energy Inc. and Arch Coal Inc., the three biggest U.S. coal companies, forecast the largest increase in exports in 20 years, degrading the call for a moratorium on coal plants by former U.S. Vice President and this year's Nobel Peace Prize winner Al Gore. Coal use worldwide has grown 27 percent since 2002, three times faster than crude, said BP Plc. U.S. East Coast coal has risen 71 percent, while oil tripled on the New York Mercantile Exchange.
``Coal is by far the cheapest fuel because there's no price on how much damage it causes,'' said John Holdren, a Harvard University professor of environmental science and director of the Woods Hole Research Center in Falmouth, Massachusetts. ``Unless you get policies to put a price on carbon dioxide and other emissions, no other plants can compete.''
U.S. coal prices are equal to $1.98 for each million British thermal units of energy, compared with $12.51 for fuel oil and $6.91 for natural gas, data compiled by Bloomberg show. A million British thermal units is the equivalent of eight gallons of gasoline.
Both coal and oil are energy sources, but they are not perfect substitutes for one another; coal is used mostly for generating electricity, while oil is mostly used for transportation. However, a growing world economy would (and has) demanded more of both.
Economics tells us: With demand up, prices or supply should rise. If prices get too high, demand will likely fall.
While apparently coal use (demand) has grown 27% since 2002, or three times faster than crude, oil prices have risen much more than coal; according to this article, from roughly parity in 1998 to where oil is now 5 times as expensive as coal.
So coal supply is growing in response to the price rise.
With oil on the other hand, we are seeing a much larger price response (rise). This suggests supply is a problem (i.e. supply has not risen in response to much higher prices), and demand is, so far, not backing off much.
Those pundits who believe the oil price rise is unjustified/temporary suggest that the oil price rise is due to (pick any 3):
- speculators
- terrorist/war premium
- OPEC
- oil companies manipulation
- oil companies refusing to invest
We can't rule those out, and they all probably add a little something to the mix, but these facts suggest that supply is the constraint, just as it would be as we get closer to a global peak in oil production.
Bloomberg: Gore Nightmare Wins as Europe Pays to Ship U.S. Coal.
Quotes:
Now that the price of coal is at a historic low relative to oil, there's no stopping consumers and producers alike from embracing Al Gore's nightmare.
A ton of U.S. coal is so cheap at about $47 that European utilities will pay $50 to ship it across the Atlantic, according to Galbraith's Ltd., a 263-year-old London shipbroker. While oil and coal cost the same as recently as 1998, West Texas Intermediate crude is five times more expensive after climbing to a record $96.24 on Nov. 1.
Peabody Energy Corp., Consol Energy Inc. and Arch Coal Inc., the three biggest U.S. coal companies, forecast the largest increase in exports in 20 years, degrading the call for a moratorium on coal plants by former U.S. Vice President and this year's Nobel Peace Prize winner Al Gore. Coal use worldwide has grown 27 percent since 2002, three times faster than crude, said BP Plc. U.S. East Coast coal has risen 71 percent, while oil tripled on the New York Mercantile Exchange.
``Coal is by far the cheapest fuel because there's no price on how much damage it causes,'' said John Holdren, a Harvard University professor of environmental science and director of the Woods Hole Research Center in Falmouth, Massachusetts. ``Unless you get policies to put a price on carbon dioxide and other emissions, no other plants can compete.''
U.S. coal prices are equal to $1.98 for each million British thermal units of energy, compared with $12.51 for fuel oil and $6.91 for natural gas, data compiled by Bloomberg show. A million British thermal units is the equivalent of eight gallons of gasoline.
Sunday, November 04, 2007
It's Hard Out Here for a Peak Oil Pimp.
Actually, with $90+ oil, and articles like these, it's not so hard anymore. I used to make a proactive effort to try to explain the concept of peak oil and the possibilities of oil investing at work, in personal conversations, at dinner parties, but I found people were rather blase about the idea, for a variety of reasons. [Though some co-workers did eventually invest and make some nice money. Though at that point it could be more attributed to trend following.]
Now I just blog and generally keep my mouth shut, unless somebody else brings it up.
International Herald Tribune: IEA says oil prices will stay 'very high,' threatening global growth.
Quotes:
The rapidly growing appetite for fossil fuels in China and India is likely to help keep oil prices high for the foreseeable future - threatening a global economic slowdown, a top energy expert said Wednesday.
The unusually stark warning by Fatih Birol, chief economist of the International Energy Agency, about the impact of Asia's emerging giants comes as the agency prepares to issue its influential annual report next week, which will focus on China and India.
In preparing the report, Birol said he had experienced "an earthquake" in his thinking.
"China plus India are going to dominate growth in the oil markets," Birol said during an interview at an oil industry conference. During the past 18 months, he noted, more than two-thirds of the growth in global oil demand came from China and India alone.
Demand for oil in China, he added, would eventually equal the entire supply from Saudi Arabia.
Now I just blog and generally keep my mouth shut, unless somebody else brings it up.
International Herald Tribune: IEA says oil prices will stay 'very high,' threatening global growth.
Quotes:
The rapidly growing appetite for fossil fuels in China and India is likely to help keep oil prices high for the foreseeable future - threatening a global economic slowdown, a top energy expert said Wednesday.
The unusually stark warning by Fatih Birol, chief economist of the International Energy Agency, about the impact of Asia's emerging giants comes as the agency prepares to issue its influential annual report next week, which will focus on China and India.
In preparing the report, Birol said he had experienced "an earthquake" in his thinking.
"China plus India are going to dominate growth in the oil markets," Birol said during an interview at an oil industry conference. During the past 18 months, he noted, more than two-thirds of the growth in global oil demand came from China and India alone.
Demand for oil in China, he added, would eventually equal the entire supply from Saudi Arabia.
Friday, November 02, 2007
Crude Realities with Matt Simmons.
Interesting interview, particularly the fact that the CNBC anchor, Becky Quick, keeps overtly referring to "peak oil".
Sea change? I think so.
$100 oil will do that to you, I suppose, as will Matt Simmons' calculations that fair value for oil is, oh, around $300 a barrel or so.
CNBC: Crude Realities.
Sea change? I think so.
$100 oil will do that to you, I suppose, as will Matt Simmons' calculations that fair value for oil is, oh, around $300 a barrel or so.
CNBC: Crude Realities.
Energy is early in the cycle.
CNBC: Jerry Castellini
Jerry Castellini, President/CIO at CastleArk Management talks about the Fed, housing and then oil.
Quotes:
"This oil move, it's ironically still in that debate phase, where people are still trying to debate where $50, or $30, or $60; the reality is the stuff has to be priced at $100 to $200 over the next 10 years to attract enough capital to keep it flowing."
....
"It's still way early, Mark. This is no different than the retail/consumer space in the 80's, or the tech space in the 90's. This is a 10+ year cycle. We haven't even found that price point yet where consumers will stop using it."
[Maybe soon enough we will..]
Kenneth Heebner, CGM Capital Management, highlights one of his favorite stocks, Petrobras.
CNBC: Kenneth Heebner.
Jerry Castellini, President/CIO at CastleArk Management talks about the Fed, housing and then oil.
Quotes:
"This oil move, it's ironically still in that debate phase, where people are still trying to debate where $50, or $30, or $60; the reality is the stuff has to be priced at $100 to $200 over the next 10 years to attract enough capital to keep it flowing."
....
"It's still way early, Mark. This is no different than the retail/consumer space in the 80's, or the tech space in the 90's. This is a 10+ year cycle. We haven't even found that price point yet where consumers will stop using it."
[Maybe soon enough we will..]
Kenneth Heebner, CGM Capital Management, highlights one of his favorite stocks, Petrobras.
CNBC: Kenneth Heebner.
Wednesday, October 31, 2007
Alberta Royalty "Adjustments".
If you haven't already heard, Alberta wants to raise the royalties oil and gas producers are paying in the Canadian province. The theoretical fly in the ointment for the government is that several producers, among them the largest producers from oil sands, Suncor and Syncrude, have contracts that extend until 2015 or so that stipulate their royalties. [I believe Canadian Natural Resources also has a deal.] But as the energy minister of Alberta makes clear in this video, while there won't be unilateral adjustments to these contracts by the government, they are going to figure out a way to get their money one way or the other.
The clear message of this and the various other adjustments being made around the world: If you choose to invest in oil and gas producers, spread your money around. And note that as royalties rise, development hurdles usually get higher, some projects become potentially uneconomic, timelines extend, etc. This is thus bearish for some affected producers, but may be bullish for others elsewhere, as well as for oil prices in general.
Bloomberg Video: Knight of Alberta.
The clear message of this and the various other adjustments being made around the world: If you choose to invest in oil and gas producers, spread your money around. And note that as royalties rise, development hurdles usually get higher, some projects become potentially uneconomic, timelines extend, etc. This is thus bearish for some affected producers, but may be bullish for others elsewhere, as well as for oil prices in general.
Bloomberg Video: Knight of Alberta.
Monday, October 29, 2007
It's not easy being printing the green.
Come on Jim, tell us what you really think..
Bloomberg Video: Jim Rogers.
Quotes:
"I would urge everybody listening to your show to figure out ways to start getting money out of the US dollar.."
"We now have a madman at the head of the Federal Reserve.."
"... now America's given him the printing presses, and he is running them as fast as he can."
------------------------------------------------------------------
I'm not sure Bernanke has much choice. We've got a leaning tower of Pisa: too much debt, sliced and diced into too many derivatives, slipped into too many places. Jim Rogers advocates no more rate cuts, and a recession to clean out the mess. [Which is a heck of lot easier to advocate when you're not a working stiff.] He's looking for a Fed head with the backbone of Volcker, but I'm not sure you can be a Volcker, or even a demi-Volcker, in this highly visible media age.
The flipside of the lower dollar is it makes our exports more competitive. Exports seem to be the likely explanation why the whackage in housing hasn't taken the toll so far one would expect.
Bloomberg Video: Jim Rogers.
Quotes:
"I would urge everybody listening to your show to figure out ways to start getting money out of the US dollar.."
"We now have a madman at the head of the Federal Reserve.."
"... now America's given him the printing presses, and he is running them as fast as he can."
------------------------------------------------------------------
I'm not sure Bernanke has much choice. We've got a leaning tower of Pisa: too much debt, sliced and diced into too many derivatives, slipped into too many places. Jim Rogers advocates no more rate cuts, and a recession to clean out the mess. [Which is a heck of lot easier to advocate when you're not a working stiff.] He's looking for a Fed head with the backbone of Volcker, but I'm not sure you can be a Volcker, or even a demi-Volcker, in this highly visible media age.
The flipside of the lower dollar is it makes our exports more competitive. Exports seem to be the likely explanation why the whackage in housing hasn't taken the toll so far one would expect.
Somebody wake up Hicks.
Via The Oil Drum, a link to a copious set of notes from the recent ASPO Conference in Houston. The associated slides from the presentations are here.
P.S. The quote is from Aliens.
P.S. The quote is from Aliens.
Friday, October 26, 2007
Porsche. Oil. There is no [easy] substitute.
This is a very interesting article and research paper on energy alternatives. The stock market clearly supports solar and doubts ethanol, and the data in these support those views. We're a long way off from the vision of solar charged vehicles on a mass scale though.
MSN Money: Shuck the ethanol and let solar shine.
Quotes:
New research by a University of California petroleum engineering professor suggests that worldwide crude oil supplies will start to run so low over the next nine years that resource-blessed countries like Saudi Arabia will begin to hoard them for domestic use instead of exporting -- and states with large reservoirs of natural gas, like Montana, will seek ways to avoid sharing with less-advantaged neighbors like Oregon.
Attempts to forestall the political and economic damage by turning aggressively to agriculture for "renewable" transportation fuel in the form of ethanol will prove futile, according to professor Tad W. Patzek, as new calculations show that the entire surface of the Earth cannot create enough additional biomass to replace more than 10% of current fossil fuel use.
....
One better solution is solar energy created at the municipal level by massive photovoltaic cell facilities, at the street level by home-based grids and at the transportation level at lots where electric vehicles' batteries can be charged. Photovoltaic cells lose only about 80% of the sun's energy to dissipation, making them at least 100 times more efficient than ethanol after the fuel cost of growing and refining the biomass feedstack is accounted for.
MSN Money: Shuck the ethanol and let solar shine.
Quotes:
New research by a University of California petroleum engineering professor suggests that worldwide crude oil supplies will start to run so low over the next nine years that resource-blessed countries like Saudi Arabia will begin to hoard them for domestic use instead of exporting -- and states with large reservoirs of natural gas, like Montana, will seek ways to avoid sharing with less-advantaged neighbors like Oregon.
Attempts to forestall the political and economic damage by turning aggressively to agriculture for "renewable" transportation fuel in the form of ethanol will prove futile, according to professor Tad W. Patzek, as new calculations show that the entire surface of the Earth cannot create enough additional biomass to replace more than 10% of current fossil fuel use.
....
One better solution is solar energy created at the municipal level by massive photovoltaic cell facilities, at the street level by home-based grids and at the transportation level at lots where electric vehicles' batteries can be charged. Photovoltaic cells lose only about 80% of the sun's energy to dissipation, making them at least 100 times more efficient than ethanol after the fuel cost of growing and refining the biomass feedstack is accounted for.
Saturday, October 20, 2007
Deffeyes: It's here.
I have to give credit where credit is due: Kenneth Deffeyes' book "Hubbert's Peak" was my first introduction to peak oil. And what an eye opener it was!
Below is a recent lecture where he makes the case that we're right at the peak.
Whether he's got the timing right or not, we won't know for a bit, but thank you Kenneth Deffeyes for bringing it to our attention.
Kenneth Deffeyes: "Peak Oil: Here and Now".
Below is a recent lecture where he makes the case that we're right at the peak.
Whether he's got the timing right or not, we won't know for a bit, but thank you Kenneth Deffeyes for bringing it to our attention.
Kenneth Deffeyes: "Peak Oil: Here and Now".
Friday, October 19, 2007
Boone Pickens: $100 before $80.
Quite simply:
With production now of 85 million barrels of oil a day, and a 5-6% a year production decline going forward, Boone Pickens says we're going up until price kills demand.
Fox Business: Pickens on Oil
With production now of 85 million barrels of oil a day, and a 5-6% a year production decline going forward, Boone Pickens says we're going up until price kills demand.
Fox Business: Pickens on Oil
Wednesday, October 17, 2007
$87 Oil? Still kinda cheap.
When you compare to the 'alternatives', it makes you aware of just how valuable oil, and by extension natural gas, really is.
WSJ: Ethanol's Water Shortage.
Quotes:
Ethanol plants consume roughly four gallons of water to produce each gallon of fuel, but that's only a fraction of ethanol's total water habit. Cornell ecology professor David Pimentel says that when you count the water needed to grow the corn, one gallon of ethanol requires a staggering 1,700 gallons of H2O. Backers of the Senate bill say that less-thirsty technologies are just around the corner, which is what we've been hearing for years.
....
Ethanol's big environmental footprint is not limited to water, because biofuels like ethanol are highly inefficient. In September, the Chairman of the OECD's Roundtable on Sustainable Development released a report entitled, "Biofuels: Is the Cure Worse than the Disease?" Authors Richard Doornbosch and Ronald Steenblik compared the power density of different energy sources, measured in energy production per unit of the earth's area. Oil -- because it requires only a narrow hole in the earth and is extracted as a highly concentrated form of energy -- is up to 1,000 times more efficient than solar energy, which requires large panels collecting a less-concentrated form of energy known as the midday sun.
But even solar power is roughly 10 times as efficient as biomass-derived fuels like ethanol. In other words, growing the corn to produce ethanol means clearing land and killing animals on a massive scale, or converting land from food production to fuel production.
WSJ: Ethanol's Water Shortage.
Quotes:
Ethanol plants consume roughly four gallons of water to produce each gallon of fuel, but that's only a fraction of ethanol's total water habit. Cornell ecology professor David Pimentel says that when you count the water needed to grow the corn, one gallon of ethanol requires a staggering 1,700 gallons of H2O. Backers of the Senate bill say that less-thirsty technologies are just around the corner, which is what we've been hearing for years.
....
Ethanol's big environmental footprint is not limited to water, because biofuels like ethanol are highly inefficient. In September, the Chairman of the OECD's Roundtable on Sustainable Development released a report entitled, "Biofuels: Is the Cure Worse than the Disease?" Authors Richard Doornbosch and Ronald Steenblik compared the power density of different energy sources, measured in energy production per unit of the earth's area. Oil -- because it requires only a narrow hole in the earth and is extracted as a highly concentrated form of energy -- is up to 1,000 times more efficient than solar energy, which requires large panels collecting a less-concentrated form of energy known as the midday sun.
But even solar power is roughly 10 times as efficient as biomass-derived fuels like ethanol. In other words, growing the corn to produce ethanol means clearing land and killing animals on a massive scale, or converting land from food production to fuel production.
Party On, Kurt.
McDep.Com: Peak Oil is Here. [PDF]
Quote:
"A peak in world oil production under 85 million barrels daily (mbd) now looks like fact.."
Quote:
"A peak in world oil production under 85 million barrels daily (mbd) now looks like fact.."
Tuesday, October 16, 2007
Party On, Marion.
CNBC Video: Oil on the Rise.
Quote:
"Longer term, these [oil] prices are going higher, and this is kind of a wake up call, based on this whole peak oil theory that we're really starting to see come to fruition."
(BTW: Marion Hubbert King.)
Quote:
"Longer term, these [oil] prices are going higher, and this is kind of a wake up call, based on this whole peak oil theory that we're really starting to see come to fruition."
(BTW: Marion Hubbert King.)
Wednesday, October 03, 2007
Tightening the screw.
CNNMoney: America's top oil suppliers tightening taps on exports: CIBC World Markets.
Quotes:
Six of the largest oil suppliers to the US are poised to cut their global exports by nearly 2 million barrels a day by 2012, ramping up pressure on supply and price, and intensifying the focus on one of the last great deposits open to private investment: Canada's oil sands.
The projected cut, amounting to seven percent by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia, reflects the growing struggle in these countries to grow production and manage their own soaring rates of oil consumption, says Jeff Rubin, chief market strategist and chief economist, at CIBC World Markets, who will discuss his latest findings at the firm's Industrials Conference in New York City.
The trend of oil producing countries becoming major oil consumers extends beyond the top US suppliers, says Mr. Rubin. When similar conditions are factored in among the other major oil producers including OPEC, the supply crunch deepens to 3 million barrels a day, or an eight percent cut in global exports. "Soaring domestic demand is cannibalizing export capacity, and will increasingly do so as productions plateaus or declines in many of these countries."
Last year, OPEC members, along with independent producers Russia and Mexico, consumed over 12 million barrels of oil a day, roughly 60 percent more than China and slightly more than all of Western Europe says Mr. Rubin. As a group, they now are second only to the U.S. in terms of market size. Much of the demand in these countries is driven by heavily subsidized prices that keep a barrel of oil down to a cost of between US$10 and US$20. "The cheap supply is fuelling some of the fastest growth in domestic demand anywhere in the world," says Mr. Rubin.
Quotes:
Six of the largest oil suppliers to the US are poised to cut their global exports by nearly 2 million barrels a day by 2012, ramping up pressure on supply and price, and intensifying the focus on one of the last great deposits open to private investment: Canada's oil sands.
The projected cut, amounting to seven percent by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia, reflects the growing struggle in these countries to grow production and manage their own soaring rates of oil consumption, says Jeff Rubin, chief market strategist and chief economist, at CIBC World Markets, who will discuss his latest findings at the firm's Industrials Conference in New York City.
The trend of oil producing countries becoming major oil consumers extends beyond the top US suppliers, says Mr. Rubin. When similar conditions are factored in among the other major oil producers including OPEC, the supply crunch deepens to 3 million barrels a day, or an eight percent cut in global exports. "Soaring domestic demand is cannibalizing export capacity, and will increasingly do so as productions plateaus or declines in many of these countries."
Last year, OPEC members, along with independent producers Russia and Mexico, consumed over 12 million barrels of oil a day, roughly 60 percent more than China and slightly more than all of Western Europe says Mr. Rubin. As a group, they now are second only to the U.S. in terms of market size. Much of the demand in these countries is driven by heavily subsidized prices that keep a barrel of oil down to a cost of between US$10 and US$20. "The cheap supply is fuelling some of the fastest growth in domestic demand anywhere in the world," says Mr. Rubin.
Sunday, September 23, 2007
Historical Bull and Bear Markets for Oil.
I found the below study from Ticker Sense/Birinyi Associates of oil bull and bear markets dating back to 1986 enlightening.
What I find particularly interesting is how the bear markets are consistently down about a third, in terms of both the average decline and the median decline being around 30%. Of the past three bear markets (since 2003, when things really got kicking), two of the declines are nearly spot on 33% (-33.27%, and -34.47) and the other is -26.21%.
There is much less consistency in the rallies, where the average change is 62.89%, and the median is 37.30%, which basically tells us occasionally we get some huge rallies.
The latest rally dates to 1/18/07, has lasted 245 days, and we are up 62.32%.
Out of curiosity, I looked up my closest post to that date, which turned out to be 1/17/07, and was titled "Let the beatings, er, healings begin.". Not a bad day for that call!
Ticker Sense: Historical Bull and Bear Markets for Oil.
What I find particularly interesting is how the bear markets are consistently down about a third, in terms of both the average decline and the median decline being around 30%. Of the past three bear markets (since 2003, when things really got kicking), two of the declines are nearly spot on 33% (-33.27%, and -34.47) and the other is -26.21%.
There is much less consistency in the rallies, where the average change is 62.89%, and the median is 37.30%, which basically tells us occasionally we get some huge rallies.
The latest rally dates to 1/18/07, has lasted 245 days, and we are up 62.32%.
Out of curiosity, I looked up my closest post to that date, which turned out to be 1/17/07, and was titled "Let the beatings, er, healings begin.". Not a bad day for that call!
Ticker Sense: Historical Bull and Bear Markets for Oil.
Saturday, September 22, 2007
Subprime? CDOs? Still #$@%&^.
CNBC Video: Cashing in on Subprime.
James Melcher, portfolio manager at Balestra Capital Partners, is up 124% this year due to his bets against the housing market and subprime loans in particular.
His thoughts going forward:
The Fed cut forestalled a financial panic, and likely stalls off a recession for a while, but can't prevent it. Unfortunately, by cutting rates, the Fed could cause a possible currency crisis and much higher inflation given the weaker dollar. Meanwhile, the housing market continues to deteriorate; we're only in the 3rd or 4th inning of this. Ultimately, the subprime mess will move up the chain, affecting Alt-A [subprime loans are the lowest rated, Alt-A are supposed to be one step up the quality chain, while prime are the best] and to a lesser degree prime mortgages. The Fed doesn't have enough ammunition to fight this problem.
He owns: gold, foreign currencies, short term Treasuries and continues to be short the mortgage market.
TheStreet.com: The Credit Crisis Could Be Just Beginning.
Quotes:
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes.
....
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?" Still too optimistic.
Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
Ursa Major
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.
The cause: Massive levels of debt underlying the world economic system are about to unwind in a profound and persistent way.
He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates.
James Melcher, portfolio manager at Balestra Capital Partners, is up 124% this year due to his bets against the housing market and subprime loans in particular.
His thoughts going forward:
The Fed cut forestalled a financial panic, and likely stalls off a recession for a while, but can't prevent it. Unfortunately, by cutting rates, the Fed could cause a possible currency crisis and much higher inflation given the weaker dollar. Meanwhile, the housing market continues to deteriorate; we're only in the 3rd or 4th inning of this. Ultimately, the subprime mess will move up the chain, affecting Alt-A [subprime loans are the lowest rated, Alt-A are supposed to be one step up the quality chain, while prime are the best] and to a lesser degree prime mortgages. The Fed doesn't have enough ammunition to fight this problem.
He owns: gold, foreign currencies, short term Treasuries and continues to be short the mortgage market.
TheStreet.com: The Credit Crisis Could Be Just Beginning.
Quotes:
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes.
....
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?" Still too optimistic.
Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
Ursa Major
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.
The cause: Massive levels of debt underlying the world economic system are about to unwind in a profound and persistent way.
He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates.
Alternatives to oil as transportation fuels?
CNBC's Maria Bartiromo asks the International Energy Agency's exec. director for the best alternative to oil as transportation fuel and his answer is IEA's analysis shows that ........ is the best. Can you guess what?
Answer: Conservation.
Uh-oh.
CNBC: Taming Oil Prices.
Answer: Conservation.
Uh-oh.
CNBC: Taming Oil Prices.
Tuesday, September 18, 2007
We won.
Dr. James Schlesinger, former US Energy Secretary and CIA Director puts it well: We won.
More from Boone Pickens today also:
CNBC Video: Boone Pickens.
More from Boone Pickens today also:
CNBC Video: Boone Pickens.
Worth catching.
Boone Pickens on CNBC last Thursday, saying he thinks the fourth quarter of this year is going to be very exciting, as demand of 88 million barrels a day can't be serviced by 85 million barrels a day of production. He, like everybody else, is talking potential recession.
CNBC Video: Oil on the Rise.
Vinod Khosla sees the future and it's cellulosic ethanol and solar. And soon, he says, like in 5 years. The proof is really gonna be in the pudding on this call.
CNBC Video: Clean Tech Bets.
CNBC Video: Oil on the Rise.
Vinod Khosla sees the future and it's cellulosic ethanol and solar. And soon, he says, like in 5 years. The proof is really gonna be in the pudding on this call.
CNBC Video: Clean Tech Bets.
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