Sunday, December 14, 2014
Crude Oil - WTI @ $56.50 .... WTF Already ?
Oil's parabolic collapse continues. While many are negative on crude, particularly in light of the OPEC / Saudi mantra of "we won't cut production" no matter how low oil goes, to me, the drop seems to be vastly overdone ....
While the negative headlines continue to dominate, and high yield spreads widen to dangerous levels (despite almost all E&P companies having no debt or covenant issues at this time, and debt maturities out to 2018 or later), it seems to me the "glut" narrative is more than a bit disingenous.
Yes, there is oversupply in the market, yet worldwide demand is growing and expected to continue growing, and the crash in crude oil pricing is already resulting in supply responses.
Here are a few tidbits that support the idea that perhaps this crude oil crash has gone too far:
- U.S. E&P companies have been quick and proactive in announcing production budget cuts for 2015, and lowering supply growth expectations from U.S. shale, which will slow down materially. Spending on drilling in the Eagle Ford, Permian, Bakken, etc. will decline by 10s of Billions of $, if not more.
- Libyan oil has just gone largely offline due to the ongoing turmoil in that country; force majeure declared at its 2 main ports
http://www.bloomberg.com/news/2014-12-14/libya-imposes-force-majeure-on-2-oil-ports-after-clashes.html
- Nigerian oil workers are set to strike tomorrow (Monday 12/15) for an indefinite time.
http://www.presstv.ir/detail/2014/12/14/390250/nigerian-oil-workers-to-stage-strike/
It seems to me, that the above could have the effect of rather quickly addressing (at least in part) the modest oversupply concerns that the headlines harp on every day. To put it another way, while OPEC ministers (primarily Saudi, Kuwaiti and UAE keep saying "we won't cut"), the supply response in the US, plus sudden "outages" in the Mid East amount to production cuts. And as far as Mid East outages go, these could turn out to be their way of cutting, without actually saying that they are cutting. Whether we will start to see a slew of outages is clearly speculation on my part at this juncture, it is something to keep an eye on.
A couple of other interesting reads that counter the "crude oil is permanently impaired" hysteria can be found here:
http://www.salientpartners.com/epsilontheory/post/2014/12/11/Narrative-Uber-Alles
http://dailyreckoning.com/six-months-now-rolling-money-oil-gains/
Finally, U.S. Oil Production growth thanks to shale oil and other unconventional resources has made the US a top worldwide producer and on the way to energy independence. American ingenuity in this area has created the best high paying job growth seen in this 5 year "recovery". We should not be celebrating an oil crash that puts all of that in serious jeopardy. While consumers will benefit from lower prices at the pump, serious damage will accrue not just to the Energy Sector, but also to the entire economy and banking sectors if this episode devolves into a bust. That should not be allowed to happen.
Wednesday, January 30, 2013
AMAZON @ $275 -- Someday Never Comes
For too many investors and traders, they love Amazon (AMZN) as a ticker that defies gravity. To them, and the
Never mind the fact the Bezos is pretty much a no-show as a CEO these days. He makes limited public appearances, is typically not involved in earnings conference calls, and seems focused on personal venture capital investments and space ventures.
Is Amazon disruptive to other businesses? Yes it is. However, Amazon faces fierce competition on every front, from multiple competitors who are not going away and have learned how to better compete. Wal-Mart, Target, Apple, Google, Oracle, SaleForce, NetFlix, Best Buy, Barnes & Noble, Drugstores, Groceries, on and on an on. To believe that companies and sectors will simply cede the field to Amazon is beyond lunacy.
As state sales tax exemptions for internet companies disappears, Amazon will also lose an important pricing advantage. Its margins, even if they improve somewhat over time (not a given) will likely remain unimpressive as they compete in many low margin, commodity businesses.
I am not going to rehash Amazon's poor financial performance in detail here, that information is available all over the financial internet. However, I do note a few of the many very salient observations below:
First Adopter @FirstAdopter points out via Twitter:
1 yr ago when $AMZN was $100 lower street est. for Q4-12 +39% y/y sales growth, GAAP EPS 85c, Non-GAAP EPS $1.23. AMZN reported +22%/21c/46c
Josh Brown (The Reformed Broker) has a piece here:
http://www.thereformedbroker.com/2013/01/30/amazon-com-defying-logic-and-physics-since-1997/
Zero Hedge chimes in with:
Amazon Misses, Growth Slows, Guides Lower, P/E Goes Negative And Stock Soars
- Q4 revenue of $21.27 billion missed expectations of $22.23 billion
- Q1 EPS of $0.21 missed expectations of $0.27;
- The firm guided top-line lower, seeing Q1 sales of $15-$16 billion, below the estimate of $16.5 billion
- The firm guided operating income much lower, seeing Q1 op income of ($285)-$65 Million on expectations of $261.4 MM
- The firm said the its physical books sales had the lowest growth in 17 years
- Total employees grew by 7,000 in the quarter and 32,200 Y/Y to a record 88,400
- Worldwide net sales Y/Y growth was the slowest in years at 23%, down from 30% in Q3 and 34% a year ago
- And, last and certainly least, LTM Net Income is now officially negative, or ($49) meaning as of this moment the firm with the idiotically high PE has an even more idiotic N/M PE.
I see absolutely no reason for AMZN to trade at such ridiculously lofty levels, reflecting a valuation that it almost certainly will never grow in to. Wall Street is supposed to be a fair and efficient market. It isn't. Yes, those in the know can make money participating in the silly momentum games with the stock.
Ultimately, however, the rug gets pulled, and real people lose real money. Lots of money. Think of all the mom and pops that own Amazon directly, or indirectly in mutual funds, ETFs and 401ks. They are being relentlessly and cynically sold on the idea by almost every Wall Street firm that Amazon's tree will grow to the sky.
With that said, here is what could happen to Amazon, sooner than most people think:
1. The market may finally give Amazon a long overdue valuation adjustment.
2. It very well could experience a stock price adjustment equal to, or greater than the one Apple experienced - at least a 38% decline from its all time highs. That would take Amazon's stock price down to $175, perhaps much lower. Even $175 would be a level that would still be difficult to justify from a valuation standpoint.
3. Hedge funds and other sophisticated investors will participate in this trade by going LONG Apple, and SHORT Amazon as a pairs trade. Not only are ALL of Apple's financial metrics vastly superior to Amazon (earnings, cash flow, balance sheet, etc.), but Apple has just experienced a vicious valuation adjustment. Perhaps Amazon will be next.
Meanwhile, until Someday happens, enjoy the music, courtesy of Credence Clearwater Revival:
Sunday, January 6, 2013
MANIC MARKET MUSING #1 for 2013 - HERBALIFE
Saturday, January 5, 2013
HELLO 2013 ! (and whatever happened to 2012 ?)
Well, 2012 did happen, and it was just fine. I won't bore you with a recap.
I'll just move right on into 2013. I even have a blog post to kick off the year, coming soon.
I think that I will also have to update the blogroll - suggestions welcome.
Let's have a great year !
Saturday, December 31, 2011
Goodbye 2011 - A Wild & Crazy Year
Monday, December 5, 2011
The Bernanke Song: Don't Stop Me Now
Tonight I'm gonna have myself a real good time
I feel alive and the world it's blowing up Yeah!
I'm floating around in ecstasy
So don't stop me now don't stop me
'Cause I'm having a good time having a good time
I'm a shooting star leaping through the skies
With Timmy Geithner, defying the laws of gravity
I'm a racing car telling lies to the Congress
I'm gonna print print print
There's no stopping me
I'm burning through the skies Yeah!
Two hundred degrees
That's why they call me Helicopter Ben
I'm trav'ling at the speed of light
I wanna make a Euro man of Sarkozy
Don't stop me now I'm having such a good time
I'm having a ball. Don't stop me now
If you wanna get a Bail Out just give me a call
Don't stop me now (I'm wrecking the Economy, its a good time)
Don't stop me now (I'm debasing the Dollar)
I don't want to stop at all
I'm a rocket ship on my way to Mars
On a collision course
I am a maniac I'm out of control
I run the printing press, ready to reload
Before all the Banks
Oh oh oh oh oh explode
I'm burning through the skies Yeah!
Two hundred degrees
That's why they call me Helicopter Ben
I'm trav'ling at the speed of light
I wanna make a supersonic woman out of Merkel
Don't stop me don't stop me don't stop me
Hey hey hey!
Don't stop me don't stop me
Ooh ooh ooh (I like it)
Don't stop me print more dollars, what a good time good time
Don't stop me don't stop me
Ooh ooh Alright
I'm burning through the skies Yeah!
Two hundred degrees
That's why they call me Helicopter Ben
I'm trav'ling at the speed of light
I wanna make a supersonic woman of Merkel
Don't stop me now I'm having such a good time
I'm having a ball don't stop me now
If you wanna get a Bail Out
Just give me a call
Don't stop me now ('Cause I'm killing the Dollar)
Don't stop me now (Yes I'm causing Inflation)
I don't wanna stop at all
La la la la laaaa
La la la la
La la laa laa laa laaa
La la laa la la la la la laaa hey!!....
Sunday, December 4, 2011
Europe - Political Union ? or Killing Democracy to limit Bank Losses ?
Below are some important & interesting reads assessing the situation:
There is a European Parliament, but not one with the powers or role of a proper democratic parliament. It can’t initiate legislation. It has no governing or opposition party. It can’t topple the government with a vote of no confidence. It is the unelected European Commission that initiates legislation and issues regulations. By some estimates, about half the new laws in EU states are drafted in Brussels.
This diminution in national sovereignty has been accomplished without worrying over-much what the peoples of EU countries want. Referenda on big further steps toward integration have generally been avoided. As Teddy Roosevelt shot back when an aide recommended he inform the Senate of a secret agreement with Japan, “Why invite the expression of views with which we may not agree?” Although there are elections to the European Parliament, no one pays attention to them, and their results reflect the standing of national political parties that fight on the basis of national, not EU, issues.
The recent cashiering of the prime ministers of Greece and Italy, who were replaced by a former vice president of the European Central Bank and a former EU commissioner, respectively, captured the undemocratic thrust of the European project. It was a technocratic coup forecasting how the laggards of the EU will come to be governed by Brussels — and essentially Germany and France — in a new fiscal union.
If Germany is paying the bills, shouldn’t it call the shots? But it shouldn’t be paying the bills for the follies of foreign countries or calling the shots. Greeks should be governed by Athens, no matter how dreary and dysfunctional this time-tested arrangement might strike Berlin.
The European elite claims that a reinvigoration of the nation-state will again risk war. Nonsense. Democratic nation-states didn’t precipitate World War II, the totalitarian ideology of Nazi Germany did. Are we supposed to believe that without the glue of the euro, Angela Merkel’s Germany would again roll Panzers across Nicolas Sarkozy’s France? Even without the EU, Europe would still be bound by trade, NATO and a mutual commitment to international norms.
DeLors excerpt:
Mr Delors claims that the current crisis stems from “a fault in execution” by the political leaders who oversaw the euro in its early days. Leaders chose to turn a blind eye to the fundamental weaknesses and imbalances of member states’ economies, he says.
“The finance ministers did not want to see anything disagreeable which they would be forced to deal with,” he says.
The euro came into existence without strong central powers to stop members running up unsustainable debts, an omission that led to the current crisis. Now that the excessive borrowing of countries such as Greece and Italy has brought the eurozone to the brink of disaster, Mr Delors insists that all European countries must share the blame for the crisis. “Everyone must examine their consciences,” he says.
However, he singles out Germany for its strict insistence that the European Central Bank must not support debt-stricken members for fear of fuelling inflation. The euro’s troubles spring from “a combination of the stubbornness of the Germanic idea of monetary control and the absence of a clear vision from all the other countries”.
Famous in Britain for his public clashes with Baroness Thatcher in the 1980s over closer European integration, Mr Delors says that he shares some of the concerns that were expressed by British politicians and economists about the euro before its creation.
When “Anglo-Saxons” said that a single central bank and currency without a single state would be inherently unstable, “they had a point”, he admits.
Because Britain is not in the euro, it is not “sharing the burden”, Mr Delors says. However, he claims that the UK is “just as embarrassed as the Europeans by the financial crisis”, not least because some of the measures put in place to deal with the crisis pose a threat to British interests.
For example, he says, the creation of a common “Eurobond” underwritten by all eurozone governments and traded in Paris and Frankfurt would be a “big worry” for the City of London. “I can see Mr Cameron’s worries,” he says.
Such is the scale of the crisis, he warns, that “even Germany” will struggle to find a solution. “Markets are markets. They are now bedevilled by uncertainty.”