Cara's Commentary & Community Chat, Fri., Jan. 9, 2009

Good morning.

Downgrades:

GG - from Top Pick to Outperform @ RBC
PTR - to Neutral @ JP Morgan

New:

DELL - Kaufman Bros. Initiates Coverage with a Hold. Price Target = $13

Price Targets Lowered:

SLB - from $40 to $38 @ Friedman Billings
WMT - from $64 to $62 @ Lazard Capital

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For Bill et al

The Marshall McLuhan scene from Annie Hall:

http://tinyurl.com/ay9jzn

I'm hoping the cara community can share some wisdom re this rookie RSI question....the RSI tool uses 7 day, 7 week and 7 month rsi measurements - how would one convert or apply those timeframes when using an online system such as yahoo finance ? would the 7 week period = 35 or 49 ( business days or calendar days ), etc ?
many thanks in advance, rk

Classic WA

Amen, Bill. Unfortunately the media has lost most of their perspective on their role in society. And it applies to ALL subjects, not just financial ones. "Fair", "balanced","unbiased" are words we all hear spewing forth - and they are, generally speaking, anything but. Media agendas on many topics aren't even hidden from view anymore.

Thank you for being who and what you are and bringing knowledge, honesty and integrity in your communications to the investing world. What a welcome relief!

CVX - Upgraded to Overweight @ JP Morgan

GG - Downgraded to Market Perform @ BMO

GG - Price Target Lowered from $30 to $28 @ UBS

Proven just another useless backward looking and commercialized tool bought and paid for, unfortunately. Thanks to lack of oversight and selective regulatory enforcement, AAA rated instruments aren't to be trusted either, are they?

There's been lots of focus by the media on the oil price lately, that the rally is in the cards. Everyone wants their bottom fish in the oil sector to be more than a shoe.

Sure, there should be a rally in oil prices, and soon, but did anybody anticipate that the dollar would crumble and oil prices with it? The oil price is so oversold, you would think a massive relief rally would carry it up at least a healthy 50%. The consensus to my mind was that oil prices were a perennial in the storm appreciating against a declining currency. Not so. Oil prices declined along with a sharp pullback in the dollar in the past week. (so did metals, btw.) Doubly bad. This is what I refer to as currency risk, especially when it comes to commodity prices. Commodities do not store value.

Hands up everyone who is looking forward to $70 - $100/bbl. Oil? Oil up, dollar down. That's the consensus. Didn't work this week. Lets' see. Airlines will be parking planes or going bankrupt soon, this time for real. Yes for really real this time, really. They use a heck of a lot of fuel, more than SUVs. Ships are idle, and car sales are off by 40%, perhaps more. Less planes, less cars, less ships. Oh, and "Chindia" is a martini too many at the top of the market. Back to riding bicycles. (to be fair, the media has been covering bicycles.)

What the means is idle refineries, idle oil exploration, idle production. And lots of metal sitting around rusting. I would say that any economic stimulus package worth its salt would include building lots of public rail services. Underground, streetcar, LRT, high-speed. But its all just about propping up derivatives. And god forbid if it doesn't reflate the oil price.

But derivatives are what brought down the house in oil. Perhaps that whole sector has its back broken, like the financial sector because of the overwhelming mountain of off balance sheet obligations. But you won't read that in the paper.

O.K., I give up. What's going on? SSRI has been stronger than SLW since the bottom, and now today, it's up and almost nothing else is. Anyone know anything? Thoughts?

I have a small position.

I think dr. cosa, that bullion will recover its lustre due to investment demand. Certainly the fundamentals are in place for a considerable rally, but that didn't happen with the "hype"- erinflation.

For this month, we are going to have to wait for options expiry dates, because looking back in the past year or so, rallies come on the second to last friday of each month, regardless of whether its an actual options expiry date on the COMEX. Certainly rallies have occurred on the last friday of the preceding month for COMEX options expiry dates, but when a rally occurs the second to last friday, that means that lots of people will have written and traded on options contracts to coincide with options expiry on other markets. These options expiry rallies are almost always followed by considerable sell-side pressure.

So with the investment demand comes options expiry in gold price futures contracts on expiry dates the second to last friday of the month. If that does not occur, then investment demand is low. But I figure investment demand is the crucial element, so my bet is that gold prices will rally on the second to last Friday of every month when there is greater investment demand.

Either that, or there's no gold to be had and rallies will occur on the last Friday of each month more and more often because the COMEX is the only place with large bars left to be had. Certainly the COMEX has been making it more difficult to obtain delivery of smaller specie.

Found via Kitco:

Merrill Lynch says rich turning to gold bars for safety - UK Telegraph

WMT - numbers lowered at UBS. Shares now seen reaching $61. Estimates also cut, to reflect weaker sales and higher costs in recent months. Buy rating.

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FWIW - Management at the local Walmart tells me that things are really bad. Part-timers being fired and Full-timers having their hours drastically cut. Morale among employees is really low resulting in shelves not being stocked etc.

Do you have any info on the contractors involved in the east coast ballistic missile program?

http://www.stratfor.com/analysis/20090108_u_s_bmd_...

"I hope that I was able to give back to you with the heads up on Palm. "

Oh yes you did my friend, you certainly did. BTW, I haven't thought of PALM in years, they completely slipped my mind but I'm curious, how did you pick up on such a good lead?

I'm enjoying the ride but why? Is it due to Cramer's recommendation? If so, I'm uneasy. I hate that guy.

Hi chicken,

I live in the Silicon valley and know tech people who have worked with Rubenstein. They say rubenstein was the brains behind apple. He disagreed with s. job on a couple of things on the design of the i phone so palm is giving him the chance to do what he really wanted to do. I think he has more things coming.

VB

Today's sell off reflects the fact that traders don't trust government. Employment figures came in less than expected, but still 2008 was the worst year for employment since 1945.

U.S. Payrolls Post Biggest Annual Drop Since 1945

The counter argument here is that the worsening economy increases the likelihood the Obama stimulus plan will be enacted sooner rather than later.

I'm sitting back, sorry I mistimed my entry on TZA and waiting for the waters to appear a little less muddy. Watching the ultras more than anything else.

I've also noted the drop in BAC. Heading fast back to the 12's?

I should have waited for 50. However, my limit order for TNA got filled at 32. I'm not going to hold on to this for long time.

With oil backing up onto tankers in hopes of profiting on the super-contango, what happens to POO if demand remains low????

I guess it is a rhetoric question, right?

While I believe in peak oil theory, the easy money on oil was already made. Now it's all speculation with swings in all directions.

I would say there's going to be a serious down draft along the futures chain. Certainly looks like oil prices can rebound from here, but it will be an awful long time before any meaningful recovery if the futures chain is the correct assumption. And what about currency risk? If the dollar collapses, then that $70.- oil won't mean much different than $39 spot price. Or what if bonds collapse and the dollar rallies hard under high interest rates? Oil prices won't keep their value as the price adjust downwards. I think a real assessment can't be made until we see a major adjustment in sovereign debt prices around the world.

http://finance.yahoo.com/q/fc?s=CLG09.NYM

vanillabean - I used to drive past Palm's new building everyday on my way to work... I remember when it was an empty lot.

While I'm not inclined to go short here I don't see any reason to try catching a bottom. The charts I'm watching indicate we have a way to go before reaching support. $30.55 or so on TNA, for example.

TBT is looking weaker today, too. Is money running scared again?

I see a stronger USD and high bond prices into the future (6-mos+), the USD will be the last currency to collapse IMO. This, and falling demand should continue pushing POO down.

BAC - The toaster salesmen aren't doing well today, but not as bad as I'd expected... (Yet).

I'd like TNA in mid $30 range, and would wait for stabilization above $28. It couldn't go much lower than that could it?

ALOHA !!

I just double the official number!

If gold spikes over $885 and stops again this Sunday, I'll probably sell for a re-load again.

Agree, looks like dumb money shorted on open on the emplmnt news. There should be a semi decent rebound mid day. Longer than that who knows?

Well it looks the US Gov't is on the short end of the stick as well, from Bloomberg:
http://tinyurl.com/8w3sx9

ALOHA !!

I have always hung my HAT on "real wealth" industries not paper shufflers and trendy "cool" ... There is no bigger "real wealth" industry than gold production and oil production(black gold). Its that simple! The masses need oil and chemicals more than they need I-Pods and Lady Gaga or SUVs and Plug-Ins!

I have not bought any of the BS that emanates from Wall Street or Washington!

This is the real deal ... While there has been "slow downs" in credit and money supply it has not STOPPED and both are at all time highs. I have been pointing this out on this BLOG for years now! That tells me there is still tons of worthless fiat sloshing around the world looking for a place to be exchanged for something that produces wealth, whether "wealth" is viewed as "interest" or "real money" or "oil" or "the latest tech gadget"! I prefer REAL WEALTH ... its longevity has been proven time-after-time ... collapse-after-collapse!

Go to this article link: http://mises.org/story/3288

Someone yesterday posted a chart for the FF&T and claimed they were scared by it. With good reason ... There are plenty of good reason to be scared by BIG GOVERNMENT and the US FED and the fiat. Plenty ... Thats not being emotional its just plain common sense. I am more worried being around people who still believe this is all "business as usual" and are timing bottoms! All these TRILLIONS of MOUSE MONEY have to go somewhere.

By the way, a couple years ago you never heard the word "trillions" on financial TV. Now it is everyday! I sent out warnings to friends and relatives three years ago that major US Banks would collapse. My new warning is a "monetary collapse" in the USA.

I posted on RESETS ... more red flags and more dots to connect in the never ending DOTVILLE of fraud that is the global monetary and financial system.

I tried to connect the dots between US Payroll withholding and the USDX collapse. More important than job loses is government revenue. Without tax revenues the US government will collapse in one HUGE money printing DEBT seizure. Sovereign Credit Ratings effect every company in America, including the Cara 100. Its like one HUGE DOWNGRADE of American business.

Sorry F6, but if interest rates are forced up, that only means the US DEBT is less credit worthy and creditors want a premium on the risk they are willing to buy. It does not mean AMERICA is more credit worthy or more safe! It means its DEBT is closer to JUNK! Sure some will always run to higher yields, but higher yields infer more risk also. Besides right now there are plenty of other countries who's DEBT pays higher yields, so why aren't they out performing the USDX? Somehow I think that the title of Worlds Reserve Currency has something to do with perceptions of "safety"! F6, please explain why POG was at all time highs($850USD) while at the exact same time the Fed Funds rate(20%) was at all time highs in 1980?

Dr. Cosa ... IT ALL WORKS!

ALOHA !!

Its all about the C WORD!

the 4hr chart has a potential hs top that may be holding back momentum till the 890 high gets passed.o.e. is always a concern when I see a pattern like this prior to.
oil stocks have been strong through this drop,xoi is 200pts higher than the nov low when oil was at 49ish. That divergence may be there for a reason?
I suspect oil has bottomed,broke out of the downtrend and is building a right shoulder at support going back through the highs from the last 25yrs. Hou.to on the other hand has performed poorly with oil 7$ higher, not sure why?

"F6, please explain why POG was at all time highs($850USD) while at the exact same time the Fed Funds rate(20%) was at all time highs in 1980?"

Yes, US debt can be downgraded to junk, but it won't happen as quickly as people expect. Currency risk is a far bigger factor in prices for the foreseeable future. If the currency strengthens, this means a certain amount of risk when it comes to prices. But if the currency collapses by several multiples, then this also implies a huge risk in prices. It may mean that any long term scenario for commodities will be hampered by losses.

I don't think an all time high of interest rates will co-incide with an all time high in gold prices this time around if we are heading into a depression. But just for the sake of argument, bond prices were at their low, and the dollar was at its high in 1979.

I think long bond prices will have the overall say going forward.

http://politicalirony.com/2008/11/30/robin-william...
worth the watch a little humour for lunch.

ALOHA !!

On "timing" I am not short term, only long term so short term is not very interesting to me!

ALOHA !!

"Yes, US debt can be downgraded to junk, but it won't happen as quickly as people expect."

Somehow I doubt that "smart money" will wait for that day! Gold supply shortages are everywhere now, not later.

ALOHA !!

ZNN share price now higher than F ...

Kaimu,

i dont think we say it enough, but your long posts are great.
always enjoy them,

i think you are the Phil Jackson of this board, the enigmatic
coach of the Chicago Bulls and LA lakers. he always spoke of the game
in a tactile and broader sense than just x's and o's. he led enough teams to championships and never lost sight of the bigger picture.

when asked how hard it was to coach a team to the finals with such talent as jordan and pippen he simply replied "im not a coach, im a psychologist"

keep up the great work!

how low can they take black gold?

Nice sale!

Billy

That would work for me. I am very long SLW, bought more SSRI on the dip this morning.

I think the leverage of SLW over SLV is in the range of 3 to 1. Anyone have any thoughts on that?

Good time to sell some January puts on xle?

Anybody follow CVS, big drop today is this a buying opportunity?

To reduce the risk in my portfolio, I decided to place a buy limit order at $1 for the ERX January 09 puts with a strike of $35 (ERXMG) that I sold at $3.80 each. Even though there is a high probability that these puts will expire next Friday, I don't want to have too much ERX at the same effective purchase price in my portfolio (the February puts I just sold, if put to me, will give me ERX shares at $33.30). So if I can buy back the January puts at $1, I'll have less cash in my portfolio tied up with ERX puts and consequently more cash available for trading (or for selling new puts at the strike price of $30, if ERX falls that low).

Although I am in hou.to and think the charts show support at this level I am uncomfortable with long oil. Will a recession/depression crush demand enough to hold price down or will the peak oil factor keep pressure on to the upside? I have no idea.Today was a third touch of the new uptrend fwiw

When a stock triggers a BUY alert and it is 7 days old (stock has moved 24% since. The weekly and monthly RSI's are still red, do you step in once the daily goes red or is it considered a decent entry if weekly and monthly are still in AZ?
TIA

i think we'll see (or may have already seen) a suckers rally.

Yes, Bill, only valid as entertainment or perhaps as a contrary indicator.

The day gold went into the $600's, I watch Mark Haines bash gold off and on that morning, and everytime he did, it would make a new low as the last of the sheep were panicked out.

I'll remember that the next time I see those bozos bashing an already dead stock.

Tbar and David,

I bought USO and UCO yesterday.

I feel safer holding oil (bottom or no bottom) with all the tension in the world. I do have stops in.

VB

Only time will tell when the turn comes but it will come. The fighting is continuing in the middle east and yet the price is still down, its all about the economy now and imo i feel that it will zig zag until Obama officially announces that the gov will throw money into the economy, its not that far off. I established a 1/4 position this morning in hou.

David, I like it. I took a little more conservative route and sold the Feb 35 for 4.10 but our cost basis would only be 1.40 apart...I like your trade better...good luck with it

David, I understand your reasoning, however, your most powerful time decay is in the last few days isn't it? I guess oil could collapse but ERX hasn't really collapsed with it. There are many trying to time the oil bottom.

just sold Feb 40 puts on XLE for .82 each....cost basis would be around 52 week low...XLE was at 49.70 at time of sale

Remember "Tradesman". Here one day, a regular experienced poster, then gone forever ???

What is the best free charting utilities out there? Right now, I am using Yahoo and my Royal Bank investing account (which is not very good at all) and was wondering what the rest of you use.

Cheers

Ya, the extra level is very good, but start using stockcharts.com for free unless you need more analytical tools.

lots of potential ?http://watch.bnn.ca/#clip128083

Thanks guys,

I am actually using stockcharts for their tutorials! I'll start to use the free service this weekend and compare it to yahoo. I guess the fee for the membership levels scared me off but I will certainly try it. I'd love to get good enough that the fee makes sense to pay!!!

Cheers

The really great thing about Extra! is that they have 1min - 10min. -15 min. - 30min. - 60min. charting in real time, so if you are watching some of the trades being executed and reported here, you can watch the chart unfold before your eyes with each reload.

Different people have different technicals they rely on as a rule of thumb,but they work even on a very short term real time scale.

Anyone know if Don Coxe is still giving his weekly update, and how to find it?

I see Otto is getting some props here in the voting(vote for him if you like his work). Is Bills site available in these awards to vote for?

http://incakolanews.blogspot.com/

Here are the other categories, if Bill's site is in here we should get on the voting right away or get him nominated asap.
http://2008.weblogawards.org/polls/

Welcome gyglass, we wish you a great 2009!

Sell volatility.

David - got it...just wanted to give you something else to think about

While dressing for work with the TV on I nearly fell over when a Christian TV announcer told of an enterprising minister and wife team who started an online 'faith and love' site selling, you guessed it--sex toys and lingerie! (for the faint of heart but not of spirit i.e., unwilling to be seen entering a porn shop) "Thou must be excellent in all things" was quoted liberally. Which begs the question: what sells best during a depression? Things you can enjoy at home, things you can enjoy with a friend, things that don't cost much...follow the fun and I'll bet you'll find the money!

Newspapers are a dying industry and they will die en masse when somebody comes up with a user friendly reader that you can carry in your pocket or briefcase and dial in the news you want.

haven't bought a paper in a while unless I didn't have Internet, ie on a plane. I think with rss feeds, blogs and 3g mobile, the need for printed paper will accelerate to downside. But I am sure you could find a physical wsj or Sunday nyt for a premium in the future.

The first and most important question for traders is, are we in a bull, bear or sideways market? As most everybody knows, highly paid guru analysts are frequently wrong when it comes to answering this question. Studies in 1987 and 1997 showed that stocks recommended by the prognosticators on the TV show Wall Street Week lagged far behind the market. However there was one guru who has the best record of anyone. From 1979 to 1989 he correctly predicted in January whether the market would be up or down that year. He was wrong in 1990 but correct again every year until he quit in 1998. Now, 18 correct calls over 19 years ain't bad.

The guru was Leonard Koppett, a writer for Sporting News and his system was simplicity itself. He based his predictions on the Super Bowl. If the (original) NFL won, he predicted the market would rise. If the (original) AFL won, the market would tank.

This is from an entertaining little book called The Drunkard's Walk by Leonard Mlodinow, about the randomness that rules our lives - a history of probabilty theory. His main point is that successes and failures in life or the market are often attributed to clear and obvious causes when, in fact, they are more profoundly influenced by pure chance.

As Ron Sen puts it... I'm just sayin'

How would this work if Carolina is to play as they are an expansion team. My prediction for next year, Green Bay Packers, but then again i pick them every year.

Of course instant news is credible!!! I read it on the internet, so it must be true..., right?

http://tinyurl.com/4q2xzd

CP- reminds me of the soundbites they came up with after 9/11-> not being accustomed to hearing "and credible," my mind translated the words (phonetically) into "incredible," which the revelations often were...

Anyone have in good financial podcasts they would recommend? I have been listening to mostly Puplava's FSN for about a year and This American Life when I have nothing else. I find this to be a good use of my time during the morning and evening commute to work. I don't live and die by FSN but I like hearing other people's perspectives. Your comments and recommendations are appreciated.

Jim Jubak posted this 1/9 article http://tinyurl.com/8fn8k6 Jim mentions selling Goldcorp GG and betting on a strong dollar for the time being.

Jim Jubak was loading up on tech stocks right when they began tanking in 2000.

Howard Lutnick's Old Wall Street Ways Keep Cantor Clear of the Credit Crisis

http://tinyurl.com/7yd5mx

2nd - "oil, gold and silver are valuable assets which IMO are all in the AZ-> taking positions at these levels, following 6 months of forced sales and sharp sell-offs, i think returns will be well above average..."

I'm inclined to agree, and at some point, real estate is likely to participate (very long term?) I'm thinking oil could be a laggard too, in case of unanticipated (but possible) demand destruction?

Simply where I see things at the moment from my roost.

Most Americans haven't warmed to gold because the yellow metal rose "only" 8% in US$ over the course of 2008. (That's because, despite the US origin of the financial crisis, unwinding by American funds of foreign stock positions and of the carry trade drove demand for US$ returning home.)

In Australia, gold rose 29% in Aussie dollars ! Hence the rush to the Perth Mint.

In pounds sterling, gold rose 34% in 2008. Can any British Caristas attest to whether Brits are also flooding into their local mints? I'll bet they are!

I also bet gold if rises anything near 30% in US$ in 2009 - which I think it will - Americans will pretty soon be busting down the doors of US mints too !

A few days ago, Larry opined that gold won’t go up much this year, because (paraphrasing) gold can only run if the US dollar goes down, and THAT’s not going to happen because ALL the countries are printing money like crazy.

HELLO, Larry? If confidence wanes in ALL fiat paper currencies (i.e. currencies only backed by the “full faith and credit” of the issuing government) that’s just when gold really WILL start to run!

silver was in the low 4$ range when xau left the 60 area in 2003. Silvers low was 8.40 recently.SO there is 4$ in silver price appreciation that was wiped out,6yrs of gains.Same as gold really

Thnx, Johnny, for posting Jubak's revealing piece, with confident prediction that gold won't rise in 2009. That's why he's selling Goldcorp. Later in the article, he says he things gold will start to rise in the 2nd half of 2009. My response: who knows?

His "logic" is that the US went into crisis first, is flailing its arms and spending quicker than other currency countries, and therefore will emerge from crisis first, continuing to attract money into US$ through 2009.

Interesting notion, but NOTHING to base timing on. BTW, what role does "logic" play in traumatized markets? How can Jubak be so confident? He's not a trader; he's a journalist. That's how. Having woven a credible story, he starts to believe in it, and times his exit from Goldcorp.

Jubak later confesses that his portfolio lost 40+% in the 2nd half of 2008 because, despite having seen the inevitable coming, he "stayed too long at the party". Well, maybe he's not staying long enough at the "gold party".

But that's not the point. Nobody can know the timing in advance. The point is to stay agnostic, and to set timing by timing indicators. Logic doesn't drive markets! - writers build their logic after the fact, to help us all feel things aren't as out of control as they really are ...

Chickenpookie and 2nd,

Agreed; however, only highly selective real estate will generate short-term (5-10 years) profits into the boomer's future. The securitized, REIT/hedge fund infested suburban model is dead, dead, dead. Those 'premium' properties were bought at 5-8% caps and always levered 80% or higher. That's the heart of out-of-control fractional-reserve banking. If ownership survives, it will be a long pull to build equity with flat appreciation and rising interest rate rollovers. Reduction of the 26.5-year depreciation schedule and retention of the 15% cap gain will help to motivate sales of commercial property. But you gotta buy it cheap now and lock your rate for 20-30 amortization with 50% down before inflation hits! We've got about a 1 year window but nobody's discounting the commercial yet except the banker and he's surrounded by wolves.

Wonder if Obama still wants to raise cap gains to 25%+? Doubt it. The massive oversupply should be bulldozed a la Steinbeck's Grapes of Wrath.

Did anyone see the WSJ article about the U.N. building a $300,000,000 temporary building (in 5 years it will be razed) to house the assembly until the old facility is rehabed for billions? Couldn't find a vacant space in Manhattan?? Now that's what I call planned obsolesence! And the U.S. pays most of the U.N. bills ... Sheesh. Time to quit that outfit and go it alone like we're doing anyway. Force them to live in a temporary shelter!

Cheers.

I am not a Michael Moore fan, but one of my holiday visitor's rented a copy of Moore's lastest movie "sicko". I was profoundly affected. My wife is quite ill but has to work because otherwise we can't even buy health insurance anywhere, I'm retired. If she quits work, expensive Cobra will not last until she is 65 and eligible for medicare. She and I are eligible for Social Security but can't start receiving it because we file joint returns and the SS income will have heavy penalties. So we are stuck. I know of people whose lives & life savings were destroyed by medical costs. The medical business does it's best not to pay and keep those execs in multimillion dollar salaries/bonus'.

This is a mean & freightful system our politicians have given us. Moore's film, which is seriously biased, takes in Canada, the UK and even Cuba. For what it is, I think Moore did a good job with it.

I am thinking about moving to Canada. I have visited on may occassions and love the place and the people, especially the maritimes.

Johnny =

On gold, or any investing, be sure to always emphasize risk control; no "hail mary passes" ... Elder recommends never risking more than 2% of your portfolio on a single postion, never exceed 6% at risk total. He defines how to do this.

On medical expenses, you're right; they can bankrupt you. I think Michael Moore's "Sicko" is a great film. I hope Obama and Daschle have seen it.

My health insurance is worthless. If I have a major problem, I'll consult the
"Joint International Commission" which certifies medical facilities outside the US. (You can google it). Also, the LA Times has had some good articles on "medical tourism", such as:

http://articles.latimes.com/2008/nov/02/business/f...

Good luck.

On P.E. Obama's pledge for transparency... How do we prefer our smoked barbecue - Pork/Chicken/Beef?

"Congress this past year said it had cut earmarks dramatically. But The Seattle Times examined the defense bill and found that Congress failed to disclose $3.5 billion of them — 40 percent of the total — because it used a new, more narrow definition of earmark."

http://seattletimes.nwsource.com/html/politics/200...

CNN will air the documentary I.O.U.S.A tomorrow January 11 at 3 pm EST.

Jan 9, 2009 Forbes http://tinyurl.com/9vthqx America's Strongest Housing markets...and all the rest

Johnny -
"So it seems we have an "oil cushion" developing and that supply will have to be used before prices rise significantly from here."

But what about U.S. and other consumer nations loading up on the cheap while opaque OPEC cartel slashes production (if their members can be trusted) to force price up to economic levels. Saudi Arabia is a massive welfare state unlike in the 1950s with a burgeoning youthful population and no industry except maintenance of overproduced oil fields. Hence the radicals. Putin just chopped nat gas to Europe this week too.

Cara last weekend in Week in Review #1:

"But I reminded you that 'Oil is not a commodity that can be stored easily. If there is temporary surplus, government petroleum reserves can remove it with increased buying programs. Big Oil will be asking why homeland security is being put at risk by lack of buying at prices that are lower now than for almost five years. They will want to know why the previous Administration was buying at peak prices and, if it’s the case, why the new Administration is not buying at floor prices.'"

Another point: It's a myth that XOM and the other fully integrated oil companies have massive profit margins: Historically under 10% while Google, Coca Cola, and Intel run above 20 and even 30%. Consider this chart:

http://www.nowandfutures.com/images/oil_profits_ta...

I'm with Bill Cara's thesis. Contango never lasts long, right?

This was covered last night by Bill Moyers on PBS TV, based on the Seattle Times investigation and more. I was amazed and appalled. I would like to say that I am an "amazed pallbearer". (That's a joke line).

In fact, I do not see the death of earmarks yet due to Senate opposition. Senate slight of hand was the focus of Moyer's piece. Some other due to House non-compliance to their own new rules. Ethics Committee oversight is nil in both House and Senate.

Is that you in the backup?

http://tinyurl.com/8x5kuh

In the U.S. they have the best health care in the world. But fewer people are able to afford it, so the eventuality is that nationalization will become a necessity, much like the banks.

I wonder if anyone in Canada considers that perhaps nationalization was the outcome of necessity in the very same way. A a resource dependent economy, a great number of people are subject to seasonal and cyclical outcomes. But then again, I'm no expert on this matter. Still, if they throw x amount of dollars at Wall St. to keep them sailing their yachts, then political resistance to nationalization from all parties would be at an all time low.

I have had a Citibank Smith Barney credit card for years. No fee, always low interest rates compared to a standard cc, decent balance transfer offers.

Suddenly my purchases apr jumps from 8.9% to 31.5%, as noticed on my last statement! Most of my balance is balance transfer at 6.9% until paid off.

So I complained and they offered me the new low rate of prime +, giving me 15.9% apr.

It seems to me they have the perfect business model now : bleed their best customers and sell the dross to the US treasury.

Anyway, they have given me the further option of rejecting these new terms which I shall now do.

My credit is shot anyway, so this is more bemusement on my part than annoyance.
In any case Citibank is quite happy to put cc customers on 48 month zero interest repayment programs. Bank of America took me off a similar program and asked me to consider paying them 25 cents on the dollar which I did. Crazy times.

In South Africa, again, if anyone has questions.

NYU I have forwarded that link to my grownup kids - all of whom have been hurt by too-easy credit and are struggling to get out of debt. Thanks!

here's an article re an oil bottom here fwiw just as the hs bottom I showed last week

http://www.321energy.com/editorials/maund/maund011...

What really caused the extreme move we saw the last three years?

Stocks - http://tonto.eia.doe.gov/dnav/pet/hist/wcestus1w.htm

You can see from the above link that weekly US crude stocks have had minor changes over the last 3-4 years. Certainly not enough to cause the base price to move from 40 to 140 and back again.

Refinery inputs - http://tonto.eia.doe.gov/dnav/pet/hist/wcrrius2w.htm

Inputs into refineries were just a small percentage of total stocks. Again, not enough to cause that move. And, very small changes in average weekly inputs, no growth here over the last 3-4 years.

US oil imports - http://tonto.eia.doe.gov/dnav/pet/hist/wcrimus2w.htm

This is the true tell. Very little fluctuation on a weekly basis for the last 3-4 years. In fact, the average weekly import volume looks to be about 10,000,000 barrels per week.

This begs the question – if the US had almost no growth in imports, no change in stocks, and no growth in refinery inputs over the last 3-4 years, could foreign demand/usage have increased enough over the last 3-4 years to have caused the world price of crude

http://tonto.eia.doe.gov/dnav/pet/hist/wtotworldw.htm

to go from $ 40 in Feb 2004 to over $140 and back to less than $40 this year?

so obama now says 4 million jobs will be create as opposed to their previous estimates of 2.4. how does this go up so significantly without additional stimulus? my initial feeling is they are upping the estimates because the jobs losses over the past few months have been so great. do they really think the public is that stupid? maybe they do. everyone knows that with the original amount, only about 4 or 5 months worth of losses would be negated.

my feelings? we will probably see another 3.5 million in job losses and unemployment will probably have gotten to about 10.5% before its all said and done. with the stimilus, i think the max downside is about 8.25% to 8.5%. it still remains to be seen how the stimulus package will be paid for, but that's another story. if politicians knew how to cut spending, then i would be less skeptical.

Interesting read before the game or at halftime:

Could you please post the link to Vads blog, thank you.

And the big (smart?) money is reportedly renting the world's tanker fleet with some sort of $$ expectation. How should/can such a transparent situation be utilized to forecast future demand?

What is it everybody knows that's really worth knowing?

Please feel free to poke holes in my analysis as i am still learning.

As i commented the other day, i think SLW is in a trading range of $5.50-6.50 usd. Daily charts show stoch and rsi under pressure but the price is holding its ground on modest volume. Weekly charts show stoch still rising, and rsi a bit confused.

Money flow has been net positive. I was curious and plotted the relation of SLW to SKF and they seem to be inversely related the past 3 months. albeit disproportionately, but when skf was peaking slw was pounded, vice versa. However the recent weeks surge in skf and lagging financials did not knock down slw as the comparison charts would suggest.

The chart comparing SLW, GG, SLV also shows that SLW is hyper active both up or down in relation to moves in Silver/Gold spot or GG.

Right now i am watching for critical support of $5.50 usd, if that breaks in connection with dropping metal prices, i will try to sell and book my gains.

otherwise i think we trade up slowly, unless metals get a bid this coming week, then we might break into $7+ USD. I thought the metals group held up very well this past week in overall market weakness. As the rest of the market dipped, both SLW and GG went down, but quickly recovered.

with inauguration coming up in less than 2 weeks, monetary easing will prob be used as a selling tool to sell metal prices higher, i think/hope.

Maybe, the next stop for SLW in the mid $7 usd, but will need a lot of volume to get thru $8 usd.

Just my opinion/observations from a novice.

Chickenpookie, what do you think such a steep contango means for oil prices in the near term? On the one hand, if the futures 6 month out are much higher than the spot prices, that might mean that the spot price will rise to match the futures price in 6 months. But then, John Mauldin yesterday wrote this about oil:

"I think oil is going lower (and maybe much lower -- can you say $1-a-gallon gas?) in the near term. As I have written about before, oil is now in the steepest contango on record. That means oil is cheap today and more expensive in a few months. That is not normal. Oil is bidding for storage. You can make 20-25% on your money in a few months if you can buy oil and find somewhere to store it. At least 25 supertankers have been leased to store oil, and sources say another ten are being bid for. It remains to be seen if OPEC can really cut enough to make a difference in the near term."

If he does acknowledge the contango, why does he think oil is going much lower in the near term? Can anyone explain this please?

I agree go set up for Feb, I am looking at 38, 39, 40 price levels.

our media rely on us for information. A finance reporter I know can't accept so much as a cup of coffee, but he IS eager to hear my perspective and investigate situations. I sometimes get quoted as a reliable source. But they always appreciate links to our resources-- so at least one reporter is on the job in my town. We can help them and let their editors know how much the truth is appreciated!

http://www.nytimes.com/2009/01/11/business/11burge...

Finally I found time to to update the Wikipedia entry with the $200 Mil tax benefit info and king Henry moniker. It any of you see that deleted, please put it back.

http://en.wikipedia.org/wiki/Henry_Paulson#Conflic...

NYUGrad -
Under 2L turbo diesel is the way to go. No more knocks with electronic injection. 16:1 or higher compression for much cleaner burn, low emissions. Diesel is something like 20% more efficient than pump gas. Turbos give power when needed while allowing for the small chamber volume. All we need is high oil prices to make it a reality in America!

Automakers, including the Big Three, figured the little diesel out years ago and can sell them for profit in Europe. Rented a four-door Peugot in the U.K. last year with this config and it blew my mind. Dollar being so weak, Big Three couldn't justify importing vehicles made this way and manufactured in Euro and Pound Sterling wages. I want that VW. Ford makes an outstanding little turbo diesel, by the way. You'll see them in utility vehicles here in the U.S. soon.

Bottom line: High oil and strong dollar could make the U.S. auto industry thrive.

that was the exact trade I did Friday at the close...I sold the XLE Feb 40 puts

http://optionpremiumcollector.blogspot.com/2009/01...

vinod, et al. -

OPEC is a cartel just like U.S. Fed Reserve Bank is a cartel. OPEC wants its own currency to replace USD and is working on that solution right now. OPEC is opaque re: oil field production and long term capacity. It's causing global turmoil over energy policy now and over the past several decades. U.S. needs an energy policy and has for a long long time. The switch in oil trade to OPEC bucks is a dire threat... remember when Saudi Arabia's King Faisal got into power and cut off oil to the U.S. in 1973? It is said he was snubbed at a conference in California decades earlier, never forgot it and when he was handed control of the country he got back. Who knows.

Saudi Arabia's King Abdullah took control in 2005 and has absolute control over OPEC as the world's key swing supplier of oil. Radicals blew up his car and U.S. Forces left, all in 2003. Arab world dislikes the Saudi principality. What's next?

OPEC bucks could be used to put the dollar into real distress just as U.S. Gov't starts to monatize the debt to save it. Such inflation was triggered by a Saudi King before. I guess it depends on President Obama's relationship with King Abdullah ... price of oil, in the meantime, is a game of Russian roulette. Hope our fresh faced new young president does better with King Abdullah than, say, JFK did with Khrushchev!

Dr. Strangelove - Yes, I knew what you were saying about 20% more fuel efficiency. But with a price that's more than 20% higher than gasoline, and the extra cost of a diesel vehicle over a gasoline version, I couldn't justify purchase of a diesel vehicle. This didn't include the additional expense for oil changes.

I really liked the Countour and looked for such a car once returning home but to no avail... Started looking at the diesel P/U and couldn't get the numbers to work.

This is of great concern to me that the E in P/E is overinflated and therefore stocks are not as cheap as commonly believed. I have switched to a capital preservation posture by initiating hedges and making only very conservative option selling trades.

When the bear is finished ravaging it's prey most people have thrown in the towel and sworn off stocks forever. Real P/E's end up very low and dividends very high but only seasoned investors want anything to do with them. That hasn't happened yet in spite of the prevailing historic economic calamity. There is still a lot of optimism out there.

I'm very pessimistic and I figure if I'm wrong my return on investment will suffer yet still be positive but if I'm right no one in my camp will be jumping in front of trains.

chicken - not over 70% less, but yes we're still overvalued in the context of earnings estimates. that is why i'm still short term bearish. i think we will definitely test those lows from earlier at some point because of valuations. people saying that valuations are cheap are either lying or dumb or both. the only exception to this is that at some point when we hit the bottom in earnings, the growth in earnings will be quite strong. after the bottoms in 01, '90, the 80's, etc...earnings for the S&P 500 grew quite rapidly. i believe they were over 30% higher in the first year after the 01/02 lows. the issues are as follows, though:

1.) housing prices are still too high; they are roughly 3.65 times average national household income. historical averages are around 3.0 to 3.1, so the bottom in housing prices is still 20% or so lower.

2.) even if obama creates 4 million jobs, we have another 3 to 4 million that will be lost because consumers have pulled back drastically and will continue to do so. that means we would be back to where we are now, which again is overvalued in terms of economic activity caused by job creation.

3.) over the next year banks will still have to write down their assets to the current asset values, which means they have losses of at least 20% to write off (assuming my assumptions in #1 above hold true). this will put a strain on earnings for about the next 4 quarters.

the positives are the following:

1.) the core banking business (that is, accepting assets, borrowing at low rates and lending at higher rates) is actually very profitable right now because of the credit crisis's affect on the interest rate spreads. in about 4 quarters (after asset prices are lower and have been written off), banks will begin to make healthy profits. the only issue is they will need to significantly dilute their shares by raising capital just to offset the upcoming write offs so their EPS numbers will be low in the context of historical norms.

2.) oil prices are low.

the negatives still outweigh the positives as far as i'm concerned. as i've noted before, i think investors should look at only investing in companies with significant cash balances and little or no debt. there are plenty of them out there.

David- I'm also puzzled by your Mauldin quote: "..oil is now in the steepest contango on record. That means oil is cheap today and more expensive in a few months. That is not normal."

I would think that contango (price of future delivery higher than spot price) would in fact be the normal scenario, as there are costs associated with taking delivery in the future (eg, storage costs, as well as the cost of having capital tied up in a futures contract).

If he thinks "oil is going lower (and maybe much lower -- can you say $1-a-gallon gas?) in the near term," then given the "steepest contango on record," I have to assume he thinks there's money to be made in selling oil at today's spot, but even more money to be made in selling futures contracts a few months out...is that what he's doing?

"My view is if oil price drops, some OPEC country may have to increase production to meet their revenue goal. They need oil income; some of these countries do not have other source to earn foreign currency."

vinod- good point...going back to Mauldin's point, is it possible for them to lock in profits by selling futures contracts at (much) steeper prices, while storing/delaying current production at (presumable minimal) warehousing/idling costs?

http://tinyurl.com/6trvjo

Open for business.

but drys is rocking up 5% premarket.

yaba - I'm curious, where are those ($97/$62) production cost figures posted? I read somewhere Saudi production cost is much lower (~$2/bbl).

Hi CP,

I got the cost per barrel from this post. I had to go back and look through all the posts to find it as a gesture of respect for you and a kick in the behind for me for not saving it in the first place. Cheers

Submitted by Chickenpookie on Mon, 01/12/2009 - 08:55. #6225
yaba - I'm curious, where are those ($97/$62) production cost figures posted? I read somewhere Saudi production cost is much lower (~$2/bbl).

oil and countries newSubmitted by EDC on Mon, 12/15/2008 - 15:53. #3041
From Gartman/Mauldin
Cost-year-'00-'07-'08-'09
Venezuela-$34-$91-$94-$97
Nigeria---$32-$63-$68-$71
Iran------$18-$49-$55-$58
Saudi-Arb-$23-$49-$55-$62
Kuwait----$11-$45-$45-$51
UAE-------$05-$34-$42-$51
Algeria---$22-$26-$31-$35

(As far as the costs go for each country, I don't know how accurate these are but they are from both newsletters, who knows how they got those numbers)

Notice that costs went up, they went up because these nations took out more debt to fuel the demand for oil. A problem was, was the demand actually fueled by real demand or the easy credit expansion that took place over the past 7 years.

Think about someone who bought a home because they got a loan due to the fact that the loan guidelines were easier and allowed them to put less money down. Or perhaps they ran into a job that paid very, very well in the easy credit enviroment the person thought the funds would last forever.

Now we have countries taking on more debt because everyone believed that oil would ultimately go up forever. They probably got very, very favorable terms at the time of the loans (less skin off of their back). The only problem about all of this, is the demand may or may not have been artificially (easy credit).

We sure didn't see actual wage growth support higher prices here in the USA, do you seriously believe it was wage growth that fueled the rise? My trips to central america, they paid the same price as we did for fuel, I was scratching my head to think, how can they afford to drive.....

Teamon...re: "1.) housing prices are still too high; they are roughly 3.65 times average national household income."

Would you admit that is is perhaps the income of average Americans that is not keeping up with inflation and housing? It is unlikely that folks who own property will happily devalue their investment any more than an automaker wants to pay their people according to what actual cost of living suggests is fair and equitable. I foresee a meeting in the middle. Americans made more per capita in light of costs in the 60's than we do now. (remember getting out of college with a job offer of more than your dad made?)