Another sign of an unhealthy market: Continue reading
Not mine, of course. I’m not here to tell you what to do. Continue reading
ChessNwine has become the top technical analyst I follow, and he’ll tell you the bulls have the initiative. Maybe stocks are poised for another melt-up rally (Financial Sense). Josh Brown posted One Direction 30 minutes prior to the morning high. Or perhaps the caution flags are being ignored (See It Market and Decision Point).
It’s a tough world out there. After putting their competitors out of business, who would have thought an outstanding big box retailer like Best Buy would have strong headwinds and trouble making money.
The S&P 500 made a new post financial crisis intraday new high today. However, the Shanghai Composite is down for the year and in grave danger, being The Chart That Keeps US Up At Night (Big Picture and Chart of the Day).
Doug Kass makes a strong case to Get Ready for the Fall (The Street).
Who are we to handicap The ECB to potentially target periphery yields via unlimited buying (Sober Look) or if Germany may give a little (Big Picture)? Is the reflation trade back (FCX at ChessNwine) or is copper striking out (Peter Brandt)?
We do understand the “most-important single feature of modern economies is growth (Bill Bonner at his best).” The real possibility of a beautiful deleveraging aside, this debt soaked world is binary. Policymakers will provide enough stimulus or not.
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I am taking a few days off to relax and recharge. This is post #215 with hardly an afternoon off. While I am up north, perhaps you will notice the value Independent Stock Analysis has been providing you.
The content on ISA consists of what I deem worthwhile in the markets. I sort through the investment sludge on the internet and present the good stuff. Even the quality free investment websites skew heavily toward being skeletons with no meat on their bones. My afternoon coal posts are as educational and actionable as any commentary available on the web.
Under the theory the stock market is deep into a secular bear market, Independent Stock Analysis has been focusing on the commodity bull market. To this point early morning posts have focused on oil and gas. The industrialization of China theme is currently beat down, and we are watching it closely. Precious metals deserve attention in a world of fiat trouble. In June ISA became interested in coal and has been continually examining the sector as we patiently wait to get involved in the right coal stocks. ISA‘s focus will slowly shift with my perception of opportunity and value in the markets.
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Oil Trades Near Two-Week Low on Manufacturing Slowdown at Bloomberg.
OPEC oil output drops as sanctions hit Iran at Globe and Mail.
“Majority of Executives See Energy Independence Achievable Within 15 Years” and “Many see another oil shock by the end of 2013” by Forbes on Scribd
“more eye-popping figures out of the Williston Basin” Platts.
Investors ought to be discriminating when chasing shale plays. The Monterey in California has yet to live up to the hype: AP.
U.S. imports by country: EIA.
Shale natural gas continues to see costs decline while traditional LNG costs rise. I can not fathom a $37 billion dollar facility. Mining Weekly.
“Canadian Oil Sands Ltd. cut its production outlook when it reported lower-than-forecast second quarter earnings last week, but at least one analyst thinks the company’s targets still look ambitious.” Financial Post
Be careful out there; today will be a tale of two tapes.
The coal stock bull case has three catalysts:
- Will the depressed natural gas environment ever end?
- Emerging market demand growth
This thestreet.com look at ANR, ACI and BTU notes “Investors are anticipating Alpha Natural to report…a loss of 25 cents a share, a decline of $1.21 from (adjusted) 96 cents during the same period last year.” ANR stock trades at less than 2 times a normalized earnings number. ACI’s market cap is less than twice last years EBITDA.
Don’t back up the truck just yet. These guys carry a lot of debt and their enterprise value to ‘normalized’ earnings and cash flows are very tasty but not give-away valuations. The different names all have varying exposures to met coal to watch too.
A well done piece showing the danger of being high cost: Patriot Coal: High hopes at IPO, but Chapter 11 in five years at Reuters. Patriot Coal Bankruptcy: Hidden Value for the 8..25 Guaranteed Notes? by Distressed Debt Investing.
I expect second quarter 2012 results, as they are released over the next few weeks, to be a mess. Think ‘one-time’ expenses related to paring operations. But trough ‘adjusted’ earnings do not look so bad in this All eyes on 2013 contracting leverage ahead of coal company earnings report at SNL.
Listening to what the coal and rail companies say will be important. So will the stock reactions to results. Coal pricing has bounced off a bottom: EIA.
Met coal producer Suncoke (SXC) plans to MLP a portion of their working interests.
Arch Coal chartology.
Peabody (BTU) is the closest thing the group has to a blue chip. Peabody is the largest industry participant with a stronger balance sheet and better margins as a low cost operator. Alliance Resources (ARLP) has been a remarkable story for the past decade, is the low cost producer and as a MLP sports a tasty dividend. Natural Resource Partners (NRP) has my favorite business model as a royalty play. James River Coal (JRCC) carries the most possible upside, yet ought to be avoided. Without an immediate industry turnaround, bankruptcy is likely.
Alpha (ANR) and Arch (ACI) might have the best risk/reward profile for an industry turnaround. Neither would survive a years long long industry depression, but both look to do well if the industry rebounds. Alpha is more Appalachian heavy and high cost. At this point Arch is my favorite play and the only one I own. Yet. As these company’s report second quarter results I expect to learn a lot more about all the industry participants. I’ll keep you informed.
Chinese crude imports at nine-month low at CGES. What happens to price if and when imports re-accelerate?
More on Japan and the spot LNG market: Energy Tribune.
Frac sand prosperity: Mark Perry
Outstanding coal analysis re-post by Gregor.
Fundamental to reviving the depressed coal sector is a natural gas price recovery. The natty rig count has collapsed and production started to look weak, but then I see Value’s commentary at Investor Village. Natural gas, the gasbags and especially some of the coal guys spiked on this morning’s inventory data (Reuters). Our hot weather is addressing the storage overhang; but the natty supply over-production is really what needs to be watched.
Coal and natty power generation dynamics from AOL Energy.
ACI chart: Greg Harmon
Rail traffic is strong, even with weak coal loadings. I’d like to find out how much is Bakken oil. Value Plays.
Many U.S. coal producers have cut capex to delay the timing of projects. Low investment meeting higher demand would mean high returns:
“…global coal demand was expected to increase, driven by longer-term, increasing electricity generation within the Asia Pacific region. “China’s coal imports are accelerating in recent months, and we project they will reach a record 285-million tons in 2012 as the country increasingly looks to the seaborne coal markets,” he said. Global metallurgical coal use was forecast to jump 25% by 2016, mostly driven by China and India, adding another 250-million tons of demand growth.” Mining Weekly
“We are optimistic that the June 6th dismissal of Barrick Gold’s CEO and the $70 billion aggregate net debts of Glencore, BHP Billiton and Vale discourage cap ex.” John Tumazos
“…little credit is given to the fact that China’s growth over the past 30 years has lifted more people out of poverty than in any period in history.” China Daily. Average Chinese salaries: China Daily.
China auto exports to other emerging nations booms: NY Times
“In the past, Western companies invested in Asia to take advantage of low labor costs to export goods back to home. Increasingly, they are investing in the region to sell products locally.” WSJ
I know zilch about aluminum, but I do listen to price: Platts
Teck rumor: AMP 2012
We at ISA speculate a DJIA:Gold ratio of one as a reasonable approximate area for the gold bull to end. Maybe, and dependent upon policy maker reactions. One path to $10,000 gold: Dan Amoss.
BRICs Priced for Economic Meltdown Bloomberg
Re-post: “Today will be the first day in a commodity rally that should last roughly 2 years topping in mid-to-late 2014 when the dollar puts in its next three year cycle low. The next two or three weeks should produce an exceptionally violent rally from extreme oversold conditions followed by a consolidation period as the dollar bounces weakly out of its intermediate bottom and rolls over quickly signaling that the three year cycle has topped.” Gold Scents
Americans, enjoy your 4th of July holiday. I do plan to have a post up for the Canadian and Europeans. Fun in the sun aside, Thursday and Friday promise to be big market days stateside.
“…oil futures posted their biggest quarterly declines since the fourth quarter of 2008…while (of Friday) U.S. crude jumped by more than $7…the fourth-largest daily gains in dollar terms since the contracts were launched.” Globe and Mail
“But if oil prices resume their recent slides, Bill Herbert, co-head of research for Simmons & Company said the excited spending on expensive shale play developments will likely taper off.” Fuel Fix
Directly related are Eagle Ford well starts: EIA.
Details on the Mississippi Lime have been hard to find to this point: E&P.
U.S. April 2012 crude production was down 5% from March, yet up 10% over April 2011: EIA.
Booming production and declining demand means U.S. net petroleum imports were down 15% April over April: EIA.
U.S. NGL production also up 10% April over April. Be careful!: EIA
U.S. Rig Count: -7 (all Gas Rigs) to 1,959 at Haynesville Play.
This heat sure is helping burn off the excess natty in storage, meanwhile Cities That Wouldn’t Exist Without Air Conditioning at Atlantic Cities.
Canada’s natural gas dreams closer to reality after Petronas moves at the Financial Post.
No Energy Yet in the Energy Sector: Dragonfly.
Earnings, Meet Cliff: Energy’s Contribution to S&P 500 Earnings Is Plummeting, the Raymond James Energy Stat of the Week.
I was published at Seeking Alpha: Forest Oil: A Speculative Idea.
I do believe the safe route to profit from the gold exploration cycle is Franco-Nevada. FNV has a deep portfolio of royalty rights and the cash to invest in additional juniors prospects at favorable prices. Junior Gold Exploration at Zeal. Seven arguments for gold stocks: Casey Research.
Fed heads Lockhart and Dudley are open to more easing. As for Friday’s face ripper, I have not even tried to understand the European news: Sober Look. What I do know is policy makers will actively choose to debase or society will default. Bill gross seems to be thinking inflate or default at Pimco. More irreverent is Jim Willie.
Bottom calling: The CRB Just Formed A Final Three Year Cycle Low: Toby Connor. Treasury’s vs CRB: Stockcharts. I see The Classic Failed Breakdown Trap in copper too: Stock Sage. Transports look good: All Star Charts. Long term price/earnings ratio: Chart of the Day.
Oil Trades Little Changed as Storm Threat to U.S. Gulf Crude Supply Fades at Bloomberg.
Annual Energy Outlook 2012 (Only 252 pages long): EIA
This would only be the tip of the iceberg: Oil price fall slowing oilfield activity at Calgary Herald.
I have little idea when the Saudi’s will cut oil production, but here is a look at the coming monarchy change: Economist. Update: OPEC may hold emergency meeting if oil prices continue to decline, Khatibi says per Platts at Twitter.
China Stockpiling masks tepid oil-demand growth: Petroleum Economist. However, “Both Malaysia’s A-P Tapis Crude and Indonesia’s A-P Minas crude are pegged to Brent crude and currently trade at an $8 premium.” Peter Pham.
Gas at the pump should head down to near $3.00 stateside: Econbrowser.
Meanwhile, a Japanese company is paying $5000 an acre for South Texas acreage. They have to drill through the Eagle Ford (which rights they do not receive) to get the Pearsall. Two words: Time-value and WOW! Oil and Gas Journal.
We arrive at our desks to weak prices, even with Almost 23% Of Gulf Of Mexico’s Oil-And-Gas Output Cut By Storm: IB Times. Natty will remain depressed withdrawal season begins next fall, while oil needs help from the a ‘Saudi Arabia committed to oil supply stability’. The News Tribe
These notes from last week’s oil supply and demand symposium might be the best thing we read all week: World of Wall Street.
Perhaps to much opinion, but some worthwhile tidbits and interesting charts: Energy and Capital.
Looking at Encana’s investor day presentation, Understanding the Big Picture: Haynesville Play.
On the Marcellus and natural gas: “Canadian imports into the northeast will probably end in two years (2014), and flip around to a net export position. Midcontinent flows into the Northeast will probably end a year later(2015).” RBN Energy
Alberta scours the globe for workers: Financial Post.
MAP: How Oil Flows In And Out Of Every Country In The World: Business Insider.
Steel-making met coal has remained strong so far, a commodity I lump into the ‘industrialization of China’ investment bucket. But most U.S. producers are electrical generation thermal coal production heavy. Thermal coal on its own competes well in the energy marketplace. However, thermal coal currently has two enemy’s: The global warming/climate change crowd and excess natural gas production.
Coal: The rising star of global energy production from Globe and Mail.
Coal, Renewable Energy’s Dirty Step Child at Oil Price.
Arch Coal lays off 750 workers due to ‘unprecedented downturn’ from Mining.
Peter Epstein recent well done recent essays:
- Is The Powder River Basin The Next Central Appalachia? Peabody, Arch And Cloud Peak Hope Not
- Alliance Resource Partners
- Coal Stocks Killed, But Survivors Not Hard to Find
A well done piece on very distressed Patriot Coal: Distressed Debt Investing.
Expect the Bakken boys to report stellar Q2 numbers: “April…was the largest year-over-year increase in the state’s history at 73.5%…) via Mark Perry. Also, The Bakken Buck Starts Here – Bakken Crude Pricing – Part II at RBN Energy.
Lower oil prices will crimp industry spending by Peter Tertzakian in the Globe and Mail.
Notes from a Pickens interview on CNBC: Million Dollar Way.
Sad news for peak oil disciples in the Financial Post.
In Canada, Oil and gas juniors adjust, but still get no respect from Financial Post.
Blackstone CEO: Now is the Time for Long-Term Energy Investments at Oil Price.
Oil Prices Could See a Major Shift in Direction in the Near Future from Oil Price.
Exxon Mobil’s Tillerson: “There is huge shale potential in shale rocks in West Siberia…The exploration work will take years to establish if the reserves are commercially viable…” Fox Business
This editorial alludes to higher US production and lower imports leading to a lower risk premium inherent in the price of oil. Washington Examiner
This is as important for natural gas as it is for coal: “My analysis indicated approximately 41.1 GW of capacity, or about 17% of existing capacity, is vulnerable to retirement by 2020, 90% of this by 2015.” Doyle Trading Consultants.
The World’s Biggest Natural Gas Powerhouses; cool stuff at Business Insider.
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If given the opportunity to export, U.S. E&P’s would destroy LNG pricing in short order. Natural gas reserves in the Economist.
Long term chart of market capitalization as a percent of GDP: Ritholtz.
Valuations, corrections and bear markets: Yardeni
Occasionally good policy, like Health Saving Accounts, is implemented. Crowdfunding is generating a lot of excitement: Seeking Alpha.
Warren Buffet on “Owner’s Earnings” at Crossing Wall Street.
Introduction to MLP’s. Just be careful with them as they are richly priced. Dividend Insights
Western investors have been waiting patiently for China to stimulate so their stocks will go up again. Just be sure they follow through. Rather than compete against the Chinese, sell them what they need. Enjoy today’s industrialization of China meme.
“The greatest wave of voluntary migration in human history…” Economist
China spends $US21.4bn on foreign assets in first quarter: The Australian
“Will the ECB and Fed Follow Where China Leads?” was written before China cut. “We believe the next government policy cycle might be just around the corner.” Frank Holmes
Eagle Ford human interest article: Fuel Fix As production ramps higher in a new play, operators get behind before a maintenance level of backlog inventory is found. The Eagle Ford backlog at Eagle Ford Shale.
More on the Russian shale Bazhenovf at Forbes.
Shortages of Guar Gum at 24/7 Wall Street.
Dodge the Bullet. Natgas Supply Overhang Correcting at RBN Energy. Musings: After 7 1/2 Months of Lower Gas Rigs, Production Finally Falls at Rigzone. However, “A report from Bentek Energy, which examines national industry trends, estimates that even if companies stopped drilling new wells in northeast Pennsylvania, production could grow by 31 percent over the next 16 months as the partly drilled wells get hooked up.” at Triblive.
Chesapeake mid-stream sale could be announced this week. Financial Times
Sector relative strength at Bespoke.
“No one knows whether we are headed down to 800 on the S&P 500 within a year, or are going to 1700 by 2013.” ChessNwine. Fed’s Yellen: “Scope remains for further policy accommodation” per Calculated Risk.
While I was putting this post tegether, China cut lending rates for the first time since 2008. See Bloomberg. Think materials stocks.
Q1 2012 oil production was 47% of total production and I estimate using the back of an envelope should be near to mid-fifties by year end. Oil production growth for 2012 looks to be 25% and average 64,000 barrels a day.
As do all the U.S. E&P’s, Newfield has a deep inventory of assets with the Uinta being core for them. The Uinta will consumer $500 million of their $1.5-$1.7 billion dollar 2012 capex budget. Their market cap is under $4 billion and long term debt is $3 billion. Newfield is hedged better than most independents.
All drilling is oil focused. With no dry gas drilling, Newfield’s gas production is actually declining, which is unusual for the independent E&P’s. A most interesting tidbit: Newfield’s natural gas production profile will actually flatten out in two years because of associated gas production.
The current oil price is not far from where horizontal drilling budgets will need to be pared back for the industry.
Boothby sees deteriorating NGL pricing. NGL’s are in the low $30 a barrel, with spreads increasing monthly. Fortunately only 5% of company production (thus 10% of liquids) is NGL’s. The black stuff is what Newfield is chasing.
Independent Stock Analysis has a new tab for books, and I hope to post new reviews on Saturdays. All serious investors are avid readers. You, after all, found Independent Stock Analysis while poking around the internet. But don’t forget the books!
- Reminiscences of a Stock Operator: With New Commentary and Insights on the Life and Times of Jesse Livermore (Annotated Edition) This a favorite in of stock traders everywhere, and the new annotated version is pretty cool: “In 1922, Edwin Lefevre began publishing his fictionalized account of Livermore’s exploits in a series of articles for The Saturday Evening Post, which appeared under the title “Reminiscences of a Stock Operator.” Now, Reminiscences of a Stock Operator Illustrated combines those memorable illustrations with Lefevre’s timeless investment advice to recreate the look, feel, and message that was first published more than eighty years ago.”
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