Upside Down

“The yield on 10-year U.S. Treasury securities averaged 1.8% during 2012, the lowest levels in 60 years. But that episode may now be behind us.” (Econbrowser).  Pimco’s Bill Gross Says the Bond Rally Is Over (Business Week).

The fundamentals of gold are remarkable.  Consider:  “Moody’s Investors Service, dissatisfied with the way states measure what they owe their retirees, released its own numbers on Thursday, showing that the 50 states have, in aggregate, just 48 cents for every dollar in pensions they have promised.” (Dealbook).  Additionally, the world’s third largest currency is in the Mother of All Painted-In Corners (Mauldin).

Meanwhile in the investment world, gold can not be owned.  Consider:  Gold is not yet as oversold as it was during the bottom in ’76 at The Short Side of Long.

“It’s been an incredible run… but gold’s 12-year streak of price gains will end in 2013.”

A Big Correction Means Gold Streak is Over

The Ups and Downs of the Gold Stock Market

U.S. Oil Boom Affecting Global Prices at the WSJ.

Is Oil is the Next Major Commodity to CrashEconmatter

Coal shares tumble as investors see no sign of turnaround at ReutersWhat Happens When You Buy Assets Down 80%? (Mebane Faber), though I’m not so sure asset prices always come back.

“There was no discussion of exports in Bernanke’s assessment of the economy during his press conference last Wednesday. They’ve stopped growing because global economic growth has been depressed by Europe’s recession.”  Ed Yardeni

Here We Go Again in Europe (Economic Policy Journal).  Also, “It’s likely that the days of the super-powered Chinese economy are over” says Michael Pettis.

In the U.S., “four powerful forces coming together over the next year are poised to support stronger growth and job creation.”  Stronger U.S. Growth Ahead at Economix.

On the one hand, “Since May 1, rising mortgage rates have reduced the purchasing power of U.S. home buyers by 18%” (Dollar Collapse), while at the same time the shortage of supply we’ve long discussed is manifesting:

Housing Returned 684% During the 1970s

Chart of the Day

“I would add that it does appear based on the last month of data that rail
traffic seems to be picking up.  This gives further evidence that we might see GDP increase at higher rates as we go through the second half of 2012.”  Value Plays  The Private Economy is Doing Just Fine says Davidson.

Yet U.S. stock valuations are uninspiring:

Chart of the Day

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Limited Opportunity

Paul, I’m not sure what the future holds.  The U.S. relative strength against Europe and China continues on the back of oil (Mark Perry) and natural gas production.  “Home construction is booming in the United States, but it remains severely depressed.” (Ritholtz)  Yes, housing has legs:

Chart of the Day

Weakness in China has the commodity trade looking bad and feeling worse:

Commodities Have Been Volatile, But Move Sideways

After all, The Oil and Gold Booms Are Over (Bloomberg).  Grim BRICs news pushes copper to 5-week lows (Mining).  Oversupply pushes thermal coal price to 2009 levels (Mining).

Yet, Commodities poised for revival says Cam HuiA Case for Owning Commodities When No One Else Is by Frank Holmes.

Meanwhile, the S&P 500 at new highs with modest valuation has the stock market uninteresting.  (Vitality katsenelson)

Chart of the Day

Avoiding interest rate risk seems prudent:

Chart of the Day

Additionally, being a gloom and doomer is so passe.  (Albert Edwards)

Perhaps the best opportunity is the shorting the Yen, using the break this week to attempt to initiate a position.  It’s The Mother of All Painted-In Corners (John Mauldin) with horrible demographics.

Stimulate Me!

“Greece continues to receive billions of euros in emergency assistance from a so-called troika of lenders overseeing its bailout…it is flowing directly back into the troika’s pockets.  The European bailout of 130 billion euros ($163.4 billion) that was supposed to buy time for Greece is mainly servicing only the interest on the country’s debt…”  Read about the farce at CNBC.

Will There Be Stimulus?  Jim Puplava

Governments are addicted to stimulus:  Sober Look

The Bank of England prepares to print as a matter of daily business:  Telegraph

Currently printing is measured in the hundreds of billions.  Eventually the problems will be papered over with trillions.  King World News

Eric Sprott May 2012 presentation.  Sprott

Strong Evidence of an Important Low in Gold Stocks, continued, from Daily Gold.  Newmont makes the WSJ.

Jeff Saut on the bottom.  Raymond James

Undulating Plateau

Global oil demand growth accelerating:  IEA

North Dakota has 213 rigs running, tying record, and a few comments on efficiency gains:  Million Dollar Way

Nuclear power by region:  EIA

It’s not that Chesapeake is ‘sticking by growth plans’, but that they must drill their brains out.  CHK has a ginormous long term asset base, matched against large short and intermediate term liabilities, to get the same asset base held by production.  Fuel Fix

Energy and materials under-performance (scroll down).  Bespoke

Time to sell on strength?  Humble Student of the Markets

Reversal

I am not much for forecasts and predictions, but today’s reversal would be powerful if it held.  Energy and material stocks are off less than the market and tck is green.  The S&P 500 looks like a inverse head and shoulders intra-day.  But the gold stocks have had the most remarkable day and look like a low risk entry today.  They opened down 2%, reversed early on huge volume and are currently up 2%.  The MACD divergence and possible engulfing candle (we’ll know by the close) add to the allure of the depressed shares.  Stockcharts

I’ll see what my favorite technician says later today.  ChessNwine

MHR and KOG Results

MHR and KOG released Q1 results and had their conference calls:

Riddle me this:  How does a company with a $700 million market cap raise $600 million?  Answer:  Sell some equity and tap the high yield market to replace all the short term money.  Throw on a large acquisition that needed to be financed, increase the oil drilling budget and now longer run the company overly tight liquidity wise and it all comes together.  Operationally MHR had little detail to offer.

KOG does not give out quarterly guidance due to the difficultly of knowing well hookup timing in a lumpy hyper-growth phase.  Production in Q1 was a little light at 10,578 BOE a day.  March production was 12.500 BOE.  Guidance for the year was changed; the upper end of the range of 21,000 BOE was kept the same, but the lower end was lowered to 17,000 BOE.  Again, well timing is key.  The year end exit rate of 27,000 is expected to be met or exceeded.  Anecdotally, they do have a 4 well pad coming online sometime near the end of Q2.  At this point only half of their natural gas is being gathered and sold (vs CLR at 88%).  Almost free money, even at $2 mcf.  Their learning curve remains steep.  They plan to draw down on their revolver over the course of this year and to go the other way in 2013.  Experience suggests they will find some acreage to buy and drill instead.

Sources:  Magnum Hunter Resources and Kodiak Oil and Gas

Update:  My latest Seeking Alpha essay was published:  Plains Exploration and Continental Resources by the Numbers

Getting Creative…

As we navigate trying to understand the investment world, this blog tries to wade through the sludge to improve our understanding.  I post anonymously.  In the spirit of pioneering financial writers from Larry Livingstone to today’s blogosphere, I changed my pen name.  Hello J.J. Butler.  Eighty years ago (pre-SEC!) a real J.J. Butler wrote the booklet Successful Stock Speculation for his brokerage firm.  Enjoy!

Source:  Gutenberg.org