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Don Coxe Call - Ben and Hank out of ammo
http://events.startcast.com/events/199/B0003/#
Corn, soybean outlooks wilting
Higher prices, strain on food firms likely
By Joshua Boak
Chicago Tribune reporter
September 13, 2008
This year's corn and soybean harvests could lead to higher prices and a scramble for farmland next year, analysts said Friday after reviewing a monthly Agriculture Department report.
The report indicated that dry weather in August is taking a toll on production, just as lower prices kicked up demand for corn and soybeans. As a result, the harvests might not be large enough to replenish corn and soybean stocks going into next year.
That is certain to put pressure on food industry manufacturers and consumers, who are contending with higher prices for everything from milk to steak.
With demand for corn and soybeans up next year, farmers will have to choose which crop should cover the majority of their fields. Much of that choice will boil down to which crop generates the highest profit, which will be decided largely by prices in the futures market.
"We're going to have a huge battle for acres next year," said David Hightower, editor of the commodities newsletter The Hightower Report.
December corn futures at the Chicago Board of Trade rose 30 cents, to $5.63 a bushel, in Friday trading. And November soybeans were up 26 cents, to $12.02 a bushel.
What makes the showdown between corn and soybeans unique is that the harvests will remain strong this year. The corn crop will be the second largest in American history after last year. And the soybean crop is the fourth largest on record.
The corn harvest should be 12.07 billion bushels from 79.29 million acres, according to the monthly report. While that harvest should be able to meet immediate needs, it leaves ending corn stocks at 1 billion bushels, about 550 million below what they were at the start of this year.
One reason why ending corn stocks have fallen is futures prices. When corn futures sold for $7.50 a bushel earlier this year at the Chicago Board of Trade, there was less demand from buyers.
But as corn drifted to $5.20 a bushel, demand returned and available supplies for 2009 have dwindled as a result.
That could mean planting an additional 5 million acres next year to satisfy the need for corn for animal feed, ethanol and exports.
"If we're going to entice another 5 million acres into production, it's going to require an increase in prices," said Greg Wagner, a senior analyst for Ag Resource.
But corn has become increasingly expensive to plant, due in part to fertilizer costs, causing farmers to have better margins with soybeans. And because of the late planting season, the soybean harvest this year could be disappointing.
The Agriculture Department predicts a harvest of 2.93 billion bushels. It lowered the estimated yield to 40 bushels per acre, down half a bushel. Analysts expect that number to fall further, which would increase prices.
"The pod counts are substantially below where they were last year," Wagner said. "I think you're going to see a sub-40-bushel yield."
All of this adds to the economic strain faced by the livestock and meat-production industries. A second straight year of high grain costs for those companies "will be challenging to overcome with pricing," said Credit Suisse analyst Robert Moskow.
Corn, soybean outlooks wilting
Higher prices, strain on food firms likely
By Joshua Boak
Chicago Tribune reporter
September 13, 2008
This year's corn and soybean harvests could lead to higher prices and a scramble for farmland next year, analysts said Friday after reviewing a monthly Agriculture Department report.
The report indicated that dry weather in August is taking a toll on production, just as lower prices kicked up demand for corn and soybeans. As a result, the harvests might not be large enough to replenish corn and soybean stocks going into next year.
That is certain to put pressure on food industry manufacturers and consumers, who are contending with higher prices for everything from milk to steak.
With demand for corn and soybeans up next year, farmers will have to choose which crop should cover the majority of their fields. Much of that choice will boil down to which crop generates the highest profit, which will be decided largely by prices in the futures market.
"We're going to have a huge battle for acres next year," said David Hightower, editor of the commodities newsletter The Hightower Report.
December corn futures at the Chicago Board of Trade rose 30 cents, to $5.63 a bushel, in Friday trading. And November soybeans were up 26 cents, to $12.02 a bushel.
What makes the showdown between corn and soybeans unique is that the harvests will remain strong this year. The corn crop will be the second largest in American history after last year. And the soybean crop is the fourth largest on record.
The corn harvest should be 12.07 billion bushels from 79.29 million acres, according to the monthly report. While that harvest should be able to meet immediate needs, it leaves ending corn stocks at 1 billion bushels, about 550 million below what they were at the start of this year.
One reason why ending corn stocks have fallen is futures prices. When corn futures sold for $7.50 a bushel earlier this year at the Chicago Board of Trade, there was less demand from buyers.
But as corn drifted to $5.20 a bushel, demand returned and available supplies for 2009 have dwindled as a result.
That could mean planting an additional 5 million acres next year to satisfy the need for corn for animal feed, ethanol and exports.
"If we're going to entice another 5 million acres into production, it's going to require an increase in prices," said Greg Wagner, a senior analyst for Ag Resource.
But corn has become increasingly expensive to plant, due in part to fertilizer costs, causing farmers to have better margins with soybeans. And because of the late planting season, the soybean harvest this year could be disappointing.
The Agriculture Department predicts a harvest of 2.93 billion bushels. It lowered the estimated yield to 40 bushels per acre, down half a bushel. Analysts expect that number to fall further, which would increase prices.
"The pod counts are substantially below where they were last year," Wagner said. "I think you're going to see a sub-40-bushel yield."
All of this adds to the economic strain faced by the livestock and meat-production industries. A second straight year of high grain costs for those companies "will be challenging to overcome with pricing," said Credit Suisse analyst Robert Moskow.
Corn, soybean outlooks wilting
Higher prices, strain on food firms likely
By Joshua Boak
Chicago Tribune reporter
September 13, 2008
This year's corn and soybean harvests could lead to higher prices and a scramble for farmland next year, analysts said Friday after reviewing a monthly Agriculture Department report.
The report indicated that dry weather in August is taking a toll on production, just as lower prices kicked up demand for corn and soybeans. As a result, the harvests might not be large enough to replenish corn and soybean stocks going into next year.
That is certain to put pressure on food industry manufacturers and consumers, who are contending with higher prices for everything from milk to steak.
With demand for corn and soybeans up next year, farmers will have to choose which crop should cover the majority of their fields. Much of that choice will boil down to which crop generates the highest profit, which will be decided largely by prices in the futures market.
"We're going to have a huge battle for acres next year," said David Hightower, editor of the commodities newsletter The Hightower Report.
December corn futures at the Chicago Board of Trade rose 30 cents, to $5.63 a bushel, in Friday trading. And November soybeans were up 26 cents, to $12.02 a bushel.
What makes the showdown between corn and soybeans unique is that the harvests will remain strong this year. The corn crop will be the second largest in American history after last year. And the soybean crop is the fourth largest on record.
The corn harvest should be 12.07 billion bushels from 79.29 million acres, according to the monthly report. While that harvest should be able to meet immediate needs, it leaves ending corn stocks at 1 billion bushels, about 550 million below what they were at the start of this year.
One reason why ending corn stocks have fallen is futures prices. When corn futures sold for $7.50 a bushel earlier this year at the Chicago Board of Trade, there was less demand from buyers.
But as corn drifted to $5.20 a bushel, demand returned and available supplies for 2009 have dwindled as a result.
That could mean planting an additional 5 million acres next year to satisfy the need for corn for animal feed, ethanol and exports.
"If we're going to entice another 5 million acres into production, it's going to require an increase in prices," said Greg Wagner, a senior analyst for Ag Resource.
But corn has become increasingly expensive to plant, due in part to fertilizer costs, causing farmers to have better margins with soybeans. And because of the late planting season, the soybean harvest this year could be disappointing.
The Agriculture Department predicts a harvest of 2.93 billion bushels. It lowered the estimated yield to 40 bushels per acre, down half a bushel. Analysts expect that number to fall further, which would increase prices.
"The pod counts are substantially below where they were last year," Wagner said. "I think you're going to see a sub-40-bushel yield."
All of this adds to the economic strain faced by the livestock and meat-production industries. A second straight year of high grain costs for those companies "will be challenging to overcome with pricing," said Credit Suisse analyst Robert Moskow.
Soybeans Near $15
On Stockpile Worries
By LAUREN ETTER, DEBBIE CARLSON and GARY WULF
September 13, 2008; Page B6
Soybean futures jumped a one-day record of $2.74 a bushel Friday, nearing $15 a bushel amid fears that stockpiles of one of America's biggest crops will run out before the harvest begins this fall.
The situation highlights how tight the nation's food supply has gotten because of demand for feed grain in developing countries and for grains and soybeans to make biofuels.
Getty Images
Valuable Crop: Soybeans grow in a field near Loves Park, Ill.
Concerns about a shortage are adding stress for the food industry, which has been paying more for commodities such as wheat, corn and soybeans. Soybeans are found in everything from veggie burgers to biodiesel to livestock feed.
Agriculture processors such as Archer-Daniels-Midland Co., and Cargill Inc. crush soybeans into soybean oil and soybean meal. Soy oil is used in cooking and has industrial applications such as biodiesel. Soymeal is fed to livestock.
Soybean stocks are at near-record lows this year. That is partly because farmers last season planted more corn instead of soybeans to cash in on high corn prices driven by a booming export market and a growing appetite for corn-based ethanol.
Normally the new soybean crop would already be coming in. But a wet spring and recent rains have delayed the harvest. That's left a gap between last year's and this year's harvest.
"The market has a whiff of panic in the air. ... Clearly people are scrambling to secure whatever old-crop supplies are available," said Greg Wagner, senior commodity analyst for Ag Resource Co. in Chicago.
Jeff Johnston, a grain merchandiser at processor Zeeland Farm Services Inc. in Michigan, says his firm has been able to procure enough beans. But he has been getting calls from processors in Canada and the Southern U.S. seeking beans. He has been telling them sorry. "What if it stays wet and we're short too?" he asks.
On Sept. 5, cash prices for physical soybean in Decatur, Ill., a major soybean-processing region, were quoted at $11.97 a bushel. Friday prices were quoted at $12.42 a bushel.
On Friday, the Chicago Board of Trade September contract expired up $2.74 at $14.90 a bushel, a rise of 23%. CBOT records going back to 1972 don't show a gain of this size.
Those who use the futures contract while it is in delivery mode can take or make delivery if they hold the position until expiration. Normally, soybeans have a 70-cent, exchange-imposed price limit, but when a contract is in delivery, those limits are removed.
Also Friday, the U.S. Department of Agriculture lowered its estimate of soybean yields to 40 bushels an acre from 40.5 because of poor weather.
Soybeans Near $15
On Stockpile Worries
By LAUREN ETTER, DEBBIE CARLSON and GARY WULF
September 13, 2008; Page B6
Soybean futures jumped a one-day record of $2.74 a bushel Friday, nearing $15 a bushel amid fears that stockpiles of one of America's biggest crops will run out before the harvest begins this fall.
The situation highlights how tight the nation's food supply has gotten because of demand for feed grain in developing countries and for grains and soybeans to make biofuels.
Getty Images
Valuable Crop: Soybeans grow in a field near Loves Park, Ill.
Concerns about a shortage are adding stress for the food industry, which has been paying more for commodities such as wheat, corn and soybeans. Soybeans are found in everything from veggie burgers to biodiesel to livestock feed.
Agriculture processors such as Archer-Daniels-Midland Co., and Cargill Inc. crush soybeans into soybean oil and soybean meal. Soy oil is used in cooking and has industrial applications such as biodiesel. Soymeal is fed to livestock.
Soybean stocks are at near-record lows this year. That is partly because farmers last season planted more corn instead of soybeans to cash in on high corn prices driven by a booming export market and a growing appetite for corn-based ethanol.
Normally the new soybean crop would already be coming in. But a wet spring and recent rains have delayed the harvest. That's left a gap between last year's and this year's harvest.
"The market has a whiff of panic in the air. ... Clearly people are scrambling to secure whatever old-crop supplies are available," said Greg Wagner, senior commodity analyst for Ag Resource Co. in Chicago.
Jeff Johnston, a grain merchandiser at processor Zeeland Farm Services Inc. in Michigan, says his firm has been able to procure enough beans. But he has been getting calls from processors in Canada and the Southern U.S. seeking beans. He has been telling them sorry. "What if it stays wet and we're short too?" he asks.
On Sept. 5, cash prices for physical soybean in Decatur, Ill., a major soybean-processing region, were quoted at $11.97 a bushel. Friday prices were quoted at $12.42 a bushel.
On Friday, the Chicago Board of Trade September contract expired up $2.74 at $14.90 a bushel, a rise of 23%. CBOT records going back to 1972 don't show a gain of this size.
Those who use the futures contract while it is in delivery mode can take or make delivery if they hold the position until expiration. Normally, soybeans have a 70-cent, exchange-imposed price limit, but when a contract is in delivery, those limits are removed.
Also Friday, the U.S. Department of Agriculture lowered its estimate of soybean yields to 40 bushels an acre from 40.5 because of poor weather.
Soybeans Near $15
On Stockpile Worries
By LAUREN ETTER, DEBBIE CARLSON and GARY WULF
September 13, 2008; Page B6
Soybean futures jumped a one-day record of $2.74 a bushel Friday, nearing $15 a bushel amid fears that stockpiles of one of America's biggest crops will run out before the harvest begins this fall.
The situation highlights how tight the nation's food supply has gotten because of demand for feed grain in developing countries and for grains and soybeans to make biofuels.
Getty Images
Valuable Crop: Soybeans grow in a field near Loves Park, Ill.
Concerns about a shortage are adding stress for the food industry, which has been paying more for commodities such as wheat, corn and soybeans. Soybeans are found in everything from veggie burgers to biodiesel to livestock feed.
Agriculture processors such as Archer-Daniels-Midland Co., and Cargill Inc. crush soybeans into soybean oil and soybean meal. Soy oil is used in cooking and has industrial applications such as biodiesel. Soymeal is fed to livestock.
Soybean stocks are at near-record lows this year. That is partly because farmers last season planted more corn instead of soybeans to cash in on high corn prices driven by a booming export market and a growing appetite for corn-based ethanol.
Normally the new soybean crop would already be coming in. But a wet spring and recent rains have delayed the harvest. That's left a gap between last year's and this year's harvest.
"The market has a whiff of panic in the air. ... Clearly people are scrambling to secure whatever old-crop supplies are available," said Greg Wagner, senior commodity analyst for Ag Resource Co. in Chicago.
Jeff Johnston, a grain merchandiser at processor Zeeland Farm Services Inc. in Michigan, says his firm has been able to procure enough beans. But he has been getting calls from processors in Canada and the Southern U.S. seeking beans. He has been telling them sorry. "What if it stays wet and we're short too?" he asks.
On Sept. 5, cash prices for physical soybean in Decatur, Ill., a major soybean-processing region, were quoted at $11.97 a bushel. Friday prices were quoted at $12.42 a bushel.
On Friday, the Chicago Board of Trade September contract expired up $2.74 at $14.90 a bushel, a rise of 23%. CBOT records going back to 1972 don't show a gain of this size.
Those who use the futures contract while it is in delivery mode can take or make delivery if they hold the position until expiration. Normally, soybeans have a 70-cent, exchange-imposed price limit, but when a contract is in delivery, those limits are removed.
Also Friday, the U.S. Department of Agriculture lowered its estimate of soybean yields to 40 bushels an acre from 40.5 because of poor weather.
Govt, Wall Street races to try to save Lehman
Saturday September 13, 4:57 pm ET
By Jeannine Aversa, AP Economics Writer
As financial world frets, government and brokerage leaders try to hash out Lehman rescue
WASHINGTON (AP) -- The financial world held its collective breath Saturday as the U.S. government scrambled to help devise a rescue for Lehman Brothers and restore confidence in Wall Street and the American banking system.
Deliberations resumed Saturday as top officials and executives from government and Wall Street tried to find a buyer or financing for the nation's No. 4 investment bank and to stop the crisis of confidence spreading to other U.S. banks, brokerages, insurance companies and thrifts.
Failure could prompt skittish investors to unload shares of financial companies, a contagion that might affect stock markets at home and abroad when they reopen Monday.
Options include selling Lehman outright or unloading it piecemeal. A sale could be helped along if major financial firms would join forces to inject new money into Lehman. Government officials are opposed to using any taxpayer money to help Lehman.
An official from the Federal Reserve Bank of New York said Saturday's participants included Treasury Secretary Henry Paulson, Timothy Geithner, president of the Federal Reserve Bank of New York, and Securities and Exchange Commission Chairman Christopher Cox. The New York Fed official asked not to be named due to the sensitivity of the talks.
Citigroup Inc.'s Vikram Pandit, JPMorgan Chase & Co.'s Jamie Dimon, Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, and Merrill Lynch & Co.'s John Thain were among the chief executives at the meeting.
Representatives for Lehman Brothers were not present during the discussions.
They gathered on the heels of an emergency session convened Friday night by Geithner -- the Fed's point person on financial crises.
Federal Reserve Chairman Ben Bernanke is actively engaged in the deliberations but wasn't in attendance.
Geithner convened the meeting Friday evening, and told bankers gathered at the New York Fed's imposing building in downtown Manhattan to come up with a solution or risk being the next to go under, said investment banking officials with direct knowledge of the talks.
They discussed the current financial crisis, and were asked to come back Saturday with solutions that did not involve any financial intervention by the government, the officials said. They spoke on condition of anonymity because the talks were ongoing.
A spokesman for Lehman declined to comment about the meeting.
Potential buyers could include Bank of America Corp., Britain's Barclay's Plc, Japan's Nomura Securities, France's BNP Paribas and Deutsche Bank AG. All have declined to comment.
Participants in Saturday's meeting were also trying to tackle a broader agenda that includes problems at American International Group Inc. and Washington Mutual Inc., said the investment bank officials, who were briefed on the talks.
AIG, the world's largest insurer, and WaMu, the nation's biggest savings bank, have taken steep losses during the past year from risky investments. Investors, worried they do not have enough cash on their balance sheets to withstand further hits, unloaded their shares on Friday.
AIG's shares dropped about 31 percent on Friday. WaMu's shares shed about 3.5 percent. Shares of investment bank Merrill Lynch & Co. Inc. also lost 12.3 percent. Lehman's stock closed at $3.65 Friday -- an all-time low and down nearly 95 percent from its 52-week high of $67.73.
Lehman Brothers and AIG are the top priorities, said the investment banking officials. WaMu insisted Friday it has adequate capital to fund its operations even as it announced another multibillion dollar write-down on bad mortgage loans.
WaMu has 76 percent of its deposits insured by the Federal Deposit Insurance Corp., an independent agency created by Congress to insure deposits in banks and thrifts up to at least $100,000. AIG has lost more than $18 billion over the last three quarters due to investments tied to subprime mortgages.
Global fears intensified Saturday that Lehman's collapse would stagger markets and undercut confidence in the U.S. financial system.
Germany's Finance Minister Peer Steinbrueck urged that a resolution be found before Asian markets open, warning ominously, "the news that is coming out of the U.S. is bad."
Lehman Brothers Holdings Inc. put itself on the block earlier this week. Bad bets on real-estate holdings -- which have factored into bank failures and taken out other financial companies -- have thrust the 158-year-old firm in peril. It has been dogged by growing doubts about whether other financial institutions would continue to do business with it.
Richard S. Fuld, Lehman's longtime CEO, pitched a plan to shareholders Wednesday that would spin off Lehman's soured real estate holdings into a separately traded company. He would then raise cash by selling a majority stake in the company's unit that manages money for people and institutions. That division includes asset manager Neuberger Berman.
Government officials want to avoid a Bear Stearns-like bailout; the Fed in March agreed to provide a loan of nearly $29 billion as part of JPMorgan Chase & Co.'s takeover of the firm. Unlike Bear, Lehman can go directly to the Fed to draw emergency loans if it needs a quick source of ready cash. In recent weeks, though, there's been no indication that Lehman has done so.
Bear's sudden meltdown led the Fed to engage in its broadest use of lending powers since the 1930s. Fearful that other firms could be in jeopardy, the Fed temporarily opened its emergency lending program to investment firms, a privilege that for years was granted only to commercial banks, which are subject to tighter regulation.
Those actions -- along with the Bush administration's take over of mortgage giants Fannie Mae and Freddie Mac just last week -- have spurred concerns that taxpayers could be on the hook for billions of dollars and companies will be encouraged to take on extra risks because they believe the government will come to their aid.
Paulson and Bernanke, however, have said they needed to help Bear Stearns and Fannie Mae and Freddie Mac to avert a financial calamity that would devastate the national economy.
Unwinding of Carry Trade/Short Dollar/Long Commodities
Their boost to bank stock prices was only a partial success, and F&F’s
problems were too huge for any set of investors, but the side of the hedge
fund trade that Bernanke, Paulson & Co. has skewered continues to bleed.
Commodities and commodity stocks kept going down, even after the bank
stock rally topped out. This has doubtless been a source of great satisfaction
to Bernanke, because now the columnists cite falling prices of commodities
as signs of deflation that might induce the Fed to cut rates anew.
Of course, they haven’t maintained the commodity bear market by themselves:
Since the July 13th Massacre, Paulson and Bernanke have been helped by the
spreading perceptions of a global slowdown that would be devastating to
perceptions of intrinsic values of commodities generally. The Bank of Japan
may have signaled this strategy when it published an analysis of commodities
in the global economy and asserted, “Commodities are the thermometer of
the global economy.”
That is an interesting analysis.
Thermometers register temperature. But commodity temperatures can rise
for one or two reasons. They can rise, as they did during this cycle, purely
in response to faster economic activity, particularly in China and India. Or
they can rise in response to rising perceptions about inflation—as they did
during the 1970s, even when economic activity was erratic or recessionary.
Gold is the classic inflation hedge, and can rise even when recessions hit, if
inflation is still rising. Oil prices are driven primarily by economic activity,
but oil futures prices can rise in expectation of future inflation—as they did
during the 1970s.
Does this analysis mean that we believe that Paulson, Bernanke and Cox can
manipulate commodity prices indefinitely?
Absolutely not.
What they have done is to force the excretion of leverage from exposure
to commodities and commodity stocks, and to drive many highly-levered
hedge funds to the wall.
This was a short-term shock that worked on a grand scale precisely because there
was so much leverage in both longs and shorts, and the unwinding of those positions
reinforced the moves on the other sides of the trades.
Paulson: What to do on July 13th?
Answer: take the pressure off the heavily-levered banks by putting pressure
on the heavily-levered speculators and hedge funds that were short the banks
and the dollar, and long the commodities.
With help from the SEC and the Commodity Futures Trading Corporation,
Paulson and Bernanke sprang the trap.
They knew that, in recent weeks, there had been a big boost in “Long”
speculative commodity contracts that had helped fuel the most recent
runup in gold, grains and oil. This was a large deviation from the six-year
pattern in the commodity bull market in which professionals and industrial
participants had generally been the dominant forces in commodity pricing,
as evidenced by the general pattern of backwardation, as opposed to a
1970s-style proliferation of contangos. (Backwardation means that the heavy
participation of front-month players willing to take delivery dominates price
movements. Contangos, could, as in the 1970s, show that bettors on future
inflation are in charge.) They also knew that many big hedge funds had
prospered mightily from the most popular trade—shorting the banks and
going long the commodities and commodity stocks.
When should the trap be sprung to inflict the most pain on levered bettors
against financials, the dollar and levered longs on oil, gold, and grains?
Answer: Ideally, when Asian markets are opening on the weekend, before real
liquidity returns to both the commodity futures market and, in particular, the
US bank stocks. That would force panic short-covering overnight as markets
opened sequentially, and the hedge funds would be in desperate positions
when the Big Board opened to try to cover their shorts and unwind their
longs.
When should the trap
be sprung to inflict
the most pain...?
Chris Cox of the SEC would add the icing to the cake: on Monday, he
announced new, albeit temporary, rules against short-selling of F&F and
leading financials. So, as the panicking hedge funds tried to cover their shorts,
they would not face any offerings from other speculators as the beaten-down
bank stock share prices were soaring…
The Sunday night announcement was timed for the opening of Asian markets.
The supply of leading US financial stocks in Asian markets was thin, so they
leapt dramatically. When Europe opened, that rally continued, so that by
the time New York opened the stocks were up big, commodities were down
big, and the SEC announcement let hedge funds know that Washington was
pulling out all the stops.
Paulson knew:
• that the ultimate goal was to permit the banks to raise new equity, and
that meant their share prices had to rise a long way; and
• that this would force a panic short-covering of dollar positions, setting
off a mutually-reinforcing pattern of collapsing commodities, soaring
financial stocks, and a rising dollar; and
• that a decisive break in gold, grains and oil futures, accompanied by the
biggest dollar rally in years, would blow the inflation dragons away—at
least for a while; and
• therefore, the Fed would no longer be under daily pressure to raise
rates.
The genius in this strategy was that it relied on the excess leverage among
hedge funds to take the pressure off the overlevered banks, which held huge
exposure to F&F paper, guarantees, and preferred shares.
It worked…
Up to a point.
July 13th Began The Commodity Massacre
It is too soon to write the history of the July 13th Commodity Massacre, but
it is not too soon to analyze why Hank Paulson and his partner Bernanke
decided they had to rescue the financial stocks and pummel the commodity
stocks—and how they carried out these seemingly unrelated missions.
As of mid-July, Hank Paulson faced the following components of what was
clearly Wall Street’s biggest crisis since 1929:
1. Gold was once again threatening to break through the psychologically
important $1,000 mark, as US CPI was soaring to 15-year peaks.
2. Oil was above $140 a barrel, corn was at $7.50, and soybeans were above
$14. Cost passthroughs were being vigorously resisted, but food inflation
was threatening to outpace fuel inflation.
3. The dollar was threatening to break down anew, through the 70 level.
Despite spreading recessions across the Eurozone, the euro was threatening
to break $1.60. European investment banks who had stuffed their systems
with US subprime products had been protecting their balance sheet
exposure to the sinking dollar by shorting the greenback, adding to the
enormous pressure on the world’s currency standard.
4. The Bank Stock Index had plunged in six months from 90 to 50. All those
bank equity deals with Sovereign Wealth Funds were under water at depths
that once looked to be open only to submarines.
5. The Fed’s policy of swapping Treasurys for dubious CDOs valued according
to the overlevered banks’ own discredited models was imperiled: at the
rate of degradation, the world’s flagship Central Bank, whose promises
are the sole backing for the nation’s currency, would soon have a balance
sheet whose assets resembled those held by the worst and weakest of Wall
Street’s discredited institutions. Already, the Fed was trying heroically to
cut back on the inflow of model-valued paper, and this meant trouble
ahead for Lehman and other overstressed institutions.
6. The European Central Bank was experiencing a similar problem, because
many banks, particularly Spanish and German mortgage lenders, were
swapping their illiquid assets for loans—in euros and dollars. Ben
Bernanke was probably getting worried calls from Jean-Claude Trichet.
7. The Wall Street Journal and other leading publications were demanding that
the Fed stop the rush to inflation by raising rates. In particular, The Journal
insisted that soaring prices for gold and oil were driven by the descent of
the dollar.
8. Fannie and Freddie (F&F) were on the edge of collapse, with hundreds of
billions’ worth of their paper held by government funds abroad, including
$100 billion by Russia. If they went down, the housing bear market would
become a collapse of potentially Depression proportions. There were
anxious calls from treasurers abroad about the reliability of the unspoken
promise of the Treasury to back F&F obligations. Barney Frank, the House
kingpin on the F&F relationship, kept saying that they were financially
sound and there was no government guarantee—nor would it ever be
needed.
Don Coxe INVESTMENT RECOMMENDATIONS
1. The two most important forces in equity markets since July 13th have been
powerful strength in financial stocks and pathetic weakness in commodity
stocks. Since they have been inversely correlated for more than a year,
investors should assume that the commodity stock bear market will
continue until the financials roll over. The F&F bailout is merely the second
act in a tragedy that has an unknowable number of acts to come.
2. When the financials do roll over, gold and gold mining stocks should
move swiftly back into favor. Inflation remains above central bank target
levels in the US—and in many other countries across the world. And any
return to pronounced weakness among the bank stocks will be strongly
bullish for gold.
3. With OPEC’s token production cut failing to impress the markets, oil prices
will fall further. It won’t take more than a few days of even 750,000 b/d of
production above consumption to drive oil prices down. Conversely, any
outbreak of civil strife in Nigeria that affects offshore production could
have a sudden upward price impact. We expect oil to trade in a range of
roughly $80 a barrel to roughly $130 a barrel next year, but we have no
great confidence in that forecast. We are more confident in predicting
$150 oil within the next three years, as the next global economic recovery
unfolds.
4. Barring an early killing frost, this year’s US corn group will be a barnbuster.
What next? Corn is in modest contango for the next two years’
crops. Because contangos are so unusual these days, and because grains
have such high producer/consumer participation across the curve, this
is to us a sign that farmers and users are believers that high corn prices
are here to stay. That means the fertilizer, seed and equipment stocks are
cheaper now, relative to forward corn prices, than at almost any time in
the past four years.
5. The pullback in oil prices and the dramatic bank rescues should have been
enough to send the S&P back into bullish mode. It needs to break 1310
on the upside to take away its bearish condition.
6. The real yield on the Treasury 10-year is now a negative 145 bp. On a
two-year hold, this means there could be more endogenous risk in nominal
bonds than in most blue-chip non-financial stocks. The rush out of TIPs
into Treasurys is doubtless driven by the unwinding of F&F exposures, but
the long Treasurys are now seriously overvalued.
7. The biggest near-term upward surprise in commodity prices could
be natural gas if (1) the sunspots don’t reappear, and (2) the historic
correlations of gas to oil reassert themselves.
8. The Canadian dollar is being hit by the commodity price plunges,
deterioration in the trade account, the worsening economic outlook
in Central Canada, and the uncertain outlook in the October election.
Whether Tories or Liberals win in Ottawa, Canada’s fiscal situation will
continue to be superb compared to the US, particularly if Obama wins. We
remain very positive on the loonie as an alternative to the greenback.
9. US election campaigns can be excuses for bold acts by foreign adventurers.
Although President Bush was a non-person at the Republicans’ Convention
after he gave his brief speech by satellite, he’s going to be President for four
more months. The world should hope that rogue states think about that
before deciding that Washington will be too distracted by the election to
do anything about a surprise attack or invasion.
10. We have no clear idea how long it will be before we can look back to
today’s prices for commodity stocks and say, “Wow! I wish I’d loaded up
then!” We remain certain that day is coming.
Don Coxe INVESTMENT RECOMMENDATIONS
1. The two most important forces in equity markets since July 13th have been
powerful strength in financial stocks and pathetic weakness in commodity
stocks. Since they have been inversely correlated for more than a year,
investors should assume that the commodity stock bear market will
continue until the financials roll over. The F&F bailout is merely the second
act in a tragedy that has an unknowable number of acts to come.
2. When the financials do roll over, gold and gold mining stocks should
move swiftly back into favor. Inflation remains above central bank target
levels in the US—and in many other countries across the world. And any
return to pronounced weakness among the bank stocks will be strongly
bullish for gold.
3. With OPEC’s token production cut failing to impress the markets, oil prices
will fall further. It won’t take more than a few days of even 750,000 b/d of
production above consumption to drive oil prices down. Conversely, any
outbreak of civil strife in Nigeria that affects offshore production could
have a sudden upward price impact. We expect oil to trade in a range of
roughly $80 a barrel to roughly $130 a barrel next year, but we have no
great confidence in that forecast. We are more confident in predicting
$150 oil within the next three years, as the next global economic recovery
unfolds.
4. Barring an early killing frost, this year’s US corn group will be a barnbuster.
What next? Corn is in modest contango for the next two years’
crops. Because contangos are so unusual these days, and because grains
have such high producer/consumer participation across the curve, this
is to us a sign that farmers and users are believers that high corn prices
are here to stay. That means the fertilizer, seed and equipment stocks are
cheaper now, relative to forward corn prices, than at almost any time in
the past four years.
5. The pullback in oil prices and the dramatic bank rescues should have been
enough to send the S&P back into bullish mode. It needs to break 1310
on the upside to take away its bearish condition.
6. The real yield on the Treasury 10-year is now a negative 145 bp. On a
two-year hold, this means there could be more endogenous risk in nominal
bonds than in most blue-chip non-financial stocks. The rush out of TIPs
into Treasurys is doubtless driven by the unwinding of F&F exposures, but
the long Treasurys are now seriously overvalued.
7. The biggest near-term upward surprise in commodity prices could
be natural gas if (1) the sunspots don’t reappear, and (2) the historic
correlations of gas to oil reassert themselves.
8. The Canadian dollar is being hit by the commodity price plunges,
deterioration in the trade account, the worsening economic outlook
in Central Canada, and the uncertain outlook in the October election.
Whether Tories or Liberals win in Ottawa, Canada’s fiscal situation will
continue to be superb compared to the US, particularly if Obama wins. We
remain very positive on the loonie as an alternative to the greenback.
9. US election campaigns can be excuses for bold acts by foreign adventurers.
Although President Bush was a non-person at the Republicans’ Convention
after he gave his brief speech by satellite, he’s going to be President for four
more months. The world should hope that rogue states think about that
before deciding that Washington will be too distracted by the election to
do anything about a surprise attack or invasion.
10. We have no clear idea how long it will be before we can look back to
today’s prices for commodity stocks and say, “Wow! I wish I’d loaded up
then!” We remain certain that day is coming.
Don Coxe INVESTMENT RECOMMENDATIONS
1. The two most important forces in equity markets since July 13th have been
powerful strength in financial stocks and pathetic weakness in commodity
stocks. Since they have been inversely correlated for more than a year,
investors should assume that the commodity stock bear market will
continue until the financials roll over. The F&F bailout is merely the second
act in a tragedy that has an unknowable number of acts to come.
2. When the financials do roll over, gold and gold mining stocks should
move swiftly back into favor. Inflation remains above central bank target
levels in the US—and in many other countries across the world. And any
return to pronounced weakness among the bank stocks will be strongly
bullish for gold.
3. With OPEC’s token production cut failing to impress the markets, oil prices
will fall further. It won’t take more than a few days of even 750,000 b/d of
production above consumption to drive oil prices down. Conversely, any
outbreak of civil strife in Nigeria that affects offshore production could
have a sudden upward price impact. We expect oil to trade in a range of
roughly $80 a barrel to roughly $130 a barrel next year, but we have no
great confidence in that forecast. We are more confident in predicting
$150 oil within the next three years, as the next global economic recovery
unfolds.
4. Barring an early killing frost, this year’s US corn group will be a barnbuster.
What next? Corn is in modest contango for the next two years’
crops. Because contangos are so unusual these days, and because grains
have such high producer/consumer participation across the curve, this
is to us a sign that farmers and users are believers that high corn prices
are here to stay. That means the fertilizer, seed and equipment stocks are
cheaper now, relative to forward corn prices, than at almost any time in
the past four years.
5. The pullback in oil prices and the dramatic bank rescues should have been
enough to send the S&P back into bullish mode. It needs to break 1310
on the upside to take away its bearish condition.
6. The real yield on the Treasury 10-year is now a negative 145 bp. On a
two-year hold, this means there could be more endogenous risk in nominal
bonds than in most blue-chip non-financial stocks. The rush out of TIPs
into Treasurys is doubtless driven by the unwinding of F&F exposures, but
the long Treasurys are now seriously overvalued.
7. The biggest near-term upward surprise in commodity prices could
be natural gas if (1) the sunspots don’t reappear, and (2) the historic
correlations of gas to oil reassert themselves.
8. The Canadian dollar is being hit by the commodity price plunges,
deterioration in the trade account, the worsening economic outlook
in Central Canada, and the uncertain outlook in the October election.
Whether Tories or Liberals win in Ottawa, Canada’s fiscal situation will
continue to be superb compared to the US, particularly if Obama wins. We
remain very positive on the loonie as an alternative to the greenback.
9. US election campaigns can be excuses for bold acts by foreign adventurers.
Although President Bush was a non-person at the Republicans’ Convention
after he gave his brief speech by satellite, he’s going to be President for four
more months. The world should hope that rogue states think about that
before deciding that Washington will be too distracted by the election to
do anything about a surprise attack or invasion.
10. We have no clear idea how long it will be before we can look back to
today’s prices for commodity stocks and say, “Wow! I wish I’d loaded up
then!” We remain certain that day is coming.
OPEC just cut output 500,000bpd
OPEC decides to curb overproduction
Tuesday September 9, 9:52 pm ET
OPEC oil ministers decide curb overproduction by more than 500,000 barrels a day
VIENNA, Austria (AP) -- OPEC oil ministers have decided to curb overproduction by more than 500,000 barrels.
The move is a compromise meant to avoid new turmoil in oil markets while at the same time reflecting OPEC attempts to prevent prices from falling too far. Crude prices have dropped nearly 30 percent since spiking to nearly $150 a barrel in July.
ADVERTISEMENT
An OPEC statement issued after oil ministers ended their meeting early Wednesday said the organization agreed to produce 28.8 million barrels a day. OPEC President Chakib Khelil said that quota in effect meant that member countries agreed to cut back 520,000 barrels a day in overproduction.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
VIENNA, Austria (AP) -- OPEC oil ministers have decided to curb overproduction by more than 500,000 barrels.
The move is a compromise meant to avoid new turmoil in oil markets while at the same time reflecting OPEC attempts to prevent prices from falling too far. Crude prices have dropped nearly 30 percent since spiking to nearly $150 a barrel in July.
An OPEC statement issued after oil ministers ended their meeting early Wednesday said the organization agreed to produce 28.8 million barrels a day. OPEC President Chakib Khelil said that quota in effect meant that member countries agreed to cut back 530,000 barrels a day in overproduction.
PXX.V Letter From The CEO sums it up.
Message from the President
To our shareholders,
The second quarter of 2008 was the best financial and operational quarter in the Company's history. Primarily due to substantially higher oil and gas prices realized in the second quarter and the sale of non-core assets, the Company posted its highest profit and cash flow numbers to date of $6.7 million and $28 million respectively. Combining this financial performance with the closing of the sale of the non-core assets in North Central Saskatchewan, the Company is in a very strong financial position with over $52 million in positive working capital after deducting long term debt at the end of the second quarter. Second quarter realized well-head pricing averaged $84.57 per barrel for our heavy oil and 9.80/Mcf for gas resulting in wellhead netbacks of $43.21/Boe.
From an operational standpoint, we continue to focus on our 4 core assets which we believe will ultimately be the main value driver in the Company. During the first half of 2008 Pearl drilled four net horizontal wells in our Mooney area. Three of the new wells will form the basis of a polymer pilot which has been accelerated to be initiated in the fourth quarter of 2008. Preliminary results from the pilot are expected by early 2009. Plans for a field wide polymer flood implementation are expected to be finalized by the second quarter of 2009 with implementation targeted as early as the end of 2009. Permitting for the implementation of the waterflood continues on schedule (have received two of five permits required) with its initiation expected in the fourth quarter, 2008 and continuing into the first half of 2009. In addition, plans are underway to commence a development drilling program by year end, 2008 to extend the productive area to the west with the goals of increasing production and proven and probable reserves.
In Onion Lake the Cyclic Steam Stimulation (CSS) thermal pilot commenced steam injection on May 15th over a month ahead of schedule. The first steam cycle on the first well was completed on June 19th and the well is currently producing over 140 barrels of oil per day which is above the expected modeling predictions. Steam injection on the second well began on June 20th and first production commenced on August 11, 2008. If these positive results continue , to be observed in the pilot wells, we will be in a position to commence planning on a commercial thermal development program early in 2009 subject to successful negotiation of thermal development terms with Onion Lake Energy.
At San Miguel, Pearl and its 50% partner TXCO have finished construction of its Steam-Assisted Gravity Drainage (SAGD) pilot located within the Chittim "B" Field. Steam injection commenced on June 1, 2008 with preliminary results expected by the first quarter of 2009. Temperature monitoring of the well pair indicates that the steam chamber is building as anticipated. At the Saner Ranch Field, construction is continuing on the second production pilot. The Saner Ranch pilot includes both a vertical inverted five spot well pattern and a horizontal three well pattern utilizing a modified Fracture Assisted Steamflood Technology (FAST) process. The three horizontal wells were drilled and completed successfully in the second quarter, 2008. All major long lead time items for the pilot are on site with assembly of facilities and infrastructure installation proceeding on schedule. The pilot is expected to be operational in the third quarter of 2008 and preliminary results are expected during the first half of 2009. By the end of the second quarter of 2009, Pearl and its partner expect to select which of the three recovery techniques will use be used to form the basis of a commercial development project.
At Blackrod, the Company has entered into an agreement to acquire an additional 30% working interest in 3,886 contiguous hectares of oil sands leases in the project area. In addition, Pearl is continuing with its plans to drill a 10 to 15 core well program in the 2008/2009 winter to further delineate this deposit and gather additional petrophysical data. Pearl remains on track to initiate steaming at its Steam-Assisted Gravity Drainage (SAGD) pilot, comprised of single well pair pilot and related facilities, during the first half of 2009. The application for the required governmental approvals of the thermal SAGD pilot project was submitted in May of 2008.
The Company's production for the second quarter averaged 8,246 Boe/d, down from the previous quarter due to the sale of a portion of our non-core assets and natural decline. Current production is approximately 5,600 barrels a day due to a temporary curtailment of 600 Boe/d of production in our Mooney area while we install some in-field infrastructure and approximately 300 Boe/d of shut-in production awaiting workovers in other areas. We anticipate having all of this shut-in production back on-line by late August, 2008.
Pearl is very pleased with the significant progress we have made in all of our core projects including operating steam flood pilots in both Onion Lake, Saskatchewan and San Miguel, Texas and the acceleration of our polymer pilot in the Mooney area of Alberta. Due to very favourable commodity prices and our recent disposition of some non-core properties, Pearl is in a very strong financial position to continue to work these projects through to development decision points expected in the first half of 2009. As a result of the strong financial results we have achieved in the first half of 2008 and the sale some of our non-core assets, Pearl's Board of Directors has approved an expansion of our 2008 capital budget to $135 million, which is approximately $75 million higher than our original approved budget. The increase in the budget will be deployed principally in our resource to reserve conversion efforts in our Mooney project as well as other areas. We strongly believe that we are now in a position to start to realize the substantial imbedded resource value in our core areas and it is our intention to pursue this value without incurring any unnecessary dilution to our shareholders and as such we have no intention of undertaking any financings in the foreseeable future. In addition, we continue to look for opportunities to divest our remaining portfolio of non-core assets as we focus our technical and financial resources exclusively on our large resource conversion projects.
On behalf of the Board,
Keith Hill, President and CEO
PXX.V - Good Report From Pearl
http://biz.yahoo.com/ccn/080814/200808140479771001.html?.v=1
I see a big increase in production building in 2009. Canadian producers will do well selling oil in USD and paying expenses in CAD.
The reports of the death of commodities and energy is premature.
Kipp
steelpiston71......
The only big difference is I own them.
On your list, what are your favorites?
Kipp
This is worth looking at!
http://www.financialsense.com/editorials/lee/2008/0812.html
I agree with the analysis given in this link. Only the good Jr. companies are going to survive or be bought out. I hope my AUN, GPR, SST, FMA, and FR are going to be on the survivor list.
This has been a really violent shake out. I know we must be close to capitulation due to the vitral odor coming frome my trash can next to my computer.....PUKE!
Kipp
Natural Gas Storage
http://americanoilman.homestead.com/GasStorageGraph.html
We are a little below the 5 year average storage level. I wonder how much of what we are seeing is de-leveraging from hedge fund redemptions? We are only in the first inning of the hurricane season. Volitility rules the day.
Kipp
Len - The housing Freddie Fannie bail-out puts the nails in the coffin of US wealth as far as I can tell. Hyper inflation by all of the G7 is dead ahead. It is unavoidable when the mission of the governments is to "save the system". They now have digital money production so at least the forest is safe.
My question for you, assuming you are hold up in USD cash. What are you going to do if the dollar continues to buy less and less? I think all G7 paper is going to buy less so I put less faith in the dollar index and more in what a buck will buy. It looks like massive deflation of housing will continue until houses are affordable for entry level buyers. So owning a home is not an appreciating asset for some time to come.
Your target for sub $50 oil goes out the window with astronomical money growth.
If you were to agree with hyper inflation, what would YOU do to protect your wealth? I am serious here.
Kipp
ROUGH SLEDDING
It looks like selling will result in more sellinng. Capitulation may be hors, days, weeks away, hard telling. I like the companies that are in production nad growing. POE, OIL, PBG, PXX, TXCO....just don't know where a buyable bottom is. It feels like we are getting oversold right here, baby out with bath water. Most of these stocks are trading back to the $80 oil mark or even lower. The problem I see is hedge fund unwinding, redemptions, de-leveraging...all leading to move havoc for anyone holding here (like me). I don't see the oil/energy problems having been solved this morning. Lower prices will result in more consumption...production will not answer the call of that demand and back up we go.
Pukeing today, but into a trash can, not puking up my stocks. The time to have sold was months ago.
Kipp
DougQ - Nobody will accuse us of "buying at the top" today!
Kipp
PXX.V UPDATE - I hope it drops more. I am going to buy more anticipating huge gains in production. They have cash so no dillution. This is now my #1 heavy oil stock.
http://biz.yahoo.com/ccn/080723/200807230475615001.html?.v=1
Kipp
Look at these charts
http://www.financialsense.com/metals/FSJG/2008/0722.html
It looks like make or break time in th Jr's.
Comments?
Kipp
Fert P/E's
You are looking at trailing P/E. Take the POT earnings on Thursday, compare them to the previous quarter, use the same rate of % gain q over q and use them as a guide for 2009.
Kipp
timhyma - Fertilizer Stocks
Looking just at potash, you need to look at the price per ton of potash. 2 years ago you could buy a ton of potash for $180/ton, today it is $800/ton and some potash has been exported for over $1000/ton. If you want to compare this to a gallon of ethanol it would be the same as a gallon of ethanol increasing from $1.80/gallon to $8-$10.00/gallon. The cost to produce potash has only marginally gone up compared to the cost of producing ethanol from $6/bsl corn vs. $2/bsl corn.
$6/bsl corn is driving potash demand higher and the supplies are not going to increase much until 2010. I see the potential for $1500/ton potash and $8-$10/bsl corn.
Here is a link to PCS Corp's website. http://www.potashcorp.com/investor_relations/
There is no better earnings picture than that of the fertilizer producers. Their farmer customer has the #1 earning/income potential of any group in our economy. There will be a bubble in fertilizer companies, but it isn't going to happen with P/E ratios below 10 for 2009 earnings.
Kipp
timhyma
Now you just need the chart to slope the opposite way.
http://finance.yahoo.com/echarts?s=GPRE#chart1:symbol=gpre;range=1y;compare=pot+mos+cf;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
The outlook for ethanol is not so hot. It is a component of higher grain and fertilizer prices. I like potassium and phosphate better than nitrogen producers.
Kipp
POT reports the 24th, it should be mind numbing numbers.
I am loaded up on KCL and I think we will see potash mania when the world realizes how short supply is vs. big demand. Most Wall Streeters think it is all just a bubble. I challenge anyone to find companies with better earnings than the fertilizer producers.
Good Luck Guys!
Kipp
I sure feel better hearing this from Hank P.
NOT!
Paulson braces public for months of tough times
Sunday July 20, 5:47 pm ET
Treasury chief braces people for months of tough times ahead, says US banking system is sound
WASHINGTON (AP) -- Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound, while also bracing people for more troubled times ahead.
"I think it's going to be months that we're working our way through this period -- clearly months," he said.
Paulson said the number of troubled banks will increase as they struggle to cope with big losses on bad mortgages. The government this month took over IndyMac after a run led it to become the largest regulated thrift to fail.
"Of course the list is going to grow longer given the stresses we have in the marketplace, given the housing correction. But again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation," he said in broadcast interviews.
Paulson used appearances on the Sunday talk shows to tell people that deposits up to $100,000 are fully insured. He said no one has lost a single penny on an insured deposit in the 75 years that the Federal Deposit Insurance Corporation has operated.
"We're going through a challenging time with our economy. This is a tough time. The three big issues we're facing right now are, first, the housing correction which is at the heart of the slowdown; secondly, turmoil of the capital markets; and thirdly, the high oil prices, which are going to prolong the slowdown," he said.
"But remember, our economy has got very strong long-term fundamentals, solid fundamentals. And you know, your policy-makers here, regulators, we're being very vigilant."
Paulson said he hoped Congress soon would approve his plan to help shore up Fannie Mae and Freddie Mac, the government-sponsored mortgage companies
"I'm very optimistic that we're going to get what we need from Congress here, because Congress understands how important these institutions are," Paulson said.
The House plans to vote Wednesday on a housing bill that is expected to include a rescue for Fannie Mae and Freddie Mac. The companies' shares have plummeted because of fears about their financial stability. Fannie Mae and Freddie Mac are private, but they were created by Congress to encourage homeownership by buying mortgages from banks. The two hold or guarantee more than $5 trillion in home loans -- almost half of the nation's total.
"Our first priority today is the stability of the capital markets, the stability of the system. And these institutions have investors all around the world ... and those investors need to know that we in the United States of America understand the importance of these institutions to our capital markets and to our economy and to our housing market," he added.
Paulson acknowledged the U.S. is continuing to lose jobs, though he said the $168 billion economic relief plan approved this year has created jobs that would not otherwise exist. The plan included tax rebates for people and tax breaks for businesses.
Democratic leaders, including presidential candidate Barack Obama, are pushing for a second, smaller, economic installment. Paulson said he did not want to speculate about that idea.
"I'm focused on this stimulus package. It's made a difference in the second quarter. It's going to make a difference in the third quarter. We need to watch this very carefully," he said.
"Right now we're going through a tough period. There is no doubt about it. But the stimulus plan is making a difference," he said.
The second-ranking House Republican, Rep. Roy Blunt of Missouri, said he was "open-minded" about a follow-up aid plan. "If they bring things to the table they know the president's not going to do, that has very little to do with stimulating the economy. It's all about a political discussion between now and the election," he said.
Paulson appeared on "Face the Nation" on CBS and "Late Edition" on CNN. Blunt was on CNN.
Treasury Department: http://www.treasury.gov/
ari - look at the oil futures
http://futuresource.quote.com/quotes/options.jsp?s=CL%20Q8&r=CL
If this was a bubble, futures would already be at $80 or $90 bucks.
Kipp
TXCO - Pearsall Shale
http://www.txco.com/presentation.html
Look at slides 18 and 19 in this presentation. "Pearsall Shale Gas Resource Play" TXCO has EnCana and Anadarko as their partners. THIS IS A HUGE NATURAL GAS SHALE PLAY!
Seeing all of the potential.....I do not like the price action in the stock. There are 30 some million shares in the float and Yahoo shows 5 million (15%)are held short. Insiders were buying hundreds of thousands of shares a few weeks ago in the mid $10's. The stock looks like the $8'scould get hit if oil stocks get any weaker.
Here is a chart http://stockcharts.com/charts/gallery.html?TXCO
I have added on most of the dips into the 8's and I think my average is just under $9. I am thinking of adding on this plunge again.......am I nuts? What do you guys think?
I feel the macro picture for energy prices is as bad as it's been. There is a lot of talk, blame, pandering, etc. but NO ACTION. I don't see many choices at the pump....gasoline or diesel. I don't even see E85 pumps in my area of the SW Denver suburbs. I don't see any natural gas or bio diesel filling stations either. I hear talk of oil going back to $80.....if that happens I see everyone buying the SUV's that are on 50% dicount and burning up every drop of $2 gas they can stuff in the tank.....party on! Short of a complete failure of the global economy I just can't see "cheap" energy coming back. Let's not forget to factor in a weak dollar either.
Could TXCO be suffering from the Obama "dirty oil" stigma? A boycott of oil produced from the tar sands??? His shot at the Canadians was as stupid as anything I have ever heard any politician say.....not to mention what it did to my tar sands stocks. There is no bigger, safer, reliable source of imported oil than the tar sands, we should be kissing the Canadians butts and making sure a pipe line to Prince Rupert never gets built or the Chinese will get all of that "dirty" oil. Canada supplies us with 20% of our imported oil making them the #1 supplier....Mexico is #2 and their fields are depleting at 14% per year projecting them to become an importer by 2012.
There is a real chance that billions of gallons of ethanol made from corn are in real trouble. An early killing frost will cause corn (and all grain) prices to go to the moon. What will replace those billions of gallons?
I am getting off topic and starting a rant here, but what am I missing with TXCO?
Kipp
TXCO - Pearsall Shale
http://www.txco.com/presentation.html
Look at slides 18 and 19 in this presentation. "Pearsall Shale Gas Resource Play" TXCO has EnCana and Anadarko as their partners. THIS IS A HUGE NATURAL GAS SHALE PLAY!
Seeing all of the potential.....I do not like the price action in the stock. There are 30 some million shares in the float and Yahoo shows 5 million (15%)are held short. Insiders were buying hundreds of thousands of shares a few weeks ago in the mid $10's. The stock looks like the $8'scould get hit if oil stocks get any weaker.
Here is a chart http://stockcharts.com/charts/gallery.html?TXCO
I have added on most of the dips into the 8's and I think my average is just under $9. I am thinking of adding on this plunge again.......am I nuts? What do you guys think?
I feel the macro picture for energy prices is as bad as it's been. There is a lot of talk, blame, pandering, etc. but NO ACTION. I don't see many choices at the pump....gasoline or diesel. I don't even see E85 pumps in my area of the SW Denver suburbs. I don't see any natural gas or bio diesel filling stations either. I hear talk of oil going back to $80.....if that happens I see everyone buying the SUV's that are on 50% dicount and burning up every drop of $2 gas they can stuff in the tank.....party on! Short of a complete failure of the global economy I just can't see "cheap" energy coming back. Let's not forget to factor in a weak dollar either.
Could TXCO be suffering from the Obama "dirty oil" stigma? A boycott of oil produced from the tar sands??? His shot at the Canadians was as stupid as anything I have ever heard any politician say.....not to mention what it did to my tar sands stocks. There is no bigger, safer, reliable source of imported oil than the tar sands, we should be kissing the Canadians butts and making sure a pipe line to Prince Rupert never gets built or the Chinese will get all of that "dirty" oil. Canada supplies us with 20% of our imported oil making them the #1 supplier....Mexico is #2 and their fields are depleting at 14% per year projecting them to become an importer by 2012.
There is a real chance that billions of gallons of ethanol made from corn are in real trouble. An early killing frost will cause corn (and all grain) prices to go to the moon. What will replace those billions of gallons?
I am getting off topic and starting a rant here, but what am I missing with TXCO?
Kipp
TXCO - Pearsall Shale
http://www.txco.com/presentation.html
Look at slides 18 and 19 in this presentation. "Pearsall Shale Gas Resource Play" TXCO has EnCana and Anadarko as their partners. THIS IS A HUGE NATURAL GAS SHALE PLAY!
Seeing all of the potential.....I do not like the price action in the stock. There are 30 some million shares in the float and Yahoo shows 5 million (15%)are held short. Insiders were buying hundreds of thousands of shares a few weeks ago in the mid $10's. The stock looks like the $8'scould get hit if oil stocks get any weaker.
Here is a chart http://stockcharts.com/charts/gallery.html?TXCO
I have added on most of the dips into the 8's and I think my average is just under $9. I am thinking of adding on this plunge again.......am I nuts? What do you guys think?
I feel the macro picture for energy prices is as bad as it's been. There is a lot of talk, blame, pandering, etc. but NO ACTION. I don't see many choices at the pump....gasoline or diesel. I don't even see E85 pumps in my area of the SW Denver suburbs. I don't see any natural gas or bio diesel filling stations either. I hear talk of oil going back to $80.....if that happens I see everyone buying the SUV's that are on 50% dicount and burning up every drop of $2 gas they can stuff in the tank.....party on! Short of a complete failure of the global economy I just can't see "cheap" energy coming back. Let's not forget to factor in a weak dollar either.
Could TXCO be suffering from the Obama "dirty oil" stigma? A boycott of oil produced from the tar sands??? His shot at the Canadians was as stupid as anything I have ever heard any politician say.....not to mention what it did to my tar sands stocks. There is no bigger, safer, reliable source of imported oil than the tar sands, we should be kissing the Canadians butts and making sure a pipe line to Prince Rupert never gets built or the Chinese will get all of that "dirty" oil. Canada supplies us with 20% of our imported oil making them the #1 supplier....Mexico is #2 and their fields are depleting at 14% per year projecting them to become an importer by 2012.
There is a real chance that billions of gallons of ethanol made from corn are in real trouble. An early killing frost will cause corn (and all grain) prices to go to the moon. What will replace those billions of gallons?
I am getting off topic and starting a rant here, but what am I missing with TXCO?
Kipp
TXCO - New July Presentation
(I have been sickened by the recent sell off. Things are taking longer to develop and they have been overly optomistic....BUT....they are sitting on huge potential!)
http://www.txco.com/presentation.html
On top of the San Miguel Tar Sands project, TXCO is making headway on the Pearsall Shale natural gas potential. Claiming 8-12 TRILLION CF of reserve potential:
Gas in Place: 80-120 Bcf per Square Mile
Estimated Recovery Factor: +/- 20%
Estimated Recoverable Gas:
16-24 Bcf per Section
Combined Project Area:
848,300 gross acres (341,000 net acres)
1,325 gross sections (533 net sections)
TXCO’s Potential Gas Asset: 8-12 Tcf Net
NAKED SHORT SELLING
It's finally happening to the "Perps" and they are mad as hell! "How dare anyone naked short sell the financials and the banks!" This story really makes me wonder about the credibility/sustainability of our stock markets and the potential for a crisis in confidence:
SEC Retrenches On New Short-Selling Rules
Liz Moyer, 07.18.08, 5:00 PM ET
The Securities and Exchange Commission giveth--and then taketh away.
Late Friday the agency exempted "market makers" from having to comply with stricter short-selling rules that go into place Monday and are designed to protect shares in Fannie Mae, Freddie Mac and 17 of Wall Street's most powerful banks.
It seems the big firms didn't like being held to the stricter standards where it involved shorting shares of their rivals (Lehman Brothers comes to mind).
So they'll be able to carry out short sales as usual, while smaller broker dealers that are not market makers will have to meet the new standard: They must pre-borrow shares in those companies if they plan to short.
SEC Spokesman John Nester said the amendments "provide all of the new investor protections against naked short sales while assuring continuing liquidity and best execution in our markets.
Market makers stand ready to buy and sell stocks, stepping in where they must to match orders and maintain stable markets. The SEC said in an amended order Friday that it accommodated the market makers "to facilitate customer orders in a fast-moving market without possible delays associated with complying" with the new order.
So in other words, it's business as usual on trading desks. No doubt the firms spent the last few days whining about the costs of upgrading back office compliance systems to make way for the new requirements.
The SEC, concerned about confidence in the nation's financial system and the ever-sinking stocks of major financial institutions, announced the stricter standards earlier this week, just days after saying it was investigating whether traders were intentionally spreading false rumors to benefit from short positions in financial company stocks.
The markets had a wild ride. They started out the week sinking further into bear territory before rebounding sharply Wednesday when bank shares staged their biggest rally in years. Better than expected second-quarter earnings reports from Wells Fargo, JPMorgan Chase and Citigroup helped make up for a poor showing by Merrill Lynch, Google and Microsoft and set the stage for a flurry of reports from regional banks next week that are expected to show more deterioration in consumer loans.
The biggest event of the week, of course, was the federal government's efforts to shore up Fannie Mae and Freddie Mac , and the short-selling directive was just one part. The Federal Reserve and the U.S. Treasury want Congress to help them bail out the two mortgage financing giants, in part by giving them access to the Fed's discount lending window and extending new financing.
Under the new rule, the SEC will require short-sellers to secure borrowed shares before putting on their short sales, preventing "naked" short-selling, in which a trader doesn't properly locate shares to borrow. Naked short-selling can add extra downward momentum on a stock because without being forced to borrow the shares first, traders can short a limitless amount of stock.
But the emergency rule, which is in effect for 30 days, only applied to those 19 companies among Wall Street's biggest. They are companies whose shares are not typically hard to locate or scarce for shorting, a fact that angered many earlier in the week. The American Bankers Association wants the SEC to include shares of regional banks under the requirements, and no doubt hundreds of small company chief executives would also like to be covered.
Many hedge fund managers deny naked shorting occurs, but a growing number of company executives, from bigger and bigger companies no less, have complained that short-sellers have used manipulation to drive their shares down. The SEC has been criticized for not helping to blunt or prevent the credit crisis. On Sunday, July 13, it said it would immediately start probes into the spread of rumors on Wall Street to see if there were deliberate attempts to manipulate stocks.
Right now traders are merely required to locate shares they will borrow to short, a weaker standard that leaves plenty of room for interpretation. Pre-borrowing is a firmer commitment and eliminates the probability that a stock lender will lend out the same shares to several different traders.
Critics say the SEC has been dragging its feet on tighter rules on short-selling. Last year it controversially removed the rule that short sales could only be made on an uptick in a stock. The agency also recently extended a comment period on rules that would eliminate market makers' exemption from the locate requirement. Critics say the market makers' exemption, together with the SEC's elimination of the uptick rule last year, has exacerbated the downward pressure on heavily shorted stocks.
NAKED SHORT SELLING
It's finally happening to the "Perps" and they are mad as hell! "How dare anyone naked short sell the financials and the banks!" This story really makes me wonder about the credibility/sustainability of our stock markets and the potential for a crisis in confidence:
SEC Retrenches On New Short-Selling Rules
Liz Moyer, 07.18.08, 5:00 PM ET
The Securities and Exchange Commission giveth--and then taketh away.
Late Friday the agency exempted "market makers" from having to comply with stricter short-selling rules that go into place Monday and are designed to protect shares in Fannie Mae, Freddie Mac and 17 of Wall Street's most powerful banks.
It seems the big firms didn't like being held to the stricter standards where it involved shorting shares of their rivals (Lehman Brothers comes to mind).
So they'll be able to carry out short sales as usual, while smaller broker dealers that are not market makers will have to meet the new standard: They must pre-borrow shares in those companies if they plan to short.
SEC Spokesman John Nester said the amendments "provide all of the new investor protections against naked short sales while assuring continuing liquidity and best execution in our markets.
Market makers stand ready to buy and sell stocks, stepping in where they must to match orders and maintain stable markets. The SEC said in an amended order Friday that it accommodated the market makers "to facilitate customer orders in a fast-moving market without possible delays associated with complying" with the new order.
So in other words, it's business as usual on trading desks. No doubt the firms spent the last few days whining about the costs of upgrading back office compliance systems to make way for the new requirements.
The SEC, concerned about confidence in the nation's financial system and the ever-sinking stocks of major financial institutions, announced the stricter standards earlier this week, just days after saying it was investigating whether traders were intentionally spreading false rumors to benefit from short positions in financial company stocks.
The markets had a wild ride. They started out the week sinking further into bear territory before rebounding sharply Wednesday when bank shares staged their biggest rally in years. Better than expected second-quarter earnings reports from Wells Fargo, JPMorgan Chase and Citigroup helped make up for a poor showing by Merrill Lynch, Google and Microsoft and set the stage for a flurry of reports from regional banks next week that are expected to show more deterioration in consumer loans.
The biggest event of the week, of course, was the federal government's efforts to shore up Fannie Mae and Freddie Mac , and the short-selling directive was just one part. The Federal Reserve and the U.S. Treasury want Congress to help them bail out the two mortgage financing giants, in part by giving them access to the Fed's discount lending window and extending new financing.
Under the new rule, the SEC will require short-sellers to secure borrowed shares before putting on their short sales, preventing "naked" short-selling, in which a trader doesn't properly locate shares to borrow. Naked short-selling can add extra downward momentum on a stock because without being forced to borrow the shares first, traders can short a limitless amount of stock.
But the emergency rule, which is in effect for 30 days, only applied to those 19 companies among Wall Street's biggest. They are companies whose shares are not typically hard to locate or scarce for shorting, a fact that angered many earlier in the week. The American Bankers Association wants the SEC to include shares of regional banks under the requirements, and no doubt hundreds of small company chief executives would also like to be covered.
Many hedge fund managers deny naked shorting occurs, but a growing number of company executives, from bigger and bigger companies no less, have complained that short-sellers have used manipulation to drive their shares down. The SEC has been criticized for not helping to blunt or prevent the credit crisis. On Sunday, July 13, it said it would immediately start probes into the spread of rumors on Wall Street to see if there were deliberate attempts to manipulate stocks.
Right now traders are merely required to locate shares they will borrow to short, a weaker standard that leaves plenty of room for interpretation. Pre-borrowing is a firmer commitment and eliminates the probability that a stock lender will lend out the same shares to several different traders.
Critics say the SEC has been dragging its feet on tighter rules on short-selling. Last year it controversially removed the rule that short sales could only be made on an uptick in a stock. The agency also recently extended a comment period on rules that would eliminate market makers' exemption from the locate requirement. Critics say the market makers' exemption, together with the SEC's elimination of the uptick rule last year, has exacerbated the downward pressure on heavily shorted stocks.
nuts - POE and other quality drillers are being sold off to extream levels, prices we saw when oil was around $80. I think what we are seeing is hedge fund redemption, de-leveraging, and a covering of margin calls brought on by the resent sell off in the overall market.
If a hedge fund that was levered 10:1 had $100 million in redemptions, they would have to raise $1 billion. If they were lucky enough to have some long energy/fertilizer/commodity positions they could raise the cash by selling them. The market is confusing this price action with a poping of the percieved "bubble" in this arena. Selling begets more selling and now people are getting margin calls and getting stopped out of these good stocks. DOWN WE GO, but it won't last long and should bounce hard when the selling preassure subsides.
On the short side, funds that were short financals have made 75 - 90% gains and are covering those short positions. They are getting the talking heads to tell us there is a rotation out of commodities back into financials........that's a real sucker bet.
Anyway, there are getting to be a lot of deals and we are going to need "fast fingers"!
Watch the fertilizer stocks in particular, there is no better earnings picture for the next several quarters.
Kipp
Commodity/Energy UNWINDING
I think we are seeing an unwinding of leveraged positions in the commodity/energy stocks. I think it presents great long buying oportunities. The big question is how low will stocks go. If a hedge fund is leveraged 10:1 and has 100 million in redemptions, they need to sell 1 billion woth of "assets". I have seen funds blow out 100,000's of shares in some of my oil stocks, and discosing it after the fact. This action has people saying commodities are dead and oil is going back to $80.
Folks, there is no Santa Claus.
Kipp
POE - DRILL DRILL DRILL!!
I bought 2000 shares at $7.62 from my laptop in te airport yesterday. I hope $7.50 eas the bottom. We shall see.......it's been painful holding this stock but the oil is thetre and they have a plan.
Kipp