[nth]

$this->bbcode_second_pass_quote('oilluber', 'h')i Pupp, I am holding stocks of mining companies and
oil companies. THat is , Hard assets,,,, anything but the USD,
preparing for the worst in the US and the Best in CHina.

[cube]

warning: my 2 cents!

I do NOT think "diversification" is a magic cloak that will defend you against losses, contrary to what your broker might say.

The rational behind my logic is "group movement". In a bull market everything moves up. In a bear market everything moves down. Not exactly of course but pretty damn close. This is not to say the sells of ammunition will go down in a bear market caused by a war...but I think you get my point.

The idea that if you have your money in a mutual fund spread across 100 companies makes you safe is absolutely ridiculous. It does not matter if you have your investments spread across 10 or 1,000 companies. In a bear market 90% of stocks move down.

However it is possible to diversify across EVERYTHING UNDER THE SUN:
stocks
bonds
commodities
currencies
real estate

The upside to this is you will most likely never lose serious money because the likely hood of everything going to hell is next to impossible. Then again the likely hood of everything going up is also equally next to impossible. Realistically there's always something going up and something else going down in the world of investing. So if you spread yourself thin across everything then you most likely not make or lose money because things pretty much even themselves out.

Well not quite. You still have to pay your broker commission fees, so if you're not making money you're bleeding slowly. Have fun!

[eastbay]

Oh, now this is getting strange and almost irritating. I may need to modify my thinking here. WTH???

Oil and gasoline both went up nicely today with gasoline moving up substantially. One would naturally expect the oil and gasoline based funds to move upwards too, as they historically (generally) have under this situation.

But noooooooooooooo. They went down about 1.8%. It's now at the point where I'm hoping for oil and petrol to drop in price so the energy based funds will rise! What's up with this??? Did someone change the rules of this game?

[cube]

$this->bbcode_second_pass_quote('eastbay', 'O')h, now this is getting strange and almost irritating. I may need to modify my thinking here. WTH???
...

[eastbay]

Cube,

And now look. It's just about back where it was yesterday. Lol...

Yeah, my experience in the short time I've been trading is that whenever 95% of people are touting a stock or a sector (or anything) it's getting close to time to get out.

In fact, I've also learned that whenever 95% of people are in agreement with nearly anything in life in general, it's time to start getting a bit suspicious.... heh.

[Niagara]

$this->bbcode_second_pass_quote('eastbay', 'C')ube,

Yeah, my experience in the short time I've been trading is that whenever 95% of people are touting a stock or a sector (or anything) it's getting close to time to get out.

[cube]

$this->bbcode_second_pass_quote('Niagara', '.')..
Heck, in 1999 you couldn't pick up a burger at the drive-thru window without the pimply kid touting his favorite dotcom pump-n-dump.

[MrBill]

I am back and bloody busy! Will post updates later this week hopefully. In the meantime, great to see some other posts here, so thanks to everyone. Here are some of Goldie Sachs latest thoughts. Cheers.

$this->bbcode_second_pass_quote('', 'C')ommodities
Energy Weekly

Current product tightness likely to become future crude tightness

Crude prices slide, but gasoline prices soar

Crude oil prices have sold off significantly, with WTI and Brent falling $4.65 and $2.58, respectively, in the past two weeks. While prompt crude oil prices have slid as US refineries have been slow to increase crude runs ahead of the summer driving season, motor gasoline prices have soared, rising almost $9.00/bbl over the past four weeks.

We expect current product tightness to be passed onto crude

We expect that the recent strength in product prices will likely be passed onto the crude complex in the near term as Atlantic Basin refineries return from both planned and unplanned maintenance, especially as refineries will be eager to take advantage of exceptionally high margins.

Where the tightness lies depends on refinery utilization

The potential for refinery utilization to disappoint as the industry
continues to struggles with refinery glitches would suggest a more neutral outlook for crude oil, but a substantially more positive outlook for product margins.

[drew]

Glad to see you're back Mr Bill. You were a few weeks absent, I was worried you'ld taken my comment too literally! "stay away.....away!!!!!!" Anyways I'm actually back in the market and I'm all in so to speak. Just bought 300 NXY, got RIM, and U about three weeks ago, and still hold the CEF.A from a year back or so. I also bough some BCE when the takeover bacame fairly certain. The BCE is the the one I'll take a hit on, I'd bet!! Anyways, it feels great to be back in, that's for sure. I'm noticing my portfolio is a little weighted towards commdities, gee I wonder why? The market is kind of nuts right now and seems to be completely driven by M&A, which isn't really creating value is it. Still I have been foolish betting against the trend for the past quarter. When in Rome do as the Romans do, but hope to leave before Nero starts playing!!

Drew

[MrBill]

Hello Drew, while all is not so rosey, even according to some of the gang that have done swimmingly well from the run-up in asset prices. They are now complaining that the easy money has been made already and deals are not only getting bigger and more risky, but risks are being under priced as well. No sympathy for the devil, but caveat emptor.

$this->bbcode_second_pass_quote('', 'C')redit Scares Even the Buyout Gurus


Central bankers aren't the only people distressed by lax lending standards. Even the dealmakers who depend on cheap finance with few strings attached are complaining that finance is too cheap and there aren't enough strings.
``There's too much liquidity in the system,'' Philip Yea, chief executive officer of 3i Group Plc, Europe's largest publicly traded venture-capital and buyout firm, said last month. ``There's too much debt available.''
Too much debt available? That's tantamount to Kate Moss complaining that her photo is in too many magazines, Steve Jobs
moaning about iPod ubiquity or Madonna criticizing African nations for not having more stringent child-adoption policies.
So what's going on here? Why, in the fastest, loosest credit markets seen since a tulip bulb was worth as much as a house, are the supposed beneficiaries of loan largess bleating about easy money and the boom in global liquidity from Texas to Tokyo?
Is it because cut-price loans are propping open the mergers- and-acquisitions door for interlopers? Are existing leveraged- buyout specialists concerned about new entrants pushing up prices, and exacerbating the risk that a big deal will sour and
attract the unwelcome attention of regulators?
Steve Rattner, co-founder of buyout firm Quadrangle Group LLC, told Bloomberg reporter Edward Evans in January that ``the world isn't pricing risk appropriately. Investors are simply not being paid for the risks they're taking.''

Ninja Loans

You might have expected renewed caution among lenders after the willingness of some U.S. mortgage companies to grant so- called Ninja loans -- No Income, No Job or Assets -- triggered the collapse of the U.S. subprime mortgage market and helped sink an armada of companies.
Larry Fink, CEO of BlackRock Inc., says the subprime debacle has had a domino effect on the rest of the credit market -- just not the one you might have expected.
``We're seeing fewer investments in subprime, but that money needs to be put to work so they're going into other credit markets,'' Fink said in an interview published by the Financial Times newspaper last week. ``Historically, when we've seen one problem, we've seen an adjustment throughout the marketplace. We've seen no indication of that yet. We've seen the actual opposite.''
While liquidity is notoriously hard to define, the Bank of England took a stab at quantifying it last month in its Financial Stability Report. The central bank combined some key market measures -- the gaps between bid and offer prices on bonds, currencies and stocks, the ratio of market returns to trading volumes, and spreads in the credit market -- to produce an index showing that financial-market liquidity is at its highest level since at least 1992, and has doubled in the past four years.

Loaded With Debt

``Markets are currently very liquid and have been so over the past few years,'' the central bank wrote in the report. ``Maximum debt levels for European LBOs are now consistently above seven or eight times earnings, whereas the maximum was around six times earnings a year ago.''
While that extra leverage makes deals more risky, it isn't deterring newcomers from getting in on the action. ``There's a lot of money in the Middle East that the private-equity companies can now access,'' said Colin McKay, the New York-based head of PriceewaterhouseCoopers LLP's private-equity division in March.
``The force that hasn't even entered yet into the private-equity
market to any degree is the trade surplus in China and where that's going to be invested.''

`Capital Everywhere'

Investment banks used to be content to take a fee for advising on takeovers; now they can demand equity participation, boosting the pool of capital available to get deals done.
``There's capital everywhere,'' buyout doyen Henry Kravis of
Kohlberg, Kravis, Roberts & Co. said at a New York conference last week. ``It's very smart of these firms to be in it. I just wish they wouldn't compete with us, but they do.''
In the U.S., the California Public Employees' Retirement System, the nation's biggest public pension fund, is allocating more money to private-equity firms. In Canada, the Canada Pension Plan Investment Board, the Public Sector Pension Investment Board and the Ontario Teachers Pension Plan have all said they might bid for BCE Inc., the country's biggest telephone services provider. In the U.K., the Wellcome Trust Ltd. charity is part of a group trying to buy drugstore company Alliance Boots Plc.
As more buyers enter the fray, prices for doing deals rise, eroding the internal rate of return on transactions. In a low- yield environment, however, even a slowing bandwagon can be an attractive investment vehicle for latecomers.

Settling for Less

``Inevitably, returns can't be as good as they've been,'' David Rubenstein, co-founder of Carlyle Group, said last week. ``The returns that people will be able to get are better than anything else they can do with their money, at least that's legal.''
The biggest worry that the LBO community has, though, is that an overpriced, overleveraged deal will collapse. ``Some of these deals will go bad,'' Quadrangle's Rattner said in January.
When you borrowed from a bank, there was room to negotiate a rescue when the business plan melted. When your lender is a hedge fund trying to deliver monthly returns, the ear may not be
anywhere near as sympathetic.

[Mechler]

Any words of wisdom for stock picks going into the summer? I'm pretty concentrated in energy and commodities, but "diversified" in regards to owning, largely, ETFs instead of individual companies.

I'm a little unsettled by all of the DOW records lately and am worried about a correction. In that regard, is anyone shorting the market?

Otherwise, I'm still bullish on energy (but I guess that's a forgone conclusion since I'm on this site!) and it seems like the major oil companies are a bargain with their low P/E ratios, etc.

I'm thinking of buying something with a little more risk, like a small oil services company that specialize in offshore work (DEEP, HOFF, etc). I guess I could speculate anywhere, but I guess I feel more comfortable in energy because I can pretend to know more than the average investor.

So, back to my original question - any advice, particularly in regards to something with a little more upside potential?

[baller1000]

I was also thinking of investing in something with some upside potential..Recently been thinking of investing in Electricity Transmission companies(such as ITC) partly because America's transmission lines could use major upgrades and new power plants coming online...but am a bit concerned how all this would be affected by peak oil?

As for oil investments, I'm invested in the etf USO(which is supposed to track the price of WTI, but its spread with WTI has constantly widened supposedly because of Contango in Oil Futures prices )

[Mechler]

Yeah, I'm with you on learning the hard way with USO. I think I'll need $80 oil just to break even. Oh well, lessons learned.

One of my friends has been doing well with James River Coal Co. (JRCC), but he got in near the bottom earlier this year.

I think coal in general will do well until carbon caps or carbon taxes come into play.

[MrBill]

Well, as we head into the summer, given the high altitude of the current stock market, one might be tempted to heed an old saying in the business, "Sell in May, Go Away".

I am not looking to add to existing positions at the moment until something gets over-sold again. Like refiners or oilfield service companies. For what it is worth, Lukoil has dropped from $85-90 to near $70 and still has attractive P/E levels compared to western oil companies. As I sold some Lukoil in April I may re-establish at lower levels if we see them. I do not have a level in mind, but perhaps around $68 for the LSE traded ADRs.

Mind you the RTS peaked at 2008 and has since retraced to 1825 and may even dip as low as 1700, so if Russian stocks go out of fashion this season we may even see lower entry levels. Best to let it stop falling and then buy the bounce.

Ominously, the S&P500 energy index made a new high at over 500 and then closed lower. On the candle charts that looks like an evening star and can portend a correction. There is lots of room on the downside having started the year at 420 and dipping again in February to 425. It has had a good run since on the back of strong refining margins. Crack spreads of $25-27.50 per barrel are certainly not harming refiners. Who knows how long WTI will remain as weak as it is? Brent is probably the better indicator of crude's real value. The summer driving season will reveal all.

I lightened-up as well on my euro denominated stocks. Mostly German companies that have had a good run already this year, but also to lock-in some gains on the appreciating euro itself. Mind you I plowed some of those gains back into property here in Cyprus, so I am not out of the eurozone as Cyprus will trade its pound (CYP) for the euro on January 1st, 2008.

However, I was able to put a lot more down, so it reduced the size of the loan and its duration. Property prices would have to collapse now before I would be seriously hurt. Not something I am expecting to be honest. I think global inflation and asset price inflation from excess money supply growth are still unaddressed issues that many if not all central banks that I am aware of have still not gotten under control.

Coal and electricity companies may be good bets at the moment, but probably not as a sector due to already high valuations, but through bottom-up selection of individual stocks based on their own fundamentals. I have not been watching any in particular, so I cannot give an opinion. Certainly, carbon trading will be either a boom or a bust for these sectors depending on how its implemented.

In Europe they handed out so many carbon credits that energy generating companies were able to pass higher costs along to the end consumer and pocket the difference, while the prices for the emissions dropped continuously. That ain't right. Its not good for the consumer or the environment, but there you go.

Energy companies are hoping to make money from carbon trading, so it really depends on how the politicians implement any voluntary or mandatory schemes. My money is not on the policy wonks to get it right. As we say, "they make the rules, we game the system."

Warren Buffet has $40 billion burning a hole is his pocket, so Berkshire Hathaway is looking to do a deal for between $40-60 billion at the moment. Maybe a take over? In the meantime, he has added to his CPR railway holdings by buying Norfolk rail stock. That was one I missed completely. I wanted to buy CPR last year, but thought we were heading into a US recession that would see energy price drop and railway shares punished. That didn't happen either and now prices are higher. I am not going to chase it. There is probably more downside in stocks at these levels that upside left.

The question for me is what will happen with the US dollar viz a vie the euro now? We have seen $1.3680 and then a dip to $1.3460. Now we are somewhere in the middle. A move to $1.4000 for the US dollar as interest rate spreads narrow would make USD-denominated assets that much more attractive and EUR-ones more expensive. I do not favor a crash in the US dollar scenario at this point. Again too many central banks and exporters that have too much invested in keeping their own currencies weak for that to happen now. Of course, that is not to say that this situation will continue indefinitely. Just speaking about 2007 here.

Speaking of playing games and gaming the system. EURJPY is up at 163.60! The yen is at historical lows against the euro, while on a trade weighted basis it is probably more than 40% undervalued. There is no chance of trade imbalanced unwinding, so long as Asian central banks keep their currencies so grossly undervalued. In this respect, right or wrong, I can understand the reluctance of the Fed to aggressively fight inflation with higher interest rates if it is going to make the greenback even stronger. The burden of tackling these imbalances and inflation has to be shared a little more equitably. Then again no one said anything about fair.

Suffice it to say that the Fed is probably on hold for the balance of 2007 at 5.25%, while the ECB is likely to hike once or twice more. That bodes poorly for the USD against the EUR, but may be already priced in. I doubt we will see anything north of $1.4000? Then again $1.3000 looks like the new support as $1.2000 is also not likely with the US' deficits and need to attract capital to fund them. LIBOR is absolutely flat around 5.35% while EURIBOR still slopes upward to 4.35% in the one year bracket.

As always. See the discloser on page one of Trader's Corner. This is just infotainment here folks. You pay your money and takes your own chances. I am about as illuminating on investing as the color commentators in the movie Dodgeball, so don't take me too seriously. But good luck just the same. Cheers.

UPDATE: this just out from ML and applicable to the discussion.
$this->bbcode_second_pass_quote('', 'N')o "sell" signal from the May FMS
ML's Risk & Liquidity Indicator gave a neutral reading of 42 in the May survey, in line with its 5-year average and below the 45 sell signal level (see Chart 1). Note since the buy signal of 37 in March, EM equities are up 13%. The May FMS thus suggests the 10-week EM equity rally is not over.
Weaker global growth the summer risk to EM rally
Global growth & profit expectations are bullish again. Growth expectations are at a one-year high; global profit expectations had their largest one-month increase in 6 years. "Double-dip" in US growth is the new macro summer risk to EM equities.
"EU"-phoria not EM-phoria
Asset allocators are passionately bullish on European equities - buying intentions rose to an all-time high in the May survey. Their love affair with EM equities has cooled in the past 12 months and they are currently only modestly overweight.
Contrarian trades within EM according to the FMS are...
...long Chile, Mexico, India, Poland and short Brazil and EM financials. Sector positioning within EM remains very biased toward the domestic demand story within EM.

[Mechler]

Thanks as always, MrBill, for your insight.

I've just been perusing some ETFs from ProShares - and they have some interesting "Ultra" and "UltraShort" funds. Basically, the fund returns double the gain/loss of whatever index it tracks. Double the risk and double the potential gains. They also have normal ETFs that move on a one-to-one basis...but what's the fun in that???

One that Peak Oilers might be interested in is (DIG) which tracks the Dow Jones U.S. Oil & Gas Index. Or if you like, (DUG) which shorts the index.

I'm considering (DXD) which UltraShorts the Dow Jones Index.

Has anyone dabbled with or have any thoughts on these ETFs?

[baller1000]

I've tried QID before. Its like DXD, except it Ultrashorts the Nasdaq. Lost a little bit of money on it. I'm not gonna try it again. Just like Peter Lynch says, its basically impossible to predict the direction of the market.

[MrBill]

Sorry folks, but no new insights today. My feeling is a little weaker for crude into the close to lock-in strong profits for the week. Also, the US dollar is stronger. Just thought this was interesting.

$this->bbcode_second_pass_quote('', ' ')Investors have become less concerned about company profits, though they think inflation is likely to quicken, the Wall Street Journal said in its
``Fund Track'' column, citing Merrill Lynch & Co.'s fund managers survey.
The May survey, which covered 201 managers supervising $586 billion of funds, showed a net balance of minus 12 percent of respondents expecting profits to rise, compared with minus 32 percent in April, the newspaper said.
The net balance expecting faster inflation, however, rose to 34 percent, from 27 percent a month earlier; a net 17 percent took the view that global monetary policy is too expansionary, up from 15 percent who thought so in April, the Journal said.
Expectations of stronger growth led to a net 29 percent predicting that short-term interest rates will be higher in a year's time than now, up from 12 percent in the April survey, the newspaper said.
A net 6 percent judged that global equity markets are undervalued, up from 5 percent a month ago, the Journal added.

[pup55]

Hi, Mr. Bill:

I notice that this week is the expiry of the June contracts, and roll out to July. The July is currently trading at about a dollar higher than the June.

I've gone back through the Tonto data and looked to see what happened in the 4-5 trading days after the expiry. It looks like about 60% of the time, the higher price predominates, and about 40% of the time, the price falls back within a few days to about where it was before the expiry.

In a bull market, this is about what you would expect. The overall trend is going to be higher.

Since the beginning of 2006 there have only been a couple of instances of the price 4-5 days after the expiry to be significantly lower. Usually the correction stops after the price gets to around where the expired month hits.

So it looks like going long on the farther out contract a few days before the expiry was a pretty successful strategy, particularly in a nervous market like this.

What do you think?

p.s. I think you are going to get a bullish inventory report this week, which should add to the fun.

[MrBill]

Hello pup55, yes, you are right. The most obvious example this year was the expiry of the April WTI contract on the NYMEX at $56.73 and then opening the next day in May contract at $59.65, which on the continuation chart look like a huge gap up that up until now has never been filled. That was enough to reverse a negative technical signal and move it above its resistance levels.

We are at almost $70 in the July Brent at the moment and literally nothing has happened. No Iran, no Nigeria, no comments from anyone, no nothing. This seems to be just tight fundamentals and high refining margins supporting the crude. Of course, the WTI at $65 in the June looks weak by comparison.

If you are right and we have another draw on RBOB inventories (or diesel as part of distillates stocks) then the transport fuels will adding to those refining margins. In the past 3-years I have not seen this market get this nervous so early in the year. It could be explosive as we head into the hurricane season. We are starting from a very high base.

Expect more calls for special taxes on oil companies and refiners this year. Crack margins have retreated from their $25-27.50 peaks, but are still $24-26 per barrel. A healthy 38% of the price of crude itself. Ouch!

Well, I am under pressure here, so will keep it short. Just a comment from GS on the metals. Cheers.

$this->bbcode_second_pass_quote('', '
')Commodities Weekly

Prices fall towards fundamentals...but fundamentals are improving

The recent sell-off has brought base metals prices closer to fundamentally derived fair values, but a better demand outlook suggests that fundamentals are improving.

Strong and stable demand growth underpins our forecasts

We believe that weakness in US metals demand in 2007 is being offset by strong growth in China, Europe and Japan. In addition, an expected moderation in China and Europe next year will likely be offset by a recovery in the US and continued strength in Japan, thus keeping global activity at a high and stable level.

Market to remain at a premium to long-term price for most metals

Without an opportunity to rebuild inventories, as is typical during a
downturn, we believe that ongoing difficulties in expanding capacity will keep most metals at a backwardation relative to the long-dated price - with the notable exception of aluminum.

We have raised our supply and demand balance forecasts, as well as our price forecasts

We still expect copper to trend around $7,500/mt through 2008. On our forecasts, Nickel and zinc still decline from current levels, but to $35,000/mt (from a previous forecast of $30,000/mt) and $3,250/mt ($3,000/mt), respectively. We continue to expect aluminum prices to fall towards $2,350/mt, but we now expect a more gradual decline through the end of 2008.

[MrBill]

pup55 wrote:
$this->bbcode_second_pass_quote('', 'p').s. I think you are going to get a bullish inventory report this week, which should add to the fun.