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Trader's Corner 2007

Discussions about the economic and financial ramifications of PEAK OIL
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Where will WTI crude be on DEC 31st 2007?

Poll ended at Thu 19 Apr 2007, 04:20:21

under $50 per barrel
5
No votes
around $55
0
0%
around $60
5
No votes
around $65
12
No votes
around $70
11
No votes
around $75
28
No votes
 
Total votes : 61

Re: Trader's Corner 2007

Unread postby Mechler » Sat 16 Jun 2007, 20:34:08

Drew,

I don't have a clue, either. So now that we got that out of the way...

I think I will always hold some physical PMs (in fact, on paper, I've made some good returns with my physical holdings). But I'm starting to think that my GLD and SLV holdings would be put to better use other places. I have some in my IRA, so maybe I'll just let it sit there. Part of me thinks (thanks to all the doomers) that my IRA will be worthless, nonexistent, etc if I'm fortunate to live until retirement.

In the shorter term I'm going to continue to bet on energy stocks. The refiners have had great returns and may continue to run with the persistent tight gasoline situation. I was doing well with the etf DIG, as well, before I took profits. I'm looking to get back in soon.

I think even the hint of a hurricane will set the energy sector on fire. Anyone think weather is already priced in? Personally, I don't.
"It is certain that free societies would have no easy time in a future dark age. The rapid return to universal penury will be accomplished by violence and cruelties of a kind now forgotten." - Roberto Vacca, The Coming Dark Age
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Re: Trader's Corner 2007

Unread postby drew » Sun 17 Jun 2007, 09:45:29

Unfortunately all of my portfolio is in an RSP (can. 401k) because I am nowhere near rich enough to invest without the tax shelter that an rsp offers. If I cash out I will probably be penalized to the tune of 30% so I am somewhat stuck.

As for weather you are right. Although maybe people will be a little quicker to jump this time around. I bought ECA the day after Katrina and did really well. I see a repeat if a big storm nails the infrastructure again.

The fear premium is not really in place for a worsening scenario in the ME in my opinion. Things could really get much worse that they are now. There are so many conflicting interests operating in Iraq and the situation will not be resolved unless the Yanks leave. That is simply not going to happen. Big picture wise we have world powers competing for an essential resource.

Unless an economic meltdown comes soon we will think 67 dollar oil is cheap in a few years.

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Re: Trader's Corner 2007

Unread postby cube » Mon 18 Jun 2007, 01:07:36

I'm scratching my head debating if what we saw last week was a "bottom" for gold. My fingers are starting to itch and I want to go long gold but I haven't gotten a "green light" from my models yet.

For now I'll sit on the sidelines and wait.
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Re: Trader's Corner 2007

Unread postby MOCKBA » Mon 18 Jun 2007, 01:26:34

a few Canucks worried about their RESP.... I wonder thought how come there is none willing to stand up and say (and Mr Bill I am throwing like a ton of stones into your woods) "we are are trading against this and that and this is how we open out and this is what we expect to come out with, and BTW it would all go to help those miserable in sub-sahara africa... because we frankly don't give a shit and could be all wrong".

Wink, for whatever reason lately I feel that I would come out fine from that peak oil crap... most would come out fine because it would be gradual after all... So the real question is... am I gonna be the one peddling RE in Spain at the down of the century, or the one concerned with RESP well into in, or the one doing something about it all
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Re: Trader's Corner 2007

Unread postby MrBill » Mon 18 Jun 2007, 03:57:26

$this->bbcode_second_pass_quote('MOCKBA', 'a') few Canucks worried about their RESP.... I wonder thought how come there is none willing to stand up and say (and Mr Bill I am throwing like a ton of stones into your woods) "we are are trading against this and that and this is how we open out and this is what we expect to come out with, and BTW it would all go to help those miserable in sub-sahara africa... because we frankly don't give a shit and could be all wrong".

Wink, for whatever reason lately I feel that I would come out fine from that peak oil crap... most would come out fine because it would be gradual after all... So the real question is... am I gonna be the one peddling RE in Spain at the down of the century, or the one concerned with RESP well into in, or the one doing something about it all


MOCKBA, I am not sure exactly what you mean? I think the purpose of Trader's Corner is that we do not know when the true effects of post peak oil depletion will start to take their toll or how? By the time we get there many of the effects we had expected today may be mitigated, by new technologies for example, while some other problems like over-population, may simply blur the lines between resource depletion and societal collapse in some countries quite apart from the hydrocarbon issue effecting other countries.

So what we are trying to do is to keep an eye on the market fundamentals as they are without reading too much into them, so that from a more objective point of view we can discern what the prices are telling us about the energy, base metal and commodity supply & demand as well as inflation, interest rates and the value of individual currencies.

It may not be much, but it is better than a constant litany of, "oh gee, the US dollar went from $1.3300 to $1.3400 against the euro, so this must be the start of the end," type of doomer-porn cum-analysis.

For example, the steepening yield curve as six months ago the inverted yield curve had most posters on peak oil dot com convinced that the US was entering a recession in 2007 from which it would never recover because that is what they read on financial sense dot com or from Roubini or wherever. That may still come to pass, but the pick-up in inflation, higher interest rates and a steepening yield curve are now telling us something different than a downward sloping yield curve, low bond yields and the expectation of an economic slowdown.

I just try to keep it real here.

So just for the record, and I am sure you have your own experiences from a collapsing Soviet Union to draw on for comparison purposes, but all you can do is position yourself ahead of what you think will probably happen. That may mean moving assets around in your 401K or RRSP or it might mean planting potatoes at the dacha. Both are survival strategies based on what you can do with what you have, and what you think may happen?

I am pretty sure I can hedge myself or position myself for a powerdown scenario or a slow implosion of the existing economic architecture a la Argentina. I feel less confident about a violent and arbitrary restructuring of power a la Zimbabwe. Eastern Europe post the USSR, yes. Sub-Sahara African type chaos, no. At best I could flee, which means having enough liquid assets, getting out early, being able to pay the right people to get out, and, of course, having some place to go. And what's more, that strategy might work well for me, but it is hardly a solution, or one that would work for large numbers of people left behind because they did not have those liquid assets and that mobility.

So I am pretty much forced to take a longer view with or without the expectation of post peak oil depletion. I have to plan based on 25-50 year time horizons just in case the world does not blow-up on schedule, and I am forced to survive based on the assets I own and my own skill set. One of the reasons I spend two hours a day learning Russian, or working on my next article to be published, on top of my day job. Because in a competitive work environment, and an uncertain future, one cannot let their skill set get out of date. Or as Billy Bobby would say, "either your first or you're last!"

Given that uncertainty I am pretty sure I am better positioned if I own my own house, and have enough assets to live off with or without a job; than if I am up to my eyeballs in debt, and living paycheque to paycheque. Of course, post peak oil chaos may mean I lose those assets to the mobs, but then again my chances of dying of a heart attack or in an avalanche are probably more realistic in the next 20-30 years.

First of all one wants to be in the top 25-percentile in terms of education, job, experience, income and savings. Preferably in a country that is also in the top 25-percentile in terms of living standards, quality of life and security. Then one can start to hedge themself against specific risks like inflation or resource depletion. Or work to be in the top 2-percent where one can. It may sound terribly elitist, but survival is not known to be overly democratic. At least plan to be better off than one's neighbors, and be ready to seize the opportunities as they arise a la the collapse of the Soviet Union. Many people suffered, some did well and a few prospered. I know which side of the ledger I would prefer to be on given the choice. Societal collapse sucks, but life goes on. Unless it doesn't this time.
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Re: Trader's Corner 2007

Unread postby MrBill » Mon 18 Jun 2007, 04:36:12

$this->bbcode_second_pass_quote('seahorse2', 'M')r. Bill,

Not trying to insult anyone by using a place like Zimbabwe as an example, but, here's why I used it - an arguments has been advanced by PO advocates that PO would first be felt throughout the 3rd world, meaning, the third world would do without first before the "west" suffered the effects. Thus, I was wondering if there is any evidence of this. As you point out, there seems to be a contradiction, how can world economies grow if in fact world energy production has plateau for about 2 years now? Thus, I was wondering if there is any evidence to support the contention among PO advocates that the third world is feeling the effects first, by doing with less, and thus, the west is able to grow (albeit paying more for fuel), thus we can see growth in the west despite no increase in world energy production. I don't know, but would like to know if this is true or false.



Conventional wisdom was that poorer, developing countries would be the first to suffer from high energy prices, but that has not happened. At least not universally. Because commodity and base metal prices have also increased, along with more investment in resource extraction in these countries, so their external fundamentals have actually improved despite higher energy prices.

The exceptions, of course, are manmade Hell holes like Robert Mugabe's Zimbabwe that has saw 90% economic contraction since he took power in the 1980s, while other developing countries have improved economically over the same period of time. Neighboring S. Africa has improved. In 2004 it accounted for 10% of Africa's population, but generated 45% of the continent's GDP. Since then high oil prices may have shifted that balance. I do not have the latest numbers at hand. And many of the white farmers kicked out of Zimbabwe have gone to neighboring Zambia, and as a result, as Zimbabwe's agricultural surplus is plummeting, Zambia's surplus as well as its farm payrolls and employment are booming.

In my opinion, it makes little sense to talk about macro-economic differences between north-south, or even south-south countries like those in Asia and Africa, which are symptoms, without speaking openly and honestly about good governance, corruption, crime, bureacracy/kletocracy and the underlying causes of those discrepancies.

My colleagues published a paper in the Journal of Long Range Planning on risk managment and the business environment in S. Africa. Recently, I read an article on Kenya in The Economist that reinforces some of our observations about the conditions that allow growth and prosperity to take root in these countries or what contributes to their demise.

The one word answer is, tribalism.
$this->bbcode_second_pass_quote('', ' ') Tribe still beats class, any day
Tribalism, the motor of politics in Kenya, is as potent and prevalent as ever. Mr Kibaki, as a seasoned political operator, has the usual full range of ethnic groups represented in his cabinet. But there is little doubt that his own Kikuyu, who were in the driving seat from 1963 until 1978 under Kenyatta but then got pushed aside by Mr Moi, are back behind the wheel. “It is our turn to eat,” goes their refrain.
--------------------------------------------------------------------------------------
The centre could not hold
Kenya often feels like a country that cannot cope. Driving around, in country or town, the sheer burgeoning mass of people hits the eye. The population has exploded out of control—with nothing like the rate of economic growth to sustain it. From around 1m people in 1900, the number of Kenyans had climbed to 4m after the second world war; though fewer than 8m at independence in 1963, Kenyans number more than 35m today. Recent projections suggest that, even taking account of the continuing ravages of AIDS, the population will exceed 40m in 2010, rising to 57m by 2025. Life expectancy went up from 44 years at independence to 62 in 1984, then slumped again, to 49 in 2000 and 52 today. Though the proportion of adults infected by HIV has dipped from a high of 14% in 1998, it still afflicts about 6%, or 1.3m people, says the UN. AIDS has orphaned more than 1m children.
------------------------------------------------------------------------------------------
Scambags galore
Why the mess? The answer is misguided economic policies, mismanagement, poor maintenance, sloppiness, tribalism and corruption. This litany of failings is almost entirely the fault of Kenyans themselves: the politicians they have allowed to rule over them and rip them off; the civil servants and road builders (some of them foreign) who have skimmed off contracts or simply not bothered to do the job; and the dishonesty, venality and fatalism that have gripped society at large.

Corruption took hold of Kenya almost immediately after independence, as the regime of Jomo Kenyatta sought, in a hurry, to shift political and economic power from whites and Indians into the hands of a new African elite. After Kenyatta's death in 1978, his former vice-president, Daniel arap Moi, continued this system of patronage, authoritarian rule and personal family enrichment, while tilting the centre of gravity of power away from the Kikuyu to a much smaller cluster of Kalenjin-speaking tribes, of which his own Tugen people is one of the smallest.

The standard method by which this sort of system persists—the distribution of franchises, permits and visas, and the appointments to practically all the key jobs in government, the civil service and parastatal agencies by virtue of loyalty and tribe—helped the economy lose momentum. A new elite corruptly took an ever greater share of the fruits of independence and outside investors became ever warier.


Source: Kenya. Going up or down?








We identified four types of risk. Political, economic, financial and operational risks. Then we added a time variable. The time dimension changes the nature of those risks. For example, using a country like S. Africa as a base of operations to distribute beverages to neighboring countries has one set of risks versus building a factory and incurring sunk costs to manufacture in those same countries. One is a cash on delivery model of distribution, while the other incurs longer-term risks from rent seeking kleptocrats, longer payback periods and the immoveability of the assets, etc.

In terms of securing energy supplies obviously some countries will be more successful than others in providing the necessary roads, ports, rail heads, refining facilities, distribution networks and the means to pay for those imports by creating an economic surplus or payment in kind. Corruption, bureacracy, red tape, incompetence and a crumbling infrastructure may mean that imports become more expensive and physically unavailable even for those willing and able to pay for them.

Certainly, if we speak about access to energy imports and the ability to pay for them then it will never be a level playing field. China's model of quasi central control or Japan's market approach may be in their own way more effective at securing those imports than Zimbabwe who generate very little export revenue, and what imports they do receive are arbitrarily allocated to friends of the government rather than where they will be used to best effect, further reducing potential GDP and the ability to import.

You can say the two issues are linked - energy availability and the ability to pay - but they are quite separate. The ability is a symptom of larger problems. Not a cause. And as any resource becomes scarcer we would expect prices to rise to ration demand. That means those who can pay will have more supply than those that cannot pay.

However, I do think that most of the economic growth we have seen since 2005 despite higher oil prices has come through efficiency gains in developed countries, not necessarily by price rationing a la demand destruction in places like Zimbabwe. Which on an interesting note means that if these shit-holes actually ran even as well as they did at indepence that likely total energy demand would be even higher than it is today, as they have been developing under their potential trend for the past 40-50 years, and in some cases experiencing negative growth.

Cruelly, even if they turn themselves around and address their domestic issues, the energy they need to grow may no longer be readily available. Fortunately, many of these countries do have other resources to trade, unless, of course, they are all under Chinese control?

Conclusion: If we did not solve poverty related issues in the developing world prior to peak oil then our chances post peak oil depletion will be slim to non-existant.
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Re: Trader's Corner 2007

Unread postby cube » Mon 18 Jun 2007, 19:33:47

$this->bbcode_second_pass_quote('MrBill', '.')..
For example, the steepening yield curve as six months ago the inverted yield curve had most posters on peak oil dot com convinced that the US was entering a recession in 2007 from which it would never recover because that is what they read on financial sense dot com or from Roubini or wherever.
...
Yeah I remember that too. To take a trip back memory lane, how many people lost their shirts trying to get smart by picking the bottom of crude/energy markets as it steadily declined for 6 months starting last year in July? Anybody here still remember Amaranth? It's nice that www.financialsense.com/ is PO aware but I certainly would not gamble my personal money on what they say, nor the wall street journal or even peakoil.com "Trader's Corner 2007". (no offense to anyone here - I respect everybody's opinion even if I disagree sometimes)

$this->bbcode_second_pass_quote('MrBill', '.')..
Of course, post peak oil chaos may mean I lose those assets to the mobs, but then again my chances of dying of a heart attack or in an avalanche are probably more realistic in the next 20-30 years.
...
A heart attack is the most common form of death for traders. I don't know if anybody is keeping statistics but I'm absolutely certain for obvious reasons. (a stress free life becomes a very rare commodity) *grin* :wink:
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Re: Trader's Corner 2007

Unread postby MrBill » Tue 19 Jun 2007, 04:04:10

$this->bbcode_second_pass_quote('cube', '
')
$this->bbcode_second_pass_quote('MrBill', '.')..
Of course, post peak oil chaos may mean I lose those assets to the mobs, but then again my chances of dying of a heart attack or in an avalanche are probably more realistic in the next 20-30 years.
...
A heart attack is the most common form of death for traders. I don't know if anybody is keeping statistics but I'm absolutely certain for obvious reasons. (a stress free life becomes a very rare commodity) *grin* :wink:


Well, my father and grandfather on one side of the family died at 51 & 53, while my other grandfather is now 91, so I have a bi-polar chance of living a long, healthy life.... On the other hand its a barbell put strategy with steep time decay on the front leg! ; - )

Let's put it this way, going to the gym everyday is more important to me than worrying about the markets, which I rarely do anymore.
Cyprus ain't Wall Street! ; -)
$this->bbcode_second_pass_quote('', 'W')all Street's push for record profits is ruining careers, tearing apart families and keeping drug dealers busy, mental health experts say.

While record bonuses make some Wall Street bankers feel invincible, others become emotional wrecks from pressure to perform and some hit rock bottom, experts say.

Harris Stratyner, a psychologist at Caron's New York Recovery Center, said some executives he treats are experimenting with cocaine, opiate-based drugs, Ecstasy and marijuana, as well as abusing alcohol.

"It's like they're chasing a dream. Even when they make tremendous profits, they're still worried," he said.
Wall Street's undertow: drugs and anxiety
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Re: Trader's Corner 2007

Unread postby MrBill » Tue 19 Jun 2007, 07:00:03

$this->bbcode_second_pass_quote('pup55', 'M')r. Bill:

How are we going to play yesterday's runup in WTI?

Alternatives:

See this as the narrow channel breakout we have been waiting for, and prepare to go long and stay long, riding it up to 80.

See this as an anomaly, and short the market below the close yesterday, and wait for it to fall back into the trading range of 61-64 as it has been for the last 6 months.

This is why I never made money in the commodities. I can see both scenarios.

I agree with your earlier comment that there is a lot of resistance at this point. But, with the middle east starting to blow up, little baby hurricanes starting to form in the gulf, all at exactly the same time the US drivers fire up the car for the annual road trip, there is a lot of fundamental and political upward pressure.

I think there is about $4 to be made on the short side, but maybe about $2 to be made on the long side, because there will probably be some resistance at 70, so maybe that is the answer.

Also we were looking at the RBOB, heating oil and crude oil contracts farther out yesterday. The October crude oil contract is about $2 higher than the July, but the RBOB October contract is about 20 cents lower than July. So, the spread farther out is even wider than in the front month. What do you think of shorting October crude and going long on RBOB and heating oil?


Looking back at the WTI daily chart it would appear that we are in a break-out of the existing range to challenge 10-month recent highs. Of course, WTI is still following the Brent on the back of geo-political supply conerns, Nigeria and Iran, while domestically crude is still supported by wide refining margins. Technically, it almost looks like higher tops and higher lows are changing the nature of the existing range to resemble something more like an upward sloping channel? If so, then there is more upside in the WTI?

However, on the trading envelopes we are in over-bought territory (still), and the GSPE energy index looks seriously vertically challenged? I would sell some more energy shares, but I do not want to be underweight. So, I will leave it for the time being. It might be worth being underweight if we get a flat price spike on some weather related news and some worse news out of the ME. Otherwise, discipline, discipline. Wait for the dip.

$this->bbcode_second_pass_quote('', 'I')ran will not rule out using oil as a weapon if the United States resorts to military action against the Islamic Republic over its nuclear program, an Iranian oil official said in remarks published on Tuesday.

"When the Americans say that military action in regard to the nuclear issue has not been put aside, Iran can also say that it will not put aside oil as a tool," Iran's OPEC governor, Hossein Kazempour Ardebili, told Iran's Sharq newspaper.

Washington says it wants a diplomatic end to a row over Iran's nuclear ambitions but has not ruled out force if that route fails. Iranian officials say they do not want to use oil as a weapon but have also said they might do so if pushed.

Source: Iran says won't rule out using oil as a weapon



Again going back to the summer of 2005 pre-Katerina/Rita/Wilma it was very dangerous to call the top in that bull market. I kept getting stopped out, until the pain threshold did me in. Then it dropped. Back then, as now, it was lack of refining capacity, and not lack of supply that was fuelling the bulls. Of course, back then all commodities were one way bets. A new paradigm. A twenty year bull market. No corrections. Or so were the headlines as investors rushed into alternative asset classes.

I have been neglecting this page for a few weeks now, and I am off to Moscow on Thursday for a week. So for good housekeeping, I will post some commodity news from GS. Thanks.

$this->bbcode_second_pass_quote('', ' ')
Agriculture Comment

Trading recommendation
Close long corn and cattle spread trades.

Close December 2007 long corn trade

This trade was originally recommended on May 1 at a price of 365 cent/bu. Price as of June 15 is 424 cent/bu, giving a gain of 59 cent/bu.

Close August 2008 long live cattle and April 2008 short feeder cattle spread trade

This trade was originally recommended on March 16 at a price of 96.5 cent/lb for live cattle and 108.3 cent/lb for feeder cattle, giving a net spread of -11.9 cent/lb. The trade was subsequently rolled on May 17 to August 2008 live cattle at a price of 91.3 cent/lb and April 2008 feeder cattle at a price of 106.8 cent/lb, for a net loss of 1.5 cents. Prices as of June 15, 2007 are 92.7 for August 2008 live cattle and 104.4 for April 2008 feeder cattle, giving a net gain of 2.3 cents.

Source: Goldman Sachs Commodities Research
June 18, 2007

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

Changing our rank ordering for near-term agricultural upside

We now like wheat, then soybeans, then corn, but soybeans and corn still have the most upside on a medium-to-longer-term horizon in our view.

Wheat prices remain vulnerable to further near-term upside

CBOT and KBOT wheat prices rose to their highest levels in over 11 years this week owing to a slow start to the US winter wheat harvest and expectations of substantial declines in eastern European wheat production due to a drought. We believe that exceptionally low wheat inventory levels amid drought and
harvest concerns in the global wheat market will likely continue to generate substantial volatility in wheat prices, leaving the market extremely vulnerable to further price spikes in the near term.

Corn outlook remains positive, but potential yield improvement presents downside risk

Corn prices also rose substantially over the week owing to spillover support from wheat given the potential for tight wheat supplies to generate increased feed demand for corn as well as continued concerns over dryness in the eastern Corn Belt. However, the still very good condition of the US corn crop presents downside risk to our corn forecasts, although medium-to-longer term corn fundamentals remain constructive.

Soybean upside remains substantial in the medium term

Soybean prices barely moved this week despite the USDA's first release of global inventory expectations for the 2007/2008 crop year, which are expected to decline substantially, as expectations of a substantial deficit in the global market were likely already priced in. However, we continue to believe that substantial upside remains for soybean prices.
Source: Goldman Sachs Commodities Research
June 15, 2007

A couple days old, but...
$this->bbcode_second_pass_quote('', '
')Energy Weekly

Support for heating oil not likely to last

Energy prices rally

Energy prices rallied this week, with WTI closing at $68.00/bbl this Friday, more than $3.00/bbl above the prior week. The first-to-second timespread also strengthened by $0.14/bbl. Gasoline prices rebounded strongly in the past few days, supported by a third consecutive week of declines in refinery runs which, combined with a slowdown in gasoline imports, resulted in a negligible build in gasoline inventories this week. Geo-political tensions in the Middle East and Nigeria have also contributed to the energy rally.

Heating oil prices have narrowed the differential to ULSD

However, despite the fact that we are entering the summer driving season, RBOB gasoline declined $0.02/gal in the past six weeks, while heating oil prices have risen $0.16/gal, narrowing the spread to low-sulfur (LSD) and ultra-low-sulfur diesel (ULSD) prices. Heating oil prices have risen relative to LSD and ULSD prices despite the seasonally increasing demand for highway diesel and despite the fact that high-sulfur distillate fuel is being phased
out from the non-road, locomotive and marine (NRLM) use due to new US Environmental Protection Agency (EPA) regulations, which came into effect June 1st. Interestingly, the specification change may have lent support to heating oil prices in May as end-users were motivated to hoard heating oil in advance of the switchover.

Heating oil strength is likely temporary

While heating oil stocks are low, due to the market's adjustments to the fuel specification change, this is not, in our view, particularly supportive of heating oil prices. Given the reduced demand for high-sulfur distillate, less inventories are required. However, export demand as well as heating-related demand spikes in the winter represent upside risks to heating oil prices.
Source: Goldman Sachs Commodities Research
June 18, 2007

$this->bbcode_second_pass_quote('', 'W')e’re here to be a service column for our readers, with advice on removing stains from linen, short-selling Argentine gross domestic product, when to rotate tyres and, today’s topic, using Very Large Crude Carriers (VLCC) to hedge against Nigerian supply disruptions or Gulf of Mexico hurricanes.

I try to come up with topics that serve the typical FT reader, who, according to the advertising department, should have little difficulty finding the $115m-$130m necessary to buy a cargo of 270,000 tonnes of crude oil for storage on
a VLCC. Of course, prudent risk management dictates that such
a position should be no more than
5 per cent of one’s net worth, and
I have taken that into account in recommending the trading idea described below.
Source:Crude oil and a recipe for easy money
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Re: Trader's Corner 2007

Unread postby MrBill » Wed 20 Jun 2007, 05:40:06

[align=center]I want to sell everything right now![/align]

Basically, everything looks toppish to me!

Sell the S&P Energy Index from 529 high for a correction to at least 515 if not 500?

Sell WTI crude futures from $69.50 high for a correction to maybe $62.50 area (rising bottom, so a moving target)?

Sell Brent crude futures from $72.69 high for a correction to maybe $67.60 area?

The 10 y UST has already corrected from 5.25% to 5.05%, so probably too late to buy that one, and in any case, I still believe in a steepening yield curve, so I am not likely to buy 10 year bonds at close to 5.00% in any case.

Sell the S&P 500 from 1540 high for a correction to at least 1462 if not down to 1364-1327?

Sell EUR JPY from 166.10 high for a correction to 162.50 if not 160.25?

Sell RTS from current level of 1910 as it looks like a head and shoulders forming with left shoulder at 1937 and the head at 2008. Correction to the neckline at 1700, which is also the 0.382 correction and already tested on the last move down. Maybe see a break down to 1605?
[url=http://www.marketwatch.com/News/Story/Story.aspx?guid={777976CE-603A-48F9-A35F-CF3348B9702C}&siteid=nbi]Russian stocks: reasons to get in and to stay out[/url]

In any case, if the GSPE is looking toppy as well as crude, then there is only one way for the RTS to go if they slide as well given the market is plenty nervous about investments in Russian oil cos. at the moment in the first place (see MOCKBA's comments on higher export duties and unfriendly take-overs in Russia).
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The US dollar is a mixed bag? I see the top at $1.3680 against the euro, and if the EUR JPY falls, then I could see us back to $1.2900-1.3200 again. Some intermediate support for the euro at $1.2980. That is a wild card call, but what the hay, its only infotainment, right? And I am off tomorrow for a week, so I have already gone flat on anything that I could outside my core positions.

Good luck, and remember, don't trust anyone - especially not me -with your hard earned money! All caveats apply! ; - )
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Re: Trader's Corner 2007

Unread postby bobcousins » Wed 20 Jun 2007, 06:32:05

I agree WTI/Brent look overbought based on trend, but I think there is still new highs to reach. The US gasoline situation is very very tight, and will continue so into the summer, if inventories do not build in June, then they don't catch up during driving season. Gas prices have not been high enough to deter demand. I suspect todays inventory will come out flat against expectation, and we had $2 rise last time with a similar surprise.

The Nigerian strike may fizzle out, but even if resolved Nigeria looks sets to provide continued unrest going forward. Plus there are hurricanes, Iran etc ...

My overall gut feeling is quite bullish.
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Re: Trader's Corner 2007

Unread postby MrBill » Wed 20 Jun 2007, 11:14:23

$this->bbcode_second_pass_quote('bobcousins', 'I') agree WTI/Brent look overbought based on trend, but I think there is still new highs to reach. The US gasoline situation is very very tight, and will continue so into the summer, if inventories do not build in June, then they don't catch up during driving season. Gas prices have not been high enough to deter demand. I suspect todays inventory will come out flat against expectation, and we had $2 rise last time with a similar surprise.

The Nigerian strike may fizzle out, but even if resolved Nigeria looks sets to provide continued unrest going forward. Plus there are hurricanes, Iran etc ...

My overall gut feeling is quite bullish.


No doubt you're right. But it is the nature of the over-bought signal to measure 'how' quickly the price has risen as a deviation from the 21-day moving average. Eventually, it always reverts to the mean as the steep price increases cannot be maintained over-time. That does not mean that they do not retrace, first, and then go even higher.

Also, the over-flowing bathtub analogy still holds water this season. What you're talking about is really the shortage of refining capacity. All the oil this side of Saud cannot bring the price of gasoline and diesel down until it is refined. So if there is a shortage this summer it will not be the crude, but the products.

The crack spread has slipped below $20 per barrel. Still wide by historical standards and twice as high as at the start of the year, but coming off its highs. That may mean that all the good news (or bad news depending on how you look at it) is already priced into crude at this level?

Would I be a buyer down at channel support or when it gets over-sold again? Yes. Just not a buyer up here at resistance now that it is showing over-bought - at least on the trading envelopes. The RSI is not particularly over-bought at around 60.

By the way, crude jusst dropped $1 as the inventory numbers showed a build in crude of +6.9 mio bbls, while gasoline inventories increased by +1.8 mio bbls and distillate stocks up +100k. Imports were up +650k to 10.79 mbpd and product imports up +170k to 3.83 mbpd.

I guess the market will digest that build in the crude against continued tightness in the products as refining capacity was down -1.6% to 87.6% this past week, while total demand increased +1.3% year on year. Gasoline demand was up +1.5% and distillate demand (diesel) was up +2.8% yoy.

As you said, no demand destruction in the transport fuel department, so higher prices are still needed. Quite inflationary really. All the more reason for me to be bearish on the bonds. They also jumped in yield from 5.05% to 5.11% today. All in all, my timing has been almost perfect. I guess even a broken clock can be right twice a day? It doesn't mean it is an accurate time piece though!

UPDATE: EIA says US crude stockpiles at highest level since May 1998. Source: Reuters, June 20
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Re: Trader's Corner 2007

Unread postby cube » Mon 25 Jun 2007, 16:01:16

$this->bbcode_second_pass_quote('cube', 'I')'m scratching my head debating if what we saw last week was a "bottom" for gold. My fingers are starting to itch and I want to go long gold but I haven't gotten a "green light" from my models yet.

For now I'll sit on the sidelines and wait.
Still sitting on the sidelines waiting. I'm curious what the fed rate decision will be this coming Thursday.
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Re: Trader's Corner 2007

Unread postby Mechler » Wed 27 Jun 2007, 15:02:32

Run From Refiners

$this->bbcode_second_pass_quote('', 'S')pecifically, Leggate wrote, low U.S. gasoline inventories owed more to depressed imports than domestic refinery problems, an issue he said will improve in coming weeks.


I think Pup and others would disagree with that statement. I've never put much faith in the analysts, and this doesn't help any.

The refiners have had a great run this year and I'm guessing that this pullback is a great buying opportunity. Anyone know the technical support levels that we should be looking for?
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Re: Trader's Corner 2007

Unread postby drew » Fri 29 Jun 2007, 12:38:44

Ain't the markets grand!! It's gambling plain and simple, my friends. That Rim I bought just after the q1 results for 150 just traded at 211. Too bad I sold about a week back at 185......

I guess I thought q2 would suck as well ?!??!

Still one never loses money when a profit is taken....

Whaaaaaaaah.

As Mr Bill says, 'have a great weekend everyone'..


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Re: Trader's Corner 2007

Unread postby Mechler » Fri 29 Jun 2007, 17:32:35

$this->bbcode_second_pass_quote('drew', 'A')in't the markets grand!! It's gambling plain and simple, my friends. That Rim I bought just after the q1 results for 150 just traded at 211. Too bad I sold about a week back at 185......

I guess I thought q2 would suck as well ?!??!

Still one never loses money when a profit is taken....

Whaaaaaaaah.

As Mr Bill says, 'have a great weekend everyone'..


Drew


It is gambling, because they could have just as easily missed on their earnings and pulled back to $150. No one can fault you for selling where you did.
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Re: Trader's Corner 2007

Unread postby MrBill » Mon 02 Jul 2007, 09:02:16

Well Drew, the market is climbing a wall of worry right now, so it is prudent to trim positions and take profit instead of trying to pick the absolute top. That is just good money management skills. Gambling is something else. You do that in Vegas with your mad money that you're prepared to lose for the thrill of maybe winning.

I was away most of last week in Russia. Then back on Friday, but very busy. What did I learn? Hmm, lot's, but still distilling my ideas. More on that later. But this article sums up some of my fears.

$this->bbcode_second_pass_quote('', ' ') Russian President Vladimir Putin is making an astonishing bid to grab a vast chunk of the Arctic - so he can tap its vast potential oil, gas and mineral wealth.


His scientists claim an underwater ridge near the North Pole is really part of Russia's continental shelf.

One newspaper printed a map of the "new addition", a triangle five times the size of Britain with twice as much oil as Saudi Arabia.


Source: Putin's Arctic invasion: Russia lays claim to the North Pole - and all its gas, oil, and diamonds

I just happened to be there over the weekend that they were 'celebrating' the start of the second world war. Lot's a patriotic old movies on state-sponsored and/or state-run TV stations. Lot's a documentaries that you might usually see on The History Channel being shown on the main channels during prime times. It is good to keep drumming up patriotic feelings when you are trying to sell resource re-nationalization.

$this->bbcode_second_pass_quote('', ' ') More than 900 shareholders packed into an auditorium at Moscow's ExpoCenter to hear from Sechin and CEO Sergei Bogdanchikov and vote on the dividend. In the share sale, the government appealed to citizens' patriotism and convinced 115,000 Russians to take part in a so-called "people's IPO."

The state-run company will sell bonds to reduce bank loans and sell noncore assets to trim $10 billion from its $25 billion of debt by 2010, CEO Sergei Bogdanchikov told the meeting.

Source: Rosneft Sets Out Plans, Faces Angry Questions



There is a feeling amoung many of my friends that some of the deals done after the collapse of the Soviet Union with Western oil companies are no longer in Russia's best interest. They compare times today with the time of the US robber barons in the USA. Well, that view does not sit very well with me for several reasons.

One, we already had this Wild East period in the 1990s already. We were supposed to be moving beyond that and into a period of good stewardship and stable economic growth. Taking away oil & gas rights from international oil & gas companies to give them to national oil cos. that are less transparent is not a step in the right direction. It is just re-distributing the spoils. In this case to a very small clique of friends from St. Petersberg.

Secondly, the state already gets its pound of flesh in the form of royalty payments. Theoretically it does not matter who owns or manages an oil & gas field if the government controls how high the tariffs are. If the state takes 90% of the revenue then it does not need direct ownership.

Thirdly, these were commercial contracts signed when a) there was great legal uncertainty in Russia following the collapse, and b) the price of oil & gas was very low. I would not argue that there is more legal certainly today, maybe more than 10-years ago, maybe less than 3-years ago. But if legally binding contracts are going to be ripped up every time prices go higher then they may as well be written on Soviet toilet paper for all the good they are.

Remember a certain $200 billion sovereign default less than 10-years ago? How often is the Russian government going to keep playing these games? You can argue that there will always be new players willing to take a chance, but these games certainly have not made Argentina any richer, and I can bet that Venezuela will not be more prosperous after Chavez is gone either.

$this->bbcode_second_pass_quote('', ' ')Venezuelan President Hugo Chavez took several parting shots at the United States as he wrapped up a visit to Moscow on Friday, suggesting that he preferred Russian oil companies to U.S. ones and that life was more than Superman.

Chavez arrived in Moscow last week amid widespread speculation that he wanted to sign a major arms deal, and President Vladimir Putin said the weapons trade was among the topics of talks late Thursday when he met with Chavez. On Saturday, Chavez stopped by the Rostov Helicopter Plant in Rostov-on-Don. But no announcements were made about any military deals during the three-day visit.

Chavez told Russian business leaders on Friday that he expected development of a "road map" that would boost and diversify Russian-Venezuelan business ties -- especially in the energy sector, including construction of a natural gas pipeline and oil refineries.
Chavez Prefers Russian Oil and Lenin

However, high prices and limited reserves make opaque legal ownership harder to establish whether there is value being added or destroyed. The fabled state within a state. Revenues that never have to be accounted for. And a political agenda that answers to no one. Least of all a compliant electorate in what is for all intents and purposes a one party state still.

Now my friends that are all well-educated and work for international companies may disagree with me, and they do as I already mentioned. They are doing okay. But you might notice they are a very small minority.

Just as they might compare what is happening in Russia today to turn of the last century robber baron capitalism, I might think more like Latin America in say the 50s or 60s. Vast countries with untapped potential. Prosperous cities. Or at least nice leafy downtown areas full of bars & cafes to give the impression of prosperity. A small elite running things. A small middle class to give the impression of normality. And a larger under-middle class for whom things only got worse as the years went on. First creeping authoritarian rule. Then a popular uprising. Maybe a little socialism. And finally the coups and the military dictatorships. No actually, then finally decades of lost growth and under-development plus the human rights abuses. And the leafy neighborhoods of bars and cafes became cesspools of crime.

It will never happen in Russia? Well, I hope you are right? My friends are there as well as my godson. I certainly hope that the country develops along the lines of western Europe for example. But I would not count on a happy ending given recent trends. Maybe even then there is a lot of money to be made there, but it would be a shame none the less.

$this->bbcode_second_pass_quote('', ' ') "To put it bluntly, the value of an asset is different in different people's hands," said Al Breach, head of research at UBS. "In state-run companies, the managers are usually not significant shareholders. They have the incentive to have a steady life, make some money, perhaps even steal some money. But it's not particularly obvious that they want to make things run better."

Merrill Lynch drove this point home on Friday, the day of Gazprom's annual shareholders' meeting, when it released a bullish report about the gas giant with one big caveat: a lack of independence is putting the company's value at risk.


Source: AGM Choice Limited to Cash or Questions



In the mean time what do markets say? Surgutneftegaz is down -29% year to date, while Gazprom is down -6.85%, and Lukoil is down -12% YTD. That compares to crude which is up +42% YTD, and a one year return on ExxonMobil of +39%, or ConocoPhilips +22% YTD. Clearly the market is voting with its feet. Will investors return? Sure, they always do, but that may only to buy cheap assets. Or if they want to gamble with their mad money that they are prepared to lose, eh Drew?
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Re: Trader's Corner 2007

Unread postby MrBill » Tue 03 Jul 2007, 03:54:35

In general WTI has been closing the gap with Brent for August delivery. It was at its narrowest since 3-mos yesterday before widening again slightly. This reflects geo-political tensions keeping world prices high (Brent), while excess supply at Cushing, OK, may be drawing down (WTI).

Of course, stockpiles of crude in the USA at at 9-year highs, so a lack of raw crude is not as big a problem as reduced refining capacity for this time of year that threatens supplies of summer gasoline and puts refiners on their backfoot with regards to ramping up heating oil runs later in the year. This dynamic is not likely to resolve itself anytime soon, so the whole complex is utterly at risk from a single, well-placed hurricane this summer or autumn.

$this->bbcode_second_pass_quote('', 'W')orld oil demand peaks in the fourth quarter when refiners
make heating fuel for the northern hemisphere winter. Demand
then will rise to 88 million barrels a day, from an estimated
84.6 million in the second quarter, the International Energy
Agency said June 12.

Source: Bloomberg, July 3

The technicals look bullish. WTI seems to be in an upward sloping channel. We are looking slightly over-bought and vulnerable to a correction after tomorrow's DOE inventory numbers if they show a marked improvement in supply. However, with crack margins still a healthy $20 per barrel there is little pressure to push crude prices lower, so long as demand for gasoline and diesel is so strong.

$this->bbcode_second_pass_quote('', ' ') About 41.1 million people will travel this week, 84 percent
of them by car, the American Automobile Association estimates.
Vacationers are shortening trips and paring other expenses
rather than getting out from behind the wheel, AAA says.


The July 4th long weekend will no doubt have motorists fuming at high pump prices, but not enough to stay home. Instead look for demand destruction to come from other quarters in the economy like say clothing retailers, which is a truly discretionary spending item for most.

$this->bbcode_second_pass_quote('', 'U').S. gasoline inventories probably gained for the eighth week in the past nine as refineries increased operating rates, a Bloomberg News survey indicated.

Gasoline stockpiles increased 500,000 barrels in the week ended June 29 from 202.6 million barrels the prior week, according to the median of responses by nine analysts before an Energy Department report on July 5. Seven of the analysts expected a gain and two said there was no change.

Refineries operated at 90.3 percent of capacity, up 0.9 percentage point from the week before, according to the survey. An increase in refinery operation is important to deal with high stocks of crude oil, said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

``We need to get levels back up to more normal for this time
of year, which is 93-94 percent of capacity,'' he said. Ritterbusch forecast an increase of 2 percentage points in refining capacity, the highest of the analysts.

U.S. refiners usually increase operating rates at this time of year to meet gasoline demand, which peaks during the summer
months.

Crude-oil supplies probably were unchanged from 350.9 million the prior week, according to the survey. Three of the analysts expected supplies to rise, four said there was a decline and two said they would be unchanged.

Inventories of distillate fuel, a category that includes heating oil and diesel, rose 500,000 barrels from 120.4 million last week, according to the survey. Six of the analysts said that stockpiles increased, two said there was a decline and one said they were unchanged.

The Energy Department is scheduled to release its weekly report on petroleum inventories Thursday, July 5 at 10:30 a.m. in Washington. The report will come out a day late because of the July 4 Independence day holiday in the U.S.


Source: July 2 (Bloomberg)

Energy stocks rebounded as well. The S&P Energy Index (GSPE) had topped out making a new high at 546.50 before dipping back to 513.35 near its double bottom at 510. However, since then it has come screaming back to 537 on the back of higher crude prices and forecasts that the price of crude would remain high as well as those healthy refining margins mentioned earlier.

$this->bbcode_second_pass_quote('', '
')
Energy stocks kicked off the new quarter Monday with a set of solid gains, helped by a late bounce in crude-oil prices to $71 a barrel after securing an early advance on a big asset sale and a positive broker assessment of the industry's outlook.

The sector got off to a strong start on a pre-market UBS note that raised target prices on several big oil companies, citing a more bullish price forecast for the rest of the year as the catalyst. The broker now sees North Sea benchmark Brent crude averaging $67 a barrel for 2007, up from an earlier forecast of $60.



Source: [url=http://www.marketwatch.com/News/Story/Story.aspx?guid={B09D5816-A597-4393-9BEF-F28AA177FD3A}&siteid=nbi]Oil stocks open third quarter with solid gains[/url]

This confirms my technical view from the end of Q2'07 that there would be a sell-off, but raises doubts going forward. I personally think we are in the infamous broadening out formation that typically occurs near the top of the market and precludes its steep correction. However, my technical view appears to be at odds with reality where high crude prices, strong demand and healthy refining margins are supporting oil company prices.

Having missed the opportunity to add to my long energy company positions, I am not going to chase it now. At least not in the western oil companies, although some Russian oil stocks are starting to look cheap by comparison. Lukoil which is down 12% YTD looks like a good buy in the low $70s with a P/E ratio of just 9. Yes, there is plenty of Russian risk at the moment, but this one seems to be trending, so I am more likely to buy into a dip on it having sold part of my long in the $80s.

GS is recommending an outright long in the WTI, if correct, that should float all boats and Russian oil cos. should be back in fashion as their western counterparts start to look too expensive. That is a big IF, but no risk, no fun. Rather play the oil shares rather than the futures market up at these levels, but nothing is cheap anymore. Some OTM WTI puts might be a good hedge.

$this->bbcode_second_pass_quote('', ' ')New Trade Recommendation

We are now recommending a long WTI Calendar 2008 $85/bbl call trade. This strike is currently 25% out of the money. Given the considerable risk that long-dated WTI prices will move higher, creating a near-term surplus and depressing WTI timespreads, we are now recommending an outright long position in WTI rather than a timespread trade.

Source: Goldman Sachs Commodities Research
June 29, 2007
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Re: Trader's Corner 2007

Unread postby drew » Tue 03 Jul 2007, 20:16:53

Thanks for keeping me grounded guys!

What's the ticker symbols for some of those corrupt Russian oil cos, Mr Bill?

I'm all in ;-) ....

Hell, I bet waterhouse offers nothing except the tsx and nyse...at least for proles like myself.

BCE is sold it seems. Now what? Should I buy more for a few dollars gain? Seriously, only if I believed others will try to beat Teachers. Apparently the bidding is onerous. As for the 200 shares I own, 1st quarter of 08 is a long time off for the paltry gains I have made so far. 4 percent is good for 12 weeks work but not so good for half to 3/4 of a year is it??

It has been weird for me this year, still making money but not like before. lt is certainly a learning curve and I havn't even had a beating laid on me yet have I?

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Re: Trader's Corner 2007

Unread postby MrBill » Wed 04 Jul 2007, 05:40:29

Busy here today, but the update on the USD is not pretty at all. EUR/USD having dipped is now right back up threatening the highs. As the chance of the Fed easing in 2007 resides due to higher inflationary pressures this is not likely due to a view on interest rate differentials between the two currency zones. One year LIBOR is rather flat at 5.39% versus 5.36% for 3-months, and still at a yield premium to EURIBOR at 4.54%.

Rather I suspect it is continued EUR/JPY strength where the USD gets hit on the back of EUR/USD buying and JPY/USD selling. EUR/JPY is near recent record highs of 167.20. This is yen weakness on the back of the carry trade. The USD will strengthen only when this trade unwinds (and it cannot go on forever).

In the meantime, it is lending support to gold, crude and other USD denominated commodities that become cheaper as expressed in EUR or CNY for example.


A little light shed on European refining margins versus the USA.
$this->bbcode_second_pass_quote('', ' ') European margins down on weaker Med complex

European refining margins were down 12% this week, as a result of weaker margins in the Mediterranean (down 32% in the weak). Interestingly NW European refining margins were relatively stable, ending the week down just 3%. The weakness in Med margins was wholly attributable to the recent surge in Russian crude prices in the region (our Med margin is calculated using Urals delivered in Augusta Italy), causing Russian Crudes to trade at a premium to higher quality crudes. However, in reality, we believe Med refiners are unlikely to have experienced such a pronounced contraction in their realised margins, given they are more likely to switch in to using other crudes (such as Azeri & North African Crudes, which offer better economics). Elsewhere, US refining margins fell 9% as West Coast gasoline cracks continued to retract sharply on improved refinery utilisation rates. Conversely, Asian margins remained flat, as strong demand (particularly from China) provided regional margin support.

Simple margins worst hit as fuel oil begins to tumble

In recent weeks, European fuel oil margins have dropped sharply, falling C.US$10/bbl (70%) since their May peaks. In our view, this has been driven by two key factors. Firstly, fuel oil availability in the region has improved as simple refiners increased utilisation rates to benefit from margin strength in May. Secondly, demand from power producers remained weak on unseasonably high water levels (i.e. improved availability of hydro electricity). In our view, this trend will have had the most adverse impact on Hellenic Petroleum, whose fuel oil biased product slate inherently, increases its exposure to simple margins. Conversely, complex refiners with a diesel biased product slate (most notably MOL) have enjoyed stronger margins as distillate prices approached 10mth highs.

European refiners up 1.5% absolute and 1.2% relative

With refining margins remaining robust, the European independents posted a healthy performance. All in the Euro refiners were up 1.5% in absolute terms and 1.2% versus the European markets (as measured by the MSCI Europe -week ending June 29th). YTD the European refiners are up 25% absolute and 15% versus the European markets. Regionally, Europe was the best performing region, followed by the Asian complex (down 0.8%). The US market was the worst performing (down 2.9%) as concerns over improving refinery utilisation mounted. At the stock level, MOL (BUY C-1-7) was again the best performer (up 6.5%) following the announcement by OMV that it had increased its stake in the company by 8.6% (to 18.6%). Conversely, CEPSA (Sell C-3-7) was the worst performer (down 0.4%), as the shares suffered from a bout of profit-taking following a strong performance in recent weeks.


Source: ML. July 3rd


UPDATE:
And something more bullish coming from the long-end of the crude futures foward curve
$this->bbcode_second_pass_quote('', 'T')he FT Lex column picks up on the oil futures curve, as well as rising, has flattend from a steep contango to a much shallower curve. This is a very bullish signal. Long-dated crude oil prices, for delivery in December 2012 hit record levels again this week:

1) oil producers are experiencing growing cost pressures and very low price realizations relative to WTI or Brent;

2) Demand from passive investors for long-dated oil price exposure is increasing due to the negative roll yields on index investments;

3) Prompt crude oil prices have continued to drive long-dated prices higher.

The economic cost of production of marginal crude oil barrels such as Canadian o il sands or ultra deep water oil has been increasing very rapidly, producers req uire WTI prices above $60/bbl to generate double digit returns in many instances. In addition, semi-submersible rig prices have escalated out of control, lift ng up deep water exploration and development costs substantially.


Source: ML, July 4th, 2007
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