[MrBill]

The biggest bubble in history? Imagine 34.5-acres in the middle of the desert, almost worthless in 1931, or 1946 for that matter, now trading for $1.2 billion. That is a $19.672.131 increase in price every year for 61-years or $570.207 per acre every year since 1946. Who needs to gamble in Vegas? Real-estate was a sure bet!

$this->bbcode_second_pass_quote('', ' ')Mobster Benjamin ``Bugsy'' Siegel, a member of the Meyer Lansky crime organization, popularized Las Vegas in 1946 when he opened a hotel named The Flamingo, the nickname of his girlfriend, dancer Virginia Hill.

Elad Group, the owner of New York's Plaza Hotel, paid $1.2 billion in May for a 34.5-acre site where it plans to build a $5 billion hotel and gaming complex.

Property values in Las Vegas rose 44 percent in the third quarter of 2004, driven by speculators and the lowest borrowing costs in four decades. It was the biggest U.S. gain recorded by Ofheo in 22 years.

As homebuyers descended on the desert city, it changed the way Americans look at real estate, said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. After Las Vegas, the investment boom spread across the country from Florida to Arizona and California, Swonk said.

``The city that gave us gambling gave us house gamblers,'' Swonk said. ``Buying a home became like buying a stock on margin, with no money down.''

Almost half of Las Vegas home sales in 2005 and 2006 were to people who intended to resell quickly for a profit, according to data compiled by Fannie Mae, the world's largest mortgage buyer. Nationally, investment purchases accounted for 28 percent of sales in 2005, the peak of the housing boom, according to the National Association of Realtors.

Sin City, as Vegas is called, had 24,341 single-family houses on the market in August, up 19 percent from a year earlier, and 6,221 condominiums, a gain of 23 percent, according to the Greater Las Vegas Association of Realtors. Both were records.

The median price of a condominium dropped 8 percent from a year earlier to $190,000 and the single-family median fell 3.9 percent to $299,900, the Realtors said. Nationally, the single- family median was unchanged in August from a year ago and the condominium median rose 2.1 percent, according to data reported yesterday by the National Association of Realtors.

[Mechler]

Mr. Bill,

Since RIG and GSF were brought up - what are your thoughts on the oil services sector at the moment. SLB has been my big winner, but now looks expensive (well, it has looked expensive for a while).

Regardless, I'm more interested on long term views of these companies. I know we've discussed it before, but is this sector poised to gain the most if the PO scenario plays out? Especially versus oil companies that are struggling to maintain reserves?

Basically, I'm looking for an investment versus a trade. Any insight?

Thanks as always,

Mech

[Offshore]

I know I'm not Bill and I eagerly await his responses but I have to chime in on this since it's my favorite subject.

$this->bbcode_second_pass_quote('Mechler', 'w')hat are your thoughts on the oil services sector at the moment. ...

I know we've discussed it before, but is this sector poised to gain the most if the PO scenario plays out? Especially versus oil companies that are struggling to maintain reserves?

[Mechler]

Thanks for the response, Offshore. All input is welcome!

I read Leeb's book that you mentioned. I wish I had read his first, which, from what I've heard, said many of the same things but much earlier in this energy bull run.

My question about HAL is why they have lagged so much? A lot of negative press? They've certainly had their share. Also, pardon my rookie question, but if RIG and GSF are merging (it wasn't a buyout?) will one stock/company cease to exist and one will remain? Or will the combined company have some new name (TransGlobalMegaCorp )?

Another question for all - is there a huge market meltdown looming? Should we be taking profits and waiting on the sidelines? Even for a long term investment, I would like to avoid buying at the relative top.

[gswarriors4life]

Hi Mr.Bill,

Sorry, don't mean to get in the middle of the current oil services conversation but for the new merged RIG entity, would the share price calculation somehow be affected by the dividend payout?:


GSF post merger (undiluted)
market cap = $49.31 billion (at market prices)
shares = (290.20 x 0.7) + (225.32 x 0.5) = 315.80 million
share price = $156.14

Thanks.

[gswarriors4life]

Hey Mechler,

To answer your question about HAL and why its lagged VS SLB or RIG or GSF,
i think is mainly because Its earnings haven't grown as quickly.

Regarding RIG and GSF, yes, they will become 1 company and will become one mega corporation trading under the symbol RIG.

[MrBill]

Thanks for the comments. Very much appreciated. As for RIG/GFE dividends after the merger they will be just one dividend from RIG. GFE will cease to be.

$this->bbcode_second_pass_quote('', 'I')n the cyclical stock basket, Haase likes Transocean Inc.
(RIG 113.81, +2.29, +2.1%) , a company with a fleet of deep-water offshore oil rigs utilized by oil companies. Shares of the stock recently made up about 3.5% of the portfolio's total holdings.
"Demand is extremely strong to get these rigs," Haase said. "There's no way to get oil in this water depth other than these rigs."

Interest from oil companies to drill in these waters will remain high as long as oil prices stay firm, he says. And until more of the rigs are available for use, the stock will continue to be a good opportunity, he adds.

"What kills a cyclical industry is new capacity," Haase said. "Five years from now, a lot of capacity is coming in. At that point, when that happens, it's 'game over.' Wait for the next cycle."

[PersecutedGadfly]

$this->bbcode_second_pass_quote('Mechler', 'M')y question about HAL is why they have lagged so much?

[Mechler]

True, true - not a bad return. But the returns of SLB and RIG were 73% and 58%, respectively, in the same 52 week period.

But, hey, I wouldn't be upset with 35%.

For the long term, would be better to go with a SLB or HAL, or spread the risk with an OIH?

Thanks!

[MrBill]

[align=center] And now for something completely different. [/align]

I stumbled across this Economist’s Forum in the FT.com while looking at some other globalization stuff. It is a very interesting exchange of views on this topic and raises some interesting questions. Well worth a read.

Globalization - FT.com

I liked the ideas from Robert Wade and Willem Buiter better than Martin Wolf’s, and now 9-months later than these original comments were made I think that Wade’s and Buiter’s have stood the test of time and are more inline with the credit crunch that we have seen in the intervening time.

Far from robust and stabilizing, high levels of US dollar denominated debt from ultra-low interest rates kept alive by excessive money supply creation, Wade’s so-called, ‘money as debt, where money supply creation mainly limited by demand for credit,’ can be seen as causing two problems - albeit related. One is that asset prices are over-valued by cheap credit. And secondly, by removing cheap credit - either by central bank rate increases to counter inflationary pressures, or by banks and investors re-pricing credit risks - causes a funding problem for those borrowers who bought those over-priced assets.

If we saw the same high growth world market in real products and services without global imbalances then I would agree that it is sustainable from an economic, but not a natural resource depletion perspective. However, as we have seen high headline world growth only in conjunction with an excess of savings from exporters to consuming nations that are also importing capital it is clearly a case of paying consumers to keep consuming through the use of cheap credit.

The so-called ‘Japan moment’ comes as tapped out consumers can no longer afford to keep buying even if interest rates are next to zero and/or as exporters get tired of low or negative real returns on their capital and US dollar devaluation. However, this is not only a US problem as high debts and deficits in such countries as Spain, Italy and France may be masked by high German growth and a currency union, but are none the less just as real. They just have different time horizons. In the name of stability, other eurozone members may be prepared to ignore imbalances, but as they accumulate sooner or later they can no longer be ignored if they threaten that very stability.

No matter how wealthy a country is it can still accumulate unsustainable deficits if it consumes more goods, services and credit than it can produce or service. It is not a production problem, but a consumption one.

Willem Buiter’s comment about ‘a pefect lull’ of low long-term interest rates, low credit spreads and high real growth was spot on. In January, 2007, but in the intervening months we have seen at least one of those threads become unwound. That of low credit spreads. And in the absence of almost immediate central bank easing and injections of liquidity to rescue borrowers, lenders and markets in general, the re-pricing of credit risk would have been more brutal. Again if high real growth was sustainable on its own such interventions would have not been necessary or even desirable.

The weakest argument of Martin Wolf’s is that such imbalances do not have to result in higher inflation ‘provided countries are prepared to accept nominal exchange rate appreciations instead.’ This is exactly what Asian exporters and many OPEC and non-OPEC oil producers are not apparently willing to accept. So the bulk of the re-balancing has been from the US dollar to the euro zone not from those exporters of both goods AND capital.

That exports have shifted from US shores to European ones is hardly re-assuring in the long-run if cheaper imitations undermine Italian and French production of textiles, fashion and luxury goods threatening jobs, exacerbating budget deficits and reducing those affected states’ ability to service those debts within in the context of their Maastricht Treaty obligations. While instead of addressing reform of their own capital markets and domestic economies to stimulate home grown demand those exporters are instead looking for higher value assets abroad rather than low yielding government debt. That can only trigger the protectionist policies that Mr. Wolf and other contributors fear the most.

[drew]

Ha, maybe you've been outed Mr.Bill....

I would have asked him first privately Rostov.

As you know there are way too many unstable people on this site!

Drew

[MrBill]

Hello Rostov/Drew. Sent you PMs. Thanks for your understanding.

Just some housekeeping here today. Quite busy as will leave again tomorrow, back next week. Here is the latest on the gas markets from Goldie Sachs.

$this->bbcode_second_pass_quote('', '
')Natural Gas Watch

Strength in oil prices to lend support to natural gas prices in 2008

Despite expectations of relatively ample natural gas supply this winter assuming average weather, we believe that expected strength in the oil complex will lend support to natural gas prices from current levels.

The US natural gas balance has tightened in recent months

Over the past two months, hot weather and a sharp decline in US LNG imports from record-high levels due to an exceptionally strong Asian pull on Atlantic Basin LNG supplies have tightened the US natural gas balance, reversing the surplus environment that had characterized the market through most of the summer.

We expect inventories to end the winter at comfortable levels

We expect that US LNG imports will remain below the high levels observed earlier this year in the coming months and on average in 2008. Nevertheless, as US inventories are still expected to approach capacity before the winter, the combination of lower US LNG imports relative to last year, trend increases in natural gas-fired power consumption, incremental domestic production growth, and assumptions of ten-year normal weather lead us to still expect historically high levels of US natural gas inventories by the
end of the 2007/2008 winter, but moderately below the end-March highs of recent years.

We believe natural gas prices will converge closer to oil prices

Given these inventory assumptions, we expect US natural gas prices to increase relative to oil prices from current levels, but remain modestly below residual fuel oil prices. However, expectations of a strong oil price environment-with a baseline WTI crude oil and residual fuel oil forecast of $85/bbl ($14.65/mmBtu) and $67/bbl ($10.70/mmBtu) for 2008, respectively-suggest a winter natural gas price of about $9.20/mmBtu and a summer natural gas price of $8.50/mmBtu, still well above the current forward curve.

A closer look at drivers of global LNG flows

Given the growing importance of LNG flows on spot natural gas prices, we take a deeper look at the drivers behind these flows.

[MrBill]

Another update on oil markets. May as well post it now.

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

Facts about oil price seasonality and fund buying

Oil prices do not exhibit a seasonally-driven autumn pull- back, but rather volatility rises in the autumn due to maximum uncertainty before the beginning of winter; further, the recent rise in net spec length is being driven more by increased "gamma" rather than new fund buying.

Crude prices retrace after record week

After reaching new all-time highs last week, with Brent closing above $80/bbl on Thursday, crude oil prices retraced yesterday amid some likely fund liquidation on the back of concerns over an economic slowdown in the United States and Japan. While these renewed concerns highlight the risk of some additional fund liquidation, we believe that any resulting downward correction in prices will likely prove temporary as supply has failed so far to show any sign of significant rebound. As a result we continue to believe that global fundamentals will continue to tighten in the last quarter providing support for year-end prices at $85/bbl.

Crude oil prices do not exhibit a seasonal pattern

Despite some concerns of a possible seasonal summer-end price pull-back, September's rally illustrates what we believe is a widely-acknowledged but often overlooked oil market characteristic, namely that there is no statistically significant seasonality in crude oil prices. Instead, the seasonality is in the uncertainty, which is at its highest point in the months leading up to the winter. This uncertainty can generate sharp downward or upward moves and thus a wider price range.

Increased spec length coming from gamma, not new buying

Although net speculative length in the oil market has moved back up to the highs reached in July that ultimately precipitated a sharp August pull-back in prices as the length was unwound, this time the composition of the length is very different. Most of the increase in net spec length has been from options not outright future buying as it was in July. In addition, the open interest in call options is actually down, which confirms that most of the
increase in length is "gamma" generated, not due to new buying. As oil prices have increased, the number of long options positions reported by the CFTC has also increased, as these options become deeper in the money taking the delta on the option rise towards one.

[cube]

*opens door and sticks head inside*

Hello, yes I am still alive. However my desire to comment has gone south just like the Dodo bird. I guess it's like when you work at a pizza shop the last thing you want to do is eat a pizza. That's how I feel about the financial markets...I get enough excitement from trading I don't feel like talking about it.

Anyways good luck and remember:
1) cut your losses short, let your profits run
2) lose no more then 10% of your equity on a trade (10% is max but less is better!)
3) do not add to a losing position
4) don't try to pick tops and bottoms, the trend is your friend
5) those who buy the news eventually end up selling newspapers (or something like that)

There's a lot more but everybody can figure it out on their own.

later

[truecougarblue]

I was forcefully reminded of the importance of gold this morning.

I've got just over a million shares of DPBM (pink sheet). Well, this morning they announced they've started hauling up the shiny stuff. 200% bouce on this tiny tidbit.

WOOO HOOOO!

[topcat]

Way to go TCB!

I posted some of my/our PM stocks last month, and am interested in hearing from others about producers and explorers stocks that they own/like.

So, let's hear it. (Maybe a new thread?)

[truecougarblue]

I've made a good amount off CDE and HL, but I trade them only, not as investments. I just like them for their volatility to amplify the moves in the gold cycle.

I'll be in for the long haul once the market gets a good correction from the credit debacle.

[topcat]

I don't trade them, try to hold them unless I get stopped out.

Some of the pennies, I look at as 'options that don't expire.'

Have watched CDE on & off for awhile, have not pulled the trigger yet. Did hold HL for a year or so but bailed with most of my profits when things went south months ago.

With the pennies, do you watch MYNG? Yes, I have quite a few shares.

[truecougarblue]

I have been tempted but have not pullled the trigger.

[MrBill]

I am back, but still digesting all that has happened. No firm ideas, yet, but it does look like crude is headed lower from recent highs. The S&P Energy Index has topped out this past three weeks, so any weakness in the S&P 500 will likely translate into losses in oil & gas stocks. It may be a case that all the good news was already in the market and now any bad news will cause prices to go lower. Large funds have been moving to the sidelines while put call spread have widened out as investors buy downside protection. It must be October? ; - )

UPDATE: Kazakhstan looks like it is getting ready to implode based on a steep correction in real estate and over-exposed lenders. This would throw an icy bucket of water on other EM markets. They have done quite well YTD - out performing all other assets - and especially since the Fed started cutting rates in August.

THE HORSE RACE SO FAR...