…even a good Madiera! A week ago, Frontline (FRO), the largest operator of oil tankers said they were reducing speed due to cost savings…of course going slower increased the time and cost to those leasing the tankers. When do you think they resumed running at flank speed? Two days ago? You can bet they are jostling to get to port to offload the fuel…cost savings be damned and the lessees are no longer saying take your time. TB believes this is good for several reasons and that those in turn will cause energy to drop more than one might expect. By the way FRO’s stock is up 41% over the past year (71% with reinvested dividends) and despite the plunge in oil since 7/15 it is up 9.7% since…including a 4.6% gain yesterday. Dividends are 14% and indicated yield is 16.2%…but watch out if oil drops…as price ($67) could fall to $50 or less, the long term trend…TB owned it once but too volatile for him.
1. Already the fuel storage levels rose sharply and that will increase…refiners will start working harder as existing supplies are drawn down…this means lower gas prices and note how natural gas plunged even as a hurricane is knocking at Galveston’s door.
2. This will also cause withdrawals from commodities index funds and in turn canceling of commodities swaps and thus the greedy banks who wrote them will be cashing in their longs as fast as they can. This was so predictable and the pain of high prices and subsequent sharp drops would have been mitigated. Alas, like the SEC, no regulation is good regulation…and we just paid a vicious price for it.
4. This will cause a sharp drop in both PPI and CPI at exactly the same time as the neo-cons are telling the Fed to tighten to chase the inflationary ghost…don’t worry the capitalists had it well in hand all the time by not giving pay raises…oh, the new Federal minimum wage kicked in yesterday…way below what most are paying…another joke but one the neo-cons fought as if it would destroy business. See you help people by giving them a job…even if they can’t live off what you are paying them.
5. TB believes oil will overshoot past $100 and perhaps to the high $80’s before recovering…global demand…what a huge joke…or it would be if it hadn’t taken the steam out of the global economy…or what was left after it after Wall Street and the mortgage originators decimated it…but hey, the Feds bailed out FNM/FRE despite Sen. Bunning claiming it will cost taxpayers $1 trillion…if he shuts up it will likely cost them nothing! …just a guarantee…like saying “in God we Trust” on a dollar…God won’t have to pay a dime either!
A WSJ article today tells about the demise of SemGroup, a Tulsa, OK oil marketer which filed for Chapter 11 Tuesday, you have likely never heard of that was hedging oil in its pipelines to be sold. They controlled 15 billion barrels moving thru their pipelines. As a result however of the surge in oil prices they got huge margin calls on their positions and eventually reversed them resulting in a huge loss and went long (there are also indications of unauthorized trading), then when Bernanke spoke at the hearings on July 15, oil prices plunged (please do not accept the lame McCain claim that the drop was due to Bush’s action on offshore drilling), thus providing a double-whammy. Hopefully, before the dust settles enough money will flow from the commodities index funds to make the price drops stick…before they destroy every legitimate hedger in America and the world…don’t even think about the poor farmers!
Christopher Cox, front and center! Of his own volition…which is likely the only thing he has done of late except relieve bodily functions…he wrote an Op Ed in today’s journal on naked shorting and it validates TB’s concerns about his first protecting the GSE’s from the shorters…you know the ones that took down Bear and attempted Lehman…and then extended said protection to the primary dealers excluding the major regional banks like Wells, USBancorp and Wachovia, not to mention the smaller financials. What a crock…he did this to protect the Fed…by reducing borrowings at the discount window! Then he talks about how bad naked shorts and that his emergency ruling protects legitimate shorts…give…me…a…break…as brokers are protected if they had reason to believe the shortseller has the ability to borrow…either he is blind or stupid because TB has already explained how this game is played: several funds go to the same source and ask if they can borrow the share, then later they short the stock and say they were going to borrow from that source…only he has now lent it to one of the others he promised it too! Does this sound a bit like ‘the dog ate my homework’?…only the stakes here are much bigger…especially for you dear reader who are most likely long only! Very simple: lock up the shares before you are allowed to short…that is all they need to do…and all pension funds have to do is tell their custodians to not make the shares available for lending…then get out of those short hedge funds!
Once again, the SEC failed in carrying out its assigned duty to protect investors…from themselves? You know how they say a prosecutor can get a grand jury to indict a ham sandwich? The WSJ will print anything on its op ed page that supports their stand…i.e. less regulation, lower taxes, etc.
As for the markets yesterday, bonds continued to get hammered and may well be a buy unless you believe that GSE bailout bill that passed the House and is on the way to the Senate will solve the problem. Furthermore, if oil and other commodities prices continue to fall there will be significantly lower inflation…TB will make book on that, so bonds could be a buy. Stocks failed to capitalize on the gains Tuesday but gave it a short in the morning as more shorts were forced to cover…no matter what the easy money has been made (unless you were short), and major indices (energy excepted) remain in the broad ranges (see the stock summary below). By the way the ratio of new 52 week highs to new lows shrunk to -1.2 yesterday…there have been only two occurrences this year where the number has been positive and then only briefly…so keep an eye on that…as for volume…thought we were in the summer doldrums?
TB longs for the days when we had the best government money can buy. He is also frankly appalled at the way the Obama team is hustling him around Europe and the Middle East as if he already is the president…but then again…what has McCain done lately? This must be very confusing to foreigners as to who is running the government…elected officials or wannabe’s…especially as Dubya is adopting some of his proposals!
Happy trading!
TB
