Wednesday, August 6, 2008

Oil and commodity prices

Oil is going down, and so are commodity prices. But they aren't going too go down as fast as the stocks have been crushed!

You have to understand what the bear's agenda was. Get a bunch of the largest hedge funds together, and do the same thing. Short the financials, and go long oil, causing stress in the system.

By bidding up oil, you cause economic harm to the consumer. Oil's move was from the speculators. It wasn't a new found demand. A good scam, always suckers in a believable billionaire. Higher prices seems to do that. This time it was T. Boone Pickens and the "85 million barrels produced, and the 87 million barrels oil needed" mantra.

Then you had the corporations, who believed that Goldman Sachs actually had an edge on oil, and that it was going to $200. Goldman's edge, in fact was the corporation that they conned into believing that they knew what they were talking about. Who else would they sell their swaps too? It wasn't the oil companies. They had already hedged at lower prices!

Now you raid the financials, with excessive shorting of stocks. The short positions in these numbers are so huge, that some of these financials, will actually revisit their old highs, even though their earnings will be only be a bit more than half of what they were when they were hitting the new high list.

But let's get back to making some money for tomorrow. The puking up of some of the "commodity" stocks, hit a short term bottom today between 2:45-3:15. That was it.

Market players won't short these numbers, because they are worried for a myriad of reasons. The Fed leaves rates unchanged and we rally? The casino stocks rally? Retail rallies? Heck even Sears was up 9 points today. Think like a desperate short. What if the ECB pulls a fast one?

And the same hedge funds, that tried to break the system, also know that they were "rigging" it. Is it any coincidence that whenever they trot out some spokeperson shilling the story to shake the masses that stocks get bought? The spokespeople aren't clueless. They believe what they are preaching.

See the irony of the story is, that the bears are right in a "theoretical" way. If we marked every asset to the level that Wall Street says they are worth, we have problems. But houses that sell for half of what they cost, is not a permanent situation. These banks are like junkies visiting the pawn shop when they dump their real estate. Look at John Thain of Merrill Lynch. He thinks he got a good price on his CDO's. He even had a self righteous smug on his face on CNBC! But the stock is now 28 and change, up from the 22.50 of the capital raise. The sale must be good!

John Thain, will be heralded as the man who "saved" Merrill Lynch. Lose $47 billion, and the cross you bear is a CNBC interview with Maria Bartiroma. Only on the corner of Wall and Broad!

Now Wall Street thinks that lower oil prices means that the economy is heading into the toilet. Lower oil prices are good for the economy, and they are good for stocks. If gas was at $3.00 a gallon, you wouldn't have SUV's on any of the automobile lots and you wouldn't have Bloomberg stories on how the Big 3 could all go bankrupt. Do you think people really want to drive a Prius?

Oil prices were not a demand issue. Oil prices were a "speculation" issue. Why do you think producers are trying to hedge all the oil they can at these prices? You have puts outselling calls by a ratio of 10 to 1. Does that mean everyone just woke up and got bearish? Or does it mean real sellers, need protection because they need to hedge against a fall in price?

China's not buying because of the Olympics, and now speculators in oil are burned. The oil traders reminded me of daytraders in June of 2000, who jerked Ciena around at 140, and Brocade at 170, with their 1000 shares SOES trades proclaiming they were the market makers. The market was already on the way down, but they steadfastly remained deluded because there was a few technology funds, that kept bidding these stocks up, and the piggyback daytrader thought he was the price determinant in the market. The funds wanted them to think that way. Look what happened to prices when they were gone!

But lower oil will help the economy and some of material stocks that got crushed are now buys. US Steel (X 143.17), and Freeport-McMoran (FCX 79) are buys.

In oils, Chevron is easy to trade (CVX 82.49) along with Exxon (XOM 78.35). All these stocks hit their short term bottoms today.

Even the precious metals can be bought. I like Platinum at $1560, and Palladium at $347.

Tomorrow morning, we have AIG and FRE reporting. That will get the headlines, so you can probably make some good buys on the above numbers, while the shorts sweat out the financials!


bob said...

Please don't ever stop blogging- this is bar none one of the best blogs i have ever read.

i have learned a bushel of stuff reading your blogs.

Thought you might want to read this.

A CFTC spokeswoman declined to elaborate on the move or to identify the trader that had been reclassified as a speculator.
Big CFTC data revision raises oil traders' eyebrows
Tue Aug 5, 2008 4:29pm Market News

By Robert Campbell

NEW YORK (Reuters) - A quiet data revision that has boosted by nearly 25 percent the number of oil futures contracts U.S. regulators think are held by speculators is raising eyebrows in the energy trading community.

The revision means that speculators controlled 48 percent of the open interest in NYMEX crude oil futures and options as of July 15, compared with just over 38 percent under the previous classification.

"That's huge when you look at the numbers," said Phil Flynn of Alaron Trading in Chicago.

"It changes the whole way you look at the recent moves in this market."

The U.S. Commodities Futures Trading Commission announced on July 18 that it was reclassifying some trading positions that it had reported as commercial hedging positions as noncommercial speculative positions.

The data revision converted approximately 327,000 long and 330,000 short NYMEX crude oil futures and options positions into mostly spreading positions held by speculators.

The big shift is all the more surprising, oil traders and analysts said, since the CFTC reclassified only one unidentified oil trader at the same time as the data revision.

"There may have been multiple 'positions' which were reclassified ... but they all appear to have been held by just one trader, and this was a very special trader, with an enormous concentration of positions in crude oil amounting to perhaps 460 million barrels, and not much interest in anything else," noted John Kemp of RBS Sempra Commodities.

A CFTC spokeswoman declined to elaborate on the move or to identify the trader that had been reclassified as a speculator.

The reclassification comes amid the collapse of energy trader SemGroup LP, which filed for bankruptcy on July 22 after suffering $3.2 billion in losses on oil futures and derivatives.

SemGroup has blamed its collapse on unauthorized speculative oil trading by its co-founder and former chief executive, according to a court filing by a SemGroup lender.

The SemGroup collapse coincided with a sharp fall in oil futures from their peak over $147 a barrel in mid-July. However a person familiar with SemGroup's trading position said Monday the trader's position was not concentrated in any one month and was more focused on intermonth spread positions.

"This was no Amaranth or Motherrock," said the person familiar with SemGroup's futures trading book, referring to two energy hedge funds whose multibillion dollar failures roiled futures markets.

SemGroup began the process of transferring its NYMEX trading book to Barclays Plc (BARC.L: Quote, Profile, Research) on July 11 after drawing down a $54 million line of credit to place a deposit with the British bank, according to bankruptcy court testimony.

SemGroup completed the transfer of its trading book to Barclays on July 16.

The transfer of SemGroup's NYMEX trading position was instigated by the exchange itself, according to a source familiar with the NYMEX's activities.

SemGroup's financial difficulties were first disclosed by its publicly traded subsidiary SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research) on July 17, three days after its parent hired The Blackstone Group (BX.N: Quote, Profile, Research) to advise it on restructuring and two days after a conference call with its lenders where it told them it had run out of cash.

The Securities and Exchange Commission and the U.S. Justice Department are investigating SemGroup Energy Partners' disclosure practices.

(Additional reporting by Tom Doggett in Washington and Richard Mably in London; editing by Jim Marshall)

Palmoni said...

Gosh I missed that!

That is really good!

Thanks for the kudo's also!