Tag Archives: crude

Tuesday Market Expectations 3/15/11 - Cover all your shorts and get long

HedgeFundLIVE — I have been bearish for weeks, but I never factored in a nuclear meltdown in a major city as a possible risk I needed to consider. Now I know I am going to sound crazy, but it is time to buy. Yes, you heard me right. It is time to start buying stocks! I would also take huge advantage of the dip in oil. The Middle East crisis is not going away. Up until yesterday, there were bulls all over evening business programming proclaiming how cheap stocks were, and bears like myself were criticized for not understanding how strong the fundamentals in the U.S. were. Then an Earthquake hits and we are reminded that we are but tiny and perhaps insignificant beings on this planet, pushing around paper in a giant confidence game that has been going on for a thousand years. Trading is no longer about fundamentals or perhaps even technicals. It is a game of confidence. Who will blink first. It is a game of emotions driven by exogenous events for at least the last three years. The S&P is now unchanged on the year and I believe we have corrected appropriately. Obviously, all bets are off if Tokyo is significantly exposed to radiation. But barring that extreme, we are in the midst of real panic selling.

22 years of experience has taught me to buy this market. I don’t like to trade off of other people’s misery, but this is the job of a trader. One is to ignore emotions and focus on appropriate risk. At some point today, I will lift my entire short leg and ride a large long book. No, I am not nuts. I am a trader. And although I am not investing for the long term, I will make a few predictions. Within 2 days we will have a resolution for the single most important issue: Does Tokyo survive? The answer is yes. Middle East issues are still at the forefront, therefore, buy Oil. Cover your shorts with tight stops and protect capital. However, if you are a swinger like me, don’t be afraid to take the trade. These moments come around once a year. They will make or break you. Good Luck.


Playing Oil with the Middle East Volatility

On Friday, WTI crude closed at $101.16/barrel and Brent crude closed at $112.90. Though both grades of crude settled below recent highs, they still remain above the $100 mark, as there is no indication that volatility in the Middle East will end. With reports indicating Gaddafi’s forces in Libya are gaining against the rebels in the east and the Arab League calling for a “no-fly” zone to be implemented by the United Nations, the instability of the region will only increase in the coming weeks.

What does that mean for oil? With the chaos in Libya, there are fears that the violence could also spread to Saudi Arabia, a key oil supplier for the United States, and whose energy infrastructure may become targets for attacks. Saudi Arabia has sought to calm the markets by increasing its February output by 279,600 barrels of oil, but an attack on its energy infrastructure, like the one in 2006 on its Abqaiq oil processing complex, could ignite a market frenzy that would cause oil prices to skyrocket. Now is the time to look at oil producers to take advantage of a higher price of WTI and Brent crude.

ATP Oil & Gas (ATPG) is a resource rich company that could be a great bargain play for rising oil prices. A small cap exploration and production oil company, ATP is a niche player in the industry, typically buying offshore reserves that are proven to have oil which gives them a 98% success ratio in drilling. It is currently an underperformer struggling with $1.78B in debt because its concentration of oil wells are in the Gulf of Mexico where drilling has been stopped pending permits from the Obama administration. However, most of the debt comes from its investment in reusable assets: its innovative Titan oil platform and in the pipeline system constructed in the Gulf. Once it receives permits from the US government and can begin drilling, ATP can double production output to 42 mboe/d and have the cash flow to pay off its debt. The company has roughly $100/share in reserve value and can realize that once it taps into its “black gold.” It is only a matter of time before the Obama administration gives the company its permits to commence drilling.

Monday Market Expectations 3/14/11 - Jeremy Frommer vs Jeremy Klein, The Debate Continues


Dear Jeremy Klein:

I have waited since Monday, Feb 28th to respond to you, my old partner and dear friend.

First, I have covered all my shorts and started to build a small long book. The trade back through 1300 that I’d blogged about has occured. We had a nearly 5% correction from recent Highs on the S&P futures of 1343 to the Lows set in overnight of 1283. The next time I’ll attempt to short this market will be near the 1304 - 1308 level. I will be slowly buying speculative take out names as they have cheapened up significantly.

I will now respond to your points one at a time.

1. You recently made your perception clear that oil could soon return below 90, when you stated “crude was trading at 85 just prior to the Libyan crisis.” Well, its been 2 weeks, we are nowhere near 90, and I still believe it will be a while longer before we somehow find our way back to that level. We are far from out of the middle east oil crisis, and this could continue for the rest of the year.

2. You also believed that the revised GDP was not all that important as it was a look back of very old data, and more importantly thought the housing data is priced into market. Perhaps this is true, but the bottom line is that we have 5 years of inventory build up. So while I am long term Bullish and have been short term bearish, my bullish thesis is a slow and steady grind from here. Not the Hyper bull market we were in the last 6 months.

3. You’ve commented that the jobless claims have resumed their downward trend. However, most recently we were a little too close to 400,000 for my comfort. It is going to be an ongoing struggle for the labor environment to improve. Again this is why I look for a much slower grind up in the market than we have experienced recently.

4. Michigan sentiment came in a little lighter than expected. And while you importantly pointed out that it is near its 3 year highs, that is exactly why I think we needed a small correction, a pause, and a slower resumption of the bull market.

5. As far as the Index of out performing names, lets keep in mind that:

a. I trade names that may not be in the S&P 500; although I know you, my esteemed colleague, believe that outside of the S&P nothing else matters.

b. Often a handful of stocks are sustaining an Index due to extremely strong moves up, while the rest of the names in an index suffer.

6. In response to the market not being overbought;  I think the move below certainly shows us that we cannot expect a market to be up 4% every month, and we were in some need of a pull back, which is what came to fruition.

7. And finally, if you read the blog below, you’ve questioned my probability of an extreme event occurring in Saudi Arabia. Well, I think we know the answer to that now. Sauid Arabia has demonstrated that they will fire on protestors. And clearly the show of force on the streets of their major cities implies that the Kingdom is nervous.

Now I am no soothsayer. And I do wish I had taken your opinions more seriously last year as I would have saved hundreds of thousands of dollars. You saw the sell off in April and May of last year and warned me. I probably would have made a great deal of money. I have happily paid attention ever since. So I only felt it appropriate to give you a heads up on my bearishness, 4 - 5 percent higher than where we are today.

In addition, you do have an uncanny ability to pick the year end close of the S&P. Pay attention members. Klein is looking for an end of year 1435 close. And although I have to look over my previous blogs, I believe I was looking for 1425.

As usual my good friend, great minds think alike.

Best Regards,

Jeremy Frommer


——————————Below is my previous response to Jeremy Klein’s own response which is bolded———————————-

My old friend, partner, renowned economist, and all around great guy, Jeremy Klein, provided a counter point to my most recent blog “Stock Market Commentary 2/25/2011 – My Advice”

In all fairness and in the interest of thoughtful debate, it is only appropriate to publish it as its own blog.

Three other important points about the distinguished Jeremy Klein

  1. He is a wine connoisseur
  2. He is known at Goldman Sachs as “The one that got away”
  3. He is the winner of HFL pick the year end close on the S&P 2010

His response follows:

Hedge Fund Live - The Battle of The Jeremy's


“To my old friend Jeremy Frommer,

As you know I hold your opinion in the highest regard, you are by far one of the wisest and talented individuals I know, that said, I am not sure I agree with your view. First, crude traded at $85 just prior to Libya. It sold off there, after Egypt calmed down and may do the same when Libya reaches a resolution assuming another major oil producing nation doesn’t fall. Ironically, you argue that consumer is worse off than people think which would imply demand for oil would decrease which would also bring crude back down below $90.

A revised reading on Q4 GDP is not all too relevant as it looks back at chunks of data 5 months old. New Home Sales was disappointing, but much of that was the snap back from the CA tax credit expiring last month. More importantly, the housing sector remains depressed which most everyone agrees with and is priced into market.

Jobless Claims has resumed its downtrend and Thursday’s print was without any seasonal adjustments, so it’s clean. Most

Hedge Fund Live - Frommer Vs Klein



importantly, you ignore the University Michigan number, which now sits on 3-year highs and clearly shows that consumer sentiment is important.

I am also not sure how stocks in general have underperformed the S&P 500 when the latter is an index average.

I am not sure the market is overbought let alone leveraged overbought. The TICK information and open interest in the futures actually imply managers are very nervous and looking to hedge aggressively and quickly at the first sign of trouble. Therefore, we will continue to get sharp 1-3 day sell off such as the one on Jan 28 and this week before grinding back higher as the managers scramble to cover. The increase we have seen in open interest on these sharp down days contradicts greatly what one would expect when coming off 2 1/2 year highs such that we saw panic selling through Thursday afternoon.

Hedge Fund Live - Economist vs Entrepreneur



Finally, what percentage would you put on Saudi Arabia falling into same malaise as Egypt, Libya, and Tunisia? I am no expert on Middle East, but given monarchy is liked much more than Gadaffi, proactively trying to reform, and the U.S. will do anything in its power to aid the nation in keeping pumps flowing, I would put it at 10%. Earnings on the SPX for 2012 are $110. I think that’s a bit of stretch and will use $105. If oil prices continue to rise, I will use $85 as an estimate as energy names (12% of index and rising) will see solid increases. I will use a 14x forward multiple for the former and a 13x for the latter given additional risk premium for geopolitical uncertainty. Using my aforementioned, yet understandably arbitrary, probabilities yield a year-end level of 1435.

Been tuning in a great deal lately, as Hedge Fund Live has become the top ten go to destinations for a real time look at the markets. I really enjoy the content.

I look forward to hearing your response.

All the Best

Jeremy Klein”

Well J. Klein, you will hear from me soon as I have quite a bit to say. For now I hope our members, readers and listeners enjoy our debate




Boeing Deal with Asian Airlines

HedgeFundLive.com -

This morning, Boeing reached a deal to sell 43 aircrafts to two Chinese airlines. Air China, which is the country’s flag carrier agreed to buy five Boeing 747-8 aircrafts which can carry up to 460 passengers. With another soon to be signed deal, Hong Kong Airlines is planning to purchase 38 Boeing aircrafts including 30 of the new Dreamliners and 6 freighters. All together, the aircrafts are worth about $60 billion. To me this shows how much China is growing and growing - and it doesn’t look they are going to stop. I was talking to my friends the other day about this, there were rumors they were going to put those bullet trains like the ones in Japan from NY to Boston. I questioned, if Japan has the high speed trains in many areas for their workers and civilians… why doesn’t the US? We are supposed to be the most powerful country in the world.. so why do other countries have more revolutionized technology, especially transportation and not us… At least Boeing corporate headquarters is located in Chicago.

Upgrade from Subways, it is about time

On top of those orders previously stated, HNA Group which owns Hong Kong Airlines also announced orders for several business jets from Dassault Aviation and Gulfstream Aerospace. These announcements from the Asian carriers show how much of an important region Asia-Pacific is for manufacturers like Boeing and Airbus. Over the next 20 years, it is estimated 8,560 new aircrafts will be delivered to the Asia-Pacific region at a value of about $1.2 trillion. With this added statistic it is clear this region will overtake North America and Europe as the largest air transport market.

“We are clearly at the begining of an aviation upcycle,” a reporter from NYTimes claims. With the sharp increase in Crude prices the share prices of airlines have also risen. (Even though oil is trading off its high overnight- $104 is very high)Fuel prices represent a large part of operating costs so with any increase in crude it will cost more money to fly from NY to LA or any area rather than a month ago. I heard this morning on the news, crude prices aren’t actually rallying because of the oil companies; it is going up because more and more hedgefunds and investment companies are buying shares causing demand to go up. These gas prices are killing lots of drivers who daily commute to work and around for their family so these bullet trains would reeeally be a help right now…


Egypt Concerns Tempered, But Still on Investors’ Minds

Morning Notes

- Seeing bit of pressure in global markets this morning
- Nikkei finally getting a small pull back, closed down 30bps
- Note that in observance of the Lunar New Year both the Hang Seng and Shanghai are closed (Shanghai was closed beginning yesterday for the holiday)
- Eurozone Services PMI came in net better than expected
- UK Services PMI among those that came in better than expectations; note that their December PMI number somewhat surprising had shown contraction, which now in context with today’s solid number suggests that the December number might have just been a bad weather related blip
- Nonetheless, European bourses are generally lower- they have bounced off their morning lows though
- ECB left rates unch’d, as expected
- ECB Pres. Jean Claude Trichet held a press conf. at 8:30a
- Among other thing, Trichet said loan growth is still sluggish
- Trichet also mentioned that money mkts are showing signs of better functioning
- More key takeaways from Trichet’s speech: upward inflationary pressure due to energy and commodities, but prices should remain contained/in line w/ price stability in the medium to long term
- Crude is trading higher again this morning
- How crude is affected by Egypt situation: Egyptian PM tried meeting w/ opposition groups today, but some groups refused to engage in talks with him => speedy resolution doesn’t seem like it’s going to happen, which is raising concerns that there might be a larger disruption in the Suez Canal, i.e., oil supply would be impacted
- Separately, Egypt was downgraded by Fitch w/ a Negative rating watch
- Dollar is also up, adding pressure to futures
- S&P futures are down a handle from FV
- Initial Jobless Claims: 415K vs. 425K; prior revised up to 457K from 454K
- Continuing Claims fall to 3.925M from 4.009M
- Q4 Unit Labor Costs: -0.6% vs. +0.1%; prior was -0.1%
- Q4 Productivity: +2.6% vs. +2.2%; prior was +2.3%
- Other items on the calendar for today: ISM at 10a; December Factory Orders at 10a; Bernanke’s Speech at 1p

Japan Downgraded a Notch- Not Too Detrimental to Markets

Morning Notes

- Mixed action in the overnight session
- S&P downgraded Japan after their markets closed- initial pull back off that news, but has since recovered
- Weaker yen helped push Nikkei close green on the day, up 70bps
- Shanghai Comp had a nice day, up 1.5%
- European mkts mixed with no real catalyst to push stocks in either direction
- Gold is sporting small gains while crude is down
- S&P futures flat in the pre, on the S3 buy pivot signal
- Initial Jobless Claims: 454K vs. 410K; prior revised down to 403K from 404K
- Continuing Claims: 3.991M from 3.897M
- Latest jobless claims data pushed down futures
- Durable Orders: -2.5% vs. +1.5%
- Durable Orders Ex Trans: +0.5% vs. +0.6%
- Durable Orders number is somewhat disappointing as well, seeing that analysts were expecting an increase, not a drop
- Pending Home Sales at 10a
- 7 yr note auction out at 1p
- Note: NYMEX/COMEX will open at 10a due to snow in the NE region

No Catalysts Will Probably Make for a Quiet Monday Session

Morning Notes

- Not much out over the weekend
- Nikkei closed up 70 bps while Shanghai Comp closed down 70 bps
- European PMI came in slightly less than expected, which added some pressure to the European bourses
- Commodities mixed- crude down, gold up
- S&P futures are flat in the pre market
- Nothing on the economic calendar for today
- The Fed will be main focus this week as they begin a two day meeting tomorrow with a policy statement out on Wednesday]
- Expecting quiet Monday trading today as there are no potential catalysts scheduled

Month of December Off to a Solid Start in the Pre Market

Morning Notes
- Overseas markets are all up with strength being attributed to China’s better than expected PMI data (although note that the Shanghai did not really rally with this news; probably weighed down by ongoing monetary policy tightening concerns)
- Eurozone PMI came in slightly worse than expected; UK PMI came in strong (highest level in 16 years)
- Australia’s GDP came in weaker than expected; noteworthy economic item because the Australian economy was one of the few that remained resilient during the global recession
- Recovery in the euro this morning while the dollar and treasuries take a breather and are down
- ECB Pres. Trichet made comments stating he did not believe financial stability in Europe is questionable, suggesting bond purchases may be increased
- Sov debt yields have pulled back
- Gold and crude bid up as well
- A decent number of data releases today, starting with ADP Employment Change @ 8:15a ET; Nonfarm Productivity @ 8:30a; ISM and Construction Spending @ 10a; Beige Book @ 2p
- November ADP Employment Change: 93K vs. 70K; prior revised up to 82K from 43K
- This ADP number is the best level it has been at since June 2007
- Am reading this ADP number in context of Challenger Job Cuts, which came out this morning down 3.3% y/y, making it the worst level since May 2009; employers plan to cut 48K jobs, the most in eight months, primarily in gov’t positions
- Q3 Nonfarm Productivity: 2.3% vs. 2.3%
- S&P futures are currently up 15.75 handles from FV, improving with the data releases so far

Ireland Bailout News Provides Only Short Lived Relief

Morning Notes
- Ireland bailout was main catalyst in the o/n
- Bailout pkg estimated to be 95B EUR
- Now concerns are gathering around Portugal debt
- In Hong Kong, an increase of stamp duty on property added pressure to their market
- PBOC’s increase in bank reserve ratio was announced Friday after Asian mkts were closed so today’s action reflects that announcement
- Hence, Hang Seng and Shanghai Comp closed down small
- Nikkei, however, closed higher on yen weakness
- Futures have dropped significantly off its overnight highs as concerns are now directed at Portugal and Spain
- Euro also backed off its highs after spiking off Ireland news
- October Chicago Fed Manufacturing: -0.28; prior was -0.52
- S&P futures down about 6 handles from FV now trading right above the S4 pivot level
- Gold up a smidge; crude flat
- No other economic news on the calendar for today

Inflation Fears are the Name of the Game

Morning Notes

-       Overseas mkts are all down this morning

-       Shanghai Comp fell the most, down -3.98%

-       JPY weak, adding more pressure to Nikkei

-       S.Korea increase interest rates (largely unexpected), stirring more fears of inflation resulting in further rate hikes (namely by the PBOC, as was speculated—and feared—last week going into the weekend)

-       Eurozone and UK CPI both came in worse than expected- further inflation fears here

-       German ZEW sentiment data came in better than expected

-       Debt concerns still lingering in Europe

-       Gold and crude both down

-       Dollar nicely bid, TLT as well

-       This morning on CNBC, NY Fed Pres. Dudley came out defending QE2, saying it is not geared at weakening the dollar

-       Decent amount of economic data coming out today starting with PPI @ 8:30a EST, Industrial Production and Capacity Utilization @ 9:15a, finally NAHB Housing Mkt Idx @ 10a

-       S&P futures down about 5.5 handles from FV ahead of data releases

-       October PPI m/m: +0.4% vs. 0.8%; prior +0.4%

-       October PPI Ex Food & Energy m/m: -0.6% vs. +0.1%; prior +0.1%

-       Futures not really reacting to PPI numbers

-       S&P futures down about 4.25 handles from FV, trading between the S4 and S3 pivot levels