We are on the clock right now and it could very well be an eleven o'clock deal that keeps U.S. from having a government shutdown. We think that the way this has played out to this point, along with the political posturing that has taken place, that a shutdown is all but guaranteed. We do not like the idea, but feel that is where this is headed.
Commodities should see some weakness in areas like energy and metals like copper should this happen, but gold should be a good performer. It will also be important to watch the U.S. dollar Index, as we have been discussing since last week.
Chart of the Day:
If the government shuts down and the debt ceiling is not tended to, look for weakness in the U.S. dollar and for the U.S. dollar Index to breach the 80 level. It is dangerously close already, but tomorrow we could see a break.
Commodity prices this morning are as follows:
- Gold: $1330.90/ounce, down by $8.30/ounce
- Silver: $21.86/ounce, up by $0.029/ounce
- Oil: $101.77/barrel, down by $1.10/barrel
- RBOB Gas: $2.6398/gallon, down by $0.0364/gallon
- Natural Gas: $3.528/MMbtu, down by $0.061/MMbtu
- Copper: $3.3325/pound, up by $0.003/pound
- Platinum: $1413.50/ounce, down by $5.70/ounce
Oil & Natural Gas
We can honestly say that we did not see the news from Royal Dutch Shell (RDS.A) coming. This morning the company announced that they were going to put their 106,000 acres in the Eagle Ford Shale up for sale as they looked to exit the area after bringing 150 wells online. This is on top of the company's announcement that they were looking to sell 600,000 acres in the Mississippi Lime formation, so the writedowns must really have turned the company off of North American shale plays for now. What we do know is that the market for joint venture projects and undeveloped acreage is beginning to swell, but luckily this acreage is not in the best plays (excluding this latest 106,000 addition to the sale bloc in Texas).
We doubt it, but might Rosetta be a potential buyer of Shell's assets, possibly in pieces? Management has made some bold moves before and doubling down in the Eagle Ford might make some sense.
Source: Yahoo Finance
It does create both opportunity and risk for names like Magnum Hunter Resources (MHR) and Rosetta Resources (ROSE) who could see values in their portfolios decline if Shell were looking to offload the acreage quickly. With that said, we have seen Rosetta's management team, a management team we like a lot and have tremendous faith in, expand the company's balance sheet in order to gobble up acreage in up-and-coming plays so adding to their Eagle Ford holdings would not seem out of the question to us. Our guess is that one of the big names buys the acreage as quite a few of them have stated their interest in adding exposure in the Eagle Ford. Look for the Eagle Ford acreage to sell relatively quickly, we would guess before the Mississippi Lime acreage Shell has for sale right now.
We refrain from being short stocks, but if one is short the solar sector, please get out from in front of that freight train because the momentum here is not going to allow that showdown to end well for you.
Source: Yahoo Finance
We are seeing strength still in the solar names with both Yingli Green Energy Holding Company (YGE) and Trina Solar (TSL) both move higher on the back of Deutsche Bank's upgrades and forecast for the Chinese solar market. As much as we dislike solar, this is something we have all seen before and if the Chinese are serious about building out their power grid and diversifying their production mix then of course they are going to utilize solar power. The kicker here is how much they are going to subsidize the solar panel manufacturers in order to prop up the job market and get the economy cranked up, something they are trying to do right now. Our money is not going to go into this sector, but we do see 20% upside after we get through this debt ceiling and government shutdown issue here in the US. China has the ability to move the needle in the solar market with their economic reforms and initiatives and that is not something we want to get in the way of. We would rather be long uranium to benefit from their nuclear buildout, and that is where we will put our money to work, but there will be no cute long-short trades here with solar.