ETF Update: Financial ETFs, Energy Exploration and ETFs

When the Financial Sector and ETFs Turn Around Depends on Who You Talk To

What's the deal with financials and the sector's related ETFs? Are we at the bottom yet?

That's a tough one to call, because for every bit of hopeful news, there's yet another piece of bad news. Perhaps some small consolation can be taken by the appearance that the news at least seems to be getting less bad.

To wit:

• The worst bit of news was the Lehman Brothers (LEH) writedown of $2.8 billion. CEO Richard S. Fuld Jr. pledged more transparency into the company's business and assets. But some analysts wonder if Lehman took sufficient writedowns, citing past instances in which other companies said they were done taking them, then took more anyway.

• Yesterday, Goldman Sachs (GS) announced that its second-quarter earnings fell 10%, but they beat Wall Street's low expectations thanks to higher fees from asset management and stock underwriting, reports Joe Bel Bruno for the Associated Press. But one analyst felt that the summer quarter could slow things down for the bank: Goldman Sachs benefited from a lucrative underwriting operation, assisting banks in their capital-raising efforts this spring. Those opportunities could dry up.

• Two Bear Stearns (BSC) hedge fund managers are close to being charged with securities fraud. The collapse of those funds last year helped kick off the credit crisis. The managers could be charged with securities fraud within the week. 

• American International Group (AIG) put a new CEO in place. AIG is the world's largest insurer, has has lost billions in bad bets on the mortgage market, reports Madlen Read for the Associated Press. In the first quarter, they lost $7.8 billion. The new CEO, Robert Willumstad, says they plan to conduct a thorough review of AIG's operations. The company is also facing a regulatory probe by the Securities and Exchange Commission [SEC], so its troubles could just be starting.

Among the financial ETFs that are affected:

• Financial Select Sector SPDR (XLF), down 17.8% year-to-date
• Vanguard Financials (VFH), down 15.9% year-to-date
• First Trust Financials AlphaDEX Fund (FXO), down 14.7% year-to-date
• iShares Dow Jones US Broker-Dealers (IAI), down 23.5% year-to-date

If Energy Exploration Is Stepped Up, ETFs Won't Feel It for Years

President Bush is calling for Congress to get on board with energy exploration, but related ETFs are still smarting from an explosion this week at Apache (APA).

Record oil and gas prices have been sending everyone scurrying to find some kind of solution, and Bush thinks it's in stepping up our own offshore drilling efforts, saying that it could produce up to 18 billion barrels of oil.

Don't expect immediate relief if it starts, though, because production could be years off, reports H. Josef Hebert for the Associated Press. There are also two prohibitions on offshore drilling: one by Congress and one by executive order. Bush won't lift the order, and he wants Congress to make the first move.

But if and when drilling is resumed, will the oil companies be in a position to accommodate the demand? Last month, we mentioned a shortage of skilled workers and equipment that was limiting how much production could actually take place.

On June 3, a gas explosion on Varanus Island put Western Australia's gas supplies into crisis mode, reports Chalpat Sonti for WA Today. Right now, there are 140 people on the island working to begin partial production. It's expected within the next couple months.

Yesterday, oil prices were down slightly, while gas demand fell 2%, sending prices lower for a second straight day, says John Wilen for the Associated Press.

Apache is 6.2% of the iShares Dow Jones US Oil & Gas Exploration (IEO), which was down in early trading and up 31.2% year-to-date.

Comments

[Panskeptic]

As has been pointed out by others, the ones calling for a bottom in financials didn't see the crash coming, so who cares what they think?

And if you started tomorrow on offshore oil, it wouldn't hit the market till 2030, and at present consumption rates, we'd use it up in 2 1/2 years. This theater is just to pacify the oil guys who go nuts whenever you say, "Sorry, you can't drill there. No, it's the Washington Monument, you can't put a rig there. No. You can't." And Texas oil guys go "Whaaaaaaaaaaa!!!...

Tom, you're spending too much time with Fox Noise. All that happy talk is bad for your judgment.

[paperboy]

"Offshore oil wouldn't hit the market until 2030" - 22 years?

Dude, you have to get off of the George Soros websites and talk to some real oil experts. Oil from new offshore rigs could be in your corner gas station in less than 3 years, depending on the location and the depth of the source.


On Jun 20 03:33 AM Panskeptic wrote:

> As has been pointed out by others, the ones calling for a bottom
> in financials didn't see the crash coming, so who cares what they
> think?
>
> And if you started tomorrow on offshore oil, it wouldn't hit the
> market till 2030, and at present consumption rates, we'd use it up
> in 2 1/2 years. This theater is just to pacify the oil guys who go
> nuts whenever you say, "Sorry, you can't drill there. No, it's the
> Washington Monument, you can't put a rig there. No. You can't." And
> Texas oil guys go "Whaaaaaaaaaaa!!!...
>
> Tom, you're spending too much time with Fox Noise. All that happy
> talk is bad for your judgment.