CANROYs Remain Attractive as Oil-Related Investments 93 comments
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Jim Kingsdale wrote an article on Seeking Alpha yesterday entitled "A Case For Retreating From Oil Investments." I wrote the following piece in the Comments section, but have decided to submit it as a complete article as well. I have been bullish on oil and gas for more than a year, beginning well before oil crossed $100, and I remain so today. Although I have been bullish on oil, I never called for oil to hit $150 this year, or, perish the thought, $200.
In an article I published here in early 2008, I said I expected oil to cross $100, cross $110 and test $120, but then spend most of this year between $100 and $120. That remains my prediction. In my predictions, I did miss the irrational rise to almost $150, and perhaps I will be wrong again and oil will go below $100 and stay there for a while.
But I doubt it.
As Mr. Kingsdale has correctly stated, all the bearish factors he discussed in his article could have been perceived 45 days ago. Indeed, they could have been perceived 145 days ago. So that is not the reason for Mr. Kingsdale's change of heart about the suitability of oil as an investment. Instead, his change of heart is due to his "listening to the market."
But, at most, the market today is telling us that oil was overpriced at $147. It is not telling us that oil is overpriced at $115. Yes, I know that some of the technicians in the crowd believe that oil's recent swoon indicates it's going to $60. But those technicians didn't tell us it was going to go to $147 less than two months ago, so we can all admit that technical analysis of where oil is going to be next week or next month is almost useless.
What does help is a supply-demand analysis, which the author has done, but I think he has missed some very key factors, which I discuss below. First, and perhaps of greatest importance, Mr. Kingsdale dismisses the thought that Saudi Arabia [SA] will reduce oil production because it is "committed" to producing more. I'm not sure what "committed" means, but I know that one phone call from the King could reduce Saudi oil production by 1 million barrels per day [mpd]. I wouldn't be surprised to learn at some future time that some of the 500,000 bpd in increased production that SA ramped up in May and July of this year has already been reversed, and if oil breaches $100 (which it might well do in the next month or two), expect OPEC (not just SA) to announce a reduction of up to 1 mbd at their next meeting.
The King and the Saudi oil minister have said on several occasions that Saudi oil should be saved for future generations. $80 oil would provide a powerful incentive to do exactly that--especially since SA knows that if they wait just 2-3 years, the world oil situation will be much tighter and they will be able to get much more for their oil.
The other factor not taken into account by the author is that a significant portion of marginal oil production today is simply not economical at $70 to $80. Will the Brazilian Tupi and Carioca fields be produced if PBR believes all it can get for that oil is $80? I highly doubt it.
Will the Arctic be drilled (assuming it's allowed) for $80 oil? Again, I doubt it. I realize these are longer-term projects that won't produce in the next 2-3 years, but even today, there are a lot of marginal fields being pumped for $120 oil that will be shut down if only $80 can be gotten for that oil. Many enhanced oil recovery and tertiary techniques, and even oil sands production, are not very profitable at an $80 price point.
Finally, it has often been said that "the cure for high prices is high prices," but the same works in reverse--"the cure for low prices is low prices." If oil goes back to $80, and gas back to $2.50, demand reduction will be muted, if not entirely reversed. This, combined with lower production, will act as a self-correction mechanism to low oil prices.
In summary, I believe that oil will continue to trade between $100 and $120 this year, and that certain oil-related investments are worth holding. Of course, if Israel attacks Iran or the Middle East destabilizes in some other way, oil could well test $150 this year.
In the past year, I have played oil very simply--by buying and holding shares of three Canadian royalty trusts--HTE last year, and PWE and PVX this year. Despite the gyrations in the oil market--and even in the value of these stocks, I am about at break-even with them. But in the past year--which has not been kind to the markets--I have collected about 15% in dividends. Thus, my total return of 15% is not bad given what has happened in the markets in the last 12 months.
And these generous dividends will continue to be paid unless oil goes under $80 and gas under about $7.50, the likelihood of which I believe is very low (well under 10%). Of course, if these stocks drop another 10% (which they might if oil goes to $100), I will buy additional shares which will then yield nearly 17%.
To me, these stocks offer a wonderful dividend, which also protects against any major drops in the stock price, while offering substantial upside over the next few years.
Disclosure: I hold a large long position in both PVX and PWE.
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This article has 93 comments:
What will happen to unit price and yield?
Thanks for the article. I'm curious to know if you, or anyone here for that matter, takes advantage of the generous canroy DRIP programs? Many of them offer up to a 5% discount on reinvested shares. I own a small amount of PVX in my ameritrade account but they don't reinvest the dividends for me. I need to follow my own advice.
I've gone through dozens of Quarterly and annual statements and have yet to find another company as mismanaged as PWE.
Last month you had PWE going to $48. This month you have yet to provide an explanation of the horrendous quarterly they provided.
You made a statement that HTE had a payout above 100% of their cash flow when in reality it was due to the inclusion of non-cash items. Do you actually bother to go through the hedges of each company going into the future or do you just look at cash flow as a whole?
When you make a call, at least have the integrity to face the music rather than go on as if you were right all along. Have some professional pride.
I am not a professional nor do I profess to be one at least currently but I have been an investor for 35 years, have taken my lumps, been to Emergency rooms twice because of Anxiety Attacks because of faulty calls made by myself to members of my family and friends. I still make bad calls but at least I admit to doing so.
What PWE did occurred prior to the drop in Oil. The writing was on the wall when they incurred debt which settled the day before the Dividend was to be paid.
What price did you buy them and what is the price now is the question not what you have received in dividends. Because when push comes to shove, if you have to sell for whatever reason, this will be a gain or a loss.
The Canroys, along with any energy producer, will be volatile and continue to be so. If you want safe income, buy US bonds. If you want risk and more income, Canroys are there.
Tax changes in 2011--whatever their impact will be--are already priced into the Canroys, and investors' perception of same partially account for these companies' terrific yield. Several things to keep in mind. First, most of these companies have "tax pools" that will keep them tax free beyond 2011--up to 2014 in PWE's case, as I recall.
Second, if oil in 2011 is still well over $100--as many people expect it to be--PWE will still be paying about 15% on its current price, even if it converts to a taxable corp or an MLP.
Third, many people expect that oil might well go to $150 or more by 2011. Although I cannot intelligently guess what oil will do in 3 years, if oil does that, expect PWE, PVX and their brethren to be paying a yield in excess of 20-25% on today's purchase price. Since that yield is unrealistic, the stock price will increase by 50% to bring the yield down to 13 or 14%.
Finally, there may be a strange effect when 2011 rolls around and investors realize that the Canroys are doing fine. Yields might actually DROP to a more reasonable 10%--which means the stock prices will climb. This would happen when investors realize that dividends will continue to be paid and that the Canroy businesses can operate just fine in a taxed environment. This would be especially true, of course, if commodity prices are high in 2011, as many (including Mr. Kingsdale) expect.
Therefore, 2011 (or 2014) changes do not concern me very much.
Further comments below.
Jack
Finally, Mr. Paultaut. He always bashes me and my Canroy recommendations--while telling us how he has made money buying Canroys. In his latest rambling comments (ie, what do his panic attacks have to do with investing?), he criticizes me for not admitting that I was "wrong." He is referring to articles I wrote several months ago expecting that PWE may well hit $40-50 by the end of the year.
First, the end of the year isn't here yet, so I am not "wrong" just yet. Having said that, although it is not impossible, I now no longer expect PWE to hit $50 by the end of this year after having observed what happened to the Canroys as oil ran to $150 and nat gas over $13. In a word, "not much." Sure, PWE ran to $35, but that is trivial in the face of oil and gas prices that would have more than tripled PWE's free cash flow (cash flow left after paying dividends and capex).
I think $40 is within reach by the end of the year if oil remains where it is today and nat gas strengthens closer to $10, which could well happen with one hurricane or if the summer turns hot again. If neither of those happen, I think PWE will remain in the upper 20's and low 30's.
Further comments later on.
Jack
Some of these positions I have been in for several years, others for only a few months. I agree with most of your post - PWE is a dog. However, I do believe that generated income, both from dividends and from selling covered calls, is every bit as important as share price. I have had my position in FRO for about 18 months and have received over 30% in income during that time, providing a big cushion against any drop in share price that may have occured during that time (altho share price is up too). I intend to keep this position and milk it for all it's worth until I'm exercised out (at a profit) with a covered call. My experience with PBT has been similar. Finally, altho I am willing to put my money on the line based on my research and experience, I would never give investing advise to my family or friends. That way I stay out of the ER due to anxiety attacks.
These are proven resources with new wells coming online all the time, plus each has different mix- AAV more gas, HTE the refiner on the East Coast close to Europe--a strategic holding for refined products for Gr. Br/etc. with Russia being so aggressive. Then you have PVX which sold US properties for a lot of cash and paying down debt/growing. Agree PWE seems to be getting too big for it's britches and could be better mananged. Probably more consolidation coming which puts a floor under current prices. A lot of time before the tax laws change, a lot can happen so not a concern. Exxon could buy a bunch of these now for peanuts using it's cash via its Imperial Oil subsid. Falling Mexican production a plus too, here are the Canroys close and increasing production, thus transportation savings over Mideast/African Oil. The plusses just keep adding up. Keep averaging in more and reinvesting your divs if you can, especially when the market is down and panicking! The dollar is still way down and Prime West (PWI) takeover at $26 by Dubai is a "prime" example of how much potential is in these companies in a "safe" country.
Disclosure - I do not own any oil or NG related stocks nor am I short. I might buy some when they are cheaper.
Thoroughly enjoyed your article, and look forward to your future blogs.
Very curious as to your thoughts about COS and BQI
Although the dividend returns are enough to keep me happy, I don't like the idea of having a large position in a company whose management I have little faith in. That being said, I love Canroys -- but my questoin is which ones have stronger management and take shareholder interest to heart?
The geopolitical forces are at work on oil prices. Canada with secondary and tertiary recoveries is a great blessing to the States. Canroys make lots of mistakes, but get bailed out by high crude prices. At their worst, most are still good investments. The old "businessman's risk" as Forbes Mag. used to say.
Thanks, write more.
You have chosen to pump two companies that the majority of readers agree have p-poor management, one company whose share price has tanked, and a second that has declined rather than shown any tendency at all to ascend to the levels you have predicted.
You talk a good game - but the bottom line is...you're damned poor at picking winners - at least for the ones you talk about here.
As for your supporters....they appear to be no different than the many lemmings on other forums I've observed following their perceived "gurus" right into the abyss...
What characterizes both of these writers is they criticize me without explaining how (1) either my facts were wrong, or (2) my analysis was wrong, nor do they tell us how THEY have done in their investments in the past year during which both the Nas and the Dow have dropped about 20% and the financial system has nearly imploded twice.
In fact, contrary to paultaut and wsigler's assertions, the recommendations they complain about which I have made are UP more than 10% percent in the past year, which is FAR better than most money managers have done in the past 12 months.
CSIQ is up about 60% from where I recommended it, TSL is down about 35%, SOL is up 25% from where I bought it about 2-3 weeks ago, PVX is up about 6% from where I bought it about a week ago, and PWE is down about 7% (but given dividends, I'm about break even).
And TSL announces earnings this coming Mon, while SOL announces Tues. Let us reevaluate my performance on Tues.
But even if their criticisms about my "terrible" stock picking were not factually incorrect, I find paultaut's and wsigler's comments useless unless they tell me (and everyone else) where I went wrong--ie, where my FACTS or ANALYSIS were wrong A PRIORI (not after the fact).
With all due respect to the "consensus" here, I remain very comfortable with a stock (PWE) that is yielding 15% and is extremely likely to continue to do so unless oil goes below $80 and gas under $7.50. If any of the criticizers have a better idea than parking money in a stock that will return 15% almost guaranteed, speak up, I sure want to know about it.
Jack
I stated that HTE had better prospects for the future. You Slammed My recommendation because YOU said that HTE had a payout above their cash flow. On an operational basis before a non-cash charge, the payout was around 73%, try reading a quarterly once in a while.
You want facts, start reading financials every once in a while.
You own PVX, great stock. Lousy payout but great perceptive management. They own an East/West transCanada pipeline and a GTL facility. They bought it a few years ago.
Please tell me who they bought it from and the details of the Contract which came with it.
BTW, weren't you pushing FSLR just before their recent quarterly. You dismissed my comments about an overcrowded market and a Nosebleeding PE.
When earnings came out and aftermarket trading kicked in, you started crowing about the aftermarket trades and tossed in that it would move $30 above the $20 it did in the after market. It closed unchanged the next day and prompty dropped another 10%. If something doesn't go your way, You never mention it again. But you are very, very quick to take credit.
There is no "balanced approach" in your vocabulary.
HTE is upgrading its refinery and PVX has cash to play with.
Someone made a comment about oil sands making a profit at $40 brl oil. No longer, the time frame for that is long gone, expenses for everything are up dramatically. At the time Nat. Gas was what $2.00 per MCF? Replacement parts, shipping costs, labour, you name it. And Environmental Costs are kicking in. I haven't followed this very closely.
But would appreciate knowing what current operating costs per brl. actually are.
Speculation in oil futures is beginning to get exposed. Go to:
www.stopoilspeculation.../
to see what companies are upset with the high cost of oil, gasoline, jet fuel, diesel and home heating oil. There is demand destruction and speculators are being investigated.
Don't think that people will just keep on making OPEC, Big Oil and Speculators rich.
I am sorry that these facts are misunderstood by a lot of folks.
Do you wonder why so many people thought they could speculate in real estate and not get burned?
The Onus is on you JY. You did the analysis, You made the Call. What did you call it? A Priori? Lets hear about your reasons before the fact.
I certainly did not go along with your reasoning before the Release. Technically, it looked like it could have moved above $40 and I was really hoping you could get enough people to buy it and drive it up so I could justify getting out. It was overpriced at $34, it is more reasonable now.
That's easy. "The proof is in the pudding".....and "the pudding" we're talking about here is the price behavior for the stocks in question. Compiling some facts and doing some analysis is clearly inadequate when it's obvious you overlooked/ignored some critical facts and limited your analysis to only a portion of relevant factors. Which facts? What factors? I don't know (but for some of the comments made by others who don't count themselves as your rabid fans)...but that makes no difference. Had your facts been all inclusive and your analysis complete, you would have reached a different conclusion - one that was consistent with the price action on these securities. I suspect overall market conditions and sector rotations were not among your considerations....and I fully expect this to be confirmed - again - when we observe TSL price action post next earnings....
Funds flow was a RECORD $753 million, 131% up y-o-y. On a per-unit basis, FF was $2.00/unit, up 46% from Q2 '07. Netback was $47.84, 52% higher than Q2'07.
The funds flow covered ALL of the dividends ($383 million, payout ratio of 51%, I think the lowest in company history, and one of the lowest among ALL the Canroys reporting Q2'08, with PVX being one of the few exceptions at a payout ratio of about 43%, as I recall) PLUS ALL of the capex ($247 million), leaving $123 million in what I call "free" cash flow, whereas in Q2'07, the $326 million in funds flow covered dividends of $243 million (75% payout ratio) but barely touched the $484 million in capex.
If that is not a blowout quarter--one of the few times in the history of the Canroys where funds flow fully covered dividends and capex and left a substantial amount over--then you have to tell me what you expected and how PWE failed to deliver.
As to Paultaut, I will not respond to him--he's waaay too angry, for reasons that are unclear to me but irrelevant for the purposes of this blog. I will respond to any non-emotional challenges that focus on what this blog should be about, such as the one by Herve.
What I will say is that HTE, which Paultaut seems to prefer, has dropped about twice as much as PWE from the where I initially recommended PWE (around $30). Its payout ratio is still far higher than PWE or PVX, and I would continue to stay away from it because I am more concerned about refining margins than I am about price of oil.
I think refining margins (especially for gasoline) will stay pinched even though decreases in oil prices should theoretically help refiners.
Jack
edition.cnn.com/video/......
edition.cnn.com/video/...
I couldn't care less whether this doubled or that increased. I care about the Bottom Line. And according to your own "Research", HTE's bottom line was found wanting because of non-cash occuring items but that same analysis does not apply to PWE.
In HTE's case, it was record operational earnings ex-non-cash, in PWE's case there were no operational earnings because the factors impacting the Bottom Line were Cash related.
"Figures don't lie".
Thanks for the CNN link on the oil sands. Yes, they state that the oil sands are "profitable" at $50, but did they include cost of the lease, infrastructure buildout, and externalities such as water, what to do with the waste water and sand, environmental recalamation costs, CO2 production, etc?
Also, how much "profit" was included in the $50? My guess is that if you include all the externalities (as Canada is doing more and more every day), and you add a profit premium due to high capital costs up front and uncertainties of return on that investment, you will find that not too many companies will buy and develop oil sands leases if all they project they will get is $70 or $80.
Remember that if oil gets to $70 or $80, it also increases the possibility that it may go down to $60, which further raises uncertainty and decreases the likelihood of a good return on investment.
Bottom line--if oil goes to $80, SOME marginal production (or anticipated production) will cease to be produced, which will help correct the down move in oil.
Jack
It doesn't matter to me whether you respond to my queries, what matters is what response your other readers will have to future articles which don't "pan out" as projected and you walk away without explanation.
To look at it a different way, whatever percent risk there was 6 months ago that PWE would not maintain a dividend of $4.08/year has DECREASED substantially as payout ratio has dropped from over 70% to about 50%. It will continue around 50% as long as oil does not drop below $100, and I think most people believe it won't.
Therefore, a stock that had a 20% risk (let's say) of the dividend being cut and now has a 5 or 10% risk or being cut and a decent prospect of being raised shouldn't be more valuable?
I'm sorry, Paultaut, but my money projections for PWE were spot on (look at the cross-arguments between David Bui and I three months ago, and look at his recent article on PWE results). My stock value projection has turned out to be waaay wrong, but not because either my facts or analysis were wrong. I have asked people here and elsewhere to point out with SPECIFICITY what FACT or analysis was wrong in my article, and nobody has done so. On the contrary, this quarter's results have borne out my projections.
Finally, what I just said about PWE applies equally to my TSL articles. TSL has done all that I expected it to (financially speaking), and more, yet the market has decided to give it a 25% haircut from where I recommended it. Again, my money projections were right on, but the stock has tanked (of course, other solars have tanked more).
My predictions on SOL and PVX are in the money (SOL is up almost 50% in the three or four weeks since I recommended it at $13.54), primarily because I ended up buying them after the big drop in the oils and solars. But that's as much luck as anything else because I could have easily bought these stocks when I bought TSL andf PWE, and they would have also been underwater.
The point is, I try very hard to get my facts straight and to provide a logical analysis. As we have seen, what the market does with those facts is often far different than what I think the market should do with those facts. BUT, value will be recognized, and since I do not buy stocks that I will ever HAVE to sell, I can wait out the market's irrationality for a loooong time.
Let's see what happens with TSL and SOL this Mon and Tues.
Jack
So Jack, way to go. I am with you on this one. Patience is a virtue. A quick return is never a prudent way to gain true wealth.
Bob
According to Republicans for Environmental Protection (rep.org), from a post in June by their staff, about 44 million acres of the federal outer Continental Shelf have been leased, but only 10.5 million acres are in production. Why? Yes, there are reasons like a shortage of deep sea drilling rigs. But the loud rhetoric to "lease & drill now" to bring down prices at the pump rings hollow in the face of the facts.
Onshore, 47.5 million acres have been leased, mostly in the West and mostly for natural gas. But again, only 13 million acres are in production. Same issues--shortage of drill rigs? Maybe. But sadly, there is no shortage of inflammatory rhetoric from those who think the USA can drill its way to energy independence.
I've invested in the oil/gas end of these Trusts and MLPs for years..and despite political surprises in Canada and the start up hazards of MLPs in the States they have been hugely profitable...I used to hear the same idiotic bashing of PrimeWest..until it was bought out by a Middle Eastern concern at a substantial markup and bonanza for investors.
PWE in particular has over a decade (14.5 years) of reserves with a mixture of light oil/nat gas/heavy oil (sands)...it is a SAFE HAVEN producer..another aspect bashers just don't seem to fathom! What ARE their investment ideas? They don't have any! Like doomers everywhere they only know what they don't like..and that is inexhaustible!
If you criticize my basket of recommended stocks in the past year (CSIQ, PWE, TSL, PVX and SOL, plus HTE for a while but NOT now), which overall, are probably up 15% after Friday's run in SOL and TSL, then you have to tell me what is better.
If your "better" is to be in cash, that's fine, but "cash" has made people what, 3% in the past year?
Jack
Based on my hazy memory (double-check me on this), I believe ERF had a higher payout ratio this quarter that either PWE/PVX, while offering a bit less dividend. ERF's RLI (Reserve Life Index) and/or tax pools may be somewhat less, as well.
Of course, I think all of these Canroy's will do well if oil stays over $100 and nat gas doesn't go lower than it is right now. They all will suffer if the contrary comes to pass.
jack
My question to you then is this: What was the first CanRoy listed on the Amex and where is it listed now?
Cash Flow means squat if earnings don't materialize. What one has to do is look to the Hedges utilized by management, see what percentage of future production is tied up by them and decide whether they will realistically produce a profit or loss by expiration.
That was one reason I got out of PGH, when buying assets they bought Hedges which stretched out for years at prices which would eliminate profits.
PWE's management is apparently held in high regard by Jack, I disdain this management.
Regarding TSL, a few years ago when Archer Daniels was a $22 and corn ethanol reared its ugly little head, it doubled but here it is again at $22. Why? Ethanol IPOs started coming out in droves, competition emerged. Solar IPOs have been coming out in droves and competition is heating up. You may have the BEST Technology but if you are undercut in price you will not get the Contract.
On ADM make that $24.
On a side note I like Jack's recommendation on TSL a while back, honestly I didn't want to give tsl the time of day, but, at second glance I liked it and have averaged my basis down to where I'm still up a buck even after the sell off. If you have no conviction hand your money off to a manager and take up golf. If you are risk averse, tisk tisk, you should know better, stick to bonds and their awful rate of return.
If you buy materials in the chinese renminbi and sell product in the dollar, won't this make your product more price attractive to potential buyers? Could this be a plus for boosting sales by being cheaper. Growth at all costs in a very competitive relatively new market. Currency loss looks better on a balance sheet than reduced margins from cost competition. Maybe (probably) this is a crazy thought.
So while many are happy, forecasts about stronger overseas sales because of the weak dollar may have seen their day.
While the safest, and why I have held on to PVX, is it has a low relative yield. I think their reserve life span is north of 20 yrs.
I've Thought about PWE long and hard. And now believe managements goal is to amass loses prior to the change over which would shelter their income for many years after the 2011 law becomes effective.
Why the change of heart? Because these loses appear to be deliberate. Then there are the managements of Canetic and PetroFund to consider. Why would they accept the takeovers? Since I liked both of them, I have to assume they knew what they were doing when they accepted the offers.
So while the Jury is still deliberating, I have to look at their activities more closely. For instance, did they avoid hedges when Nat. Gas was north of $12 and crude north of $130. And have they initiated them at current levels?
After that the potential H&S bottom that has been building might, I say might, take it and all other CanRoys up by 50% or more within a matter of months.
Charting is not an exact science, Chart explanations are mostly known only by the beholder, and many times the beholders sanity may be questioned.
The way I view the CanRoys is estimated Reserve Life, current Yield, how much of production is hedged at what price and time horizon of said hedges and the cost of paying down current debt annually.
It isn't as hard as it sounds. The hedges are all lumped into one area, with footnotes. Interest Expenses are listed and compared qrtr/half to qtr/half or annual. Caveat, a guestimate must be made if Debt is brought onto the balance sheet after a Qtrs. close.
They will provide a Reserve Life, You really only have to look at current oil/ng prices to see what the Unhedged production is fetching.
Personally, I have no real problems with either PVX or HTE because they aren't manic about acquisitions. In addition to its refinery, HTE has around 65 gas stations which they service. And while PVX's contract with EnCana expires in 09', I don't expect them to have problems attracting new shippers.
But PWE keeps adding more companies and therefore increases the number of shares O/S every single year, they pay off debt early and have penalties attached for doing this but then incur more debt within months. I can't keep up with their internal games. So to me they are a "crapshoot". The only thing that is in their favor is the Potential H&S in progress.
A few months ago, the formation looked like a "Cup with Handle" but had a similar potential target or "measured move".
PS. Even if it dropped to $20, I would still be able to sell it at a substancial profit. I am in it on the House's money.
Between now and when the Law changes them into corporations, some will pay huge dividends, some will not. Since you are buying for the long haul, I would recommend a basket of them.
Personally, I look at the ones which have fewer analysts recommending them. The more analysts recommending a given stock, the more likely everyone who wants to buy, already has and if they are underwater already, they will be itching to get out when they breakeven.
As long as you view it from the perspective of Income VS Capital gain, you can stop watching it and just let it gather dust. You see, if they cut the distribution, they will be forced into a profit on the bottom line.
Hedge Funds, in particular, are having Redemption/Liquidity problems. September is the month that investors can withdraw their funds and are doing so. How far down? I certainly don't know but do use charts to project downward as well us upward moves.
The problem I am experiencing is that Political involvement has stalled what should have been limited to the Housing Market and allowed it to spread to the rest of the Economy. That idiot Obama keeps harping about raising Taxes.
Keep your Powder dry for now, Pwe has a chance at $20, PVX for $8, PGH is buyable now around $16 and HTE when yield goes to 20%.
PVX is extremely stable because of its Pipe Line, GTL facility and 20 plus year Reserve. But it will experience the same Blood in the Streets treatment as all stocks regardless of PE or Yield when the Lemmings stampede.
Personally, I recommend Buy Stops way under the current Market value of any of them. There will be a Spike to the downside on one or all of them. You won't be able to get in fast enough to get in before others react to the Bargains. Others=hedge funds done with sales.
Highest yield is my motto.
You have to remember that Financial Institutions also include Hedge Funds, Mutual Funds, ETFs, Insurers, etc. all and sundry who hold Common Stocks as well as "tainted" investments.
The 87 meltdown occurred because Program Trades acted faster than and with greater volume than the Exchanges had ever experienced. Trades settled hours after the markets were officially closed.
The current problems is the Overlap of securities held by Mutual Funds, Hedge Funds and ETFs and related bretheren. Selling begets more selling. The ETFs are the worst culprits, each share represents a basket of similar shares. It doesn't matter to the ETF that low PE shares are lumped with high PE shares. Sell one, sell all.
Do you think canroys start cutting their divdends? Just for a little perspective I was looking at last years crude charts when $67/barrel was considered expensive. I guess I'm trying to wrap my head around the expectations to trade it.
Since I could not get a better dividend anywhere else even with the cut, I bought more.
That's why I'm looking for the Highest current payout. I know full well that a cut is potentially lurking. So what if a 20% yield drops to 10%, on a monhly basis, I will learn to live with it.
Bear in mind I've had a couple of oktoberfest beers when writing this post. So in the morning does a person A: don't touch banking stocks with a ten foot pole B: Buy Leh at any price because it is their bottom or C: buy a stock from the banking sector (like citi) on the dreadful news that pulls everyone down? La de da happy day.
My guess would be that Leh goes the Good stock/bad stock route. Shoving its garbage into a Junk holding stock. But to do so they will have to add some value to it. My guess is further asset sales, like the
hedge group under its control.
You have to remember that they have the ability to tap the Treasury, if they are unable to do so, then they must really be in deep doo doo.
And, what happens to you, if you buy pre announcement and they declare Bankruptcy? I would hazard that Lehman is not in the category of "too big to fail". Sure would send a shiver through the rest of the Financial Sector though.
I am giving you worst case scenerios, this is a Bear Market. Anyone buying anything other than niche, new tech better be prepared to hold for the long haul.
Economies may decouple, stock markets walk in lockstep. Look for companies that have formed a base and have heavy insider buying or stock option grants which they retain.
There is one former High Flyer which has attracted my attention recently, Bove's LTS. Check it out.
Probably to my disadvantage I'm staying away from the bovespa. This whole oil deal scares me a little. The tone of Lula saying "it's our oil" coupled with Iran extending the opec olive branch. Oil is too big a part of the goings on down there for me.
Add to the mix, news items in the past 14 days:
NATO is planning the mobilization of troops into the Baltic states. Venez & Russia hold War games in the Caribbean. Iran is testing its missile defense systems. US Warships off the coast of Georgia, ostensibly to deliver Med. Aid. Russian Troops dig in on the Georgian border.
And the Russian/Iranian Nuc. Reactor is scheduled to be activated as early as December. Russian News release which, IMHO, is probably false.
If, and I would use a Big IF, there is an attack, Oil prices would skyrocket. The close to home supplies from Canada and Mexico would receive a Major Boost, It would be like a Tsunami hitting the Gulf of Mexico. But until this happens, the story will continue to be about a Global Recession and both Oil and Alternatives will continue South unless Ike does some serious damage. Don't watch WTI, go with Brent instead which hit $99.
I am watching with particular interest Teekay and a spin off. The Spin off is a pure play on Oil tankers. I believe the symbol is TNK. So while the CanRoys are major beneficiaries of my worst case Scenario, I believe in diversification. Oil may have to travel via Tanker more so than ever before and the yield as the price drops is getting too delicious to ignore.
Svo, if this converation continues, how about moving it to a more current Alpha article?
I had no idea about the nato troop buildup, no idea at all. I do know that the good ole us of a would profit greatly from a huge unwinding of ruskie markets and what do you know it has happened this week. Let me know where you want to post in the future. I am in arch coal at $38 let me know your opinion (as I seem to respect it). I am tempted to sell into the hurricane news as I am in the money. Then wait for a future entry point lower, like when it shoots out it's 52 week low. Is this viable?
Thanks,
So I limited my comment to the overtly obvious.
I will look at ACI, I follow JRCC more closely and a thinly traded spinoff from IVN, Mongolian Coal mine, Pink Sheets, Railway already in place directly into China, fully permited and in production. Will not provide symbol. Am not in yet, you'll have to do your own research. TNK pure oil tanker play, SNEN building CNG gas stations in a city of 9 million with stats, if they are to be believed, will double its share price wihin 18 months.
As far as Global commodity use is concerned, growth outside of the Developed West will continue upwards for no other reason than because of promises made to their people and fear of internal unrest unless those promises are kept.
So instead of reading what our Media considers Financial news, read the Singapore Times or Financial Times or even the News out of the Middle East, I don't remember the site offhand.
In spite of inflationary concerns, the Asian economies are still expected to grow their GDP on an average of 8%. Demand Destruction and Recessions in the Developed world will allow this to occur at a much lower rate of inflation than would have happened otherwise.
If my worst case scenario occurs, then it won't really matter what happens here.
Ikeone, Hope is for people who think we are not exceptionally dependant on current energy forms (I am totally for viable alt energy BTW).I think that demand destruction is (mostly) baloney anyway, or better yet early to the party, when a new and mass distribution viable energy source is ready then we'll talk demand destruction. It's just like when a company enters a space and starts stealing kool aid from the company who has the monopoly. Consumption rises inversely with prices. Unfortunately the truck or ship delivering cng or wind turbine parts or solar panels will probably run on diesel. A crap equity market is a real drag on the alt guys (who have no cash) it gives a head start to the incumbents.
thanks
The market sentiment now is increasingly negative. And so it should be. We have been through a lengthy period of utter idiocy. People of all walks and areas have been ignorant and wilfully blind to the dangers that were mounting. Now they are suffering for their poor decisions. It is not easy or fun to watch but it is inevitable and cathartic and ultimately necessary to clean out the BS and set up for the next real demand driven expansion.
cheers
More and more deep Sea platforms, 100s of miles offshore, Pipelines? I don't think so. Single Hulled are outlawed after 2009. Most are under contract for years.
2 tidbits, Middle East news, Zawya.com, Breakeven for Iran is $90, Iraq $110.
"But those technicians didn't tell us it was going to go to $147 less than two months ago, so we can all admit that JACK YETIV'S analysis of where oil is going to be next week or next month is almost useless
On Oct 31 12:47 AM ptr44 wrote:
> haven't heard much from jack lately. when he's up 15% on something
> he's all ready to spout about it. now that pvx and pwe have fallen
> 50% since he wrote this article 10 weeks ago he's run away and hid.
> hey jack - how many more shares did you buy and how are you doing
> on these canroys now?
>
> "But those technicians didn't tell us it was going to go to $147
> less than two months ago, so we can all admit that JACK YETIV'S analysis
> of where oil is going to be next week or next month is almost useless