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Mark Bern, CFA  

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  • Oil Producing Industry: When Will It Be Safe To Invest Again? [View article]
    Aricool - I mean that perception would move price temporarily as it has since Thursday's announcement of a special OPEC meeting called for by Venezuela. Just the hint at a meeting and the possibility of reduced production caused the price of WTI crude to jump 10%. More increases could follow based solely on perception, not reality. You are right, that OPEC cannot drive prices higher for very long. They already have driven prices higher in the short term through perception. When reality sinks in the price will drop again. Any action that OPEC takes will only be very temporary in nature in terms of driving the price upward. As you say, the only control the organization now has is to drive price lower. But the members may need to learn this lesson before this fiasco is over. It could take some time.

    In my article about the Energy Sector Outlook I tried to explain that going forward , at least for the next decade or two, OPEC will only be able to set the floor (or control the downward slope for oil prices) while the U.S. oil production will be the primary factor determining the ceiling. This is what OPEC member will need to understand before the price of oil will truly stabilize within a narrowing range.
    Aug 29, 2015. 02:27 PM | Likes Like |Link to Comment
  • Oil Producing Industry: When Will It Be Safe To Invest Again? [View article]
    banmate6 - You make good points regarding this time could be different for OPEC. The way I see it there are three potential outcomes.
    1. The organization continues as it always has with broken commitments as discussed in my earlier post. Business as usual.
    2. The organization convalesces around a mutual awareness of external threat that could imperil its existence. This, I think is sort of what you were getting at as a possibility.
    3. OPEC could dissolve as a functioning unit with each member essentially doing whatever it wants. With no agreements and fewer meetings in the future.

    Any of these could happen although either 1 or 2 seem most plausible at this juncture. Only #2 could help support the price of oil and would require OPEC members to give up market share almost across the board to raise the price of oil. But then, non-OPEC members would just produce more and steal even more market share. In the short term it would bring stability and narrow the range in price movement, but over the intermediate term I believe OPEC would again ramp up production leading to another global glut. It may no longer be able to exert any control on prices over an extended period of time.

    On another point, I think that there will be more volatility in stocks in coming weeks. The big bounce we experienced after the big fall is very typical of the early stages of a bear market. If volatility remains elevated I would expect another leg down in equities. If stocks stabilize and volatility can get back down near 13 on the VIX then troubles may behind us and stocks will have had a nasty, short-term correction. I see the later as less likely as there are signs of slowing demand. We will see.
    Aug 29, 2015. 01:32 PM | Likes Like |Link to Comment
  • Quick Chat 282 July 28 2015 [View instapost]
    Freya - Thanks for pointing that out. I missed that in my perusal.
    Aug 28, 2015. 09:26 PM | 1 Like Like |Link to Comment
  • Quick Chat 282 July 28 2015 [View instapost]
    Good! I wan't ready for it yet. This will work out much better for me. LOL!
    Aug 28, 2015. 04:14 PM | 2 Likes Like |Link to Comment
  • Quick Chat 282 July 28 2015 [View instapost]
    Wow! That sure snuck up on me! Thanks for reminding me, Maya. You have a great Labor Day Weekend, too!
    Aug 28, 2015. 02:58 PM | 3 Likes Like |Link to Comment
  • Oil Producing Industry: When Will It Be Safe To Invest Again? [View article]
    banmate6 - A good list. As to the Schlumberger acquisition: it is not a purchase of energy reserves and, thus, is not the same thing, imho. I mean, oil services and eqpt. always go down with the price of oil, but they have both a different valuation and are less risky in the long run. Not that there is no risk, but it easier to decide when such assets represent a bargain in terms of ability to produce future cash flows. It the price of oil is $40 or goes down all the way to $10, these assets won't drop further from here by another 75%. SLB has a price it is willing to pay for the assets and the business relationships it is acquiring. I assume the current level looks like a bargain.

    I don't think that the M&A activity will reach its peak in the oil producing assets until the all clear sign becomes more apparent. With supply still rising on a global basis and not falling much, if any, in the U.S. through year end, I think that the bottom is yet to come.

    A special meeting of OPEC called by Venezuela will likely play out just as it has in past years. All the small volume producers will be allowed to continue to pump as much as they can while the larger producers will be asked to reduce production to firm up prices. Then an agreement will be announced to the media that an agreement has been reached and total OPEC output will drop by 2.x million barrels of oil per day. Next, Saudi Arabia will watch its brethren to determine if they are producing at the prescribed and agreed upon quotas or if they are cheating. If the others are cheating, which they "always" done in the past, then the Saudis will continue to pump also and there will be no reduction in production. The price will rise for a few weeks until industry followers who report the production flows begin to leak the news about who is cheating and who is not. There will be no reports of the later. And finally, the price will fall back down as reality sets in. Whenever the price needs support this is what happens unless Saudi Arabia is willing to absorb the pain by itself. It has, but that was when it controlled nearly all excess capacity. Times have changed.

    I have watched this process play out so many times I have lost track of the number. There are two regularly scheduled meetings per year, plus the occasional special meeting to deal with a crisis. There was a time when Saudi Arabia was willing to unilaterally reduce its output to boost prices. I don't believe it will do so alone any more and I also don't think it will trust the other members of OPEC (and for good reason).

    So, it is for this reason that I believe we will see new lows later in the year. The OPEC meeting is more show than action, but the media and speculators always seem to fall for it. Or maybe the speculators understand how the game is played and get in and out for some quick, easy gains.
    Aug 28, 2015. 02:57 PM | Likes Like |Link to Comment
  • Quick Chat 282 July 28 2015 [View instapost]
    Billions? Sorry, but that seems so paltry today!
    Aug 28, 2015. 11:09 AM | 2 Likes Like |Link to Comment
  • How Low Can This Market Go? [View article]
    Could happen. Who knows who or what is really in control of the markets these days? HFTs, dark pools, big banks, corporate buy backs.

    Oh, that reminds me. When corp. buy backs skyrocket like we've seen in 2014 and so far in 2015, it usually marks a peak in equities since corporations always tend to buy high instead of investing in capacity. This happens when corps. don't see much advantage in investing in the business due to sluggish demand, so they buy stock to prop up EPS. That keeps happening over and over in a cyclical fashion and usually precedes a recession. But, of course, not this time!
    Aug 28, 2015. 11:03 AM | Likes Like |Link to Comment
  • How Low Can This Market Go? [View article]
    We shall see!
    Aug 28, 2015. 10:58 AM | Likes Like |Link to Comment
  • How Low Can This Market Go? [View article]
    I have a little bit of MEMP for the same reason. It cut its dividend by 50% recently and took a bath since, but the div is now well (85% of production) covered by hedges into 2018. Same story. The income is awesome!
    Aug 28, 2015. 10:58 AM | 1 Like Like |Link to Comment
  • How Low Can This Market Go? [View article]
    Franklin - What you say does apply to many, but certainly not all, large US companies. Think about UNP, CSX and NSC. One has a few miles of track that cross the Canadian border, but I don't think you would include that in your list of companies with international ops. Then we could also consider all the utilities. Let's see, there are 28 utility companies also listed among the S&P 500 Index components. So, they must be big. Then there are regional banks also included in that Index that only operate within the US like ZTS, US REITS usually hold only US assets and there are 15 REITS within the Index components, also. Among health insurance companies, Aetna pops to mind since it sold off its international biz in 2000. And there are other large health insurance companies in the index that offer product only in the US. Altria, since it spun off its international operations and Kraft is pretty much a US company. There are also sizable energy companies in the index that have operations only in the U.S. such as Cabot Oil & Gas, among others. Then there are coal companies that operate only in the US, like Consol Energy.

    I think I'm over 5 now.

    Having said all that, you point is well taken, as it applies to the majority of large U.S. based companies, but not all.
    Aug 28, 2015. 10:55 AM | Likes Like |Link to Comment
  • How Low Can This Market Go? [View article]
    Maybe "the major drop already happened."

    Or was is just the first leg down and now we are seeing the first of a series of lower highs and lower lows that will set up the longer lasting big leg down? No one knows for sure. We just need to be prepared for either possibility. I remain well invested but am hedged against catastrophe. My portfolio will survive intact, or nearly so, no matter what. That is why I said in the article that I have no horse in this race. Of course, I would like an even better sale in stocks so I can add to some positions with the cash that is building from dividends over the last year and a half. It's not a lot, but I can certainly improve my income a bit by catching a few bargains.
    Aug 28, 2015. 10:04 AM | Likes Like |Link to Comment
  • How Low Can This Market Go? [View article]
    Franklin - In a normal interest rate environment I would completely agree with you. But what we are in cannot be described that way. How can rates become inverted when the short-term rate is held at zero? So, throw that one out. Most leading indicators are also skewed by central bank activity, imho. So how does one anticipate a recession these days? I don't think we can.

    Usually a fall in the price of copper of the magnitude we have experienced would indicated falling demand and an imminent recession. Usually, when the DJT (transportation Index) trends down for several months it indicates that the economy is on the verge of a recession. Often, but not always, when inventory builds nearly every month without a few months of significant draw down it indicates that the economy is oversupplied and is susceptible to falling recession until the excess can be worked off. Usually when profit margins hit record highs and then begin to fall it marks the end of a cycle and a recession often occurs. If you look at unemployment initial claims as a cyclical indicator, whenever claims reaches a multi-year record peak and then flattens the economy falls into a recession. I could go on.

    But the fact is that these have proven to be reliable indicators in the past. All of these conditions exist now. The one indicator that is considered tried and true, the inverted yield curve, is being pointed to as the one that "must" happen before we should worry. But that is the one that the Fed is manipulating so that it cannot flash a signal. This is what has me thinking that the next one will "come out of nowhere" again.

    But there needs to be an event that the Fed cannot control. I think that it could be something off my radar or it could be one of two (or both). My first fear is that the Chinese real estate market begins to crumble if Chinese investors lose confidence. The second is that the price of oil falls much lower and remains there for several months forcing many of the smaller companies in the energy patch that are over burdened with debt to file bankruptcy which leads to a wave of fear surrounding junk bonds.

    Both of those are being set up now and could feasibly happen either in the fall or spring. We shall see.
    Aug 28, 2015. 09:57 AM | Likes Like |Link to Comment
  • How Low Can This Market Go? [View article]
    MFITZ - Makes me wonder about BoA.
    Aug 28, 2015. 09:39 AM | Likes Like |Link to Comment
  • Quick Chat 282 July 28 2015 [View instapost]
    Thanks, Freya. Good insight.
    Aug 28, 2015. 01:05 AM | 5 Likes Like |Link to Comment