mplaut

Crude Reality: How Long Can Oil Stay Down?

The storage build up, in this case, does not indicate demand drop. You have surely heard about the tankers leased as floating storage. Right now, because of the extreme contango in the futures markets for oil (the price rises very sharply for future delivery) it is a no-brainer to buy oil at today's spot prices and sell it forward at the higher prices.

Storage buildup just reflects this, and does not say anything about demand.

I seriously doubt that very many new barrels will be lifted in the Bakken at all as long as the prices is so low.

Reserves are a function not only of the amount of oil in the ground but also the cost to lift it. At today's prices virtually all of the Bakken oil is not economic.

Marc Faber, Jim Rogers and Boone Pickens - Bullish on Oil

Buying a solid MLP live LINE or EVEP gives exposure to rising oil prices (LINE is hedged about 30% with Puts that gives them the upside of any rises) while paying a more than 15% distribution in the meantime. These are more suitable for long-term exposure.

If you can time the jump in crude, by all means jump into USO right before the jump.

Oil Stocks: Where Can You Find Black Gold?

Many have commented about the fact that the new sources of oil cited by Michael66 have high breakeven points.

In truth, the oil that lies under North and South Dakota (the Bakken formation) has been known for a long time. What allowed it to be NEWLY classified as a discovery is 1] new technology (horizontal drilling and fracturing) and 2] the higher prices which made it economic to recover.

Forex: Why the Dollar Is Staying Strong

Costard wrote:

" and wealth will resume its transition towards a medium that retains its value. Jury's out on what this will be... my guess is scarcer commodities, gold for its value or oil for its utility. "

The problem is that neither gold nor oil has the sheer scale that is necessary to store the value that is residing in dollars.

There is no single thing, not a commodity nor a currency, that is large enough to even seriously compete with the dollar. What we can have is just a general move towards more "risky" assets like equities, bonds, commodities, etc. But this will probably happen later rather than sooner.

The Riskiness of Bonds

The problem is that those ETFs are composed of future instruments and they lose money every month when they have to roll them over. So if you buy now they could deteriorate over time before the T-bills turn around. "The market can stay irrational longer than you can stay solvent."

Lessons the Market Taught Us in 2008

The content of this article is generally good, but it could be shorter. IMO it can be summed up in 2 points: 1] There is no such thing as a free lunch; 2] Be VERY careful.

'Payment for Order Flow': Madoff's Earlier Days

It is rhetorically easy to smear Madoff's market activities with his clearly fraudulent money managing. But we will have to wait for more information to know if there really was a connection.

I had personal experience with several different brokers who passed on the order flow payments to their customers, and the firms themselves had computer systems that sought the best price, order flow payment or not (since anyway it did not go to them).

I think that the NYSE specialist system is pretty good overall, but it has also suffered from abuses from time to time to time again.

Barron's Finds a Win in Linn

Pinelli is right about LINE. If you look at EPS you will be fooled. Because of LINE's hedges, which fluctuate with the price of the commodities being hedged (gas and oil), the EPS has gone up and down in the past year very wildly. However it is all paper gains and paper losses. When oil and gas shot up in the first half of the year, LINE's hedges showed huge paper losses since they were below the current price. But that made no difference to cash flow and would never have made any difference. If the price had held up, LINE would have just produced and sold at the current price and paid the difference between its hedges and the spot price and kept the hedge price.

Now that the price has come down, they recorded large mark-to-market gains, but cash flow is steady because of the hedges. [Although note that LINE reset some of the hedges during the high prices to take advantage of the rise.]

LINE actually has about 20 years of reserves at current production levels, and can grow production by 4-5% without new acquisitions, funding the drilling from cash flow.

Insiders have been net buyers of the stock over the past half year. Michael Linn sold a small amount of stock for tax purposed but he still owns over 4,000,000 shares.

Deepwater Drillers: Not in a Very Deep Hole

A similar play is Seadrill, a Norweigan company owned by Jon Fredriksen. At their last conference call they were asked if there is any pressure to renegotiate contracts and they said that they only calls they get from customers are asking when they will get the rigs they ordered, and the sooner the better.

The Best Investor You Never Heard Of

It is interesting that Buffet has also made a good portion of his money investing in insurance, especially GEICO.

What Corporate Yield Spreads Are Telling Us About Equities

IMO what is being mispriced in the yield spread is not the high corporate yields but the low Treasury yields.

If that is correct, then it turns the whole article upside down, doesn't it?

Dividend Investing for Monthly Income

I suggest MLPs in particular LINE and also MWE.

You have to do some research. You can look at the MLP group in Investors Village and/or the LINE or MWE message boards in Yahoo. Those are good places to start.

Good luck.

Israel Chemicals: Dramatically Underpriced

From the press release of Nov 25:

Dividends:

- ICL's Board of Directors today declared that a dividend
totaling approximately $380 million will be paid to its shareholders on
December 22, 2008.
- On September 23, 2008, the Group paid a dividend totaling
$300 million, its largest quarterly dividend on record.
- On June 25, 2008, the Group paid a dividend totaling $173
million.
- On April 30, 2008, the Group paid a dividend totaling $115
million.

Credit Crisis Watch: Are the Markets Thawing?

In my opinion, measures that rely on US Treasury rates as the basis of a "risk free" investment are distorted by the artificially low rates of US Treasury paper in recent months. The "flight" to safety has driven the rates to artificially low levels that do not represent the true rate of a risk free investment but the rate that a panic stricken investor is willing to accept for a risk free investment.

LIBOR rates do not include this element of panic and are thus higher, so the spread appears to be wider than it really is.

It may well be at normal levels already.

That is, it may not be the LIBOR rate that is unusually high, but the US Treasury rates that are artificially low.

JMO

Canadian Royalty Trusts Will Never Return to Their Former Glory

I was wondering why you did not mention CPG in the article, but I see that you mentioned it in a comment.

I think that the arguments are basically correct and none of those who disagreed in the comments actually refuted any of the substantive points.

I think that the summary is that the Canroys are not good businesses the way most are run, and now that they are losing their tax advantages, they are left with their flawed business models, or flawed implementations of their good models.

I was also surprised - since you seemed to be in favor of Canroys converting to MLPs - that you did not recommend good MLPs for those who are interested in yield in O&G businesses. The good upstream MLPs, like LINE and EVEP, are great values now and their numbers are better than the Canroy numbers every were. LINE is 100% hedged until the end of 2011 and has around 20 years of reserves. It does not need to raise capital in the near future. Its distributions are tax advantaged for US investors, though not so for Canadians.