Saul Sterman

Houston to Obama: Smell the Oil

paulk8756,

Thank you.

Chicken and Egg: A Currency Called the Oil/Dollar?

Rule of thumb:
"Each 1% change in the dollar as measured against a basket of currencies causes oil to correct by about $4 in the opposite direction. A three percent dollar appreciation would result in oil coming down by $12."

Nothing has changed. I have been posting this since late 2006. Basically, the price of oil in dollars follows the dollar; true since oil hit the 60 level which is supply/demand based.

Price levels over 60 is currency devaluation which in turn creates global inflation which can feed upon itself for quite some time.
I'm not going to rehash here all the articles I have written on the topic.

The bottom line is that the next time we see oil at 140 it could be fundamental and NOT due to currency devaluation. In such case the price increase sticks until new technology that can substitute oil is proven to work (and implemented).

Saul Sterman

Houston to Obama: Smell the Oil

Tarun,

Read the article again. No one is saying that XOM or RIG have no competition. The argument is that whereas there is seemingly efficient competition for XOM - based on margins, at first look it seems that there is lack of efficiency in the rig sector.

The conclusion is that this is an aberration brought on by new deep water fields requiring new technology etc.

Dare I say that if you can't follow a trend of thought for a few paragraphs perhaps it would be wise to leave investment advice to others! All in good spirits!

As an aside, I'm not sure that readers realize that the picture is of the Four Horsemen of the Apocalypse as described in the Christian Bible. In essence this is meant to reflect my ambivalence regarding RIG. On the one hand I say let them be as they fight our battle, but do so with a watchful eye on conquest, war, famine and death. You must admit it is truly amazing how oil can embody all four. No offense intended towards anyone; being that I'm not Christian, I wasn't certain if an elaborate comparison/ parallel would be considered offensive…so I'll leave it to the readers to fill in the blanks. The link to the Metallica lyrics "The Four Horsemen" pretty much hit the nail on the head.

Huntsman Buyout of Hexion is Dead

Here's the link again (don't know why it didn't take the first time)
seekingalpha.com/artic...

Huntsman Buyout of Hexion is Dead

See:
seekingalpha.com/artic...

A lot of questions, after the fact though. The above linked balanced article is from before it happened. As you can see from the article, all your questions are answered.

In a nutshell, the price was too high to begin with and the chances that a downturn would trigger a MAC were very real. This is why Matlin Patterson cashed out below the Basil offer price (competing first bid).

Normally you are correct in stating that deals are structured so, that the chances of a severe downturn triggering a MAC are nil or close to it. This just wasn't the case here from day one.

It pays to read Seeking Alpha!

Killed by the Huntsman

See:
seekingalpha.com/artic...

Nice reporting, after the fact though. The above linked balanced article is from before it happened.

Huntsman Corporation: Is This Deal Real?

Hindsight, I should have shorted this one. Matlin Patterson made the smart move, taking a lower PPS and cashing out. As stated in the article, the price tag was just way too high and my concern over a MAC did materialize.
Hexion may not have to pay a break-up fee. Also the CCU contract had different language regarding the financing so from a legal perspective the two are not the same.

Saul Sterman
CrossProfit

Wall Street Breakfast: Must-Know News

Regarding Huntsman (HUN), see article beneath 2008 chart here:
www.crossprofit.com/vi...

As stated in article, no position was taken in this arbitrage. As the title suggests, there were just too many question marks popping up. Upon this last earnings miss, Apollo called a MAC yesterday effectively nullifying the acquisition agreement. There may NOT be a break-up fee though HUN has gone to court!

HUN should have negotiated a new price tag though the whole scenario is very problematic as certain shareholders already cashed out. This deal looks dead; funeral dance (courts) to follow.

Saul Sterman

Restoration Hardware Class Action Payout Still Leaves Shareholders Short

What else is new? I never liked Friedman.

"However RSTO is NOT an investor friendly company and comes with a ‘high risk’ warning label."
See article from 03/2007:
www.crossprofit.com/ar...

More than warn SA readers about the person/people at the helm, there is nothing I can do. Sorry to hear that you had to learn the hard way.

Saul

Oil Hits $140: What Could Trigger a Reverse?

jjason,

I fail to comprehend your comment.
You are entitled to your opinion as I am entitled to mine.
If it annoys you that I think that a correction is forthcoming ONLY when certain conditions are met, then so be it.
If it annoys you that I disagree with Lien's assertion that the correction will last forever and oil will never go up again ("will result in a sharp and lasting reversal") then so be it.

Since I seem to have gotten your attention, here's how I see it playing out...

1) Eventually there will be a major correction once there is evidence that there is a surplus supply of oil OUT OF THE GROUND that has no takers. This in turn will force the hand of the speculators.

2) I first noticed in May that a large number of mutual funds and institutions were selling XOM aggressively. I then realized that there are actually two opposing forces at play. First, the expectation that oil and NG prices would drop. Second, though seemingly contradictory, there was a marked increase in drilling activity. My conclusion was and still is that the drop will not be back to 45 or 60 but closer to 85/100.

3) Using XOM as a benchmark, when oil is on the rise, XOM trades at a 1.15/1.20 multiple to oil. This means that if oil is selling at 60, XOM will trade at 60x1.15=69. When oil is stable, XOM trades at a 1 to 1 ratio. When oil is coming down, XOM trades at a 0.85/0.90 multiple. XOM is now trading at 88, so this would be 88 divided by 0.9 = 97. This is how I know that oil is going to correct to 97 or there abouts. This isn't a pure science and I wouldn't bet the house on it, just for the past 25 years has been a reliable directional indicator like brokers use the DIA, which is a totally flawed weighted index...

4) As an investor, fund manager, sell side analyst or whatever title you want to apply, I couldn't care less about GS or Morgan Stanley ripping off the public as long as I can legally, ethically and morally read the market trend ahead of time and use my analysis to the advantage of my clients and myself.

5) As a private citizen, I would demand that anyone who has committed a crime, regardless of stature, be held accountable and reconciled with in accordance to established legal procedures.

6) On a personal level I am a Liberal Democrat which includes the belief that all are innocent until proven guilty. I do not bend my convictions when it is inconvenient for me. I have mentioned to Phil Davis in the past to show more respect to President Bush, not that disagreeing is disrespectful, it is how it is done that matters. If this bothers you, then so be it.

7) Last but not least - just to annoy you ;) - even if I was 100% certain that GS is the mastermind behind this horrific energy bubble and have colluded with certain U.S. politicians, selling out the country to certain Middle East partners and perhaps helped orchestrate the housing bubble with or without the assistance of the former or present Fed chairman, I would still say "innocent until proven guilty".

If we get an undeniable physical surplus, the game is over - at least for now. However, this mini crisis is a sign of things to come. The next time will be for real, no bubble.

Saul Sterman

Oil Hits $140: What Could Trigger a Reverse?

DRich,

Thanks for the reply.
I am aware of the calls by several brokerage houses as you mentioned. My point was, why should it stop at $200? The brokerages gave a time related price increment based on current pricing models whereas Lien is talking in conceptual terms not relative to a time factor.
In theory, based on Lien's hypothesis, the price of oil should be rising continuously without limit.
In summary, either Lien should state a time frame for her $200 assessment and either base it and/or peg to other analysis, or say 'to prevent oil from rising continuously'.

Saul

Oil Hits $140: What Could Trigger a Reverse?

Pardon my ignorance, but why $200? Why not $169 or $255? Is this an arbitrary number or a target that is based on something? Perhaps you mean to say 'to prevent oil from rising a lot' instead of 'to prevent oil from rising to $200'.

Now for the crux of the matter:
The Saudi announcement means nothing. In the past, Saudi has stated increases and decreases only for the market to find out months later that they did the opposite of what they said they were going to do.
This time around the market will be looking for tangible evidence that there is an actual surplus of refine-able crude building. Once that happens, we will get a correction. By how much and how quickly is another story.
We are still at the 'prove the production' stage and 'show us that you really understand that you are destroying your customers (worldwide) ability to continue buying your product'.
The market also takes into account the Chavez wild card. He just might CUT to match any Saudi increase...then what? Bottom line, it isn't happening until it happens.
Will it happen - yes. The question is - when and for how long will it last?

Saul Sterman

NYT Smears David Einhorn, Again

"but there are countless cases of long investors committing all kinds of fraud"

People who live in glass houses shouldn't throw stones! :)

If you really want to look up the information you so desperately seek, Google it. It takes a few seconds!

As an aside, there are numerous articles on SA selling long rumors regarding acquisitions that don't exist and are the imagination of the authors holding long. Would you like me to name a few or would it be politically correct to leave it at that and you can look it up if you so desire.

Saul Sterman

Valero Energy: The Price of Oil

Jake,

As an aside, have you noticed how many institutions have sold XOM during the month of May? Last count it was over 850! Now, either they know something that I don't or they are all raising cash for some other reason. I'm still looking into COP and CVX to see if there is a similar trend.

Valero Energy: The Price of Oil

Jake,

Point well taken.

The problem is that the 'speculation factor' really is an unknown. In any event, in terms of dollar devaluation, this was taken into account.

In terms of a price equilibrium based on supply and demand, this too is highly speculative based on the fact that the market has been out of sinc since the beginning of the year. If you can find any model/formula that has worked anytime in the past two decades that yields true results today, please let me know. This is indicative of a top (bubble?) or a nasty correction. However, I must caution that few have been able to predict accurately any major correction in the past. Luck is far more the norm than any analysis.

One can do a true analysis ONLY when normal market conditions persist.

Saul Sterman