I like Oil

Running_Man said:
All the oil countries together only hold 249 billion of US debt of 17 trillion by far the largest holder is the FED followed by China. This amount is dwarfed by the creation of junk bond debt to support this oil market, as for the oversupply helping economic activity this time, we will see if this is true in the coming 12-18 months I think the loss of oil sales and major tax revenues in the US, layoffs in the oil sector and immediate end in capital spending boom and loss of state and federal revenue will swamp the positive effect of consumer sales for other items. Especially in the US
http://www.treasury.gov/ticdata/Publish/mfh.txt
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Not to nitpick, but we've busted through to the $18 trillion mark now. Up from just $7.5 trillion 10 years ago. Who says you can't borrow your way to prosperity?

Debt to the Penny (Daily History Search Application)
 
Oil price drop is starting to have serious repercussions in the debt market as bond managers shed junk bonds issued to finance the recent US oil boom.
 
harley said:
Not to nitpick, but we've busted through to the $18 trillion mark now. Up from just $7.5 trillion 10 years ago. Who says you can't borrow your way to prosperity?

Debt to the Penny (Daily History Search Application)
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What is different is the amount of junk bonds being used to finance such a big part of the economy and the main positive driver for many areas of the country. The level of junk bonds in the oil sector are now at an all time high and close the amount probably exceeds the amount of subprime debt in 2008 of 1.3 trillion. The decline in value and bankruptcy in holders of the debt in this case will not be politically feasible to rescue in comparison to the housing crisis where the government can claim moral necessity. Saving oil service firms and the businessess that support that activity will not go well poliitcally in my opinion and so this will turn out to be an event that will be outside the control of the Federal Reserve until it is too late.

Most of the individuals speaking on CNBC the past week have been quite adamant that this oil development is positive for the US and the economy. My position is this is looking at only the retail level and missing what a true deflationary impact does to a large amount of debt that is in truth highly risky even if it is financed with low interest rates.
 
It would be easier to see the upside if petroleum prices were falling at a rate that is a bit more "slow and steady". These sudden, sharp declines are bound to provoke a greater downside.
 
Running_Man said:
For our neighbors to the North this is not good either Canadian Dollar is basically a peg to the oil price and as it falls this will also put significant pressure on Canadian Real Estate which for the most part totally avoided the real estate crash of 2008 2015/2016 could be the years of the Canadian real estate crash if oil prices do not bounce back. Basically the Susan Rice portfolio could be in for a world of hurt
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Hmmm that could be a good thing for me. If real estate falls (and given a stronger US dollar) my case for moving back to Canada becomes stronger :cool:

But it would not be a good thing for the rest of my family :(
 
Running_Man said:
What is different is the amount of junk bonds being used to finance such a big part of the economy and the main positive driver for many areas of the country. The level of junk bonds in the oil sector are now at an all time high and close the amount probably exceeds the amount of subprime debt in 2008 of 1.3 trillion. The decline in value and bankruptcy in holders of the debt in this case will not be politically feasible to rescue in comparison to the housing crisis where the government can claim moral necessity. Saving oil service firms and the businessess that support that activity will not go well poliitcally in my opinion and so this will turn out to be an event that will be outside the control of the Federal Reserve until it is too late.

Most of the individuals speaking on CNBC the past week have been quite adamant that this oil development is positive for the US and the economy. My position is this is looking at only the retail level and missing what a true deflationary impact does to a large amount of debt that is in truth highly risky even if it is financed with low interest rates.
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As long as this stuff has been sold as straight junk, and not sliced up in tranches with pieces marked as AAA grade "low risk" debt, we should avoid one of the nasty surprises that occurred in 2008.
 
audreyh1 said:
As long as this stuff has been sold as straight junk, and not sliced up in tranches with pieces marked as AAA grade "low risk" debt, we should avoid one of the nasty surprises that occurred in 2008.
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I think not actually, the knowledge was there that we had subprime loans, the fact they were rated AAA when sold in collaterized form had no impact on the eventual outcome, what the issue was they became worthless for a value of 1.3 trillion. If oil junk bonds go worthless for a value of about 1 trillion dollar the impact will be very similar as unexpected consequences occur. It is the value of money that goes under that causes the issue, not the rating. The rating allowed far more loans to be written than would have been written at the interest rate would have afforded.

The central governments of the world holding interest rates near zero as a consequence of 2008 have allowed the same level of debt build up to be created in junk bond markets. These projects never would have been completed if interest rates for the junk market were closer to a true junk rate of about 8-10% in a normal inflation enviroment instead of the 4-5% they were able to get. But just like the subprime housing the debtor cannot pay whatever the interest rate at oil $60 and the assets backing the loan have lost a great deal of their value as well to the point of being greater than the loan value by a great deal, only who holds all this remains to be seen. So either oil has to recover to 70-80 by first qtr next year or there will be hell to pay.
If there is any doubt that exposure to oil is being downplayed due to hedging see this article with comments from the CEO of a very good and strategic bank Cullen-Frost. They are counting on hedging to hold the day until the price recovers, if it does not recover there is not a backup plan they will be hurting bad
Cullen/Frost Bankers, Inc. Explains How Oil Prices Are Impacting The Banking Business | Benzinga
 
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Running_Man said:
I think not actually, the knowledge was there that we had subprime loans, the fact they were rated AAA when sold in collaterized form had no impact on the eventual outcome, what the issue was they became worthless for a value of 1.3 trillion. ......http://www.benzinga.com/media/cnbc/...he-banking-business-cullenfrost-bankers-input
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Except that those "AAA" instruments back then were often held as conservative and "safe" investments. Even as money-market substitutes. The money lost was not money anyone expected to lose, or at least not lose so quickly. Credit markets temporarily got badly squeezed as a result. As courts have found since, there was an aspect of fraud in how some of these securities were marketed.
I see junk bonds today as a different situation. Junk bonds are labeled as such. They are (or at least SHOULD be) held by investors/institutions prepared to lose money if economic conditions worsen. I see no evidence that most junk today is being held as "conservative" assets like too many of those repackaged subprime instruments were back then. Even if all those oil drillers' junk bonds became worthless I do not see how it would collapse the financial markets. The US stock market alone (not inc privately held companies nor bond market) is over $US 20 trillion. No one is predicting the sky will be falling if the S&P 500 suffered a 5% correction.
 
Fermion said:
Is this a joke or are you serious?

KMI?
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I am adding to KMI as it drops. KMI earnings are not dependent on high oil prices as the business is moving products, not producing. The CEO just reaffirmed that the annual div will go from the current $1.76 to $2.00 in 2015.
 
Fermion, interested in your take. (I thought I would get razzed about LNCO!)

I stretched today and bought SU and LNCO. Not KMI yet.

Talk to me.
 
Ed_The_Gypsy said:
Fermion, interested in your take. (I thought I would get razzed about LNCO!)

I stretched today and bought SU and LNCO. Not KMI yet.

Talk to me.
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What do I know, I tried to short Exxon yesterday when it spiked to $91.50 by buying April $95 puts and selling Feb $90 puts for a price of $3.50. It would have filled at $3.55 but I wanted $3.50. One day later and that spread is worth $4.40.

Sigh.

My take is if you want to play the oil rebound, buy the drillers. They have been absolutely crushed. I don't know how this has played out yet but I think Exxon is overvalued at this level even though they do make good money on refining. I really expect Exxon to fall to the $75 or $80 range soon if the oil slide continues.
 
Fermion said:
What do I know, I tried to short Exxon yesterday when it spiked to $91.50 by buying April $95 puts and selling Feb $90 puts for a price of $3.50. It would have filled at $3.55 but I wanted $3.50. One day later and that spread is worth $4.40.

Sigh.

My take is if you want to play the oil rebound, buy the drillers. They have been absolutely crushed. I don't know how this has played out yet but I think Exxon is overvalued at this level even though they do make good money on refining. I really expect Exxon to fall to the $75 or $80 range soon if the oil slide continues.
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For now, the offshore drillers are really in a pickle. Rig is under $20 and if oil stays low, say under $60, they and other offshore drillers have a big problem. I suspect RIG will dump the dividend soon.
 
Yes, if I were buying a driller right now it would be Seadrill. They have already done the pain of dividend cut (actual elimination) and they have contracts booked at the higher day rates for 2015 and some of 2016. A majority shareholder John Fredrickson has purchased a ton of shares at $28 and $12 but you can buy the stock today for $11.


It is unlikely they would go under until 2017, which gives you a lot of time for this mess to rebound. If they resumed even half the dividend it would be a near 20% payout.
 
Fermion said:
Yes, if I were buying a driller right now it would be Seadrill. They have already done the pain of dividend cut (actual elimination) and they have contracts booked at the higher day rates for 2015 and some of 2016. A majority shareholder John Fredrickson has purchased a ton of shares at $28 and $12 but you can buy the stock today for $11.


It is unlikely they would go under until 2017, which gives you a lot of time for this mess to rebound. If they resumed even half the dividend it would be a near 20% payout.
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Seadrill was mentioned last night on Fast Money by one of the talking heads as the way to go, especially if RIG cuts its dividend.
 
Fermion said:
What do I know, I tried to short Exxon yesterday when it spiked to $91.50 by buying April $95 puts and selling Feb $90 puts for a price of $3.50. It would have filled at $3.55 but I wanted $3.50. One day later and that spread is worth $4.40.

Sigh.

My take is if you want to play the oil rebound, buy the drillers. They have been absolutely crushed. I don't know how this has played out yet but I think Exxon is overvalued at this level even though they do make good money on refining. I really expect Exxon to fall to the $75 or $80 range soon if the oil slide continues.
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I like XOM, but there is never any weakness in their share price. I worked on a project with them years ago and they KNOW how to run this business.
 
Ed_The_Gypsy said:
I like XOM, but there is never any weakness in their share price. I worked on a project with them years ago and they KNOW how to run this business.
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I know what you mean. My gambling money has been zeroed in on oil the past few months specifically Exxon, but I think I am throwing in towel on them. Peak to trough XOM down 15%, while CVX is down 23%, and RDS 27%. I want oil to drop some more then probably just split up the gambling money between SU and the XLE. Drillers are way to speculative even for my gambling money.


Sent from my iPad using Tapatalk
 
Certainly some weakness in Exxon today. Damn I missed the boat on those puts.

Funny that I can always convince myself to go long but have the hardest time going short anything.
 
I'm convinced there are spectacular deals out there. I figured RSX is a raging deal, but, only voted with 1% of my dollars early in the week. Down 10%, so far. Now I'm convinced I'm (we are?) way too early to the party when it comes to Oil and/or Ruble collapse. A double whammy collapse? Yes, but oil was just irrationally exhuberant for so long that I'm sure the yo-yo will swing way too far down before it stabilizes.

-CC
 
There are plans to develop an oil shale field just south of us in Mexico, that is three times the size of the Eagle Ford Shale field. We are expecting corporate operations to be set up in our area just north of the border.

They have some serious security issues to clean up first. Maybe they can hire those private contractors that went into Afghanistan. It will take something like that because it's pretty lawless down there and the bad guys are heavily armed.
 
CCdaCE said:
I'm convinced there are spectacular deals out there. I figured RSX is a raging deal, but, only voted with 1% of my dollars early in the week. Down 10%, so far. Now I'm convinced I'm (we are?) way too early to the party when it comes to Oil and/or Ruble collapse. A double whammy collapse? Yes, but oil was just irrationally exhuberant for so long that I'm sure the yo-yo will swing way too far down before it stabilizes.

-CC
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I keep looking at RSX among other things but have been [luckily it turns out] too gun shy to pull the trigger. Next week will likely see me dipping my toe into these waters...unless I chicken out again.
 
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