The $100 Billion Club (Bespoke)

Friday, March 9th, 2012

Tags: Amp, Berkshire, Bespoke Investment Group, Billion Club, Brk B, Chevron, Cvx, Exxon, Exxon Mobil, Forbes, General Electric, Goog, Google, Market Cap, Msft, Procter Amp Gamble, S Market, Wal Mart, Wal Mart Wmt, Xom
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Corporate Profit Margins Eroding Significantly

Monday, February 6th, 2012

There is an interesting chart from Brown Brothers Harriman posted on the Marketbeat blog at the WSJ.  It shows quite a dramatic slowdown in corporate profit margins thus far this quarter; indeed the worst since Q1 2010 (by a hair).  I am not sure exactly what the reason for this would be as commodity prices have dropped substantially from “QE2 highs” of about a year ago, and wage pressure is almost non existent.  (perversely a stronger economy could at first hurt profit margins, especially if there is a resurgent labor market – however we are nowhere near that point)

That leaves pricing power which apparently must not be as strong as assumed.  These type of things don’t really matter in the midst of a “rip off your face” rally but something to keep an eye on for the future.  [Keep in mind this quarter has been unusually lackluster in earnings 'beats' as well]

• S&P 500 profit margins enjoyed a strong rally from the first quarter of 2009 through mid 2011. But margins declined in the third quarter and the current reporting period is showing further erosion.
• The firm said profit margins stand at 8.23% midway through earnings season, down from the previous two quarters. Ford, Exxon Mobil and GE have all registered disappointing margins this quarter.  “It is becoming clear that the S&P 500 firms are failing to maintain the profit margins reported in the recent quarters,” Thaker said.
• Unit labor costs rose by 1.2% in the final quarter of 2011 after dropping 2.1% a quarter earlier.  Overall, labor costs grew in 2011 after falling during the previous two years, which could play an additional role in weighing on margins.
• “As profit margins are a mean reverting statistic, this bears watching closely,” Boockvar says.

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog

Tags: Brown Brothers Harriman, Commodity Prices, Corporate Profit, Disclosure Notice, Dramatic Slowdown, Erosion, Exxon, Exxon Mobil, First Quarter, Midst, Midway, Mutual Fund, Personal Portfolio, Portfolio Securities, Profit Margins, Q1, Quarters, Rally, Statistic, Wsj
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No ‘Lost Decade’ in Equal-Weighted S&P 500, Up 66% since 2000

Wednesday, December 7th, 2011

A pretty interesting analysis in this story by Bloomberg.  As many know by now we’ve experienced a ‘lost decade’ (actually a bit longer now) in U.S. stocks as measured by the most popular of indexes, such as the S&P 500.  However, that index is market weighted meaning the impact of an ExxonMobil (XOM) is far greater than the companies in slots 490-500.  But, if you had equal weighted all 500 stocks, returns would have been solid, if not spectacular, at +66%.  Leading to the question of why someone has not created an equal weight S&P 500 ETF – reader says there is such a product – symbol: RSP.

Of course this makes sense from the aspect that over the long run, there are limits to growth prospectus – outside of extreme examples like Apple (AAPL), it simply is harder to grow once you hit massive scale.  Hence gains in small or mid caps “should” outperform large caps in the “very long run”.  Specific to the 00′s, after a huge run in stock prices in the latter 90s – especially in the tech space – many large cap company stocks have been especially stagnant as they gave back/digested the big moves a decade+ ago.

• Even with the Standard & Poor’s 500 Index down 19 percent since the bursting of the technology bubble in 2000, it’s been no lost decade for stocks.
• The benchmark gauge for American common equity climbed 66 percent from March 24, 2000, through Dec. 2, after stripping out adjustments for market value, which gives equal credit to Exxon Mobil Corp. (XOM), whose shares are worth $382.5 billion, and Monster Worldwide Inc. (MWW), at $945.6 million.
• That’s little help for most investors, whose returns reflect the capitalization-weighted index, says Cliff Asness at AQR Capital Management LLC.   Gains in the equal-weighted index reflect appreciation in its smaller companies and stocks with lower valuations over the past decade, according to Asness, who helps oversee $38.8 billion as founder and president of the AQR hedge fund in Greenwich, Connecticut.
• Gains in the S&P 500 Equal Weighted Index through the dot- com tumble, the Sept. 11 attacks, the real-estate collapse and the worst financial crisis since the Great Depression show the resilience of U.S. companies that are forecast to report record earnings this year even as Europe’s debt crisis threatens growth again.
• “Corporate America repaired itself,” Chris Hyzy, the New York-based chief investment officer at U.S. Trust Co., which oversees about $360 billion, said in a phone interview on Dec. 1. “On an equal-weighted basis, it hasn’t been a lost decade.”
• Owners of stocks in the S&P 100 suffered the most since March 24, 2000. The index fell 33 percent, driven by declines of 70 percent or more in Cisco Systems Inc. and General Electric Co., the second- and third-largest companies behind Microsoft Corp. (MSFT) at the peak of the technology bubble.
• Equities suffered two bear markets lasting longer than a year in the previous decade. The first began after the S&P 500’s price-earnings ratio reached 31.2 following the 1990s rally led by computer and software makers. The second started in 2007 as global bank losses from subprime mortgages spiraled toward $2 trillion. The gauge doubled in five years starting in October 2002 as energy companies rallied 242 percent as a group and raw- material producers jumped 162 percent.
• Energy producers climbed 149 percent in the past decade.
• Companies in the S&P 500 are poised to report record earnings of $99.05 a share for 2011.
• Smaller companies lifted the S&P 500 Equal Weighted Index to a record on May 10, almost four years after the capitalization-based gauge reached its all-time high of 1,565.15 in October 2007.
• The Russell 2000 Index (RTY), a gauge of small-cap shares with an average market value of $667.8 million, peaked on April 29 and is up 28 percent since March 24, 2000. The relative performance of smaller stocks doesn’t help the majority of investors. More than $5.58 trillion is benchmarked to the S&P 500 and about $1.31 trillion is directly linked to its value, according to an estimate by New York-based S&P.
• The biggest 100 companies make up 63 percent of the value of the S&P 500 and almost half of the entire American market.

Tags: Aqr Capital Management Llc, Cap Company, Capital Management Llc, Cliff Asness, Company Stocks, Equal Weight, Extreme Examples, Exxon Mobil, Exxon Mobil Corp, Exxonmobil, Massive Scale, Mid Caps, Monster Worldwide, Monster Worldwide Inc, Mww, Rsp, Smaller Companies, Stock Prices, Weighted Index, Xom
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Energy and Natural Resources Market Cheat Sheet (October 31, 2011)

Monday, October 31st, 2011

Energy and Natural Resources Market Cheat Sheet (October 31, 2011)

Strengths

• The commodities complex, including industrial metals and crude oil, gained across the board as markets welcomed a deal by the eurozone leaders this week. West Texas Intermediate (WTI) crude oil gained nearly 7 percent and copper jumped more than 14 percent this week as investors’ risk appetite exploded. Commodity-related equities also rallied which drove gains in the Global Resources Fund (PSPFX).
• Macquarie Research highlighted that U.S. durable goods orders, excluding transportation equipment, rose 1.7 percent in September. This was greater than the consensus expectation and is the strongest reading in the last six months.
• Scotiabank noted that copper inventories in Asia are falling at a rate of 50,000 tonnes per week, creating upward pressure on the copper price. The rapid decline means there’s potential for zero inventories by Christmas.
• Rising oil prices have led to a rise in corporate earnings for energy companies. Major producers including Exxon Mobil, Royal Dutch Shell and France’s Total reported strong earnings results for the third quarter this week. Both Exxon Mobil and Royal Dutch Shell reported earnings 40 percent greater than a year ago, while Total’s profit rose 13 percent over the same time period, according to Resource Investing News.

Weaknesses

• Despite positive numbers across the board for the week, the Alerian MLP Index and the Baltic Dry Ships Index were laggards in the sector. However, each saw positive gains, up 3.1 percent and 3.8 percent, respectively.
• A Macquarie report this week noted that the latest SteelBenchmarker assessment by World Steel Dynamics has again highlighted the pressures facing the steel industry. The benchmark World Export hot rolled coil (HRC) price fell 4.2 percent over the past 14 days to $656 per tonne, the lowest since December 2010.
• Non-OPEC oil supply outages have been running twice the level seen in 2010. Further evidence of the supply-side deterioration was seen in the extremely poor set of August numbers for U.K. domestic production. At 808,000 barrels per day, total production is at its lowest levels since 1978.

Opportunities

• Data compiled by Bloomberg this month shows that traders have rising bullish expectations for the agriculture sector. Options traders are snatching up protection against declines in agricultural stocks at the fastest rate in four years. Puts to sell the Market Vectors Agribusiness ETF outnumber calls by more than 2-to-1, the largest discrepancy in almost a year. Over the past month, $2.7 million has been invested in the agribusiness ETF, second-most among all U.S.-listed global equity ETFs.
• China will be reporting its October HSBC Manufacturing Purchasing Managers Index (PMI) on Monday, October 31. The flash PMI announced this past Monday showed expansion in the Chinese manufacturing sector for the first time since mid-summer and the country contributed more than half of global incremental oil demand for the month of September, according to the Financial Express. An accelerated PMI could have a meaningful effect on commodities.
• A shortfall in diesel fuel supply is spreading across China. The Xinhau news agency is reporting that private gas stations are scouring the country for diesel supplies and lines are growing longer at filling stations in major cities. Diesel fuel shortages are common in the winter but longer and heavier-than-usual refinery maintenance mixed with a reduction in retail prices could create the perfect recipe for a squeeze once again this year. PetroChina imported 120,000 tonnes of diesel fuel in October to meet the increasing demand while China National Petroleum Corp. (CNPC) is running its refineries at full capacity. Refinery runs have increased 5.7 percent on a year-over-year basis and the company has encouraged refineries to reduce naphtha output to allow for higher diesel production. Further, CNPC has said that it will raise refinery runs to the second-highest level on record next month in order to maximize diesel output.
• Resource Investing News says rising production costs are putting downward pressure on fertilizer profits. Fertilizer production is very energy intensive, with production requiring significant amounts of sulfur, ammonia and natural gas. Analysts worry that rising input costs and shrinking margin profits may negatively impact the entire industry. However, Potash Corporation of Saskatchewan anticipates improving margins over the near future due to “economy of scale” in terms of potash production. According to Potash, “with demand expected to rise, we believe our expanding potash capability provides a unique growth opportunity. The powerful levers of selling more volumes at higher prices, with the potential for lower per tonne operating costs, offer significant gross margin potential in the years ahead. Beyond the opportunity for margin expansion, the potential for lower per-tonne mining taxes and improved earnings from our equity investments provides significant growth potential.”

Threats

• September PMI data across Emerging Europe will be released on November 1. Roubini Global Economics (RGE) is forecasting further weakening in manufacturing conditions, reflecting a decline in export orders and weakening growth outlook in the eurozone.
• On Wednesday, Freeport McMoRan declared force majeure on shipments of copper concentrates from its Grasberg copper mine in Indonesia as an increasingly acrimonious labor strike over pay and conditions continued into its fifth week. Mineweb suggested that this would mean that the company is not anticipating a protracted period of disruption at the mine.
• In the midst of earnings reporting season, Resource Investing News reported that many analysts are skeptical about producers being able to reach their production targets. As an example, Exxon Mobil will need to pump out 5 million barrels a day to reach its 4 percent growth target for 2011. For the September quarter, Exxon Mobil reported producing 4.28 million barrels a day. Analysts have speculated that one problem for the producers is that companies must sign production-sharing contracts with local governments in some countries. This means oil producers receive a smaller output when countries cash in on rising crude prices. Such agreements are prevalent in Africa, which accounts for 20 percent of Exxon Mobil’s crude oil supply.

Tags: agricultural, Alerian Mlp Index, Commodities, Copper Price, Corporate Earnings, Crude Oil, Durable Goods Orders, Earnings Results, Exxon Mobil, Hot Rolled Coil, Industrial Metals, Laggards, Opec Oil, Outlook, Rapid Decline, Resources Fund, Rising Oil Prices, Risk Appetite, Royal Dutch Shell, Same Time Period, Steel Dynamics, West Texas Intermediate, World Steel Dynamics, Wti Crude Oil
Posted in Commodities, ETFs, Markets, Oil and Gas, Outlook | Comments Off

Exxon Q1 Pays $1M Income Tax per Hour (Who’s Not Paying Fair Share of Taxes?)

Friday, May 6th, 2011

By Dr. Mark J. Perry

ExxonMobil reported its first quarter 2011 earnings on April 28, which came in at $10.65 billion, an increase of 69% from the same quarter last year when it earned $6.3 billion. While the huge earnings amount captured all of the media attention, several other items received much less attention (see chart):

ExxonMobil paid $8 billion in income taxes to various governments in the first quarter, which is about $22 million in income taxes each day, or almost $1 million each hour.

Compared to the first quarter last year, ExxonMobil increased its output of oil and natural gas by 10%, and a large part of that increased output came from a 192% increase in natural gas production in the United States, thanks to new advanced drilling technologies like hydraulic fracturing.

While higher oil prices certainly played a major role in increasing Exxon’s profits, the role of increased output shouldn’t be ignored. And we shouldn’t forget that retail natural gas prices in the United States, adjusted for inflation, are the lowest now since December 2002, in large part due to increased domestic production from companies like Exxon.

Dwarfing Exxon’s first quarter profits of $10.65 billion, are the total taxes paid or collected around the world by Exxon from January to March, which totaled to$26.2 billion and include $8 billion in income taxes, $10.3 billion in sales-based taxes, and $10.3 billion for all other taxes including property taxes, etc.

Exxon Mobil paid $8 billion in income taxes in the first quarter on $18.9 billion of income, which translates into a 42.3% effective income tax rate on its income. And yet according to Obama and others, oil companies “aren’t paying their fair share of taxes,” and should be taxed more?

The 6.1% average profit margin for Exxon’s industry “Major Integrated Oil and Gas” ranks #112 among all industries for the most recent quarter (data here), so if Obama wants to target ‘excessive’ corporate profits, there are many other industries much more profitable than the oil and gas industry.

For example, the surge in commodity prices has resulted in “windfall profit” margins of 31% for the silver industry, 23% for the copper industry and 19.8% for the gold industry. Internet providers are capturing 23% in profit margins, cigarette companies more than 21% and periodical publishers are earning a whopping 51.6% profit margin, so perhaps those would be ripe targets for Obama’s new lust to confiscate “windfall profits.”

Related Reading – Oil Price Inflated, Time To Take Profits from Resource Related Investments

About The Author – Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the University of Michigan, and he blogs at Carpe Diem.

The views and opinions expressed herein are the author’s own, and do not necessarily reflect those of EconMatters.

Tags: Dr Mark, Drilling Technologies, Exxon, Exxon Mobil, Exxonmobil, Fair Share, First Quarter, Gas Prices In The United States, Gdp Of The Philippines, Gold, Hydraulic Fracturing, Income Taxes, Media Attention, Natural Gas Prices, Next Five Years, Oil Company, Oil Prices, Property Taxes, Quarte, Quarter Profits, Tax Earnings
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The Race Is On: Drilling Technology v. Rising Oil Prices

Sunday, April 17th, 2011

by Dr. Mark J. Perry, via EconMatters

Basic economic theory tells us that one of the predictable consequences of resources becoming more expensive is that higher prices will stimulate discovery, exploration and greater production on the supply side.  And that’s exactly what we’re seeing now in Texas for oil and gas, according to this WSJ article dated April 8 - ”Chevron Rekindles Old Texas Flame: High Oil Prices, New Technologies Once Again Make the Permian Basin a Popular Spot for Drilling.”

Here’s an excerpt:

“Climbing oil prices are making the aging oil fields of Texas’s Permian Basin look attractive again to some big petroleum companies. Chevron Corp. has pumped oil from this well-plowed area of west Texas and New Mexico since 1925. But in recent decades, as production in the area declined, Chevron and other companies used it primarily as a lab for oil-extraction techniques that could be employed in larger projects elsewhere.

This year, Chevron, the second-largest U.S. oil company by market value after Exxon Mobil Corp., plans to boost investment to $600 million in the Permian Basin, 32% more than a year earlier, and drill twice as many wells as it did in 2010 in the area.

Its goal is to squeeze more oil out of these aging fields at a time when commodity-oil prices have risen to over $100 a barrel—levels not seen since summer of 2008—and access to oil in the Gulf of Mexico and lucrative foreign fields has become more of a challenge. The company is also seeking to employ new technologies only recently available to unlock significant amounts of Permian crude that were hard to reach before.

The revival of the Permian Basin is also driven by the widespread use of relatively new technologies such as hydraulic fracturing (see diagram), which involves injecting a mixture of water, sand and chemicals underground at high pressures to release oil from hydrocarbon deposits.

In recent years, this and other technologies have unlocked shale oil and gas that wasn’t previously accessible, leading to a boom of new wells across the country. Now they are being adapted and used to boost production from mature oil fields like the ones in the Permian Basin. Chevron and others are also planning to apply the techniques in previously unexplored shale areas of the basin.”

And as the new hydraulic fracturing and horizontal drilling revolutionize the oil and gas industries, that new technology keeps getting better and better. One example is the new QuikFRAC system, which is a “set of tools capable of simultaneously stimulating multiple stages with a single fracture treatment (batch fracturing).”

The main implication of this new QuickFRAC technology is that it can pump three times as much oil in a given time period compared to conventional fracking methods, and therefore reduces the time spent drilling by two-thirds.

Bottom Line – Due to a) increased oil production in the U.S. and around the world and b) advanced drilling technologies on the supply side, along with c) increased conservation on the demand side, will all counteract and put some limits to how high oil and gas prices will rise.

Another factor that will moderate rising oil/gas prices is the substitution effect of switching to other currently available alternative energy sources like natural gas, along with the increased incentive to develop new, alternative energy sources.

Related Reading – Debunking Urban Myths of The Oil Market

About The Author – Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan, and he blogs at Carpe Diem.

The views and opinions expressed herein are the author’s own, and do not necessarily reflect those of EconMatters.

Tags: Chevron Corp, Commodity Oil, Crude Oil, Discovery Exploration, Dr Mark, Drilling Technology, Economic Theory, Extraction Techniques, Exxon Mobil, Exxon Mobil Corp, Gulf Of Mexico, High Pressures, Hydraulic Fracturing, Hydrocarbon Deposits, oil, Oil Extraction, Oil In The Gulf Of Mexico, Permian Basin, Petroleum Companies, Predictable Consequences, Rising Oil Prices, Wsj Article
Posted in Energy & Natural Resources, Markets, Oil and Gas | Comments Off

Silver Is Getting Too Popular… Right?

Friday, April 8th, 2011

by Jeff Clark of Casey Research

Silver Is Getting Too Popular… Right?

It’s no secret that the silver market is red-hot. As I write, silver American Eagles and Canadian Maple Leafs are sold out at their respective mints. Buying in India has gone through the roof, especially noteworthy among a people with a strong historical preference for gold. Demand in China continues unabated. Silver stocks have screamed upward.

So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we’re near the top? Have the masses finally joined the party such that we should consider exiting? After all, it’s not a profit until you take it, and you definitely want to sell near the top.

There are several ways to measure how crowded the silver market might be. I prefer to look strictly at the big picture and not get caught up in the weeds. This means I’m looking for signs of market exhaustion or the masses rushing in. Nothing says “peak” more than an investment everyone is buying.

So how crowded are silver investments right now? Let’s first look at the ETFs.

At $35 silver, all exchange-traded funds backed by the metal amount to $20.7 billion. You can see how this compares to some popular stocks. All silver ETFs combined are less than a quarter of the market cap of McDonald’s. They’re about 10% of GE, a company that still hasn’t recovered from the ’08 meltdown. Exxon Mobil is more than 20 times bigger. And this isn’t even apples-to-apples, as I’m comparing the entire silver ETF market to a few individual stocks.

This is even more interesting when you consider that it’s the ETFs where most of the public – especially those that are new to the market – first invest in silver. So while the metal has doubled in the past seven months, total investment in the funds is still far beneath many popular blue-chip stocks.

Okay, maybe all this money is instead going into silver mining stocks. How does the market cap of the silver industry compare to other industries?

While you fetch your magnifying glass, I’ll tell you thatthe market cap of the silver industry is $73.1 billion. It barely registers when compared to a number of other industries I picked mostly at random. The dying newspaper industry is over 26 times bigger. Drug manufacturers are 213 times larger. Heck, even the gold market is 19 times greater. And here’s the fun one: the market cap of the entire silver market, with all its record-setting prices and stock-screaming highs, represents just one-third of one percent of the oil and gas industry.

To be fair, there are a number of sectors that are smaller than silver. Radio broadcasters ($43.2B), video stores ($10.9B), and sporting goods stores ($2.5B) have puny market caps, too. But then again, who’s buying DVDs or baseball mitts to protect their wealth from a coming inflation?

Silver hardly resembles the picture of an investment that is too crowded.

I’m not saying one should rush to buy silver right now. After all, it has doubled in seven months. Unless this is the beginning of the mania, prudence would certainly be called for at this juncture. The price will always ebb and flow in a bull market, and an ebb is overdue.

The question, of course, is from what price level it occurs. What if a correction doesn’t ensue until, say, a month from now, and the price falls back to… where it is now? I remember some articles in January that insisted silver would fall to as low as $22, and, well, they’re still waiting and have in the meantime missed out on some huge gains. For silver to fall back to $22 now would require a 40% drop; not impossible, but I wouldn’t hold my breath.

Fixating on market timing takes your focus off the ultimate goal. In my opinion, instead of worrying about what will happen next week or even next month, focus on how many ounces you have, and then buy at regular intervals until you reach your desired allocation. This has the added benefit of smoothing out your cost basis. And don’t forget to buy more as your assets and income increase.

This is a market where you’ll want to be well ahead of the pack. Someday in the not-too-distant future, average investors will be tripping over themselves to join in. That will make the market caps of our silver investments look more like some of the others in the charts above. And that will do wonderful things to our portfolio.

Copyright © ZeroHedge.com

Tags: Apples To Apples, Blue Chip Stocks, Canadian, Canadian Maple Leafs, China, ETF, ETFs, Exchange Traded Funds, Exxon Mobil, Gold, Gold Demand, India, Market Cap, Meltdown, Mints, Natural Question, oil, Research Silver, Seven Months, Silver American Eagles, Silver Etf, Silver Etfs, Silver Investments, Silver Market, Silver Mining, Silver Stocks, Silver Trade
Posted in Canadian Market, Energy & Natural Resources, ETFs, Gold, India, Markets, Oil and Gas, Silver | Comments Off

Crude Oil To Bust Through on Supply Concerns

Monday, January 10th, 2011

Since the start of the New Year, West Texas Intermediate (WTI) crude oil have been moving with significant bearish sentiment (See Chart) mostly on a lot of profit taking going around in the commodity space, and also on concerns over the high inventory and that supplies would exceed demand. The latest jobs report only further fanned the pessimism.

However, there are two new events that could turn the market around quickly before you can say “what happened?”

Shutdown – Canadian Upgrader

First, there was a fire on Jan. 6 at an oil sands upgrader (that’s where bitumen is converted to synthetic crude oil), which forced Canadian Natural Resources Ltd. to shut production at its 110,000 barrels per day (bpd) Horizon oil sands project.

Canada is the top region where the United States gets its crude oil and petroleum product imports. This 110,000 bpd capacity is almost 6% of the U.S. daily import volume from Canada.

Shutdown – Alaska Pipeline

Then, the Trans Alaska Pipeline, which is owned by BP, ConocoPhilips, Exxon Mobil Corp., Chevron Corp. and Koch Industries Inc., had to shut down on Saturday Jan. 8, after a leak was discovered at Prudhoe Bay. (Talk about how BP just can’t get a break.)

The 800-mile pipeline carries about 15% of U.S. oil production. Oil producers reportedly are in the process of cutting 95% of output, which is normally around 630,000 bpd. So far, there’s no estimate as to how long the shutdown will last.

Worse Than Hurrican Ivan

These two outages could potentially cut the U.S. crude supply by up to 709,000 barrels per day. That’s about 8% of the U.S. crude import, and around 3.6% of U.S. consumption.

To put it in perspective, this 709,000 bpd volume is more than the disruption caused by Hurricane Ivan. When Ivan hit the U.S. Gulf in 2004, it took down about one third of the oil output in the region, which is around 1.6 million bpd.

OPEC Eyeing $110 a Barrel

Last but not least, several OPEC members are increasinly talking about how the Cartel would not act unless crude crosses $110 a barrel.

This new tightened supply picture, couple with OPEC talks will most likely turn crude oil to move on its own momentum. As such, there will be new money coming into the market, more upward pressure, and lots short covering.

Breaking Above $93 on Supply Concerns

From a technical standpoint, there’s a high probability that crude could easily top $91 a barrel as early as Monday, Jan 10, from the current $88.41 price point, before busting through $93 a barrel levels by end of the week on supply concerns. And also look for WTI to outperform Brent during the week.

Disclosure: No Positions
Dian L. Chu, Jan. 9, 2011

Tags: Bearish Sentiment, Canadian Market, Canadian Natural Resources, Canadian Natural Resources Ltd, Chevron Corp, Commodity Space, Crude Supply, Exxon Mobil, Exxon Mobil Corp, Horizon Oil Sands, Hurrican Ivan, Hurricane Ivan, Import Volume, Koch Industries Inc, Mile Pipeline, Oil Producers, Oil Sands, Opec Members, Petroleum Product, Synthetic Crude Oil, Trans Alaska Pipeline, Wti Crude Oil
Posted in Canadian Market, Energy & Natural Resources, Markets, Oil and Gas | Comments Off

Dow Member Trading Ranges

Wednesday, November 10th, 2010

by Bespoke Investment Group

lt has been awhile since we updated the long and near-term performance of the 30 members in the Dow, so below we do so using our custom trading range screen.  At the moment, 20 of the 30 stocks in the index are trading into overbought territory (more than one standard deviation above the 50-day moving average).  Just two stocks are oversold — Kraft (KFT) and Merck (MRK).  Surprisingly, Exxon Mobil (XOM) — the biggest company in the world — is the most overbought stock in the Dow at the moment.  Intel (INTC), Disney (DIS), Alcoa (AA), Cisco (CSCO), and Hewlett-Packard (HPQ) aren’t far behind Exxon.  The key Financials in the Dow – Bank of America (BAC) and JP Morgan (JPM) — were both oversold a week ago, but they have rebounded quite significantly.  Bank of America has now moved above its 50-day, and JP Morgan has moved into overbought territory.

In terms of year-to-date performance, Caterpillar (CAT) remains on top with a 2010 gain of 45.42% at the moment.  Du Point (DD) isn’t far behind with a gain of 43.63%.  Bank of America (BAC) is down the most year-to-date at -16.73%, followed by Hewlett Packard, Alcoa, and Microsoft.

Copyright (c) Bespoke Investment Group

Tags: Alcoa, Bank Of America, Bespoke Investment Group, Biggest Company In The World, Caterpillar Cat, Cisco Csco, Exxon, Exxon Mobil, Hpq, Intc, Jp Morgan, Jpm, Kraft Kft, Merck Mrk, Microsoft Copyright, Moving Average, Standard Deviation, Term Performance, Trading Ranges, Year To Date
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Exxon Apostasy, Part II

Friday, June 18th, 2010

This article is a guest contribution by Vitaliy Katsenelson, CFA, portfolio manager/director of research at Investment Management Associates in Denver, Colo.

A very interesting cover story article in BusinessWeek about Exxon Mobil (XOM) (XOM 62.6 �‘0.14%).  I am usually skeptical of cover story articles, especially from BusinessWeek as in the past they’ve been contrarian indicators. This time they are onto something (ok, that is maybe because I agree with them).

As I’ve written in the past, Exxon is a classic religion stock, meaning investors own it because it has done so well in the past and because it is the best-managed oil company.  Exxon is not analyzed; it is just owned — bought or inherited and never sold.  Well, neither reason is enough to just blindly own a stock which is what happens when a company becomes a religion stock.

Exxon may have the best balance sheet in the industry and may even have the best management (some may argue with this point as management has NOT grown reserves but this maybe results of the company just hitting its natural growth limits meaning it is simply too big).   Allow me to point out another issue — every barrel it sells it needs to replaced and, according to the article, it has had a hard time achieving that goal.

Some interesting points:

In 2007 the company replenished just 76% of the approximately 1.52 billion barrels it produced that year, according to its Securities & Exchange Commission filing….
The 2008 numbers, to be reported this month, seem certain to be worse. That’s because the SEC considers only those reserves that are economically viable at the price of oil on the last day of the year. On Dec. 31, 2008, a barrel of crude sold for $44.60, less than half the 2007 year-end price of $95.98. The lower the price of oil, the lower the percentage of Exxon’s reserves that would clear the hurdle.

It gets worse…

Exxon is actually shrinking. According to analysts, since 2004 it has replaced more than 80% of the approximately 1.5 billion barrels of oil it sells each year with natural gas, which in the U.S. is worth barely half the price of oil. So when Exxon uses gas to replenish its 72-billion-barrel resource base, it erodes its own value.   Oppenheimer & Co. has determined that Exxon’s “proven reserves,” when one takes into consideration the lower value of gas, are 17.9 million barrels, or 21% less than the amount the company reported in 2007.

This article is a guest contribution by Vitaliy Katsenelson, CFA, portfolio manager/director of research at Investment Management Associates in Denver, Colo.

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