re: Marshall Adkins comments...
This sounds like May-June 1998 Deja Vu all over again....
Adkins comment below - that $10 Oil if seen is "not a big deal" is assinine & ignorant. This guy is a MORON if he believes that...
his quote:
<<"And I don't think anyone is drilling oil wells assuming oil will be above $25 forever. So, if it came down $10, that's not a big deal. It isn't likely to change anyone's
drilling plans. So you have a pretty big buffer between where drilling will slow down and where prices are today.
So even if you consider oil in the mid-$20s and gas around $3, many of the exploration and production companies are trading at historically low multiples. And, if you plug in $6 gas and $30 oil, many of these companies are trading at
only one or two times their cash flow. ">>
You know; this continual reference to the "historic average" multiple of 5-7 times cash flow - is something I've never seen as being average - in the last two Oil cycles ?
It seems more realistic to me that the E&Ps sell at 2-3 times cfps and only reach 5-7 times cfps on an individual basis and only on the uptrend cycles of commodity prices; they don't maintain those multiples at the top, let alone on the downard cycle - regardless from what levels we begin to fall from.
Only if we truly are only at the end of year # 2, in a potential 5 year Major Oilpatch expansion Cycle; will we see 5-7 times cfps across the board for the E&P's.
We would have been much, much better off if we had slowly climbed to $28ish Oil and $4.50 Nat Gas here versus $35 Oil & $6+ Nat Gas - which no one views as sustainable. In prior environments when the "non-believers" viewed commodity prices as having peaked and attained unsustainable levels; they sold out of the sector completely; which took us longer & took us lower; than most expected.
I am not so sure; that in this "modern" environment of Global Central Bank intervention in currencies, commodities and markets; that multi-year cycles are going to be the norm. I think these 2 year-ish cycles as we saw in 97-98 and may be seeing here for 99-01; may become the norm.
I added a few OSX calls today; but no common stock; took a little off the table on the XAU breakout leaders in taking some NEM/HM off the table and rotating to laggards DROOY, GOLD & PAAS in XAU gold/silver stocks.
I think it's now clearly apparent; that taking significant profits at OSX 125ish & using trailing stops down thru 115ish; was a better way of playing - "this situation" than riding the OSX all the way down to sub 100 here and now adding more stock. - those that sold & got stopped out; allready in essence have the next "bounce" to OSX 120 in the bag...
This is a tough call - strong underlying fundamental arguement for a strong 2001-2002 in the Oilpatch exist; BUT ! - all bets come off immediately if the US Economy shows negative economic trends in the next 2-3-4 months and I think the Gateway, the Raytheons, Daimler Chrysler with their massive layoff & production cut announcement and all the Xmas retailers, in addition to all the other recessionary indicators; are pointing to that downside. The risks that are building within the financials also point to continued unrealized risk within the broad market.
Certainly a tradeable rally here is possible, if not probable; but so few sold and took profits here in the OSX 120's +; that buying here has to be limited for the vast majority of Oil investors and once again; they would allready have the next potential "rally" in the bag if they allready sold.
I'd rather wait for a true capitulation - OSX 80's before making any significant re-entry. There is NOTHING that is going to take the OSX to new highs anytime soon here; NOTHING.
Even though I have significant cash & very limited exposure here; I think shorting a winter-weather related spike is a better risk vs reward play; than calling a bottom at OSX 100; for potentially at best - playing a 100-115, maybe 120 bounce -> which is nothing new, or attractive as we've seen 120 come & go many times since this spring. I prefer to play it with calls; again limiting & defining downside; but maintaining some upside "leverage".
I'd rather wait for that real final capitulation buying opp if seen; of an OSX 80ish level - and ONLY after seeing some indications that the external events are settled and no longer cap the Oilpatch's fundamental upside; and that the US Economic indicators show a reasonable soft landingas probable. Making any significant bets prior to settling those issues - is gambling and not an attractive risk vs reward play; not when the Oilpatch doesn't control it's own destiny here.
I don't plan on making any major bets; until the Oilpatch DOES, once again - control its own destiny... Then & only then; will the still very attractive underlying fundamentals be worth betting on... not before.
RE: RECESSION 2001
...per the earlier comments by (Winkman ?) on the Auto Financing layoff's - Daimler Chrysler's just announced a 20% production cut for 2001 and massive layoffs.
This Xmas retailing season is going to lead to another "reality" check and the endorsement of:
RECESSION 2001
... we've all seen what happens to Oil Prices during any economic slowdowns... and it does not matter from where we fall; only that we've begun to fall .
As Big Bull said - the cure for $35 Oil - is $35 Oil.
The pendulum overswings in both directions... and that "overswing" level serves as both the entry & the exit points of a cycle... ask yourselves; which one we are closest too ? |
