| No magic number, but refining companies in the past even lost money some years. Today, no one thinks that is possible any more, just like no one thought home builders could lose money two years ago, just like the subprime lenders too, and soon to be Alt-A lenders and prime lenders. Fast forward two years and you have seen all those that were in love with housing companies continuously call the bottom only to see it go lower. My best guess is that we are still a year and one-half away from a bottom in housing in Florida. Relative to refiners, the crack spreads are cyclical. All one has to do is graph them and realize that they can be easily cut by two-thirds and still be healthy. But at that level, they do not generate the margins that are causing these equity prices. Fundamentally, these companies are not expensive. There is a lot of value there, but the reason they trade at low valuations is due to the fact that they are cyclical, a fact that everyone has forgotten. I do think we will see lower prices, perhaps immediately, but yet this year, providing another great entry point as traders think it is all over and refiners become pariahs again. |
