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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: GREENLAW4-7 who wrote (27749)	2/9/2003 10:38:28 AM
From: SliderOnTheBlack	Read Replies (1) \| Respond to of 36161

Greenlaw re: OSX/HUI cycle similarities etc I think similarities are to be expected (anticipated)- on 2 significant levels. 1st - they're both commodity sectors. 2nd - they're both obviously, strongly cyclical by nature and also get their share of momenteum/speculative interest from both individual & institutional traders(hedge funds) as the cycle matures & peaks. I think the problem is that for the Oilpatch "Stocks" - a slowing Global Economy - always trumps strong underlying commodity prices. The pre-War play here was in the commodity (Oil) and not the stocks. The OSX stocks are rightfully refusing to respond to very positive underlying commodity prices; because there is not yet any positive sign for a global, or even a US Economic recovery gaining solid footing & traction...more of a serious of stops & starts, with continuing mixed economic signals. You won't see any rise in Cap Ex Spending, or rise in Rig Counts/Day Rates untill the Oilpatch see's where commodity prices level - post War with Iraq. I think many of the Nat Gas stocks have proven that to a significant degree; they've disconnected from the rest of the Oilpatch...and deservedly so. Crude is more levered to a global economy; so when we have a slowing "global" economy - the crude levered Oilpatch Stocks are going to suffer to a greater degree than the US Nat Gas Plays. But, the problem with the Nat Gas Play presently; is how high can they go into a still contracting broad market & negative economic environment ? And I don't think that the Nat Gas Stocks will get the momenteum, or speculative play that the Gold Stocks have, or may ...but, to a degree; they'll continue to be a safe-haven subsector within the Oilpatch with the best downside protection....but, given the run that Nat Gas has already had, the still slow, staggering US recovery...neither Nat Gas Play, or the OSX stocks hold much interest for me presently. I prefer to wait to see if we indeed resume slowly stairstepping our way down to the Dow 5,000's, via PE Contraction & anticipate that the Oilpatch Stocks will follow the valuation contraction of the broadmarket & that we'll get a re-entry opp between OSX 45-58 before the next upside cycle begins. One point that BOTH Oil & Gold Traders need to consider here...is that on the US Dollar; remember that a Who's-Who Roundtable of US Business Leaders were calling for a "30% lower US Dollar" last year. USD 85ish may not be a bad thing and indeed may be more longterm positive for the US Economy than USD 115. Industrial Manufacturing & Exports are the weakest link in the US recovery and were screaming for a weaker USD...we'll they're getting their wish. I think the Bush Admin is correctly - managing a slow, controlled descent of the USD. If they are successfull in managing the descent - then I don't think we'll see the Mass Exodus from US Investment by Foreigners as many expect. We've had a pretty good record over the last few years of offloading to foreigners at market tops. Remember all the concern at the top of the Nikkei Bubble; that the Japanese were buying up all Prime US Commercial Real Estate ? ...we'll as it turned out; we offloaded to them at the top of the Real Estate Cycle and ended up buying much of it back - significantly cheaper down the road. - looks like we've done it again with US "paper" assets this time...atop a historic "paper asset" Market Top. Whodathunkit (vbg) ? Actually, a strong, swift campaign in Iraq may increase global confidence in America & American assets....and it's not as if any other significantly attractive alternatives really exist anyway ? ...American Assets may shortly be the "best of the worst" instead of the "Best of the Best"...but, regardless; I'm not so sure that we're going to see the Mass Exodus of Foreign Investment that many anticipate. I think we can manage the USD descent; I think THIS is the time to run deficits and if we establish control swiftly in Iraq and of the Iraqi Oil Fields...I think we're setting up for a very strong "relief/feel good" Rally (short-term trade opp) this late spring/summer....and a "Deja Vu - All Over Again" correction in Crude Oil & Gold Prices...ala the original Gulf War. However, I don't think that Rally sticks...and I think we still have 2, maybe even 3 years left of PE/Valuation Multiple contraction...(it's STILL The Valuations - Stupid) and will continue to see the US Equity Markets contract, even into a light economic recovery. 2-3 years of distribution between DOW 5,500-7,500 may be needed to come out of the tremendous imbalances, Debt Orgy & historic misallocations of capital from the late 90's Bubble. I think the "play" emerging on the horizon; is to take what the market gives you and take the 10-15% broad market scalps (both on the long & short side) that the stairstep march down into PE/Multiple Contraction over the next couple of years is going to allow. Whether Gold breaks out of this present very positive price range and can move into that $425-$450 range that has only been seen 2 x in the last 27 years...remains to be seen. I think it ultimately will (not here); but sans any historic nuclear,or bio incident; I don't think another speculative-mania run as was seen in 1980, or even a move above $500 is "presently" in the cards for Gold. If we see a historic Rogue Wave Event hit out of the blue - would I jump on the bandwagon on a POG breakout ? Sure, but I'd also have one hand on the Sell & Re-Short Trigger as well. I don't think we'll see a collapse of the derivatives market, nor a global ecnonomic meltdown. Is it possible ? - yes. Is it probable ? - No. I again think that USD 80-85 may NOT be a bad thing in the longrun... as long as the descent is managed and I think it will be... I think you leave the once in a lifetime/historic "potential" event risks to the speculators and just continue to grab all the High Reward-Low/moderate Risk money you can off the table...and leave the upside that could be seen via a derivatives collapse, or historic bio-nuclear Terrorist incident to speculators...it's a Fool's Bet and a Gamble; as it's virtually unpredictable...and given all that the markets have withstood over just the last few years...Gulf War I, Fall of Russian Markets, LTCM, Brazil, Argentina, Sept 11th ) I don't think the odds much favor "something" being out there that will catapult Gold to levels that all of the above failed to do... The last 27 years have shown that $380ish was a good profit taking level in Gold and with only 2 advances to $425-$450 (only 15% more upside) in 27 years...it's not a particularly compelling High Reward-Low Risk bet. Investing is NOT a contest to see who is holding the heaviest portfolio weighting at the top of a once in multi-decade speculative market top...as that is a FOOL's GAME; just as the recent collapse of the US iNet-IPO-Tech/Telecom Bubble should have taught us. Individual Investors will be exponentially ahead of the game over the longrun by continually levering the early-cycle High Reward-Low Risk portions of these cyclicals - than trying to be the last man standing atop a once in 20, or 50 year parabolic/speculative-mania top.