On stocks...
"No one is short"... in spite of the market context being not exactly bullish in the short term... and in spite of there being a couple of obvious problems in the short term. But, there's also good reason for people to not want to "fight the Fed" by going short... now... when they could easily eliminate you in a single trade ? The 700 lb gorilla in the trade... is always the one that really matters ? Right now, few appear confused about who that is. Everyone else is essentially "along for the ride"... or "looking at long term value" (?) while trading the noise... knowing that if they get it horribly wrong, stock market history shows that just holding for 50 years from the peak where you bought... should still make you whole ?
OK. I'm not short the market either... for now... but, I'm also not "long" "the market"... I've got more cash in queue than shares in street name... and more physical than cash. Maybe not a typical market participant.
Otherwise, I'd say it isn't only the "big picture" that matters ? Some issues clearly are "proxies"... the trading based on things other than rational share valuation. The others ? One issue is in the need to tease out what are industry specific issues versus the market as a whole... another is in the need to tease out what is "whole market" function that is purely market function, from "whole market" function that is... non-market driven functions. What, at this point, is a function of financial circumstances, alone, and what is being driven by the ongoing risks, or changes in the risks, tied to the virus issues ?
The market decline in March... clearly hasn't effected every issue equally... even while keeping in mind the dual nature of the consideration taken up here... true market risk... and mostly virus driven risk. The QQQ trade was obviously overly inflated in early March... was then deflated... and now has reflated again ? Hmm.
In context of your posts, two corners of the market worth mentioning in my view... One is the "when pigs fly portfolio" picks I'd looked at back in early March... I think ? At the time, I held mostly SQQQ and was considering where to leap to next when it was time to leap. The concept was... the routine when recession comes along: you own grocery stores and food stocks... throw in mortuaries and accounting firms... death and taxes being almost as reliable as people wanting to eat ? But, the virus threw a wrench in all that pretty quickly, when it turned out, first, that the pork processors all had problems with plants designed to have workers standing shoulder to shoulder for hours at a time. Not good. They shut down hard as the issue rippled its way through the industry. And, then, given the combination of Covid's features and a societal response to the virus that was effective enough at stopping the spread... that there wasn't a "worst case" outcome anywhere other than Wuhan ? That meant that there weren't the blossoming death rates, which, while a good thing, just didn't really do much to raise the share prices of the mortuaries from the... sigh... anyway. Mortuaries as predictably recession resistant holdings hasn't been that popular as a concept since the 1960's, for some reason.
But, now ? With a couple of months to figure the risks out... or get everyone infected, immune, and back to work... whatever the case... check out the charts of that "when pigs fly" short list: JBSAY, PPC, SAFM, SEB, TSN. I note the one day charts of most of them do appear to show "suppression" in the day trade of the sort that is commonly found with a trade designed for enabling accumulation. I have not done my homework, again, recently to check up on the issue specifics and drivers... Other chops to fry.
Oil... the other case. Trading oil and nat gas using the ETF's in April/May/June... proved both challenging and rewarding... if you made the right trades. And, that wasn't all that hard. In consequence, most of the 3X leveraged funds and ETNs either went belly up, or the backers pulled their participation... as you might expect they would, when you're killing them in a trade. Now, there are a couple of new tickers with different backing offering the same sort of "3X" thing... yet, the "3X" funds now trade like 1.5X to 2.X funds instead... because they've all gone to using mixed date maturities with longer dated contracts to wring out the short term volatility... removing the point of using them, entirely... even as they're still leaving the "3X" shingle hanging out front. Anyway. That makes chasing the same or better leverage in other forms a better option.
My guess, back then... was that after taking profits on the chaos, things would settle out a bit in October... before Natty gets jiggy again in November or December. August was a predictable bore. I was out walking in the mountains. September-October mostly shows the impact of lesser leverage... making it not worth playing there, for now... perhaps not until spring anyway... given quite ample supply in storage conflicting with the seasonal impulse.
Oil, similarly, has now been fully collared into the banks "market control schemes"... the last mostly "free" market now basically gone with the others, chopped up to feed the giant squid. In the market that played out as Trump tapping the Saud's on the shoulder re the gas price / market share war with Russia... and, since then, the Saud's and the Russians have played nice, with even the noise from the peanut gallery being subdued. Oil is now confined in a trading range between $36 and $42... apparently by direction, and for the still uncertain duration. Re-confirmed this week... that we're not there yet. Should point out... there's Haim's "cohesion" and "common goal" for you... laid out in context of the opposite of a free market.
So, the oil futures focused trade is similarly constrained as gas... including that unless you can and want to trade in contracts yourself, the market, as the ETF and ETN trade, has been deleveraged, and made boring.
My oil picks from March did well enough... and still worth owning... as I focused on the midstream in nat gas:
ENBL under $2... now at $4.62 and still yielding 14%... or 32.34% on the original investment.
ENLC under $1... now at $2.66 and still yielding 13.6%... or 36.176% on the original investment.
Hold those, or similar, while waiting for the inevitable in the smaller / fracker oil company bankruptcies now occurring, before you can sort out future markets winners worth taking a flyer on post-BK... That also means waiting on oil services to bottom. When the markets do finally whiff "the end of Covid" and expect a resurgence in everything, just related to that ? Inflation fears are likely to begin to be realized as the issue, then, that many are suggesting it should be seen as now in most investors analysis, at least.
It is showing up in food prices already.
Higher interest rates may compete with the higher yield stocks on price, then, but, as long as the recovery is real, and demand grows... just keep taking the yield... while waiting the years required to reach the next market top in midstream shares. And, who knows how hot they're going to let it run before allowing rates to rise ? At this point, I think its too soon to tell how much, or how quickly, the Covid debt is going to be monetized... in that way. Still assuming they ARE actually in control of things... rather than reduced to flying in the blind by the seat of their pants... which seems more likely.
But, the sideways market in oil shares, recently, tied with the market constraints on oil price movement... has opened up a few other worthy trades. Some in the midstream have still unresolved risks, so they're not trading any higher now than they were back in March, but, they could still go lower, too, the risks mattering.
Some of the frackers have already resolved their "pre-packaged" BK deals... only at the end of which process did existing shareholders realize the risk, and learn that "the plan" filed with the court included "nothing for equity". Or, as at WLL..." Existing stockholders own the remaining 3% of Whiting Petroleum’s new shares". While "m ore than 231 oil and gas producers have filed for bankruptcy"... that list includes some privately held companies.
It also includes some that went in as public companies, but emerged as privately held. One of those is the former Sanchez Energy, now called Mesquite Energy... where you can see (in the link) a hint of some of the knock on effects in the fallout across the industry, in the form of a lawsuit filed by Oxy.
Why hawk the shares of those sorts of companies through the BK process ?
One reason, with two examples well worthy of note: the restructuring of the industry, in recent years, long since having carved out the midstream as separate companies... can leave those midstream companies intact as stand-alone entities unscathed outside the BK of their oil exploration / producer parents.
Sanchez, mentioned above... with its (no yield) midstream operation traded separately as SNMP... was at $0.29 the first week of October... and spiked to $0.94 (currently $0.68) on October 9th... as the BK resolved.
On the other end, just going into the pipeline... (heh, heh) Oasis Petrolem now frozen in time as OAS, trades in BK instead as OASPQ. As it went into the BK pipeline, OAS crashed from over $0.30 down into the teens, a nice trade there as it predictably bounced back to $0.29 the day after the crash. Then, aftershocks, as it rattled back down to $0.19, currently at $0.11, etc. I have no idea if those shares will ever emerge from BK with any value worth owning at the end of the process.... thus have no idea how to value them now. My own choice, not informed enough for it to even be a guess, is to just assume they'll go to zero, so steer clear until after they emerge, when more a rational effort in math and analysis might work.
But, on the day the BK at OAS was declared... OMP... the ticker for the separate midstream operator... crashed from the $7.50 to $8 trading range, down below book value at $5.50ish. It was $3.50s in March, $12.50s in May... and is now back at $7.40, with a nominal yield of 29.79%. What was it yielding at $5.50 ? OMP seems to be making its numbers. OASPQ say they have a very solid "pre-packaged" BK that does not and will not include the OMP midstream operator... and it should have OAS out of BK by November. Not too long to wait. Oasis is a little bit more diversified than some of the "one trick pony" frackers, having balanced out its primary Williston Basin holdings with acquisitions in the Delaware Basin... which a lot of industry hacks say is considered to be a good thing. OK. The shares are up 35% on the trade, thus far... giving buyers on dip a nice cushion... and a nice kicker in future yields if they pan out.
That's two... out of 231 ?
Compared to prior history... I'm seeing the Covid related (?) carnage in the oil patch, this time around, being a particularly sanguine affair. There's just not a lot of drama or conflict in any of them that I've noted... and, unlike prior rounds, its not looking like a series of individual battles, each fought tooth and nail on random timing... but seems to be a fairly orderly queue of almost synchronized efforts... almost all of which are underway, right now... |
