SubscribeStill Diggin’ DUG
July 13, 2008
For the past several weeks, we have been adding to our position of UltraShort Oil & Gas ProShares (DUG) as we believe that the underling fundamentals for the Oil Sector are faltering. The fact that the price for oil is rising and DUG is rising continues to show that the thesis is solid. Here are some interesting points from economy.com:
* Rising energy prices have cut almost half a percentage point from real U.S. GDP growth in each of the past five years.
* The recent surge in oil prices is being powered by increased financial demand and not tighter underlying demand and supply fundamentals.
* Oil prices are expected to soon peak and to decline measurably by this time next year.
* Lower prices will allow the Federal Reserve to hold policy unchanged for the remainder of this year, and will help the economy find its footing by this time next year.
The fact remains that our general oil dependency will continue to prove difficult on our economy. More so, the fact that we cannot keep our financial house in order will continue to show the world that ours in not an economy worthy of investment. Once more it is easy to see why our dollar is so weak.
Now, add that to the crude reality that oil and the dollar are tied together and it becomes obvious that unless we can figure out a way to cause the dollar to strengthen, there will be higher oil prices to come. No matter, it is becoming clear that oil companies are still tied to the global economy and we are finally seeing the dislocation of oil prices to oil company share prices. Therefore: No longer will they be positively correlated.
Oil Index Set to Fall?
June 26, 2008
The ETF that tracks the US Energy Sector (AMEX:IYE) is starting to show signs that it may be ready for a real fall. As there has been a significant increase in the noise surrounding sky-high oil prices and regulators and politicians looking to increase oversight, they will surely end up trolling for a scapegoat.
Update 6/29/08 - Prof. Greenberger who has been testifying on Capitol Hill regarding the Enron Loophole is a Andrew’s guest on TDI Podcast #63. Listen Here
(CLICK CHART FOR LARGER VERSION)
Will that cause some of the recent froth to be lifted from the energy stocks? Maybe. Take a look at the index and think about the timing potential for ETFs that short similar indicators/indicies such as the UltraShort Oil & Gas ProShares (AMEX:DUG) which has a 200% negatively correlated price to the Dow Jones Oil and Gas Index. We have been adding that position to client portfolios recently.
The chart shows a recent break below the 50 day for IYE. All things considered, I keep on recalling the phrase: Trees do not grow to the sky.
Thoughts?
Disclosure: Clients of Horowitz & Company are LONG DUG at the time of publish.
Lehman’s Private Letter to Limited Partners
June 13, 2008
Lehman Brothers (NYSE:LEH) sent another “feel-good” letter to their clients that hold positions in Lehman sponsored partnerships. This is not the first of these smokescreens that Lehman published in an attempt to take our eyes off of the real problems. Is it me or is it terribly concerning how gullible many of these companies believe that we are. I still have not hear an apology for the blatant and disrespectful lies misinformation that was promoted by the overzealous PR team over at Lehman HQ. Below is the June 11 letter and my comments….
LEHMAN BROTHERS
399 PARK AVENUE, NEW YORK NY 10022 TELEPHONE (212) 526-0977 FACSIMILE (646) 758-4269
MICHAEL J. ODRICH, MANAGING DIRECTOR, HEAD OF PRIVATE EQUITYDear Partner:
As the second quarter comes to a close, financial markets remain under stress. Actions taken by the Federal Reserve have provided additional stability for capital markets, although the operating
environment has yet to revert to what we would consider normal. We write to discuss how Lehman Brothers has been impacted and to reiterate our confidence with where we stand as a Firm.My comment: Did they say confidence?
Click here to read the rest of the article on MSN Money/Top Stocks
The Stupidity Bubble: No Inflation, Just High Prices
May 27, 2008
A few months ago, I had a discussion with John Dvorak (TDI Podcast Episode #41) that focused on the pending economic stimulus plan and how I felt that it was not going to do much. I asserted that, one rudimentary principle in life is that consumers (that means us) will spend money. Some cultures do this in a manner that is responsible and others do not. In the U.S., there is the realization that the dollar is just is not spending like it used to. Fuels costs more, food prices are rising and if you really think about it, almost everything has become more expensive during the past year. (sans the cost to read a good blog post)
Scott Hoyt from Economy.com writes:
The real reason for concern over the state of consumer finances is larger than what the slowing in income growth would suggest, however. Growth in cash flow fell last year and is continuing to weaken. This is due to reduced realized capital gains and, most importantly, reduced borrowing. Neither of these will be quick to recover so household cash flow growth will remain weak even next year.
More concerning though is the fact that there has been an overwhelming blatant disregard for all of the warning signs that should have raised the alarm to investors that there is trouble brewing. Instead, money has been flowing into the equity markets during the first part of May with a reckless disregard for risk. Stocks prices moved up towards 2008 highs as the buzz filters through the media was showing that investors were “accurately predicting the conditions 6-12 months forward as the markets are an “anticipatory mechanism.”
Yet, once again, it seems that the rationales are pushing the outcome rather than the outcomes proving the rationales. It is a simple result of data-mining as the need to find irrefutable evidence for investors in order to provide comfort for holding any long positions into a market with openly failing fundamentals.
Bloomberg recently explained:
Without the $70 billion that oil producers earned in the last two quarters, profits at companies in the Standard & Poor’s 500 Index tumbled 26 percent and 30.2 percent as of last week, the biggest decreases for any quarter since Bloomberg started compiling data in 1998.
That is not what I would call comforting…It is not comforting that we, as investors, taxpayers and citizens of the great U.S.A. are able to accept the historic write-offs that banks and other companies are now reporting. It is unconscionable that they saw fit to provide loans in a manner that has shown to be reckless and financially harmful. It is not comforting that the amateurs are pumping up stock prices into earnings that are nothing more that better-than-lowered expectations.
The next bubble is forming….The stupidity bubble. When this one pops there will be a full explosion of the dead brain matter that will be mapped back to the investment center of the cerebellum. It will only be after a thorough autopsy that we will find that the collective brain had been marked abbey-normal since 1999. OOPS!
I digress, but so do the markets I suppose… Watch for a few more economic charts to follow.
MarketMash: Long week is over, short week to profit
May 24, 2008
Last week saw a good deal of action in the markets. The bad news is that even as we were excited to enter the long weekend and the Hamptons are starting to see more life and less clothes (so I am told). The bad news is starting to sink-in and the simple fact that the oil price “blip” is not such a “blip” is upsetting investors. If that wasn’t bad enough, the weekend BBQ now costs a gonsa-fortune! We stopped on the side of the road to pick up some watermelon and were shocked when we realized that it was $9 for ONE! So, one rib, on wing and one peach is all you get in 2008 for what is costs for an entire plateful in 2007. BBQ inflation now….. eeesh….
Sure I was busy, but promised to put down my trusty MacBook laptop for the majority of hours each day and enjoy my family at my lakehouse in Central Florida. A good idea and very worth while. Check out this magical picture of the morning sunrise on the lake and tell me if even the bloggiest of bloggers (Tim, Bill, Felix or Barry) could resist the opportunity to unplug and relax to feel the soft white sand under their pedal extremities.
My son Brett was riding the waves, daughter Lauren rode on the screamer and my wife Jill was taking care of us all. A wonderful weekend, refreshing and relaxing. Thanks for listening. :-)
Anyway, here is a recap of some of the week’s goodies that Read more
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