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I am not fighting crude

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February 23, 2011 – Comments (22)

Coming up soon:  Fighting the Cult of Negativity part 2:  the world is always ending.  But first, my thoughts on this dip. 

-this is potentially a long term good turn of events for the world.  Lets get these maniacs out of there, lets get the people a better quality of life, and that in turn should help us all.  But for now this is potentially serious as make NO MISTAKE, a huge spike in oil prices has rally-killer written all over it, in magic market, right over the "double dip" tatoos.  A gigantic spike in oil prices quite literally possesses the ability to cause a double dip, even where things were looking good.  

I am not aggressively buying this dip here, rather yesterday I sold out of AHT, WINN, GLBI and a few smaller positions and I have not cashed out the puts I bought last Friday, PLUS I bought enough VXZ yesterday to make it one of my largest positions and raised that by 50% today.  Beyond that I have not cashed out my hedges on individual names like TCK, LVS, MGM, CAT, DE, CBI, etc etc etc etc etc  My reason for this is fairly simple:  this market needs a good flush, it was grossly overbought, complacency was high, and however severe the middle east situation proves to be, for now its the excuse to correct and thats what we may just finally do. I also put some more money to work in my hedge fund pilots, one of which (expectedly) got on-paper butchtered, the other is up 1.5% for the week (and I DON'T expect it to get slaughtered when the market tanks, but I also expect it to yield lower returns over long periods of time and occasionally underperform an up market).  I am well prepared to dump VXZ on a moments notice.  

You must do what you must do, and maybe we are having an extremely buyable dip, but EVEN IF an oil shock doesn't slow down the recovery at all, its perception that matters and the perception that it MIGHT could bring about some institutional selling.   With the money shifted into the hedge pilots, I expect to outperform the market if we get an uptrend despite me not buying the dip. 

I have blabbed away all year about selling stuff, raising cash, and all of that.  Getting ready to buy the dip when it comes.  This is not the dip I have been waiting for. As always, I consider myself a very poor market timer.  

What would I buy if I was to buy today?  No idea, I'd probably buy puts on levered bear ETFs, long dated

Good luck to the dip buyers, bad luck to the short sellers.

22 Comments – Post Your Own

#1) On February 23, 2011 at 4:01 PM, checklist34 (99.70) wrote:

bought some puts on XLF @$17 when it went positive this afternoon. 

I hope I lose all my money on them. 

RJET tanked today on oil/earnings.

CNO, my 4th biggest position, was up huge.  

all in all I lost alot of money the last 2 days.

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#2) On February 23, 2011 at 4:19 PM, Valyooo (99.41) wrote:

ive lost slightly less than the market, so still a lot....stupid options.

Once I have more capital, I will not ever have to worry about underperforming...I am positive about it.  Commissiosn are killing me and i cant make all the diversificatiosn and trades I want (I know, what a luxurious complaint)

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#3) On February 23, 2011 at 7:48 PM, checklist34 (99.70) wrote:

thats fairly good, valy....  beating the market on the way down seems quite a bit tougher than beating it on the way up...

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#4) On February 23, 2011 at 8:17 PM, awallejr (83.85) wrote:

Deja Vu all over again.  There really is no fundamental reason for oil to be at $100.  The same as in 2008.  There was no fundamental reason for oil to have been $147.  Should Libya's production be cut off, it could be covered elsewhere.  Iraq would certainly love to take the share.

What we are seeing is commodity profits rolling out of Ags and into oil.  Speculation, not supply/demand.

Now should we see Saudi shutting down, then we have a game changer.

I've always touted the integrateds and they have moved up nicely, so difficult to tell people jump in now.  BBEP might still be worth a look, even though it doubled from when I blogged about it. 

 http://caps.fool.com/Blogs/bbep-a-possible-double/305013

It has a nice "dividend" which has been slowly rising each quarter since restoration.

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#5) On February 23, 2011 at 8:22 PM, checklist34 (99.70) wrote:

awall, i remember that post, and I bought some BBEP around that time.  I am itching to sell it...  as I am mostly selling out of positions that aren't larger to try to reduce ticker count. 

nothing against BBEP, just desire to reduce the head count, so to speak.

I agree about fundamentals, but...  this speculative cash you speak of still has the potential to scare the ever-loving heck out of everyone if oil keeps running up. 

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#6) On February 23, 2011 at 8:55 PM, awallejr (83.85) wrote:

Well we saw how oil kept going up and up in 2008, and the best advice to have taken then was Jeff Macke's crayon line play (take a ruler and draw a straight line from each successive low, once oil drops below the line then sell, and it eventually did and oil crashed hard).  So yeah oil can keep going up from speculation for who knows how long.

If you start seeing Iraq collapse (once US pulls its troops out, which is a possibility), Iran, Kuwait and Saudi Arabia, then you will have a fundamental justification for seeing oil go $150-$200 in a short period of time.  World recession would happen without a doubt.

Your call on BBEP, but it is an oil play that has a better yield than pretty much many asset classes. I'm eyeing SDRL too, but I keep missing a good entry point.  I am thinking of selling puts to get in at a cheaper price. 

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#7) On February 23, 2011 at 9:23 PM, JakilaTheHun (99.93) wrote:

Like Valyooo, I lost slightly less than the market over the past few days.  This is mostly because I bought a ton of calls on North American oil producers in May '10 and many of them were quite leveraged and were benefitting greatly from this spike.   I actually sold out of my Suncor (SU) calls today, as I am skeptical of oil at $100/barrel.

Not sure what will happen over the next few months, but my basic investment thought can be summed up as follows:

(1) China has an increasingly larger chance of seeing a massive RE collapse over the next two years

(2) Commodities are very expensive; copper, in particular could see a major correction

(3) US homebuilders are still very cheap

(4) US commercial banks are still a good buy, but negative pressures elsewhere could hamper them for a bit

(5) Mexico could surprise people and be one of the biggest growth economies of this decade

(6) Call me insane, but some of the airlines might not be bad bets right now.  

(7) Gold and silver are both very expensive.  However, silver has good long-term fundamentals and gold might continue to perform well short-term due to volatility in the market. Long-term, gold is very overvalued right now. 

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#8) On February 23, 2011 at 10:22 PM, Momentum21 (89.86) wrote:

Hey Chet, the price action on RJET was interesting today. There was no gap down after the weak report, just a steady sell off that followed the market...then some heavy selling after lunch followed by what appears to be some decent buying volume.

We need to have dragonlz check the chart... : )

I sold some RJET recently but still hold out long term hope...for now.

This is definitely not your traditional dip but both sides (bulls/bears) need to stay mentally focused. This is where you can quickly lose a finger or two trying to get cute within the insanity. 

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#9) On February 23, 2011 at 10:45 PM, awallejr (83.85) wrote:

JakilaTheHun

Ooh I love responding to multi-numbered blogs.

1)  I don't think China is anywhere near a RE bubble.  Perhaps in some of their big cities, but there still are 1.3 billion (with a "b") people, many of whom live in shanties.

2)  Yup they are expensvie and for good reason, demand for them will only continue to rise as emerging markets develop.

3)  They are cheap for a reason, demand isn't there right now, and quite possibly for decades depending on how the phasing out of "the boomers" plays out.

4) The financial reform act is going to have an interesting impact on them.  On the one hand they are going to lose a lot of income from reduced fees structure.  On the other hand there is concern that the majors will slowly overtake the smaller banks. C might have the most promise because they are trying to grow internationally (they just need to do a stock reversal already).

5) You could be right here, less are crossing the border for lack of jobs in the US ;p

6) You're insane. Chk knows my position here heheh.  Take a look at RTK as a double play (alternative to rising oil, and they make jet fuel).

7) I disagree. I don't see over valuation.  Once you could have bought a $20 gold piece for $20.  Stuff is always going to go up in our lifetime.

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#10) On February 23, 2011 at 11:00 PM, checklist34 (99.70) wrote:

awall, I REALLY hope that somehow oil cools off to around 80 bucks, for all our sakes. I concede that seems an unlikely scenario at the moment.

chanos has a relatively convincing outlook on how china has a RE bubble.  There are very few possible buyers for what they are building, and the rate of building is dramatic.  both for residential and for CRE, very little return on the CRE at this time.

It is an error in judgement on my part to be long so little oil.  Question is whether its too late to rectify it now or not.

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#11) On February 23, 2011 at 11:03 PM, checklist34 (99.70) wrote:

momentum, RJETs report was mediocre, the selling was intense for a while there.  I was away for a couple hours and it did quite a dance. The long term thesis isn't broken, but the market sure hates that thing, at least so far.

 

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#12) On February 23, 2011 at 11:09 PM, checklist34 (99.70) wrote:

jakila

I agree on china.

We are due for a commodity smackdown...

Homebuilders will be a great 5 year buy at some point, no question.  Floridabuilder or one of his alias's had a nice post on that a while back.  Oil at 150 won't accelerate the process.  I am hoping we don't see anything like that.

I agree that C needs a stock reversal.

I got nothing on mexico.

I should be so lucky...  and lucky enough to have RJET triple in the next 2 days, lol.  No, but seriously, to win on that RJET position would make me happy.

I agree on gold and silver, and I have dug a bunker under my house and filled it with guns, ammo, and canned food NOT to save myself from a dollar collapse, but to save myself from precious metal bulls, who I am certain have targeted me for demise.  

 

 

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#13) On February 24, 2011 at 12:04 AM, awallejr (83.85) wrote:

It is an error in judgement on my part to be long so little oil.  Question is whether its too late to rectify it now or not.

I don't think it is too late.  I did give you 2 plays, and those 2 give you a darn good yield as well where they stand now.  Tried to get you to play ATPG options.  Said sell the Jan 2011 $15 puts back in summer of last year.  You would have made a free $4 per contract.  I wrote a recent blog on ATPG options again that few, sadly, read.

http://caps.fool.com/Blogs/atpg-option-play/529710

Keep an eye on it. I really am hoping the stock drops more so I can increase my options.

It is tough telling you to jump into integrateds now.  Cramer did make me laugh tonight in that a caller asked if he should buy them.  Cramer said he won't make that call since you would be chasing and people would be calling him a dufus, twittering Cramer is a dufus.  On any pullback, however, that is another story.

 

 

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#14) On February 24, 2011 at 12:06 AM, awallejr (83.85) wrote:

Meant $4 per represented share.  Each contract is 100 shares.

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#15) On February 24, 2011 at 1:43 AM, WillSurfForFood (79.18) wrote:

Jakila,

Why do you think Mexico will be such a growth story? Aside from all the problems with the drug cartels the amount of oil they export continues to decline year after year.

  

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#16) On February 24, 2011 at 11:05 AM, rofgile (99.31) wrote:

checklist34:

 It seems like there is still plenty of speculation on housing in all major chinese cities of the coast.  Hong Kong and Taiwan as well.

 The governments there have done a fair amount of restrictions, on a city-by-city basis.  Among the common rules are if you already own 2 properties, you cannot buy a new one, etc.  Properties have to be paid with high down payments, or in full (but this is how most Chinese buy homes anyways, not with 10% down like the west).

 If you read Asian media, they are definitely aware that there is housing speculation, super-high housing inflation, and negative social effects occurring.  These same media sources consistly are keeping the message "Yes housing prices are really increasing, and there could be/is no speculation,  but there is little likelihood of there being a housing bust here".  I hear this same message over and over.  We'll see if it is true -eh?  

 ----

 Scenario's:

 A) Inflation continues high in China.  Housing prices continue to rise out of control, driving over construction.  Dangerous!

 B) Inflation tames in China.  Could occur due to government tightening, interest rate rising, or appreciation of Chinese currency against the dollar.  Continued improvements of life in China match housing well for decades.  This is the "golden scenario", whereby China drives economic markets for the next decade.

---

 B) is a difficult road for China.  Tightening interest rates or appreciating the currency will hurt their mercantilist strategy and make the west more competitive.  To me, it looks like China is yet another centrally run economic system, with all the problems the USSR had.  Gross inefficiencies, over production, goods produced below cost on subsidies.  Necessity for the government to ensure that everyone is busy with jobs (or face strife).  

  In the end, I think things will balance out.  China can't continue on path A forever, with forever increasing pressures on the people just to keep up manufacturing jobs.  When things begin to balance - I think the west will get a huge boost.

 -Rof 

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#17) On February 24, 2011 at 5:33 PM, JakilaTheHun (99.93) wrote:

WillSurfforFood,

The bullish case for Mexico is the bearish case for China.  Mexico and Latin America (as well as Southeast Asian nations) have been harmed significantly by China's currency peg, which allows its manufacturers to undercut theirs. 

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#18) On February 24, 2011 at 9:26 PM, checklist34 (99.70) wrote:

awall, I am long ATPG in some size per recommendations by you and porte in the past.

long last year early, then tripled down last summer 

its my only real oil play, in fact as of now it is my ONLY oil play, as I sold bbep

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#19) On February 24, 2011 at 9:28 PM, checklist34 (99.70) wrote:

rof...  nice post on china. 

chanos is pretty convincing, lol

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#20) On February 24, 2011 at 11:22 PM, awallejr (83.85) wrote:

I am glad I helped you make money.  I try to give people some money making ideas, and glad they haven't fallen completely on deaf ears.

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#21) On February 24, 2011 at 11:56 PM, checklist34 (99.70) wrote:

i have actually never lost money on one of your rec's.  or portes, although i'm down on DSCO

:)

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#22) On February 25, 2011 at 12:51 AM, awallejr (83.85) wrote:

Yeah those Bio picks can be hit or miss.  I like CVM, others like DSCO. Personally it is a crap shoot until phase 3's end in success.

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