Seems to me the "solution" is easy. The Ukraine should forget about Crimea-let the Russians have it and close off the border. New Ukraine leadership should immediately seek increased economic ties with the EU and ask for a pledge from the West for a Marshall like plan to rebuild the economy based on free markets, elections and the rule of law with the goal of joining the Euro-zone in 2-4 years.
Those Russian nationals that don't like it can move to Russian or the Crimea. In 5-10 years, the Russians will have to open up the border to Crimea because, outside those on the military bases, will want to get into the Ukraine because of its much higher standard of living. Once that happens, the Crimea will become part of the Ukraine again with the Russian's having an agreement to keep their naval base.
Russia is doing Ukraine a favor by 'forcing" the wavering Ukrainians into the arms of the EU and the West-accelerating their economic progress. The question now is one of leadership. When will EU and US leaders figure this out and then work out the details of a Marshall like plan?
I have avoided most of the Marcellas plays as they were too expensive for my tastes. Hover today, I bought some COG under $35.00 as a play on increased takeaway out of the Marcellas region by late 2015/early 2016. COG has sold off, as they have been getting a discount for their NG because of not enough takeaway. This is a small position so far as I think, if NG gets closer to $4.00-$.25, COG could go down to $25, but term I still think NA NG price will triple to approach world prices.
After hitting $1355 last Monday, gold has come under some profit taking. $1355 was an important number as it was also a high last Nov. Should gold break above $1355-$1360, then there should be some "open field running" to $1435-the high last August.
China's weak macro-data introduces an increasing probability that the PBOC will have to be stimulative to:
1)Increase GDP growth
2)Reduce the risks that WMP and other debt defaults won't start a negative reinforcing loop
I think the PBOC has already started easing as evidenced by the fall of the Yuan and lower 7-day repo interest rates.
Just about all gold miners would participate if gold were to run from $1360 to $1435-GFI continues to be one of my favorites.
The ECB is feeling increasing pressure to ease as well.
I'm glad you are up on ECA. As I am bullish on NG, I expect ECA to grind to $25 as futures prices, over the course of 2014, move to $5.00+. On the other hand, I'm a buyer of more if it gets back below $19.00-assuming it trades there because spot NG prices have weakened. Obviously just one man's opinion, but I would own "trading" shares and "core" shares of ECA. Trading shares to take advantage of short-term swings in optimism/pessimism and core shares to hold for years as I expect NA NG prices to move up to world prices $12+ over the next 3-4 years. That should take ECA to $40+ and a couple dividend increases along the way.
I have been writing about a theme for several months now that sometime in the 2nd Q a financial event or other black swan event will catch the market overextended leading to a grab for liquidity as the carry trade out of Japan and other leveraged positions will become forced sellers. At that point in time, everything will be sold off, with many bargains available after a few weeks to a couple months of "scary" action.
To the rescue will be central banks, the FED will taper their taper or increase QE, the ECB will start QE and the PBOC will also be a buyer of bonds and other assets in China. The "trick" will be timing as to what to buy when as asset classes won't all bottom at the same time. For now, my favorite and only themes are NG and gold/silver stocks. Depending on what else gets sold off, enough, I'll be a buyer of more traditional businesses.
Otherwise, if/when NG spot prices get around $4.25 and ECA and/or UPL back up 5-8% or so from current levels, then I will be a buyer of them.
When I look at 2015 NG futures prices they are:
So, if drillers want to hedge some of next year's production, they won't as prices are not high enough yet. As a consequence very few drillers will put rigs back into service now and/or in the coming months to bring more supply to the market in 2015. I still maintain that until futures prices (one year out) get over $5.00, the investment in NG production will remain insufficient to build inventories back to normal levels. Bullish for all NG players and a buy on weakness-when spot prices get below $4.25.
A couple other interesting data points today. The Euro hit a 2.5-yr high today vs the $ and Euro-zone exports to the US, within the Jan trade deficit figure, were down. Both suggest that the Euro-zone is going to find it hard to strengthen their economies if export are flat to down.
Also,Euro-zone excess liquidity is at a low since late 2011 at 112 billion Euro. The peak was 800+ billion Euro in early 2012. What does this all mean? The Euro is up vs the $ because of the scarcity of Euros. In addition, the ECB is de-facto pursuing a policy of "tight" money at least much tighter than a policy that would increase its nominal GDP-real GDP growth plus inflation. The Euro-zone needs nominal GDP to be above 4-5% for its weaker countries to be able to service their growing sovereign debts.
Implication? Coupled with in-action on 3/6, the odds are increasing that there will be a financial event in the Euro-zone in the coming months I think there is a game of "chicken' going on between the ECB and the "hard-money" proponents the Germans, Dutch and Austrians. The ECB is "waiting" until an event happens, so they will have free reign to do QE without political trouble from the hard-money group. Kind of reminds me of FDR waiting on the Japanese to "force" the US into WWII-much of the damage of Pearl Harbor could have been avoided if FDR chose to be more prepared as the US knew an attack was coming. The "gamble" by the FDR administration, was any attack by Japan would not be too damaging. With the carry trade out Japan, back in full swing, any financial event in Europe will cause massive selling to unwind the Euro-zone bonds the Japanese have been buying with borrowed money out of Japan.
Within the "positive" number is total hours worked-that fell for the 2nd month in a row to 99, Jan =99.2, Dec was 99.1.
I'll also offer up that the government does a poor job on many of its economic "initial" estimates. For example, 1st Q GDP for 2008 was initially reported at +.6%. 7 revisions and 5+ years later the final tally was -2.7%. I would use today's up market and the days to follow to sell into strength.
M2 was down $8 million, mildly bearish but would really like to see several weeks of M2 down before I can call that there is not enough juice to support the market.
My other recent thought is "4 strikes and your out". The 4 "pitches are:
1)ECB action-non taken so that is whiff number 1
2)Weak jobs number-anything less that 125-130,000
3)Another taper-which is expected- by the FED-next meeting 3/18-19
4)Earnings warnings greater than the historical average through the end of the month
We will just have to live into the answer.
On the NG front, draw was very large at 152 vs 5-yr average of 105 and production was down w/w about .3%. With YTD production (9 weeks worth) up about 2.5%, inventories will remain in huge deficit to the 5-yr average #$%$5% Y/Y production growth is needed. I remain a hold on ECA and a buyer of UPL on "weakness" which would be $24.50 or below. Coal, this past reporting week end 3/1 was flat y/y vs being down most every other week this year. This suggests utilities are finally switching some power generation to coal from NG. Still, several coal plants have close in the last year and 32 nuclear will be shutdown this spring for maintenance-a 14 year high.
Until Y/Y NG production gets over 5% for several weeks, I expect NG to grind higher to $5.00+.
Russia now "owns" Crimea and the world cannot do a think about it. If there are sanctions, it will hurt the Euro-zone more than it will Russia.
Speaking of the Euro-zone, the ECB did nothing today and the Euro hit a 2.5 year high vs the $, which will hurt exports and increase deflationary pressures. Because of the uncertainty of the Ukraine and the strong Euro, the probability of a financial event in the Euro-zone happening increases. In the interim, stocks grind higher as "momentum" and liquidity trump modest earnings.
NG draw today 152, higher than last year and higher than the 5-yr average-inventories now at a 39% deficit vs the 5-yr average. NG should head above $5.00, over time, more importantly if supply is to increase fast enough to normalize inventories, futures prices, for 2015, have to get above $5.00. Consistent with comments made yesterday, I think UPL is going over $30, I bought some today.
W/R to UPL valuation, UPL will earn more per share this year than SWN, their growth rate for 2015 will be higher, yet UPL is at $25 and SWN is at $40. As a catalyst, if NG spikes above $5 (spot price) for a couple weeks, UPL is going over $30.
This stock, in my view, is way over valued. It should sell for $7-$7.50. Until it gets below that level and there is massive insider buying, I'm staying away from buying.
W/R to the Euro-zone today was "news" that is not been covered by our TV or print press as yet. The EU warned Italy that their debt was too high and their competitiveness was too low. They also warned France that their budget deficit was too high and the competitiveness was too low.
The IMF today told the ECB that their should cut interest rates and put into place another LTRO and/or initiate a QE program.
So despite all the happy talk and markets juiced by liquidity, the underlying fundamentals are shaky. As of today and in recent weeks and months the "market" doesn't care. While it continues to go up, it still will not care. But soon, perhaps it will take another bad jobs #, another FED taper, no ECB action, and earnings warnings for the 1st Q before the market cares. Perhaps the "market" will care if geopolitical event(s) shakes confidence, so until then liquidity trumps all reasonable notions of valuations
Within the $th Q GDP revisions, real income per capita was down from the 3rd Q and down 1% y/y vs the 4th Q 2012. Those that keep calling for the economy to take off, can't explain their view when confronted with income growth that is flat at best. The fundamental question being, how can spending increase when:
1)Incomes are flat
2)Utility bills are rising
3)Gasoline costs are rising
4)Job growth is slowing and of the lower income kind
Perhaps consumers dip into savings, but I think they will dip into savings anyhow to cover 2and 3. The last 4 weeks of the ICSC retail sales number are 2.3%, 2.1%, 1.4% and 1.5% y/y sales increases. Those numbers are about the inflation rate, so retail sales for Feb will be soft just as Jan and Dec were. It in my view inventories are piling up, so production has to slow.
I don't think the market is priced for a 1sth GDP slowdown with many companies missing estimates.
As an aside, 32 nuclear power plants will be taken down for maintenance this spring-a 14 year high. This implies NG demand from power plants will be up regardless what the weather is. GS and Citi, both expect HG inventories to end the draw season (end of March) at 1 trillion and 900 billion cf-both lows since 2003.
With hydro(west coast) and nuclear power in short supply-relative to past years-NG build will be much slower than past years. There are very good chances that inventories entering next winter will still be in deficit. NG stocks continue to be an excellent hold and buy on weakness(when NG gets below $4.25).
Yes, that is why the stock has not rallied with all the other NG stocks and the "market" is giving little value to WPX's Penn properties vs a positive valuation before.
Given that gold hit my short-run price target of $1355 on 3/3, with no follow through today, I sold some "trading" shares of GG while it was up, even though gold was down all day. The short squeeze, that I hoped was coming, did not come. So unless there are new political developments, I expect gold to retrace recent gains, over several weeks, to get back to the $1250 area perhaps by the end of April. No hurry to buy until we get closer to that time and price.
Normally release quarterly results after the close with CC to follow. Today it was before the open with the CC at 8:30. This missed 4th Q consensus and guided 1st Q below consensus. In a "normal" market, PCTI would become an interesting buy around $7.25. At that price, the reward to risk would be OK, while waiting for results to turn positive. With this market, I doubt PCTI will get under $8.00. For my notions of "value" I can't justify buying it-good luck to those that do.
With my quick review, it looks like WPX has hedged about 53% of NG production in the $4.21 area, so "high" spot prices won't do them much good. I could be a buyer of WPX, but closer to $15 as they will need to sell about $400 million in assets to bridge the gap between capX and ash flow.
Under UNG "news" Dennis Gartman comments that the CFTC has made it difficult for investors, hedge funds etc to take large positions in long dated NG futures. Because of that diminished amount of capital in the futures markets, spot prices are much higher than futures prices. With future prices low, then drillers can't hedge at attractive enough prices-which reduces the incentive to put rigs into service now, knowing your costs, and capturing an attractive profit knowing what price you will be able to sell it at.
Take that "situation" to its logical extreme. Until and unless NG futures prices get to $5.00+, then dry NG will get little investment, outside the "sweatspot" areas of the Marcellas play. Those companies that have positions there may also slow down investment because:
1)Most of them still cashflow less than capX
2)$4.00+ price is just not enough to justify sustaining capX greater than cashflow
This situation favors those companies that have little of their production hedged, so can sell at much higher spot prices. ECA has hedged 3/4 of this years production, that is why they have not participated much in the NG price spike. UPL has (going by memory) only hedged 25% of this year's production.-so they have participated more.
From here, the market aught to favor UPL vs ECA, but then again as we go though 2014, ECA's limited hedging of 2015 will mean an earnings jump-assuming spot prices remain at a premium to futures. I have not done the research yet, but if WPX is little hedged for 2014, they may just outperform both the balance of 2014. Other "troubled" NG producers maybe positions to pick up as well. I don't have a list yet.
With the Dow off more than 200 intra-day today, the real value of such a sell-off is will it "test" investors assumptions about the end of the year. Back in Jan, the 'fragile five" (Turkey, Indonesia, South Africa, India and Brazil) gave some a jolt, but it proved to be short-lived. Today we have to make it the fragile 8, as we should add Russia, Thailand and the Ukraine.
I suspect the sell-off, if it doesn't affect the "core" belief that:
1)World GDP will be up 3-3.5% this year
2)Stock buybacks in place
3)"Shocks" will be met with more monetary easing
Then "1-3" plus M&A for growth will continue to grind stocks higher.
I am prepared for the notion, that some assumptions, especially "solvency" issues around many Euro-zone countries, will become as issue later in the year. At that point, the "fragile 8" will become the fragile 15-20.
In the interim, I can't find too much to buy and expect Russia to not want the Ukraine as it cannot afford to bail it out financially. A political deal will be done, with Russia extorting the West (that doesn't want bloodshed any any cost) to "pay" for Ukraine's economic recovery.
Gold and silver are up today, but since the end of last year when gold was under $1200, there has not yet been a short-covering spike in the price of either. As the political "dance" with Russia around Ukraine, Syria, and Iran continues, there should be a day or two where both spike higher as shorts get scared and have to cover. On a spike, if gold get above $1400, then I'm going to thin out some of my trading shares with the expectation that "political" deals, that won't be great for the West but deals non the less, will induce profit taking on gold for 4-8 weeks-taking it back to under $1250.