It might not be a bad idea to purchase some protection in the form of ETFs that short the major indexes such as SDS, at least for the short-term.
BTU has become quite the leading indicator for stock market corrections, this time is no different. Anytime this dog goes up it often proves to be a harbinger of bad things for the overall market. Add to this another negative barometer, historically anytime utility stocks are falling at the same time yields on govt debt are also falling (which has been occurring of late) we have seen a major correction and sometimes the beginnings of a bear market for stocks. May I suggest buying some protection in the form of ETFs that short the major stock indexes such as SDS. Lights are clearing blinking red...Danger, Danger, Danger!
I just read an article that has studied such divergences that are presently happening today (Govt Bond yields are falling yet utility stocks are falling also) normally you would expect utility stocks to rise in price if bond yields are falling. This phenomenon has occurred a number of times over the decades and historically it has proven to be quite a negative harbinger of things to come for the overall stock market. Bottom line it looks like we could be in for a rather large equity correction or maybe even entering a bear market in the coming months if this indicator holds true. We shall see.
Today is a very good example, market is down big, interest rates are falling significantly on govt debt, the 10 year treasury now yielding 1.85% yet EXC and XLU both down big. You would think the dividends and economic profile of utilities would attract funds on days like this? No place to hide in this crazy market, makes zero sense. Simply Risk On, Risk Off.
The United States still uses coal for over 40% of it's electricity. In the emerging markets that number is much, much higher and that is where the LNG growth matters for Shell. The emerging markets dwarf the United States both and population and energy consumption in the coming decades. Shell is well positioned. I am all for green energy but green energy has a very, very longs ways to go, and is not a critical baseload provider. Give it time, the glut in oil and gas will subside. The Middle East producers need to avg $85 buck crude to pay their bills, they can only hold out for so long, burn through their cash reserves. Take coal off the market and nat gas moves quite a bit higher and the demise of dirty coal is inevitable.
What do you propose that BTU do sell assets to pay down debt? And who would buy these coal assets that BTU paid a premium to develop? BTU leveraged their balance sheet in the anticipation emerging market coal demand would spike, especially in China. BTU mgt was proven painfully wrong. Now they are paying big bucks on that debt in the form of outrageously high interest rates. This is a deadly situation, high debt levels, high interest on that debt, falling asset values, losing large sums of money each qtr, in an industry that is under attack by cheap nat gas prices, the emergence of LNG by the majors, man-made global warming (carbon emissions), and toxic coal pollution. BTU's coal competitors should already be bankrupt but they continue to produce coal below cost because it is cheaper than the expense of closing down their operations. The glut of coal is huge with no end in sight. The question, can BTU even survive in this environment?
First let me state the previous Shell CEOs have been absolutely pathetic, so much so I believe they should be in prison for fraud and stealing shareholders money. With that said I believe Van Beurden is quite good, he turned around Shell's chemical division and I believe he will do the same with the entire company in the coming years. Finally some accountability and sage vision from the top!
The naysayers of the BG purchase claim LNG's future and pricing is quite cloudy. I don't think so for the following reasons. Coal is on the way out for a number of factors, including pollution, carbon emissions, et cetera. If you include the environmental expense into the true cost of coal it makes the energy source cost prohibitive. For this reason alone LNG will become the fuel of choice in the coming years and the BG purchase will make Shell by far the largest LNG in player in the critical Asian market. China recently announce they are will be closing it's 4 largest coal plants, they are opening up new desalination plants to meet their water needs (very energy intensive). India, China (the world's largest population centers) energy demand will grow rapidly as their standards of living rise. LNG is the future to meet that demand, no doubt. This will be a huge bonanza for Shell, a company that has already seen large increases in revenues from LNG.
Another large component of the deal is Shell now increases it's proven oil reserves dramatically thanks to new assets in Brazil and Africa. It was much cheaper to buy reserves from BG than Shell to develop themselves. The oil deposits off the coast of Brazil are some of the largest in the world and I believe Shell will be partnering with Brazil more and more to develop those highly lucrative assets in the future. Purchasing BG is the first step in that process. Cash strapped Brazil is in desperate need of partnering with someone with know how and deep pockets, Shell fits that profile.
Because BTU must pay an exorbitant amount of interest on it's debt BTU is left out of the biggest game on Wall Street which is corporations borrowing cheaply and using those IOUs to fund dividends and buy back their stock. Quite the Ponzi Scheme if you have investment grade credit, unfortunately BTU's debt is rated five grades below investment grade. I guess in a way it is a good thing longer term, BTU is not leveraging up it's balance sheet accumulating debt to temporarily push their stock price higher, pay dividends.
Over the years I have made a lot of money doing the opposite of the bald avenger.
Shell is getting access to huge proven reserves off the coast of Brazil at a substantial discount to what RDS would cough up if they were to develop internally (About $21 a barrel) and they become the largest LNG player in Asia. This has the potential to be a huge win for RDS and worth buying at these levels. If RDS goes down from here it is not about this being a bad acquisition it is all about a further long-term fall in the price of oil and nat gas.
This seems inevitable considering the rising costs to develop proven reserves internally, the question does XOM gamble for a lower price and wait?
Oil majors ramping up LNG investments, Shell purchases BG for $70 billion becomes largest LNG player in the world. Capital moving into this sector big time, when the infrastructure is in place, cleaner, relatively cheap LNG will supply the emerging markets, coal is dead! Act appropriately and sell BTU.
Par for the course for the dimwitted RDS executives. Shareholders get royally screwed!
$45 billion!!! Cash Flow will not be there to finance the purchase plus pay a 5.7% dividend. Borrowing costs for fossil fuel companies are not cheap in today's market.
You have a real penchant for being painfully wrong summer...300 down?
You can try to dance around this all you like summerwind but on March 31, 2015 a mere three days prior to the date you posted "Glad I Got Out!" you posted..."Feeling very confident BTU under 5 and it is in my long term account. Upside plus divi reinstatement after the election. I can wait. A pure gift and all short should of covered but their greed didn't allow them to". If these highly contradictory proclamations do not make you a hypocrite then I don't know what possibly could! Keep changing your tune and placing your bets, you are clueless.
In your long-term account? Is that why you held the stock for two days before posting "Glad I sold". What an airhead.
summerwind-57 you have zero credibility. You change your tune every other day. So much for your window dressing theory and your bonehead bets gone wrong.
One huge problem with the article you quote...Sterne Agee & Leach have been saying the entire coal sector has been way oversold and a "Buy" for the past 3 years!!! They have been as painfully wrong as Finster! Another words, if you have been buying into Sterne Agee and Leach's bonehead logic and "Buy" calls related to the coal industry you have lost a lot of money.