The recent sharp rally in equities has been driven by huge moves in the commodity sector, the belief the tide has turned, the bottom has been established. This coincides with a fall in the U.S. dollar, a rise in both emerging market stocks and their currencies.
What makes me strongly doubt that this spike can be sustained, that this is simply a short-term counter trend rally, is both the distressed debt and the treasury markets are not confirming the commodity revival.
If oil, gas, coal, industrial metals were indeed entering a sustained upswing, and if the greenback has truly seen the end of it's best days, then this would significantly raise future inflationary expectations, it would signal the assets & balance sheets in these beaten up sectors will be vastly improving. Well, if this is the case the credit markets are not buying it. Despite the rally, yields on treasuries have barely budged, the debt of commodity names remain under pressure.
I was surprised the S&P 500 broke through the key 2000 level, and I am also surprised there is no follow through today. I think it wise to sell into this rally. I expect eventually the S&P 500 falls to the 1790 level, possibly lower in the coming months as the recent commodity move falters, the emerging markets saddled with huge debt, overcapacity, head south again. I also expect the greenback to regain it's upward footing and emerging market currencies to plunge, setting the stage for a major sell-off globally in risk assets.
The answer is simple, "Jim Bob" Moffett, CEO Richard Adkerson, and Plains Exploration chairman James Flores possessed huge conflicts of interests and knew shareholders would be getting screwed. The only way to get away with this fleecing, handing over $9 billion for near worthless oil and gas assets was to circumvent shareholders, not allow stockholders to vote on the bogus deal. Yes, the executives made a lot of money, but unfortunately FCX shareholders got screwed by these crooks! The day was deal was announced the managing director of Blackrock called the transaction a travesty, a huge disappointment.
If there was ever a time for a commodity sector rally this was it. The question does it last?
A new quarter often brings out bottom fishers seeking perceived bargains or short-term trades and fossil fuels stocks certainly fit the profile. After being absolutely pummeled the past 12 months it does not take much to ignite a powerful counter trend boost. The narrative by the bulls is supply will be coming off the market as smaller players exit and cuts in capital spending takes hold. Add to this scenario the turmoil in the Middle East ratcheting up with the entry of Russia into the foray, no surprise crude is spiking higher taking the entire commodity space with it. Then there is a falling dollar fueled by last weeks rather shocking employment numbers all in an environment with little to no economic reports for the week. Truly quite a nice set up for an opportunists to take a long trade and the money center banks are certainly taking advantage.
Unfortunately none of the above speaks of reality or is sustainable. Both crude and nat gas supply will not be coming down anytime soon. Capital spending cuts will not put a dent in output as existing projects continue full throttle to pay off creditors. Russia and Saudi Arabia will not cease record outputs and Iran will soon be adding to the glut. There is very little oil in Syria and the conflict is highly unlikely to spread to oil producing neighbors, simply convenient hype. And the U.S. dollars recent demise will be short-lived as the emerging markets and Europe continue on the path of quantitative easing and currency destruction via debt.
So it would be wise to sell into this bogus rally, including BTU which is going along for the ride. I would not consider taking any equity positions until we see another leg down, taking the S&P 500 to the 1790 level.
When Finster the cockroach punk comes out of hiding to post his infamous "ahahahahahaaaa" you know it is is time to sell BTU. An incredible accurate leading indicator. This idiot was pumping BTU when the stock was trading $270 (split adjusted).
A few months back with the S&P 500 trading 2132 I warned the BTU community of an impending 10% + correction which came to fruition. Now we are experiencing a false rally driven by money flowing into beaten up commodity names. The problem, there is absolutely no fundamental reason to be purchasing these stocks which remain in a longer term bear market. I strongly suspect this bogus rally will fade in the coming weeks and we resume our march down to S&P 500 1790.
Keep a close eye on the credit markets. It is very telling continued stress in the debt arena, especially junk IOUs have not confirmed the recent equity spike. Yes, the low-life analysts over at the money center banks are once again playing their book, strongly hyping stocks, but they will be proven painfully wrong as they have so many times before. Liquidity, easy credit conditions are no longer on their side. The training wheels are clearing off now and their pollyannaish views are destined to fall flat on their face.
I was actually becoming a bit more constructive until this unfortunate bounce which proved manipulation and casino characteristics remain firmly in place. It appears more pain is necessary to bring a return of sanity. Sell into any rally.
As I have stated many times but worthy of another reminder, when Finster, the special needs punk, berates anyone wise enough to sell into any brief BTU rally followed by his preteen girlish AHAAHAHAHA it is extremely likely another BTU sell-off will soon follow. Lying, cretin Finster has been employing the same bonehead post since BTU was trading in the high teens and without fail shortly after BTU plummets! A remarkable leading indicator, have never seen anything like it.
EXC is currently owns a PE of 11.70, a dividend yield of 4.35%, trading nearly at book value. This in an environment where the 10 year treasury returns 2.10% and the average PE on the S&P 500 is 18! I find it rather ludicrous that the govt proposes to recognize the benefits of carbon free emissions from new nuclear plants but will not do the same for existing nuclear plants, that makes zero sense! Eventually this insanity will be reversed and EXC's nuclear fleet will see the windfall for producing energy that does not contribute to man-made global warming, especially as the ravishes of a warming planet become more apparent in the coming years. In fact, I expect EXC in the not too distant future to expand capacity in present nuclear generation facilities which is much cheaper than building new nuclear plants. Nuclear is the future of our baseload energy needs. EXC is truly an incredible buy at $28.50.
One must comprehend Germany is an anomaly when it comes to choosing coal over nuclear, globally this is clearly not the case and for very good reason. Nuclear emits no global warming gasses nor the endless poisonous particulates as dirty coal, the only reason Germany is taking this ludicrous stance is because Germany has a very strong coal lobby, which heavily influences the policy makers. Presently there are over 60 nuclear reactors under construction in 15 countries.
For quite some time I have tried in vain to be a voice of reason in a community of delusional fools, who are diseased and blinded by ignorance, who choose to embrace falsehoods, mindless BTU cheerleading. The degree to which these unfortunates refuse to change their behavior, their misguided mindset is truly baffling. I could make a rather long list of names who fall under the above designation but by far the worst offender is Finster989, the special-needs punk. This lying clown has been claiming he has been right since he loaded up on BTU in the high teens, berating anyone who dared question his moronic resolve.
I have turned the majority of my attention to other opportunities since BTU recently morphed from a stock to an option, trading solely on the mercy of senior creditors. But occasionally it is humorous to read once again the bonehead rants of Finster989 , as the one above with BTU trading $2.70. If there was ever a reliable leading indicator of BTU resuming it's demise, it clearly has to be Finster's patented Ahahahaaaahehehawhaw. Uncanny really, just how incredibly wrong one person can be.
Yes I am fully aware, out of shame, Finster has often change his moniker to hide his identity incorporating screennames such as peabody_sucks, but the punk cannot run from his severe shortcomings and cockroach ways, so the fool is always easily recognizable no matter the disguise.
One quality that I have always admired about the BTU message board has been the incredible insight and accurate posts by the resident BTU cheerleaders. This post is a prime example of that standard of excellence.
Trader it is an interesting trade, but highly dangerous. Stops don't apply to a stock such as BTU at this stage, very susceptible to gap downs. If I cannot manage the risk I stay away. Good luck though, I have no dog in the fight.
BTU Mgt has finally exposed what dire straits the company is truly in by giving creditors an ultimatum, either restructure the debt, take a huge loss, or we file for bankruptcy. Things could turn for the worse real quick, be extremely cautious jumping in.
I haven't been discussing my view on BTU of late, at least not in-depth as in the past, instead focusing on the larger market, severe macro issues facing the world economy, which remain in place despite the recent jump in stocks. But the misplaced hysteria displayed on this message board in response to the rise in BTU's stock of late has been severely overdone and I felt compelled to introduce a bit of harsh reality to the present situation.
It has been understood for quite some time BTU could not continue as an ongoing concern under it's current debt load, especially considering the extremely high rate of interest required to service those IOUs. So no surprise BTU's mgt has hired a firm with the hope of restructuring over $6 billion in debt. This is a monumental task much easier said than done and if successful will come with a high price, in the form of heavy dilution.
I am rather skeptical senior creditors will agree to such tactics, although possible, considering this company is in such dire straits, owning such a bleak outlook. The sad realization that bankruptcy will leave little or nothing in value in it's wake could be a motivating factor for bondholders. But if somehow an agreement is made, you can place a firm ceiling on BTU's stock price, bloated by outstanding shares. This will be no different than a reverse stock split in many ways, guaranteeing forever losses for the poor souls who entered BTU in the mid single digits and above.
Also keep in mind, Patriot Coal pulled the same stunt, but still ended up filing for bankruptcy a few years later. Bottom line, the fundamentals for coal continue to be bleak and I don't see that changing in the future. There are so many variables that have to fall into place for BTU to avoid bankruptcy in the next few years and frankly I don't see that happening.
Richer every day? I understand you are nothing but a punk "Special Needs" kid Finster but to aggravate your sad lot in life by being a pathetic liar is truly deplorable. You have been riding BTU down for quite some time, claiming Peabody is a buy of a lifetime with nowhere to go up since the high teens. The last time cockroach Finster crawled out of his hole he claimed his BTU average cost was down to $5.85, now the buffoon announces he is getting richer every day with the stock trading $2.25. Rather predictable coming from a jerk who lied about being a CPA in a previous post, that lie exposed when he made some incredibly bonehead comments concerning BTU's book value. There is good reason why Finster has been the laughingstock of this board for quite some time, his travesty continues unabated. And by the way I have not been short BTU since it broke $3 bucks. As I told History I see no point shorting stocks at these lowly levels, the easy money was made awhile back. But I will say this, the future for BTU remains extremely bleak and I do foresee some form of bankruptcy occurring in the next 24 months.
Everyone knew the dividend would be eliminated!
As far as the gold debate, it is wrong to state gold should be lumped into the commodity sector considering it has little industrial use, which was correctly pointed out, but it also misguided to not label gold as a currency, for it has been considered a storage of wealth for quite some time, the first gold coins appearing around 700 BC. Central Banks around the globe accumulate bullion into their own coffers by the tons.
Gold and gold stocks performed relatively well the last Great Depression, the reasons, it had an anchor price due to we were on the gold standard at the time and also the cost of retrieving gold from the ground fell dramatically in the deflationary environment. The question now, how does gold perform in another deflationary scenario, no longer on the gold standard? I can almost guarantee you Gold will not track the commodity sector. Although, I suspect it might get caught up in the selling tomorrow as leveraged players and money managers liquidate assets, seeking cash anywhere they can find it, but it will still outperform and soon find a bid as the reality sets in there will be no rate increase and more QEs are eventually on the way.
Thus far the all important swing players in the gold market (China, India) have been reluctant to buy due to a rising dollar and consumers simply don't have the means due to poor economic conditions but that should be changing when they realize it makes sense to accumulate Gold to offset their falling currencies. We shall see...
I have to agree with benj17 on this one. I don't place gold in the commodity sector but as an alternative currency. The collapse in the commodity sector is simply a reflection of a rapidly slowing world economy, the misallocation of capital and the resulting overcapacity which is going to take a lot of painful years to heal. I also do not see the recent move in gold as a counter trend rally but the beginnings of a secular bull which will be driven by an intensifying currency war and more QEs.
Since BTU broke $3 bucks I don't pay too much attention, seeing bigger fish to fry. But I know BTU stock is all about the outstanding debt, the willingness of the debt holders to either take their chance in bankruptcy court or restructure via swaps et cetera. Charts and history do not apply in this game. Keep in mind, even if the price of coal stabilized it doesn't have that much of an impact on a leveraged balance sheet. Leverage is what killed BTU. Mgt's decision to expand, their China strategy could not had been more ill-timed. But in their defense many commodity producers made the same mistake. When money is cheap that tends to happen.
The bigger picture is this...The severe problems in Asia, especially China are finally coming to the surface. Yes China has the ability to lower rates and reserve requirements but their debt levels have shot through the roof, especially private debt, add to this malady capital outflows are at dangerous levels. The govt has truly made some bonehead moves of late in their attempts to stop the bleeding, there is no confidence they have the ability to successfully play this bad hand out without causing a major crisis.
Somebody in Asia is eventually going to let their currency free-fall and this will send shock waves around the globe. Truly alarming we face this crisis in a world awash in debt, central bankers with few bullets to fire.
I found it rather comical the myriad of reasons the talking heads on the major business networks hatched to explain the dive in stocks. Not one mentioned the growing credit crisis, the widening spreads occurring across all grades of corporate debt. It was so obvious this was going to present a major problem for equities I posted repeatedly of the pending equity sell-off. Yes there were other warning signs such as severely deteriorating breadth but the turmoil in the credit markets was so obvious and yet, even post plunge, very few are aware or give it mention.
The reason this is quite important, credit events historically are often quite severe and based on the growing crisis in Asia, the commodity collapse and the associated damage to commodity dependent countries, the raging currency war and the $9 trillion plus dollar denominated IOUs held in the emerging markets, well this spells serious trouble. Liquidity in the debt space is already extremely troubling, this could get ugly real fast.
It was such a joke the money center bank stocks were spiking higher to new highs, idiots like bank stock analyst #$%$ Bove claiming another "buy of a lifetime", just like the fool did in 2007 just prior to the financial collapse. I can't think of a worse sector to be in right now than the banks! If my take comes true in the coming months yields on treasury are going to fall big time and corporate debt is going to continue to come under pressure. Defaults will be rising dramatically. Keep in mind hedges will be expiring in the not too distant future which will bring a second leg down for commodity stocks and their debt.
I see China devaluing the Yuan further and other Asian countries will follow suit bringing more chaos and more capital outflows. The dominoes are lining up and in this environment I would be shocked if the Fed chose to come off zero. In fact, before this storm is over they will most likely pursue more QE. I would think gold is a good bet here.