Archives for February 2016

Price Matters

Paul Price (at RealMoneyPro.com) has been buying MCK and PRGO recently. He sends us a few charts illustrating his strategy, which is simply this: Buy solid companies when they are trading at valuations lower than their own historical averages, when the price is depressed due to market conditions, rather than serious company specific problems. These stocks also present excellent put writing opportunities.

McKesson (MCK) ~ Paul argues that MCK ($153.99) is undervalued by about 50%. He’s been buying the stock and selling long-term puts with a strike price of $140 – $150. He writes,

McKesson’s typical P/E has come in around 15.5x. Its present day forward multiple is just 11.1x. Of the three best buying opportunities since 2007 (green-starred below) only 2008’s absolute bottom presented a more favorable valuation.

McKesson hasn’t changed hands as low as $122 since September of 2013, a year when EPS came in at $8.35 versus an estimated $12.70 in FY 2015. The dividend has increased by 40% since the last time you could get into MCK that cheaply.

Perrigo (PRGO) ~ PRGO ($124.85) dropped recently after taking some charges associated with fighting off a hostile takeover bid by Mylan. Paul thinks the company is undervalued due to its strong balance sheet and earnings growth. He’s buying stock and selling long-term puts. The stock is cheaper now than when Paul first published this article on Feb. 18.

Peak prices of $157.50 to $215.73 were hit during each of the past three years. S&P Research and Morningstar both assign a 4-star, buy rating on PRGO. S&P sees fair value as more than $188 while targeting $200 over the next 12-months. Morningstar tags present day value at $165.

Complete and Utter Scam: Oil Prices

Phil’s article below was from yesterday morning, before today’s big spike in oil prices (2-12-16). He follows up on Oil Fears Spook Investors (Again), from Monday.

Why is oil currently up almost 12%? US crude surges as much as 12% on output-cut hopes.” 

Screen Shot 2016-02-12 at 9.14.20 AM

(Screenshot: Yahoo’s chart)

Markets Collapse as Sweden goes Negative & Oil Spills Over

From Thursday’s article by Phil at Phil’s Stock World

Really, Sweden?  

Well, it’s just an excuse to sell off on a 30-year auction day (happens almost every one) because it panics people into T-Bills at ridiculously low rates and makes it look like the Fed is doing its job and people really do want to lend the Government money for 30 years at 2.5% rather than do something productive with the money.  Why?  Because if people don’t want to by 30-year Treasury Notes at 2.5% then one would have to question our Government’s $19,000,000,000,000 debt load which, at 2.5%, costs $475Bn in interest payments alone to sustain and if we were to assume rates climb to 5%, then another $475Bn per year would have to be figured into the budget (without asking the Top 1% or Corporations to contribute, of course!).

On the other hand, with Sweden now CHARGING 0.5% to put money in the Riksbank, 2.5% on US debt looks like a pretty good deal, doesn’t it?  I already sent out an Alert this morning (tweeted too, with the hashtag #CurrencyWars) on what happened and how we’re playing the Futures, so I won’t rehash all that here.

Oil, meanwhile, is down another 4% this morning ($26.25) and that’s on me as I told Canada that oil was not going to make a comeback on Money Talk last night – and it was not a happy conversation.  We would like to play the $25 line for a bounce on /CL but we’re EXTREMELY concerned about the MASSIVE overhang of FAKE!!! contracts (see Monday’s post and here is a good place to say “I told you so!”) with 324,000 open orders still remaining in the March contracts (but they did cancel 191,000 fake orders in 3 days, so catching up).

In fact, since I get a lot of mail from people who can’t believe the NYMEX is a complete and utter scam used only to defraud the American people by creating a false demand for oil and driving up prices, let’s compare the “open order ‘demand'” (had to double quote demand as it’s such BS) from Monday morning to yesterday’s close.  Here’s Monday’s NYMEX contract strip:

Here’s yesterday’s closing strip (Wednesday 2-10-16):

Updated numbers from Thursday 2-11-16:

Screen Shot 2016-02-12 at 9.58.17 AM

Phil: “Oil Contracts – Looks like they ditched a healthy 66,000 yesterday. At that pace they’ll get it done no problem but they’ll need a new OPEC rumor every day and, eventually, it won’t work well enough to get buyers to step in. Still, there’s record shorts on the NYMEX (and energy stocks) so pretty easy to squeeze them, my bias is still to bet long off support lines (0.50s).”  

Where did the fake orders for 191,000,000 barrels (1,000 per contract) go?  We know they can’t possibly be delivered since Cushing, OK can only handle 40M barrels a month (less than 10% of the fake order capacity) so what happened?  Well, if you noted the next 4 months from Monday – they totaled 665,000 contracts and now, amazingly, they total 875,000 contract – that’s a gain of 210,000 contracts!

In other words, there is no actual change to the fake, Fake, FAKE!!! orders at the NYMEX, they just roll them along to the next months so they can pretend there is demand there as well.  Since all those trading and rolling losses are worked into the price of oil – only the consumer suffers the losses while the traders and the Banksters that work with them make Billions in fees for their barrel-rolling trick.

And I will tell you now that, as usual, 90% of the remaining 324M barrels worth of contracts to buy oil at $27 will be CANCELLED and not delivered to the US in March – in hopes of screwing you with higher prices later.

And this is the problem Canada, and the rest of the World, have now.  There has been a scam, pretty much since the deadly Commodity Futures Modernization Act Revisions, which were literally signed into law the day after Bush won his Presidency in the Supreme Court (hidden inside an 11,000 page appropriations bill that HAD to be signed to avoid a Government shut-down a week before Christmas).  This bill and it’s repercussions are now wreaking havoc with the Global Economy for the 2nd time.

The first time, aside from Enron (Bush’s biggest single donor) et al (made possible by the deregulation in the Act, which was sponsored by Enron) ripping off consumers all over the country, the unregulated trading caused oil to jump from $20 per barrel under Clinton to $140 a barrel under Bush, which ultimately broke the consumers’ backs and led to our 2008 market collapse.

Now it’s time for round two as the misallocation of capital towards energy projects, based on the assumption that $100 oil was a REAL price based on market demand (it’s not, it’s completely unaffordable) has caused MASSIVE over-production of oil all around the World and the companies and countries that borrowed money to finance that production growth AND the banks that lent them the money are now in BIG TROUBLE with oil back at it’s NORMAL price of $26.50 per barrel.

As I said on BNN last night, countries like Canada, where 20% of their GDP comes from the energy sector, are going to have a very painful time adjusting to normal oil prices but the sooner they come to grips with that reality, the better.

The worst thing they can do is attempt to prop up a failing industry that is drastically in need of a consolidation wave as they are currently over-producing, according to the IEA, 1.75Mb of oil per day.  That’s about 2% of global production that needs to go off-line before we’re even close to sopping up the GLUT of oil that has flooded Global storage facilities to near capacity.

The worst part is (for OPEC and the North American Energy Cartel – you know who you are!) is that the sanctions lifted on Iran are now going to put another 1.5Mb/d of production on-line by the end of this year (already over 500,000/day) which is accelerating the problem. OPEC has, so far, not made any moves to cut back – part of their problem is they now only control 30% of the World’s oil because their previous policy of holding back production to jack up oil prices has backfired as the high prices led 60M daily barrels of competing oil to come to market and their share of the global market has fallen 50% since they held us hostage in the 70s.

And now we head towards the end game and it’s the Chinese curse of living in “interesting times” indeed for oil producers. As I told Money Talk last night – don’t rush to find “bargains” in the energy sector – a lot of these guys are never coming back!

This article follows Oil Fears Spook Investors (Again).

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Oil Fears Spook Investors (Again)

Oil Fears Spook Investors (Again)

oil-696579_640From Phil Davis’s Monday article at Phil’s Stock World

We should all fear Oilmageddon!” 

That’s the word from CitiBank, which is SUPPOSED to be the voice of reason in these markets. When Banksters tell us to get out of something – it’s usually time to get in.

Nattering Naybob had a very good summary of the weeks events, reminding us of my Wednesday warning that we were simply in a “dead cat bounce” and likely to fall even further this morning. I wrote,

Some are connecting the dots so the 1859 to 1940 SP500 rally, could be the dead cat bounce we alluded to as the overall trend reasserts itself. I said ES could test 1930 and to wake me up when it got there, where it was rejected in a big way. I have a funny feeling this Super Bowl, Monday, and week could all be ugly.

And ugly it is this morning but I’ll be on Money Talk on BNN Wednesday night, explaining to Canada why the collapse of oil does NOT mean the Global Economy is collapsing and I’ll write it down here so you can get ahead of the game and, as Buffett advises: “Be greedy while others are fearful.”

The big problem is that most “analysts” don’t know anything more than they knew in college – especially the ones who wrote books and who, even if they know better, almost never contradict what they have published – no matter how much evidence to the contrary has piled up against them.  Those who aren’t slaves to the status quo are often paid by the-powers-that-be to steer the sheeple in and out of positions as needs dictate, and even the honest media loves a conflict – and they’ll present both sides of an argument as valid – even when one side is clearly idiotic.

So, getting back to oil – most people think oil pricing is a function of supply and demand. Long-term it is. But short-term it’s a function of sentiment and manipulation. We take full advantage of that at PSW and I could give you a dozen examples from our 10 years in circulation but suffice it to say it’s not that hard to spot those patterns. One great pattern we observe is the fake, Fake, FAKE!!! trading of oil contracts over at the NYMEX.

As you can see from the 5-month strip at the NYMEX, there are 515,000 open contracts for March delivery and that’s very high, which puts downward pressure on the price because the contracts close on Feb. 22 (10 trading days, we’re closed next Monday) and, not only are the storage facilities at Cushing, OK (the point of delivery) full to the brim with unwanted oil, but Cushing can only handle about 40M actual barrels of oil per month so there is NO WAY ON EARTH that 515,000 contracts, representing 515 MILLION barrels of oil, can possibly be delivered.

Of course the traders know this and they pull this scam off every month in order to create a false sense of demand for oil and, every month, they whittle their fake orders down to 15-25M actual barrels worth of contacts (15-25,000) and the rests are fake, Fake, FAKE!!! – ALL of the time.

Yes, trading on the NYMEX is a complete and utter fraud BUT knowing it’s a fraud helps us make money so, other than my occasional rants like this one – we could care less – certainly the regulators don’t care…  This month, over 3M contracts will change hands at the NYMEX, representing 600M barrels of oil – all so just 20M can actually be delivered to the US consumers. The rest of the nonsense (99%) is just a game to move the prices around with the US consumers picking up the tab for all the fees that monthly churning generates.

There are 515,000 contracts worth of open orders for March delivery and, since only 25M barrels are likely to be delivered, they have 10 days to cancel or roll 490M barrels worth of crude orders to longer months.  Since most of those contracts are trading at a loss, and since hope springs eternal, and since humans and their corporate masters have a huge aversion to taking losses – we can expect those contracts to be rolled to longer months – only perpetuating the problem.

In addition, we know that “THEY” have trouble rolling more than 40,000 contracts in a single day – usually that causes downward price pressure and they have 10 days to roll 490,000 contracts – so oil will remain under pressure until 2/22, when we should get a nice pop into the end of that week. Meanwhile, rumors are accelerating regarding a possible OPEC production cutback and that’s keeping oil off the $25 line – for now. As I said – we’re playing for a bounce off $30 (with tight stops below) because we expect more rumors to lift oil into Wednesday’s inventory report.

There are over 1 BILLION barrels worth of FAKE!!! orders for oil deliver at the NYMEX in the front 4 months – soon to be the front 3 months in 10 trading days.  The US currently imports just 5.7M barrels per day or 171M barrels per month (but not all to Cushing, of course) so the deliveries FALSELY scheduled for Cushing alone, in March, represent a 3-month supply for the entire US!

There’s problem number one – energy trading is a complete and utter scam (as if Enron didn’t make that plainly obvious 15 years ago) and don’t get me started about the ICE (see: Goldman’s Global Oil Scam Passes the 50 Madoff Mark).  Oil is not racing back to $50 because $50 is not the mid-point on oil – it’s a top and oil should NEVER have been anywhere close to $100 per barrel and that bubble has long since burst.

Again we have to think about the rigid and limited mind-set of the average analyst who thinks that low oil prices mean a bad economy because, clearly, demand must be off.  That was a very solid assumption since the birth of the internal combustion engine but now that we have electric cars and solar and wind power – it’s no longer such a direct correlation.  While we do have an oversupply of oil, to be sure – it’s wrong to blame it on a slow economy.

One solid example of this is auto demand.  You are probably aware of the fact that auto sales hit records in 2015, with 50M cares delivered globally.  While this somewhat represents a bump in demand, it’s mainly about replacement cars. What kind of cars are we replacing?  The average age of the US fleet is 11.5 years and we can safely assume that most cars being replaced fall on the longer end of the scale.  Well, the average car in 2005 got just 22 miles per gallon and we’re replacing them with cars that get 35 miles per gallon (new car fleet average) thanks to Obama’s CAFE standard rules.  And it’s not just the US – the whole world is getting more efficient:

A car being driven 15,000 miles a year (average) that used to use 750 gallons at 20 miles per gallon is replaced by a car driven the same 15,000 miles a year that now gets 35 miles per gallon and used 428 gallons.  That’s 42% LESS fuel than the previous car!  An oil barrel is 42 gallons and it’s not all refined to gasoline but let’s just say that each new car sold requires 10 less barrels per year than it’s predecessor.  At 50M cars a year that’s 500M less barrels per year required for our auto fleet – a 1.5Mb/day demand cut that becomes 3Mb/day in year 2 and 4.5Mb/day in year 3 and THAT is where our demand is going and it’s NOT coming back!

In fact, we also are getting more efficient trucks and more efficient planes and more efficient machines in our factories and a lot of equipment is using wave, wind and solar energy for power and not using any oil at all to run.  So our economy could be off to the races and oil consumption would still be going downhill and, ironically, the better our economy does the faster the old gas-guzzling machines get replaced and the faster the demand for oil declines but that’s a GOOD THING, not a reason to panic.

Yes, there will be disruptions as we move into a post-oil economy – especially for economies that depend on oil.  Saudi Arabia alone has enough oil in the ground to supply the World for 40 years and, sadly, it’s not likely they’ll even use half of it before oil is a fuel of the past and THAT is why no one wants to cut production – despite this persistent glut that is without end – because they know they are playing a game of musical chairs with oil barrels and they are all going to be stuck with a worthless fuel of the past with a rapidly declining inventory value.

This is also bad news for companies like Exxon (XOM), Chevron (CVX) which are, unfortunately, Dow Components.  It’s bad news for the energy sector and the banks that lent them money so there WILL be disruption – but it’s the good and healthy kind as our society moves on from using oil and it’s NOT a sign of a slowing global economy – that’s why we flipped long this morning!

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Pros and Cons of Obama’s $10 Barrel Oil Tax

Assuming you own some stocks, it’s probably a good idea to distract yourself and avoid headlines this weekend. For instance, 22 Signs That The Global Economic Turmoil We Have Seen So Far In 2016 Is Just The BeginningThe rout could continue next week. Here’s why, and Citi: World economy trapped in ‘death spiral’. Although this one’s interesting.

Pros & Cons Of Obama’s $10/Barrel Oil Tax

Courtesy of ZeroHedge

With President Obama unveiling his $10/Barrel tax plan to fund government-subsidized public transportation (versus having a choice over the method of transportation), we thought a glimpse at the pros and cons of the choices might be useful.

Reporting by The Onion.

Weighing factors such as convenience, time commitment, and environmental impact, deciding whether to commute via your own fossil-fuel-powered car or government-provided unicorn-fueled public transportation can be difficult.

Here is a side-by-side comparison of the two options…

Source: The Onion