Random Thoughts: The Rally Before Reality?
Editor's Note: The following content was posted in real-time on our premium Buzz & Banter and is being shared here for the benefit of the Minyanville community.
Morning Dew! - 9:11 am
- First, Phew! While Hurricane Gustav was a bruiser, white light and good vibes to those on the Gulf Coast for it being A storm rather than THE storm of the century. Now, let's hope that Hanna, Ike and Ten--the three other systems forming in the Atlantic--follow its anticlimactic lead.
- Are you ready for some football? I am and, for possibly the only time this year, I can boast that my Raiders are tied for first! I bring this up as I eye the flag pattern we spoke of last week.
- That pennant formation broke to the upside on Thursday and closed (retested) the precise breakout point on Friday. Pre-market futures are pointed higher, which would keep the "rally into the election" (S&P 1330-150) thesis alive.
- Do I plan to play it that way? Yes and no--yes, in that I have no problem making defined risk bets should an advantageous set-up present itself but NO in that my sense is that a Category 5 storm might be brewing on the horizon in the form of a credit comeuppance. I plan on delving deeper into this discussion tomorrow.
- Nick & Toni (aka Toddo & Doug Kass) tied a bow on the summer with the third installment of our mind meld. It's front and center on the 'Ville should ye faithful wanna peruse it.
- Names on my radar include Baidu (BIDU) (interesting that it remains below double secret support, er, resistance despite the recent market movements), Simon Property (SPG) ($92 is a big level) and General Electric (GE) ($28 is the right shoulder of fresh dandruff).
- Remember those bubble comparison charts we trotted out while crude was pushing $150 as we humbly offered that Texas Tea would somehow find its way to par in front of the election? As Mark Twain once said, history doesn't always repeat but it often rhymes.
Click to enlarge - While I'm fresh and ready for a strong year-end push, keep in mind that alotta folks are using this week as their respite from reality. In that vein, keep your risk tight and size smaller than it might otherwise be as a function of still thin ranks in the marketplace.
- Good luck Minyans--let's end this week with a smile on our puss and some jingle in our jeans!
Trading Like Ruben Carter - 9:50 am
Bennet makes an insanely excellent point regarding the downticking Chinese economy possibly having more influence over the price of crude than the not-as-bad-as-expected Hurricane.
However, following up on Professor Shartsis' Buzz--and with an eye cast towards three more storms on the horizon--I've dipped into some USO calls (despite my continued belief that crude will trade par into the election and perhaps lower thereafter as a function of slowing global growth.
Just a trade, Minyans, and a schnitzel at that.
Bob Dylan would be proud.
Gate Sniffage! - 10:36 am
- Does Turnaround (Counter-Trend) Tuesday still apply following a three day weekend?
- After scribing a bullish bent on July 16th, I opined on August 6th, in The Recovery and the Storm, that we could well see a run into the elections. I just reread that missive because I sometimes have a tendency to overthink things (ya think?).
- As I just said to Minyan Doug Kass on the phone, the "best set-up" would be if the markets jack higher towards S&P 1330-1350, which would take us straight into the trendline of lower highs that have been in place since October.
- Why? I continue to have serious concerns regarding the credit markets in general and the September issuance in particular. Financial institutions have $871 billion coming due into year-end and that won't magically resolve itself.
- If risk appetites swallow that supply, we're off to the races. If they don't--and I don't believe they will--we could see a yelp lower that would crush the rush of late-to-the-party bulls.
- How am I playing this? Smaller, for the time being, with some trading positions (long crude, short Baidu (BIDU) under $320), my small bet on Yahoo (YHOO) and a whole heckuva lotta dry powder so I can strike when the iron wrinkles out the sprinkles.
- We're getting set up open the floodgates to Festivus 2008, which will be held on December 4th in NYC. Last year, almost 400 Minyans shared hugs and handshakes as we celebrated another year of life and raised money for the healers, dreamers, thinkers and visionaries of tomorrow. We sincerely hope that you'll find the time to join us for this year's soiree.
- As always, I hope this finds you swell. Back in the saddle, swell.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
I was looking at a 2006 talk given by Robert Hirsch, which predicts when oil would peak. The first predictions were made for the US lower 48 in 1970. Since no one was completely sure about the size of the USA total reserves, Hubbert back then did something very clever. He realized that total production (supply) over time was a Gaussian curve. Most things in nature are Gaussian shaped (the Bell curve).
But he did not know the size of the curve. No one could accurately measure reserves. They still can't today. But Hirsch found that if one plots yearly production divided by total cumulative production to date (this function decreases with time, starting at the beginning of oil production), one can predict where the 50% point (Peak Oil) of the Gaussian is.Â
Hubbert did this for the lower 48 in 1970 and found when this ratio hits 52%, you are at peak oil.
Now, Hirsch looked at the same function for World oil production, and it hit 48.5% in 2005 (beyond the peak). The only difference I can see between the US lower 48, and World oil production is that of OPEC. They have held a portion of the yearly production back. This I believe would make the ratio artificially smaller than it could be.
If this analysis is correct (and it is mathematically), then we are now running on OPEC spare capacity. Very soon we shall slide over the peak. At that point Hirsch predicts:Â
Inflation, unemployment, recession, high interest rates, = "reciflation"Â
Lets hope we have a few years left, before another supply crunch (just when the World economy recovers)?
This is the second large wave that I believe will be coming.
My frosty side says we have had an awful time with even 1300 so far - yet another failure (and sweet gap to resistance at the open - more of those please! Actually no - I'd come to expect them and get whacked reaching into the fire one-time to many)...
When I look out to the election, I see many catalysts like bank failures, huge writedowns (oh yes, more are coming), OPEC cutting production, storms, yet more lousy data confirming the recession (or at least "soft patch") on its face and reality since we know that government report mirror seems to make things look a little better than they really area...
In short, plenty of things that could "happen" and 50 S&P/500 Dow points isn't much, but I am having trouble wrapping my mind around the "upside" surprises?
Stronger Dollar? Ok, but at the expense of S&P earnings of conglomerates and global growth in general. Even the market seems to have figured this trick out as we didn't get a 1000 point rally on 3% GDP (COUGH! COUGH! BS! COUGH!)....
Lower Oil? Ok, but see stronger dollar - at the expense of profits for everyone as it means demand is dropping. That and OPEC is likely already discussing cuts to keep it near $100
Election Promises? Well, thus far we have been promised very little other than "Change" (with little definition and what little definition we have gotten says class warfare, taxes and generally not good things for the market) and "More of the Same", so the usual pump and dump leading up to an election doesn't apply it seems...
Housing Recovery? Hold-on, I just spit my dink out of my nose... Ok, moving on... Though I am sure the NAR will call 4 more bottoms this year on each successive historical low monthly data point...
Lehman getting "bought out?" Well, M&A no longer comes with a premium these days, you are happy to get the cash period...
I guess that's why it will appear huh? Oh well - stops are set tight and hatches battened down...
Psychologically speaking, if I am an ordinary investor, seeing the recent market movements (up 300, down 299), will I put money in or out based on the title? As reported yesterday in the Buzz, there are no new money inflow, plainly sector rotation. How long will the rally last without fresh capital? People playing very safe, you think?
