Tuesday, August 5, 2008


By the action of the market today, you would have thought that it was a great surprise that the FED was going to leave rates unchanged. I can't buy into this rally. I will say that the declining price of oil has been much needed for the market, but my common sense approach tells me that we are still at almost $120 per barrel. Given that we are still at huge year-over-year percentage increases in the price of oil, I just don't think that the declines should be driving us back into a bull market. Just as I have said that the drillers RIG, DO, etc will make huge money with oil North of $80, I believe that oil over $115 for a sustained period will hamper margins and adversely impact the consumer.

For those of you that have listened to my recent interviews, you know that I have been focusing on not only the decline in oil prices, but the recent (and violent I might add) roll-over in the agricultrical sector. Potash POT got hammered again today. I have been trying to analyze why the market is reacting so negatively to NOV, POT, FLR, and CMP here lately. Now I understand that these stocks are levered to the commodities plays, but it has been interesting to watch the market punish them not for their earnings, but simply for their multiples. This is simply a case of multiple contraction based on the broader outlook. This pendulum is almost certain to swing too far, but being patient is tough. I got stopped out of my original trade in NOV yesterday and am close to my stop in FLR. I think there will be a point in the next few days where these stocks may provide us an entry, or reentry in my case, point but it could be substantially lower.

Many have written and asked me if I am still a believer in CHK. The short answer is yes. I think they may have more on the downside, but I am a believer in the natural gas play and you have to like CHK in that space.

I am hearing many in the mainstream media talk about how the rally in the financials is going to lead us out of this bear market. If you listen to them they make a compelling case, but I remind you that these were the same folks who were quantifying the sub-prime problem and saying that it really couldn't hurt many companies by more than 15-20%. YEA RIGHT. Tell that to the BEAR STEARNS SHAREHOLDERS. At any rate, I don't think we are going to see a return to a bull market until we can go a quarter with average oil prices below $115 per barrel. I think that some financials have some more pain to share with us so I won't be buying the financials right now.



Dollar.Discipline said...

CHK has not hit the bottom yet, neither has natural gas. However, long term it's a good position to hold in your portfolio.

This high priced energy is not over.