Big Boom Straight Ahead?

[william the wie]

A really strange read. Apparently too many people read and heeded the very real bad news about current markets. And that news is very bad indeed:

We are swimming in oil and gas. Many companies are cutting their exploration and capital budgets again and this time by more than half. Still many producers can minimize losses by shipping oil or Natural gas even at current prices.

Result
With overleveraged companies going belly up bond holders become stockholders in companies with much reduced costs. Pipeline companies are not precisely being bribed to build in order to reduce shipping costs for cash-strapped states in the oil patch but it is a fine line. Pipeline companies and states make their revenues from volume of oil shipped far more than from the price per barrel.

The stock market is overpriced and it has narrow breadth that is worse than 2000 before the crash.

Result
The S&P 1500, a broader index than the 500, has rising short interest and the put/call ratio is headed in that direction. That means shares will be going up. It means that because the shorts pay dividends and margin interest on the shares they don't own.

This is kind of strange, opinions?

 

[Toddsterpatriot]

A really strange read. Apparently too many people read and heeded the very real bad news about current markets. And that news is very bad indeed:

We are swimming in oil and gas. Many companies are cutting their exploration and capital budgets again and this time by more than half. Still many producers can minimize losses by shipping oil or Natural gas even at current prices.

Result
With overleveraged companies going belly up bond holders become stockholders in companies with much reduced costs. Pipeline companies are not precisely being bribed to build in order to reduce shipping costs for cash-strapped states in the oil patch but it is a fine line. Pipeline companies and states make their revenues from volume of oil shipped far more than from the price per barrel.

The stock market is overpriced and it has narrow breadth that is worse than 2000 before the crash.

Result
The S&P 1500, a broader index than the 500, has rising short interest and the put/call ratio is headed in that direction. That means shares will be going up. It means that because the shorts pay dividends and margin interest on the shares they don't own.

This is kind of strange, opinions?

It means that because the shorts pay dividends and margin interest on the shares they don't own.

I thought they collected short interest.

 

[DarkFury]

As I said the other day I have a buddy who is a driller so when I read this I called him so he could explain to me what I was seeing, so here goes.....

When the price of oil is up it encourages "Wild Catters" to drill indy wells for the profit thus supply expands. When the price drops the WC's SELL their wells and rights to larger companies who then cap and list that well as reserve.

The WC's withhold a certain percentage 3 to 7 points for their future SHOULD the well be re-opened. They keep their short term profits and wait for a price rise to not only drill themselves but to get their percentage checks from "capped" wells.

HIS personal prediction? NO big risk drilling by WC's and the wells stay capped until 50. He also says right now big oil is sitting on more "capped" wells then he has ever seen in twenty years.

 

[william the wie]

As I said the other day I have a buddy who is a driller so when I read this I called him so he could explain to me what I was seeing, so here goes.....

When the price of oil is up it encourages "Wild Catters" to drill indy wells for the profit thus supply expands. When the price drops the WC's SELL their wells and rights to larger companies who then cap and list that well as reserve.

The WC's withhold a certain percentage 3 to 7 points for their future SHOULD the well be re-opened. They keep their short term profits and wait for a price rise to not only drill themselves but to get their percentage checks from "capped" wells.

HIS personal prediction? NO big risk drilling by WC's and the wells stay capped until 50. He also says right now big oil is sitting on more "capped" wells then he has ever seen in twenty years.

For wells without access to pipelines that's probably right or at the very least close to right but it sounds like he is not factoring in the monetary value of the incentives being offered by the states to build pipelines and uncap wells. He is doing that because the negotiations are behind closed doors. There are probably foreign policy incentives as well. So, I agree with your friend but I am factoring in such revenues from undisclosed sources and he isn't. $10-20/bbl in money to an oil company costs less than bombing the crap out of AQ and Daesh's access to crude.

 

[DarkFury]

As I said the other day I have a buddy who is a driller so when I read this I called him so he could explain to me what I was seeing, so here goes.....

When the price of oil is up it encourages "Wild Catters" to drill indy wells for the profit thus supply expands. When the price drops the WC's SELL their wells and rights to larger companies who then cap and list that well as reserve.

The WC's withhold a certain percentage 3 to 7 points for their future SHOULD the well be re-opened. They keep their short term profits and wait for a price rise to not only drill themselves but to get their percentage checks from "capped" wells.

HIS personal prediction? NO big risk drilling by WC's and the wells stay capped until 50. He also says right now big oil is sitting on more "capped" wells then he has ever seen in twenty years.

For wells without access to pipelines that's probably right or at the very least close to right but it sounds like he is not factoring in the monetary value of the incentives being offered by the states to build pipelines and uncap wells. He is doing that because the negotiations are behind closed doors. There are probably foreign policy incentives as well. So, I agree with your friend but I am factoring in such revenues from undisclosed sources and he isn't. $10-20/bbl in money to an oil company costs less than bombing the crap out of AQ and Daesh's access to crude.

Any time you condense the market you increase the price. As far as bombing are you not using "proxy" money "tax payers" to leverage your future INSTEAD of yours?

 

[william the wie]

Oh yeah almost total agreement. The big difference being I expect politicians and bureaucrats to always do what looks like short term smart rather than what is long term smart. Therefore I expect them to dare to be dumb. Based on what I have seen selling covered puts today on pipeline subsidiaries of the majors there is a lot of construction happening that makes no sense based on open sources so somebody is slipping money under the table. And it is not the majors bribing for the right to lose money. (My wife is calling I'll be back 7:30)

 

[william the wie]

Oh yeah almost total agreement. The big difference being I expect politicians and bureaucrats to always do what looks like short term smart rather than what is long term smart. Therefore I expect them to dare to be dumb. Based on what I have seen selling covered puts today on pipeline subsidiaries of the majors there is a lot of construction happening that makes no sense based on open sources so somebody is slipping money under the table. And it is not the majors bribing for the right to lose money. (My wife is calling I'll be back 7:30)

Go to a stock screener you like and pick some pipeline shares you like. then pick some other sector you like.

Get the range of the put to call ratio. Get the return on covered puts just above and just below the share price for the highest and lowest net returns ($0.5 premium on a $10 strike price is a net return of 0.5/9.5 or 5.26%, 58.6% annualized for @ 45 day money but quite a bit less for net of transaction fees {26.8%}) of both samples.

Ask Toro, Zander or whoever you trust which sample is more bullish.

Sorry about the delay it took me a while to check issues and sectors I rejected for various reasons not germane to this discussion.