Who is calling the shots

Putin and MbS are having talks again,
watch the oil price,
timing interesting near the U.S. election,
output cuts are the logical bet,
there is nothing like petro-nations needing petro-dollars.

Oil Rigs…going cheap !

This is the lowest amount of oil rigs in operation within the United States since……”like ever”.

For the Oil, Gas and Statistic nerds – Scroll through the historical data in this link and you’ll be quite amazed.

Do you know what is currently going cheap in the world ?

Buying or renting an oil rig……

October 8, 2020

by Rob Zdravevski

rob@karriasset.com.au

Bullish on Exxon Mobil (finally)

I have been negative on Big Oil but there have been some monumental moves lately. Some stocks are trading at “monthly” oversold levels not seen the 1960’s.

At $33, my calculations tell me you can Buy Exxon Mobil at its intrinsic value.

So this example turns XOM into a bond and still have some optionality.

Buy stock at $33 and
Buy January 2023 $30 strike Put option for $6.50.

Dividends are slated to be 87 cents per quarter. You’ll earn $7.83 over 9 quarterly dividends.

And the difference paid between your put option insurance and dividends earned is $1.33 or equivalent to 4% of the price paid for the stock today.

Over the next 2 1/4 years, this cash difference easily beats (even if it’s taxed) the 0.35% yield on the 5 year U.S. Government Treasury bond.

And the optionality is limitless, ranging from whether the oil price rises to $70, XOM returning to the Dow Jones Industrial Average or improving free cash flow, margins and EBITDA from a low base.

With a market cap of $145 billion (net debt of $57 bn) thus an Enterprise Value of $202 bn on 2019 revenues of $214 bn (2020 likely to be $185 bn) and EBITDA of $30 bn.

The Queen Mary is about to do a U-turn.

I’ll write about Gazprom & Russian oil, later.

October 6, 2020
by Rob Zdravevski
rob@karriasset.com.au

What’s been missing in Oil & Gas?

‘Innovation’ has been the most scarce thing in the oil and gas industry over the last 50 years.

That’s a long time to be doing things the same way and expecting a better result.

Oilfield services companies have curtailed and gazumped competitive technology which probably threatened their own staid practices.

It could be curtains for them when E&P companies cease pandering to these incumbent giants and accepting the continually woeful outcome of budget and project overruns.

And within the current market of uneconomic exploration and extraction, what if the E&P companies start using the competing software and technology available to create one of the most important advantages they could possibly yearn for…….

efficiencies

September 27, 2020
By Rob Zdravevski
rob@karriasset.com.au

Market Quips & Synopsis – Sept 18, 2020

Market Quips & Synopsis Some brief points about selected markets or assets and look for the links within for added musings.

About current markets, I’ll open up by saying..

I notice there is dangerous trading going on, market capitalisations in some companies are extraordinary.
For example, how does $1 billion market cap on revenues of $20,000 sound?

ASX scuttlebutt says, “shorts” are trying to pressure companies into raising capital, some are seeing increased stock “promotion” activity and there are many people in the market “that don’t know what they’re doing or shouldn’t be there”.

I see the AUD and XAU (Gold) in a holding pattern, (see the AUD chart below);
they need to hold 0.7240 and $1,902 respectively,
breaks above 0.7355 & $1,978 should see a new lurch higher

Also watching AUDJPY closely, need to hold 76.00 to confirm “more risk-off”,
A move above 0.7730 suggests “risk-on” and higher equity indices

Another indictor to assess the steam in a S&P 500 decline is whether Japanese 10 Year Bonds (JGB”s) trade below 0.00%.

The S&P 500 is down 6% from recent highs,
Indicators are not clear in calling a new downward trend, however I think 3,272 is the target (a further 2.5% lower).

The Nasdaq 100 has now fallen 11% since its September 2nd high.
Looking for it to ease a further 2.4% to 10,814 before determining the strength of the decline.
The decline wasn’t a surprise, as written by me on August 29 and September 3rd  

Global portfolios have a 3% short position in either (or both) the Nasdaq 100 or the SOX index

My ASX 200 target is 5,803, which is 1.2% below the price as I write.

I’m pleased with calling Oil down from $44 to $39.30. Brent held $39.30 for the past week, 
has since rallied 10% in past 4 days….quick rallies are not always a preferred scenario

VIX remains relatively high at a reading of 26, the call option phenomenon has influenced this increase

The De-Equitisation story combined with rising money supply & low interest rates leads to my thesis that higher equities is the dominant and over-arching long term theme.

While we accept near-term rates will stay Lower for a while,
I think the long end of interest rate curve will rise.

AAII Survey exhibiting narrowest bull/bear spread since June 11, which is when S&P 500 had a 8.2% decline.
Since March 5th, more retail investors have remained bearish (than bullish). This survey remains a reasonable contrarian indicator as markets bottommed on March 26th and never looked back.

Oil Rig count showing no meaningful change of increase, see attached, number of rigs in operation has halved

I remain long term bullish on the Oil price and continue to accumulate positions (proxies) to benefit from this opinion.
Incidentally, I have a view there is a coming crisis in energy prices which will stoke inflation (albeit it may be 18 months away) 

In another edition, I’ll expand on various investing themes and I hope to soon publish my bullish thinking about Platinum on my Linkedin page.

That’s all for now…

warm regards,
Rob

Energy’s diminishing index weighting

“By the end of 1980, six out of the top ten companies by market capitalisation were energy related related as was one third of the S&P 500” – Goehring & Rozencwajg

40 years later that landscape is very different.

Today, the energy component of the S&P 500 is 2.8%. The lowest on record.

My Oil Juxtaposition

I am (long term) bullish on the price of Brent crude oil, which will be another note for another day…..

but I am bearish on the equity prices of large oil companies, especially those listed in the U.S. due to their declining oil reserves, poor exploration and production cost management, awful capital allocation towards acquisitions, debt laden balance sheets while insisting on maintaining historical dividend distributions at any cost.

Furthermore, a recent brainstorm with a client (and friend) confirms the industry is operating with technology and a mentality that hasn’t changed for 50 years which has resulted in a dearth of innovation and lack of efficiencies being sought.

Shareholders of Exxon Mobil, Chevron, ConocoPhillips, Occidental, Apache and the like, should allocate ample time to assess their holdings, hedging and strategy,

while shareholders of oil field service companies…….

August 20, 2020
by Rob Zdravevski
rob@karriasset.com.au

Timber !

The 3 best commodities trades since the March 2020 lows have been Long Oil, Silver and Lumber.

 

Yes…..Lumber. (see chart below)

All have doubled over the past 4 months.

Where to next….
Oil’s bullish trend is still intact,

Silver is overbought, at extremes and warrants caution if you are long (susceptible to a pullback to $18),

and Lumber is a Sell. With its 3 standard deviation above its ‘weekly’ mean and an outside reversal week, it’s time to cash in the (wood) chips.

by Rob Zdravevski
July 27, 2020
rob@karriasset.com.au

A Picture Of Crude Oil Reserves Tell Me A Thousand Words

What is this Crude Oil Reserves graphic saying to me?
It tells me that Australia is a minnow and it’s more of a LNG nation.
It tells me why integrated European and American oil companies enter joint ventures in foreign lands, ’cause that’s where the oil is.
And the U.S. is playing an interesting game of being the worlds largest oil producer against reserves that don’t suggest that status being sustainable.
Prior to the March 2020 collapse in oil prices, the U.S. was pumping a world leading 15 million barrels per day.
If the U.S. reduces daily production to let’s say 12 million barrels (not because Trump thinks he can force privatised companies to do so but more so relating to the global supply glut), then when dividend into their reserves of 37 Giga barrels, the United States will have 3,083 days or 8.4 years of reserves left.
That’s acute enough to create tension across politics and the oil price.
Incidentally, Saudi’s daily production is 12 million barrels.
– May 26, 2020, by Rob Zdravevski
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Your Noise Is My Noise

I’ve been advising and managing the equity portfolios for individuals for 20 years. My business is to analyse investment opportunities and the various probabilities of certain things occurring in the future so to position my clients and their money can benefit from my views.

Those views are formulated by me, the investment advisor, using a host of information and sources so it can be dispensed specifically to fit an investors situation.

One problem that I face and I’m sure for many investment professionals who deal directly with their clients do, is to continually diffuse and deflect the opinions and influence that media commentators and “experts” create.

There is often little merit or evidence to their claims that they predicted an event or “saw it coming”. It is equally concerning when the “noise” created about a recent occurrence is structured to suggest that the recent past or the present is now destined to look like the future.

Which brings me to the current flux of the Crude Oil price.

I find it difficult to believe that so many people have suddenly predicted the 50% fall in the oil price. I don’t recall reading or hearing such predictions, yet now these media prophets are receiving adequate air-time for their supposed foresight.

What happens next is that private client investors takes this information as gospel and call their financial professional panting about the analytical revelation they have just heard or read.

Four messages to financial media personalities:

1) Your statements do not help anybody, other than trick people into thinking you are an authority on a subject.

2) Telling me what has happened is useless. It has already happened.

3) The markets have already reacted to the facts.

4)Prices have discounted this news.

My advice to investors is to dismiss this stuff because often the “expert” isn’t a financial professional, nor are they an investor or a participant in the market, let alone licensed or regulated to provide such advice. I’d be interested to ask anyone of them if they have ever put any of their own money at risk behind any of their comments.

It is important to analyse what has occurred in order to educate yourself so to understand history and circumstances which led to an event, but from there on, especially when investing, ice hockey legend, Wayne Gretsky’s quote seems quite relevant, “I skate to where the puck is going to be, not where it has been”.

 

If you choose to listen or absorb the news and comments about the capital markets, be discerning about who the person is, what their background is, what are their motivations are and whether they have any “skin in the game”.

I think that there is too much energy spent talking about historical facts and masking them as if the preacher had predicted it. Just observe the recent events involving earthquakes, rising property prices, shark attacks, plane crashes and terrorist rampages. Everybody is an expert after the fact and they love telling me how they “told me so”.

The next time that you choose to act on an investment idea or comment that you’ve heard on TV, then I suggest that you periodically and continually call that journalist or “guest expert” and continue to ask them for advice about how the investment is working out and have them explain why its not looking so wonderful at any point in time.

Don’t let other people’s “noise” become part of your investing process.

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