KEEPING IT SIMPLE

As the site linked below shows simple averages like the 200 day moving average from can reveal some interesting information.
 http://www.crossingwallstreet.com/archives/2014/10/yes-the-200-dma-works.html   

We too don't pretend to be technicians but over the years have looked at a variety of indicators and the 200 DMA is one of them. There's always a lot of talk around markets about trends. One of the interesting ones to us here is the good news tends to engender more of the same and so does bad news.

Like it or otherwise, that has a metaphysical ring to it that many write off as being too simplistic in our view. But the idea of keeping things simple is paid much lip service but seldom followed. Solutions to complicated problems in order to be valid don't always have to be as complex as the problem.

Humans can get greedy and humans can panic. Several years ago we had the good fortune to hang out with an old time commodities trader for a while before he moved on to the next dimension. He was a successful trader, meaning at the end of his career he had won more than he lost.

Too many people in our view want to put a figure or what's known today as an outcome on that. But his trading skills and rules were about as straight forward and as simple as a declarative sentence.
t. man hatter

GREECE IN TROUBLE AGAIN

Here's quick summary about the National Bank of Greece from 247wallst.com that should give you some idea how things in Greece are going.

Recall not too long ago pundits were applauding what they perceived as the turn around there when bond yields began their big decline for the peripheral members of the EU.

National Bank of Greece SA (NYSE: NBG) posted a drop of about about 19% today to add to yesterday’s 5.3% drop and post a second consecutive a new all-time low. Today’s low was $2.08 against a 52-week high of $6.48. Volume is about 4-times the daily average of around 3.7 million shares. Fitch Ratings warned today that Greek banks remain fragile and the political turmoil in the country is not engendering confidence in the government.

Wed, Oct 15 2014

* Greek stocks post biggest daily drop since July 2012

* Bond market closing its doors to Greece, analysts say

* Political uncertainty, bailout exit plans unnerve market (Adds PM comments)

By Marius Zaharia and Angeliki Koutantou

LONDON/ATHENS, Oct 15 (Reuters) - Greek stocks on Wednesday posted their biggest one-day loss since the height of the euro zone crisis, while bond yields soared to levels that threatened to derail government plans to quit an international bailout a year early.

Ten-year government bond yields jumped to 7.85 percent - levels at which Greece cannot afford to fund its huge debt and the Athens stock market plunged 6.8 percent in its biggest one-day loss since July 2012.

Shares have lost 11.5 percent in the past two days, their biggest fall since October 2008.

THE 7 PERCENT

Market concern over Greek borrowing costs has grown as they have approached 7 percent, though analysts say it does not necessarily mark the tipping point beyond which the costs of servicing debt would become unsustainable for the country.

Indeed, some analysts argue that Greece's debt of over 1.7 times economic output would be impossible to roll over even at lower cost. The European Union charges only 1.5 percent interest on its loans and Greece is still expected to initiate talks over some form of debt relief in the near term.

But charts show any rise in yields has historically picked up pace above 7 percent and forced countries such as Ireland, Portugal and Greece itself to seek bailouts. Only the European Central Bank's promise in 2012 to do "whatever it takes" to save the euro prevented Spain and Italy from having to ask for financial help when their yields topped 7 percent.

"With yields above 7 percent we are back in that very dangerous area again," Eleni Dendrinou-Louri, professor at Athens University of Economics and Business and a former deputy governor at the Bank of Greece, said in a speech in London.

"I believe that if you can borrow from the market is decided by the spreads that you see every day on the screen."

As Greek yields soared, German 10-year borrowing costs plunged to record lows as investors fretting about faltering global growth shed risky assets and sought shelter in top-rated government bonds.

As a result the Greek yield premium over the euro zone benchmark reached 710 bps, its widest since January.

Greece sold bonds to private investors earlier this year, making one of the fastest market comebacks by a sovereign that had defaulted, with a sale of five-year bonds that drew strong bids and was considered a great success.

IF ONLY THE SLOWDOWN WERE A GHOST

If there's anyone left on the planet who doesn't know about the Chinese slowdown, he's probably a member of some obscure troglodyte sect.

If there's anyone who doesn't realize by now the China situation affects other economies specifically like Australia and Emerging Markets and the overall global picture generally, he's probably the leader of that obscure sect.

If there's a story more discounted in the market than China's economic woes, it might be the energy glut. But that's debatable.

Boo birds usually draw the most rancor. But few Hip-hip hurray birds come under fire at all. The latest  market hand wringing session is little more than a few weeks old and one Federal Reserve member, John Williams, head of the San Francisco Fed, is ready to roll out QE4.

One wonders if he's a regular reader of the Financial Times' Martin Wolf and Wolf's constant calling for "well crafted" reforms. A skeptic might rightfully ask, if the plans were well-crafted to begin with by these prescient economic planners who populate bureaucratic attics like the IMF, why do they need to be reformed?

The short answer that Wolf and his anti-Berlin ilk never want to hear is: They were never followed or enforced.

Even the well-heeled, if one can believe the headlines, "Global luxury brands feel the effect of slowdown in demand from Asia," are apparently noting the bite.

What many hand wringers miss here is the China story is not a new one. It's an old one. During all the boom years few suspected, as is human nature, that someday it would end. Excuses get made. Troubling spots over looked. It's different this time becomes what it always is, a trite popular mantra pushed by MSM.

Back in the dot-com bubble days near the end high tech firms were lending money to their vendors who then lent it to their buyers so they could purchase the high tech firm's products. Sounds like building ghost cities just to be doing something.

The real concern here is not that this slowdown will become protracted. Not at all. Anything is possible. The real concern is the fear of such will give central bankers more jockeying room to screw things up even more.

STRAW HATS AND ENERGY PRICES

Oil prices are to straw hats as supply is to demand.

If one takes the shorter view on energy, the outlook remains somewhat bleak. But that's not what we're suggesting.

Much of the media coverage personifies that view. Everyone knows most money runners are quarter to quarter investors in the main. Quarterly window dressing is just one example.

There's an old Wall Street saying about the time to buy one's straw hats is in December not July. Straw hats were once upon a time men's fashion plates for humid summers. That was about demand. Energy prices as they continue to drift lower are simply a metaphor for the straw hats of a long ago yesteryear.

In those days it was most likely difficult to overpay for a straw hat in December when demand was practically nil. A quite similar situation in our view is now developing in the energy space. Sure energy prices can decline from here. And they probably will. But unlike some other investments they're never going to zero.

Straw hats served a dual purpose. They were cooler and they offered protection from the sun. Owning  energy at cheaper prices serve a similar purpose. It's a necessity and it ain't going away anytime soon irrespective of what you might hear.

Cheaper oil prices add more miles to the gallon of one's driving. It's a psychological reality.

Supposedly, smart investors can look into the future and see things others can't or don't. Sort of like old Willy Loman in Aurthur Miller's classic tragedy, "Death of a Salesman," going around talking out loud to himself, asking his wealthy deceased brother who went into the jungle poor and came out rich: "He'd you do it, Ben?"

In Willy's case we never really find out how Ben did it. But the implication is there, seeing opportunity in risk.

WHAT TOMORROW OFFERS

Most by now know that even though the market finished up for the day, it also gave up later in the day much of its early morning gains.

The DJIA managed to eke out a gain, but the pattern to all intents and reasons held.

Sinking energy prices weighed heavily again on the market as the slow growth worries capture investor attentions.

Here's a decent wrap for tomorrow from http://www.minyanville.com/special-features/daily-recap/articles/market-participants-crude-oil-Brent-crude/10/14/2014

Tomorrow's agenda is filled with important economic data releases, even though markets have appeared to ignore it over the past few weeks. Advance retail sales have typically been the third most volatile data release for markets. Tomorrow morning the September report will be released with total sales expected to decline by 0.1% for the month, mostly due to a decline in gasoline prices. The average unleaded gallon of gasoline fell by 10 cents during the month of September, which lowers total sales. Additionally, auto sales also declined from the prior month. After excluding those two categories, sales are expected to rise by 0.4% for the month. The producer price index for September and the Fed's Beige Book will also be released.

Overnight China will release consumer and producer price data for September. Consumer prices are expected to decline to a 1.7% annual rate from 2.0% in the month prior due to falling gas prices. The UK will release employment data. ECB President Mario Draghi is scheduled to speak twice tomorrow in two cultural events and comments on monetary policy are not highly expected.

Earnings reports will start to pick up tomorrow. Charles Schwab (SCHW), Keycorp (KEY), Blackrock (BLK), Bank of America (BAC), St Jude Medical (STJ), Netflix (NFLX), American Express (AXP), United Rentals (URI), eBay (EBAY), and Las Vegas Sands (LVS).

HOW FAR IS OBILIVION?

How far is oblivion nobody knows.

But from the fear in the market about a global economic crapout it must appear to many just beyond the horizon.

At any rate as we've said before the cure for low prices is low prices. The same holds for too much supply or too much demand. Unlike investors, markets are dynamic. The lower oil prices get the more supply has to come off the market eventually creating more demand.

And no different from other occasions that supply can come off the market in a variety of ways. That we're not there yet at $82 and change a barrel misses the point. The market will know it when the market sees it. 

Pick your entry points well. Unless we're way off base--and we could be--it won't be before long you'll espy tidbits about big-time investors easing into energy.

U.S. Oil Producers May Drill Themselves Into Oblivion

By Matthew Philips   October 13, 2014

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Photograph by Andrew Burton/Getty Images

An oil drilling rig on July 30, 2013, near Watford City, N.D.

Remember the fall of 2008? As the world spun out of control and the price of everything crashed, a barrel of oil lost 70 percent of its value over about five months. Of course, prices never should’ve been as high as $146 that summer, but they shouldn’t have crashed to $40 by the end of that year either.

As the oil market has recovered, there have since been three major corrections, when prices have fallen at least 15 percent over a few months. We’re now in the midst of a fourth, with oil prices down more than 20 percent since peaking in late June at around $115 a barrel. They’re now hovering in the mid-$80 range and could certainly go lower. That’s good news for U.S. consumers, who are finally starting to reap the rewards of the shale boom through low gasoline prices. But it could spell serious trouble for a lot of oil producers, many of whom are laden with debt andexaggerating their oil reserves.

In a way, oil companies in the U.S. are perpetuating the crash by continuing to drill and push up U.S. oil production to its fastest pace ever. Rather than pulling back in hopes of slowing the amount of supply on the market to try and boost prices, drillers are instead operating at full tilt and pumping oil as fast as they can. Just look at the number of horizontal rigs in the field:

STORY: Will Cheap Oil Choke the Russian Economy?

BloombergThere is a record number of horizontal oil rigs in the field

Over the past five years, the amount of horizontal rigs deployed in the U.S. has almost quadrupled, from 379 in early 2009 to more than 1,300 today. This is of course purely a fracking story. Almost all the recent gains in U.S. oil production are the result of horizontal drilling techniques being used across much of the Midwest, from Texas to North Dakota. Unlike conventional vertical wells, where more wells do not always equal more oil, the strategy in a shale field appears to be to drill as many as possible to unlock oil trapped in rock formations.

As the number of horizontal drill rigs has exploded, the number of vertical rigs in the U.S. has gone in the opposite direction, falling almost 70 percent over the past seven years.

BloombergVertical drilling is so 2006

So will U.S. oil producers frack their way into bankruptcy? That’s a real possibility now. They’ve certainly gotten more efficient at drilling, and don’t need the same price they did to remain profitable. But we’re getting pretty close. Back in July, Goldman Sachs estimated that U.S. shale producers needed $85 a barrel to break even. That’s about where we are right now. The futures market points to even lower prices next year, with contracts for oil next April trading at about $82 a barrel. Certainly, some producers need higher prices than others. Those at the bottom of the cost curve could benefit from a potential wave of bankruptcy that spreads across the oil patch; they could then scoop up some assets on the cheap.

STORY: Cheap Oil and Expensive Oil Tankers: This Is Contango

One final note of caution: The U.S. natural gas industry ran through this same cycle a few years ago with companies getting themselves into trouble by flooding the market with gas, crashing the price and themselves in the process. By mid-2012, the price of natural gas got too cheap to drill. The number of natural gas rigs in the field still isn’t anywhere close to returning to where it was a few years ago. 

STORY: Oil Prices Fall, and the Global Economy Wins

BloombergNatural gas rigs are still relatively scarce.

Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter@matthewaphilips.

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AT LEAST FOR NOW

 
Badlands NGL LLC is a California start up company. At least for now.

According to the North Dakota Governor Jack Dalrymple, the firm plans to move to Colorado and build a $4billion plastic manufacturing plant in Dalrymple's state. Gov. Dalrympled made the announcement today at a new conference with the CEO of Badlands, William Jeffery Gilliam.

The fracking boom in North Dakota no doubt has something to do with the location choice of Badlands.

The plant will convert ethane, a byproduct of natural gas processing, into polyethylene, which is used to make a wide variety of plastic consumer and industrial products, according to the governor’s office.

The project will be the largest private investment in North Dakota’s history, according to the office.

Badlands, which currently has fewer than 10 employees, is establishing its headquarters in Denver, as well as offices in Bismarck, North Dakota, according to The Associated Press.
Badlands’ plastic plant, along with two proposed fertilizer plants, would help soak up the abundant supply of natural gas in North Dakota.

Currently, about a third of North Dakota’s natural gas is burned off in a process called “flaring” because there are no pipelines nearby to carry the natural gas to market.


Manufacturing plants in North Dakota’s Bakken oil field, such as the Badlands’ proposal, would be good news for Colorado-based oil and gas companies with operations in the state because North Dakota officials have enacted policies that will restrict oil production if flaring is not reduced.

“This project is fully aligned with our goals to reduce flaring, add value to our energy resources right here in North Dakota and create diverse job opportunities across the state,” Dalrymple said. “By advancing the responsible development of our energy resources and by adding value to all of our resources, the opportunities in North Dakota are boundless.”

The facility will be able to produce 1.5 million metric tons of polyethylene, or 3.3 billion pounds annually, and will employ 500 highly trained people in manufacturing, marketing, administrative, safety, financial and executive positions. The project will take at least three years for full development, the office said.

Meanwhile, California considers a hold on fracking in its state.

But a recent report from the Bureau of Land Management apparently cleared the way for new leasing agreements in 2015.

The Bureau of Land Management has announced plans to resume oil and gas leasing for fracking in California at the same time it has released an independently produced report finding that current fracking methods aren’t fouling air and water and don’t raise the risk of earthquakes in the state.

The California Council on Science and Technology, with researchers from the Lawrence Berkeley National Laboratory and the Pacific Institute, drafted the independent technical study for the BLM after a lawsuit filed by environmental groups alleged the agency did not know the risks of fracking in the state. 

The suit was filed in 2012 by the Center for Biological Diversity and the Sierra Club.
Last year, the BLM suspended auctions for oil and gas leases. The CCST’s report moves the federal government closer to reopening lease auctions in California; the next step is an environmental review, which will incorporate the report’s findings.

Expect the turmoil to continue at least for now.

NOT SO FAST

Much of the shale oil boom has taken place in North Dakota at what's known as the Bakken site.

The uplift to the state's coffers comes in more ways than one. In 2013 North Dakota took in more than half of its tax revenues from oil and gas. Anyone who's followed the boom there knows the state is short on pipelines, an important factor in the cost of production and shipping.

Oil and gas pipelines are hardly on the invited guest list of most environmentalists. 

What’s troubling for North Dakota is that not only does the state have one of the highest oil production taxes in the nation at 11.5 percent, but thanks to the state’s extreme weather conditions and lagging infrastructure (we need pipelines!), the state is also one of the most expensive oil plays in the nation.
Meaning that if oil prices drop, one of the first places in the nation it’s going to become unprofitable to pump oil is North Dakota.

That makes the Keystone/Sandpiper pipeline delays loom large, as well as the Legislature’s decision to not only refuse reform for the state’s taxes on oil production but to actually raise them last year.
The oil markets being what they are, who knows what will happen, but suffice it to say that while dropping oil prices might be good for the rest of the country, they’re potentially devastating for North Dakota.

My guess is that these fears probably won’t put much of a damper on spending (naturally), but you can bet that those looking to abolish the state income tax (of which there are a growing number) will have to overcome this obstacle.

http://bakken.com/news/id/223068/bad-falling-oil-prices-hurt-nd/ 

When you factor in things like population, housing, industry and commerce, the state, as the chart shows, is one of the ones that has been most rewarded by rising oil prices.

There are a couple of issues here like those looking to get rid of the state income state tax as more and more around the nation realize that they're getting less and less for their trouble.

Bureaucratic greed is another issue, but we'll leave that for later. In any upcoming slowdown or recession these issues will only get larger.

Sure there are concerns about a global slowdown. But to those   who hail the U.S. oil glut as the second coming of cheaper energy as far as the eye can see, we have three words: Not so fast.
t. man hatter

SCALING TIME?

Good news is like yin and yang, almost always good for some and bad for others.

The International Energy Agency's latest report released today is a case in point. Crude oil prices hover near four year lows as demand seems to be drying up faster than the Los Angeles River in  mid-July.

The debate rages whether the price of oil has to hit $80 or even $70 a barrel to crimp U.S. shale producers enough to cut production. Much of the concern centers on a slowing global economy from China to Europe to Russia 

Of recent concern is OPEC members cutting prices rather than the expected move of cutting back production. Two days ago Iraq joined Saudi Arabia and Iran in cutting prices as other OPEC members like Venezuela are feeling the pain.

Meanwhile, stories like these,"Growth Fears Pushing Fund Managers From Risky Positions, Survey Finds," "Growth Jitters Topple Stocks Again" and "What Can Be Done To Revive Global Economic Growth?" abound.

Germany's announcement today about expected growth weakness for the rest of this year and into 2015 didn't help the situation. Officials there cut forecasts to 1.2% for this year down from a previous 1.8% and only 1.3% for 2015 off from a previously expected 2%.

One can depend on MSM doing what they do best, spreading gloom disguised as their brand of truth. Are these troubling times? Yes. Could things possibly get worse? Always a posibility. But it's just that possibility that creates opportunity.

Risk and opportunity go together like Siamese twins despite regulators' best efforts to outlaw any and all risk.

What this situation ought to be saying to you is what if these dire predictions are incorrect? Even the IEA report suggested demand will increase and might already be underway.

“Recent data suggest that may already have started to happen. Record-high refinery throughputs in August and improved margins worldwide suggest demand is perhaps not as dismal as it might appear,” citing big changes in trade flow were masking demand perception as oil producers descend on Asian markets.

As the U.S. imports less oil producers like Nigeria, Angola and others look elsewhere. The cost of producing oil in the U.S. ranges between $76-$77 a barrel, according to some observers.

Another headline we spotted today went something like this: The global recovery is a long way off. Maybe so. But our mood smells a scaling into position opportunity here. With the risk-reward figures growing in our favor daily with each nasty headline.

Like we said, good news is like yin and yang. Lower energy prices up to a point may help the economy, but what they ultimately bring with them may turned into one of those be careful what you wish for situations.

In the interim we will be going scaling. 
t. man hatter

NAYSAYING GROWS

One of the things one learns when the market turns nasty as it has people start jumping on the we-knew-it bandwagon. Here's a quote from one site.

Monday was the third straight day of losses for the major stock indexes, and the second time in three days that the Dow fell more than 200 points while the S&P 500 just had its worst three-day plunge since November 2011. 

Those for sure are facts, but the implied message is look out below. Now we're not suggesting "look out below" is incorrect. It might be spot on. But our sense is a rally is coming that will sooth some nerves, especially those of the Fed, because a weak stock market coupled with a disappointing housing market can't be good news for those folks.

After all, they've put so much into creating this paper asset charade what would such a double whammy do to their already questionable reputation? Despite all the MSM Fed worshipers, a declining set of believers is not what they seek. And you can bet with an upcoming election there are some nervous politicos also out there.

A declining equities market raising fears of another recession isn't what incumbents running for re-election want to see on the November menu. It would also deal a huge blow to all the Keynesian worshipers who love to publish chats like this one from Business Insiders, a leftist outfit masquerading as a pro-business publication.
http://www.businessinsider.com/brookings-fiscal-impact-on-the-economy-2014-10?

The implication here and the reference to the Yellen speeches is that more government spending is necessary to bring back the past good times and make them more permanent. But here's another look that puts the lie to this Keynesian myth most economists spread around today.

http://theeconomiccollapseblog.com/archives/12-charts-that-show-the-permanent-damage-that-has-been-done-to-the-u-s-economy
A brief disclaimer. Because we singled out Business Insider for what it is doesn't mean we think their opposition is any better when it comes to the truth.