Tag Archives: price of oil

The Oil And Gas Credit Collapse Is Going To Be Catastropic

We’re headed toward another big credit explosion and I think what’s happened in the oil market is will trigger that.  The perfect poster-child of what’s going to happen to the stock market is what’s happened to Kinder Morgan stock.  – interview with CrushTheStreet.com

It speaks volumes about the corrupted nature of our financial markets that this news report does not cause a huge downward price adjustment in the entire stock market:  Big Banks Brace For Oil Loans To Implode.  This is, minimally, t $500 billion issue and that number does not incorporate at all the size of the derivatives exposure to oil sector debt. Move along, nothing to worry about here…it’s reminiscent of circa 2007, when Bernanke stated that the problems developing in the mortgage market were “contained.”

And speaking of Kinder Morgan, I listened to the Kinder Morgan conference call because I’m working on stock report on KMI. I forgot what a Broadway play production these investor calls are. Richard Kinder is a grade-A snake-oil salesman. Everyone seems to have forgotten that he was the COO of Enron when Enron’s Ponzi scheme was being constructed. He was college buddies with Ken Lay. But he left in 1997, buying out an Enron pipeline subsidiary with William Morgan.  Everyone thinks Richard Kinder is squeaky clean and they don’t associate him with Ken Lay. It’s emblematic of the ignorance, denial and fraud embedded in our system. KMI has been issuing debt to make its dividend payments and the only reason they cut their dividend is because their bankers told them they would have trouble issuing more debt this year. Kinder kept referencing the possibility of stock buybacks on the call. Are you kidding me?  You can visualize the sycophantic big bank analysts writing everything down word for word in order to regurgitate them robotically in farcical equity reports designed to suck more idiots into the stock.

More on Kinder Morgan soon. As for the manipulation of the gold market, I’ve mostly managed to separate my emotions from the attacks on gold.  When you think about it, they have no choice.  The ONLY way they can support their lies about the relative health of the economy and financial system is by attacking gold and making sure the price doesn’t take off.  Just like they can print an unlimited amount of dollars using Bernanke’s infamous “electronic printing press” to defer the collapse of the banking system, they can print an unlimited amount of paper gold certificates in order to use the paper trading apparatus of the Comex to keep the price contained. Like all paper schemes, this one will fail spectacularly.  The only unresolved issue is timing.  That’s impossible to predict.

CrushTheStreet.com and I discussed these topics in depth and others, including China and the U.S. economy:

Red Swan At Night Is The Short Seller’s Delight

UPDATE:   My “Quick Hit” pick for the week is killing it.  The stock is down 12.7% outright from its December 31 close.  My put option pick on this stock is now up 50% based on where it could have been bought Monday morning and the last point of trade today.

China seems intent on popping the global fiat currency and debt bubble.  It seems that China’s moves to devalue the yuan are causing a bit of a stir in the global markets so far this week. This could be the “Red Dragon” version of the infamous Black Swan for which everyone has had their eyes peeled.

The S&P 500 dumped 26 points today (1.3%) after China’s yuan deval triggered a 7% limit-down drop in the Shanghai Stock Exchange and China pulled the plug on the electricity to the exchange.  Ditto tonight.

I love the way the financial media wants to blame the U.S. stock market woes on China. The truth is that the U.S. economy is collapsing on its own merits.  Macy’s did not announce dismal holiday sales and 4,000 more job cuts today because China’s economy is slowing down.  The price of oil is the “tell” on the world economy, including and especially the U.S. economy.

UntitledThe price of oil has now crashed below its low from the 2008-2009 recession.  It’s at its lowest price since before Bush Government invaded Iraq.  The plummeting price of oil is not China’s bad.  The U.S. is, by far (18mm barrels/day vs. 10mm for China),  the largest consumer of oil in the world.  The plunging price of oil is due to the plummeting demand from the world’s largest buyers of oil.

Subscribers to my Short Seller Journal who took advantage of the two ideas in this week’s weekly report are up 5.6% and 7.8% on each idea vs. their close on December 31.  One of the ideas should eventually be a home run and is a great way to play Wall Street’s demise. The idea that’s up 7.8% was a “Quick Hit” idea which I thought would sell-off this week with just a little weakness in the market because it had run up on nonsense the week before. The put option play I recommended is up about 30% based on where it could have been purchased Monday morning and the closing bid side today.

Click here to subscribe: SubscriptonGraphic SHORT SELLER’S JOURNAL.  It’s a weekly report delivered to your email on Sunday evenings.  I present two ideas per week and include some commentary that you find on my blog.

S&P 500 vs. The CRB Index Shows Huge Downside Risk For Stocks

While the talking mannequins and “analysts” on cable business shows dissected, discussed and debated yesterday’s FOMC statement, the S&P 500 gave up more than it gained yesterday after the report from the FOMC about the interest rate nudge hit the tape.  Meanwhile the Philly Fed manufacturing index dropped to its lowest level since February 2013, as new orders tanked to a three-year low and future expectations folded.

The reality that the U.S. economy is in a full-mode decline was reinforced by the continued drop in the price of oil, which fell and closed below $35/barrel and by a flattening of the yield curve, where the interest rate spread between the 2yr and 30yr Treasuries declined to its narrowest level since early April 2014.  The price of oil is now below the lows it hit in early 2009.  The flattening of the yield curve reflects the market’s anticipation that the economy is headed for recession, if not already in one.  In absence of extreme Central Bank intervention, the shape of the yield curve historically has been a remarkably accurate economic indicator.

While the S&P 500 has been trending laterally since late 2014.  It’s been slowly “rolling over.” Yesterday’s move popped the S&P 500 back above its 50 day moving average. But today it dropped Untitledright back below both the 50 and 200 dma’s.  The stock market as represented by the S&P 500 is more overvalued now relative to its underlying fundamentals than at any time in history.  (click on image to enlarge).  As you can see, the stock graphically appears as if it is about to roll down a steep hill.

Another indicator which illustrates the enormous downside risk to the stock market is the correlation between the S&P 500 and the CRB commodity index.  Over very long periods of time, the direction of Untitled1the SPX and the CRB is typically highly correlated.  The graph to the left, which goes back 21 years, shows this correlative relationship.  The graph on the left (click to enlarge) is on a monthly scale and goes back to 1994.  As you can see, the divergence between the SPX and the CRB is more extreme now than it was leading up to the peak of the internet/tech bubble.  We know what happened to the stock market in early 2000.  I would suggest that there is a very high probability that the S&P 500 and the CRB will re-correlate and that the move which forces this event will cause a more severe decline than was experienced in 2000-2002 and in 2008-2009.

My  SHORT SELLER’S JOURNAL  is a monthly subscription service that will feature a brief market summary from my viewpoint and offer two short-sell stock ideas plus some trading suggestions, including put/call options ideas.  It will be delivered to your email weekly.SubscriptonGraphic - Copy  I will also send out occasional intra-week updates to help you in your trading decisions.  In addition, subscribers will receive a discount on my full research reports.  If you subscribe before Sunday evening, you’ll get last week’s report plus the upcoming report.  Click HERE or on the graphic to subscribe.

The Credit Markets Are Starting To Collapse

I kind of wish Alan Greenspan were still the FOMC Chairman.   He makes a great “Wizard” figure.   Bernanke looks more like an unethical elf – a spineless pansy who couldn’t bluff his way out of a paper bag but viciously vindictive when no one can see him.  And Janet Yellen…well, she just looks like Aunt Bea on the Andy Griffith show, only with a much lower IQ.

I mention this because it’s become glaringly apparent that the credit markets are starting to collapse behind the proverbial “curtain.”  Several analysts point to the Merrill Lynch triple-C junk bond yield index and remark that “something” blew up:


But it’s not “something.” “Something” is a general melt-down of the credit markets.  The C-rated high yield index reflects this reality.   If it were just one or two names blowing up, yields on related paper might drift higher, but not spike up like this.   This is the market’s realization that it has been overpaying for its risky investments not by a little bit, but by a gargantuan amount.   Add to that the well-publicized dearth of liquidity to accommodate general selling and we have the perfect recipe for the collapse of the entire credit market. The spike in the graph above is the market’s way of saying, “I want out.”

The unraveling of Kinder Morgan is another indicator of the malaise prevailing behind “the curtain.”  When KMI announced its earnings on October 22, it increased its dividend and projected growth over the next year of 6-10% in its dividend payout.  Seven weeks later, it slashes its dividend by 75%.

What the heck happened?  What changed?  If you look at KMI’s statement of cash flows, over the last three years KMI has funded both CAPEX and its dividend payout by issuing more debt every year.   How many Wall Street or Seeking Alpha Einsteinian analysts pointed out that fact?   Zero.   This is just speculation on my part – as it would be on anyone’s – but I suspect that Kinder Morgan was informed by its investment bankers that any continued debt issuance would be extremely expensive and conceivably not possible, especially given the collapsing price of oil and gas.  Yes Virginia, contrary to the popular myth of CNBC La La Land, KMI has business exposure to the directional movements in the price of oil and gas.

There are plenty of other market signals but perhaps the one that reflects the most desperation by the insider elitists to keep  a pretty cover page on the horror story unfolding is the daily price beating administered to the price of gold.  In a Groundhog Day scenario, every night the price of gold rallies while the physical gold buying heathens and NATO foes of the east feast on the cheap gold that the criminals of the west provide for them every day once the paper gold markets are in full swing.

If you don’t want everyone to run out of the coal mine when they see the dead canary, remove the bird before it dies.

As this unfolds, there is a lot of money to be made shorting all of the hideously overvalued stocks.   My new subscription service will be rolling out at least one idea per week that will help you find ways to exploit the gross price distortions and sector bubbles that have developed after 6 years of extremely reckless monetary policy by the Federal Reserve and U.S. Treasury.    You can subscribe by clicking here:   SHORT SELLER’S JOURNAL.

It’s a weekly report delivered to your email inbox with:  1) a brief comment on the previous week’s trading action plus any thoughts on the upcoming week;  2) I will feature 1 or  2 short-sell, trading, or investment ideas – the investment ideas will be primarily junior mining stocks; 3) trading recommendations, charts and put/call option ideas.

Is Kinder Morgan The Next Enron/Bear Stearns?

I’m not saying that Kinder Morgan is a bundle of fraud, like Enron, and I’m not saying that KMI is about to impale itself on subprime mortgages, like Bear Stearns, but this graph is almost identical the graphs of Enron and Bear Stearns before they they went belly-up:


A stock does not have the chart pattern because it’s being attacked by short-sellers. It has the price pattern because there is something extraordinarily wrong with the business model and/or the balance sheet.

KMI has $40 billion in debt on top of $35 billion of stated book value.  That book value in no way can possible reflect the plunge in the price of oil.  KMI’s asset values have to be written down to some degree, at the very least.  There’s is something else going on.  I recommend getting out this stock ASAP.  I may be wrong, but it’s not worth taking the risk on a stock with a graph that looks like that.