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Why was the market even +200 in the first place? Seems to be coming back towards even as oil goes positive for the day. (edited to add: ..and mkt goes positive.)
Agreed. I don't like this price action. Lower top may be forming. Definitely something to watch closely, IMO, but I am more of a trader than an investor I suppose.
Thanks for that info @scott. It seems there is not one single event that might have triggered the sell. Earnings started off poorly but hard to believe that would do it alone. Is this market getting that skittish?
Thanks for that info @scott. It seems there is not one single event that might have triggered the sell. Earnings started off poorly but hard to believe that would do it alone. Is this market getting that skittish?
Earnings haven't been awful lately, although it certainly depends on the sector. Some companies seem to be doing rather well. Perhaps oil sliding dragged the market down (I believe there were some Saudi comments mid-day, although not sure exactly what, I'm guessing not pro oil going higher), as the market came back as oil did?
Basically, I continue to look to buy companies for the long-term, preferably wide moat companies. The day-to-day makes increasingly less sense to me - especially in this environment where monetary policy is what it is - and I'm thinking is best left not over-analyzed. Who knows.
Finally, in regards to the Fed, the usual headline from the dovish Minneapolis Fed Gov just crossed - that a rate hike this year would be a terrible idea.
I had read that Alcoa's earnings were off. Sometimes the markets develop this skittish behavior and yes, over analyzing things tends to exacerbate the process. Funny thing is, what exactly has changed ?
I had read that Alcoa's earnings were off. Sometimes the markets develop this skittish behavior and yes, over analyzing things tends to exacerbate the process. Funny thing is, what exactly has changed ?
Well, yeah, there was financial engineering in Alcoa's earnings, but no one cares about that anymore. The robots and the non-robots just look at the number and don't ask any questions.
@Ted has a new thread that mentions some possibilities why the markets did what they did today. All in all, it sounds like everyone is poised to head for the exits on any negative news. KB homes getting slaughtered but is it an overreaction? Troops going back to the ME? (Just when we had them all out they pulled us back in)
The Alcoa numbers are being scrutinized to death. Wouldn't lower energy costs be beneficial to Alcoa? Making aluminum takes a lot of energy.
It seems to me there is a lot of emotion based reaction here.
In its defense, can't we argue that the non - GAAP are more indicative of future cash flows?
Unless, as ZH suggests, this engineering is something we can expect regularly.
c
It's not against Alcoa, which is a fine company and the numbers weren't bad at all, it's just one of those things where I expect financial engineering (large and small) to be more and more prevalent as time goes on. There's also, I believe, an increasing lack of desire by financial media and others to look below the surface on numbers.
Lower fuel costs stand to hurt Alcoa. Aluminum is an expensive (lightweight) alternative to steel for transportation needs. Expensive to produce. Expensive to work with. That's why Ford's all aluminum F150 is going to struggle. Sure, they'll sell a bunch out of the gate, but it won't be the hit they envisioned until gas gets up over $3. Probably be offering big discounts about the time gas levels off at $1.50 nationwide.
The following article appeared in April, just three months before the plunge in oil began. At that time there were wildly optimistic forecasts the use of aluminum would spread rapidly among auto makers.
I'm fascinated by the whole oil situation. With almost any other product, anti-dumping, anti-trust, restraint-of-trade and other regulations try to prevent any company or group of companies from cornering a market to the extent that they can drive potential competitors totally out of business.
Here we have a group of foreign countries, aided and abetted by the large international oil companies, publicly STATING that that is their very intention, with respect to the US shale oil suppliers. And we can do absolutely nothing about it, in any political, trade, or retaliatory manner?? The future of Ford's truck division is completely at the mercy of Saudi Arabia?? And I hear NOBODY talking about this?? The United States of America has been reduced to this???
@Old_Joe said With almost any other product, anti-dumping, anti-trust, restraint-of-trade and other regulations try to prevent any company or group of companies from cornering a market Lead,Follow or Get the f.. out of the way! Exclusive: Shell says has U.S. OK to export lightly processed oil BY KRISTEN HAYS HOUSTON Tue Jan 13, 2015 10:11pm EST (my emphasis) (Reuters) - Royal Dutch Shell Plc (RDSa.L) said on Tuesday it received U.S. approval to export a very light form of crude oil that has undergone minimal processing.
Shell had been working with the U.S. Department of Commerce's Bureau of Industry and Security (BIS) on how to ship lightly processed condensate overseas without violating a decades-old crude export ban, the company told Reuters. The BIS regulates export controls. About two dozen companies, including Shell, have sought more clarity from the BIS. At least one prominent Eagle Ford producer, BHP Billiton Ltd (BHP.AX), moved forward with exports without waiting for a ruling, confident that its output would undergo sufficient processing to qualify.
I might be missing something. I was thinking of the manufacturing process of aluminum. From what I knew, it takes a large amount of electricity to make it. That is where I was coming from. There are a fair number of aluminum smelters in the PNW due to low electric rates.
The Ford truck being made of aluminum is something to watch. I am not convinced it can hold up as well as steel when it comes to work trucks. Unless they came up with a special alloy, I would think the aluminum would be softer and have more of a tendency to bend than steel. If that proves to be true then Ford would have to go back to steel which would hurt Alcoa.
@John. You are correct. But sounds like a "Catch-22". Producers save on production costs as energy prices drop, but this also brings on-stream smaller competitors who were unprofitable at higher energy costs. Net effect: lower aluminum prices which hurt big producers.
Article 1 http://www.wikinvest.com/commodity/Aluminum Relevant excerpt: "Smelting alumina into aluminum requires a constant, large supply of electricity, which accounts for around 25% of the costs of the entire smelting process. ... a decrease in energy costs can allow previously closed smelters to reopen, which would increase the supply of aluminum and lower prices."
There's much suggesting auto makers may curtail plans to use more aluminum if oil stays low. Won't bother linking all that. Something forgot to mention earlier is the role of aluminum in shipping and packing containers. Think of the savings derived from transporting aluminum soda or beer cans instead of heavier materials. Won't be immediate. But over time cheaper fuel would reduce that reliance on lighter-weight containers.
I'm fascinated by the whole oil situation. With almost any other product, anti-dumping, anti-trust, restraint-of-trade and other regulations try to prevent any company or group of companies from cornering a market to the extent that they can drive potential competitors totally out of business.
Here we have a group of foreign countries, aided and abetted by the large international oil companies, publicly STATING that that is their very intention, with respect to the US shale oil suppliers. And we can do absolutely nothing about it, in any political, trade, or retaliatory manner?? The future of Ford's truck division is completely at the mercy of Saudi Arabia?? And I hear NOBODY talking about this?? The United States of America has been reduced to this???
One theory is that ZIRP/ "cheap money" has allowed the oil situation to happen in this country. Many smaller producers were not even making money with oil at higher levels. Companies have become hugely indebted. Here's one example:
So, you did have a lot of production. Now you're going to have oil companies struggle and what's really going to struggle are the services companies, especially if this is a prolonged slump.
I'm stunned that oversupply can manifest itself in a 60% decline in 6 months or so, but perhaps a combination of the end of QE and the idea that OPEC saw what was coming and wanted to maintain control caused a sell-off to snowball to a remarkable degree. Perhaps OPEC has fractured in a similar manner that the potash cartel fractured last year, causing Potash prices to decline and the stocks to tank.
There's also got to be some considerable decline in demand as part of this drop. I mean, look at copper, look at bonds, look at all of these signs that are flashing slowing global growth. The mining companies that are already down near 2008 levels are absolutely tanking this morning.
Overall, perfect storm. However, I do kind of think that there is an element of easy money that built the fracking "revolution" in the first place.
I mean, "While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it." "...“People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.” http://www.bloomberg.com/news/2014-04-30/shale-drillers-feast-on-junk-debt-to-say-on-treadmill.html
The decline in oil and the ripple effects of that were discussed in very good detail by Gundlach during his presentation yesterday.
I still think the Fed could come back again and I'd be surprised if they raise rates if this gets worse. At the very least, I'm sure FOMC members will be out in force chatting whether money will be easy or not depending on the movement of the day.
December retail sales just came out -1% and the market took a crap. Need moar QE.
@scott, Speaking of Gundlach and oil, here is a tidbit from that webcast yesterday.
Gundlach says that once oil broke $70, it would create acceptance that oil isn't going back to $95, causing producers to increase production because they need the revenue, not cut production to boost prices."
That statement jumped out at me and it ties in a bit with the conversation here. Gundlach has been vocal on the consequences of oil priced where it's at now and lower. A lot of the job growth in the US can be attributed to the shale oil discovery and production.
Listening to him, one might think we are walking a very small tightrope on this economy.
Here we have a group of foreign countries, aided and abetted by the large international oil companies, publicly STATING that that is their very intention, with respect to the US shale oil suppliers. And we can do absolutely nothing about it, in any political, trade, or retaliatory manner?? The future of Ford's truck division is completely at the mercy of Saudi Arabia?? And I hear NOBODY talking about this?? The United States of America has been reduced to this???
I hope this move comes back to bite them hard!
Oil is nothing more than an energy source to power technological systems and a commodity to be traded between producers and users. Lower oil prices may rearrange or remove pieces on the oil checker board, but this may turn out to be a game changer...energy is more like chess. The old guard has chosen to orchestrate lower prices requiring larger production volumes to make up the drop in price. To me, this is unsustainable and a poor long term move for oil. In the meantime, new efficient energy sources continue to be developed.
As a Californian, hydrogen powered cars in 2015 will compete with electric, NG , and hybrid automobiles. Hydrogen's ubiquitousness and environmental friendly footprint may finally move the needle away from oil.
The old guard (oil producers) has preferred checkers to chess. Luckily the world resembles a variety of complex game pieces... much more like chess than checkers. More challenging game, but worth adopting as the new normal.
Honda has been working hard on fuel cell cars and refueling stations including a solar powered refueling station that can be used at home. There is a lot of fascinating stuff here.
I was wondering if this glut of fuel has been equally felt around the world ? We're wintering in coastal TX. & gas is around $1.95. On the way down we found gas for $1.67. Refinery in are back yard and paying appr. 17% more !
@Derf Cold !!! Well, for coastal Texas. -12 in our part of Michigan at 6am this morning; but the sky is bright blue and lots of sunshine. High today schedules at +17. Take care, Catch
Comments
Tough place out there lately.
But, Scott... Aloca had a great quarter and gave a strong forecast of growth in US, car/truck sales, and global in aviation.
You gotta give some credit to AA's order book, no?
c
I did do some buying this afternoon when the market was down over a hundred.
Earnings haven't been awful lately, although it certainly depends on the sector. Some companies seem to be doing rather well. Perhaps oil sliding dragged the market down (I believe there were some Saudi comments mid-day, although not sure exactly what, I'm guessing not pro oil going higher), as the market came back as oil did?
Basically, I continue to look to buy companies for the long-term, preferably wide moat companies. The day-to-day makes increasingly less sense to me - especially in this environment where monetary policy is what it is - and I'm thinking is best left not over-analyzed. Who knows.
Finally, in regards to the Fed, the usual headline from the dovish Minneapolis Fed Gov just crossed - that a rate hike this year would be a terrible idea.
http://www.zerohedge.com/news/2015-01-12/how-alcoa-just-smashed-earnings-expectations
In its defense, can't we argue that the non - GAAP are more indicative of future cash flows?
Unless, as ZH suggests, this engineering is something we can expect regularly.
c
The Alcoa numbers are being scrutinized to death. Wouldn't lower energy costs be beneficial to Alcoa? Making aluminum takes a lot of energy.
It seems to me there is a lot of emotion based reaction here.
The following article appeared in April, just three months before the plunge in oil began. At that time there were wildly optimistic forecasts the use of aluminum would spread rapidly among auto makers.
"Ford's New Alcoa Connection" (April 2014) http://www.post-gazette.com/auto/2014/04/17/Ford-F-150-Alcoa-Connection/stories/201404170089
It's hard to escape politics in all of this. There are mounting pressures already to ease up on mandated fuel economy standards in coming years.
Here we have a group of foreign countries, aided and abetted by the large international oil companies, publicly STATING that that is their very intention, with respect to the US shale oil suppliers. And we can do absolutely nothing about it, in any political, trade, or retaliatory manner?? The future of Ford's truck division is completely at the mercy of Saudi Arabia?? And I hear NOBODY talking about this?? The United States of America has been reduced to this???
With almost any other product, anti-dumping, anti-trust, restraint-of-trade and other regulations try to prevent any company or group of companies from cornering a market
Lead,Follow or Get the f.. out of the way!
Exclusive: Shell says has U.S. OK to export lightly processed oil
BY KRISTEN HAYS
HOUSTON Tue Jan 13, 2015 10:11pm EST (my emphasis)
(Reuters) - Royal Dutch Shell Plc (RDSa.L) said on Tuesday it received U.S. approval to export a very light form of crude oil that has undergone minimal processing.
Shell had been working with the U.S. Department of Commerce's Bureau of Industry and Security (BIS) on how to ship lightly processed condensate overseas without violating a decades-old crude export ban, the company told Reuters. The BIS regulates export controls.
About two dozen companies, including Shell, have sought more clarity from the BIS. At least one prominent Eagle Ford producer, BHP Billiton Ltd (BHP.AX), moved forward with exports without waiting for a ruling, confident that its output would undergo sufficient processing to qualify.
The BIS issued guidance on Dec. 30 - which the agency had been working on for most of 2014 - to provide more clarity to companies awaiting rulings. The agency also started telling some companies that they should do follow BHP's lead.
http://www.reuters.com/article/2015/01/14/us-usa-crude-exports-idUSKBN0KM2F420150114?feedType=RSS&feedName=businessNews
Suspect central banks and Fed statements will resurrect the stock market for a while longer.
You know things are really weird when HSGFX is up 2% for the year.
I might be missing something. I was thinking of the manufacturing process of aluminum. From what I knew, it takes a large amount of electricity to make it. That is where I was coming from. There are a fair number of aluminum smelters in the PNW due to low electric rates.
The Ford truck being made of aluminum is something to watch. I am not convinced it can hold up as well as steel when it comes to work trucks. Unless they came up with a special alloy, I would think the aluminum would be softer and have more of a tendency to bend than steel. If that proves to be true then Ford would have to go back to steel which would hurt Alcoa.
Article 1 http://www.wikinvest.com/commodity/Aluminum
Relevant excerpt: "Smelting alumina into aluminum requires a constant, large supply of electricity, which accounts for around 25% of the costs of the entire smelting process. ... a decrease in energy costs can allow previously closed smelters to reopen, which would increase the supply of aluminum and lower prices."
Article 2 : http://www.bloomberg.com/news/2014-11-27/aluminum-drops-after-oil-prices-slump-to-lowest-in-four-years.html
Relevant Excerpt: "While crude is not the primary source of energy for the aluminum producers, energy accounts for about 30 percent of output costs and falling oil prices may have a deflationary impact..."
-
There's much suggesting auto makers may curtail plans to use more aluminum if oil stays low. Won't bother linking all that. Something forgot to mention earlier is the role of aluminum in shipping and packing containers. Think of the savings derived from transporting aluminum soda or beer cans instead of heavier materials. Won't be immediate. But over time cheaper fuel would reduce that reliance on lighter-weight containers.
http://finance.yahoo.com/echarts?s=EXXI+Interactive#{"range":"2y","scale":"linear"}
I posted this over the Summer, but had no idea this is how it would wind up.
http://www.mutualfundobserver.com/discuss/discussion/13960/some-concerns-with-the-fracking-theme
So, you did have a lot of production. Now you're going to have oil companies struggle and what's really going to struggle are the services companies, especially if this is a prolonged slump.
I'm stunned that oversupply can manifest itself in a 60% decline in 6 months or so, but perhaps a combination of the end of QE and the idea that OPEC saw what was coming and wanted to maintain control caused a sell-off to snowball to a remarkable degree. Perhaps OPEC has fractured in a similar manner that the potash cartel fractured last year, causing Potash prices to decline and the stocks to tank.
There's also got to be some considerable decline in demand as part of this drop. I mean, look at copper, look at bonds, look at all of these signs that are flashing slowing global growth. The mining companies that are already down near 2008 levels are absolutely tanking this morning.
Overall, perfect storm. However, I do kind of think that there is an element of easy money that built the fracking "revolution" in the first place.
I mean, "While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it." "...“People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”
http://www.bloomberg.com/news/2014-04-30/shale-drillers-feast-on-junk-debt-to-say-on-treadmill.html
The decline in oil and the ripple effects of that were discussed in very good detail by Gundlach during his presentation yesterday.
I still think the Fed could come back again and I'd be surprised if they raise rates if this gets worse. At the very least, I'm sure FOMC members will be out in force chatting whether money will be easy or not depending on the movement of the day.
December retail sales just came out -1% and the market took a crap. Need moar QE.
Lastly, not necessarily agreeing with the bottom line, but I think this is worth reading:
http://market-ticker.org/akcs-www?post=229732
Gundlach says that once oil broke $70, it would create acceptance that oil isn't going back to $95, causing producers to increase production because they need the revenue, not cut production to boost prices."
That statement jumped out at me and it ties in a bit with the conversation here. Gundlach has been vocal on the consequences of oil priced where it's at now and lower. A lot of the job growth in the US can be attributed to the shale oil discovery and production.
Listening to him, one might think we are walking a very small tightrope on this economy.
Oil is nothing more than an energy source to power technological systems and a commodity to be traded between producers and users. Lower oil prices may rearrange or remove pieces on the oil checker board, but this may turn out to be a game changer...energy is more like chess. The old guard has chosen to orchestrate lower prices requiring larger production volumes to make up the drop in price. To me, this is unsustainable and a poor long term move for oil. In the meantime, new efficient energy sources continue to be developed.
As a Californian, hydrogen powered cars in 2015 will compete with electric, NG , and hybrid automobiles. Hydrogen's ubiquitousness and environmental friendly footprint may finally move the needle away from oil.
The old guard (oil producers) has preferred checkers to chess. Luckily the world resembles a variety of complex game pieces... much more like chess than checkers. More challenging game, but worth adopting as the new normal.
Some news:
Toyota has released 400 patents to encourage Hydrogen fuel cell technology:
iflscience.com/technology/toyota-follow-tesla-s-footsteps-releasing-its-fuel-cell-patents
Honda & Toyota quietly roll out Hydrogen Cars for 2015:
honda-motor-fuelcells
UTC has been working on Fuel Cell technology for many years:
energy.gov/sites/prod/files/2014/03/f12/apu2011_7_short.pdf
Problems in Fuel Cell Development:
Fuel cells strip hydrogen atoms of their electrons and investors of their money
Fuel-Cell-Follies-ClearEdge-Going-Bankrupt
http://world.honda.com/FuelCell/SolarHydrogenStation/
We're wintering in coastal TX. & gas is around $1.95. On the way down we found gas for $1.67. Refinery in are back yard and paying appr. 17% more !
Good investing, Derf
P.S. Cold & rainy !!
Cold !!! Well, for coastal Texas.
-12 in our part of Michigan at 6am this morning; but the sky is bright blue and lots of sunshine. High today schedules at +17.
Take care,
Catch
Financials and oil both off, 2-3%, yet again.
2015 sure starting off on sour note.
Thanks Joe!