Saturday, August 17, 2013

Cracking The Refiners

Refiners have been beaten up and declining since late February, but the downtrend has shown signs of a pause in recent weeks. The sector has been pressured by a meaningful drop in crack spreads (profit margins) in part linked to a narrowing of the Brent/WTI spread.  The supply/demand conditions in the oil market seemed to tighten as highlighted by a sharp drop in U.S. inventories and pick up in refinery activity.
The crack spread or margins are a key price driver:
Refiners have differing input costs depending on their ability to source and crack differing grades of crude oil. As the graphic displays, the stock price of refiners tends to follow the direction of crack spreads or their margins.  The 3:2:1 crack is overlaid against the average price of Valero (VLO - Analyst Report), Western Refining (WNR - Analyst Report), and Tesoro (TSO - Analyst Report).  The 3:2:1 crack calculates the profits of converting three barrels of crude oil into two barrels of gasoline and one barrel of heating oil.

The graphic displays a generic view of margins using WTI crude oil for an input.  In reality, refiner profits are subject to the differing pricing of inputs.   There are light and heavy crude mixes and different prices among light and heavy crudes.    The Brent/WTI spread is an example of differing prices for light crude oil. These differentials can impact profitability.  (more)
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Tesla Investors Will Make This Much Over the Next 9 Years

While the renowned genius Leonardo da Vinci was an expert in many fields, his attitude toward simplicity reaches far outside the bounds of his time period and professions. When it comes to investing, simplicity is paramount, and is the ultimate sophistication. With this in mind, let us turn toward today's heated market debate starring Elon Musk's Tesla Motors  (NASDAQ: TSLA  ) and see how Leonardo's wisdom can tell us exactly what the future holds.

The most simple and logical way I can think of to evaluate Tesla is to compute what return you'll receive if the company reaches its long-term goals. Elon Musk and Tesla spell these goals out very clearly in the company's proxy statement. The company goals set around Musk's compensation package are: (more)

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James Turk – Gold Will Finish 2013 At $1675 Or Better

from Financial Survival Network
James Turk came back on the show after a long haitus. He’s extremely bullish on the yellow metal and for good reason. It’s been going back up as of late and we’re not seeing very much resistance on the upside. James is thinking that it will finish positive for the year and that this will be the 13th winner in a row. Perhaps he’s a bit overly optimistic, but he’s been right twelve years running and that’s good enough for us. He’s still seeing extremely powerful Asian buying, with China picking up Indian slack and we are heading into the strong gold buying season. Indian brides are happier when showered with gold.
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The Great Depression ~ Why it happened and why it could happen again

It was a time when the stock market epitomized the false promise of permanent prosperity , Millennial depression? This will be much worse than the 1929 crash... We have such a large part of the American population dependent on the government for lifelong welfare checks and food will hit like a tsunami. Imagine when that stops...the criminal gangs, drug cartels, radicals...this will be a complete breakdown like New Orleans & Katrina. This will be a catastrophic collapse. A new 'Dark Ages". I don't think we are as strong as the Americans of 1929. Not as self reliant. 
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Last Time This Happened, Gold Prices Rose 70% / August 16, 2013
Everyone’s so bearish on gold prices, could they fall any further…?
The “ULTIMATE LOW” in gold prices was three weeks ago, writes Brett Eversole at Steve Sjuggerud’s True Wealth service.
That’s what Dennis Gartman told CNBC’s Squawk Box last month.
Gartman knows commodity trading. He’s written The Gartman Letter, every day, for 26 years. It’s a must-read around the DailyWealth office.
Today, Gartman is buying gold. He plans to keep buying. And I think he’s right. Let me explain…
Gartman is bullish for a simple reason…one that longtime DailyWealth readers will understand.
The investing community hates gold right now.
“I bought it for the simple reason that every media outlet, every newspaper article, everything that you listen to was overtly, manifestly, ridiculously bearish,” Gartman explained.
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Have The Soft Commodities Bottomed?

Cotton Futures--- Cotton futures continued their bullish momentum settling last Friday at 88.93 and going out this Friday at 93.40 up 450 points for the week and is up over 800 points in the last 2 weeks trading far above their 20 and 100 day moving average hitting a 1 ½ year high this Friday afternoon. The USDA predicted 13.052 million bales in the crop report which came out last Monday, but analysts are figuring that the crop is going to be shrinking as harvest starts to begin due to the fact of extremely hot weather in Texas and the crop is way behind in some of the other Southern states due to the wetness and cool temperatures.
The trend is your friend in commodities and as I wrote in last Friday's blog you should be long this market and I still believe prices could head higher but make sure you do place your stop loss at the 10 day low which is a good distance away but will be tightening up in a couple of days as the commodity markets as a whole have been rallying pretty significantly in recent weeks. The great thing about the cotton contract is the fact that it is very large and if you bought this when prices hit the 4 week high at 87 the 10 day low at the time was 84.50 so you are only risking around $1200 per contract and if you're still in this trade you are up over 600 points is now $3,000 per contract and in my opinion whenever there is a low-risk situation with a high reward possibility you should always take that trade regardless of your opinion. TREND: HIGHER -CHART STRUCTURE: POOR
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Should You Still Own Bonds?

One reason asset allocation strategies are so popular among investors is that they intuitively make sense. Most people think of the stock market as being the riskier place to put their money, but that they'll receive potentially greater rewards from investing in stocks. Conversely, the popular view of the bond market is that it's the place for conservative investors to park money they can't afford to lose, with bond buyers willingly sacrificing growth potential in exchange for the relative stability and steady income that bonds typically promise.

But recently, all the conventional wisdom about stocks, bonds, and asset allocation has gotten turned on its head. Even as the stock market has risen to all-time record highs, bonds have suffered big price declines that have awakened many bond-fund investors to the reality that their bond investments can actually lose money. With the specter of further rate increases in the future as the Federal Reserve contemplates an exit from its quantitative-easing bond purchases, one question arises: Do asset allocation strategies that advocate owning bonds still make sense?  (more)

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