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Posts Tagged ‘BP’

Dubai World Debt Crises: How Far Will the Damage Go Around the World? (EEM, UUP, UDN, SPY, IVV, USO, OIL)

November 27, 2009 1 comment

If recent history has taught us anything (Argentina, Brazil, Mexico, Thailand, Malaysia etc.), it is that events like the recent technical default of Dubai World (owned by Nakheel) are not things that go away quickly and without widespread pain. Aside from the high-level macroeconomic effects involving the foreign exchange markets and capital outflows, there is a huge technical implication here (not to mention the damage this could do to other middle eastern and emerging markets economies and the associated moral hazard implications).

An extremely disproportionate amount of the market is short the dollar and an event like this could be exactly the kind of thing that would break down the trade and have huge implications on the equity markets, especially in the US. The S&P 500 has been extremely correlated to the movement of the US Dollar of late and a rise in the Dollar would very likely cause a drop in the market. There is also a possibility that the increased strain on budgets in the United Arab Emirates could put pressure on the price of oil as they consider increasing output for additional revenue.

A very big thing to watch will be the market’s reaction and perception to this news over the next couple of weeks as volume comes back in following the Thanksgiving holiday. It will also be very interesting to see how money managers will be reallocating to reposition themselves for 2010. Will the chase for performance continue or turn into a race for the exits?

– Michael J. Burns

Disclosure: Long EEM, ILF, IVV, GXC, COP, CVX, several foreign stocks and foreign oriented mutual funds

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B NI @ 14.08

October 12, 2009 Leave a comment

I have bought NiSource (NI) today at a price of 14.08.

NiSource is the holding company for a group of subsidiaries, primarily utilities in the Mid West and extending through New England.  While the company provides its customers with electricity and other products and services, it primarily focus is with natural gas, where it is involved with nearly every step in the process from storage and transportation to distribution.

At a PE of 14 based on this years expected earnings of just over a dollar, the company is competitively priced relative to its peers in the industry.  They operate primarily in a region (the Mid-West) that hasn’t been as impacted by the economy as either of the coasts, although they do have exposure in the New England area.

A lot of buzz has been created recently as people hype (and sometimes over-hype) natural gas as an effective “bridge” fuel until the alternative energy industry gains mass appeal.  It is clean-burning enough to satisfy the greens, and the major oil producers such as COP and BP have a large enough stake in it that is doesn’t face much opposition from fossil fuel backers.  Price destruction recently has made Natural Gas a cheap source of energy, helping it gain momentum. NI seems very well placed to deliver on the Nat Gas boom, as it has well developed distribution networks, and a built-in customer base serviced by their various utility companies.

Ni is due to post earnings on October 30, and analysts have a consensus estimate for a loss of $.03. The summer quarters typically have low earnings as natural gas is used for heating in the winter.

Disclosure: Long NI, long BP.