Will Your Favorite Oil Company Go Bankrupt?

By Justin Spittler

Oil companies are getting desperate. If you’ve been reading the Dispatch, you know oil is in a horrible bear market. The price of oil has crashed 69% since June 2014. Last month, oil hit its lowest price since 2003.

The world has too much oil..…
For years, many folks thought the world was running out of oil. The price of oil soared more than 1,200% from 1998 to 2008. The “Peak Oil” crowd saw this as proof that oil production was in terminal decline. They were very wrong. “Peak Oil” believers failed to understand that high prices would create huge incentives to develop new ways to produce oil. Oil companies developed new methods like “fracking” to unlock billions of barrels of oil that were once impossible to reach. U.S. oil production has nearly doubled over the last decade. Last year, it hit its highest level since the 1970s. World oil production levels are also near record highs.

The world isn’t consuming oil fast enough..…
The global economy produces about 1.7 million more barrels a day than it needs. With U.S. oil reserves at their highest level since the Great Depression, companies are running out of places to store the extra oil. To deal with the surplus, companies have started storing oil on tankers floating at sea and in empty railcars. Other companies are selling barrels at huge discounts just to get rid of them.

Low oil prices have hammered major oil companies..…
The world’s five biggest oil companies—Exxon (XOM), Chevron (CVX), Total S.A. (TOT), BP (BP), and Royal Dutch Shell (RDS.A)—have fallen an average 34% since June 2014. Oil services companies, which supply “picks and shovels” to the oil industry, have crashed, too. Schlumberger (SLB), the world’s largest oil services company, has plunged 36% since 2014. Halliburton (HAL), the world’s second biggest, has plunged 53%.

Oil companies have cut spending to the bone..…
Companies have walked away from billion dollar projects. They’ve sold pieces of their businesses. As Dispatch readers know, some have even cut their prized dividends. The industry has laid off more than 250,000 workers since oil prices peaked. Last year, oil and gas companies cut spending by 22%. Reuters reports that the industry could cut spending another 12% this year.

On Thursday, Halliburton laid off 5,000 workers..…
It’s now laid off 29,000 workers, more than a quarter of its workforce, since 2014. Like most companies in the oil business, Halliburton is struggling. Its sales have fallen four straight quarters. Last year, the company lost $671 million, its first annual loss since 2004. The latest round of layoffs suggests Halliburton doesn’t expect business to pick up anytime soon.

The oil market is cyclical..…
It goes through big booms and busts. Right now, it’s going through its worst bust in decades. Eventually, the oil market will boom again. After all, the world needs oil. Companies that survive this bust should deliver huge gains during the next boom. If you can buy great oil companies near the bottom, you could set yourself up for huge gains when the next boom comes. So…is this the bottom?

According to The Wall Street Journal, one third of U.S. oil producers could go bankrupt this year. To be profitable, many companies would need the price of oil to get back up $50. With oil at $32.84 a barrel on Friday, those companies are in trouble. We expect a wave of bankruptcies to rip across the oil industry. This would likely trigger another leg down in oil stocks. So we’re not ready to buy oil stocks yet.

Instead, we recommend “stalking” your favorite oil companies..…
Nick Giambruno, editor of Crisis Investing, just added a world-class oil company to his watch list.
If you don’t know Nick, his specialty is buying beaten-down assets during a crisis. Most investors run away from crisis. But if you can keep your head and buy when everyone else is panicking, you can often pick up a dollar’s worth of assets for a dime or less.

Shale oil stocks are in crisis today. Even the largest shale companies have been obliterated. Major shale oil producer Apache (APA) has plunged 51% since June 2014. Anadarko (APC), another larger shale company, has plummeted 65%. Shale oil is more expensive to extract than conventional oil. And at today’s prices, most shale oil projects can’t make money.

Many shale companies borrowed too much money during oil’s boom times. Now that oil is in a bust, they can’t generate the cash flow to pay back their debts. Last month, investment bank Oppenheimer & Co. Inc. warned that half of all U.S. shale oil producers could go bankrupt before oil prices recover. To survive, these companies would need the price of oil to more than double.

Nick has found a shale company unaffected by these problems. It’s a world-class shale oil company that has virtually no risk of going bankrupt. However, its stock has gotten extremely cheap along with all other shale oil stocks. Nick says this company has “trophy assets in the major U.S. shale basins. It has a solid balance sheet.

And, unlike many of its peers, it didn’t over leverage itself during the last boom.” The company also has the industry’s highest profit margins. Nick plans to buy this company at once in a generation prices. He will tell Crisis Investing readers when it’s time to pull the trigger.

In the meantime, Nick is investing in Cuba..…
As you may know, the U.S. has had a trade embargo against Cuba since 1962. The embargo bans all trade, making it illegal for Americans to invest in Cuba. But that could soon change. About a year ago, Cuba and the U.S. announced they were working to repair diplomatic and economic relations. In August, the two countries reopened their embassies in each other’s capitals. President Obama is going to Cuba next month. He will be the first sitting president to visit Cuba since Calvin Coolidge in 1928.

Nick thinks the embargo could soon “become a page in the history books”..…
The end of the embargo will create the “potential for enormous profits,” as Nick explained in Crisis Investing.

When the embargo goes away, American tourism to Cuba will explode. The International Monetary Fund estimates there could be up to 10 million visits from Americans every year as soon as the embargo comes down.

Today, it’s still illegal to invest in Cuba. But Nick has a “back door” way to profit from the opening up of Cuba’s economy. Nick’s investment in Cuba legally trades on the NASDAQ stock exchange. It should deliver huge gains when the embargo is lifted…which may happen very soon. You can get in on Nick’s Cuba investment by signing up for Crisis Investing. You’ll also learn about the world class shale oil company on Nick’s watch list. Click here to begin your risk-free trial.

Chart of the Day

Shale oil stocks have been decimated. Today’s chart shows the performance of the Market Vectors Unconventional Oil & Gas ETF (FRAK). This fund tracks 50 companies involved in the shale oil and gas industries. FRAK has crashed 65% since June 2014. Last month, it hit an all-time low. As we mentioned, most shale oil companies simply can’t make money right now.

The article Will Your Favorite Oil Company Go Bankrupt? was originally published at caseyresearch.com.

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You Can’t Shoot Fish in a Barrel Without Ammunition

By Dan Steinhart, Managing Editor, The Casey Report

"FOMO"


I heard this acronym on a podcast last week. Having no clue what it meant, I consulted Google. Turns out it stands for “Fear of Missing Out.” Kids use it to describe their anxiety about missing a social event that all of their friends are attending. It struck me that investors experience FOMO too. And it usually leads to bad decisions.

From Prudent to FOMO

 

In the comfort of your home office, investing rationally is pretty easy. You think a bull market might be emerging, so you invest in the S&P 500.

But you’re not stupid. No one really knows where the stock market is headed, so you keep a healthy allocation of cash on the side to deploy the next time stocks trade at bargain prices. A prudent, rational plan.
But leave the house and things start to change. You notice that others seem to be making more money than you. First it’s the “smart money” raking in the dough—those who had the foresight and fortitude to buy during the last panic, when everyone else was retreating. You’re OK with that. Investing is their full-time job.

You can’t expect to compete with them.

But as the bull market charges higher, the caliber of people making more money than you sinks lower. The mailman starts giving you stock tips. And your gardener’s brand new Mustang, parked in your driveway just behind your sensible, 2011 Toyota Corolla, starts to irritate you.

Your brother-in-law is the last straw. He thinks he’s so smart, but he’s really just lucky to somehow always be in the right place at the right time. I mean, just last month you had to pick him up from a NASCAR tailgate after security kicked him out for lewd behavior—and now he’s taking the family to Europe with his stock market winnings?

If that guy can make $30,000 in the market in six months, you should be a millionaire. Now you feel like a sucker for holding so much cash. Why earn a pitiful 0.5% interest when you could be making… hang on, how much did the S&P 500 gain last year? 29.6%? Some quick extrapolation shows that if you invest all of your cash right now, you can retire by 2023. Factor in a couple family trips to Europe, and we’ll call it 2024 to be safe.

Cash Is Trash… Until It’s King

 

Such is the (slightly exaggerated) psychology of a bull market. FOMO is a powerful motivator and causes smart investors to do stupid things, like go all-in at the worst possible moment. Which is no small concern, since it undermines one of the most powerful investment strategies: keeping liquid cash in reserve to invest during market panics.

Take the roaring ‘20s as a long ago but pertinent example. The surging stock market of that era caused a whole lot of FOMO. Seeing their friends get rich, people who had never invested before piled into stocks.
Of course, we know how that ended. But there’s a fascinating angle that you may not have given much thought. I hadn’t until yesterday, when I finished reading The Great Depression: A Diary [click here to purchase on Amazon.com]. It’s a firsthand, anecdotal account written by attorney Benjamin Roth.

Roth emphasized that during the Great Depression, everyone knew financial assets were great bargains. The problem was hardly anyone had cash to take advantage of them.

Here are a few quotes from the book:

August 1931: I see now how very important it is for the professional man to build up a surplus in normal times. A surplus capital of $2,500 wisely invested during the depression might have meant financial security for the rest of his life. Without it he is at the mercy of the economic winds.

December 1931: It is generally believed that good stocks and bonds can now be bought at very attractive prices. The difficulty is that nobody has the cash to buy.

September 1932: I believe it can be truly said that the man who has money during this depression to invest in the highest grade investment stocks and can hold on for 2 or 3 years will be the rich man of 1935.

June 1933: I am afraid the opportunity to buy a fortune in stocks at about 10¢ on the dollar is past and so far I have been unable to take advantage of it.

July 1933: Again and again during this depression it is driven home to me that opportunity is a stern goddess who passes up those who are unprepared with liquid capital.

May 1937: The greatest chance in a lifetime to build a fortune has gone and will probably not come again soon. Very few people had any surplus to invest—it was a matter of earning enough to buy the necessaries of life.

In short, by succumbing to FOMO and investing all your cash, you might be giving up the opportunity to make a literal fortune. You can’t shoot fish in a barrel without ammunition.

Of course, the parallels from the Great Depression to present day crises aren’t exact. The U.S. was on the gold standard back then, meaning the Fed couldn’t conjure money out of thin air to reflate stock prices. Such a nationwide shortage of cash is unthinkable today, as Yellen & Friends would create however many dollars necessary to prevent stocks from plummeting 90%, as they did during the Great Depression.

That’s exactly what happened during the 2008 financial crisis, as you can see below. The Fed injected liquidity, and stocks rebounded rapidly. Compared to the Great Depression, the stock market crash of 2008 was short and sweet:

What does that mean for modern investors?

When the next crisis comes—and it will—there will be bargains. But because of the Fed’s quick trigger, investors will have to act decisively to get a piece of them.

What’s more, now that the US government has demonstrated beyond the shadow of a doubt that it will prop up the economy, bargains should dissipate even quicker next time around. After all, the hardest part of buying stocks in a crisis is overcoming fear. But that fear isn’t much of a detriment when Uncle Sam is standing by with his hand on the lever of the money-printing machine, ready to rescue the market.

Crises can creep up on you faster than you think. You may never know what hit you--unless you knew what to look for ahead of time. Watch Meltdown America, the eye opening 30-minute documentary on how to recognize (and survive) an economic crisis—with top experts including Sovereign Society Director Jeff Opdyke, investing legend Doug Casey, and Canadian National Security Council member Dr. Andre Gerolymatos.

Be prepared… it can (and will) happen here. Click here to watch Meltdown America now.

The article You Can’t Shoot Fish in a Barrel Without Ammunition was originally published at Casey Research.

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The Recession Is The Cure

Is Peter Schiff the only voice of reason out there. This is a great collection of clips of Peter from the "Market Cheerleaders" financial shows.

I am still short with BGZ going into Friday 1-10-09.

A Word of Encouragement for the "Average Trader"

I’m going to cut right to the chase…READ THIS!! Our good friend Norman Hallett from DirectYourMind.com has been an expert in the psychology of trading for years! He’s helped, and helping, thousands of traders a day to get their minds right. So read this article and check out Normans site.

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“Deep recession!”

“Depression!”

“End of the world as we know it!”

Anyone who’s tuned into CNBC or CNN has heard these statements of doom and gloom.

They may or may not be true.

We are not in control of what happens to the economies of the world.

We ARE in control of how we handle our personal finances in light of these possibilities and, as traders, how we choose to TAKE ADVANTAGE of all situations… including this one. No, ESPECIALLY this one.

We know that price action is a reflection of what is perceived “to be”, not what is. We know if we take a position and employ money management techniques, then
if we are wrong in our position, we will get pinched and not punched… and we’ll re-analyze and go again.

It’s the way of the trader.

For the trader, the greater the economic challenge, the greater the opportunity to better ourselves and our family… through our trading.

When most individuals are hiding behind excuses, the trader steps up to the plate.

We are lucky, indeed.

But don’t fool yourself. Being a trader, is not easy.

I look at markets in turmoil and I “feel” for the average trader.

The average trader has every good intention, but lacks the two basic elements to consistent trading success…

A formulated trading plan, whose elements are the components of a good trading system or systems, is the first element. And having the mental and emotional discipline to run that plan is the second element.

The GREAT NEWS for the ‘average trader’ is that it doesn’t take years to elevate your level of trading… months, yes, but not years.

The further GREAT NEWS is that we are in historic times.

The opportunities that will unfold over the coming weeks, months and years could result in windfall profits for those traders who choose to master the two elements mentioned above.

Shake-outs like we are experiencing now in the marketplace yield new super-trends that may be followed.. and ridden… by those who are prepared.

So should you “drop back and punt”, and stand aside while the market displays its current violent ways?

Only you know the answer to that.

Are your two basic elements solid?

Is your trading plan MEANT to handle extremely high volatility?

For any average trader… these are the type of markets that exploit your weaknesses.

FOR YOU, it’s time to re-group and prepare yourself for the opportunities that are about to present themselves as the smoke starts clearing.

Adopt a solid trading plan, based on a solid trading system. AND

Start now to make the development of your trading discipline a PRIORITY.

Without COMMITMENT to these two elements, you will not succeed on a consistent basis and will not be able to take advantage of the opportunities to come.

This is NOT the time for excuses.

It’s your time for admission… recognizing that you do, in fact, possess these two elements, or admit that you don’t and work NOW on shoring them up.

I’ve been trading for 25 years I can say with confidence that the opportunities that are about to unfold will be historic.

Fortunes will be made.

The Disciplined Trader with a tested trading plan and possesses solid trading disciplined will gather the money of The Average Trader who continues to downplay both.

It’s time to prepare.

Norman Hallett