Karl F.
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Latest Comments30 Comments
Why I Sold My China Positions
If you base your decisions on the hodgepodge of partly inaccurate, partly irrelevant facts you present, I wonder how you can make sound decisions and outperform the markets. In Q3, China's economy was growing at 9% y/y, nominal retail sales were up 21% y/y, despite US in recession, flat export growth, depressed steel prices, flat local real estate markets. 3/4 of its growth is internal, independent from exports; a lot comes from infrastructure investments, financed through high savings rates. The huge stimulus package will make sure that impressive growth will continue.
For stock selection, you have always to look at the sector and the particular company. Not all sectors will benefit equally. Chinese pharmaceutical stocks in particular are immune to the global crisis, in a long term impressive growth market and some of them are dirt cheap currently, certainly no sells.
Retail sales will also continue growing at high rates. China 3C, that you mentioned, is well placed in its segment of the retail sector with its 1000+ stores, had impressive same store growth in Q3, outperforming its sector, and is trading at a PE ratio of 2, or 1.4, if you deduct net cash. The company will continue to grow organically and through acquisitions, certainly no sell either
China Pharma Reports Improved Collection of Accounts Receivable
Analyst: Oil Prices Inflated by 50%
Fadel is of course right. Oil prices will most likely fall much further. Financial speculators probably still hold more than 80B $ speculative long postions in various oil futures markets. If, under the next Administration, the CFTC has to get serious in observing position limits for financial speculators, there will be a blood bath.
Whither Oil Prices?
The petrobras cost information is from 2008.
Petrobras knows better than others what the deep water costs will be. They have done a lot of drilling, build the infrastructure and started producing. 30$/bbl are their total cost estimates,once a field is in full production.
Besides light crude oil, there are plenty of unconventional oil alternatives. For example GTL (gas to liquids - proven technology, existing plants. conversion costs per BOE: 15-20 US$. Half of known global natural gas reserves are stranded - not in production actually.
Whither Oil Prices?
Finding costs are on a downward learning curve.
Petrobras, the leader in deep water drilling and production, calculates with lifting costs of $8/barrel and total costs of a maximum of $30/barrel, once a deep water field is developed. Deep water oil reserves are enormous and will determine the marginal costs of light crude oil production in the next 15 to 20 years
China 3C Group Finally Turns a Corner
The downfall of the share price was caused by deficient communications from part of the management, a very conservative outlook for earnings at the beginning of the year and a general lack of interest in Chinese small caps this year. Such phases are recurring and are usually followed by some explosive share price recovery.
With current business trends, earnings of $.50/share in 2008 look very conservative.
Operating wise, management is doing a very good job - low cost operations, very fast turnover of merchandise. No debt, net cash currently around $35M or $.70/share.
Management is looking for acquisitions accretive to earnings. Without acquisitions, net cash will be around $50M or $1/share at year end.
Deducting that cash, expected 2008 PE is close to 2
It’s a $10 stock. The stock is coming down from $8.5. Nobody should be surprised if that level is revisited in the next 12 months.
The Oil Bubble Will Meet the Same Fate as Tech, Housing
Oil: Time for Caution
China 3C Group Hits Major Milestone
How Big a Contribution Comes from Oil Speculation?
Recent news from credit card companies suggests that US gasoline demand, on a comparable level, is down by about 5%. I guess that is twice as much as the IEA, which seems always behind the curve in its demand projections, is taking into account – price elasticity wise. European consumption has apparently fallen by a similar percentage. That dwarfs the projected demand increase from the Chinese for this year.
So we can assume that oil consumption growth in 2008 is probably below the IEA’s current forecasts.
On the other side, global oil production is inching upwards, even with the much publicised Nigerian problems. Spare capacity today is double that of 2005 and, following the IEA, will further increase towards year end, probably reaching 3.4 Mb/day. The IEA doesn’t distinguish between real demand (consumption) and speculative demand. For the IEA, the latter doesn’t seem to exist. It simply says that all demand is satisfied. Some independent experts believe that average consumption is currently more than 1 Mb/day below production.
There is enough refinery capacity in the world able to handle the sour crude of the Saudis and the Iranians. Nevertheless, the Iranians have apparently problems finding buyers for their oil. (Reliance, btw, is in the process of opening Jamnagar 2, a 500000 b/day refinery specially targeting all those difficult oils)
Global political risks and oil supply risks today are not higher than they have been in the last 3 years.
In light of all those facts, we have to ask: why is the price of oil still rising? The answer is simple: it’s a speculative bubble.
Masters presented a chart (from Goldman Sachs) showing that, by March 2008,
“Commodity Index Investment” had risen to 260 Billion $ (from 13 B, 4 years before). A major part of that seems to be in oil. And that is only part of the total speculation in commodities and in oil.
The energy agencies admit that they don’t have reliable data regarding global oil inventories. Even the numbers for the US rely on voluntary reports not covering the whole sector and having never been verified. Finance investors could in fact control more than 1.5 Billions barrels of oil currently – without much knowledge about that in those agencies.
Someone who believes that the additional demand from finance investors/speculators hasn’t contributed significantly to the oil price increases in recent years should see a brain doctor.
Pay Attention to Oil Decline Rates
If you quote Cera or others, you shouldn't quote out of context.
Here is the Cera comment on the peak oil nonsense:
www.cera.com/aspx/cda/...
Net Exports of Major Oil Exporters Likely to Fall
- Matt Simmons peak oil theory is essentially based on 3 years of flat conventional crude oil production. We have seen at least 4 such phases in the last 30 years. All caused by production cuts to stabilize prices.
- Oil isn't just conventional crude oil. 14% of global oil consumption today is coming from non conventional sources. That percentage is expected to grow to 30% by 2015. So, the hypothesis that conventional crude production will remain flat doesn't really matter.
- The IEA says that global supply and global demand (speculative demand isn't singled out) is currently in balance at 86.8mb/d.
- Following the IEA, spare capacity is currently 2mb/d - twice as much as in 2005, when the price was much lower. That number is supposed to grow to 3.3 mb/d by the end of 2008 - If global demand growth projection in 2008 remains at 800 kb/d. It could be lower than that in light of the current price of oil. The IEA is recurrently scaling back its demand growth projection, but seems to remain behind the curve.
- Global proven reserves of conventional crude represent 42 years of consumption. That is not counting recent huge deepwater finds (US gulf, Atlantic), which could move the number closer to 50 years. Anyway, that is a record. The 100 year average has been 30-35 years.
- The highest marginal production costs of those reserves are attributed to the recent Brazilian deepwater discoveries. Petrobras says that it can make a profit if it can sell that oil above $30/barrel. Yes: 30, not 130!
In light of those numbers, the crude oil production capacity is only a function of the amount of investments in new capacities, nothing else. Current prices are way above marginal production costs of all the proven crude oil reserves.
- Not counting all the renewable energy opportunities, or the ever increasing potential of electric cars, the cost of producing high quality syncrude from other fossil fuels, available in huge quantities:
GtL (gas to liquid)15$/b-20$/b,
Ctl (coal to liquid): 30$/b (China), 45$/b-60$/b (US, including CO2 sequestration),
Oil sands 30$/b-45$/b
Shale Oil: 30$/b-50$/b
Investments in such technologies will be too profitable to ignore. China is already building and planning CtL capacities at a frightening pace.
By all accounts, neither short term nor long term, the current oil price is justified. Only financial speculators buy long term crude oil futures contracts at current prices.
Crude Inventory Down; Gasoline Inventory Up: Whither Pump Prices?
Has Speculation Affected Oil Demand?
You get it. But, apparently, you don’t have a clue about what is available in global oil storage capacity. It’s measured in billions of barrels. And nobody is really overseeing what is going on there.
A good analogy is the situation in the early 1980’s. Between 1979 and 1982, crude oil prices rose 500%.
The reasons given were nearly identical to what we are hearing today – except the Dollar argument (the US $ was rising against most other currencies): Supply-Demand imbalances getting worse, Peak Oil, The Iran-Irak war, political risks, Opec strangling the markets…
Opec pretended that markets were well supplied and that it could do nothing against those rising prices.
Knowledgeable, reputed experts were predicting 100$/barrel (> 200$/barrel in today`s money) by the mid 1980’. With rising prices, investment house analysts raised their target prices. Trading house experts, economists, politicians doubted that the rise had much to do with speculation. Then the oil price started to collapse, and in 1985, it was back to the 1979 level, in the 6-8$/barrel range.
It turned out that between 79 and 82, global oil inventories had increased by more than 2 billion (probably around 3 billion) barrels, which means that the production of oil producers had exceeded consumption by that amount and that speculators or “investors” had taken that amount of oil out of the markets. As long as the perception of ever rising prices persisted, nobody had an incentive to liquidate his holdings, as they became more valuable each day, but on the contrary, was adding to them. Many believed the supply-demand arguments. When the first investors started to take profits, prices stopped rising, inventory liquidation increased and developed its own dynamic. This time, Opec was unable to stop the price collapse, even when Saudi Arabia completely shut down its sales.
The speculation than had absorbed between 50 and 80 billion US$. Today it is said that “investors” are holding (through all kind of funds and futures markets) positions worth several hundred billion of US$.
The good thing about today prices is that it might push the US and several other nations to finally formulate an energy policy seriously targeting more efficient energy use, and the reduction of the dependency from oil imports.
Wall Street Breakfast: Must-Know News
There are already enough false statements fuelling the speculation. You should not add to that.