Pre-Yule Depression

Mon, 2016/12/12 - 2:50pm | Your editor
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Donald Trump's security is the grinch which stole Christmas. We went to visit the great tree in Rockefeller Center yesterday and many streets were closed to pedestrians and bus stops inactivated because of security.


They found a new Michelangelo drawing of Saint Sebastian in rural France. That is the only good news I can find to cheer me up during my last week in 2016 to be spent in NYC before I head for London and Devonshire for Chanu-Mas which totally overlaps with the Xmas-New Year festivities this year. After overlapping with Thanksgiving 3 years ago, Chanukah thanks to the Babylonian calendar's “leap months” is back in the winter.


The rest of the news is depressing, ranging from attacks on Christians in Cairo to a murderous back and forth between ISIS and its enemies in Palmyra. Plus Mr Trump announcing that the CIA's information about Russian interference to get him elected is “ridiculous”. While I am a proponent of a reset on US relations with Putin, we need to be aware of what his regime is capable of.


I also find upsetting the impact of the Trump win on life-begins-at conception advocates in Ohio, Texas,and Louisiana. I also find upsetting the boost he has given to climate change deniers and racists.


Let us quote a general who is not going to be a member of the Trump cabinet, Joe Shaffer, USAF-RET. Joe thinks the time has come to invest in small and mid-cap firms which do not need “to cozy up to Chinese dictators in a secret censorship agreement” (like Facebook) or “to spend countless man-hours trying to satisfy petty Brussels bureaucrats” (like Apple and Google). Joe argues for small-caps focused on US domestic markets. But I think small- and mid-caps outside the US are also in sweet spot for future growth. Like me, Joe prefers active to passive management, which applies particularly to smaller firms. Joe edits The Investors Edge and manages Sanford Wealth in Nevada.


Going all Lilliputean I want to catch up with a big oil company as part of our coverage today of The Oilpatch. Out of fairness to our paid subscribers I will not give the name of the company I start with because it is small but I will writ more aobut my favorite large cap oil major.


*The shock decision by the Federal Energy Regulatory Commission (FERC) to deny a new hearing on a long-delayed license build a plant by one of our stocks, delays in the Keystone XL project, and the re-routing of the North Dakota Access share pipeline are all part of a last-minute crackdown on energy projects by the Obama administration. Today he clinched his green credentials with a ban on drilling in 40,000 square miles of the Bering Sea off Alaska.


Your editor thinks new Pres. Trump will reverse these bans quickly. Martn Ferera expects that the Trumpian infrastructure programs will be able to boast of several thousand blue collar construction jobs over the next few years to help him fill his campaign promises to create jobs and increase economic activity. Ending the bans will create low-hanging fruit for the future Trump White House.


Martin also argues in hindsight that had Clinton backed the blocked projects she might have lost some surplus east coast green votes but carried Michigan. She would have received Obama's endorsement despite this, befause after all, what alternative did he have?


Another last-minute decision will be the sale of $375 mn of oil from the US Strategic Petroleum Reserve which will push the price of oil products like heating oil and gasoline down. Meanwhile the boom in new projects for shale oil and tight gas will also push prices down.


Despite this, oil prices have risen 5% more today to $54.07 (for West Texas Intermediate, a US benchmark) on news that Russia and other non-Opec countries will be cutting back their output in cooperation with the oil cartel, by 558,000 barrels/day so far, close to the 600,000 bbl cutback assigned them by the deal worked out between Putin and the Saudis. Saudi oil minister Al-Falhi now says the kingdom may cut output even more than what it agreed on with Opec and some specialist analysts are now predicting that the oil price will hit $60 before the year ends and as much as $70 by midsummer 2017.


While predicting about the Trump positions is fraught because they keep changing, I expect that the banned projects will get the green light from the Trump Administration. The finance will come mostly from the corporate sector not the government, which makes it quicker. I am not however a believer in ever higher oil prices, for several reasons, notably the impact of new supply coming on, and the instability of Opec cartel cutbacks.


I wrote about how this helps BP plc last week. Here is more on my oilpatch favorite: After the Deepwater Horizon US Gulf of Mexico disaster in 2010, BP learned to cut costs to pay the hefty fines and damages imposed. That explains its cost-consciousness which led it to underbid for Mexican offshore Trion blocks auctioned earlier this month and also to avoid new exploration in areas where oil finds will hit $100 or more/barrel ranging from Iran to Australia to Brazil.


An example of BP caution is cited in this week's Economist magazine. On Dec. 1, BP approved a new drilling plantrom alongside the site where the Deepwater Horizon sank, called Mad Dog, first found in 1998. It started up the fatal Deepwater Horizon field in 2004. A total of another 4 bn bbls of oil and oil equivalent gas is expected to be brought out of Mad Dog, and at first the cost of doing so was estimated at $20 bn by the UK oil major. BP then was selling oil at over $100/bbl. The project was shelved in 2013 because of BP's need to save money to pay fines.


Now BP expects to develop Mad Dog by spending only $9 bn, a 60% cut in capex. The main reason is that it will not in the end build a “Savile Row suit floating drilling platform but instead will buy a standard 'off-the-peg' platform which incidentally will also be safer because of course there are a lot more such platforms in use globally. BP is aiming to cut costs by as much as 75% because of the need for adjustment as future oil prices may fall again.


More on this sector follows for paid subscribers on smaller cap firms we do not discuss in public. As well as oilpatch news, we report on IT, pharma firms, listed funds, heavy industry, and financial companies, all from outside the USA.

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