The Rude Awakening
Wall Street, New York
Wednesday, September 13, 2006 ------------------------- - Cheaper at the pump, cheaper on the market – how
gasoline prices are killing refineries,
- Beaten down but not beaten out, a contrarian buying
opportunity in the future?
- A word on whether, long-dated options, macro pair
trades, some graphs with squiggly lines and more...
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Joel Bowman, neither slightly cooler nor slightly warmer
than yesterday, reports... Global warming. There is much hullabaloo about these two
words in today's world. You may have noticed the occasional
piece in the paper becoming more than just occasional. You
may have even been to see a certain, ranting politician's
new movie on the subject. Perhaps there is something to be
made of it all, perhaps not. Now, we here at the Rude Awakening are not meteorologists
and we wouldn't dare make bold statements about a global
phenomenon we know little about. That said, we are always
terrifically excited about bold profits...and it seems the
folks from Taipan Research have come across something that
may well tend that way. They've discovered a tiny Canadian company that has somehow
managed to secure prime position in a new Arctic oil field
before Big Oil got the chance. If Christoph and his
researchers are correct, this company could land you in
some serious dough. I've included the report below (quite and interesting read,
actually) so you can decide for yourself. Have a gander
right here: Manitoba's Chilling Secret
http://www.isecureonline.com/reports/GRR/EGRRG950/ Or simply continue to your regular, scheduled programming.
Today Eric takes a closer look at oil refining stocks in
the wake of the massive gasoline price crash. Are they a
contrarian buy or a falling knife? Eric explains below...
--- Energy Stock Special ---
How to Beat OPEC -- and Make a Fortune Doing It
Imagine -- 447 billion barrels of oil...and we won't have
to kiss up to a single Saudi sheik to get it. This gas substitute will surprise you -- and it's already
made ONE company just under $2 billion in net profit last
year! And while other energy stocks are priced out of your reach,
this one's easy to grab on the cheap. Score the Single Best Energy Stock of the Next 10 Years! http://www.isecureonline.com/Reports/TPH/ETPHG904 ---------------------------- Crude Behavior
By Eric J. Fry "Siphon the gasoline from your tanks!...Sell the stuff for
whatever you can get and buy it cheaper next week!" ...Or, at least, that's what the financial markets seem to
be saying. The wholesale price of unleaded gasoline is
crashing...and eager buyers have become as scarce as Swiss
baseball players. The shares of oil-refining companies are
also crashing...and eager buyers have become as scarce
as...well...Puerto Rican yodelers. Is unleaded a buy? Are oil refining stocks a buy?..."Yes,"
is the answer...But we have no idea when, or at what price.
Over the last six weeks, the wholesale price of unleaded
gasoline has tumbled from $2.35 a gallon to $1.60. Gasoline, therefore is 30% cheaper than it was just last
month. This "discount pricing" offers no assurance that
eager buyers will return, but it does suggest that eager
sellers might take a break for a while. Therefore,
contrarian investors might want to examine the possibility
of nibbling on one of the many beaten-down oil-refining
stocks. But before satisfying any bullish urges toward the
refining-stock sector, let's examine the main reasons why
this "falling knife" could continue falling for a while:
U.S. gasoline supplies are ample; gasoline demand is
slipping somewhat and refining margins have imploded from
their mid-summer highs. From March through June, most oil refiners were earning
more than $15 a barrel to convert crude oil into gasoline
and other distillates. But now they are earning less than
$5 a barrel. Not surprisingly, oil refining stocks have
been sinking as fast as refining margins. 
But refining margins are as volatile as gasoline itself.
They go up, as well as down. So there are probably worse
investment ideas than buying "when there's blood in the
refinery" – i.e., buying refining stocks when margins are
poor, with the expectation that they will
recover...eventually. In other words, if there is any "Buy"
in the energy complex – and we are not at all certain that
there is yet - the refining stocks may be it. However, buying refining stocks outright, in the midst of
the current washout, requires more valor...or
stupidity...or brilliance than most of us investors
possess. Therefore, the intrepid refining-stock bull might
consider two strategies: 
1) Long-dated call options (or bull spreads) on the
refining stock of choice.
2) A macro pair trade in which one would buy a basket
of refining stocks and sell short a basket of
exploration and production (E&P) companies. 
Even after yesterday's shellacking, the S&P Index of E&P
stocks clings to a slim gain since late July. Over the same
timeframe, however, the S&P Index of refining stocks has
tumbled 30%. Admittedly, no "Absolute Law of Mean
Reversion" would require these two energy-stock sectors to
re-converge toward one another – i.e. that E&P stocks would
fall while refining stocks rose. But eventually, the same
falling crude oil prices that hurt the E&P companies tend
to help the refining companies. Cheap crude is a good thing
for a refiner, as long as gasoline prices aren't also
plummeting...like they are now. Net-net, the ferocious selling of unleaded gasoline seems a
bit overdone, at least relative to crude oil. Likewise, the
ferocious selling of refining stocks seems a bit overdone,
at least relative to E&P stocks. 
Coincidentally, the commercial unleaded gasoline traders
have reduced their net short position to almost nothing –
their smallest net short position in nearly two years. As
the nearby chart illustrates quite clearly, this "smart
money" crowd has tended to amass its largest short position
just before unleaded prices were about to fall, and its
smallest short position, just before prices were about to
rise. Their current miniscule short position, therefore,
suggests that the selloff in unleaded is probably drawing
to a close. Still not convinced that refining stocks might be a "Buy?"
Jim Cramer thinks they're a "Sell." --- Insider Special --- For the First Time Ever: Hear About Chances to Make 786%
Gains in 6 Months Act now to profit from a techno-legal loophole that lets
you become an "insider" trader http://www.isecureonline.com/Reports/SCI/ESCIG914 ---------------------------- 
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