What My Barber Knows About Oil Stocks

There’s nothing
like a
haircut to make you feel better about yourself. I was long overdue for one until this past weekend. When my hair gets too long I can always brush
it back or mat it down, but there comes a day when I say enough – it’s
time. For me, the motivating factors were
a few sideways looks and subtle hints from my wife.

I’m not
the only one to get a haircut this past week. The first week of May proved disastrous for oil prices, and by
direct
correlation, oil stocks. The motivating
factor was a lack of price support. I’ll describe this in detail in a
moment.

The largest
index of oil
companies, called the NYSE Arca oil index (AMEX:
XOI
), fell nearly 10% last week. This index tracks the 13 largest oil companies in the production,
exploration and development sectors.

Greek Tragedy

Just yesterday, we discussed how stock market plunges can be set off by what amounts to a “global margin call.” And that’s exactly what yesterday’s decline felt like, as the selling was relentless.  

 

There were no bounces, no dead-cat rallies as the selling built pressure built until it reached its crescendo.   

 

That crescendo, a 998-point spike lower on the Dow Industrials, was caused directly by some computer-based trading programs gone haywire. (There’s no other way to explain how Accenture (NYSE:ANC) could drop from $40 a share to a penny.)  

The Global Margin Call

We’ve been tackling some pretty heavy issues in Daily Profit this week. And while I’m not one of the doom and gloomers who believe that stimulus policies and sovereign debt issues are about to bring about a stock market crash and economic depression, I’m adamant that we keep a firm grip on the all of the catalysts that are driving the stock market and the global economy.   

 

Stimulus policies in the U.S. were designed to help prop up asset values long enough for demand to return. If the plan succeeds, then employment will improve, lending will pick up as the housing market works off inventory, and the toxic assets that exist on the balance sheets (both banks’ and the Fed’s) can regain some value.   

 

If the plan fails, then we see another fire-sale of assets in what amounts to a huge margin call.   

This Commodity is Falling to 2006 Price Levels

I hope this 6th
of May is finding you in good spirits, and that you’re not experiencing
the
downside of tequila over-enjoyment. Nothing
against Mexican independence, but a foreign national holiday, partly
concocted
for American consumption by shrewd liquor companies, is not a good
enough
excuse for me to tie one on in the middle of the week.

And this time of
year in Vermont, it’s just too
nice out to want to risk ruining the next day with a tequila and sugar
borne
hangover. (By the way, if you know of a
good hangover cure, please send it to me at editorial@resourceprospector.com)

Too much of a
good thing is
almost always no fun. Likewise, a bumper
crop of sugar from Brazil
and India
is causing some severe consequences for prices.

The
average American uses 156 pounds of sugar every year. At
current price levels of about 15 cents a
pound, that comes to only $23 and change.

Jobless Recovery

Investors were too busy watching stocks get pounded yesterday to notice a bit of good news. Factory orders rose 1.3%. That was more than twice what economists were expecting.   

 

That prompted Pierpont Securities chief economist Stephen Stanley to say “Manufacturing is unambiguously the strongest part of the economy…” He’s not kidding.   

 

 Weed out the 67% decline in domestic aircraft orders and you get a 3.1% jump in factory orders. That’s the biggest gain since 2005.

What to look for in silver prices

Yesterday,
commodities, and stocks – and every conceivable asset class you could
shake a
stick at – all took a dive.  

I
heard one talking head on CNBC shell out this wonderful advice: “sell
half of
all your positions right now!”  

I
won’t un-dignify the gentleman by revealing his name – but any long term
investors should run far, far away from any advice that tells you to
liquidate
half of your investments.  That’s just irresponsible.

At
the same time, it’s hard to remove personal bias and emotion from the
equation
when everything is in the red for the day.  It’s exactly this kind of
situation when you should take a deep breath, and look at the
fundamentals
behind all of your holdings.  If the fundamental reasons for owning gold
stocks, oil stocks or other securities remain the same – then you should
look
at any dip as a buying opportunity.

External
factors like daily price fluctuation, a bad hair
day or even a currency crisis in Europe might slightly change your
long-term
investment plans – but not over the course of one day.

The World’s Most Romantic Commodity

I know
enough about wine to get by. I can tell
a chardonnay from a merlot – and I’m additionally blessed with a palate
just
picky enough to enjoy good wine and still tolerate cheap wine. That’s a narrow window of taste…

I’m very
interested in somewhat unusual wine-food pairings. What’s
your favorite red wine for fish, or
white for beef? What kind of wine is best
for spicy Mexican food? Send your
favorite pairings to editorial@resourceprospector.com.

I’ve also
planted my own grape vines for the express purpose of making wine,
though I
never had a successful harvest. Being a
vintner even on a small scale is something of a full-time job. The plants are quite fickle.

Before you
can even put root-stock in the ground, you have to first dig deep to
loosen the
soil.

I learned this
tip from my now well-worn copy of “From
Vines
to Wines: The Complete Guide to Growing Grapes and Making Your Own Wine
.”

Volatility Rules

Has anyone else noticed that volatility has picked up in the stock market?   
 

It started on April 23, when the S&P 500 closed at 1,217. On that day in Daily Profit, I mused how investors were looking past the Icelandic volcano and the SEC charges against Goldman Sachs and simply buying stocks.   

 

I also discussed the possibility of a trend change that day. And I think it may be prudent to revisit that discussion today… 

Will You Prosper From Disaster?

The spill in the
Gulf
Coast near Louisiana is nothing short of a tragedy.
 And for certain, it’s a man-made phenomenon.  There’s really no telling
how bad this leak will be.  There’s concern that it will severely damage
fisheries along the Louisiana
coast.  It’s already disrupted shipping in the area.  And there’s no
doubt, it’s not a good thing. 

Some analysts
estimate this leak will cost BP (NYSE: BP) upwards of $3
billion in
cleanup costs alone.  BP owns the drilling rig that exploded and caused
the leak. That’s baked into the cake –
BP stock fell nearly 10% last week and another few percent today.

President Obama
was quick to blame BP.  They
deserve the blame, but I think it’s a bit disingenuous of the President
to
angrily point his finger. On March 30th,
less than a month before this leak, President Obama announced his desire
to allow
additional offshore oil and natural gas exploration and drilling in the
Gulf of Mexico.

Destroy Goldman?

Will this be the Greek bailout plan that sticks? We’ve seen enough stops and starts that I can’t blame anyone for being a little skeptical. Or even a lot skeptical.   

 

But this time, Germany Chancellor Angela Merkel is doing a victory dance as Greece was forced to accept some pretty strict austerity measures to get its budget deficit below the 3% the EU mandates by 2014.   

 

Greece was originally asking for $55-$69 billion in aid. The final package comes in at $146 billion. That’s a big difference, but it makes sense. Greece needs some cushion to assure investors that it will be able to pay its debt.