Saturday, December 31, 2011

Abundant Natural Gas Leads To Record-Low Prices; Natural Market Forces Will Correct The Oversupply

There is no shortage of anything just manipulation of prices. Aivars Lode Happy New Year.

By Mark Perry on | More Posts By | Author's Website
Wall Street Journal — “U.S. natural gas prices fell to their lowest point in more than two years, underscoring how the nation’s booming energy business is becoming a victim of its own success. Mild weather and oversupply have pushed the fuel’s price below $3 (see chart above).
Prices for the commodity have been under pressure over the last couple of years, as new drilling techniques unlocked vast new stores of natural gas from shale formations and other so-called unconventional reservoirs. But in the last two months, the steady price decline has turned into a free-fall, as unusually mild temperatures across much of the U.S. have damped demand for gas to heat homes and offices.
Natural gas for February delivery settled Friday at $2.989 per million British thermal units, the lowest closing price for the commodity since September 2009 (see chart). It closed below $3 in the winter for the first time in nearly a decade.
“The sub-$3 levels for gas prices in the winter really point to the incredible amount of nonconventional gas that has come onto the market the last two years,” said Gene McGillian, analyst at Tradition Energy in Stamford, Conn. “Our production levels, our mild winter and the gas we have in storage have combined to crush natural gas prices this month.”
Natural gas traded as high as $13 per million British thermal units in July 2008. But in recent years, domestic production boomed, with horizontal drilling techniques and hydraulic fracturing, or “fracking,” helping producers unleash a flood of gas from shale formations in Pennsylvania, Arkansas and elsewhere.
Natural gas production in the lower 48 states hit a record 71.3 billion cubic feet a day in October (see CD post). The bonanza has ushered in lower prices for many consumers and businesses. New Jersey’s Public Service Electric and Gas Co., citing lower costs partly due to shale drilling, reduced residential gas rates on Dec. 1 by 4.6%, bringing to 35% the utility’s total decrease since January 2009. 
Shale drilling has also created jobs and the prospect of greater energy independence, while raising environmental concerns. But the fresh abundance of natural gas has also weighed on its price, undercutting the profitability of the business for energy companies.
Still, due in part to the structure of the business, the torrid pace of natural gas production shows few signs of slowing. Producers often have a limited time to begin drilling once they lease property, which leads many to drill wells regardless of commodity prices or risk losing their hold on reserves. Other companies are forced to drill by the terms of joint ventures they signed when the outlook on gas prices was rosier.”
MP: Overall, this is a good temporary “problem” to have and demonstrates that the price system and competitive market forces are working as expected: an abundant supply of natural gas leads to falling prices, which lowers the profits of producers, which then leads to automatic, self-correcting adjustments and responses as the natural gas market moves towards equilibrium. Those adjustments might include: a) increased demand for natural gas as residential and commercial consumers shift from oil and electricity heat towards natural gas (see CD post), b) increased demand by energy-intensive manufacturing companies for steel, plastics, chemicals, etc. c) increased demand for vehicles powered by natural gas, d) increased demand for natural gas for electricity generation, and e) reductions in the production of natural gas as it becomes less profitable.  All of those automatic adjustments will raise the price of natural gas as it finds a natural market-clearing equilibrium and eliminates the current “over-supply.” 

Tuesday, December 27, 2011

Oracle missing its earnings guidance


A couple of thoughts from Rob who is right on the money. Aivars Lode

"Why is it the company's fault when analysts fail to forecast correctly? When I was forecasting and got the numbers wrong I took responsibility and tried to improve my models and research. That is why I blew away the earnings accuracy stats the times I tried. Then I learnt to game the system. But it was MY FAULT when my numbers were off. This is the perfect example of no-such-thing as Wall Street "research".

Second, there is still growth (maybe less of it), which means IT spending is still growing. Reporters (and analysts) are mathematically challenged. They say growth when they mean the rate of growth, and as long as they are spending something they are hardly "putting on the brakes".

I LOVE it when analysts cut ratings AFTER a company misses a QUARTER. I got to be a great stock picker by doing the opposite as frequently as possible.

It cracks me up the way the BofA guy talks, learning from Oracle that deals were taking longer to close, if this is indeed the case he would have plenty of data points from CUSTOMER conversations. He would have lowered estimates on the quarter before reporting or called out Catz for not being completely "transparent." 

HERE IS THE REAL STORY --

                                    ORACLE MIS-TIMED ITS NEXT MAJOR ACQUISITION. 

And there are plenty of deals to do. CERN, OTEX, MDRX, a carve out from HPQ, tons of stuff in PE-land.

Also I would not put it past ORCL to whine on the call about the IT environment knowing it would drive down valuations and present some bargains. Deceptive but not illegal. "

Thanks Rob, the following is the analysts report from Bank of America.
 


 Oracle missing its earnings guidance is like Mariano Rivera blowing a save opportunity, or Bob Dylan putting out a disappointing record. It happens, but not very often. And when it does, the only real question is: Why?


December 22, 2011: 11:50 AM ET
The enterprise giant's stumble may not bode well for the technology sector -- and not just enterprise providers, but all big cap tech companies.

By Kevin Kelleher, contributor

FORTUNE - Oracle missing its earnings guidance is like Mariano Rivera blowing a save opportunity, or Bob Dylan putting out a disappointing record. It happens, but not very often. And when it does, the only real question is: Why?

The answer matters beyond the world of Oracle (ORCL) shareholders. Oracle has long been seen as a kind of proxy for corporate spending on information technology. If Oracle's earnings disappointed because of internal problems, that's not such a big deal outside Oracle. If Oracle didn't do much wrong, however, it points to a possible slowdown in IT spending for next year.

So what happened? The enterprise software giant weighed in earlier this week with revenue of $8.8 billion in the three months ended Nov. 30, up 2% from the same period a year earlier but short of the $9.2 billion analysts were expecting. Similarly, non-GAAP earnings per share came in at 54 cents, below the 57 cents the Street had been looking for.

Oracle hasn't fallen short of estimates for at least three years -- a feat all the more significant given the weak economy. As of Tuesday's close, before the company posted its earnings, Oracle had gained 64% over the past three years, against a 40% rise in the S&P 500.

On Wednesday, the stock tumbled 12%. In the past six weeks, the stock has lost nearly a quarter of its value, equal to roughly $40 billion. The S&P 500 is down only 2% in the period. And other software stocks are being dragged down in Oracle's wake: Salesforce.com (CRM) fell 5% Wednesday, SAP (SAP) dropped 6% and VMWare (VMW) slid 10%.

Even as the financial turmoil in Europe and overheated economies in Asia have raised concerns about another global recession in 2012, the tech world has seemed somewhat immune. Most of the discussion focused on the consumer side of the industry -- the ongoing rivalry between Apple (AAPL) and Google (GOOG), the rise of Amazon's (AMZN) tablet, the fate of Zynga's (ZNGA) IPO. The enterprise side is much less visible and -- frankly -- a little unglamorous, but just as important as the consumer side.

And if companies are putting the brakes on IT spending, it could hurt tech stocks across the board. The relative resilience of Oracle's stock and its ability to consistently trump the Street's estimates gave the company an aura of safety. Here was a tech giant that could weather hard times. And if Oracle is feeling a chill in IT spending, what are other software vendors feeling?

The conventional wisdom is that enterprise software can help companies reduce some long-term operating costs in departments such as human resources and customer relations. Cloud computing, an area that Oracle has been pushing into, can also reduce IT costs by handing over storage and maintenance functions to companies that can run vast networks that benefit from economies of scale.

So if companies are growing stingier about their enterprise software budgets, it could signal they are starting to cut closer to the bone. Oracle CFO Safra Catz said that it's taking some of its clients longer to approve projects. "All of a sudden the CEO had to approve it or something like that, where before it was all set," Catz said. Though, she stressed that she hadn't been told yet that any companies were reducing their IT budgets. "Clearly, this quarter was not as we thought it would be, and we've been taking a look at the deals that really should have closed and that would have closed but for some sort of irregular environment."

On the one hand, it's unrealistic to expect a company like Oracle to offer investors an economic forecast. On the other, it's hard to read a phrase like "some sort of irregular environment" and not wonder what exactly it means. Is it a one-time quirk in Oracle's accounting - an aberration that will be corrected next quarter? Or is it something more serious?

The notion that Oracle's irregular environment was limited to last quarter was undermined when the company offered guidance. The company said the current quarter's revenue would grow between 1% and 5% on year, or to between $8.9 billion and $9.3 billion -- below the analysts' consensus of $9.5 billion -- while earnings per share would be between 56 cents and 59 cents, against the Street's 59 cents.

That left some analysts worried enough that three of them -- Societe Generale, Canaccord Genuity and CLSA Asia-Pacific Markets -- cut their ratings on the stock Wednesday. But Canaccord felt that Oracle's challenges were unique to the company. "Oracle missed because some buyers waited for a new hardware upgrade, and on the software front the firm is behind the curve in cloud applications," wrote analyst Richard Davis. "We expect Oracle to catch up, but it will be through some R&D and a lot of M&A."

But other analysts suggested Oracle may be the canary in an unhealthy coal mine. Bank of America's Kash Rangan wondered if the tighter approval process Catz mentioned "could be a broader trend for software." Deutsche Bank's Tom Ernst said he "saw uncharacteristic weakness across all segments and geographies, which we find a bit puzzling... Outside of the severely contracting macro environment of the last recession, it is rare to see such low growth rates for all geographic regions."

So which is it? Has Oracle hit a speed bump as it transitions to new hardware and cloud computing offerings? Or is it the first warning sign of an unexpected contraction in corporate IT spending in the face of global economic uncertainty?

Other companies will offer more clues. On Wednesday, Tibco (TIBX), a cloud computing company, said it earned 42 cents a share last quarter, above the Street's 35-cent estimate. But the real test will come in mid-January when companies like SAP and IBM (IBM), another strong performer in tech over the past three years, are due report earnings.

If it turns out Oracle was the exception, this week's drop in software shares could prove to be a buying opportunity for bulls. But if Oracle is the first sign of a slowdown, the tech world could be in for a rough start in 2012.


December 22, 2011: 11:50 AM ET
The enterprise giant's stumble may not bode well for the technology sector -- and not just enterprise providers, but all big cap tech companies.

By Kevin Kelleher, contributor

The answer matters beyond the world of Oracle (ORCL) shareholders. Oracle has long been seen as a kind of proxy for corporate spending on information technology. If Oracle's earnings disappointed because of internal problems, that's not such a big deal outside Oracle. If Oracle didn't do much wrong, however, it points to a possible slowdown in IT spending for next year.

So what happened? The enterprise software giant weighed in earlier this week with revenue of $8.8 billion in the three months ended Nov. 30, up 2% from the same period a year earlier but short of the $9.2 billion analysts were expecting. Similarly, non-GAAP earnings per share came in at 54 cents, below the 57 cents the Street had been looking for.

Oracle hasn't fallen short of estimates for at least three years -- a feat all the more significant given the weak economy. As of Tuesday's close, before the company posted its earnings, Oracle had gained 64% over the past three years, against a 40% rise in the S&P 500.

On Wednesday, the stock tumbled 12%. In the past six weeks, the stock has lost nearly a quarter of its value, equal to roughly $40 billion. The S&P 500 is down only 2% in the period. And other software stocks are being dragged down in Oracle's wake: Salesforce.com (CRM) fell 5% Wednesday, SAP (SAP) dropped 6% and VMWare (VMW) slid 10%.

Even as the financial turmoil in Europe and overheated economies in Asia have raised concerns about another global recession in 2012, the tech world has seemed somewhat immune. Most of the discussion focused on the consumer side of the industry -- the ongoing rivalry between Apple (AAPL) and Google (GOOG), the rise of Amazon's (AMZN) tablet, the fate of Zynga's (ZNGA) IPO. The enterprise side is much less visible and -- frankly -- a little unglamorous, but just as important as the consumer side.

And if companies are putting the brakes on IT spending, it could hurt tech stocks across the board. The relative resilience of Oracle's stock and its ability to consistently trump the Street's estimates gave the company an aura of safety. Here was a tech giant that could weather hard times. And if Oracle is feeling a chill in IT spending, what are other software vendors feeling?

The conventional wisdom is that enterprise software can help companies reduce some long-term operating costs in departments such as human resources and customer relations. Cloud computing, an area that Oracle has been pushing into, can also reduce IT costs by handing over storage and maintenance functions to companies that can run vast networks that benefit from economies of scale.

So if companies are growing stingier about their enterprise software budgets, it could signal they are starting to cut closer to the bone. Oracle CFO Safra Catz said that it's taking some of its clients longer to approve projects. "All of a sudden the CEO had to approve it or something like that, where before it was all set," Catz said. Though, she stressed that she hadn't been told yet that any companies were reducing their IT budgets. "Clearly, this quarter was not as we thought it would be, and we've been taking a look at the deals that really should have closed and that would have closed but for some sort of irregular environment."

On the one hand, it's unrealistic to expect a company like Oracle to offer investors an economic forecast. On the other, it's hard to read a phrase like "some sort of irregular environment" and not wonder what exactly it means. Is it a one-time quirk in Oracle's accounting - an aberration that will be corrected next quarter? Or is it something more serious?

The notion that Oracle's irregular environment was limited to last quarter was undermined when the company offered guidance. The company said the current quarter's revenue would grow between 1% and 5% on year, or to between $8.9 billion and $9.3 billion -- below the analysts' consensus of $9.5 billion -- while earnings per share would be between 56 cents and 59 cents, against the Street's 59 cents.

That left some analysts worried enough that three of them -- Societe Generale, Canaccord Genuity and CLSA Asia-Pacific Markets -- cut their ratings on the stock Wednesday. But Canaccord felt that Oracle's challenges were unique to the company. "Oracle missed because some buyers waited for a new hardware upgrade, and on the software front the firm is behind the curve in cloud applications," wrote analyst Richard Davis. "We expect Oracle to catch up, but it will be through some R&D and a lot of M&A."

But other analysts suggested Oracle may be the canary in an unhealthy coal mine. Bank of America's Kash Rangan wondered if the tighter approval process Catz mentioned "could be a broader trend for software." Deutsche Bank's Tom Ernst said he "saw uncharacteristic weakness across all segments and geographies, which we find a bit puzzling... Outside of the severely contracting macro environment of the last recession, it is rare to see such low growth rates for all geographic regions."

So which is it? Has Oracle hit a speed bump as it transitions to new hardware and cloud computing offerings? Or is it the first warning sign of an unexpected contraction in corporate IT spending in the face of global economic uncertainty?

Other companies will offer more clues. On Wednesday, Tibco (TIBX), a cloud computing company, said it earned 42 cents a share last quarter, above the Street's 35-cent estimate. But the real test will come in mid-January when companies like SAP and IBM (IBM), another strong performer in tech over the past three years, are due report earnings.

If it turns out Oracle was the exception, this week's drop in software shares could prove to be a buying opportunity for bulls. But if Oracle is the first sign of a slowdown, the tech world could be in for a rough start in 2012.

A little humility at the crossroads

Climate is the new religion? Very interesting. Aivars Lode

By Wesley Pruden on December 27, 2011 
 
“Climate research,” the New York Times confidently assures us, “stands at a crossroads.” This means that a lot of research scientists are standing at the crossroads, holding out paper bags like trick-or-treaters on Halloween night, standing in line for taxpayer largesse to fill ‘em up.
These specialists in shakedown “science,” who speak only in hyperbole, are calling the weather of 2011 the worst in history, or at least in memory, or maybe a decade, and say they could have found useful links between disasters and global-warming “science” by now if only they could shake down tightwad taxpayers for a few more millions.
The National Oceanic and Atmospheric Administration made a little list of a dozen weather disasters of the year now swiftly passing into history—wildfires in Texas, floods on the Mississippi and tornadoes in Tornado Alley. Unfortunately for global-warming “scientists” ever on the scout for handouts, there were no bad hurricanes to report this year. Nevertheless, the speakers of hyperbole are making the best of the scant material at hand.
MarkTwain
“I’ve been a meteorologist for 30 years and have never seen a year that comes close to matching 2011 for the number of astounding, extreme weather events,” the easily astounded Jeffrey Masters of the Weather Underground web site tells the newspaper, which is always alert for opportunities to beat this favorite drum. “Looking back in the historical record, which goes back to the late 1800s, I can’t find anything that compares, either.”
Maybe he should look a little harder. The disasters, calamities and other inconveniences blamed on changing weather include not only floods and fires in the United States but similar disasters in Australia, the Philippines and Southeast Asia, where calamity is part of something called “life.” Anyone spooked by “unprecedented flooding” in the Mississippi River Valley in the United States should check the precedents of the great floods of 1927 and 1937, when much of Arkansas, Misssissippi and Louisiana lay underwater for weeks, and mud even longer. The hyperbolic claims that man has never been so badly abused by the weather, and that man himself has asked for it with his wild and wicked ways abusing nature, are given the lie by the fact that the weather has been wild and wicked in many millennia before this one, when there were not nearly so many of us stalking the planet for opportunities to make mischief.
The Intergovernmental Panel on Climate Change predicts that 70 percent of the various species on the planet will be wiped out if global warming continues at the predicted rate. Floods, droughts, hurricanes, blizzards and other bad stuff will do us in.
The solution, the panel says, lies in either mitigation, to finally do something about the weather, or adaptation, to make the best of the bad news.
Mitigation relies on regulation, and naturally the worthies of shakedown science prescribe mitigation first. Regulation will require many studies, written in the language of academics that no one else can understand, to be read at elaborate conferences, always held at luxury resorts that a shakedown scientist could never afford on his own dime. The conclusion of the learned shakedown artists is invariably about how to milk the governments of the West for more handouts.
The director of the National Oceanic and Atmospheric Administration tells the New York Times that with the pressure on the U.S. government to cut expenses and save taxpayers money, “it’s going to be more and more challenging to devote resources to many of our research programs.”
Science, which has replaced religion as the source of faith in certain circles, has otherwise always been skeptical of certitude. Science has always held that nothing is so settled as to be beyond questioning. This held until the propagation of the gospel of global warming. Skeptics are called “deniers,” their arguments mocked, and held to public ridicule.
It’s a particular conceit of man to imagine that he is both the author and the center of the universe, that whatever happens to the stars is the work of his hand. “We are changing the large-scale properties of the atmosphere,” declares Benjamin D. Santer, a climate scientist at Lawrence Livermore National Laboratory in California. “You can’t engage in this vast planetary experiment—warming the surface, warming the atmosphere, moistening the atmosphere—and have no impact on the frequency and duration of extreme events.”
Or not. “Everybody talks about the weather,” Mark Twain said, “but nobody does anything about it.”
Wesley Pruden is editor emeritus of The Washington Times.
Categories for this column: Energy

Monday, December 26, 2011

The Unexpected Shockeroos Of 2011


OK, not if you had read my BLOG and book! Aivars Lode
 
Investing
12/24/2011 @ 3:10PM |1,196 views

Robert Lenzner, Forbes Staff

I bet you didn’t know that in all the world’s financial markets– you’d have been better off staying in American multi-national companies that protected your capital– and even made you a tad of a positive return when dividends are added to market appreciation. This is Shockeroo Number One.
Shockeroo Number Two; You lost about 20% on your holdings in France and Italy, as well as China. Brazil and a whole host of other emerging markets. I bet you never expected that to happen, as all the Wall Street wise men were preaching the EMs as the way to make up for the stagnation in developed economies.
Shockeroo Number Three; Deflation, not inflation, ruled  government bond markets, driving down yields in 10 year and 20 year US Treasuries to levels not experienced since the 1950s. You missed a bull market in Treasuries, you know, those  securities the Chinese wish they didn’t own.
Shockeroo Number Four. Famous billionaire hedge fund managers like John Paulson just plain got the bullish on cheap bank stocks concept totally wrong. It’s embarassing to buy BankAmerica because you and the gang predict it’s a $25 stock. More like $5.00 and heading south. These positions were taken without the foggiest idea of what lay  out of vision on the bank balance sheets.  JP Morgan Chase is selling at 50% of book value. Citigroup is still a basket case. Goldman is off 44%.
Shockeroo Number Five. Gold prices don’t grow to the sky. The long expected gold bubble did not take place. Instead, after a lovely run-up from $1348 to $1920, came a cooling off correction of  $300 an ounce or 17%. Healthy. Soros and my number one gold guru both sold last summer at a tad under $1600 an ounce. Margin buyers above  $1700 got wiped.
Shockeroo Number Six. After laughing off Greece and the PIIGS, investors in European sovereigns and banks received a rude and brutal treatment by the endangered zone of a contagion. Europe does matter after all to the US, to China. And no “bazooka” of cheap financing changes a hugely worrisome hangover coming.
Shockeroo Number Seven.  The silly vapid notion of a “Santa Claus”  rally does not trump no energy plan, no growth agenda, no concrete opportunity for infrastructure,  a 2 month extension of  the payroll tax exclusion, only 9% confidence in the lawmakers.
Shockeroo Momentum is strong. I’m sure we can expect more upsetting moments in 2012. Goldman Sachs is calling fior only 1% growth in the first half,:PIMCO says zero growth. Welcome to the land of Shockeroos.

http://www.forbes.com/sites/robertlenzner/2011/12/24/the-unexpected-shockeroos-of-2011/