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Monday Morning Kickoff

Well geopolitical factors may well determine where we go this week in both stocks and bonds this week–the middle east situation is damned dangerous. To get into the weeds on the topic deeper will turn it into politics–which I won’t do – but suffice to say it could drive markets – including energy markets.

Last week the S&P500 moved up just a tiny bit – up .4% from the close the previous Friday. Honestly it was fortunate that that stocks held up given the hotter than expected producer prices and consumer prices announced–of course that is the way it works–expect the unexpected.

Interest rates ended the week at 4.63% – a full 15 basis points lower than the previous Friday–on the back of hotter inflation (??)–but likely the middle east war has caused a rush to safety–we could see more safety related moves.

This week we will have a multitude of economic reports, but a large share of them will be housing related. Personally I always watch housing numbers closely–it is because I think a deep housing slump will reverberate through the economy strongly. Housing and employment–2 critical indicators as far as I am concerned. Looking at the schedule it looks like we will have way too many Fed yakkers–so are they dovish or hawkish this week?

The Federal Reserve balance sheet moved just $3 billion lower last week–with targets still at $95 billion/month of run off – look for some big drops in the next 2 weeks.

The average $25/share preferred and baby bond moved 9 cents lower last week, with investment grade issues down 16 cents, banks down 12 cents, CEF preferreds popped higher by 13 cents, mREIT issues higher by 12 cents with shippers off 2 cents.

As usual there were not any new income issues priced last week.

10 thoughts on “Monday Morning Kickoff”

  1. I rarely get to do this, but I was just in Oklahoma two weeks ago (scoop stack basin) and was on a drill rig, completion site, and visited gathering and processing plant. I asked them if they could hit a basketball that I placed 2 miles down and 2 miles laterally and they confirmed they could. I’m not sure the key is that they can go deeper, but that they can make the turn and go that far laterally. That seems to be what’s newer. They also confirmed that one strategy was to go into old wells and that they could get more oil/gas out of them. The economics weren’t as good as drilling a fresh one, but at the right prices it could/would be done. I left very impressed.

    1. mrinprophet, Thanks this is a great post. If you are free to disclose, what driller were you visiting? I am receiving calls from friends and friends of friends about investing in these old wells. The opportunity to receive ordinary losses thru depreciation is enticing. I think with what I know, a trip to Vegas would be more fun with same result.

      1. I suggest you go crawl through the tax implications very carefully. A bazillion years ago, these oil partnerships were all the rage because of the tax benefits (deductible ordinary losses) and you were not really at much risk.

        However, IIRC, they (congress and the IRS) closed many of those loopholes. Most vanished completely and for some others, at best, you get a deductible loss that you have to pay back through recapture.

        Disclosure – I have not tracked these changes and I haven’t researched them since the 1980s, but that is my impression from reading the press over the years and from the lack of offerings in my inbox/mailbox.

  2. Even without this war oil prices would be heading higher I think. Over the summer drilling rig counts have gone down. Over the weekend I read somewhere they have to do a certain amount of new wells just to keep up with the decline in production. A horizontal drilled well declines approx 47% in it’s first year of production so after 2yrs you need another well to come online just to stay even in production.

    1. CM,
      At first glance, the rig decline looks bad, but I listened to an oil guy over the weekend and he stated that new wells are going 2-3x deeper and producing 3-5x the amount versus new wells. He cited the Exxon example where they now plan 20K ft on the same wells, and that is one reason for the buy-out of Pioneer. Good new tech on the same wells.

      His prediction is US production will bob at all-time highs for years without new production needed, resulting in good cash returns. This will moderate oil prices from going bonkers, but remain high. He thinks the oil and gas guys are just being really good at managing capital returns.

      Any oil guys out there? Does this compute?

      1. I am not an oil expert but I do invest a lot in the sector: Canadian oil, natural gas and MLP’s. I think you have a strong point . Rig count is way down but total production is up. Prices are up but explorers aren’t throwing money around at leases. Most importantly, Exxon is willing to spit in the face of the cliministas and bet $60B on significantly improving productivity in the Permian Basin. Gutsy move

        1. I am certainly not an oil expert or any expert. I find it interesting that my inbox is suddenly full of drilling companies offering LP (with great tax advantage). These folks claim to be buying/leasing older wells and extracting oil. IDK. I love the financial possibilities. But I remind myself if I want a tax deduction against ordinary income one can obtain these not only from depletion deductions but ordinary losses! I pass as this is beyond my knowing.

          1. Whew! A blast from the past… I remember this kind of stuff from the 80’s and I participated in two…. I even traveled to Lexington Ky area from NYC to view one oil related tax advantaged shelter that claimed to be a 39 year old oil company that was going to do me right by reclaiming old oil wells with new methods that would squeeze out 4 barrels a day from abandoned wells and make me rich via tax dodging… That company was legit, or at least the wells were actually there, but I never saw a dime in return on either of the two…. Of the two only one was blown up by the IRS, the other one I think they just missed…. lol

            1. The days of write offs from non recourse partnership debt? Two or three or four times your investment in write offs! 70% income tax brackets. Buying unit trains. Memories of the late 70’s and 80’s

              1. Only reason I stick with KRP is its not a MLP and mid stream I would try to do the same.

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