Forces That Move Market; Bear Market in Oil : Jim Cramer’s Best BlogsNEW YORK (TheStreet) --aJim Cramerafills his blog onaRealMoneyaevery day with his up-to-the-minute reactions to whats happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on: The effects of supply and demand, and The decline in oil prices. Click hereafor information onaRealMoney, where you can see all the blogs, including Jim Cramers -- and reader comments -- in real time. The Forces That Move the Market Posted at 2:23 p.m. EST on Friday., Oct. 3, 2014 Hedge funds made me do it. I just didnt know that was the reason. You would often hear me say that something happened because some hedge fund was flailing. I might exclaim, as I did yesterday, about how the market rallied at 11:43 a.m. on Wednesday for no reason. I would say, thats hedge fund capitulation. Critics came flying in, explaining that I couldnt be more wrong, and that there were real reasons the market did what it did. Maybe some of the critics were sensitive because they were hedge fund managers themselves and didnt want the scrutiny. Maybe others just refused to believe that the actual customers of stocks, the buyers and sellers of merchandise, could have that level of impact. They would like to believe that everything happens according to fundamentals. Maybe they dont understand that supply and demand dont just play out in the real world but also in the stock world. Sometimes theres as much supply from a busted hedge fund as there is from any commodity producer run amok. The demand side, the buyers, just cant handle the merchandise all at once. These critics, by and large, are wrong, dissembling, or clueless. Read More:aSemiconductor Stocks Primed for Profit-Taking, Face Falling Demand In my autobiography,aConfessions of a Street Addict, I have already explained how hedge funds can distort the market to an extraordinary extent. I wrote about how the stock market almost fell apart in 1998 because a huge overly-leveraged hedge fund, Long Term Capital Management, blew up. LTCMs collapse caused colossal collateral damage in many parts of the stock market, including my own portfolio. There are always precipitating events that cause the collapse or near-collapse of a hedge fund. In 1998, we had the so-called Asian contagion, where some Asian economies living on borrowed money lost their lifelines. Their growth hit a wall and then imploded. It was hard to figure out how downturns in those countries could affect the earnings of our countrys corporations. I ignored it in the beginning. As our stocks started plummeting day after day, when the only major event was the downturn in Asia, I became as flummoxed as others. I began to presume that many companies which I owned shares in were being hurt in a way I couldnt understand. I was aghast at how many of my regional bank holdings were being crushed. I was also appalled at how some major money-center banks and brokers with little exposure to these countries were taking out to the woodshed relentlessly. In 1998, I didnt figure out that Long Term Capitals unwiding was the link to our market. I ended up giving away shares in some of my best companies to stave off my own margin calls. Only after theaFedaintervened, to cut rates and stop the decline that Long Term Capital had inflicted on the markets, had I finally realized what was going on. I never forgot that lesson. Too many people seem to forget it or havent experienced it. In 2008, the same thing happened with dozens of hedge funds. They were on the wrong side of a series of commodity trades and they were blown out, but not before they took the commodities on for a long and artificial ride. Today, it is obvious that a bunch of hedge funds had levered up on commodities, particularly oil, and they were being blasted to smithereens, laid to waste almost daily. I saw it in the drillers, the oil stocks, the futures, the natural gas plays, and anything involving energy. Other hedge funds were crushed when a Federal Judge ruled thataFannie Maes (FNMA) newfound profits were going to stay with the government and not be given to hedge fund shareholders. Firms that specialize in arbitrage were blown away by the breakdown of these tax-inversion-derived mergers, when the Treasury Secretary suddenly intervened and tried to put an end to them. When the smoke cleared on these last two issues-Fannie and the inversion immersion-the stock market rallied. These werent coincidences. I am not being cynical when I pin the tail on the hedge fund. I am being historical. History says that in times of stress, the hedge funds can play a much bigger role than that of the fundamentals, when it comes to the prices you see on your screen at the close of the market each day.a At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.a The Bear Market in Oil Is Real Posted at 11:37 a.m. EST on Thursday, Oct. 2, 2014 Is the oil thesis, the great American renaissance boom in oil, in trouble? You know I am a huge believer in every aspect from the oil in the ground to the drilling to the pipelines. But this sudden decline in oil prices is going to give some of the big oil exploration companies the jitters, and not just because we have too much supply here, but because of what Saudi Arabias doing. Yesterday, the Saudis lowered the official selling prices for its crude, which marks the fourth straight month that theyve cut the price,anotathe production. What does this mean? One could argue that the Saudis want to maintain their market share. I get that, and it makes sense. I think its something else though. I think the Saudis want to make our oil too expensive to keep drilling for. They recognize that there is a price where we will cut back our drilling. They are not afraid to drive oil down to that price to make the U.S. more dependent on the Saudis -- we still use a lot of their oil -- and less independent. In short, they are trying to price us out of the game. Read More:aAirline Analysts Got It Right in Calling for a Sector Rebound Theres plenty of cushion in all the big shale plays -- Bakken, Niobrara, Eagle Ford and Permian -- at these levels. This isnt a price where theres panic. The trajectory, however, is menacing, as is the velocity of the decline. Its a real bear market in oil. If the Saudis are just going to follow the price down, they will make it less economic to drill here, and some of the independents will have to think twice about adjusting their long-term budgets if they were based on ever-rising oil prices, as we know some of them are. Plus, lets not forget that the costs of drilling have gone higher as the scarcity of labor in the areas where the oil happens to be affects the priceaHalliburtona aor aaBaker Hughesa ahas to charge. The oil companies have been adept at finding ways to save money -- witness the switch from ceramics to sand for cheaper fracking -- but theres always the risk that there might be less oil and gas in an area that had thought to be abundant. With costs escalating and worries about the Saudis crushing the pricing umbrella, a couple of the oil bulls are going to break ranks for sure. Read More:aRetail Holiday Sales to Increase Over 4% as the Consumer Gains Strength Not only that, but keep in mind that the costs of transporting oil from where it is to where it needs to go are rising dramatically. Al Monaco, the CEO ofaEnbridgea , the biggest pipeline company in North America,atalked last night on Mad Money about how environmental rules and safeguards have elevated the price of new pipe pretty much everywhere in this country. Monaco has to get his return, which in turn lowers profit margins for the oils. Plus, you have to use trains where there is no pipe, which is more expensive. I do not think the long-term story is in trouble. But I know many people, including people at the oil companies, are nervous about this decline, hence the radical fall in the oil-services and, more important, oil-rig companies, particularly the offshore businesses.a Oh, and given that there are places in this country where oil companies are only able to get about $70 per barrel because of the glut and the lack of storage, we will certainly start to see cuts. Fortunately, most of the oil is much cheaper but all in, to say you dont need to worry is to have your head in the fracking sand. At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned. Click to view a price quote on FNMA. Click to research the Real Estate industry. By twocents@thestreet (Jim Cramer) NEW YORK (TheStreet) --aJim Cramerafills his blog onaRealMoneyaevery day with his up-to-the-minute reactions to whats happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on: The effects of supply and demand, and The decline in oil prices. Click hereafor information onaRealMoney, where you can see all the blogs, including Jim Cramers -- and reader comments -- in real time. The Forces That Move the Market Posted at 2:23 p.m. EST on Friday., Oct. 3, 2014 Hedge funds made me do it. I just didnt know that was the reason. You would often hear me say that something happened because some hedge fund was flailing. I might exclaim, as I did yesterday, about how the market rallied at 11:43 a.m. on Wednesday for no reason. I would say, thats hedge fund capitulation. Critics came flying in, explaining that I couldnt be more wrong, and that there were real reasons the market did what it did. Maybe some of the critics were sensitive because they were hedge fund managers themselves and didnt want the scrutiny. Maybe others just refused to believe that the actual customers of stocks, the buyers and sellers of merchandise, could have that level of impact. They would like to believe that everything happens according to fundamentals. Maybe they dont understand that supply and demand dont just play out in the real world but also in the stock world. Sometimes theres as much supply from a busted hedge fund as there is from any commodity producer run amok. The demand side, the buyers, just cant handle the merchandise all at once. These critics, by and large, are wrong, dissembling, or clueless. Read More:aSemiconductor Stocks Primed for Profit-Taking, Face Falling Demand In my autobiography,aConfessions of a Street Addict, I have already explained how hedge funds can distort the market to an extraordinary extent. I wrote about how the stock market almost fell apart in 1998 because a huge overly-leveraged hedge fund, Long Term Capital Management, blew up. LTCMs collapse caused colossal collateral damage in many parts of the stock market, including my own portfolio. There are always precipitating events that cause the collapse or near-collapse of a hedge fund. In 1998, we had the so-called Asian contagion, where some Asian economies living on borrowed money lost their lifelines. Their growth hit a wall and then imploded. It was hard to figure out how downturns in those countries could affect the earnings of our countrys corporations. I ignored it in the beginning. As our stocks started plummeting day after day, when the only major event was the downturn in Asia, I became as flummoxed as others. I began to presume that many companies which I owned shares in were being hurt in a way I couldnt understand. I was aghast at how many of my regional bank holdings were being crushed. I was also appalled at how some major money-center banks and brokers with little exposure to these countries were taking out to the woodshed relentlessly. In 1998, I didnt figure out that Long Term Capitals unwiding was the link to our market. I ended up giving away shares in some of my best companies to stave off my own margin calls. Only after theaFedaintervened, to cut rates and stop the decline that Long Term Capital had inflicted on the markets, had I finally realized what was going on. I never forgot that lesson. Too many people seem to forget it or havent experienced it. In 2008, the same thing happened with dozens of hedge funds. They were on the wrong side of a series of commodity trades and they were blown out, but not before they took the commodities on for a long and artificial ride. Today, it is obvious that a bunch of hedge funds had levered up on commodities, particularly oil, and they were being blasted to smithereens, laid to waste almost daily. I saw it in the drillers, the oil stocks, the futures, the natural gas plays, and anything involving energy. Other hedge funds were crushed when a Federal Judge ruled thataFannie Maes (FNMA) newfound profits were going to stay with the government and not be given to hedge fund shareholders. Firms that specialize in arbitrage were blown away by the breakdown of these tax-inversion-derived mergers, when the Treasury Secretary suddenly intervened and tried to put an end to them. When the smoke cleared on these last two issues-Fannie and the inversion immersion-the stock market rallied. These werent coincidences. I am not being cynical when I pin the tail on the hedge fund. I am being historical. History says that in times of stress, the hedge funds can play a much bigger role than that of the fundamentals, when it comes to the prices you see on your screen at the close of the market each day.a At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.a The Bear Market in Oil Is Real Posted at 11:37 a.m. EST on Thursday, Oct. 2, 2014 Is the oil thesis, the great American renaissance boom in oil, in trouble? You know I am a huge believer in every aspect from the oil in the ground to the drilling to the pipelines. But this sudden decline in oil prices is going to give some of the big oil exploration companies the jitters, and not just because we have too much supply here, but because of what Saudi Arabias doing. Yesterday, the Saudis lowered the official selling prices for its crude, which marks the fourth straight month that theyve cut the price,anotathe production. What does this mean? One could argue that the Saudis want to maintain their market share. I get that, and it makes sense. I think its something else though. I think the Saudis want to make our oil too expensive to keep drilling for. They recognize that there is a price where we will cut back our drilling. They are not afraid to drive oil down to that price to make the U.S. more dependent on the Saudis -- we still use a lot of their oil -- and less independent. In short, they are trying to price us out of the game. Read More:aAirline Analysts Got It Right in Calling for a Sector Rebound Theres plenty of cushion in all the big shale plays -- Bakken, Niobrara, Eagle Ford and Permian -- at these levels. This isnt a price where theres panic. The trajectory, however, is menacing, as is the velocity of the decline. Its a real bear market in oil. If the Saudis are just going to follow the price down, they will make it less economic to drill here, and some of the independents will have to think twice about adjusting their long-term budgets if they were based on ever-rising oil prices, as we know some of them are. Plus, lets not forget that the costs of drilling have gone higher as the scarcity of labor in the areas where the oil happens to be affects the priceaHalliburtona aor aaBaker Hughesa ahas to charge. The oil companies have been adept at finding ways to save money -- witness the switch from ceramics to sand for cheaper fracking -- but theres always the risk that there might be less oil and gas in an area that had thought to be abundant. With costs escalating and worries about the Saudis crushing the pricing umbrella, a couple of the oil bulls are going to break ranks for sure. Read More:aRetail Holiday Sales to Increase Over 4% as the Consumer Gains Strength Not only that, but keep in mind that the costs of transporting oil from where it is to where it needs to go are rising dramatically. Al Monaco, the CEO ofaEnbridgea , the biggest pipeline company in North America,atalked last night on Mad Money about how environmental rules and safeguards have elevated the price of new pipe pretty much everywhere in this country. Monaco has to get his return, which in turn lowers profit margins for the oils. Plus, you have to use trains where there is no pipe, which is more expensive. I do not think the long-term story is in trouble. But I know many people, including people at the oil companies, are nervous about this decline, hence the radical fall in the oil-services and, more important, oil-rig companies, particularly the offshore businesses.a Oh, and given that there are places in this country where oil companies are only able to get about $70 per barrel because of the glut and the lack of storage, we will certainly start to see cuts. Fortunately, most of the oil is much cheaper but all in, to say you dont need to worry is to have your head in the fracking sand. At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned. Click to view a price quote on FNMA. Click to research the Real Estate industry. ift.tt/1gB4pon
Posted on: Sat, 04 Oct 2014 18:36:06 +0000
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