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US Oil Prices Hike On Crude Oil Deficit

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US Oil Prices Hike On Crude Oil Deficit

Crude oil prices hit a high for 2016, as we see a group from the industry report a shocking draw in US stockpiles and a soaring rally from the gasoline market.

The cost per barrel is nearing to $50, which is good news for commodities.

crude oil chart

 

 

 

 

 

 

 

 

 

 

A look at performances from oil companies:

WTI (Brent and U.S crude’s West Texas Intermediate) has now started trading on an increase of 3%.

There was an estimated increase of $2.01, with the price landing $46.49.

  • PetroChina; it currently yields 4.80% which has shown consistent top and bottom-line growth – despite the slowdown in China. However, be cautious with the bear market creeping into oil.
  • BP; this petroleum business has been through some storms, but it still has the stamina of increasing the revenue through the broader market on an annual basis.
  • Western Refining, Inc; this refinery projects a 2.90% yield through generating a rising cash flow – showing steady and cemented profits.
  • Delek US Holdings, Inc; the last three years has seen this firm’s stock value appreciate by 165%; then it may lose competitiveness.

Those were some of the best current performances.

The crude markets, in general, have experienced a lot more optimism, especially on oil products – if margins do remain high, then many refineries will quickly become prosperous.

 

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What caused the oil crash in the first place?

In 2014, demand was low for oil because of weak economies, an increase in efficiency, and a surge in popularity for alternative fuels.

The USA also became the world’s biggest oil producer, which meant fewer imports and more supplies to spare – resulting in supply surpassing market demand.

June 2014 experienced the price of a barrel plunge from $115 to below $70 (a whopping drop of 40%).

Also, Saudi Arabia and their Gulf allies would not lower their supply, to help restore barrel prices – a move to stitch up their enemies Russia and Iran. Saudi were not bothered by the very low prices, as they had a stock value of $900 billion reserves.

What has recently changed for oil?

Recent weeks has shown the oversupply to start dropping in line with demand, through the following nations experiencing power outages:

And many others.

USA oil production also declines

The USA managed to overtake both Russia and China in being major oil players, managing to pump over 9.43 million barrels per day in 2015. However, the lesser demand did take effect when oil companies had to make cutbacks and redundancies – inevitably, slowing down production and halting new drilling explorations.

What Goldman Sachs says:

The Wall Street bank has concluded global equities to be a cause of concern over the last 12 months. Concerns mainly lie in high valuations and little to no growth aspects.

While the economic recovery has shown signs of slow growth; this makes the markets uncomfortable with taking any equity risk.

The Stock Markets

The major players haven’t experienced any great performances for 2016.

Examples:

  • S&P 500 index; only an increase of 0.2% so far this year.
  • The Stoxx Europe 600 index (SXXP); this slumped by 8.7%.
  • China’s Shanghai Composite Index (SHCOMP); this was down by 21%.

The commodity sector

The Commodity’s sector got a neutral up gradation by Goldman Sachs, which was mainly down to the contribution of growth in oil prices.

By this year’s fourth quarter, a barrel is expected to rise $51 per barrel – hoping to reach over $60 per barrel by the end of 2017.

Gold

This increase and the decrease is still bearish, with prices expected to fall below $1,150 per ounce, by the end of the year (a slump of 10% from the $1,272 trading price last Wednesday).

The Credit Market

This is where the bull market is happening, as they take an overweight stance for the 3 – 12-month horizon. This stance is because valuations are appearing much cheaper than in equity, which makes it a whole lot more possible to the investors.

Goldman Sachs overall summary:

An improvement in oil prices and ECB’s credit easing will be supportive to credit – currently, within the credit sector, the bank favors European investment grade papers and U.S. high-yield bonds.

However, what we need to look out for with oil:

Economic critics have advised caution with the Goldman Sachs announcement, believing that the price per barrel will be restricted to pass $50 –  as current levels are very limited.

Oil prices may have the slight probability of declining again, before moving higher again.

Goldman Sachs is popular for selling to encourage strength, especially as they have been expecting oil prices to increase for a while (even when a barrel was near to $40).

To sum it up…

Presently oil prices are still too low for oil productions to make any decent profit, but it is one to keep an eye on, as the light is starting to shine for this commodity.

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Automobiles

Hertz Pulls $500 Million Offering After SEC Review

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Hertz Pulls $500 Million Offering After SEC Review

Fortunately, Hertz won’t be able to sell worthless shares in exchange for real money.

The financially – and apparently morally – bankrupt company ended its bid to sell up to $500 million in new shares that it acknowledged likely didn’t amount to much.

In a regulatory filing yesterday, the company said that the stock offering “promptly” became “suspended pending further understanding of the nature and timing of the Staff’s review.”

In the filing, Hertz said that it had been in “regular contact” with the Securities and Exchange Commission all week. This came after the agency told the company on Monday that it planned to review the stock sale.

SEC Chairman Jay Clayton said Wednesday that his agency had concerns about Hertz’s plan to sell stock while the company is in the middle of bankruptcy proceedings.

“In this particular situation we have let the company know that we have comments on their disclosure. In most cases when you let a company know that the SEC has comments on their disclosure they do not go forward until those comments are resolved,” Clayton said during an appearance on CNBC.

The Process

When companies want to sell a security, in this case more shares, they submit a filing with the SEC. The agency will review the filing. It will also send comments back to the company consistently. In its feedback, it will ask the company to improve the disclosure or any irregularities in the filing. During his CNBC appearance, Clayton did not specifically mention the issues the SEC had with the Hertz filing.

“We at the SEC, were are trying to carry out our responsibility in situations like this as best we can and I expect the other professionals around the situation to carry out their responsibilities as best they can,” Clayton added.

Those disclosures filed by Hertz said “Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels.”

In plain talk, that means the new shares are worthless.

DIP Financing

Hertz shares stopped trading for several hours yesterday before resuming again just before 3:30pm ET. Shares were up double-digits before closing the day with a modest 2.6% gain.

The company, which filed for bankruptcy on May 22, would traditionally get debtor-in-possession (DIP) financing. This would allow it to remain in business as the company went through bankruptcy proceedings.

However, after Hertz filed for bankruptcy, shares traded as low as $0.40 on May 26 before surging to as high as $6.25 on June 8.

Instead of taking the DIP loan that would need to be paid back, the company instead wanted to sell shares. I then planned to use the cash proceeds to pay off creditors. Hertz had hoped to sell up to $1 billion in shares, before trimming the proposed offering down to $500 million.

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Bankruptcy

Kenmore Deal a Short Term Solution for Sears… Simply Delaying the Inevitable

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Sears is one of the most iconic retailers in U.S. history. The company started the mail order catalog in 1888, and grew its brand of department stores from there as it became one of the driving forces behind malls. But lately, times have been tough for Sears. The once proud retail giant has shuttered Sears and KMart stores left and right as it tries to avoid bankruptcy. Now the company is doing something it’s never done before, turning to online distribution to turn things around. But is it too little too late?

Can the Deal Sears Struck with Amazon Right the Ship?

While Sears has been struggling to adapt to modern day retail trends, the company has been bailed out on several occasions by cash injections from CEO Eddie Lampert, who has given personal loans as well as investments from a hedge fund he manages. However, a cash injection isn’t enough if nothing is changing. So Sears is working to change. The next step? Selling its proprietary Kenmore brand through Amazon.

While the deal makes a ton of sense for Amazon, it’s a desperation play by Sears. Amazon gets to offer a leading brand on a pretty exclusive basis. Other than Sears itself, consumers won’t have any other options to purchase a Kenmore appliance. As the world’s leading online retailer, getting a leading brand no one else has just adds fuel to the fire. Smart play by Amazon. But for Sears?

Sears might see a small bump in sales from this deal, but the truth is, those sales won’t be enough to offset the trend of declining sales Sears has been experiencing for years now. Unless Sears has a bigger picture plan for expanding distribution of its products and brands, this changes nothing for the struggling retailer. That’s best case scenario. Worst case scenario? People who were willing to go to Sears specifically for its Kenmore brands now have one less reason to visit the store, or even the online store.

Clearly Sears is struggling. But they do have some valuable name brands. The best of those was Black & Decker, which sold this year for $900 million, down from the original $2.2 billion that was being considered. With Kenmore being another leading brand name, why isn’t Sears trying to sell the Kenmore brand? Most likely, no one wants it. Which is just another in a growing list of bad signs for Sears.

Watch this video from iBankCoin.com about the Amazon Sears Agreement to sell appliances online:

Ignore the hype around the deal. Expect shares of Sears Holding Corp. (SHLD) to continue DOWN.

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


 

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Bankruptcy

Puerto Rico’s Bankruptcy Pits Wall Street Vs. the U.S. Government

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Puerto Rico is out of money. And not just out of money, but in serious debt, owing $73 billion to many Wall Street companies after years of investment in the territory by Wall Street. What happens when a territory defaults? It’s not a country that can give away its assets — Puerto Rico is a U.S. territory and thus falls under U.S. law. And as the U.S. government is wont to do when big businesses are facing trouble, Congress is bailing out Puerto Rico with a special type of bankruptcy protection. Who is most affected by the news?

What’s Next for Puerto Rico?

How does a U.S. territory end up pitted against one of the world’s biggest financial institution? In the case of Puerto Rico, through bonds. For years, Puerto Rico offered high yield bonds which brought in hedge fund and mutual fund managers who viewed the territory as a safe bet due to tourism and being part of the U.S. economy.

Puerto Rican Flag | Puerto Rico's Bankruptcy Pits Wall Street Vs. the U.S. Government

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So what happened? Well, investors assumed that the island’s financial difficulties and economic issues would be solved at some point. Unfortunately, that’s not the case. Now, those bonds have come due, to the amount of $73 billion, and Puerto Rico just doesn’t have the money to pay up. To make it relative, the city of Detroit, which is in serious financial trouble, owes about $18 billion. Out of that $73 billion debt, about $12 billion is insured, meaning that debt falls on bond insurers who backed Puerto Rico bonds. Puerto Rico then has to pay the insurance companies back, adding them to the list of debtors waiting to be paid.

Wall Street Bull | Puerto Rico's Bankruptcy Pits Wall Street Vs. the U.S. Government

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Who are these other companies? Big Wall Street names including:

OppenheimerFunds
Franklin Templeton Investments
Aurelius Capital Management

Watch this video from Wochit News about Puerto Rico’s bankruptcy:

What’s next? Puerto Rico goes into Title III court-supervised negotiations with the hedge funds to try and settle. But the fact is, that’s not going to amount to much. The government will push for debt restructuring and spending cuts, but the island is poorer than ever, with a dwindling population. The island will settle with Wall Street companies, who will then collect from the U.S. government and write down the rest for huge tax breaks. Puerto Rico will have to tighten its belt, but will survive with the help of the U.S. government’s protection and bailout.

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


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