Thursday, November 6, 2014

Tight Credit & Cross Currents

A recent news story surfaced, highlighting just how tight credit conditions still are in the U.S.
Former Federal Reserve Chairman - Ben Bernanke, the top dog at "America's Bank", the one who poured trillions into the economy after the 2008-2009 financial crisis, recently tried to refinance his $670K mortgage with little success. If America's top banker can't refi, than who can? The pendulum on lending standards have clearly swung too far. Tight credit might explain the slower than normal economic recovery south of the border. Housing, which also has recovered, albeit at a slower than normal pace, could benefit from less stringent lending. I'm sure that when the Bernanke news hit the wires he received several offers for a refi on his Washington home.
In other news, energy prices continue to slump dragging energy companies along with them. The fall of some energy names has been truly amazing - considering many are hedged and have solid or improving balance sheets. News recently surfaced that Oklahoma wildcatter - Harold Hamm, CEO/founder of Continental Resources proclaimed that there is no oil glut. Hamm is known as a outspoken risk taker, but this time he has put his money where is mouth is. He recently, cashed-out of some $4 Billion worth of oil hedges (@$98 hedges), netting a cool $470M. Hamm's case rests on his theory that there has not been much of a change in the global supply/demand picture. Continental, now un-hedged, will benefit significantly if oil prices rise. Hamm's recent move runs directly against the street's current outlook on oil and just might give him the last laugh.
We continue to pick away at our depressed energy holdings with a view to better days ahead. However, our overall energy exposure has fallen over the past 6 months, with our sale of Hess Corp (HES) at an average price of $89.

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