Refiner Stocks

Anonymous asks regarding my post about trading, "Are you suggesting it's time to go long on TSO, VLO, SUN, WNR ???"

I'm not taking a position on the refining stocks. If gasoline is underpriced relative to oil, it could just as easily mean that oil is due to correct.

What I did like was the suggestion that "as investors and speculators we must strive for total neutrality on all prices. We shouldn’t care one bit if a price is likely to rise or fall. Instead of wasting effort fretting, all our energy should go into figuring out how to game the trend for profits."

I would go one step further and say that I like to be able to open up the newspaper every day and see headlines that vindicate my trading ideas.

My energy stock positions are primarily: long natural gas trusts and drilling stocks.

Good Point About Trading

In the free markets, if something can’t be produced for a reasonable profit then soon it will no longer be produced. This truism of capitalism even applies to such a capital-intensive industry as oil refining. Refiners will cut back on zero-margin gasoline production, which will reduce gasoline supplies, which will then drive gasoline prices higher to catch up with crude oil. Gas prices have only begun their march higher!

As a consumer, I’m sure this really irritates you. I don’t like it either. But as investors and speculators we must strive for total neutrality on all prices. We shouldn’t care one bit if a price is likely to rise or fall. Instead of wasting effort fretting, all our energy should go into figuring out how to game the trend for profits. The low-gasoline-relative-to-oil anomaly we see today will likely prove to be a great trading opportunity.

Things I'm Reading Today

• Buffett offered to bet any taker $1 million that over 10 years and after fees, the performance of an S&P index fund would beat 10 hedge funds that any opponent might choose.
• Natural gas is a major feedstock in ammonia production--the hydrogen (H) in ammonia (NH3) comes from natural gas. It is not easy to combine N (N2 gas from the atmosphere) and H to make ammonia, so considerable energy (mostly natural gas) also is consumed. The average natural gas consumption for anhydrous ammonia production is approximately 33.5 million British thermal units (MMBtu) per ton. Therefore, the ammonia production cost is closely tied to the price of natural gas.
• Unemployment rate and recession chart.
• GM Volt may be too expensive and not ready in time.

Thursday Links: Silver and Steel

• 600 Years of Silver Prices
• Scroll down to the steel price history in this memo. No wonder asset stripping is taking off.
• Stop the Housing Bailout

NYT: All of Inflation’s Little Parts

Neat graphic in the Saturday New York Times.