TheStreet.com's Jim Cramer says the oil stocks' decline yesterday was exacerbated by a hedge fund's collapse. "I think the collapse in the commodity stocks shows a worldwide recession."
"The decline in oil and oil service stocks, far more severe than the decline in the commodity, bodes for $80 oil and gas."
"Without a hurricane hitting rigs, the companies involved in the servicing and maintaining rigs will have severe earnings declines, at least according to their stocks."
These are three perfectly acceptable analyses of the action in the Oil Services HOLDRs (AMEX: OIH) (Cramer's Take) and in the oils in general yesterday in light of Gustav's failure to do any real damage and a continued expectation that economies around the world are slowing.
It's just that they are false takeaways. The single most material issue for the stocks -- not the companies -- was the collapse of Ospraie Management, which blew up and got blown out and took a ton of stocks down with it. The fact that this market is thin, that lots of players clearly knew this blowup was coming, and that the fund was no doubt leveraged up the wazoo (as all desperate managers tend to be) exacerbated the declines perhaps two- or threefold.
The funniest thing is the consequence of the decline that might have been set off by Ospraie. Take National Oilwell Varco (NYSE: NOV) (Cramer's Take) , which is one of the oil service companies with tremendous visibility even if oil goes to $70, and is actually a big beneficiary of the coming collapse of steel prices. NOV, presumably a part of Ospraie's holdings, fell so swiftly that it then took out its chart support level, which then made it vulnerable to another level of selling, which then took it down almost 10% (I know, I bought some there).
Panicked sellers jettisoned NOV and the others -- believing, of course, that more, bigger sellers were on the horizon. I posited a piece yesterday saying, "Who in heck would be selling at these prices?" We now know the answer.
There's no denying that a big collapse in oil and natural gas is upon us again today. But there is also no denying that the stocks were forced down hard by this closure and failed to bounce even as oil bounced midday.
Ospraie is a reminder of what's really going on out there: hedge funds liquidating and money being pulled out and redeployed in a market that simply can't handle these disruptions. It is important to recognize that, at times, there are other forces at work either besides the fundamentals or that take the fundamentals to an extreme of ridiculous proportions. That's what we got yesterday.
Random musings: What are these newspapers doing?: "Despite Lower Oil Prices, Little Relief for Consumers," says The New York Times. With natural gas falling to roughly half where it was a few months ago, consumers only need to hook up natural gas and get rid of oil to save a bundle. How is that "little relief"?
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RELATED LINKS:
Oil Sinks as Gustav Fears Diminish
Charting the Correction in Oil
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long National Oilwell Varco.
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Reader Comments (Page 1 of 1)
9-03-2008 @ 1:36PM
Wayneg said...
Will we ever see a different picture of Jim Cramer? I am sick and tired of seeing the same pic every day-and in that picture he looks arrogant as can be---get a new picture, or better yet, drop it!
9-03-2008 @ 10:01PM
kcoryms said...
1st I have to agree with Wayneg about the picture. Draw some hair on that head or something. 2nd In response to Cramers comment at the end of his article. It cost money to switch from oil to natural gas you moron. For you Cramer that probably isn't a problem. For average Americans it is a big financial strain. You're out of touch Cramer. Give your stupid advice to your rich friends. Next you will tell me to inflate my tires to solve the oil problem.
9-05-2008 @ 11:56AM
Mojotycoon said...
I have kept some stats. Cramer calls it correctly less than 50% of the time. In my class that's a roaring, get outta town, you don't know what you're talking about, "F" (or, Cramer, "get off the air" because taking your advice is VERY expensive!)