Investing General Discussion

Flobee said:

I'm happy to bow out to the majority opinion on this but I do want to bring up one last point. the BTC whitepaper was written in 2008 after the last crash. It was specifically created to give a decentralized alternative to currencies that were clearly being manipulated for the gain of a small group. Here we are with another financial crisis and one could argue that this is exactly what crypto was made for. 360+ companies are set to trial Ethereum 2.0 when it launches. IF it works it will be gigantic and you can see big money moving in that direction.

Click to expand...

Implying that crypto is somehow above being manipulated for the gain of a small group? Please.

Stock pick of the day.
LMT
It beat top and bottom today on earnings. It makes lots of stuff for the Govt. By lots I mean a metric fuckton. It is making the new capsule for NASA. It reaffirmed guidance this year for about $24 a share in earnings. Its balance sheet is rock solid.

I think it has about 15% upside from its current price. I think it might be priced a tad high for an entry point but maybe not. It is right at its 50 and 200 DMA. It ain't sexy, but it is a core blue chip long term purchase in my opinion.

I am long in it and will probably add more if it gets dragged down with the rest of the market on a downward move.

Disclaimer - past performance is no indicator blah, blah, blah and this is free advice so you can't sue me. Except for Foler . If you take this advice I want 1% as an advising fee

USO

And XOM erases this morning's losses with the power of a tweet...

Sanrith Descartes said:

And XOM erases this morning's losses with the power of a tweet...

Click to expand...

The way commodity contracts are written, crude producers are still making money on the crude they deliver, at around 35-40$ a barrel probably. Newly issued contracts will go for less, but a large fraction of the pain in the futures crash is being absorbed by investors.

Still not a great situation for them, but they aren't paying people to take their oil like you might think from just looking at the markets.

It can always be worse:

There is always a reason things are priced the way they are. We may not always know the reason, and the reason may not actually be valid (or legal), but there is always a reason. Fighting the price discovery takes balls and deep pockets.

I really think people buying into USO don't know what they are getting into. USO is expanding to become more and more of the market because it's so cheap. It looks like they just barely sidestepped taking on oil this month between rollovers and storing it, but I don't think the same thing will be possible next month. From the way I see it, If they are forced to take delivery it could potentially be a total loss for USO even if crude goes up in price. Looks like the higher ups at USO realized what's happening when they froze new creations.

The worst part for USO is that it doesn't take very much smarts for people in the business to see the trap they're in and just stop buying. The supply is going to be there at the end of the month, so it's a no-risk ploy. Enough companies do this and they'll be able to feast on USO's corpse this next expiry with 0 risk.

Furry said:

I really think people buying into USO don't know what they are getting into. USO is expanding to become more and more of the market because it's so cheap. It looks like they just barely sidestepped taking on oil this month between rollovers and storing it, but I don't think the same thing will be possible next month. From the way I see it, If they are forced to take delivery it could potentially be a total loss for USO even if crude goes up in price. Looks like the higher ups at USO realized what's happening when they froze new creations.

The worst part for USO is that it doesn't take very much smarts for people in the business to see the trap they're in and just stop buying. The supply is going to be there at the end of the month, so it's a no-risk ploy. Enough companies do this and they'll be able to feast on USO's corpse this next expiry with 0 risk.

Click to expand...

OK this is wrong. This type of thinking (not blaming just using it as an example) is how people lost their asses in USO.

Here goes. USO doesn't buy/sell oil. It buys and sells oil futures contract. By its design it specifically only holds 2 (maybe 3 , going from memory) months of contracts. By design it rolls those contracts each month and never actually holds then to expiry. So example.. 50% of assets are owning May future contracts and 50% owning June. When May is about to expire it sells them all and buys July contracts. This is all it does. Month after month.

Now it gets fun. Contango hits. Spot prices (current month) are selling for less than future contracts. Contango. So in this instance USO had to start selling May contracts last week when it was selling at $17 and buying July which was selling around $40. Yep. This is quite the loss.

Now add in the no storage thing this week and there were no buyers. USO has to sell no matter what, so they were selling for negative prices (paying buyers to take the contracts) and still needed to buy July contracts.

Now the problem is all the reddit wonks see oil at 17$ a barrel and dropping and think fuck yeah its gotta go up and they were buying USO last week. They do this having zero understanding of all the shit I just explained above about the contract roll. The dweebs were thinking they were just buying cheap oil and were going to wait it out until it went up. Newp. The value of the fund got ass-ravaged on the May to July contract swap. Its not over. The same shit is going to happen in a month and ad nauseum until the contango fades and spot oil is worth more than future price.

Today they closed the fund to new stock issues and its now a closed end fund. Last count a couple of billion dollars got vaporized.

Moral of the story. Dont buy shit you don't understand.

Now why does this matter to you and me? Because asshole media types who understand nothing about USO splash news all over the world "oil selling for negative dollars" with no explanation or context. This leads to today's selling across the board.

Sanrith Descartes said:

Now why does this matter to you and me? Because asshole media types who understand nothing about USO splash news all over the world "oil selling for negative dollars" with no explanation or context. This leads to today's selling across the board.

Click to expand...

That was the point I was trying to make.

They are growing in size in the market for Contracts only, and that's BAD, because they can't actually do the business once storage runs out. Crude buyers who do it as a business can just step back and let them have the whole market, and when USO is stuck with a shitload of contracts that are worthless to them, the businesses that use oil and actually deliver it will be able to scrape them off the burning wreckage of USO's corpse. People think they're buying cheap oil, but it's not that way at all.

As much money has been vaporized in USO, I think there's a huge risk that ALL of it gets vaporized next month when the expiry drops. With so many people buying into USO lately (their number of shares skyrocketed recently), they've actually only increased their liability they are facing when the next set of contracts comes to expiry. I can't see a way out for USO, and anyone who thinks buying it is buying cheap oil deserves what's coming.

I'm thinking a total loss within 2 months is likely.

Furry said:

That was the point I was trying to make.

They are growing in size in the market for Contracts only, and that's BAD, because they can't actually do the business once storage runs out. Crude buyers who do it as a business can just step back and let them have the whole market, and when USO is stuck with a shitload of contracts that are worthless to them, the businesses that use oil and actually deliver it will be able to scrape them off the burning wreckage of USO's corpse. People think they're buying cheap oil, but it's not that way at all.

As much money has been vaporized in USO, I think there's a huge risk that ALL of it gets vaporized next month when the expiry drops. With so many people buying into USO lately (their number of shares skyrocketed recently), they've actually only increased their liability they are facing when the next set of contracts comes to expiry. I can't see a way out for USO, and anyone who thinks buying it is buying cheap oil deserves what's coming.

I'm thinking a total loss within 2 months is likely.

Click to expand...

There isn't a way out. As I said they closed the fund to new issues. Its a closed end fund now. Barring a virus that eats crude oil magically appearing, USO is in a death spiral.