FEAR may create opportunities

[dan_s]

From Elliott Gue ( I read this guys stuff carefully).

We're not forecasting a recession for the US or global economy this year. The US economic outlook really hasn't changed much since the first quarter of this year; the economy has been and will continue to grow at a 2 percent to 3 percent annualized pace in coming quarters. A warm winter in 2011-12 artificially boosted the data and made the recovery seem to accelerate, but that was an illusion. Similarly, the current data isn't as bad as it seems; expectations simply became far too bullish during the wintertime mini-acceleration.

What we're looking for over the next couple of months are signs of panic, just as we saw in the summers of 2010 and 2011. Perhaps another sudden deterioration in US economic data will prompt renewed recession fears in the US and send the market sharply lower. Alternatively, more bad headlines out of Europe could begin to weigh on global credit markets, which have remained rather placid over the past few weeks even as Spanish government bond yields jumped over 7 percent. Another debt downgrade for the US or rising fears of the 2013 fiscal cliff could also catalyze instability.

Regardless of its manifestation, investor panic would suggest that expectations have moved from way too bullish in February and March to excessively bearish. That will pave the route for a year-end rally just as it did in 2010 and 2011. We're just not there yet.

My take;
> Assuming crude oil prices hold in the $80/bbl range this summer and natural gas prices continue to firm up, most of the oil & gas firms I track are way oversold. I took a hard look at five of the Sweet 16 forecast models yesterday and they all appear to be on solid ground. If oil falls below $70/bbl and stays there, my outlook will change.
> There is an oversupply of FEAR driving the market. This is sure to create some short-term trading opportunities.
> Most of the E&P companies I track have a lot of their 2012 production hedged, so the recent dip in in oil prices really does not hurt them that much.
> Our MLP's have a very high percentage of their revenues locked in by hedging or long-term contracts. LINE has 100% of their production hedged at very attractive prices through 2015.