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It Begins: Energy Giant Chevron Suspends Stock Buyback, Blames "Cash Flow Squeeze"
It was less than 24 hours after we posted that either oil will double from here allowing energy companies to grow into a normal P/E multiple, or energy stocks will have to crash by over 40% for the ridiculous 23x to return to its normal, long-term average of 13.6x. Moments ago energy giant Chevron admitted that not only does it not see oil doubling any time soon, but that energy prices are almost certain to go far lower from here, and as a result the company decided that after buying back $5 billion of its shares in 2014, i.e., buying high and higher before the stock crashes may not be the best use of dwindling cash flow, and as a result has just suspended its stock buyback program of the rest of 2015. Yes, energy giant Chevron just ended its buyback!
As regular readers know, company buybacks are forecast to be the single biggest source of demand for stocks in 2015..
... which means this may well be the beginning of the end of the 6 year bull market. For now, the realization if only hitting Cheveron stockholders.
Also did we mention Chevron's "dwindling cash flow"? Good: here's why:
- DRILLING RIG RATES HAVE FALLEN AS MUCH AS 50%: CHEVRON CEO
- CHEVRON SAYS DROP IN GLOBAL OIL PRICES SQUEEZE CASH FLOW
It's not just buybacks that are out of the window. So is CapEx..
- CHEVRON SIGNIFICANTLY REDUCING EXPLORATION, DESIGN SPENDING
- THIS YEAR'S CAPEX CUTS WILL IMPACT OIL OUTPUT POST-2017: CVX
... and SG&A:
- CHEVRON REVIEWING STAFF LEVELS AROUND THE WORLD, CEO SAYS
Finally, all those who are so sure a surge in oil prices and energy stocks is just around the corner, here is a little more cold water:
- WORLD ENERGY DEMAND FAIRLY MATCHES WORLD ECONOMIC GROWTH
- CVX DOESN'T SEE MUCH CHANGE IN WORLD ENERGY DEMAND ON GROWTH
But the financial comedy TeeVee said it was all an "excess-OPEC supply" problem?
* * *
And for everyone who missed it yesterday, here again is "Either Oil Soars Back To $88, Or Energy Stocks Have To Tumble By Over 40%"
Several days ago we showed something remarkable: "current forward 12-month P/E ratio for the Energy sector is now well above the three most recent historical averages: 5-year (12.0), 10-year (11.9), and 15-year (13.6). In fact, this week marked the first time the forward 12-month P/E for the Energy sector has been equal to (or above) 22.4 since April 8, 2002. On that date, the closing price of the Energy sector was 225.15 and the forward 12-month EPS estimate was $10.05."
Further refining this analysis and using the S&P Energy Sector Index data, the sector's forward multiple is now an absolutely ridiculous, mindblowing 23x, the highest since 2002, having soared by nearly 100% in just the past few months as a result of collapsing energy sector earnings.
How is this possible?
Simple: as the chart below shows, since the oil's peak in June 2014, Energy company EPS have crashed by 50%, as a result of a 60% plunge in the price of oil. What about Energy Index prices? Well, they have fallen to be sure, but nowhere near far enough to where they should, down "only" 20% from the highs.
So what does this mean? Simple: either the long-term PE multiple is now null and void, and the "New Normal" forward PE of 20X+ is realistic, which of course is ridiculous, or there are two alternatives:
- Energy sector earnings have to surge by 70%, implying a near doubling of oil prices to $88, for the forward P/E multiple to return to normal, or
- The Energy sector price has to crash from 549 today to 323, where it would trade down to its historic forward P/E multiple, suggesting a price drop of over 40%!
This is shown visually on the table below:

So which is it? Well, as the following chart showing a relationship we have grown to love over the past few months, the main reason why energy stocks are loathe to catch down to reality is the same BTFD mentality which is keeping the S&P elevated well over 100% above its fair "ex-central banker" value. Indeed, every single time even the smallest buying momentum arrives, energy stocks soar as if stung, only to recrash day after precisely to where credit says they should be trading.

Which means that once the ongoing euphoria of a 5 year Pavlovian BTFD reaction wears off, the pain for those long energy equities (and credit, since the above analysis implies energy credits are also massively mispriced) will be unprecedented, unless of course, by some miracle, oil does indeed double from here and on very short notice.
But wait, it gets worse, because while equities are pricing in an unsustainable 23x in foward energy P/E, another market, that of interest rate forwards, is implying oil plunging down to $35! As a reminder, oil is among other things, a function of rate differentials or said simpler, USD strength, strength which appears is not going anywhere. And as the following calculation from Cornerstone implies, should the EURUSD tumble to parity which is what Draghi's desire seems to be, it would suggest a 22% plunge in oil from here, implying a $35.5 price of oil one year from now.
This in turn would mean that, all else equal, the forward PE multiple would rise to just shy of 30x, and/or that Energy prices as a group would have to tumble over 50% from current levels!
Of course, if and when energy prices are cut in half, this would also have devastating consequences on the rest of the S&P, and all other asset classes, and almost assuredly force the Fed to not only forget all about hiking rates, but promptly engage in QE4.
Which may be just what the market is pricing in.
The only problem is that one can't have a world in which both QE4 is priced in (as equities are doing), as well as pricing in the 2015 Fed rate hike (as oil is doing), and is one of the main drivers of the USD strength.
One has to give, and it has to give soon.
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Lo, how the mighty are falling.
Shell admits they made zero money on production http://hedgeaccordingly.com/2015/01/shell-falls-short-blaming-writedowns...
Yet another crack in the dam has appeared, only to be plugged with Yellin's finger. Good thing for the markets that Yellen has a total of 21 digits to plug these leaks with as they appear.
But but... they told me low oil is awesome...
https://www.youtube.com/watch?v=16bX7kBRnmw
We've only just begun
https://www.youtube.com/watch?v=__VQX2Xn7tI
CUE: "oil""price".con for counterpoint that oil is scarce as dirt and should be $200 a barrel!!!!!! only that this is not the cards dealt on prices "now". is that web site run by cramer....just asking
edit: my bad....should read .com
If I do the math right, that's about a 4.25% dividend rate that's going to go poof. $1.07 per quarter on a ~100 price per share.
Cause after they stop the buybacks you know what comes next- the dividend.
Option 3 : Start a War... I'm betting option 3...
This must mean the economic Rekovery is moving along, Robustly, as planned, eh.
That's disturbing
I'll take lower oil prices, lower taxes too, I'll spend the savings on other things
Only 390 BILLION dollars has been lost yet....wait for the next 390 BILLION to be lost and then just hold your palms against your ears and watch the real fireworks start....I say that it will be sometime in March.....or latest by June.....countries that are NOT insulated from the collapsing EU and US banks or the USD and EUR will also go down and take their economies, banks, real estate..everything down with them and another few million will be jobless around the world before June 2015, sadly!
US does not seem to be the instigator of all this oil decline, despite everyone saying that it is being done to hurt Russia by US-Saudi alliance. Russia said today that they will HELP Greece which will open the doors for Russia to disrupt the entire Eurozone along with China and enter through Greece and slowly strengthen their ties with all those who will side with the Russo-Sino banking systems i.e. Italy, Spain et al.
In addition, the last remaining position of Saudi Prince Bandar was removed today. He was removed as US Ambassador, then from Syria file, then head of Intelligence and now the last position as Secy General of NSC is done so US has lost its most important contact inside Saudi. http://www.presstv.ir/Detail/2015/01/29/395305/King-Salman-dismisses-Pri...
One thing everyone can do is to hold some HKD (I expect this to be depegged soon) and CNH (I expect this to keep rising mildly unless the USD drops then this will appreciate strongly) and some DKK (3 rate cuts in2 weeks indicate they are trying to say something before depegging like the CHF) currencies so that when USD and EUR implode, these stronger currencies will rise and compensate and insulate a lot from the massive drop and if the meltdown or apocalypse does not happen then at least you will have some diversification in some of the most stable currencies globally.
Cheap Oil Burns $390 Billion Hole in Investors' PocketsI've read the HKD is the new safe currency as opposed to the Swiss franc. The uber rich have moved tons of Moolah to Asia [out of Swiss vaults] but I'd like to see the numbers on that.
It is very hard to get a sense of true numbers because so many billions are moving to onshore China plus a lot of money can also move to Singapore and remain in HKD and the real estate is still stable and rising where it could be invested etc without appearing in any monetary statistics.
Having said that, deposits in HK have doubled since 2007 and quadrupled since 1997.
Latest data here on banking: http://www.hkma.gov.hk/eng/market-data-and-statistics/monthly-statistica...
Meanwhile, deposit rates are exploding in HK due to massive demand to send to onshore China.
Hong Kong Yuan Rates Top China’s on Stock Link: Chart of the DayHK is one of the rare places that is backed by China AND pegged to the USD which makes it ultra safe and hence the pressure will build on the currency which in turn will get depegged eventually, because inflation, real estate prices, bank deposits, stock markets will keep rising to crazy levels until the peg is removed!
HK stock index has tripled in 20 years as well as doubled since 2009 trough. I dont need to mention about the insane real estate prices in HK.....this is what will cause the peg to be broken!
Thanks for the info Dubaibanker,
My net worth is zero, i'm long tampax, soap (thanks TD), TP and contraband.
Have you ever considered buying Tampax, soap, TP and contraband by buying HKD first?
You could potentially buy more of all 4 one fine sunny day!
Also you may try selling the contraband in HKD.....
Silk road
Yes
Are Americans legally able to open bank accounts in HK? If not, can Taiwanese or South Koreans?
Would it do any good to hold physical paper HKD here in the states?
Thanks in advance for any answers...
Anyone is allowed to open bank accounts in HK. For Americans it has become a lot difficult lately due to a law called FATCA. You may google this. In short it means, that any bank who has US citizen or resident account holders are forced to report their dealings to IRS, else the penalty of 30% tax on ALL other transactions of all other clients will apply or even the bank's USD transactions through NY may get revoked. Hence, no bank wants to deal with US citizens or residents.
It is possible to find a bank who will open accounts of US citizens but typically you will have to visit HK in order to sign the papers and open the a/c with the bank accepting US clients.
Taiwanese or South Koreans are the easiest. Approach any bank and it will be done pronto till the time you do not mention the word US citizen or resident!
Any bank who may allow dealing in or opening accounts in HKD which should typically be a foreign bank in States would be happy to hold physical HKD currency in checking or savings a/c or in deposit. Please try HSBC to start with....some stock brokers may also allow like etrade.com or any bank broker etc.
Hope this is helpful.
Extremely helpful, thank you VERY much!
^_^
What is CNH? Did you mean CNY?
No. I meant CNH.
Most people do not know this difference including top bankers!
Chinese currency being a controlled currency is not allowed to be held by people outside China. Increasingly, as Chinese influence increases, the Govt is opening the door to buy or hold Chinese currency ever so slowly.
That is where lies the difference.
All currency inside China, onshore, held by residents and citizens in their bank acocunts or used for purchases at shops etc is CNY officially.
While, all currency held by foreigners in HK, Singapore, and increasing at a rapid clip around the world, is called CNH.
This is to distinguish between omshore and offshore Chinese Renminbi.
Since 2013, the new free trade zone was opened in Shanghai, where it is allowed to bring offshore CNH currency (for example as investment or loans from overseas) and use it as CNY.
Also at the same time, CNY in the free zone can be remitted overseas which is salaries, dividends, profits etc and becomes CNH when it lands overseas into a bank a/c.
This is gradually blurring the lines as the Chinese dragon awakens and makes the distinction between offshore and onshore currency to become nil.
This door will keep opening slowly every year and the distinction will eventually go away.
Renminbi is the generic word for Chinese currency as is Yuan. This is like a buck or a dollar in US. Or loonie in Canada. In shops people say an item is priced as 5 yuan like in US they would say 5 dollars or 5 bucks.
CNH and CNY are used by banks and FX traders.
Hope this clarifies.
Here you will find extensive information that shows how the demand for Yuan is rising exponentially without ever firing even 1 bullet:
: http://en.wikipedia.org/wiki/Internationalization_of_the_renminbi
I feel like I should pay you tuition - this education is top-notch, high value stuff! Ten million thanks for this and for taking the time to map it all out so clearly and articulately, your time and efforts are very gratefully appreciated!
It is my pleasure to share the knowledege! Most welcome.
Haha. I hear her 21st digit can fill a mighty big hole.
Why don't they just borrow more money @ 0% to pay for it? DUH?!?
Or better yet, go into a business selling electronic toys or a space on a server where stupid people can post all the stupid shit they do all day? Those companies seem to be doing just fine.
This squeeze will end up bankrupting the indies then $150 to $200 a barrel to herd the unemployed peeps into micro housing Agenda 21 projects.
Cabrini Green...
Pretty sure they have torn down Cabrinni Green. It is now an inner-city rifle range.
LOL
my bad.
new & improved Cabribi Green with on sight refrigeration & meat wagon HQ.
Sic transit gloria mundi
chevron #2 taxpayer in usa
http://www.usatoday.com/story/money/personalfinance/2013/03/17/companies-paying-highest-income-taxes/1991313/
NOT ANYMORE!
Dear Chevron,
Eat me raw, balls and all!
Signed,
Bangin
First of many.
These ass clowns never think about buying stock back when it is cheap. Buy high and sell low is always a good business model.
BTFATH
they dont care what price they pay with CORPORATE money because their bonuses and stock options are tied to stock price. the mantra is to get what you can get when you can get it.
Exactly Doc.
CVX is down 33% from the July high. They can spend 1/3 less and get the same result as before. What's not to like?
Nah, that makes too much sense.
Yeah, well...hire some Americans next time.
We don't even need your oil anymore.
Can't wait for T-rex and XOM to report.
"That's called a nuclear power!". Ticker symbol E T R.
Run that air conditioner JUST FINE.
If they did it the smart way they'd be insider trading, no?
Wonder if the insiders were selling into the high?
No doubt they were. They always do, leaving the share holders holding the bag.
Royal/Chevron/XOM here we come!
I wouldn't be too worried about the shareholders.
Mexico maybe....
Next step...cutting dividends.
Couple that with some potential capital depreciation. Reach for yield mother fuckers....reach...reach.
My daughter makes loom bracelets. She can shit out about 10 per week. If we can charge $100 per unit and scale the business up to 10,000 8 year old, we will have a multi-billion dollar company. Anyone care to help me with the IPO? This bitch can't miss!
Huh.. I guess the Bernank was right about something after all. It IS about "access to credit."
It is okay, all the oligarchs got out already.
THANK GOD FOR THE WAR!
With your name you should not be saying that.....
OT:
NYPD machine guns on the streets of NY.
http://nypost.com/2015/01/30/nypd-to-launch-a-beefed-up-counterterrorism...
Cool, so now they NYPD can spray and pray while taking out many more innocent civilians while they get their inner thug on.
No moar.
makes sense. who would want to buy stock in a company on the decline? even ones own.
Too much gloom. Remember, these are cyclicals going into a down cycle where multiples rise as earnings fall. The stocks have low PEs at the top of the cycle and high at the bottom. They don't fall to long term average multiples during the down turn. Similarly, multiples do not expand in the upturn, they shrink.
They work lower, but 40% is not likely.
i guess the CEO telling you they have a cashflow squeez wasnt good enuff? nahhh its just cyclical, right? this must be the 40 dollar oil cycle everyone was talking about.
I'm as worried as anyone here about how things play out, but it is a matter of degree. The world doesn't end. When I see people not driving, or heating/cooling their homes, I will worry.
40% from here is possible, but it would be a screaming buy there. We should hope that happens. Look at the long term charts of the majors over decades and decide if you want to bet against them.
The problem is, SOME people's world ends.
The trick is to make sure it isn't YOURS.
when the manipulation of commodities destroys the underlying industries you just might see people heating themselves with dumpster fires.
Remember this isn't a real recovery.
Well done Zero Hedge. Don't think we will find this information on that useless website MarketWatch. What a waste they are.
Yeah and I hate that one bald guy who writes for them,I don't care how old he is I would love to kick his ass.
Paul Farrell?
Watch out for the stalking horses.
They thought buying back their own stawks at the high by the billions was a sound strategy, and it was ... for management wallets .
As I noted to Doc above, CVX is down 33% from the July highs.
So now you can spend 1/3 LESS and get the same result, and that's a BAD idea?
Right.
My money is on GE never recovering actually.
I would recommend not cutting the dividend.
Wouldn't worry too much about the credit rating either...
Have they tried using other people's money?
Shareholder money IS other people's money!!
Execs just use it like their own private piggy bank.
If shareholders thought buybacks were such a good idea, they should be screaming for more at these levels.
Two thoughts on oil stocks:
1. Are 10year average PEs worth that much given they take us back to the bubblicious 2005 (2/3 years before the crash)?
2. As much as I wouldn't dispute an overswing in energy capex spending cuts, can the global economy really withstand $100-200 oil? Wasn't the period when it seemed normal just a QE bubble/fantasy that had to end, with future undersupply liekly to drive a second wave of the upcoming crash?
D-Rock called on the hot line this morning. Says he needs the media's help in offing a few shares. "We couldn't do it without you". Cue Cramer.
I SMELL ANOTHER MERGER ON THE HORIZON1
Chevron & BP.
Have to get those oil prices back up.
Union Pacific Resources and Anadarko comes to mind...
UP?
Wait for the asset sales. "Oil, refining, steel, fabrication and the engine division all in one."
Hope oil companies get treated like PM miners.
So much for BTFD.
Same P/E projections.. different industry
http://www.nasdaq.com/symbol/fb/pe-ratio
If anything, now is the time to be buying back stock. Why did they spend so much the past two years?
Share buyback: nothing more than private QE that corporation do on themselves...
So if the big boys are having a cash squeeze, what does that say for the little(r) guys?
Further USD devaluations to spike GDP forecasts. Milk and oreo cookie warm feeling for new investment security.
Uhm balls squeeze?
Stock buyback programs = insiders unloading shares.
Stock buyback programs suspended = insider selling complete.
Quiz me this, what happens next once the insider selling is completed???? (don't look back at the above chart, no hints.)
what happens next once the insider selling is completed???? > bail in
the self fulfilling loop has just begun. the bottom is out, but soon, within 3 months. non-beleivers are the last to emo out and dump their holdings. bail, bitch bail!
Another cash burn crisis in the makings. Jew Lew Treasury Czar will make a Paulson emergency breaking news report shortly.
Chevron is the company that St John Philby hired to find oil in Saud for his friend and mentor King Saud.
They did; in 1936 they created Caltex with Texaco that created Aramco, finding oil in south Saudi 1938 and later in 1948 at Ghawar near Kuwait, the fount of Allah.
Saint John Philby, a anti-sionist renegade of the Brtish Raj turned muslim convert and arabian explorer, did more to help create America's link with Saud than Lawrence of Arabia helped save British Raj there. As his local mentor, Hussein of Mecca and later of Damascus, got the short end of the stick when he was kicked out of Mecca by Saud. His sons founded Jordan and Iraq as consolation prize under British carve up of Ottoman arabia.
Saint John Philby's greatest kick in the pants to Rule Britannia was his son Kim Philby, probably the greatest spy for the Soviets; one of the Cambridge five, a man to bring down an empire all on his own.
Now Chevron feels the blowback from a eighty year run as one of the seven kings of big US/Brit oil worldwide.
Swans coming home to rooost on the Oil/$ patch like sullied black birds their wings dipped in oil.
What a phucked up duck soup these financial plays are turning out to be. A financialized economy totally divorced from real stuff.
Good for non energy companies and good for bonds.
Wtf? all companies need energy...
Remember the ZH piece about two months ago? The one that had an analyst musing that maybe even mighty Exxon could be in trouble, in regards to rolling its paper. Who knows now.
The claim that oil will stay low because supply matches demand in not a logical conclusion. Traditional depletion is 5%. Shale 30-40%. Rigs coming out of shale produce 3X what they used to, so the impact on supply is 3X greater per rig. Reduced supply will bring prices back fairly quickly 12-18 months at most (89MM * .05 + 5MM *.4 depletion per year...) unless we have a very deep and dark global depression... Even so, oil is headed higher in financial asset terms...
Ask the Treasury department about issuing POMO. When the Petrodollar recycling speculation faulted.. they cannot pay off the obligation. Needs new serfs to fear a new engineered financial collapse.
http://www.newyorkfed.org/markets/pomo/operations/
Buy the dip.
energy stocks will have to crash by over 40% for the ridiculous 23x to return to its normal, long-term average of 13.6x.
Indeed, but not just energy stocks, the whole market across the board needs to crash down to a real level, determined by fundamentals which shows itself in a price discovery mechanism. But this has been destroyed by the Fed, in order to institute an "Iron Rice Bowl" guarantee to investors and bankers that their asset holdings will skyrocket in value.
Oil can not be manipulated by the Fed like all other stocks. This makes oil the canary in the coal mine signalling true economic strengths, not the manipulted asset prices created by Fed liquidity dumps.
This is not the half of it - WTI Oil daily is in the tank
http://bullandbearmash.com/chart/wti-oil-daily-falls-sharply-expecting-w...
And oil stocks, for the most part, have partially responded to oil's collapse
Well boys, looks like this is it. As Tyler so eloquently stated earlier STFS (Sell That Fucking Shit).
The writing is on the wall. Chevon blinked first.
"Suspends Stock buybacks"
How long before others end up doing the same?
I don't understand the concept of announcing 2017 Capex cuts -- another oilie did the same thing for 3 years out. I assume this is to make your stock look more attractive? You would have to think that any capex over one year out is just guesswork anyway. I would think that a smart oilie would be taking advantage of this 'crisis' to lock in lower day rates and lower prices from rigs, drillers and equipment suppliers.
It really makes me feel sad that their stock buyback timetable has been interrupted.
Folks buying their own stock back, to keep the price high, in a market that is already peaky, are more stupid than me, and that is saying something!
oil is dead
cold fusion is here
/www.extremetech.com/extreme/191754-cold-fusion-reactor-verified-by-third...
32 day documented verified test run ...
bottom line... 900 watts in ... 2700 watts out
free energy for the planet
oil is a barbaric relic
So it is better to buy when the stock price is high?