Goldman Is Now Selling Oil Equities: Advises Clients To Buy Oil Equities

Following its admission yesterday that it is now buying oil by telling clients to sell Brent to $105-107 a monther after advising anyone who cares Brent was on its way to $130, today we learn that Goldman is actively dumping its prop, pardon, there we go again, flow, FLOW, inventory of oil equities to idiots, pardon, clients. As to how dropping crude prices and thus collapsing profit margins is beneficial for energy producers, that is one we will long be scratching our heads over.

Potential SPR release consistent with expectation of tight oil markets: We recommend buying the dip in oil equities.

There is no change to our Attractive coverage view for the integrated oils sector following news on June 23 that the International Energy Agency (IEA) was calling for a 60 million barrel inventory release from strategic petroleum reserves (SPRs) held by member countries. While we recognize that the potential release of SPR-held oil into commercial markets could weigh on oil prices in the near term (e.g., Brent oil prices fell $5/bbl on June 23), we believe the release is consistent with the bullish underlying fundamentals we have expected, including the following points.

We continue to believe effective OPEC spare capacity is limited, a point reinforced by the IEA’s comment that the SPR release is in part needed to meet summer oil demand—a remarkable admission, in our view.

I don't want to take sides, but let's try to be objective here. Who knew the government was going to "attack" the oil markets? This wasn't a fundamental call. Oil was already going down when Obummer attacked the futures speculators. It was already baked into the cake that oil may decline to the $85 level on WTI. The problem has been that speculators don't have limits on Brent and the spread was very large to WTI. A decline in Brent would help take the pressure off the whole world economy and either the Saudi's couldn't or wouldn't pump enough to affect the price of Brent.

Goldman could advise to buy oil at 90 or below if they didn't know the gubmint plans to stab them in the back. Now that the gubmint has made it known that they are willing to take fascism to a new level, Goldman may say get the hell out. We already know Obama is willing to screw bond holders to help his cronies, so screwing the oil companies should be a no brainer. If a company like Goldman makes a recommendation to buy oil thinking things can only get better for oil prices and then the government comes in to manipulate the markets, then Goldman would be a fool not to trade out of their positions and run for their lives.

I'm not that big of a fan of Goldman, but almost anyone can build a negative case on a broker if they are nimble and move their money when it's called for. It would be foolish to sit there and stare at their losses mounting just because their recent call proved wrong. As for telling a client to buy equities, we don't know if they are a short term trader or a long term investor. I will tell you right now that you can probably buy XOM right now, today, and hold it for a year and make money. The next month or two could be rocky though. Goldman trades thousands of trades per hour, so they could easily buy and sell XOM 30 times a day. Even looking longer term, they could have a different strategy such as selling puts at a lower strike while shorting the stock into a lower price. This is done every day by sophisticated investors.

As an example I watch the charts of several stocks and the ones that have a gap lower than the price and are moving down at the time, I may sell a put at the gap price while buying puts higher than the gap price. I know it's going down but I don't mind owning it at the lower gap price. In this situation, I would have a bullish bet and a bearish bet on at the same time and you may think I was crazy.

For people that don't trade all the time and don't know Goldman clients goals, it's easy to make negative remarks about something they know nothing about. This info is worthless unless we know more detail and I don't think clients want their info in the headlines. Even congressional hearing are tedious on these subjects because we have congressmen like Sheila Jackson Lee that can't balance their own checkbook speaking on sophisticated investment strategies. The crackheads in her district may be impressed, but that doesn't mean anything in the big picture. These are just noisy headlines without more facts. Just to make Goldman's argument for them, why would they screw paying customers on purpose to make them lose money? The customer gets pissed and moves his money somewhere else and Goldman loses fees and working capital. If your going to be evil, you need some sort of angle to steal their money. Having said all that, I invest my own money myself. I don't trust anyone to care about my money as much as I do. If I lose it, oh well, but if they lose it, they still have a good weekend and buy that boat they had their eye on. No one will love your children like you do, so I home schooled mine and I have managed my own money for almost 40 years. I retired at 50 and many of the people that retired at 65 have already lost all their money and are greeting people at WalMart. Times are tough for me, but not that tough.

Goldman in this case is probably being used as the intermediary for the administration. The profit from the oil is most likely payment for the administrations desire. Strictly speaking its just a business transaction. That said, what is the purpose of releasing the SPR and the raid on commodities? We know they have raised margin requirements starting in the precious metals, then into oil, then in the agricultural commodities. Alot of money was flowing into these sectors for 2 reasons: 1. It was about the only game in town left since there is something tangible, and 2. the enormous amount of liquidity being pumped into the entire system from QE1&2 along with whatever other governments where doing.

Before QE2 was announced, the commodity sector was hit in order to drive prices down and gain some control of inflationary pressure and of course claim we are having deflation and need more liquidity(print)to shore the system up as justification. If not QE2 would have led to a far more rapid rise, but as we all know it only delayed the inevitable inflation in food and energy that they tried to hit just recently. This is just a repeat of the same thing though I don't think they will call it QE3. They will try to disguise it via some other operation. Seeing Bernake’s statements this week, shows he is setting the stage for this.

Of course this next round will not work like last time, the time to when we see money injected and the consequences in the commodity market will be shorter this time around as well and probably far more sever though that may depend on Europe which this next round will try to be used to stop them from having a Lehman moment. The good effects of inflation have now given way to the bad effects. We are now entering the end game which is hyperinflation. This administration may be trying to keep things alive for the next election but time is no longer on there side. Besides, I believe Obama really desires the inevitable outcome as he is far to calm for someone with such a narcissistic personality. As Raham Emanuel said, never let a crisis go to waste. It is the hallmark of thieves, butchers, and totaltitalitarians.

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