“Petroleum Pendulum Profit Window” Taipan Crisis Trader

By Travis Johnson, Stock Gumshoe, October 6, 2008

The fact that the financial world is coming apart at the seams doesn’t seem to be slowing down the newsletters — I don’t know whether their advice is going to help you keep your portfolio intact while all about you are losing theirs, but they certainly think that the US investors is desperate for advice these days. And they’re excited to sell it to you …

Today I wanted to take another look at a stock that I sleuthed out a few weeks ago, from an ad for Christian DeHaemer’s Crisis Trader.

If you happened to miss that (don’t worry, I love you anyway), it was an ad that teased us about a dictator’s death being a potential windfall in his gas-rich country as it opens to outside companies.

The country was Turkemenistan, and the company was (and is) Dragon Oil (DGO in London, DRAGF on the pink sheets), a company that’s controlled by the Emirates National Oil Company but also traded in Ireland and London.

But the ad has changed — it now includes more about potentially profiting from timing in the energy markets …

“Nevertheless, there’s a little-known annual occurrence that’s been handing dramatic short-term gains for years to the world’s most astute traders of petroleum commodities — and the small stocks that are tied to them…

“I call it the “Petroleum Pendulum.”

“I’ll also prove to you in a moment how this “pendulum” offers the savvy few who know about it a brief window of opportunity every year to buy into tomorrow’s super petro-players at rock-bottom prices…

“And this year, that window is opening RIGHT NOW.

“Now here’s the kicker: Unlike in years past, the 2008 swing of the “Petroleum Pendulum” corresponds with an unprecedented set of explosive profit circumstances for one small, perfectly positioned company…”

Now, let’s be clear — DeHaemer says that he picked this stock over a year ago, and he’s been touting it for several weeks now as it has tumbled Southward. This is not an idea that came to him as a result of the current pricing in the oil markets (which have now given back almost all of their gains in the last twelve months).

Here’s what he says about this “Petroleum Pendulum” and the profit window being presented thereby …

“Just about every market analyst and commodities expert on Earth — whether they’re mainstream, underground or alternative — agrees on this point:

“The days of cheap oil and gas are over. Multiple experts are predicting prices of as much as $200 a barrel for light, sweet crude.

“However, like any other commodity, petroleum products have their price fluctuations. And there’s one specific annual fluctuation in gas and oil prices I call the “petroleum pendulum.”

“But that’s NOT because of new oil deposit discoveries or radical new alternatives to fossil fuel energy — or anything else that will permanently lower the cost of oil and gas.

“It’s because of predictable and typical demand forces that happen every year. Now stay with me here…

“American demand shapes petroleum commodities prices more than any other single factor. And, in America, the summer driving and flying season is over — yet, it’s still before the fall and winter heating energy ramp-up.

“That means oil and gas prices will dip a bit for a few weeks, which has indeed happened…

“Just like it does at this time every year…

“Now, here’s the payoff for you: When the price of oil drops seasonally, shares of smaller petroleum companies can drop in lockstep — regardless of whether these firms have anything to do with servicing America’s petro-thirst…

“Translation: For a few weeks right now, sharp investors can get even sharper bargains on small petroleum companies that don’t directly depend on U.S. demand — yet, whose share prices still fluctuate based on it…”

So … the company is still the same, but now they’re adding a twist to the ad, the fact that the seasonal fluctuations in oil prices are the reason why the shares are down.

Oil and gas prices do have a long history of seasonality, but I think you’d probably find that most folks in this current environment are not focused on the relatively minor fluctuations that are caused by seasonal demand cycles for gasoline, heating oil, and natural gas in the U.S.

The incredibly bubble in oil prices, driven both by emerging market demand and by trading enthusiasm, is now deflating — I have no idea if it’s done deflating or not, but oil has come down almost 40%, with most of that decline coming during the peak driving season, and with hedge funds forced to liquidate their commodities holdings (and almost everything else), and the world economy seemingly grinding to a halt, it seems a little silly to say that this is just a seasonal low in oil prices.

Now, I should be clear here: I also believe oil will be stronger in the years to come than it is now. I may not be right, but I think global energy demand is going to continue to rise, even if we fight our way through some global deflation before prices again begin to reflect that.

And that is, probably, the heart of the problem in the financial markets right now — inflation is caused by increasing availability of money, and, psychologically, an urge to spend it … deflation is caused by there being more demand for money than for goods, and when everyone panics about the economy and tightens their belt, while banks are pulling back and refusing to lend, then prices have to go down for most goods — if only because people are, at least temporarily, valuing cash in their savings account or mattress over big screen TVs, iPods, and oil-sucking vacations.

Let me be clear: I am not an accomplished economist, nor am I a forecaster, that’s just my opinion about what’s currently happening. And since I don’t know where it will lead, or when it will end, I’m pretty much just standing pat and looking for interesting ideas for deploying cash … the same thing I always do.

I do find myself being somewhat tempted by this little company. It’s not all that little, actually, it trades with a market cap of a couple billion dollars. It is clearly not so much a falling knife as a sinking stone, so it’s clearly not a fabbo idea for widows and orphans, but I’ve been watching the shares for a little while and I find the decline intriguing.

Here’s the original article on Dragon Oil in case you’re curious. Oil companies are generally in freefall around the world, so it’s not as though Dragon is alone in that, but they have fallen faster than most. The shares were around 200 pence back when I first saw this ad a few weeks ago, and they’re now right around 150 pence. That’s about $2.65 today, with the pound falling against the dollar in the same direction as oil prices. They do have real assets, and real political risk … the question is, how much are those assets worth to the world, and in particular to the big importers of oil and gas?

Is the “petroleum pendulum” just at the end of one big swing, or is world demand falling apart? Or is it something in between? The only reasonably honest answer is, “I don’t know.” There’s a reason why oil companies are cheap, and the really good, solid big ones are cheap, too, so it’s a distinct risk to take a flier on a little company sandwiched in between Iran and Russia and producing an asset whose price is deflating … even if it does trade at a trailing PE of about 4.


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12 Comments on "“Petroleum Pendulum Profit Window” Taipan Crisis Trader"

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ponce
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ponce
October 6, 2008 12:16 pm
Travis, you are a humble person but we do not want you to become AN ACCOMPLISHED ECONOMIST. Most of the time they are wrong. G. Soros said that the best lesson he learned from London school of economics is to do the opposite to what economists say. The only company I know that was successful in the region was Petro Kazakhstan. I lost money on all other that were touted by newsletters. I have to be very cautious on this one. The market is playing games again with small investors. When congress first disapproved the bailout stocks dropped 700. When… Read more »
Big Mo
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Big Mo
October 6, 2008 8:17 pm

Personally, I’m not wont to buy much of anything right now. The gravitational pull of the market seems to overcome the successes or potentials of any individual stocks at this moment in time. I’m making money on my short ETF’s and not sweating the market drops.
What looks like today’s bargain to go long on becomes tomorrow’s loss rather quickly. A lot of amateurs are collectively pulling big money out; not just out of stocks, but out of bonds, mutuals, and everything else. I’m going to wait, and buy on the uptrend.

stockcrazy10
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stockcrazy10
October 7, 2008 1:30 pm

Travis, your last sentence is the best explanation of our current malaise that I’ve heard. I hope we all survive. Please keep your wisdom flowing!

Axxell
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Axxell
October 8, 2008 12:23 pm

Bloody hell!! Bonnie & Clyde, circa 1932, would try & rob a bank, only to find said devoid of money!!

Ilse
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November 7, 2008 1:37 pm

Thanks for posting Christian’s report! I work for Taipan Publishing Group. If you like Christian’s writing, maybe you’d like to join our free, daily newsletter. If it’s something you are interested in visit http://www.taipanpublishinggroup.com.

Patricia Yates
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Patricia Yates
May 21, 2009 5:19 pm

How does one navigate the Crisis Trader??? I would like to find out or get my money back, please.
Thank you,
Pat Yates

Gravity Switch
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October 7, 2008 9:35 am
Hard to argue with that — when all the big players are deleveraging, it’s awfully easy to get crushed even if you do things that make fundamental sense. I’m not all that worried about the amateurs pulling out — if that was all it was, I’d be buying with both hands, because when most investors are terrified and selling it’s usually a pretty good time to buy. The big problem, aside from the total meltdown of the world financial system, the short term deflation, and long term inflation, is that leveraged institutional investors like hedge funds and banks are selling… Read more »
Rich
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Rich
October 8, 2008 1:25 pm

Bought some KRU today for 1.85.

destry
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destry
October 9, 2008 12:11 am

I don’t think that’s exactly what is happening Travis…
The hedge funds are’t hoarding (At least not as much as one might think)…
They’re selling to meet margin calls, and redemptions for their clients running for the door.
That’s why the selling isn’t selective…
Any asset rich, cash poor entity (Mutual funds, hedge funds etc.), dump assets to raise cash…
And what we’re experiencing is “De-leveraging” honed to a feather edge.

destry
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destry
October 9, 2008 12:13 am

“Bummer”
Talk about adding insult to injury.

Gravity Switch
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11
October 9, 2008 9:17 am

I think we agree on that — perhaps “hoarding” was the wrong word because most of them are just trying to pile up cash to meet redemptions at the moment, but “selling selling selling” is the key. And yes, it’s happening to some mutual funds, too, though they’re generally not levered so it doesn’t have quite as big an impact in relative terms — mutual funds are getting redemptions, some of them very dramatic, but not so many margin calls.

ponce
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ponce
October 9, 2008 11:06 pm

Wait a minute! Selling is not a one way deal. there’s got to be willing buyers. I wonder who are those smart ones or brave one?

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