BOE’S POSEN SAYS TIME FOR CENTRAL BANKS, INCLUDING BOE, TO BUY PRIVATE ASSETS, POSEN SAYS BUYING PRIVATE-SECTOR ASSETS WOULD HELP ECONOMYUMR can take all kinds of forms, but almost universally the outcome will be bizzare and unpredictable. The first rule is that the Bernanke and Government put is just not at the high strike generally imagined. The second rule of calibrating UMR from an actionable point of view is that the monetary printing or QE will not go where the Wizards want it to go. In fact most likely it will end up where they don’t want it to go.As a result UMR will have a very depressive effect on the real economy and especially consumers. Wizards then try to counter that by screwing even more with the markets, changing the rules, allowing banksters to loot customer’s money MF Global style, outlawing shorts, arresting speculators and hoarders, seizures, changing margin requirements, strategic releases and so on.Besides harming gente around the world, I think that one “unintended” place UMR tends to flow is the energy and resource sector. This sector is already highly disrupted because of the capital destruction shenanigans of CHK and their ilk. However now is not yet the time to speculate on leveraged, capital destroyers. Timing is important, but I feel $75 is equilibrium on oil, and UMR and/or geopolitics could easily create a standard two deviation move higher, not lower.A two deviation higher event or even one and a half will create monster home runs in the derivative names in energy and in what is called the New Industrial Revolution (NIR). I am following up tomorrow with my post on NIR, an important concept. An example of prime NIR names would be PWER and GTAT which represent extreme deep value, barely trading above cash value.Even more important than UMR and geopolitics, to even maintain global energy supplies and to prevent collapse requires huge expenditures and capex. Fail to spend and turn out the lights. Skip adding nutrients to soil, get a bad crop and so on. In fact this is classic collapse theory (see Joseph Tainter, Jared Diamond) which I would strongly recommend that you have an solid understanding of. The core principle of collapse economics holds that in the energy-complexity spiral, complex systems thrive on cheap energy. Historically, this has been true of food, which is highly correlated.The Tainter complexity principle states that the status quo can only be maintained at enormous cost, with wealth used up just maintaining food production, water supply and hydrocarbon energy. I wrote a series of posts on this topic starting with:Collapse Outcomes: Hitting the Food Brick Wall: Part IWater Roulette -and especially HydrocarbonsThis is NOT a risk on trade, it is a survival trade. Personally I feel the planet is going to come up short on the investment necessary, but that doesn’t mean there won’t be an attempt to stem it. These trades are pending the trading actionable discussed in Wednesday’s post.Right now we are offered a very good opening in this under-owned complexity maintenance concept. . Besides uranium, which I discussed, I would favor the pick and shovel service companies at this juncture. An example is a company like McDermott (MDR). MDR is an engineering, procurement, construction and installation company focusing on complex offshore oil and gas projects worldwide.Numerous insiders made over $2.5mm in new purchases recently. The big one was at 9.64, which is the level I will try and enter. The company reported a quarter in May that easily beat estimates. The company just won new two contracts on platforms in the Gulf of Mexico and West Africa.The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/S and P/CF. The company has approximately $750mm in net cash on its books (over 30% of market capitalization). It is selling for under 9 times forward earnings and 6 times on an enterprise value basis. The stock has good technical support at the 9.50-10 level.Other situations are the offshore oil-field services stocks which will benefit from the end of easy oil, and the increasing expense of incremental production just to maintain production. Current “simple risk on-risk-off” trading patterns completely fail to comprehend the Tainter complexity maintenance theory. I will have more on these companies as events unfold.
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