Goldman Cuts Views on the Coal Sector

The analyst does bring up some valid points but I also think they are just taking some profits. The group is up today despite the downgrade. I remain long the group.

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Since the results of the Presidential election coal stock have been under pressure, giving back on average 10% of the gains seen from hopes of a Romney victory and growing worries about Europe and the "fiscal cliff". This has some licking their chops and looking to buy the dip. But don't do it, say analysts at Goldman Sachs.

Today, the firm downgraded their view on the sector to Neutral from Attractive, only seeing 2% upside on average in the sector.

"We would not "buy the dip" in coal stocks, as our view thermal coal demand will be up 11% next year and met recover to $200/MT by 4Q 2013 appear priced in," analysts led by Andre Benjamin said.

They see four big-picture issues for the US coal industry medium-term: (1) declining US thermal coal demand as coal plant retirements accelerate in 2014-15; (2) US met coal exports being displaced by supply growth from Australia, China and others; (3) limited resource improvements to offset cost pressures and declining reserve lives; and (4) weakened company balance sheets that reduce flexibility for managements to navigate the challenging macro.

"We view coal stocks' recent rebound as pre-trading a cyclical recovery in 2013 that we believe will be temporary," analysts said. "Stocks could trade higher, but our Neutral coverage view reflects our concerns for a group at risk of going off a "recovery cliff.""

Those that can't help themselves should look to "winners" in the sector, Goldman said. They view SunCoke Energy Inc. (NYSE: SXC) and CONSOL Energy Inc. (NYSE: CNX) as "winners" given: 1) Lowcost, visible organic growth; (2) favorable resource base/capital structure catalysts for multiple expansion; and (3) strong balance sheet with flexibility to return cash to shareholders. Losers in the sector are Arch Coal Inc. (NYSE: ACI) and Walter Energy, Inc. (NYSE: WLT), both rated "Sell." Neutral-rated stocks in the sector include Alpha Natural Resources, Inc. (NYSE: ANR), Cloud Peak Energy Inc. (NYSE: CLD) and Peabody Energy Corp. (NYSE: BTU).

Ron Paul- We are Already Over the Fiscal Cliff

High Volume Highs 11/9

Not seeing a lot of new high volume highs. The leveraged inverse of the Utilities Spider Fund (Ticker XLU) is up as the sector takes a nose dive. I include because it makes the screen, but this is not an investment vehicle outside of daily trades.

Volume off the high 11/9

Not a lot of names hitting the list today.

Is There Such a Thing as Austrian Investing

The Nationalism of Credit- Mises

CBO Warns of Recession from Fiscal Cliff but Lower Deficit Creates Long-Term Growth

The CBO is out with a warning that the fiscal cliff will likely lead to a contraction in the economy. However, they also said that a contraction in the deficit would put the country on a more sustainable growth path. Here is the summary of the report.

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Significant tax increases and spending cuts are slated to take effect in January 2013, sharply reducing the federal budget deficit and causing, by CBO’s estimates, a decline in the nation’s economic output and an increase in unemployment. What would be the economic effects of eliminating various components of that fiscal tightening—or what some term the fiscal cliff?

To answer that question, today CBO released a report—Economic Effects of Policies Contributing to Fiscal Tightening in 2013. This report provides additional details about the agency’s estimates—originally released in its August report An Update to the Budget and Economic Outlook: Fiscal Years 2012–2022—of the economic effects of reducing fiscal tightening.

As CBO projected in August, the sharp reduction in the deficit will cause the economy to contract but will also put federal debt on a path more likely to be sustainable over time. If certain scheduled tax increases and spending cuts would not take effect and current tax and spending policies were instead continued, the economy would grow in the short term, but the government’s debt would continue to increase.

This report focuses on the economic effects of eliminating individual components of the changes in policy that are scheduled to take effect: the automatic reductions in defense spending; the automatic reductions in nondefense spending and the scheduled reductions in Medicare’s payment rates for physicians; the extension of certain expiring tax cuts and indexation of the alternative minimum tax; and extension of the payroll tax cut and emergency unemployment benefits.

Eliminating the first three of those changes—which would capture all of the policies included in CBO’s “alternative fiscal scenario”—would boost real (inflation-adjusted) gross domestic product (GDP) by about 2¼ percent by the end of 2013. Eliminating all of those changes would boost real GDP in 2013 by about 3 percent. The bulk of that impact would stem from changes in tax policies, CBO estimates.

This report was prepared by Ben Page and Felix Reichling of CBO’s Macroeconomic Analysis Division.
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Unless something out of the ordinary happens, the fiscal cliff will likely be "solved".