Drilling Rig Market

Noble Corp's acquisition of Frontier Drilling and subsequent lease deals with Shell have provided invaluable insight into the state of the offshore drilling industry.

Eyeballing the dayrates, it looks like rig rates in the Gulf of Mexico have fallen 25%. But elsewhere, the drop is much less, maybe 10-15%. The rig companies have all fallen much farther than that. In addition, Seadrill is still not on the radar of the MSM. They are not yet listed along with Transocean, Noble, and Diamond Offshore. In my opinion, this is a golden opportunity to buy more.

Go, Mr. Bond, go! I've been called "too bearish" by friends. To me, that term doesn't make sense. Markets are like see-saws. If you're bearish on the equity market, you are probably de-facto bullish on the bond market. Dave Rosenberg (the only bond bull besides myself that I know) is calling for 880 on the S&P if it breaks 1050. And 2.5% on the long bond is possible in the next few years. Back to the S&P 500. The head and shoulders pattern is complete (barring a late-day rally), as it has sliced through all the way down to 1045.

Trades at day's end:

Sell to close 10% position in EDZ @ $49.02, +19.4%.

I looked at closing either this position or the SPY 108 put. They both have roughly the same profit if I sell them now, but the SPY put has more upside because it has more leverage. Part of me really wanted to ride this thing down more, but EDZ is not a long-term holding. A week is perfect.

Buy to open 10% position in SDRL @ $18.09.

See drilling market analysis above. In a couple of years when SDRL is paying out $0.75-$1.00 per quarter, I will look back and wish I had bought more.