“Look, there is no doubt that stocks are at ridiculous levels after yesterday, pricing in some pretty absurd assumptions. We got incredible reports today from Diamond Offshore (DO) and National Oilwell Varco (NOV), and both had great orders through the quarter, as if the decline in oil hasn't mattered. These orders are not placed with the idea that the price of crude is going to keep dropping in 2011-2012 when they need the rigs. It's a funny thing. Most of the oil companies didn't believe in the prices that were north of $100. Companies like Devon (DVN) were vocal that the prices were wrong and they sold futures aggressively. They just dumped and dumped. Now I think they are starting to believe the prices, thinking they reflect the short-term glut but not the longer-term shortage. The issue then is will day rates will hold up and make these drilling companies' long-term values. We know this: A great company like Transocean (RIG) sells at 4 times earnings, which is a prediction that 2011-2012 will be maybe one-third in earnings vs. what they have now. This industry is starting to differentiate itself from the minerals extraction business where the orders are being cancelled, as we know from ABB (ABB) this morning. Above all, there is tremendous confusion. Diamond Offshore pays a special dividend; Transocean is struggling to digest Global Santa Fe; National Oilwell pays no dividend even though it has a lot of cash. Meanwhile the big oils, like ConocoPhillips (COP) keep buying back stock a lot at much higher levels. They are not drilling more than they were. It is a decidedly difficult picture: The big companies are cutting drilling programs, buying back more stock -- which hasn't worked -- and talking about increasing dividends. Not good for RIG and NOV and DO. But someone is placing these orders, or you would not see such full order books. At a certain point you just own 'em, but as I said earlier, without dividends I have no idea what that point is. NOV traded at $9 when oil was in the $20s. I don't think it gets there. We are back to where we were when oil was at $40 before we thought oil might run out. That would mean you should be buying. But -- and this is the big "but" -- this analysis could have been done 20 points ago when oil was at $80. And the owners of NOV are all wrong, all hedge funds, no mutual funds that I can tell. I am buying NOV for Action Alerts PLUS. I don't think it has bottomed. And I will be wrong if oil goes to $30. If oil is cut in half, I will be wrong. But we have to remember in the case of this company, it bought one of its chief competitors, it is a better company than when oil was at $40 last. Should it matter? Not in this market. But in another market, yes. The issue as always: Who can take the pain of buying this stock at $24 and then seeing the Oil Services HOLDRs (OIH) pushed down 15 points to where it was when oil was at $40? That would put NOV down into the teens. Certainly a possibility because the ETFs, not the common, are in charge here, and they can be pushed down so easily with so little money that the tail continues to wag the dog.”

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