Morning Call [7:56am ET] As this morning capital markets seem stuck in neutral, I got caught up reading articles in the Wall St. Journal. One I found interesting is from Jason Zweig who says “legendary investor Seth Klarman is worth listening to, especially as he is more worried than ever.” Klarman’s Baupost Group manages $22 billion reportedly returning an annual average of about 19% since inception in 1983 and nearly 17% this decade.
Klarman says he is “more worried about the world, more broadly, than I ever have been in my career… Will money be worth anything if governments keep intervening anytime there's a crisis to prop things up?... For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions… All we got out of this crisis was a Really Bad Couple of Weeks mentality."
Because of Interventionist monetary authorities continuously interrupting capital markets for their own purposes, Klarman says we can make good investing decisions and still end up with bad results if our profits are in currencies that do not hold their purchasing power.
But does Klarman recommend the usual hedges? He says: "All the obvious hedges (commodities and foreign currencies) are already extremely expensive… Near its all-time high, it's a very hard moment to recommend gold." His company is buying "way out-of-the-money puts on bonds… cheap disaster insurance for five years out.”
I have been saying pretty much the same thing for a long time. The Trade of the Generation was to sell Bonds and buy Gold. As interest rates are artificially low, Bonds make no sense to me at all. Gold at times is a crowded trade and will periodically sell off, which will give opportunity for additional purchases. As for equities, wait for a long-term cycle bottom to the stocks of the highest quality companies and then buy with a multi-year horizon using call over-writes when the prices get too high and put writes when the prices are over-sold.
As for the junior goldminers, I believe that’s another Trade of the Generation. Timing can be tricky there though as many of these stocks are illiquid and plummet in price every time that Gold sells off. My Junior Gold Brief is in production and should be available any day. I’m not rushing it for a couple reasons, but it will be out soon.
Finishing up this blog, I see a small lift to equities and commodities and precious metals, but nothing inspiring yet. You might want to be careful with bonds though.
Have a great day.
CTA Trading Desk Post-Close Report
Early morning strength in the Euro (FXE+0.34%) motivated buyers to aggressively bid up equities in the opening hour, hoping S&P 1040 had been successfully defended yesterday. A reflex rally was underway. Upside enthusiasm began to waver around midday, however, as the trading in British Petroleum (BP-15.8%) began resembling a stock headed for bankruptcy. Frenzied selling morphed into panic dumping of BP, and its collapse in market cap eventually torpedoed the broader market with most averages sliding into the red, closing at their worst levels of the session (S&P-0.59%).
During the last week of May with BP still trading north of 40, a large institution bought tens of thousands of Jan. 20 puts, an obvious sign that somebody felt the company could go under. If BP were to fail acrimony would rein supreme, pitting allies from across the pond against one another. Counterparty risk would once again become dinnertime conversation, evoking scary memories of the Lehman Brothers debacle and certainly damaging investor psychology towards owning risk.
The early morning rally in the S&P stopped right at the 50% retracement of the most recent sell-off, a logical spot for selling to emerge. The ugly late afternoon reversal leaves the index perilously close to key support, keeping traders extremely tense as the tape twists around the important pivot. Also worrying traders is the weariness and lethargy of that shining beacon of Bull market speculation, Apple Computer (AAPL-2.45%). This change in character may mean large capital pools are starting to part with their favorites, concerned that all 2009 profits could quickly vanish if the market breaks support.
If the market manages to fend off frisky Bears at S&P 1040, expect a rather sizable short squeeze to ensue. The Bears are doing everything they can to tank the market (witness the intensity of selling in the TRIN indicator over the past week) and will be forced to cover if their assault fails.
Traders should have no preconceived notions about the eventual outcome; let the price action dictate the winner of this heavy weight bout.
Have a great evening.
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Comments
Housing. No surprise...I got lucky selling 1. Other 2 no traffic
Home Purchase Loan Demand Slumps for 5th Week
Reuters | June 09, 2010 | 07:12 AM EDT
U.S. home buying applications sank for a fifth straight week to a fresh 13-year low, the Mortgage Bankers Association said on Wednesday, suggesting that tax credits had robbed more from future sales than expected.
Demand for loans to purchase houses fell 5.7 percent in the week ended June 4 to the lowest level since February 1997, even after adjusting to account for the Memorial Day holiday.
"Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April," Michael Fratantoni, MBA's vice president of research and economics, said in a statement.
Hedge funds hit in 'monstrous' May
http://www.telegraph.co.uk/finance/newsbysector/ba...
Volatility hitting some of the big players. Seems they weren't prepared for a waterfall event and volatility either.
BP: CDS spread widens beyond 300 bps
BP PLC 310.20 bps +49.45 bps +18.96%
http://www.cmavision.com/market-data
Cara 100 Update (Final)
Continued from the end of yesterday's commentary:
BBY - price target lowered at BofA/Merrill to $44 from $50 ahead of 1Q results, which will be released on Tuesday, June 15. Maintain Neutral rating.
TXN - Brigantine Upgraded Texas Instruments to Buy with a $30 price target citing the company's Q2 update and recent pullback in shares.
TXN - estimates increased at UBS through 2011. Company boosted guidance in its mid-quarter update. Neutral rating and $25 price target.
1066 Again
Looking North this time. CAD being Green this time of year.
Nokia shares fall on profit warning talk
LONDON, June 9 (Reuters) - Shares in top mobile phone maker Nokia (NOK1V.HE) fell 2.5 percent as traders cited speculation the company could issue a profit warning.
SOURCE: http://bit.ly/byVhIl
Inv. Intel
Latest graph posted 6/9
South-African gold stocks
I saw here that Morgan Stanley initiated coverage on four gold stocks based in South Africa:
http://www.goldalert.com/gold-stocks.php#coverage_...
I'm kind of surprised they weren't all rated "Overweight" given analysts' penchant for being way too positive most of the time.
STD defies Contagion
In a Trojan like move, STD buys 2.5 Billion stake in it's Mexican arm.
(pardon the pun).
http://www.marketwatch.com/story/santander-pays-b-...
Sign of the Times: Commission to address the deficit
Courtesy of Everbank's the Daily Pfennig:
"Remember a few months ago, the President announced that he was forming a commission to address the deficit? Well, guess what? The commission that was formed to figure out how to cut the budget is over budget! YES! They've already spent the money that was allocated to them and more!"
Klarman
That really sums up the environment, doesn't it Bill!
Apropo this, I've really been noticing the weakness of the US markets within my portfolio over the last couple of weeks, especially the last couple of days. It might be a temporary blip, or maybe not.
The first attachment below shows a solid breakout for the canadian markets relative to the US markets, both denominated in US$, during the last week.
I'm hesitant to get too excited because 1) I'm well aware that CAN$ has recieved some, perhaps, exhuberant support during this dirty-shirt crisis and 2) as the second attachment shows, can/us equities relative performance has been in a bit of a sideways channel since last summer and we're near the upper end and 3) the channel itself is at a fairly high historical level.
As such, the breakout I see in the first attachment might end up being only a short term trade so requires tight stops and if the past year is any gauge, this period of CAN outperformance is likely only to last less than a month.
Tell me ' Nobody ' knew the Administration
' might change ' their stance on offshore drilling, as announced about 30 min. ago... odd, wasn't it, that Goldman posted yesterday, pre-market, that the moratorium " could be expanded to 12 months "... Total B.S.
Looks like the shine is starting to wear off!
A Washington Post poll found that the percentage of respondents who say President Barack Obama doesn't understand the problems of people like them has hit 48 per cent — the highest level since he took office in January 2009.
Read more: http://www.cbc.ca/technology/story/2010/06/09/bp-e...
Re: Looks like the shine is starting to wear off!
Can't polish a t..d
Re: BP: CDS spread widens beyond 300 bps
(Updated)
This doesn't look good at all.
BP PLC 383.48 bps +122.73 bps +47.07%
More U.S. lawmakers demand BP halt dividend
WASHINGTON (MarketWatch) -- BP PLC (BP 33.93, -0.75, -2.15%) should stop dividend payments to shareholders until the oil major stops the runaway well in the Gulf of Mexico and cleans up the mess from the disaster, a group of U.S. lawmakers said Wednesday. Democratic Reps. Peter Welch of Vermont and Lois Capps of California plus 41 other House members made the demand in a letter to BP's chief executive Wednesday. BP has until July 27 to decide what to do about its second-quarter dividend.
More U.S. lawmakers demand BP halt dividend
[duplicate post]
Re: More U.S. lawmakers demand BP halt dividend
Mark,
I suppose they may decide to cut the dividend — just as long as the exec bonuses remain intact.
Maybe BP will act like FCX . that announced dividend cuts
when around $ 22 a year+ ago... Sept. 1996 on the 20 year charts looks interesting.. between $ 29 and $ 30......
Reply #64222
Grym,
I don't think the CEO will remain in his job for much longer. The potential cost of the clean-up and compensation to businesses for loss of income, and the subsequent fines is going to reveal the underinvestment in safety and equipment to be the false economy it was.
Not trend change yet.
look at the volume folks. this is just a natural bounce. not a trend reversal.
on March 29
65.3 million shares came out of ' lock-up ' at aone ( per 5/18 post )... been counting coup now... watching for/after June 30 (fisical calender)transactions, SEC filings... no hurry.
Re: Not trend change yet.
extremely low at GE and MSFT...
UP AGAINST IT
ALOHA!!
Klarman opines on worrisome government intervention ...
Klarman says he is “more worried about the world, more broadly, than I ever have been in my career… Will money be worth anything if governments keep intervening anytime there's a crisis to prop things up?... For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions… All we got out of this crisis was a Really Bad Couple of Weeks mentality."
I always try to look at the BIG PICTURE in terms of what governments face. What governments do directly effect your bottom line, no matter what business you are in. It is the incessant "piling on" that makes the US government UP AGAINST IT! The piling on of promises equals the piling on of debt. If you think about these promises they are nothing but a way to get you to vote for a candidate and a party. Look at the "promises" that Obama has made.
Last night I covered the SNAP(Food Stamps) promises ...
Les last night posted on Australia and since he is in Switzerland I thought I would put those SNAP numbers, those SNAP "promises", in perspective in an international way. How many people here have ever been to Australia? Switzerland? Beautiful countries to be sure. Now imagine your trip there and getting off the plane and everyone you meet from the airport to the hotel to the various tourist sights, the taxi drivers, the waitresses they are all begging for food. Imagine none of them have any food.
The population of Australia is around 22.5 million. The population of Switzerland is around 7.7 million. Combined total of both countries is 30.2 million people. Total number of Americans on SNAP(food stamps)as of March 2010 is 40.5 million, almost 10 million more than the entire population of Australia and Switzerland combined. Now THAT is one hell of a lot of "promises" to pay for.
In 1970 total Americans on Food Stamps was 6 million people, or 3% of the total US population. Now with 40 years of government intervention it is 13% of total US population. All this $13TRIL of PUBLIC DEBT and what do we have to show for it? More debt and more hunger! Something got horribly mismanaged all these decades.
Now Chinese workers want higher wages and it is looking as if they will get them. That will translate to higher costs at WalMart and less buying power for America's Middle Class. As much as WalMart is hated by the unions and the Garafallos of America poor people have to shop some where!
I totally agree with Klarman and his assessment of the Great Depression V2.0. Its been about as phony as a $4 Bill(inflation adjusted)from the view point of those standing in line at SNAP offices. They could care less about money supply or jobs reports or PMI or QE, because from where they stand they can't even afford to eat in America and its not because food prices are so low. Now that has to be one of the most depressing and humiliating things a human being can ever feel, especially an American, who did go through the "real" Great Depression and is ending their life in the same exact lines they grew up in.
40.5 million ...
Re: UP AGAINST IT
Re. "In 1970 total Americans on Food Stamps was 6 million people, or 3% of the total US population. Now with 40 years of government intervention it is 13% of total US population. [...] More debt and more hunger! Something got horribly mismanaged all these decades."
Hummm, was that because of govt. intervention or because big companies (HB&B included) got richer, and the richest people also got richer while the poorer got poorer?
Re: More U.S. lawmakers demand BP halt dividend
ALOHA!!
My God look at the hubris ...
How about halting Congressional pay for the financial and societal disaster they have wrought over the past 40 years? How about halting all pay at the US FED for their inane monetary policy failures? Do these Senators know that BP can pay dividends and also clean up the oil spill? Will 2nd Quarter dividends be that crucial? Government intervention into private company dividends and pay is not the path we want government to go down. Once that ball gets rolling it will never stop until the private sector is public.
40.5 million Americans on food stamps. Is that not a disaster?
gold stocks
HUI down about %10 from its recent highs, yet gold is just off a few $$$
gold mining companies will have their assets seized and plundered by governments desperate for cash should the current economic crisis continue into next year.
is anyone really naive enough to believe that governments w/ a delicate hold on their power will turn to even larger deficits and higher taxes on their poverty stricken populace as opposed to plundering rich stores of precious metals wealth at the hands of multinational's who will have no recourse?
the risk that was never properly factored into the market a la Nasim Tablib's black swan-esque concepts is no different than the lack of risk pricing in mining companies operating outside the US and Canada. perhaps the gradual loss of value has attempted to level the field in the miners while the salesmen and well-wishers claim a host of other baseless and disproven reasons why a resurgence will occur in the sector as a whole.
when the first latin american or african despot takes a large share and nationalizes a productive mine from a major or mid capped producer and no legal recourse is plain to see in 2010 and 2011, people may then begin to appreciate how risk is not being factored in correctly into this equation.
sit back and continue to watch miners suffer while gold breaks new highs. watch how the ratio's of the HUI and XAU never return to their pre-2008 highs, and endless emails are posted about such and such outfit making deals with dictators... only to recoil in disgust and shock when their asses are handed back to them on a platter.
stick to US and Canadian outfits imho, they are truly your safest best for those who invest in gold because they beleive instability is the mark of the future.
good luck....
Re: UP AGAINST IT
ALOHA!!
What I am saying is that the funding of these GREAT SOCIETY social experiments from the 1960s has yielded much more debt and less than stellar results, which will translate to even less stellar results for future generations who have to pay that debt service even as the poor get poorer. For those who do not understand the term "government intervention" in a context other than "trading" it is when the government takes money from someone who produces assets and gives it to those who produce liabilities.
The example of the first Social Security recipient is a perfect example. She paid into Social Security a total of $24.75 yet at her death at age 100 received a 92,400% gain of $22,888. Who paid for that 92,400% gain? That to me is "government intervention" the same as TARP and the same as demanding BP pay no dividends.
And, yes, HB&B got richer from government intervention. Had there been no TARP would there be a GS or JPM or AIG or GM today?
Re: Housing. No surprise...I got lucky selling 1. Other 2 no ...
NYUGrad,
Congratulations on selling #1! I hope #2 and #3 aren't competing with forelosures or short sales. NYC is considered one of the better places to rent vs. own so hopefully that works in your favor for the time being. These record low rates will help if they are in the modest price range. FYI Lenders and realtors are all-a-lather closing their tax credit sales in June so a little lag is sales action is likely. I just closed one in 15 days to beat a local HB&B to the post. HA!
Re: Food Stamps
An old army buddy from the Military INTELLIGENCE end began a new career after our tour of duty, that of an auditor investigator for the FDA. His two biggest busts were a west coast federal judge and a congressman. If memory serves me total was over seven million in food stamp fraud. Every gov't appointed and elected official needs a term limit.
I am market neutral and out of short positions.
full shake-out
could place BP at $ 27.80.. that is the place I could best pin down on the Aug - Sept, 96' flows... right around the 2-3 rd/ week in Aug., 96'//
Jawbone of an Ass
I'm gonna throw up in my mouth.
"economy can withstand rate hikes"
"rates will rise before full employment"
"moderate recovery"
waaay too much faith in the central banking class...
Re: UP AGAINST IT
It appears the free press may be up against it too. I guess we should all apply for food stamps and hold out our bowls for more gruel please. Check out this respected news source:
http://presstv.com/detail.aspx?id=129705§ionid...
Re: Housing. No surprise...I got lucky selling 1. Other 2 no ...
#1 was a condo in NJ.
#2 and 3 are attached homes with tenants in Raleigh NC. The issue isnt foreclosures. the issue is no traffic. Just like anything in sales, you need to feed the pipeline. i am lucky to get 1 showing every 2 weeks.
also the traffic fell off a cliff after the housing credit expired.
Raleigh Durham has been quite stable in price, otherwise.
Re: Not trend change yet.
Let me provide a little visual to your conclusion. Attached is SPY daily. Formation is self-explanatory. If SPY is holding under this descending blue line and breaks that horizontal brown one, look out below. For a reversal, I'd need to see it going over blue line, retesting it from above and holding, coming into 110-11, breaking it, retesting from above and holding. Then and only then I will be looking at this chart as potentially bullish again.
BP Capitulation day?
29.xx now
Re: BP Capitulation day?
I don't know, Pillzilla.....but here's one guy who thinks BP is going to zero:
http://www.thestreet.com/_yahoo/video/10779288/bp-...
video - running time 4:32
Regards,
BH
Re: BP Capitulation day?
It sure is ugly. Standing clear myself.
BP, RIG, MON !
... http://www.staples.com/sbd/cre/marketing/easybutto...
EUR/USD
EUR/USD back under 1.20
All out except my bullion.
"gold mining companies will have their assets seized and plundered by governments desperate for cash should the current economic crisis continue into next year." dr cosa
good point.
Re: More U.S. lawmakers demand BP halt dividend
"40.5 million Americans on food stamps. Is that not a disaster?" - kaimu
Who makes the gov't cheese? Anyway, that's freakin' scary, dude.
now that cnbc is floating bankruptcy for BP,
heck, why not $ 22.00....??
I understand there are other big oils
but BP deserves a lot more hurt.
along with their political friends in DC. I am over joyous that BP is now on the ropes fighting for their financial survival.
in fact, i think BP going bye bye is the only way Obama keeps his job.
Re: gold stocks
Dr. Cosa ,I would also include Australia as far as I know they have not ever plundered either their corporations or the private citizens gold . whereas the government of the U.S. has. Bob.
The US is doing an Incredible amount of damage
in its ability to attract future foreign investment in infrastructure, etc.. This is what happens when you really have nowhere else to turn... like a cornered animal. Like a messy divorce " Somebody is gonna pay, and it ain't me ", this mentality is simply a carry-over from the everyday aggression expressed on the street, TV and politics..
Re: Not trend change yet.
Thx. My opinion is that line will be taken out soon. been there already three times since the fat finger.
Re: UP AGAINST IT
In some ways I think this is/will be worse than the 1930s depression.
Back then people were totally unaccustomed to expecting the government to "save" them. The independent spirit was much stronger.
We were still on a manufacturing upswing and the mechanizing of agriculture.
World War 2 massively increased our production capacity with little competition from any other country — a nearly closed system.
All of the above is now reversed.
I have been concerned for two decades as I've watched our deteriorating middle class. This has been what made America unique.
Re: BP Capitulation day?
Here's a spammer who thinks BP goes to 0.
http://tinyurl.com/3x399hr
Ramp of Pimp
"They" or the Elliot wave and crowd emotion jacked up this market to between 50% and 61%. Funny how Bernanke was pimping out the market the last 2 days. When was the last time we heard "the problem is contained, there will be little spillover"...hmmm housing market, sure glad that didn't hurt the economy or wallstreet. But the joke is the Bernanke conditioned his comment that Europe would not spill over into America as long as Wallstreet was OK. Huh? Blatant manipulation and lies. Wallstreet and the economy are hardly attached, but fundamentals drive Wallstreet rather than the other way around. Bernanke implied that it was the other way around, that Wallstreet could save Mainstreet. Before growth can occur we need at least 2 things---a reasonable level to grow from, and ATTITUDE change.
This stop run was amazing. Hope some of you folks like these posts.
Apple long term chart - monthly
Eventually i will build a sizable position. not now, thats is for sure.
http://bit.ly/b91Gkv
would need to see macro conditions improve and relative strength + bases.
Also adding NFLX to this long term watch list.
Still waiting patiently...
...but getting hungrier every minute.
146 years head of his time
Bill I thank you for all you do as well as all the regular contributors. I came across this and thought what an American this man was.
"We may congratulate ourselves that this cruel war is nearing its end.
It has cost a vast amount of treasure and blood. . . .
It has indeed been a trying hour for the Republic; but
I see in the near future a crisis approaching that unnerves me and causes
me to tremble for the safety of my country. As a result of the war,
corporations have been enthroned and an era of corruption in high places
will follow, and the money power of the country will endeavor to prolong
its reign by working upon the prejudices of the people until all wealth
is aggregated in a few hands and the Republic is destroyed.
I feel at this moment more anxiety for the safety
of my country than ever before, even in the midst of war.
God grant that my suspicions may prove groundless."
U.S. President Abraham Lincoln, Nov. 21, 1864
(letter to Col. William F. Elkins)
Re: 146 years head of his time
Thank you for sharing
Esbjorn Svensson/ Masquerade
http://www.youtube.com/watch?v=EmpCqU5walE&feature...
Les- Great musician from your neck of the woods.
Killer piano solo.
Svensson died two years ago (diving accident) at the age of 44.
Masquerade is defined as 'an action or appearance that is mere disguise or show.' Certainly one of many ways to create 'maximum frustration.'
Re: gold stocks
Bob 47 -
"Dr. Cosa ,I would also include Australia as far as I know they have not ever plundered either their corporations or the private citizens gold . whereas the government of the U.S. has." - Bob 47
Whoops. Until now:
http://tinyurl.com/2f9hpu2
Cheers.
Re: gold stocks
My bet is it gets down to where the only countries not taxing the living crap out of the miners are Canada and the countries that don't HAVE any mines, LOL.
All the others are just too desperate.
You watch... I think China will actually do it first, then the rest will follow. It reminds me of the "windfall profits tax" on the Oil companies in the 70's. Somehow it corresponded with the killing of the golden goose.
Overnight Eur/USD on some stimulus pills
http://i49.tinypic.com/2daj05w.jpg
September 1996
That's how far you have to go back to see BP at 29: September 1996.
Is BP a zero? Only if the US government says so. BP's future rests on the US government; once again, we have to read the tea leaves and figure out if the government will take down a company.
If BP is a zero, then no company will drill anywhere near the US if the penalty for failure is loss of the company. With peak oil in the offing, can we really afford that? Obama is still in Iraq because of peak oil. The anti-war candidate came into office, and found out we're really going to need the oil after all. I believe the US government will work out some sort of liability cap for business to get done, or else it simply won't get done. And unless we all stop driving tomorrow, this particular business needs to get done.
And if BP is a zero, that will cause serious problems with England. If we throw them under the bus, clearly our closest ally in the world, no good can possibly come from that.
My guess is, because of energy economics and geopolitics, there will be a functional capped cleanup cost. And after extensive use of the pillory, congressional investigations, and political hay-making (possibly including raising CAFE standards, increased gas taxes, some solar and wind power subsidies financed by taxes on Big Oil, etc) at some point the punishment will be deemed "enough", barn doors will be closed, the politicians will declare victory and everyone will go home. Of course it will satisfy nobody (because these things really cannot be "cleaned up" any more than a bell can be un-rung), but it will not bankrupt BP. They make 20 billion a year. The current PE ratio is 5, with the forward PE of 3.91. If "cleanup costs" are set at 20 billion, that's one year's earnings.
My guess is, they'll construct a pot, dump a bunch of money into it, and then let the people who were damaged split the pot over time. Perhaps it will even include a cut of ongoing revenues - a gift that keeps on giving, incentivizing the continued existence of the company.
Proposed trade: write July 20 puts for $1.60 each. If it doesn't go below 20 (another 10 point move - dating back to 1987, 1992, and 1994) by July 16, it makes $1530, risking $18,460 on BK. In 37 days. Or you get the stock at 20, which is a PE ratio of 3.3 with a forward ratio of 2.6. Implied volatility of: 156%. Weekly RSI: 7.8. Even if profits are chopped in half, that's still a PE of 6.6...
What do you guys think - about the trade, not about the social equity. (As if that will stop any of you from commenting!)
FD: No position
Re: September 1996
Davefairtex,
Love the simplicity. Would a money pot be able to split so easily to cure the injustice of our ruined oceans, many millions of wildlife lost and ruined seabed sediments continuing to poison oceanic life forms not to mention those who will lose their livlihoods for the forseeable future. Don't forget that our congress is largely comprised of bankers and lawyers so there will be a prerequisite number of class action suits and federal actions required to make sure the divvying up of assets goes to the attorneys and their backers and the research institutions that legitimize them first.
In fact I have parked my car for all but heavy tasks or absolutely required treks to HQ. Many locals here are biking to work with little tent covered trailers for the kids and groceries bobbing along behind. Given the ability to accomplish most work via the internet we could easily halve our oil needs this decade. Yes I believe (hope) that. Perhaps the 60's is not far back enough -- I'd hope for a pre suburban sprawl economy myself.
Private Equity Taxes---slight of hand?
http://tinyurl.com/2fm5jne
The effects of the tax increase from 15% on carried interest (profit)...to what you and I now pay will, be shifted elsewhere by the crafty denizens on Wall Street. Consumers, as always, will continue to pay ---just my guess.
Rob McEwen: Looking Ahead of the Curve
and talking his book:
http://www.theaureport.com/pub/na/6490
"The U.S. government can make sure dollars circulate, but each dollar they print buys less. The only value in any paper currency or what is called fiat currency derives from confidence in the underlying issuer. The Fed printing dollars endlessly without concern for U.S. debt—that's the darkest hour I see.
In prior periods of hyper inflation, keeping your wealth in bank accounts was probably one of the worst places to keep it. Such periods drives everybody who wants to survive to become a speculator, to take on debt, to do all the things that aren't prudent in normal times. But in these days, an era where the government is printing huge amounts of money, it is the prudent, the conservative, the majority of citizens who are the most harmed."
Re: Esbjorn Svensson/ Masquerade
thanks 2nd, masquerade was the markets intention yesterday and i certainly experienced maximum frustration shorting LVS at the morning lows and waiting the entire day for it to come back down, hanging myself in the process.
Re: September 1996
loannetter - I was not advocating for a particular outcome, nor was I attempting to suggest that a pot of money will make anyone whole. Rather, I was just trying to read the tea leaves and predict what I think might be the likely outcome, in terms of the impact to BP the company. You will remember, I mentioned that the outcome would likely satisfy nobody actually damaged by the accident - in much the same way that a cash payment does not really satisfy someone who lost a limb in an automobile accident.
Here's a link to oil spills through history. IXTOC-1 rates about where we are now.
http://en.wikipedia.org/wiki/List_of_oil_spills
I think it's great you're reducing your own personal use of gasoline. The lifestyle changes you make now will pay off big time for you personally once peak oil hits for real. However, one thing to note: the US produces 5.3 mbpd, with 1.7 mbpd coming from offshore. If we had to rely on just our own production, and eliminated offshore oil, we'd be back to 1939 - the last time we produced 3.6 mbpd. Of course our population has doubled since then, so really we'd have to go back to about 1925 to get a "per capita" sense of what it would be like.
I'm just saying.
Re: September 1996
davefairtex
I realize you are attempting to divine the effects on BP's share price, etc. I rail a bit when anyone glosses over such a massive environmental disaster with no real end as though it were just a trade. A local artist has installed a window display with a huge hose coming out of a small earth on one end with a gas nozzle poised over a bunch of flowers in an oil filled pot with a bouquet of of BP symbol sunflower heads. The title B P spells 'big problem'
The ultimate greed and willingness to sacrifice lives and our planet belies our appetite for the poison, the money, the addictions to what all this buys or may afford us in the ability to fill up our tanks and blithely blast down a motorway. Well that could also end as we may have surpassed the ability to stop the madness with other disasters now coming to light. No wonder whales are mystriously beaching themselves in pristine areas like New Zealand. Are we so far behind? http://tinyurl.com/2atahck
Re: September 1996
IXTOC-1 lasted for 10 months. It was trouble. It eventually ended, and things (eventually) recovered. This too will end, it will not go on forever. Right now, there is more than enough coverage on how things are bad, there's no need for me to weigh in. Of course its bad, it's an oil spill, and they are nasty. Of course it comes from our addiction to oil, which we should individually reduce. Let's take all that as a given. I already have - I don't even own a car. I use my motorcycle for short trips: 60-80 mpg. See, I'm one up on you there. :)
Right now, we need oil, or else everybody starves to death, period. The tragedy we have if we don't have oil will dwarf Deepwater Horizon. You don't want to see starving children, do you? Surely you aren't that mean? (My starving children trumps your sea birds covered in oil)
Peak oil happens in 1-2 years, barring economic catastrophe. Actions we take now affect what comes on stream 5 years out. We really want to stop drilling now when we know that in 5 years the world will be in the throes of peak oil acceptance? Really? This country will be faced with a pressure to conserve very shortly whether it wants to or not. What we have to determine now is what sorts of energy flows we have to address the transition. People in power know this; this will color how they react to the spill and BP.
So now that we've gone through all that, what's the trade? Or rephrased, what will be the policy outcome from this spill? Effects on BP are interesting, but so are effects from the resulting new government policies on other companies, such as solar power, rail use, airlines, gasoline consumption, etc.
OIH:$WTIC
I'm noticing that the oil services companies have dramatically underperformed the moves in oil - I know, big surprise, but I like to quantify things. Specifically, a "mean reversion" trade might be to buy OIH sell $WTIC (or in this case, sell USO, which I'm always a fan of shorting).
I use $WTIC as the denominator because USO did so poorly during the crash it's a bad indicator of how OIH moves relative to front month oil.
If you look at specific companies, you can see how they have fared recently with respect to their customary relationship to the price of oil, using April as the starting month.
NE: -27%
RIG: -47%
DO: -29%
OIH: -18%
Regarding the relative prices, DO is back to the ratio at the time of the 08 crash, and RIG is far below that. That's a lot of bad news factored into the price of these stocks.
Again, long services, short oil is the trade. Still figuring out which companies I want to own.
Re: OIH:$WTIC
Love those ratios, thanks!
Re: OIH:$WTIC
careful with the knife catching dave, BP's paper is trading like junk, even if it hasn't be formally downgraded:
http://www.bloomberg.com/apps/news?pid=20601009&si...
the spillover to your list could get a lot worse before it gets better. Of course, when fear is in... you know the drill
Re: September 1996
ALOHA!!
Dave-Looking at the open interest on call options for BP it looks like a lot more sentiment is lining up for an end to the BP crucifixion. It seems there's always someone ahead of your trade no matter what! Looking out to OCT10 calls and then the leaps into 2011 and 2012, look like much more calls than puts. A couple days ago I mentioned shorting BP, but I would be looking to reverse that as you can only beat a dead horse or a crowded trade so much!
If I went with any options I think I would stay away from any contracts with a strike past 60, since over the past couple years the high was around $62 and I do not see much in the way of any future jump in economic gains that would lead me to believe there would be much more oil consumption that there exists today unless some Middle East war broke out that drove oil prices higher or a currency collapse of a major G7 country.
Now I see a lot more volume and open interest building in OCT10 calls but I would not want to go with any kind of call before the November elections as every politician in America will be using BP as a "whipping boy" to get elected. I would go with options further out in 2011 and from what I see off YAHOO FINANCE it looks like JAN11, yet that is only two months after the November elections so call me cynical but I am not sure that is enough time, so I would look more to 2012 and I see you can get some 50-55 strikes in the $2 range, although I would prefer buying contracts at $1.50, so maybe with some more downside you can get in those leaps much lower than now. Depends on the politics and the relief wells timing. Once BP gets the oil spill to stop the price will reverse, but some estimates put that out to December which would still jeopardize any JAN11 calls when combined with pre-November anti-BP political rhetoric. You must factor a huge pile of BS coming from Congressional candidates who want to look good as they verbally lash out against BP and its CEO and threaten the entire offshore oil industry. Like a bunch of hookers flipping off their pimp when his back is turned. What career US Congressman has ever produced a penny of real wealth their entire political life?
NFIB MOVES UP SOME
ALOHA!!
Well the NFIB optimism has slightly improved but the real meat of small business which is "hiring and capital spending" is still way down on the entrepreneurs wish list! A score below 90 is still very ominous and at record historical lows. I would need much more confirmation than a tiny one month blip to get in bed with the likes of Obama and Bernanke!
NFIB optimism index rose in May, but spending, hiring remained low
Optimism increased at small businesses in May, according to NFIB data. The Small Business Optimism Index rose 1.6 points to 92.2 for the month, the highest level since September 2008. But small-business owners signaled they're still not ready to boost hiring or capital spending. "The May optimism index is a shade better than April but remains well below the other recovery trajectories," NFIB said. "Seven of the 10 index components rose, but job creation and capital expenditure plans barely gained and remained at recession levels." Bloomberg Businessweek
Re: Esbjorn Svensson/ Masquerade
Great music — what a loss. Thanks
Re: September 1996
Dave,
Your scenario seems perfectly plausible to me — lots of noise, signifying nothing.
My only departure is rather than, "The anti-war candidate came into office, and found out we're really going to need the oil after all." I'm quite sure he knew this all along, but he has always been willing to say anything which furthers his own agenda and always will. Just wait until his second term is imminent and he goes into full campaign mode — promises, change of direction, something for everyone — whatever it takes.
As for the trade: I'll leave that to younger people with a secure job/income. I think it's a toss-up if BP becomes a vote getting poster child and THEN a cap is placed on liability. The bidding being sealed we just can't know.
Re: September 1996
Loannetter,
I can't remember if I posted this here yesterday (a function of age), but I did send to several friends.
On the crawl I saw a government comment referring to the terrible devastation in the gulf as "the gulf incident"! Bankers self-made mess a national "systemic financial crisis", but this massive catastrophe is only an incident.
Previously I hear a report that BP had over 700 violations and the next closest were two companies with only eight violations each.
Congress is expressing outrage... not about the lack of enforcement, which may have prevent this leak, but that they may pay a dividend.
We'd better leave "In God We Trust" on our money because there is no one else to trust in were our security, livelihood or future of the nation is concerned.
FOREIGN GROUND REPORT
ALOHA!!
Once in awhile I get people who send me an e-mail from foreign countries who read the Bill Cara blog but do not post. I would encourage these people to post, especially GROUND REPORTS on the true conditions in their countries. These people have "boots on the ground" and can offer valuable insight that would not be offered in "canned" news reports from mainstream media. The more unbiased "eyes" the better!
Here is a tiny bit from one such person in Germany who commented on the post I did on 40.5 million Americans on food stamps.
"It breaks my heart completely to think about so many people in America on food stamps. It is almost unbelievable to write that the same thing is now happening in Germany. I have worked in both Australia and Switzerland and that comparison is just too much to even imagine......"
Thank you for reporting ...
I mean come on ... When these major economic powers are having trouble feeding their own people then something is terribly wrong with the entire political and monetary system. Truly how can any country compete in world trade markets when the tax/debt ratio is so burdensome from having to feed, clothe and subsidize the health of huge percentages of its citizens? Add in the huge costs of unionized treasury theft and you're done with "social equity"! Using debt to extinguish debt does not work in the long term. At some point it won't even work in the extreme short term either. The global monetary system clearly does not favor solvency for the G7, as long as the current and past leadership remains in power. Shuffling the political deck just does not count for anything any more.
Re: September 1996
Limited time this morning, but some quick thoughts on BP.
Legal action against BP will take years, especially any huge verdict against the company. If I recall correctly, the Exxon Valdez verdict took something like 10 years to reach the Supreme Court. The verdict judgment was eventually reduced to something like 10% of the original figure. (Of course the attorneys made out very well).
In the meantime, it’s not unheard of to package together a bankruptcy option, where the cleanup, environmental and other liabilities connected to the incident are spinned off as a separate entity. (Didn't this happen in the past with Texaco and an asbestos manufacturer?) The remaining company could be an attractive takeover for some of the other majors, like Exxon, Total, Chevron, etc.
In terms of trade, observing JUN and JUL put prices as low as 7.50 (and I see 5 and 2.50 strikes listed this morning) seem like a lottery ticket for the buyer and easy pocket change for the seller.
BUY BP TRAIN
ALOHA!!
Now there are two BUY BP articles on Seeking Alpha ... What timing! Here is one.
Whitney Tilson Explains Why He's Buying BP Shares
by Market Folly
Whitney Tilson of hedge fund T2 Partners recently appeared on CNBC and revealed he is now long BP. This company of course has dominated headlines for the drastic oil spill in the Gulf of Mexico. More than anything, this investment is the definition of being greedy when others are fearful. Currently, it's very apparent that the majority of investors are being fearful due to BP's potential liability associated with the oil spill.(more)
I did not read it but I am sure it is along the same lines of posts here.