Posts from — July 2007
MF Financial IPO debuts far below expectations
The broking unit of Man Financial Group plc floated its IPO yesterday. It didn’t go over so well, apparently.
MF Global came to the market at $30 per share, raising $2.9 billion for the 80% stake sold. That fell appreciably below the bottom end of the $34-$37-per-share range announced earlier. Worse, the stock stumbled on its New York Stock Exchange debut, falling nearly 9% late in first-day dealing on Thursday [July 19] to $27.33.
Blackstone’s shares remained above its IPO offering price ($31) for approximately one and a half trading days, if memory serves. This one didn’t even last through its first trading day before tanking.
July 20, 2007 No Comments
How to be Long “Energy” With Molybdenum
The furious economic growth of the BRIC’s (Brazil, Russia, Indian, China) makes increased world wide energy demand almost inevitable. But will the most growth come in coal, oil, or something more green? The Agora Financial newletter, Whisky & Gunpower suggests investing in molybdenum to gain exposure to all energy sectors. It’s used almost everywhere:
You can also find moly in the coal field… The corrosion resistance, combined with temperature insensitivity, makes moly very important in the production of oil and natural gas pipelines…. moly is used to remove sulfur and nitrogen in making light, sweet crude… Molybdenum can be found in every modern turbine used in a power plant…. In a geothermal power plant, moly can be found in the back-pressure turbine or the condenser and pumps that reinject the fluids back into the earth. In wind energy, moly is used in the actual structure of the windmill and can be found in everything from the bearings to the generator. In hydroelectricity, again, moly can be used in the turbines and generators… Molybdenum’s contributions to the world of nuclear energy are by far the most significant…
Current estimates of a shortage begin in 2009-2015 which makes this longer term trade. Read the full article here.
July 19, 2007 No Comments
Paying off Credit Cards, Defaulting on Mortgages
Trading guru Dennis Gartman brought the observation by Dr. Gary Shilling to our attention. Credit card delinquency rates have fallen from 32% in 2003 to 24% in 2006. At the same time subprime mortgage holders are falling further behind. Dr. Shilling says, “”in early 2003, 32% of subprime borrowers were 30 days or ore late on their [mortgage] payments, but 36% were at the end of 2006.”
Why would credit cards be paid off and mortgages ignored? Gartman’s theory:
…perhaps what we are seeing is that as home owners who find themselves in a bind on homes bought in the past several years with adjustable rate mortgages, now know that they have no equity in their homes; that they are “upside down” on the mortgage in question; that they are about to face foreclosure and that they know that the process of foreclosure is time consuming. Rather than make payments on a mortgage that is likely to bust sooner rather than later, they have chosen to stop payments entirely and are focusing their attention upon getting their credit card files in order.
July 18, 2007 No Comments
WSJ: Bloodbath in ABX
From the MarketBeat Blog:
Worries about subprime lending drove the riskiest tranche of the closely-watched subprime ABX derivative index to a record low of 44 cents on the dollar today — understandable, given everything that’s gone on in the subprime sector.
But higher-quality tranches of the ABX also took an ugly haircut today — the AAA-rated section of the index fell to 95 from about 100, while the AA-rated tranche fell to 88 from 100, according to Markit. The A-rated tranche is down to 70 from 90 a month ago, Andrew Lahde, managing partner of Lahde Capital Management, a hedge fund in Santa Monica, Calif., told Dow Jones Newswires.
And all of this happened without any news to drive the market.
The post also linked to some scary charts from Barry Ritholtz one which we’ve posted below. If I was playing Line Rider I would be intimidated, if I was long I would start putting my resume together. See the rest of the charts he posted and comments here.
July 17, 2007 1 Comment
DOJ Smackdown in KPMG
Today Judge Kaplan dismissed charges against 13 KPMG’s due to DOJ misconduct in a case that sybolized the lengths the DoJ was willing to go to achieve headline generating victories.
Kaplan said the Department of Justice “deliberately or callously” prevented many of the defendants from getting funds for their defense, blocking them from hiring the lawyers of their choice.
“This is intolerable in a society that holds itself out to the world as a paragon of justice,” Kaplan said, adding that he reached his conclusion “only after pursuing every alternative short of dismissal and only with the greatest reluctance.”
The same case also showed the difficulty of fighting baseless prosecutions. Some costs estimates for the defendants were close to $40 million, giving the prosecution tremendous leverage against the accused. The same prosecution also held a proverbial gun to the head of KPMG and threatened to shut them down unless they cut off the accused partners.
Ultimately the fate of 13 lives relied solely on the discretion of one judge. He made the right decision this time, but what chance do normal people stand against the unlimited resources and power of the State?
July 16, 2007 No Comments
4,000 to 1 Reverse Split – Stock Now Worth One Penny
Headline says it all. From WSJ Marketbeat blog.
July 13, 2007 No Comments
“What happened to Koizumi?”
Many Western observers, especially (apparently) Bloomberg’s Bill Pesek, were constantly irritated by Japan’s erstwhile reformist rock star-prime minister, Junichiro Koizumi. They saw him as 90 percent celebrity, 9 percent poking other Asian countries in the eye (he was fond of visiting the infamous Yasukuni war criminal cemetery to pander to nationalist sentiment), and 1 percent vague “reform.”
Then Shinzo Abe took the reins from Koizumi–and reformists realized that Koizumi, for all his nationalist pandering, was still the best thing that had happened to Japan in a long, long time.
This columnist was rarely kind to Koizumi, and yet Japan’s economy really could do with a few more years of his stewardship. In the July 29 elections, the governing Liberal Democratic Party will have a chance to replace Abe with a leader more attuned to improving Japan’s competitiveness amid the rise of China and India. Let’s hope the party does just that.
“Economic policy making under Abe has been notable by its absence,” says Richard Jerram, chief Japan economist at Macquarie Securities in Tokyo …
… At a time when Japan needs to bolster productivity, improve corporate governance, raise its global stature as a financial hub and increase wages, its prime minister is focused on the past. Abe should be planning Japan’s future – not trying to revise history regarding World War II-era sex slaves.
In his efforts to rewrite the past, Abe forgot that his job really was to implement Koizumi’s economic blueprint.
Thanks to the estimable Japan Economy blog for the pointer.
July 13, 2007 No Comments
Big Oil is Still a Buy
The guys at The Daily Reckoning do the math on Shell:
Royal Dutch Shell is currently trading around $40 a share. If you bought the whole thing, plus net debt, it would cost you about $287 billion. But the “downstream” business of Shell – refining, marketing, transporting, power, etc. – is worth about $174 billion according to Morgan Stanley. That means that the rest of the business – the oil in the ground – is worth $113 billion. Let’s see, the company has proven reserves of 11.8 billion barrels. That’s $9.58 each. And with oil at $70 above ground, these reserves are worth a lot of money.
But keep in mind that there are rules for reporting “reserves.” The SEC tells Shell what it can call a proven reserve and what it can’t. It also has “2P” and “3P” reserves – probable and possible. Altogether, it could have 30 billion barrels of 1P, 2P and 3P oil. That works out to $3.76 a barrel. And Shell’s private estimates of what it owns is even more optimistic – it believes it has proven, probable and possible reserves of 60 billion barrels. At today’s share price, they’re available now…at less than $2 a barrel.
If J. Paul Getty were alive today, says James [Ferguson], he’d be buying.
July 12, 2007 No Comments
Euro Hits All Time High
Can it go to 1.40? DailyFx.com explains why the market keeps pushing the USD down:
The latest wave of dollar selling has been triggered by the market’s disappointment with the Fed Chairman Ben Bernanke’s lack of focus on headline inflation as well as the possibility of a ratings downgrade on sub-prime bonds by Standard and Poor’s. A lower rating means not only a higher risk of default on the loans, but also higher interest rates.
July 11, 2007 No Comments
Picking through the subprime wreckage
Not everyone lost as a result of the subprime debacle:
7/11/2007 10:42:15 AM – Global News
A fixed income hedge fund managed by New York-based Paulson & Co rose 39.95% in June as the fund had positioned itself for a fall in subprime bonds.
A New York-based hedge fund managed by Paulson & Co, managed to return a noticeable 39.95% during June, as the fund had positioned itself for a fall in bonds linked to the US subprime loans market.
According to the Financial Times, other hedge funds have had similar success betting on the same market development. However, the strategy is beginning to look a bit crowded, experts say.
July 11, 2007 No Comments
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