Crude Problems
Gartman sounds the alarm:
Noting the Hunt silver problem back in ’79, Dr. Verlager wrote:
Dennis, There are clearly big problems in the dated crude contracts (Dec 11 to Dec 2016). One or more firms that sold the oil is trying to get out. They have a problem, though. The parties that are long do not want to exit. The situation is evident in the shift in open interest. From Monday to Tuesday the number of contracts outstanding for delivery from June 2013 to Dec 16 declined while prices jumped $8/bbl. It is a classic squeeze. I would assert that this is not an oil market issue because the other indicator of long term oil prices, the BP Royalty Trust (BPT) did not increase with the 2016 crude. Someone has a big problem – and it could get much worse unless NYMEX and ICE order trading for liquidation….1979 redux.
May 21, 2008 No Comments
Bloomberg on the Swap Market
It is surprising how unsophisticated the swap market is as described in this Bloomberg article. It seems that, when it counts, no one really knows anything about pricing/trading this instrument. Not even the supposed experts. This section of the article is almost humorous. This is how literally 10’s of millions of guarantees are put into place:
For most investors, just getting default-swap prices is a chore. Unlike stock prices, which are readily available because they trade on a public exchange, swap prices are hard to find. Traders looking up prices on the Internet or on private trading systems see information that is hours or days old.
`Terribly Primitive’
Banks send hedge funds, insurance companies and other institutional investors e-mails throughout the day with bid and offer prices, Backshall says. For many investors, this system is a headache.
To find the price of a swap on Ford Motor Co. debt, for example, even sophisticated investors might have to search through all of their daily e-mails, he says.
“It’s terribly primitive,” Backshall says. “The only way you and I could get a level of prices is searching for Ford in our inbox. This is no joke.”
May 20, 2008 No Comments
Exxon Production
Great chart and analysis from Sudden Debt:
There have been millions of pages written about Peak Oil, both pro and con, and I don’t claim to be an expert. But I do want to add just one fact based on common sense. Exxon is the world’s largest non-state oil company and the largest publicly traded corporation by market capitalization ($478 billion). If anyone has both the incentive and the resources to find and sell more oil, it is them. But they can’t. In the last five years, as the average price of oil more than tripled, their production has been flat:
May 19, 2008 No Comments
So you want to setup a P/E shop?
Very interesting interview from Knowledge@Wharton:
The market events of August 2007 ended a robust 2003-2007 fundraising cycle. Currently, sentiment is one of caution. Thematically, investors are seeking counter-cyclical and risk-mediating investment strategies, such as distressed/turnaround and mezzanine. At the same time, investors recognize that their 2001-2003 fund investments outperformed due to the market conditions. Now may be a time to replicate those strong vintages, particularly by backing managers that have a history of investing successfully through the cycle. On balance, first-time fundraising difficulty does increase, but is by no means impossible. Expectations should be to achieve a reasonable fund size adequate to execute the stated strategy. The emphasis on having a strong institutional investor base increases because these are the partners you can rely on to remain supportive if you exhaust available capital in a short time period.
May 15, 2008 No Comments
“For the first time since Word War II, owning U.S. Treasuries is a riskier bet than owning German bonds.”
From The Daily Reckoning. This headline was the most important thing I read today. The follow with:
On the basis of credit default swaps, which are used to speculate on a government’s ability to repay debt, the 10-year note reached a record high of 16 basis points on March 12. German bonds traded at 15 basis points, also a record. A decline in these spreads shows improving confidence in the government’s ability to pay…an increase shows the opposite.
“That’s certainly eye-opening,” writes our esteemed colleague Chris Mayer. “The market consensus is that you stand a greater chance of default investing in U.S. Treasuries than in German bonds.”
Officials in Beijing must keep shaking their heads. China holds more than $387 billion in Treasury securities.
May 14, 2008 No Comments
Would you invest $1,500 in the US bank sector?
In December, the Fed had $775B worth of Treasury securities. That stock will soon have dwindled to $300B, give or take. The difference, about $475B, represents an investment by the central bank in risky assets of the US financial sector. $475B is an extraordinary sum of money. It is as if the Fed borrowed more than $1500 from every man, woman, and child in the United States, and invested that money on our behalf in Wall Street banks that private financiers were afraid to touch. For bearing all this risk, if things work out well, taxpayers will earn about what they would have earned investing in safe government bonds.
…If the Fed were to blow through the rest of its current stock of Treasuries, it would have invested more than $2500 for every man, woman, and child in America. Public investment in the financial sector would have exceeded the direct costs to date of the Iraq War by a wide margin.
May 12, 2008 No Comments
Cheap Chinese Good in 1869
China was once the largest economic superpower in the world. This excerpt from The Malay Archipelago by Alfred Russel Wallace could have been written last week:
In the Chinese bazar are hundreds of small shops in which a miscellaneous collection of hardware and dry goods are to be found and where many things are sold wonderfully cheap You may buy gimlets at a penny each white cotton thread at four balls for a half penny and penknives corkscrews gunpowder writing paper and many other articles as cheap or cheaper than you can purchase them in England The shopkeeper is very good natured he will show you every thing he has and does not seem to mind if you buy nothing
May 9, 2008 No Comments
The State of the Nation
From the Daily Reckoning:
“On the household front, millions of homeowners haven’t even finished paying their heating bills from last winter, and over six million Americans asked for energy assistance funds so their power wouldn’t be shut off. (In California alone, 1.7 million households are behind on their utility payments.)
“Signs of the stretched consumer include the following stunning facts:
- Home equity loans have a seven percent delinquency;
- Subprime mortgages, past due over 60 days, are pushing 14 percent;
- Over one million homes are in foreclosure and three million more are empty, and up for sale;
- Ten million homes have mortgage balances greater than their value. (No wonder some homeowners are walking away from them);
- In the auto market, 25 percent of all car loans are higher than the car is worth. (The average balance these cars are underwater for is $4,300!)“Jobs are also falling off a cliff. If it hadn’t been for the Birth Death computer model at the BLS creating service jobs out of thin air, the payroll data would have shown over 280,000 people actually lost their jobs in April. Currently, 2.7 million workers have exhausted their unemployment benefits, and with no job prospects or income, hello collector!”
May 8, 2008 No Comments
Chart of the Day
From the WSJ, showing scary near-term projections:
May 8, 2008 No Comments
Betting on Bordeaux wine futures
Like every other investment, this one is probably over prices and won’t beat the index in the long run. But so what? Even if it’s value goes to zero, you can still drink it:
Most wines around the world go on sale only after they are bottled. But in Bordeaux the process starts far earlier. International demand for the biggest and best-known names is huge, and growing. That’s especially true for the five so-called first-growth Bordeaux wines – chateaus Lafite, Mouton Rothschild, Latour, Margaux, and Haut-Brion – but several dozen other labels also are increasingly sought after.
“Everyone wants to be on the market,” says Patrick Maroteaux, the owner of Château Branaire-Ducru, who also heads the industry association that organizes tasting week.
Since the quantities of wine made are limited, prices can and do shoot up. After setting a price per bottle, the chateaus sell as much as 90% of that year’s product to the market makers in Bordeaux, starting in mid-May.
May 6, 2008 No Comments
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