Hedge funds raising big bets on oil
Sentiment will bring prices to boil
What goes up must come down
Bringing pain all around
Volatility makes markets roil
Sunday, October 31, 2010
Saturday, October 30, 2010
Pentagon Minimizes Rare-Earth Risks (Hopefully)
The U.S. Defense Department recognizes the implications of China's stranglehold on the rare-earth mineral market. Officially, DOD believes the risks of Chinese dominance are minimal. That's not reassuring. Consider one very expensive example. The Pratt and Whitney engines in Lockheed-Martin's F-35 fighter require a rhenium alloy. Does United Technologies (Pratt and Whitney's parent) have long-term contracts lined up to supply the rhenium it needs? The answer will prove crucial.
The Pentagon study mentioned in the Bloomberg article admits that DOD's primary contractors don't track their use of rare-earths and consider them just another commodity to be obtained on the world market. Planners in industry and government alike are just beginning to plan for politically-driven supply interruptions. Sometimes security cannot be had at any price, as if it were available to any bidder in a free market.
The F-35 STOVL variant just completed a high-temperature test. Rhenium makes it possible for engines to perform at high temperatures without disintegrating. DOD had better be sure that rare earth supplies won't be a problem. Hope is not a method.
Full disclosure: Long put against LMT. No position in UTX.
The Pentagon study mentioned in the Bloomberg article admits that DOD's primary contractors don't track their use of rare-earths and consider them just another commodity to be obtained on the world market. Planners in industry and government alike are just beginning to plan for politically-driven supply interruptions. Sometimes security cannot be had at any price, as if it were available to any bidder in a free market.
The F-35 STOVL variant just completed a high-temperature test. Rhenium makes it possible for engines to perform at high temperatures without disintegrating. DOD had better be sure that rare earth supplies won't be a problem. Hope is not a method.
Full disclosure: Long put against LMT. No position in UTX.
Friday, October 29, 2010
Friday Roundup, Oct. 29, 2010
Unionized longshore workers in NY/NJ get paid an extra three hours for zero work. Unions can't help but rip off their employers and customers. This madness must end.
If cheap debt is driving private equity action, then any disturbance in the bond market (China *cough* China) will shut down all leveraged buyout action and possibly destroy Blackstone and Carlyle. Neither firm would hire me. I hope bond vigilantes wipe them out.
The PIIGS await slaughter. The G-20's agreement not to engage in mutual currency destruction is already null and void. Debt defaults will demand devaluation. Disband, G-20. Further agreements would be a joke and the ECB acknowledges as much.
Even Islamic bonds are in the yield basement, but they pay more than comparable Treasuries. Allah willing, Malaysia might finally be the great growth story I thought it would be when I visited there in 2001.
The Economist signals to American elites that Anglo opinion is souring on the U.S. as a growth story. Brits can still take austerity with a stiff upper lip. Americans will cry and riot.
If cheap debt is driving private equity action, then any disturbance in the bond market (China *cough* China) will shut down all leveraged buyout action and possibly destroy Blackstone and Carlyle. Neither firm would hire me. I hope bond vigilantes wipe them out.
The PIIGS await slaughter. The G-20's agreement not to engage in mutual currency destruction is already null and void. Debt defaults will demand devaluation. Disband, G-20. Further agreements would be a joke and the ECB acknowledges as much.
Even Islamic bonds are in the yield basement, but they pay more than comparable Treasuries. Allah willing, Malaysia might finally be the great growth story I thought it would be when I visited there in 2001.
The Economist signals to American elites that Anglo opinion is souring on the U.S. as a growth story. Brits can still take austerity with a stiff upper lip. Americans will cry and riot.
Thursday, October 28, 2010
U.S. Yawns At Chinese Supercomputer
China takes another step toward reclaiming the technological lead it lost centuries ago by unveiling the world's fastest supercomputer:
America's dwindling scientific elite, represented by the Oak Ridge Lab expert quoted in the article, is reacting with appropriate concern. The response from America's political class will tell the world whether our country is fit to remain a world power. There wasn't any money for supercomputer development in the federal stimulus because the tech industry isn't unionized and doesn't contribute heavily to political campaigns.
The rest of America simply couldn't care less. The relative decline in American students' scientific aptitude is well-documented and even accelerating. This will continue if reactionaries on school boards succeed in replacing evolution with "intelligent design" in textbooks. The good news is that Uncle Sam put up this cute website to tell anyone in America who's still literate that someone in the government might know something about science and education.
Americans can't be bothered to study for degrees in computer engineering when there's another reality TV show to watch. Our leaders can't be bothered to help the industry because they reflect our changed national character. The Soviet launch of Sputnik 1 shocked the U.S. into massively increasing funding for scientific education and research, which assured that the first human on the Moon would be an American. We're just not the same country anymore. At the rate things are going, the first human on Mars will probably not be an American.
Nota bene: Long FXI with covered calls.
A newly built supercomputer in China appears poised to take the world performance lead, another sign of the country's growing technological prowess that is likely to set off alarms about U.S. competitiveness and national security.
America's dwindling scientific elite, represented by the Oak Ridge Lab expert quoted in the article, is reacting with appropriate concern. The response from America's political class will tell the world whether our country is fit to remain a world power. There wasn't any money for supercomputer development in the federal stimulus because the tech industry isn't unionized and doesn't contribute heavily to political campaigns.
The rest of America simply couldn't care less. The relative decline in American students' scientific aptitude is well-documented and even accelerating. This will continue if reactionaries on school boards succeed in replacing evolution with "intelligent design" in textbooks. The good news is that Uncle Sam put up this cute website to tell anyone in America who's still literate that someone in the government might know something about science and education.
Americans can't be bothered to study for degrees in computer engineering when there's another reality TV show to watch. Our leaders can't be bothered to help the industry because they reflect our changed national character. The Soviet launch of Sputnik 1 shocked the U.S. into massively increasing funding for scientific education and research, which assured that the first human on the Moon would be an American. We're just not the same country anymore. At the rate things are going, the first human on Mars will probably not be an American.
Nota bene: Long FXI with covered calls.
Wednesday, October 27, 2010
Tuesday, October 26, 2010
Hidden Loss On AIG For Treasury
Following the AIG debacle outside the mainstream financial media leaves one prepared for the unpleasant truth. AIG is losing more money than ever and Uncle Sam thinks we don't need to know:
This report will be quickly forgotten by a sleepwalking American public too concerned with the World Series to read any SIGTARP reports. The Treasury Department has apparently hired its financial analysts from Enron. The only other explanation for this deliberate mis-valuation is that they're from the government and they're here to help - help themselves to more bailout money. Those analysts can look on the bright side if they lose their jobs, as there will be plenty of demand for their services in Greece to mis-value that country's bad debt.
The United States Treasury concealed $40 billion in likely taxpayer losses on the bailout of the American International Group earlier this month, when it abandoned its usual method for valuing investments, according to a report by the special inspector general for the Troubled Asset Relief Program.
This report will be quickly forgotten by a sleepwalking American public too concerned with the World Series to read any SIGTARP reports. The Treasury Department has apparently hired its financial analysts from Enron. The only other explanation for this deliberate mis-valuation is that they're from the government and they're here to help - help themselves to more bailout money. Those analysts can look on the bright side if they lose their jobs, as there will be plenty of demand for their services in Greece to mis-value that country's bad debt.
Monday, October 25, 2010
Rye Patch In A Gold Patch That's Hot For Energy
Rye Patch Gold (RPMGF.PK) is one junior mining company with a unique approach to developing its property. Not content with developing ore, it recently leased rights for geothermal development on its Wilco prospecting site. This has more than one implication. It can mean Rye Patch's management is sophisticated enough to take a portfolio approach to developing property. Alternatively, it can mean that Rye Patch has insufficient resources to explore the geology of a parcel it owns and needs a subsidy in the form of geothermal royalties for further exploration. Either way, licensing out some exploration in exchange for geological information is an innovation worth noting.
Fortunately, the Wilco property is situated in a part of Nevada that is ideally suited for geothermal exploration. There may be something to the portfolio approach after all. Miners would be well advised to consider their undeveloped properties' potential as energy producers. One caveat to geothermal activity is its propensity to trigger small earthquakes. It would be facetious to suggest that a little earth-shaking would make ore easier to extract.
Full disclosure: No position in RPMGF.PK.
Fortunately, the Wilco property is situated in a part of Nevada that is ideally suited for geothermal exploration. There may be something to the portfolio approach after all. Miners would be well advised to consider their undeveloped properties' potential as energy producers. One caveat to geothermal activity is its propensity to trigger small earthquakes. It would be facetious to suggest that a little earth-shaking would make ore easier to extract.
Full disclosure: No position in RPMGF.PK.
Asia Turns To Intra-Trade
Here's a quick observation on the future for Asian exports. Big shippers like Maersk are starting to cut the shipping capacity they dedicate to Asia-Europe routes, a sign of slackening demand for Asian exports. Carriers raising rates in this environment may be committing economic suicide. Asian producers will find replacement markets closer to home, and companies like Evergreen have a lot at stake in servicing those markets. Asian exporters have little choice in the face of trade war provocations like new U.S. anti-dumping duties.
This Asian focus on Asian trade makes sense in the context of internal development. China wants the same kind of consumerist middle class that Taiwan and South Korea have grown for themselves. Expect the Middle Kingdom to continue its pursuit of a hegemonic strategy in Asia. China's next strategic gambit will be to create domestic value-added manufacturing in a direct challenge to Singapore and other regional competitors for capital. Further U.S. stupidity in the form of trade pressure on China will drive Asian nations closer together. The U.S. will rue the day it plays midwife to the birth of an Asian trading bloc with high walls.
This Asian focus on Asian trade makes sense in the context of internal development. China wants the same kind of consumerist middle class that Taiwan and South Korea have grown for themselves. Expect the Middle Kingdom to continue its pursuit of a hegemonic strategy in Asia. China's next strategic gambit will be to create domestic value-added manufacturing in a direct challenge to Singapore and other regional competitors for capital. Further U.S. stupidity in the form of trade pressure on China will drive Asian nations closer together. The U.S. will rue the day it plays midwife to the birth of an Asian trading bloc with high walls.
Sunday, October 24, 2010
Investing In Unbuildable Land
We've all heard horror stories of naive investors being suckered into buying unbuildable lots somewhere out in the boondocks. Some land just isn't suitable for residential development, but that doesn't mean it's unsuitable for any economic use. I can think of a few economically productive uses for unbuildable land, especially in developed areas with code restrictions.
Rights of way. That parcel you think is worthless at first glance may be valuable because it's on the way to something valuable somewhere else. I'd be very interested to see where the California high-speed rail project plans to locate its lines. The tracks will likely be laid parallel to existing transit lines to minimize disruption to the dense urbanization of the Golden State. Any deviation from those lines means some property owner is going to get lucky (or unlucky, if forced to sell due to eminent domain).
Tower sites. Wind turbines, wi-fi towers, and billboards are perfect for vacant land. Restrictions apply. Urban wind turbines are subject to height and noise rules, and of course they have to be located along a viable wind stream. Wi-fi is the hot new infrastructure thing for some cities. Billboards strike me as an all-purpose winner in either urban or rural (along highways) locations.
Natural resources. Here's where things get interesting. Drilling for oil or minerals in an urban area is probably a non-starter in most places, although it's been done in California. I'll never forget my drives through Paso Robles and Kern County where oilfields co-exist with ranches and farms. Bakersfield is a classic, where oil derricks are intermingled with development.
Location is everything in real estate, even with sites unsuited for habitation. Unbuildable land can still be subject to zoning and environmental restrictions. Title search and visual inspection are always absolutely necessary parts of due diligence. One advantage to finding a productive use for unbuildable land is that it avoids the many liabilities facing landlords of inhabited property.
Rights of way. That parcel you think is worthless at first glance may be valuable because it's on the way to something valuable somewhere else. I'd be very interested to see where the California high-speed rail project plans to locate its lines. The tracks will likely be laid parallel to existing transit lines to minimize disruption to the dense urbanization of the Golden State. Any deviation from those lines means some property owner is going to get lucky (or unlucky, if forced to sell due to eminent domain).
Tower sites. Wind turbines, wi-fi towers, and billboards are perfect for vacant land. Restrictions apply. Urban wind turbines are subject to height and noise rules, and of course they have to be located along a viable wind stream. Wi-fi is the hot new infrastructure thing for some cities. Billboards strike me as an all-purpose winner in either urban or rural (along highways) locations.
Natural resources. Here's where things get interesting. Drilling for oil or minerals in an urban area is probably a non-starter in most places, although it's been done in California. I'll never forget my drives through Paso Robles and Kern County where oilfields co-exist with ranches and farms. Bakersfield is a classic, where oil derricks are intermingled with development.
Location is everything in real estate, even with sites unsuited for habitation. Unbuildable land can still be subject to zoning and environmental restrictions. Title search and visual inspection are always absolutely necessary parts of due diligence. One advantage to finding a productive use for unbuildable land is that it avoids the many liabilities facing landlords of inhabited property.
The Limerick of Finance for 10/24/10
Visteon readies its IPO
To investors, the proceeds will go
It went in the hole
Now it has been made whole
Ford's reaction is what I'd like to know
To investors, the proceeds will go
It went in the hole
Now it has been made whole
Ford's reaction is what I'd like to know
Saturday, October 23, 2010
Friday, October 22, 2010
Friday's News In Brief
Prepare yourself. Here it comes.
Shippers won't be held hostage to trucking costs and are looking for intermodal shortcuts. This is bad news for truckers who raised rates thinking they had pricing power (yes, YRC Worldwide, I'm thinking of you but you're not alone in that folly). It's good news for rail and barge carriers.
Speaking of YRCW, it's preparing to triage New Penn if greedy union drivers won't vote for its survival. I wish I had shorted this stock last year. Now I just get to watch it spiral down the drain. I wonder if the asset-backed securitization facility they just renewed will have seniority over other debt holders in the event of liquidation.
Market observers think trade with the Middle East and Africa will drive Chinese growth. No argument there, but consider what Chinese strategy demands of this trade. Their plan is to send value-added finished goods from China to their new resource colonies, primarily in exchange for oil.
It's a bumper crop for grain exports through the Great Lakes to points across the Atlantic. Name me some publicly-traded barge operators on the St. Lawrence Seaway so I can have new companies to blog about.
The whopper of the day is the astronomically high expected tab for Phoney and Fraudie - at least $154B. This presumably excludes the costs of servicing or foreclosing all of these fraudulently securitized mortgages we're just now discovering. Another TARP is politically impossible, as even folks in Ireland are catching on to bailout scams. This leads to inevitable big-bank collapses and forced resolutions. Equity owners and bond investors will eat a big fat mud pie. Investors who've been sitting this spectacle out - like me - will buy up tracts upon tracts for a song. Bring it on.
Remember how the stimulus was supposed to fix America's dilapidated infrastructure? Surprise! It never happened and now we have to live with reduced future prosperity thanks to that lack of foresight. This is the one thing that will cement America's descent into the world's economic basement. I take issue with the Economist's statement that there is "no urgent need" for high-speed passenger rail. Excuse me, but Peak Oil will price air travel out of reach of the shrinking middle class. That's why people will be screaming for an alternative to cars and planes in about a decade. Nothing could be more urgent, and there is plenty of rail capacity available for both freight and passengers when rail carriers are double-stacking containers.
I hope you enjoyed reading all of this wonderful news about your immediate future. Have a great weekend everybody!
Full disclosure: No position in YRCW, FNM, or FRE.
Shippers won't be held hostage to trucking costs and are looking for intermodal shortcuts. This is bad news for truckers who raised rates thinking they had pricing power (yes, YRC Worldwide, I'm thinking of you but you're not alone in that folly). It's good news for rail and barge carriers.
Speaking of YRCW, it's preparing to triage New Penn if greedy union drivers won't vote for its survival. I wish I had shorted this stock last year. Now I just get to watch it spiral down the drain. I wonder if the asset-backed securitization facility they just renewed will have seniority over other debt holders in the event of liquidation.
Market observers think trade with the Middle East and Africa will drive Chinese growth. No argument there, but consider what Chinese strategy demands of this trade. Their plan is to send value-added finished goods from China to their new resource colonies, primarily in exchange for oil.
It's a bumper crop for grain exports through the Great Lakes to points across the Atlantic. Name me some publicly-traded barge operators on the St. Lawrence Seaway so I can have new companies to blog about.
The whopper of the day is the astronomically high expected tab for Phoney and Fraudie - at least $154B. This presumably excludes the costs of servicing or foreclosing all of these fraudulently securitized mortgages we're just now discovering. Another TARP is politically impossible, as even folks in Ireland are catching on to bailout scams. This leads to inevitable big-bank collapses and forced resolutions. Equity owners and bond investors will eat a big fat mud pie. Investors who've been sitting this spectacle out - like me - will buy up tracts upon tracts for a song. Bring it on.
Remember how the stimulus was supposed to fix America's dilapidated infrastructure? Surprise! It never happened and now we have to live with reduced future prosperity thanks to that lack of foresight. This is the one thing that will cement America's descent into the world's economic basement. I take issue with the Economist's statement that there is "no urgent need" for high-speed passenger rail. Excuse me, but Peak Oil will price air travel out of reach of the shrinking middle class. That's why people will be screaming for an alternative to cars and planes in about a decade. Nothing could be more urgent, and there is plenty of rail capacity available for both freight and passengers when rail carriers are double-stacking containers.
I hope you enjoyed reading all of this wonderful news about your immediate future. Have a great weekend everybody!
Full disclosure: No position in YRCW, FNM, or FRE.
Thursday, October 21, 2010
Suckers Rush Into Emerging Markets
I'm convinced that most people never learn anything at all. Retail investors are desperate to pick up nickels in front of steamrollers in their insane chase after yield. Look at the money jumping into emerging market stocks that pay sky-high dividends.
It's too bad the party won't last. China's growth has finally slowed to single digits. Now all Chinese companies have to do is pay huge dividends to keep FDI flowing in.
Thanks for the never-ending macro "put," Helicopter Ben. Your ZIRP is forcing know-nothing investors to price the rest of us out of emerging markets.
Full disclosure: Long FXI with covered calls. No position in IWM.
It's too bad the party won't last. China's growth has finally slowed to single digits. Now all Chinese companies have to do is pay huge dividends to keep FDI flowing in.
Thanks for the never-ending macro "put," Helicopter Ben. Your ZIRP is forcing know-nothing investors to price the rest of us out of emerging markets.
Full disclosure: Long FXI with covered calls. No position in IWM.
Goldman Sachs Ready To Part Ways With Buffett
Maybe Goldman Sachs really is the home of the smartest people on Wall Street. They're preparing to pay back one of their toughest creditors:
Mr. Buffett got one awesome deal when he bought Goldman's preferred. Goldman's new math is that the present value of all those perpetual future dividend payments exceeds what it would cost right now to pay him to go away. Maybe Goldman's execs don't like the restrictions on selling shares that came with the Oracle of Omaha's deal and they want to sell their stakes before the next downturn hits. Always look at business deals through the prism of human greed and you'll understand everything about Wall Street.
Uncle Sam's TARP managers can learn something here if they're paying attention. This is how deals are done, and undone.
Full disclosure: No position in GS or BRK-A.
Goldman Sachs Group Inc. is considering paying back a $5 billion investment from Warren Buffett's Berkshire Hathaway Inc. that bolstered the securities firm during the worst of the financial crisis, according to people familiar with the situation.
Mr. Buffett got one awesome deal when he bought Goldman's preferred. Goldman's new math is that the present value of all those perpetual future dividend payments exceeds what it would cost right now to pay him to go away. Maybe Goldman's execs don't like the restrictions on selling shares that came with the Oracle of Omaha's deal and they want to sell their stakes before the next downturn hits. Always look at business deals through the prism of human greed and you'll understand everything about Wall Street.
Uncle Sam's TARP managers can learn something here if they're paying attention. This is how deals are done, and undone.
Full disclosure: No position in GS or BRK-A.
Wednesday, October 20, 2010
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