I guess it is just vanity, but it irritates me to have someone else's research sent to me as proof of anything. ML, MS and GS were all predicting 1500-1650-1700 for the S&P500 when I was calling for 1255, and guess what, that is exactly where the futures traded yesterday! ; - )

No, seriously, I like to read everything, and I often post other people's research here as sort of a back-up opinion, but I do my own research and my predictions are my own. But I also agree that this bear market has legs. Yesterday was NOT the low of the year. We did not even have a strong close. So technically we have room to fall.

The cash price stopped exactly at 1269, which is the 0.382R from 770 to 1577, and now if that level cannot hold we will likely head towards 1174. Approximately 25% below the highs. That depends a lot on Q4'07 earnings and expectations for Q1'08. My feeling is that the market might stabilize and then get another case of the jitters again in March as we wait for those first quarter results.

2008 is going to be an ugly year! ; - )

p.s. I backed the wrong horse. Citi jumped 3.6% yesterday, but my colleague bought MS and it jumped 10% on the rate cut. Same idea, but a better pick. Citi seems to be the perrennial lagard these days!

That's interesting, any idea why?

I was looking at Mauldin's Tier-3 to equity ratios for US banks, fwtw:

Citi level 3 to equit ratio: 105%
MS: 251%

To me MS looks much more riskier investment, considering what might be coming ahead as things unravel.

Again, I don't claim to have even a vague idea of the whole picture, just trying to scrap together some pieces.

Then again, ML has a ratio of 38%. BTW, I'm not sure how Mauldin priced those tier-3 assets...

Citi is one of the most exposed bank to sub-prime write downs. They have also had a management resuffle following their failure in risk management so it's getting more beaten up than the likes JP Morgan.

Citigroup up 16-17% since the Fed rate cut. Sometimes it is wise to write-down everything - including the kitchen sink - while everyone else is, and then post surprising results as some of those write-offs recover! ; - )

Sorry to beat a dead horse, but why is it more exposed?

Look at those junk-to-equity ratios.

Merrill Lynch: 38%
Citigroup: 105%
Bear Stearns: 154%
Lehman Brothers: 159%
Goldman Sachs: 185%
Morgan Stanley: 251%

(Data from: Royal Bank of Scotland / Chief credit strategist, November 7, 2007 via Bloomberg)

I have no figures for JPMorgan Chase.

But based on the above, I can't see how Citi is the _most_ exposed.

To me it's more like MS and Goldman which are toast, although at those ratios I'm not sure the difference really matters.

Folks, just a question. What will energy funds do the coming years?

The best of breed will keep buying and selling on dips and rallies and making money over time by improving their long-run average, while the poorly managed funds are just trying to cash in on a hot investment trend and will rely on a broad market rally to lift alll boats. They will be less successful over time, but may still be lucky and be in the right place at the right time. How they manage the downturn will make the difference in their performances.

Do you expect new energy funds to do better in general, so those with a portfolio leaning towards solar, wind, or any sort of renewables? Intuitively you would expect such funds to do better on the long, peak oil induced downturn, no?

As a peak oiler, yes. As an investment banker, no! Sorry, alternatives are only viable with government subsidies AND when traditional energy prices stay high! From a straight investment point of view look at clean coal technology. Sorry. A global slowdown on a US lead recession will knock growth stocks down. Including alternatives that have yet to generate 'real' profits! Man, I feel really bad, personally, when I have to say such things! Shi'ite!!

It's kinda cynical, having gained some insight into PO to deduce that alternatives won't make even if we wanted to. Hence coming back full circle to sell our soul to "clean" coal.

Bummer!

well, a lot of good technology was bought and paid for with investors' money during the tech boom during the dot com bubble. alternatives will have their day. they just probably will not be a great place to park money during a global slowdown if that knocks conventional energy prices down and lowers demand for investment in cleaner technologies. it is all about timing.

I was thinking the same.

Some Clean/Renewable Energy tech funds took quite a hammering this week, so I was about to start considering them.

MrBill's opinion is interesting for me.

How about regionally limited such funds then?

Most of the EU countries will have to pour A LOT of money into renewable tech through just basic infrastructure upgrades in the next 12 years, in order to meet the new EU renewable energy criteria for 2020.

This assuming we hit a slowdown as well and oil does go down in price for a longer time as well.

Maybe EU area / EU market leader Renewable energy stocks or dedicated funds might be a decent pick, IF

- the prices still come down a bit first
- we don't go into a really big / long recession

What say you?

Hmm, a voluntary deadline set by many EU governments - by parties that may not be in power by then - that is more a goal than official public policy with no serious ramifications if it not met or delayed by any number of reasons including fiscal deficits or slow growth. Also, it does not recognize past efforts by Germany and Skandinavia, for example, that already get a lot of power from renewables. In fact, they are being asked to do even more, while some other laggards - Romania, Bulgaria & Malta - get a free pass! ; - )

Sounds like pressuring France to open up its power markets to greater competition. "We do not say we won't, but we just won't say when we will?" As for renewables, first we (France) have to set-up a national champion, and then we need EU funds to compensate the losers from this shift from conventional energy. Of course, other EU members are more than welcome to use the expertise of EdF and Areva if they would like to expand their own nuclear industries.

There is no doubt that companies like Vestas can benefit from government subsidies that make the switch to wind more attractive as they are the biggest wind energy provider, but my guess is the real greenhouse gas emission reduction targets will not be met by a switch to renewables alone, but by cleaning-up dirty coal burning power plants with newer, cleaner coal burning technology. That expertise can then be exported.

This would favor investment in Tier II or regional power generating companies that would need to consolidate to raise the capital needed to make the switch to cleaner technologies. MVV in Munich might be one such beneficiary as they are already into renewables and have a war chest to fund acquistions in the 500 million to a billion euros range.

Alternatively, RWE, E.On or EdF might look to acquire these assets, but the EU competition watchdogs might not like or allow that increased concentration when they are trying to decouple production, transmission and distribution within the EU to break-up the natural monopolies of those national champions.

Watching the financial news this weekend here is a list of companies that I would like to add to my watch-list if and when their prices moderate to attractive entry levels. It is geared to an eventual return to growth in the wider global economy. This list is by no means exhaustive nor is it a recommendation for these individual stocks (caveat emptor).

GEA Group - machine maker
MVV - power
EdF - nuclear
Lukoil - oil
Standard Bank - exposure to SA mining sector
Sasol - coal technology
ThyssenKrups - engineering
Muenchener Ruck - Re insurance
Swiss RE - Re insurance (Berkshire Hathaway to buy stake)
Allianz - insurance & banking
E.On - gas & power
RWE - power
BASF - gas & energy
GdF - gas
Honeywell - controls
UT - technology
CAT - construction
Linde - gas
Raifeissen/Erste Bank - CEE growth
Commerzbank - take-over candidate in banking sector
German bund - capital protection/rate cuts in EU

But all at the right price. The Tony Montana School of Investment: "First you make the money. Then you invest in alternative power. Then you get the respect!" ; - )

UPDATE: video link on MarketWatch

Source: Peak Oil - A world without oil. What would you do?

Sorry, not much to add at this point as we wait for a decision from the Fed. Will it be 0.25% or a 50 bps cut? Will the Fed continue giving into Wall Street, and cut all the way to 1% 'to get ahead of the curve and restore confidence'? That is certainly what the stock market wants. Another asset bubble compliments of Helicopter Ben et al. But not even Bill Gross of PIMCO - a man who has successfully called Fed rate cuts and stands to gain from such easing - thinks the Fed should go so far and risk inflating asset price bubbles and completely undermining any remaining support for the US dollar. At this point I am not very optimistic that another short-term fix is not being concocted at the FOMC meeting, and a subsequent stock market rally stemming from further debasement of the currency and increased global inflation is nothing to get excited about in my mind. The Greenspan Put is dead, long live the Bernanke Put! Hurray for gold! Commodities anyone?

Chris Rea

I am confident that "Helicopter Commander" Ben Bernanke will cut the Federal funds rate all the way down to 1% just like what Alan Greenspan "the Maestro" did previously, although not by tomorrow morning of course but eventually. Maybe I'm trying to read too much from my crystal ball but I think the market has already factored this into the value of the stock market. Or maybe I'm wrong!

I never did buy the theory that central bankers were inflation fighters. If that were true then you wouldn't hear stories of grandmothers saying:
"When I was your age I got to see a movie for only 10 cents!"