Posted: Tue Jun 24, 2008 5:34 am Post subject: Re: Trader's Corner 2008
This is the real problem. Everything else is a smokescreen to deflect criticism from the ineptitude of the government.
Quote:
Bloomberg continues, "The Government spending since the fiscal year started Oct. 1 was up 9.7% to $1.993 trillion through May." Almost 10% more spending! Yow!
All this spending is not having much effect, because "revenue increased 0.3% to $1.674 trillion", which put the "year-to-date deficit at a $319.4 billion, more than double the eighth- month cumulative $148.5 billion shortage reported a year earlier". Double!
If there is one thing that I have learned on this planet you call Earth, it is that one huge pile of dog crap always means that there will soon be another big pile pretty soon, and sure enough, Agora Financial's 5-Minute Forecast reports that "The U.S. Congress has quietly approved the biggest government budget in the history of mankind", which comes out to a tidy $3.1 trillion. Astonishing! In an economy where total GDP is about $14 trillion!
Although everyone is too polite to say it, probably as a result of that "dog crap" thing, if the total Gross Domestic Product (roughly, the sum total of goods and services sold in a year) of the United States is $14 trillion, then government spending - alone! - is 24% of the economy! Almost one out of four dollars spent in the economy is done by the federal government!
But don't worry (or worry if you want to) it is not just an American thing. European parliamentarians love to hate speculators, hedge funds and markets in general. They have also proposed similiar measures, but luckily nothing has become of it lately.
In rather circular logic fashion there was a petition against the ECB raising rates because that would make the euro stronger, the US dollar weaker and therefore oil more expensive (but cheaper as measured in euros). Such are the mental capabilities of the anti-market crowd. They can only see two steps ahead of them.
That link I attached above about the USA trying to hinder US expatriates from giving up their US citizenship is another canary in the mineshaft. They are desperate to keep the boat afloat or at least the expats from abandoning ship and taking their money with them. But don't worry for every entrepreneur and educated professional that leaves the USA with their greenbacks there is a wetback to take their place.
UPDATE: closing the Enron loophole and other Obamanomic plans
Quote:
Here are some details of Obama's plan:
* The Illinois senator's campaign said he would close the so-called Enron loophole that exempts some energy speculators from U.S. regulations that apply to commodities traded over exchanges. It takes its name from the energy giant that benefited from the law and later collapsed because of massive accounting fraud.
* His plan would require U.S. energy futures to trade on regulated exchanges.
* Obama is calling for more data on index funds and other similar types of investments to boost transparency of institutional players in commodities markets.
* He backs legislation that would direct the Commodity Futures Trading Commission to investigate proposals such as increasing margin requirements in the market.
* He would aim to stop energy traders from evading U.S. regulations by conducting transactions through foreign subsidiaries of U.S. exchanges.
* He would call on the Federal Trade Commission to expedite investigations of suspected price manipulation and direct the Justice Department to look at whether illegal activity has contributed to the run-up in oil prices.
Posted: Tue Jun 24, 2008 8:59 am Post subject: Re: Trader's Corner 2008
MrBill wrote:
MOCKBA wrote:
Did "the fireworks" just got started? First China had to raise gasoline prices on top of highest inflation ever and now I read that in Vietnam it is a crisis already and it has a chance to spill out to neighbors.
http://www.atimes.com/atimes/Asian_Economy/JF24Dk01.html
If it would spill out it sure would look like a replay of Asian crisis from the 90ies. So much for a theory of "decoupled economy"
Thanks for the link. I missed that development. Cheers.
Well from what I could find it is not limited to obscure places like Vietnam. Pretty much any export (cheap labor) oriented Asian country that imports energy and food in great numbers is vulnerable to the crisis (are there any in the region that doesn't fall into this category?). Vietnam is the first to have the problem because they need constant flow of foreign capital (make that constant increase in the flow)... Bizarrely enough they would have GDP growth for the year yet this might not stop the crisis, i.e. it is possible to have the growth and financial collapse at the same time...
India is also experiencing currency devaluation and double digit inflation. Root cause? It is the energy and food again - because of high food and energy prices India's trade balance shifted to being net importer. Unlike 90ies however Asia has healthy currency reserves that would be put to use. The question would it be timely or too little too late like the case with India. China is busy with Olympics and other domestic problems when it needs to invest hundred billions here, hundred billions there to stabilize "decoupled economy". Oh well, the result would be known by September.
Posted: Tue Jun 24, 2008 9:06 am Post subject: Re: Trader's Corner 2008
Privet MOCKBA! I wrote this in another thread last week. You may or may not support my conclusions - it is really not Trader's Corner stuff - but I touch on those countries that run current account deficits as well as subsidize food and energy as being potentially the worst off due to the credit crisis and soaring global inflation. Poka.
Quote:
Well personally I think we are going to plateau at around 85 mbpd with no appreciable drop-off in the near future therefore price will have to go a lot higher to destroy potential demand to bring it into alignment with actual supply.
Especially as the IEA thinks that as much as three-fifths of the price increases in the past year have been absorbed by subsidies, so the full effect of those higher prices have yet to impact on global demand. Now lifting those subsidies will be even more painful and potentially explosive for their underclasses.
Therefore nominal prices could easily double again until at some point crude importers simply cannot afford to keep subsidizing domestic consumption due to their fiscal limits. In the case of China who are sitting on circa $1.6 trillion in foreign exchange reserves they can afford to play that game a little bit longer given other social and environmental problems that they are experiencing at the moment.
Their jobs at any cost policies are coming home to haunt them now. Much like financial imbalances and credit bubbles have come home to haunt the USA. Meanwhile global inflation and interest rates continue to rise, so this will hit countries like India hard that subsidize both food and energy indiscriminately AND rely on imported foreign capital to plug their fiscal deficits. They're screwed!
So that leaves export land. The countries that benefit from higher energy and commodity prices. If they had allowed their currencies to free-float then they would be okay. Some have. Some have not. Those that either kept their currencies pegged to the sagging US dollar or that kept their currency undervalued are now suffering from high levels of inflation as well. That simply means that they are not getting the full benefit of the export value of their energy and other commodities.
Not to mention that in many of these countries the fruits of that export bonanza are not being shared equally with all segments of society in the first place, but rather heavily concentrated in a few wealthy hands. Very little of the some $4 trillion a year the world is splashing out on crude oil at the moment is getting plowed back into exploration and development or even alternative energies. Most is being spent on either immediate consumption or pumped into projects of dubious value.
It does not appear that this year will be a bumper harvest in the N. Hemisphere. Australia has droughts. While parts of the USA have too much rain. In some poorer countries farmers did not use enough fertilizer because they could not afford it. In other parts of the world land went unplanted despite strong grain prices due to the high cost of fertilizer and fuel. Therefore, I would expect some grain hoarding as well as export bans in poorer countries to guarantee supply. This fragmentation of the international grain market will almost ensure that prices stay high due to uncertainty and a balkanization of the market for a number of years to come.
I think the situation could be as potentially explosive as the cultural revolutions that started during the Cold War in the 1960-70s with student protests and strikes as well as street violence surrounding high food and energy prices. Unfortunately, we are coming off a decade or so of very low interest rates and financial stability, but collectively many countries have not prepared themselves fiscally for this perfect storm that is brewing. Looking back I think we will see that 2007 marked a major post-war turning period for the global economy not unlike 1945, 1972 or 1999. The full effects of that will be felt in 2008 and in 2009.
Beyond that no one really knows, but it is going to be quite a ride! I personally put crunch time between 2030 and 2050. Using 27-year cycles 2026! ; - ))
_________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Wed Jun 25, 2008 2:51 am Post subject: Re: Trader's Corner 2008
I wanna bookmark this little gem for future reference:
Quote:
Buffett's just-plain-folks posture is a bit of a feint. His father, Howard, was an investment banker and a Republican U.S. congressman. Warren attended the Wharton School of the University of Pennsylvania and got a master's degree in economics from Columbia University.
In terms of the businesses he buys, Buffett never tires of telling questioners that he invests only in simple, straightforward industries whose operations he can grasp. Yet he wagers billions on everything from hedge funds to junk bonds. Through December, Buffett had made $2.3 billion in pretax earnings during the past five years on foreign-exchange bets.
Put Options
And as of March, he had tens of billions of dollars riding on two kinds of derivatives -- instruments he dubbed ``financial weapons of mass destruction'' in his 2002 letter to shareholders. The first is a variety of credit-default swap guaranteeing payment on certain high-yield bonds. Credit-default swaps, which are contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.
Buffett also has sold put options -- contracts that provide the right, but not the obligation, to sell a security, currency or commodity at a set price within a set period -- on four stock indexes. In his 2007 shareholder letter, Buffett wrote that because Berkshire holds the cash connected to the derivatives, there is no risk the parties on the other side of the transaction won't pay.
source: Warren Buffett Says Sell to Me _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
When he eats out, it's often at Gorat's Steak House on Center Street in Omaha, where a luncheon steak will set you back $8.25 -- including soup and a side of mostaccioli pasta. Buffett personally drives visitors to and from the airport. He prefers Cherry Coke to fine wine and saves money buying it by the case.
Posted: Wed Jun 25, 2008 3:21 am Post subject: Re: Trader's Corner 2008
cube wrote:
Quote:
When he eats out, it's often at Gorat's Steak House on Center Street in Omaha, where a luncheon steak will set you back $8.25 -- including soup and a side of mostaccioli pasta. Buffett personally drives visitors to and from the airport. He prefers Cherry Coke to fine wine and saves money buying it by the case.
I through open my wallet last night to celebrate my wife's new job as Head of Trade Finance in a ME bank by going to TGI Friday's! I figured what the heck, go mad once in a while! ; - ))
Quote:
``The defendants and others led investors to believe that the High Grade Fund was only slightly riskier than a money market fund,'' according to the indictment.
Enumeration of Risks
Really? That's not the sense one gets from the delineation of ``additional risk factors'' in the marketing material, or ``pitch book'' -- the standard PowerPoint presentation managers use to pitch their fund to investors -- for the Bear Stearns High-Grade Structured Credit Strategies Fund, one of the two funds Cioffi managed that went under in July, with investors losing $1.6 billion.
``The Fund is speculative and involves a substantial degree of risk.''
``The Fund is highly illiquid. There is no secondary market for the investors' interest in the Fund and none is expected to develop.''
``An investor could lose all or a substantial amount of his or her investment.''
Does that sound like an investment that's ``only slightly riskier'' than a money market fund?
UPDATE: dilemma's just another word for nothing left to choose...
Quote:
Bank Indonesia, like many other central banks, is constrained in its fight against inflation because limiting growth can take a harsh toll on the country's less well-off.
Their policies could be playing an increasingly large role in determining global inflation, thereby complicating the job of Western central banks, including the U.S. Federal Reserve. It is expected to announce today that inflation fears will keep it from reducing interest rates.
Reducing rates would help bail out a U.S. economy that many fear is heading into a recession.
For years, emerging markets have kept prices low around the world, producing copious amounts of cheap goods of increasingly better quality.
But now, central bankers around the world are issuing red alerts about inflation, as rising prices in emerging markets spill over into industrialized countries.
Source: Feeling the pinch, and exporting it _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Thu Jun 26, 2008 7:37 am Post subject: Re: Trader's Corner 2008
Apologies for not writing very much in this space lately. Usually I am most active with my comments when I am active investing. That has not been the case lately as I sit on some core positions, but have substantially cut back on any speculative positions. My focus has instead been on managing my funding book, and with the recent spikes in LIBOR/EURIBOR as well as wider credit spreads that has been a challenge.
My prefered scenario is equity markets in general ratcheting lower. I could see the S&P 500 at 1172 this summer. Perhaps even lower. When I see well-run companies like GE punished like they have been. Price down 25-percent YOY and YTD then I have really wonder about other less well-run firms. I am impressed that the S&P Energy index has been able to hold-up as well as it has supported by high crude prices, but lets just say I am not a buyer at these levels.
The inflation/interest rate story is the one that demands the most attention at the moment. I have been taken by surprise at how quickly European bond yields shot-up this past month. Especially the Club Med countries in the eurozone, but also the stodgy German bund as well despite the ECB's inflation fighting zeal. Spread widening trades would not have been a successful hedge as the curve has not so much steepened between money markets, 2-, 10- and 30-year bunds as much as the whole curve has shifted upwards.
So unfortunately as I have been less active I simply have less insights to offer. I am just sitting on my hands at the moment. Perhaps stubbornly believing we will see much better entry levels going forward. In the meantime I will try to post articles that I hope are interesting and informative as I find them. Cheers.
Quote:
On whether we've seen the peak for oil:
``We may still see further spikes. We're coming to a period where oil-price volatility is going to be incredibly high. So it's going to be very hard to call the top. But, certainly, I don't think we've yet to see the amount of demand destruction that we need to bring prices lower on a permanent basis.''
On why volatility is going to be high:
``One, because the inventory is low, and volatility in commodity markets depends primarily on physical energies. But also because there are a number of bottlenecks across the supply chain in the oil sector that are limiting supply availability across a broad range of markets within the petroleum sector.
``Also, we have the other factor, which is that demand has been quite firm in emerging markets on a combination of lower interest rates and fuel subsidies. So all those factors will make it hard to find the price level that brings demand in light of supply.''
On how the price is affected by speculation:
``We're not big believers in this whole speculation theory. We think prices are primarily being driven up by supply and demand, and demand dynamics. And it's going to be pretty hard to justify that speculators are bringing the prices up.
``Every piece of evidence that you can look at suggests that speculators are not drivers of prices; if anything, they are followers of prices. So I don't really understand why now speculators are being suddenly blamed for the higher prices. There's as much speculation in sugar as there is in oil, and sugar is at one of the lowest levels in 20 years.
``There's a serious bottleneck in the energy sector, and we've seen very good demand destruction. If interest rates tomorrow in the U.S. go from 2 percent to 5 percent, I think you will see a lot of demand destruction and the price will come down. So there is no real reason to believe that speculators are driving the price up. If anything, negative real interest rates are driving it up.''
On what he thinks of forecasts for a slower U.S. economy that
argues for lower oil prices:
``Remember also that emerging markets are still seeing supportive oil-demand growth. More importantly, we have a massive refinery imbalance. One of the big problems we've had recently, and this is not very well understood, is that the less gasoline we make -- and gasoline obviously is a function of how hard refiners in the U.S. operate their refineries -- and by doing that refiners are also cutting back on their jet-fuel and diesel production. And that's what the world is really short of for the moment.
``And that's creating a lot of strains across the entire petroleum sector. We've seen diesel and jet-fuel prices hitting record levels, while gasoline has really had a hard time following. So, our view is that this sector is really in desperate need of massive-scale investments, and also we need to see slower demand.''
source: Francisco Blanch, head of global
commodities at Merrill Lynch & Co. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Joined: Feb 20, 2005 Posts: 2788 Location: Uppsala, Sweden
Posted: Thu Jun 26, 2008 11:46 am Post subject: Re: Trader's Corner 2008
So guys, do any of you have opinions on the seismic segment? Seems they haven't really followed the drillers upwards.
After all, with exploding rig rates, companies should do anything they can to make sure that those dead expensive operations don't turn out being dry holes, which means more money spent on seismic services. _________________ Peak oil is not an energy crisis. It is a liquid fuel crisis.
Posted: Thu Jun 26, 2008 8:16 pm Post subject: Re: Trader's Corner 2008
"We've seen diesel and jet-fuel prices hitting record levels, while gasoline has really had a hard time following. "
While I understand the demand for diesel, I don't understand the
demand for jet fuel. The articles I am reading are saying that the
airlines are cutting back significantly on the number of flights they
are offering.
Posted: Thu Jun 26, 2008 8:45 pm Post subject: Re: Trader's Corner 2008
"My prefered scenario is equity markets in general ratcheting lower.
I could see the S&P 500 at 1172 this summer. Perhaps even lower."
But assuming peak oil is happening, why wouldn't the equity
markets in general continue ratcheting lower and lower permanently? Why would it turn around?
I am really confused about what to do with my retirement
assets and would appreciate advice (I will be retiring in
just a few years) My previous plan had
been to 1. basically buy the market via broad based ETFs.
2. Buy inflation protected bonds.
But now I see the market in general as ratcheting lower
and lower. And I have just sold my inflation-protected bonds
(TIPS) as I just found out their inflation adjustment was
a small fraction of the inflation I actually have (my dominant
purchases are health insurance/food/energy).
Anyone care to share what they are doing with their retirement
assets?
Joined: Jun 20, 2008 Posts: 67 Location: Quebec/Ottawa, Canada
Posted: Thu Jun 26, 2008 9:32 pm Post subject: Re: Trader's Corner 2008
pasttense wrote:
I am really confused about what to do with my retirement
assets and would appreciate advice (I will be retiring in
just a few years)
If retiring in just a few years (how many? 2-5 ?), the traditional advice is conservative investments, like gov't bonds.
Many here would not trust gov't bonds. Would you ?
Regardless, indications are inflation will be THE problem in the next several years, so long term bonds are likely a bad bet. Their value could disintegrate to almost nothing if inflation hits the peaks of the 70s and early 80s. Like 15+% and bonds getting as much as 21%.
I don't know about US but Canada gov't bonds can be cashed at any time, although you lose up to 1 year of interest. If inflation gets out of control, gov't will raise rates instead of facing mass cash-ins.
Other than that, short term bonds will not lock you into a low interest rate for years and may be good.
Beyond all the above, I am considering hoarding some commodities for some inflation protection. Pennies are good. Some have up to 2.7 cents of copper. Nickles also good. I will also be stocking up on foods.
Joined: Apr 08, 2006 Posts: 1334 Location: Somewhere there
Posted: Thu Jun 26, 2008 10:55 pm Post subject: Re: Trader's Corner 2008
[quote="mobil1"]
pasttense wrote:
Beyond all the above, I am considering hoarding some commodities for some inflation protection. Pennies are good. Some have up to 2.7 cents of copper. Nickles also good. I will also be stocking up on foods.
Yes its all good. the question is whether it will be worth for you to haul them to refinery, when it will be legal. i really don't see a market vendour counting your pennies and checking their mintmarks while selling you a potato.
Posted: Fri Jun 27, 2008 12:55 am Post subject: Re: Trader's Corner 2008
Thanks for the comments. A couple of general points. Bonds carry accrued interest, but can be redeemed anytime. You do not lose the interest. There is a 'dirty' price and a 'clean' price. One is the price of the bond priced yield to maturity (YTM) and the other is the net price based on the YTM +/- accrued interest. If your bank or broker does not 'offer' you the net price including accrued interest then you should definitely sell to another bank or broker. They are stealing your accrued interest otherwise. Period.
As I have said here before, the dirty little secret is that we are fully invested all the time in the present. The past is gone. And the future has not yet arrived.All investment decisions depend more or less on the future looking somewhat like the past. Equity is risky. There is nothing else to say. Your 'sure thing' can lose 25-percent of its value in the next six months under the motto that 'what goes up can come down'.
I am not trying to be glib. That is the reality. So if you will have to depend on investment income then diversify into a range of assets that will weather the ups and downs of the general market during a particularly stormy period. The next 6-months may be as bad as we have seen since The Great Depression (or worse), so do not gamble with your retirement income. Play defense!
As for me I can only say that I am struggling to find compelling places to put my money. The reality of cheap money, low interest rates and a flat yield curve is that all the attractive investments are already over-priced. Only cash is cheap and it is being devalued by inflation. The alternative is to buy an already over-priced asset hoping that it will go up in value, so you can sell it to the greater fool. If that sounds like the real-estate market in the US or UK in 2006, it is.
The economic contraction that we are witnessing at the moment has less to do with peak oil per se and much more to do with excessive money supply creation that has pushed all asset prices from sugar to Shanghai much higher than their intrinsic value by any objective measure. I would be rue not to point that out.
As for the relationship between diesel, gasoline and kerosene (jet fuel) it is quite simple. They all come from the same barrel of oil, but different ends of the light, medium and heavy spectrum. Basically, three barrels of crude will yield two barrels of gasoline and one barrel of heating oil (diesel). So it is quite possible that lower demand for reformulated gasoline due to higher pump prices and less driving can and would result in a shortage of jet fuel, and therefore higher prices for kerosene.
Peak oil depletion is like an onion. Each layer exposes another layer of economic vulnerability, so simple answers fall wider and wider from the mark. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Last edited by MrBill on Fri Jun 27, 2008 5:41 am; edited 1 time in total
Posted: Fri Jun 27, 2008 1:01 am Post subject: Re: Trader's Corner 2008
Seismic? I would look at Schlumberger, Haliburton or Baker-Hughes, but they are all expensive. Any small boutique firms that just do seismic would have to be considered on a case by case basis. Some of those father and son type operations are as famous for going broke as for striking it rich!
The carry trade is alive and well. The BOJ is scared shitless to raise rates, while the RBA is on the inflation case. The only question is whether that obvious perception is reflected in the price of AUD/JPY already? I do not have an opinion per se, but after two minutes of looking at the charts I see a top at $103.57 and a minimum pullback to 99.79 if not a deeper 97.76 correction. Caveat emptor. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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Some have up to 2.7 cents of copper. Nickles also good. I will also be stocking up on foods.