Archive - May 29, 2010

Tyler Durden's picture

Implications On GoM And Global Drilling Following The Biggest Oil Spill In History; Presenting The Short Candidates: DO, PDE And NE





With concerns about implications on GoM drilling post the Macondo spill dominating the investing world, as every day millions of gallons of fresh oil spill into the Gulf of Mexico, we present reports by Bank of America and JPM which disclose possible consequences from regulatory intervention, as well as all the rigs and operators in the GoM likely to be impaired by either surging insurance premiums, or something much worse, now that US offshore drilling policy is in greater flux than even ongoing financial reform. With today's adverse BP developments, Tuesday will likely see another bloodbath within the offshore drilling space, where RIG CDS have blown out more than in 2007 when the company was rumored to be a take private candidate more often than Radioshack is today (speaking of, in breaking news, today the market did not leak a new rumor about some idiot LBOing RSH ). The attached reports should provide a sufficient perspective on which managers and which operators are most likely to suffer the wrath of a skittish market.

 

Tyler Durden's picture

On The 2% Target Inflation Rate





Over the past week, numerous people have inquired about the utility and practicality of the 2% "target" inflation rate held sacred to central banks the world over. Why 2%? And, more importantly, why not more... much more. Will the Fed ever get to targeting hyperinflation as a monetary policy goal, and if we ever get to that ludicrous position, can this be implemented in practice? Are the days of 2% target rates over? This is not just some theoretical whimsical musing - these questions are predicated by a recent IMF report which hypothesized that a 4% inflation rate "might prove superior to the traditional 2% target rate in helping to minimize the impact of future economic shocks." Furthermore, the higher the target rate, the greater the stimulus flexibility, as ZIRP would then become a perpetual component of capital markets, and recurring fiscal stimuli would be the norm as opposed to the outlier. We present a TD Securities report by Eric Lascelles which answers all questions about "why 2%", and what will happen when 2 becomes 4, then 8, then 16, etc, until the second coming of Rudolf von Havenstein is finally confirmed.

 

Tyler Durden's picture

John Taylor On The Dollar, Growth And Immigration





Although those of us who invest in the currency market have to pay careful attention to the daily price twitches resulting from economic releases and political speeches, the foreign exchange value of individual currencies actually moves glacially with wide emotional swings around the central value. The emotion has often run against the dollar. Before the start of the euro, the Deutsche mark was the market favorite. Two societal attributes probably contributed to this consistent bias. First, the Bundesbank and the German government preached and usually followed a more conservative monetary and fiscal strategy than the Fed and the US government did, which resulted in marginally tighter liquidity on average in Germany. The two governments’ different leanings could partly be explained by the historical accident of the ruinous hyperinflation that Germany suffered in 1923, terrifying modern Germans, but more critical was the fact that the US population was younger and growing faster than the German one. Because the tendency to consume is higher in the early years of adulthood and trails off dramatically as retirement age approaches, Americans bought more and saved less than the Germans. Furthermore, the US had to spend more on its infrastructure and social services than Germany, just to handle the higher level of household formation. Looking over the past 40 years, it seems that countries with growing populations and with faster growing economies tend to have weaker currencies than those with a more stable population and slower growing economies.

 

Tyler Durden's picture

The ECB Blasts Governmental Fear-Based Racketeering, Questions Keynesianism, Believes The Fed's Powers Are Overestimated





In what could one day be seen by historians as a seminal speech presented before the Paul Volcker-chaired Group of Thirty's 63rd Plenary Session in Rabat, the ECB's Lorenzo Bini Smaghi had two messages: a prosaic, and very much expected one: of unity and cohesion, if at least in perception if not in deed, as well as an extremely unexpected one, in which the first notable discords at the very peak of the power echelons, are finally starting to leak into the public domain. It is in the latter part that Bini Smaghi takes on a very aggressive stance against not only the so-called "inflation tax", or the purported ability of central bankers to inflate their way out of any problem, but also slams the recently prevalent phenomenon of fear-mongering by the banking and political elite, which has become the goto strategy over the past two years whenever the banking class has needed to pass a policy over popular discontent. The ECB member takes a direct stab at the Fed's perceived monetary policy laxity and US fiscal imprudence, and implicitly observes that while the market is focusing on Europe due to its monetary policy inflexibility, it should be far more obsessed with the US. Bini Smaghi also fires a warning shot that ongoing divergence between the ECB and Germany will not be tolerated. Most notably, a member of a central bank makes it very clear that he is no longer a devout believer in that fundamental, and false, central banking religion - Keynesianism.

 

Econophile's picture

Oil Drilling Liability Cap Led To The Gulf Spill





Why would BP take on a risky venture like drilling in 5,000' of water without adequate safeguards? I understand that BP may turn out to be incompetent relative to its peers. But they are a public company and as such they are responsible to shareholders and creditors. Why indeed. Here's a hint: their after tax earnings in Q1 were $6.1 billion and the economic damages liability cap was $75 million.

 

Tyler Durden's picture

Matt Simmons Tells Bloomberg Only Way To Contain Oil Leak Is With Small Nuclear Bombs, "Top Kill" Is Just A Distraction





In his May 28th interview with Bloomberg's Mark Crumpton and Lori Rothman, Matt Simmons of energy investment bank Simmons & Company, provides some stunning revelations on what is really occurring in the Gulf of Mexico, and proposes that the only effective way to contain the leak is to relieve BP, bring in the military, and do what the Russians have done on comparable occasions, namely explode nuclear weapons within the wellbore. Simmons knows what he is talking about. As Jim Bianco points out: "Matt Simmons gained fame with his book 2005 Twilight in the Desert where he claimed that the Saudis were overstating their oil output because they hit “peak oil.” Right or wrong Simmons claimed the price of oil was going to skyrocket and three years after the book’s release the crude oil hit $147/Barrel. In January 2009 the WSJ called Simmons one of the five most important voices in the oil industry. Simmons has been wrong in the past and his views are non-conventional and often correct. Simmons is also highly connected within the oil industry so he knows who to talk to verify his claims." In addition to his radical solution, Simmons also points out that "Top Kill" is a sideshow and the real problem is 5 to 7 miles away, where a second fissure is "releasing a plume the size of Delaware and Maryland combined." If Simmons is indeed right, and the only recourse left to Obama is to nuke the seabed, the repercussions for his already shaky political situation will be tremendous.

 

Tyler Durden's picture

Chartology: When The Kool Aid Runs Low, Pour Some More





As the market tumbles, what does Goldman do? "We are raising our 2010 and 2011 operating EPS estimates to $78 and $93 (from $76 and $90) to reflect strong 1Q results and better net margins than we had expected. Our pre-provision and pre-writedown estimates are $83 and $93 reflecting growth of 15% and 12%. Our 3-month, 6-month, and 12-month S&P 500 forecasts equal 1160, 1250, and 1300, respectively, corresponding to 5%, 13%, and 18% returns." In the meantime clients continue to lose money both on Goldman's recommended longs and shorts: "Our recommended sector weightings have generated -14 bp of alpha YTD. Our overweight recommendations (Energy, Materials, Info Tech) have generated -33 bp of alpha while our underweight positions (Health Care, Consumer Staples, Utilities, Telecom) have generated +18 bp of alpha." But, David Kostin will be right about the S&P dammit. Also, here is how Goldman will lose clients even more money: a whole new set of unhittable targets: "Our 3-month, 6-month, and 12-month S&P 500 forecasts equal 1160, 1250, and 1300, respectively, corresponding to 5%, 13%, and 18% returns."

 

Leo Kolivakis's picture

Relax! It's Not as Bad as You Think!





Alright ZHers, enough with the gloom & doom. It's time to fess up to the fact that it's not as bad as you think. In fact, it's time to get bullish on America and the rest of the world. Put away your crash helmets and enjoy the long weekend.

 
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