Jack Lew's Triple Whammy - IRS Ignorance, Corzine Corruption, And The 'War On The Poor'

Tyler Durden — Sat, 25 May 2013 01:35:50 +0000

While some, we are sure, will view this brief clip as partisan showmanship by Representative Steve Pearce, the questions he asks Treasury Secretary should surely be responded to in some manner that is anything but the typical perfunctory shrug these matters normally garner. From Lew's apparent disbelief that the IRS Audits debacle was in any way 'political' to Lew's "waiting for the investigation' on Jon Corzine's misappropriation of funds, and finally to the "War on the Poor" that Pearce describes the current administration's policies (for the benefit of Wall Street); these few minutes are well worth some time as we 'remember' this weekend.

"For New Mexico, we recognize a war on the poor when we see it"

(h/t Sense On Cents)

Stick Save To Close The Week

David Fry — Sat, 25 May 2013 01:01:58 +0000

Bulls are a determined and desperate bunch. There were two consecutive days of large sell-offs this week but on each day dip buyers entered to make things more respectable. Let’s face it, bulls have positions to defend, so getting a green close was huge psychological win for Main Street.

Durable Goods Orders beat expectations coming in at 3.3% vs 1.4% expected, and prior, -5.9%; Ex-transportation, which gives a better picture of conditions since they're generally volatile like Boeing 787 orders for example, would be at 1.3% vs 0.4% expected, and prior -1.7%. This gave bulls some hope. But that news was sold hard early in the day Friday.

There really wasn’t any other news Friday and many traders were leaving early for the long weekend thus volume started to slacken making it easy for some algos (they never take a holiday) to bid things up squeezing some shorts.

The volatility in Japan markets continued as their leaders haven’t learned how to describe new policies as Earnings from Hewlett-Packard (HPQ) were initially well received but on second look the stock was hit hard Friday. More defensive sectors again led markets like consumer staples (XLP), but that’s about it. Most other sectors were either mildly lower or much lower. Overseas markets were mostly weaker than U.S. sectors especially China (FXI), emerging markets (EEM) and Europe (IEV). It would be wrong to conclude that Friday’s action was bullish when looking over the global landscape.

The dollar (UUP) was flat. Both gold (GLD) and silver (SLV) weakened once again. Commodities (DBC) were weak once again as was oil (USO) and bonds (TLT) were fractionally higher.

Volume trailed off and bulls were free to ramp stocks into the close. Breadth per the WSJ was mostly negative.

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NYMO

The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

NYSI

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.I believe readings of +1000/-1000 reveal markets as much extended.

VIX

The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

SPY 5 MINUTE

.SPX WEEKLY

INDU WEEKLY

RUT WEEKLY

QQQ WEEKLY

XLF WEEKLY

XLB WEEKLY

XLP WEEKLY

XLI WEEKLY

IYT WEEKLY

IYR WEEKLY

TLT WEEKLY

FXE WEEKLY

FXY WEEKLY

FXA WEEKLY

GLD WEEKLY

SLV WEEKLY

GDX WEEKLY

JJC WEEKLY

DBC WEEKLY

USO WEEKLY

UNG WEEKLY

UUP WEEKLY

EFA WEEKLY

IEV WEEKLY

EEM WEEKLY

EWJ WEEKLY

EWZ WEEKLY

RSX WEEKLY

EPI WEEKLY

FXI WEEKLY

EWA WEEKLY

The market’s performance Thursday and Friday are misleading since there is so much destruction in many sectors globally. But the media depends on selling what’s going on with the DJIA. It’s just window dressing for the tourists frankly.

Next week will feature Consumer Confidence; Case-Shiller HPI, GDP; Jobless Claims; Pending Home Sales; Chicago PMI; and, the dueling U of Michigan Consumer Sentiment data. The Fed will continue POMO actions throughout the week with the largest liquidity add Friday.

Let’s see what happens.

Guest Post: Are Pipeline Spills A Foregone Conclusion?

Tyler Durden — Sat, 25 May 2013 00:58:13 +0000

Submitted by Daniel Graeber of OilPrice.com,

Exxon Mobil hasn't asked federal regulatory authorities to restart the Pegasus oil pipeline, which burst open in a neighborhood in Mayflower, Ark. In March, a 22-foot rupture in the pipeline spilled about 5,000 barrels of diluted Canadian crude oil into an area of marshland, though the company said it's been effectively cleaning the area with long-term remediation in mind. Policymakers on both sides of the Canadian crude oil debate have focused on issues ranging from emissions to economic stimulus. If pipelines like Keystone XL have any chance of approval, perhaps pipeline integrity should be the focal point of real policy debates.

Exxon said it was still looking into what caused a 22-foot gash to appear in the wall of its 65-year-old Pegasus oil pipeline. Arkansas Attorney General Dustin McDaniel said his office was pouring over 12,500 pages of information sent to his office by Exxon. Those documents were related to maintenance, inspection and safety of the 850-mile oil pipeline. Exxon, for its part, said it was combing over data taken from inside the pipeline itself in an effort to figure out what happened before the spill. That inspection, a spokesman said, could take at least another month.

Exxon already removed the damaged section and replaced it with new pipe. About a month after the Arkansas incident, about a barrel of oil leaked from the same pipeline about 200 miles north of Mayflower. The "wait and see" reaction to the Pegasus spill, and potentially the delay in the restart, may be part of Exxon's evaluation of the debate over the Keystone XL pipeline. Last week, a measure dubbed the Northern Route Approval Act passed through a Republican-led committee on its way to the full House. The bill would leave the fate of Keystone Xl in the hands of policymakers, who may have a vested interest in seeing that the project gets built.

Rep. Jerrold Nadler, D-N.Y., cast his vote against the Northern Route Approval Act. He expressed frustration that lawmakers were moving the debate away from renewable energy and focusing more on how best to circumvent normal review processes. Last year, the White House passed new laws that would stiffen the penalties for pipeline safety violations and mandate more inspections. That decision followed a 1,000-barrel spill in the Yellowstone River and a 20,000-barrel spill in Michigan. Lawmakers debating Keystone XL, however, have pressed for few additional assurances for pipeline integrity.

Canadian Prime Minister Stephen Harper told the Council on Foreign Relations last week the "real" environmental issue with oil from Canada was whether it traveled through a pipeline or by rail. One of the "real" issues has to do with emissions. Upstream, emissions work out to be "almost nothing globally," the prime minister said. Downstream, it's more likely that a train will derail than a pipeline will burst open, he said.

Talking points over pipelines are focused on economic and energy security interests on one side of the argument versus emissions and cleanup on the other. Given the legacy of pipeline spills since the Keystone XL debate began more than four years ago, the "real" issue may be the lack of debate over just why so many of these pipelines have burst open in the first place.

Abenomics 101 - The 15 Most Frequently Asked Questions

Tyler Durden — Sat, 25 May 2013 00:20:19 +0000

With the first arrow of Abenomics perhaps hitting its limit, it will be the second and third arrows that need to occur quickly and aggressively to carry this momentum forward (and for the economy to grow into stock valuations). Barclays lays out 15 of its most frequently asked questions below but concerns remain as the BoJ’s planned absorption of nearly 80% of new JGB issuance from the markets this fiscal year has triggered a dramatic change not only in JGB supply/demand and ownership structure but in the JGB market risk profile itself, which has moved from “low carry, low volatility and high liquidity (superior to other assets from perspective of risk-adjusted returns or Sharpe ratio)” to “low carry, high volatility and low liquidity (inferior from same perspective)”. Barclays added that with a wave of major political and policy events ahead, starting with a crucial Upper House election, there was no big change in the basic belief among foreign investors that Japan is likely to be the main source of surprise for the global economy and of volatility in financial markets.

Via Barclays:

Q1: Is the BoJ’s 2% price stability target achievable?
A1: It will be difficult through monetary easing alone

Q2: Where might a surprise appear in inflation trends?
A2: Inflation tends to jump unexpectedly when a combination of monetary easing and significant fiscal expansion coincides with some sort of supply shock.

Q3: What transmission channel is the BoJ envisioning for achieving its inflation target?
A3: Since the interest rate and credit channels are unlikely to recover anytime soon, the BoJ will have to depend largely on more accommodative financial conditions via higher share prices and a weaker yen.

Q4: What other monetary policy actions are expected?
A4: We think the BoJ will likely be compelled to ease again in 2H FY13 (most likely in October), consisting mainly of increased purchasing of ETFs as the most feasible risk asset.

Q5: How do we describe the government’s fiscal policy stance for 2013-14?
A5: Assuming no additional fiscal measures, fiscal policy will shift from a markedly expansionary stance relative to other developed nations in 2013 to an abrupt contractionary stance next year.

Q6: What is the likelihood of a return to a public-spending-driven economic recovery?
A6: If the economy is underpinned by strong overseas demand (robust exports), as in the Koizumi era, it would reduce the chances of a major fiscal expansion or resulting economic rebound fueled by public works.

Q7: Is government debt sustainable?
A7: This will depend on growth initiatives. If the government continues to depend unduly on QQE without a proper growth strategy (sluggish potential growth), the possibility of a ‘sell-Japan’ scenario would reemerge over the long term.

Q8: How has the government’s growth strategy progressed?
A8: There has been no notable progress yet. Momentum for growth initiatives may pick up depending on the Upper House election results, but key measures such as a corporate tax cut and easing of job dismissal regulations could take considerable time.

Q9: Are Japanese stocks overvalued?
A9: Japanese stocks are superficially rich as measured by valuations such as P/E. However, we believe share prices have further upside as long as excess liquidity continues to curb the ERP.

Q10: What will be necessary to ensure a more sustained rise in share prices?
A10: A more sustained rise in the liquidity-driven stock market will require a return of surplus funds to shareholders when real interest rates fall into negative territory, a cut in corporate tax rates, and higher financial leverage.

Q11: How has the structure of JGB markets changed since the launch of QQE?
A11: The post-QQE risk profile of JGB markets has changed dramatically from “low carry, low volatility and high liquidity (high Sharpe ratio)” to “low carry, high volatility and low liquidity (low Sharpe ratio).”

Q12: Will QQE trigger significant portfolio rebalancing by financial institutions?
A12: Banks will reduce their JGB holdings substantially in 2013-14. Still, their considerably higher risk tolerance levels compared with the VaR shock of 2003 should act as a buffer for JGB markets.

Q13: Will the yen’s decline accelerate? What is the risk of reversal to yen appreciation?
A13: The fall in the yen’s value could hasten if a further BoJ easing coincides with a reduction by the Fed in its QE. However, from a supply/demand perspective, purchasing of Japanese shares by overseas investors should offset the effect of portfolio rebalancing by domestic investors, suggesting that the pace of yen depreciation should slow.

Q14: What political developments can be expected after the Upper House election?
A14: If the LDP secures a majority in the Upper House, the government will have control of both houses for the first time in six years, setting the stage for a long, stable administration. The political stability could be the driving force for growth initiatives.

Q15: What are the best- and worst-case scenarios for Abenomics?
A15: The best-case scenario is the LDP wins a large majority in the Upper House election and more momentum for growth initiatives, along with QQE to ease near-term deflationary pressure. The worst case would be a retreat in growth initiatives and prolonged overdependence on QQE.

Whether the markets go for a buy-Japan or sell-Japan scenario will depend in good part on the results of important policy and political events in the next three months. Of particular note are: 1) BoJ Monetary Policy Meetings; 2) the Council on Economic and Fiscal Policy’s Basic Stance for Economic and Fiscal Management, scheduled for release in June, and the outline of growth initiatives by the Industrial Competitiveness Council and Council for Regulatory Reform; and 3) the Upper House election (as well as the Tokyo Metropolitan Assembly election, a prelude for the national poll).

Source: Barclays

Guest Post: One Experience That Really Shaped My Thinking

Tyler Durden — Fri, 24 May 2013 23:23:15 +0000

Submitted by Simon Black of Sovereign Man blog,

Years ago as a young intelligence officer, I served a stint in Saudi Arabia running a team of counter-terrorism analysts and agents.

We used to have regular “threat working groups,” a fancy way of saying we would get together at the US Embassy for meetings with the embassy staff, local NSA operators, and CIA operatives working in the country under official cover.

The tone of the meetings was always the same – looking at various reports and figuring out which intelligence was credible.

It seemed like every week we would hear about some terrorist with a suitcase-sized bomb, and the bureaucrats would dive into a lively debate about whether or not to evacuate the Americans.

One day, I remember, my friend who was the senior ranking non-commissioned officer interrupted and said, “What about the Swedes?”

Silence. You could have heard a pin drop.

An embassy official looked at him, puzzled. “Sergeant?”

“What about the Swedes? Do we evacuate the Swedes too?”

The embassy staff looked at each other, shrugged a bit, “Oh sure, sure, we’ll coordinate with Washington on that.” And the discussion continued.

“What about the Saudis?”

Silence again. And then he really made his point. “It’s not just about Americans, you know. Their blood is worth something too.”

I’ll never forget it. It was formative for me. But for the government bureaucrats, it was as if he were speaking Greek. They just didn’t understand the concept.

It’s so commonplace… and one of the more unfortunate aspects of humanity. We group ourselves, defining each other by irrelevant things like nationality or the color of our passports.

The modern nation state has only served to reinforce this purpose. The flag waving and bombastic patriotism drive a sentiment that other peoples are less important– that their lives are worth less than our lives… as if we’re not all human beings.

To give you a harsh example, former British Prime Minister David Lloyd George was a vocal opponent of Geneva Convention restrictions to prevent British planes from bombing certain civilian targets.

He had a long history of this, having dropped 97 tonnes of bombs and fired 183,861 rounds on Iraqi civilians in a 1920 revolt against British occupation.

According to his wife in later memoirs, George opposed any such restrictions because he wanted to “reserve the right. . . to bomb niggers!”

Though such language is intellectually appalling today, very little has changed in this sentiment: our lives are worth more than other people’s.

President Obama really drove this point home in a speech yesterday which passionately defended US drone strikes– something the White House calls “necessary, legal, and just.”

Now, it’s possible that I’ve seen a more intellectually disingenuous speech in my life. But I really can’t remember when.

As the President stated, the drone strikes are “effective” and have “saved lives.”

So says the Nobel Peace Prize recipient. But I imagine there are a number of dead civilians who would take issue with his assertion if they could.

By “saved lives,” he obviously meant “American lives”. Of course, we’ll never know since they don’t release any information and we’re all just supposed to take the government’s word without question.

I don’t. Having once been inside the machine, I know that there is zero certainty in the intelligence business... which makes the whole calculus morally reprehensible.

My dictionary defines the word sociopath as “a person with a personality disorder manifesting itself in extreme antisocial attitudes and behavior and a lack of conscience.”

I think the shoe fits. At a minimum, this policy… this strategy… is sociopathic. It demonstrates a lack of conscience for the value of innocent life overseas and is another massive moral stain on the politicians who lord over the Land of the Free.

Forget Prayer, It's Lamb Slaughter Time: A Rational Man's Response To All Time High Gold Shorts

Tyler Durden — Fri, 24 May 2013 22:47:41 +0000

Two days ago we suggested that "they better pray there is no short squeeze." Today, following the just released latest CFTC Commitment of Traders data which showed that the Comex gold short position grew once again to a new all time high of 79,416 shorts, all prayers are now off. If we may be so bold as to we suggest, the time has come to upgrade to the sacrificial slaughtering of at least a lamb on the altar of Saint Ben, because even the tiniest hint of a forced cover will now result in the biggest rip your face off levered short squeeze seen in the history of the yellow metal. Maybe throw in an ink cartridge or two for good measure...

Short positions in gold have risen 25% in the last 3 weeks

Chart: Bloomberg

The last to the party: Investors and flippers competing for small amount of inventory.

drhousingbubble — Fri, 24 May 2013 22:38:08 +0000

The data coming out on home prices is rather clear. Home prices are moving up steadily in the last year now increasing at a rate last seen in 2006. Of course, little of this is coming from wage growth but more from easy access to debt, investor demand, and historically low supply. One thing that people fail to remember is that during the last housing bubble, people were supplementing a lack of income growth with easy access to debt to add fuel to the housing market. This time, the easy money is being supplied to banks and hedge funds that are simply chasing higher yields. Anyone that has a hand in the housing business, especially in the grind it out rental business understands that it is no hands off endeavor. This is why it is surprising to see how much money is now being funneled into the market by brand new small time investors, especially in places like California. You know things are getting frothy when new money is willing to chase the rental business.

Investing big in Southern California

I saw this interesting post over on Redfin:

“We are a working couple first time buyers in La California. We have 300K$ down and were preapproved for 900K loan.

We never owned property before so we are seeking expertise advice and answers to these questions

1. We were wondering about what people who have gone this route have to say or give advice on that.

2. Is this the right way to go?

3. As we understand how important location can be, we are debating whether we buy it in Burbank N Hollywood Sherman oaks, La near USC or West Hollywood? Investment wise what would make the most sense?

4. Also for maximizing investments and cash flow what’s best 2, 3, 4 units or more is best?

5. What things do we look for when we go see the apartment?

6. What questions should we ask the seller?

7. What to look for in the surrounding? Besides school public transportation and safety obviously?

Any comment and/or advice is greatly appreciated!”

Think about what is being asked here. A first time buyer is looking to dive into a $900,000 investment property (almost $1 million) and has many questions that are basic for most investors even considering a $100,000 investment. So let us just pick a place in Burbank that fits the $900,000 mark:

283 N Florence St

Burbank, CA 91505

# of Units 4 Units

Beds 4 Bed

Sq Ft

Lot Size 7,379 Sq Ft Lot

Year Built 1947

The above place is a 4-unit property. The place is listed at $895,000. From the income sheet we find that the property will produce a gross income of $41,580 with expenses of $5,633. The expense amount is incredibly low in my estimation. From practical experience by the time all is said in done with taxes, insurance, vacancies, repairs, and just the operation of a mulit-unit you are likely to get a net operating income of something close to 50 percent of your gross income. Even with that said, the rents here are essentially $3,465 per month (or $866 per unit).

Let us assume this investor goes with this property. In more expensive areas of California investors are now buying to flip whereas in lower cost areas like the Inland Empire, more are buying to rent. From the initial notes, this potential buyer will put down $300,000 for the $900,000 property. Let us be generous and say that everything goes well and they manage a 60 percent NOI on their first year (meaning they kept expenses at 40 percent*). What is the cap rate here?

$24,948 / $900,000 = 2.77 percent

*Mortgage payments and depreciation are not considered operating expenses so that does not impact NOI

Keep in mind the above assumes a very optimistic scenario. In the end, this investor is going to be putting $900,000 at play for a 2.77 percent rate of return and they will be working for that money. If not, they’ll certainly be paying someone for that rate of return and this will cut into the overall rate.

Keep in mind we still need to factor the actual $600,000 mortgage payment. It looks like they were pre-approved and with everything said and done, the APR on this thing will likely get close to 4 percent on an investment property. So here is the principal and interest:

PI: $600,000 loan at 4% = $2,864 per month

The place is only producing $3,465 gross per month! Not factoring anything outside of principal and interest, which is big for a multi-unit, you are looking at a gross minus PI amount of $601. Bwahahahaha! What is amazing is they tried to sell this place for $1,000,000 last year:

Any seasoned investor looking at this is probably shaking their heads. Even the press now understands exactly what is happening:

“(Reuters) Home prices have been rising since last year, helped by investor demand and tighter inventory. The top five states with the biggest gains in prices were Nevada, California, Arizona, Idaho and Oregon.”

Helped? The market is being driven by this. In SoCal 35 percent of all purchases last month came from the all cash crowd. The only reason you would buy a place like this example is if you believed in solid appreciation. This is what many of the flippers are doing. Buying a place, fixing it up, and selling it into the current momentum for a quick profit. The fact that people are considering diving into the current game in LA and OC for rental cash flows boggles the mind, especially new investors looking to put down $300,000 on a $900,000 property that will throw off a yield lower than you can get in regular bonds.

Saving $300,000 is no small task. I'm curious as to what the perspective would be on buying a place like this?

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.

Guest Post: What 9 Company Hedge Books Are Revealing About The Natural Gas Market

Tyler Durden — Fri, 24 May 2013 22:13:25 +0000

Submitted by Keith Schaefer via OilPrice.com,

You can see it clear as day in their hedging strategies...

Natural gas producers are increasingly bearish on prices for their sector.

The numbers tell the tale. Canadian gas producers surveyed for the Oil and Gas Investments Bulletin hedged AECO-sold production at $5.27 in 2011. Hedge prices have dropped steadily for gas sold since—to $4.27 in 2012, and to $3.29 for currently-hedged production in 2013.

Why the falling hedge price? Because it made sense – Natural gas prices fell steadily from the beginning of 2010 through to early 2012. Faced with two years of declines, producers looked to stave off further price risk by forward-selling (hedging) their output.

So what has happened since the second quarter of 2012?

Gas prices have been rising. The monthly average AECO (the Canadian benchmark price out of Edmonton AB) price is up 110% over the last year. NYMEX gas has gained 95%.

Producers, however, have not responded with the same confidence. Despite stellar gains in the gas price, firms continue to hedge at low levels. In fact, for the first time in years, hedges appear to be working against producers—forcing them to sell gas at prices below market value.

Here's what one junior gas producer says about their hedging strategy...

“We’re actually thinking of unwinding some of our gas hedges now—at least in part,” says Heather Christie-Burns, President and COO of Angle Energy (NGL-TSX). “Our hedge book for natural gas is in a loss position right now, for what our strip pricing was then.” She adds that Angle does not have any hedging on for 2014.

So, could a rising commodity price and continued bearishness from industry insiders be a recipe for investor profits?

Hedging: A Good Idea... at the Wrong Time?

To see what hedge books tell us about the direction of the natural gas market, I surveyed nine major, Canadian-focused gas producers and their hedges. (This is information that investors can find buried in the back of annual financial statements for most companies).

What we can confirm from these hedge books is that hedges are now starting to work against producers.

As mentioned above, in 2011 my surveyed producers hedged AECO gas at an average of $5.27. During that year, AECO spot had a monthly average of $3.48. Hedging paid off.

Same in 2012. During that year, producers hedged at an average $4.27, while AECO prices averaged $2.28.

But with prices rising through most of the past year, hedgers are now close to underwater. The average AECO hedge for 2013 is $3.29. But AECO prices have averaged $3.01 through to the end of April—a razor-thin discount to hedged prices. In fact, prices for April averaged $3.28–right at the strike price for the average hedge.

Producers that hedge on the NYMEX—indexing their sale price to Henry Hub rather than AECO—have seen a similar pattern.

NYMEX hedgers locked in an average $5.97 in 2011—nearly a 50% premium to the average Henry Hub spot of $4.00 that year.

In 2012, the average hedge of $5.40 was almost double the $2.75 average hub price.

But the differential has now narrowed. NYMEX hedges for 2013 average $4.19, while the spot Henry Hub price through the first quarter of the year ran at $3.49.

As the chart below shows, NYMEX hedges are fairing a little better than AECO hedges in maintaining a premium—but the gap is closing fast.

Optimism or Pessimism: A Look at What's Ahead

The really interesting part: Despite the doubling of gas prices over the past year, producers are continuing to hedge year-out production at relatively low prices.

The average AECO hedge price for 2014 is $3.80—just 15% higher than the $3.29 producers hedged at in 2013.

For NYMEX production, the hedging outlook is even less optimistic. NYMEX hedges for 2014 average $4.38. That’s barely above the $4.19 average for 2013.

These low-price hedges are looking like an increasingly risky bet. If prices rise just a little, producers will be losing money on the forward sales that previously improved their bottom line.

Despite this risk, gas companies are continuing to hedge aggressively. Look at the historical pattern. In 2011—when AECO prices were holding in the $3 to $3.50 range—AECO-hedged producers grew more optimistic. Only two of them, Pengrowth (TGF-TSX) and Penn West (PWT-TSX), hedged AECO production in the next year, 2012. Others tried to maintain exposure to spot prices, believing things could improve.

Of course, 2012 turned out to see a cliff-dive in the AECO price, to below $2.00.

That spooked producers. To the point where, even though we’re back at the same +$3 prices we saw in 2011, gas players are continuing to hedge heavily. Where only two companies hedged at these levels before, six firms are hedged for 2013 and three companies are already hedged for 2014—at the low prices mentioned above.

This looks like a classic case of the “know it best, love it least” syndrome, meaning this could be a buying opportunity—at least for the right companies.

What It All Means for Investors

With more firms hedging, investors looking for upside from rising gas prices need to be careful about where they put their money—especially today. With hedging activity rising the last few years, good deals in the hedge market are getting hard to find.

You can see this in the spread. In 2011, average AECO hedges for our surveyed companies ranged from a low of $3.81 (Angle Energy, NGL-TSX) to a high of $6.43 (Enerplus, ERF-TSX). That’s quite a difference in prices and profits!

But today elevated prices are hard to come by. 2013 hedges have a tight spread, ranging from $3.09 (Crew Energy, CR-TSX) to a high of just $3.37 (Baytex Energy, BTE-TSX).

If you’re hedged today, you’re getting a mediocre price for your gas. Plain and simple.

The good news for investors betting on a rising gas price is that not all companies are hedging the same volumes.

Companies like EnCana (ECA-TSX) and ARC Resources (ARX-TSX) are hedging as much or more gas next year. While firms like Crew Energy and Enerplus appear to be keeping significant volumes uncommitted for now—perhaps looking for price appreciation.

Angle Energy is our sole surveyed producer that has not hedged any output for 2014.

“I don’t think NYMEX natural gas prices are going to rock over $5/mcf, but it could touch $5,” says Christie-Burns. “There is a ceiling, there’s a lot of coal. But good hedges by the majors have allowed a lot of activity over the last two years, and now they aren’t making money on them. They can’t redeploy hedging gains back into more drilling like the last couple years.

“That bodes well for 2014—we think there’s upside for 2014.”

That reminds me of commodity guru Don Coxe, who said opportunities come in sectors where “those who know it best, love it least.”

The quote fits today’s natural gas sector to a T.

Presenting Ben Bernanke's Desktop - Redux

Tyler Durden — Fri, 24 May 2013 21:39:36 +0000

Just as Ben Bernanke's monetary easing program changes with the times (back then he believed it was the Stock that mattered, now it is Flow, but one thing is constant: always moar), so does his computer desktop. And while we know, tentatively, what his preferred computer space looked like three years ago, the times have changed. Behold Ben Bernanke's new and improved PC desktop...

(h/t @Not_Jim_Cramer)

America's Bubble Economy Is Going To Become An Economic Black Hole

Tyler Durden — Fri, 24 May 2013 21:03:08 +0000

Submitted by Michael Snyder of The Economic Collapse blog,

What is going to happen when the greatest economic bubble in the history of the world pops? The mainstream media never talks about that. They are much too busy covering the latest dogfights in Washington and what Justin Bieber has been up to. And most Americans seem to think that if the Dow keeps setting new all-time highs that everything must be okay. Sadly, that is not the case at all.

Right now, the U.S. economy is exhibiting all of the classic symptoms of a bubble economy. You can see this when you step back and take a longer-term view of things. Over the past decade, we have added more than 10 trillion dollars to the national debt. But most Americans have shown very little concern as the balance on our national credit card has soared from 6 trillion dollars to nearly 17 trillion dollars.

Meanwhile, Wall Street has been transformed into the biggest casino on the planet, and much of the new money that the Federal Reserve has been recklessly printing up has gone into stocks. But the Dow does not keep setting new records because the underlying economic fundamentals are good. Rather, the reckless euphoria that we are seeing in the financial markets right now reminds me very much of 1929. Margin debt is absolutely soaring, and every time that happens a crash rapidly follows.

But this time when a crash happens it could very well be unlike anything that we have ever seen before. The top 25 U.S. banks have more than 212 trillion dollars of exposure to derivatives combined, and when that house of cards comes crashing down there is no way that anyone will be able to prop it back up. After all, U.S. GDP for an entire year is only a bit more than 15 trillion dollars.

But most Americans are only focused on the short-term because the mainstream media is only focused on the short-term. Things are good this week and things were good last week, so there is nothing to worry about, right?

Unfortunately, economic reality is not going to change even if all of us try to ignore it. Those that are willing to take an honest look at what is coming down the road are very troubled. For example, Bill Gross of PIMCO says that his firm sees "bubbles everywhere"...

We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions.

And unfortunately, it is not just the United States that has a bubble economy. In fact, the gigantic financial bubble over in Japan may burst before our own financial bubble does. The following is from a recent article by Graham Summers...

#000000;">First and foremost, Japan is the second largest bond market in the world. If Japan’s sovereign bonds continue to fall, pushing rates higher, then there has been a tectonic shift in the global financial system. Remember the impact that Greece had on asset prices? Greece’s bond market is less than 3% of Japan’s in size.

#000000;">For multiple decades, Japanese bonds have been considered “risk free.” As a result of this, investors have been willing to lend money to Japan at extremely low rates. This has allowed Japan’s economy, the second largest in the world, to putter along marginally.

#000000;">So if Japanese bonds begin to implode, this means that:

#000000;">

#000000;">1) The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).

#000000;">2) The second largest economy in the world will collapse (along with the impact on global exports).

#000000;">

#000000;">Both of these are truly epic problems for the financial system.

And of course the entire global financial system is a giant bundle of debt, risk and leverage at this point. We have never seen anything like this in world history. When you step back and take a good, hard look at the numbers, they truly are staggering. The following statistics are from one of my previous articles entitled "Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers"...

-$70,000,000,000,000 - The approximate size of total world GDP.

-$190,000,000,000,000 - The approximate size of the total amount of debt in the entire world. It has nearly doubled in size over the past decade.

-$212,525,587,000,000 - According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

-$600,000,000,000,000 to $1,500,000,000,000,000 - The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

The financial meltdown that happened back in 2008 should have been a wake up call for the nations of the world. They should have corrected the mistakes that happened so that nothing like that would ever happen again. Unfortunately, nothing was fixed. Instead, our politicians and the central bankers became obsessed with reinflating the system. They piled up even more debt, recklessly printed tons of money and kicked the can down the road for a few years. In the process, they made our long-term problems even worse. The following is a recent quote from John Williams of shadowstats.com...

The economic and systemic solvency crises of the last eight years continue. There never was an actual recovery following the economic downturn that began in 2006 and collapsed into 2008 and 2009. What followed was a protracted period of business stagnation that began to turn down anew in second- and third-quarter 2012. The official recovery seen in GDP has been a statistical illusion generated by the use of understated inflation in calculating key economic series (see Public Comment on Inflation). Nonetheless, given the nature of official reporting, the renewed downturn likely will gain recognition as the second-dip in a double- or multiple-dip recession.

What continues to unfold in the systemic and economic crises is just an ongoing part of the 2008 turmoil. All the extraordinary actions and interventions bought a little time, but they did not resolve the various crises. That the crises continue can be seen in deteriorating economic activity and in the panicked actions by the Federal Reserve, where it proactively is monetizing U.S. Treasury debt at a pace suggestive of a Treasury that is unable to borrow otherwise.

And there are already lots of signs that the next economic downturn is rapidly approaching.

For example, corporate revenues are falling at Wal-Mart, #000000;">Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM.

Would revenues at Wal-Mart be falling if the economy was getting better?

U.S. jobless claims hit a six week high last week. We aren't in the danger zone yet, but once they hit 400,000 that will be a major red flag.

And even though we are still in the "good times" relatively speaking, the federal government is already talking about tightening welfare programs. In fact, there are proposals in Congress right now to make significant cuts to the food stamp program.

If food stamps and other welfare programs get cut, that is going to make a lot of people very, very angry. And that anger and frustration will get even worse when the next economic downturn strikes and millions of people start losing their jobs and their homes.

What we are witnessing right now is the calm before the storm. Let us hope that it lasts for as long as possible so that we can have more time to prepare.

Unfortunately, this bubble of false hope will not last forever. At some point it will end, and then the pain will begin.