Sunday, November 29, 2009
Dubai and the Russian bond default of 1998
Energy analyst John Freeman of Raymond James points out that
Friday, November 27, 2009
Raymond James Energy Daily Update
Energy
John Freeman
SUMMARY
After a nice turkey dinner and having given thanks for a stock market at 13-month highs, U.S. investors (well, some of them, anyway) come back to their offices today and what do they see? Just a global market meltdown of sorts thanks to Dubai's de facto default. On the crude front, oil prices have fallen almost 5% since Wednesday after Dubai World (the state-owned conglomerate) announced that it will need to restructure its ~$59 billion in debt to avoid defaulting on its liabilities. The announcement severely rattled the global markets, as many investors began to sell off both stocks and commodities amidst uncertainty regarding the continued global credit crisis. In other words, look out below today.
Hiland Holdings (HPGP/$3.16/Underperform) enters $5 million loan agreement; terminates credit facility and loan from Mr. Hamm. The partnership has entered into a $5 million loan agreement with Coppermark Bank, which will mature on April 2, 2010. As a result, the partnership has terminated its $3 million credit facility ($3 million outstanding and due by December 31, 2009) and has cancelled the term promissory note issued by Mr. Harold Hamm on November 3 for $1.5 million. We believe the remaining borrowings will be used for attorney and professional fees and various expenses related to the proposed buyout. The special meeting vote will be on December 4; unitholders are encouraged to submit proxy votes.
The Dubai default: What does it mean for oil prices? When Russia defaulted on its debt in 1998, it broke the rule that such a thing can't happen to nuclear powers. This week's shock from Dubai about a $60 billion debt "standstill" means rich Gulf OPEC countries aren't immune either. Strictly speaking, Dubai isn't in OPEC, but the UAE is. Dubai is one of the UAE's seven emirates, though it is Abu Dhabi that has 90% of the country's oil. Will the UAE's federal government, backed by Abu Dhabi, bail out its most spendthrift emirate? Thus far, it seems that the answer is no. If anything, oil prices - just like almost everything else except U.S. T-bills and the Swiss franc - plunged on the Dubai news, as the market sees it as a possible sign of a renewed global credit crisis, especially among emerging markets. And with petroleum inventories already at high levels, it doesn't take much to erase part of the gains in oil prices from the mid-$60s to the $80 level over the past two months, particularly as this move was driven almost entirely by (1) rising global equities and (2) a weak U.S. dollar. In other words, unwise financial decisions by Dubai are going to hit the near-term revenue of all OPEC countries.
John Freeman
SUMMARY
After a nice turkey dinner and having given thanks for a stock market at 13-month highs, U.S. investors (well, some of them, anyway) come back to their offices today and what do they see? Just a global market meltdown of sorts thanks to Dubai's de facto default. On the crude front, oil prices have fallen almost 5% since Wednesday after Dubai World (the state-owned conglomerate) announced that it will need to restructure its ~$59 billion in debt to avoid defaulting on its liabilities. The announcement severely rattled the global markets, as many investors began to sell off both stocks and commodities amidst uncertainty regarding the continued global credit crisis. In other words, look out below today.
Hiland Holdings (HPGP/$3.16/Underperform) enters $5 million loan agreement; terminates credit facility and loan from Mr. Hamm. The partnership has entered into a $5 million loan agreement with Coppermark Bank, which will mature on April 2, 2010. As a result, the partnership has terminated its $3 million credit facility ($3 million outstanding and due by December 31, 2009) and has cancelled the term promissory note issued by Mr. Harold Hamm on November 3 for $1.5 million. We believe the remaining borrowings will be used for attorney and professional fees and various expenses related to the proposed buyout. The special meeting vote will be on December 4; unitholders are encouraged to submit proxy votes.
The Dubai default: What does it mean for oil prices? When Russia defaulted on its debt in 1998, it broke the rule that such a thing can't happen to nuclear powers. This week's shock from Dubai about a $60 billion debt "standstill" means rich Gulf OPEC countries aren't immune either. Strictly speaking, Dubai isn't in OPEC, but the UAE is. Dubai is one of the UAE's seven emirates, though it is Abu Dhabi that has 90% of the country's oil. Will the UAE's federal government, backed by Abu Dhabi, bail out its most spendthrift emirate? Thus far, it seems that the answer is no. If anything, oil prices - just like almost everything else except U.S. T-bills and the Swiss franc - plunged on the Dubai news, as the market sees it as a possible sign of a renewed global credit crisis, especially among emerging markets. And with petroleum inventories already at high levels, it doesn't take much to erase part of the gains in oil prices from the mid-$60s to the $80 level over the past two months, particularly as this move was driven almost entirely by (1) rising global equities and (2) a weak U.S. dollar. In other words, unwise financial decisions by Dubai are going to hit the near-term revenue of all OPEC countries.
Wednesday, November 18, 2009
flash -- October residential construction figures disappoint big-time
Building Permits fell 4.0% in October to a 552,000 seasonally adjusted annual rate (median forecast: 580,000). Housing Starts sank 10.6% to a 529,000 pace (median forecast: 600,000) -- single family down 6.8%, multi-family down 34.6%.
The Consumer Price Index rose 0.3% in October (median forecast: +0.2%), up 0.2% ex-food & energy (+0.18177% before rounding, median forecast: +0.1%). New vehicles +1.6%. Used vehicles +3.4%. Energy +1.5%, boosted by the seasonal adjustment.
Bottom Line: The CPI was slightly higher than expected, but appears to be due to quirks in vehicle pricing (earlier discounts, new-model-year adjustments). The residential construction figures were terrible, but likely reflected concerns about the pending expiration of the first-time homebuyers tax credit (which has since been extended). The bond market may be a little wary of the CPI figures. The construction data should be a negative for equities and a plus for bonds, but may be partly dismissed due to the timing of the homebuyer incentive extension (a rebound in the construction data is likely in November, but it should be a gradual recovery in housing over time).
Scott J. Brown
SVP - Chief Economist
Raymond James & Associates
The Consumer Price Index rose 0.3% in October (median forecast: +0.2%), up 0.2% ex-food & energy (+0.18177% before rounding, median forecast: +0.1%). New vehicles +1.6%. Used vehicles +3.4%. Energy +1.5%, boosted by the seasonal adjustment.
Bottom Line: The CPI was slightly higher than expected, but appears to be due to quirks in vehicle pricing (earlier discounts, new-model-year adjustments). The residential construction figures were terrible, but likely reflected concerns about the pending expiration of the first-time homebuyers tax credit (which has since been extended). The bond market may be a little wary of the CPI figures. The construction data should be a negative for equities and a plus for bonds, but may be partly dismissed due to the timing of the homebuyer incentive extension (a rebound in the construction data is likely in November, but it should be a gradual recovery in housing over time).
Scott J. Brown
SVP - Chief Economist
Raymond James & Associates
Tuesday, November 17, 2009
The Producer Price Index
11/17/2009
Trader Commentary
______________________________________
The Producer Price Index measures the average change in prices received by producers of goods in all stages of domestic production. When we see PPI numbers that are low, it means producers aren’t getting higher prices for their goods. This is evidence that inflationary pressures are still low. If producers could get higher prices for their goods, they would…and we would all be paying more for them (inflation). Today’s releases on the PPI numbers came in lower than anticipated.
Industrial Production and Capacity Utilization numbers show how much factory production changed and what percentage of total production capacity is being used. Today we see that capacity utilization for October was 70.7%. This indicates there is still plenty of capacity available for production. Inflationary expectations will start to increase when capacity moves into the mid-80%s. Again, it looks as if inflation is not a problem for now.
Another interesting figure that was released today indicated that net foreign purchases of U.S. treasuries increased in September with Japan, China, and the UK big buyers. This is good since we’ll be seeing plenty of treasuries coming into the market going forward.
Despite benign inflation numbers today, bonds are drifting a little lower early in the day.
-Doug Harsham
Trader Commentary
______________________________________
The Producer Price Index measures the average change in prices received by producers of goods in all stages of domestic production. When we see PPI numbers that are low, it means producers aren’t getting higher prices for their goods. This is evidence that inflationary pressures are still low. If producers could get higher prices for their goods, they would…and we would all be paying more for them (inflation). Today’s releases on the PPI numbers came in lower than anticipated.
Industrial Production and Capacity Utilization numbers show how much factory production changed and what percentage of total production capacity is being used. Today we see that capacity utilization for October was 70.7%. This indicates there is still plenty of capacity available for production. Inflationary expectations will start to increase when capacity moves into the mid-80%s. Again, it looks as if inflation is not a problem for now.
Another interesting figure that was released today indicated that net foreign purchases of U.S. treasuries increased in September with Japan, China, and the UK big buyers. This is good since we’ll be seeing plenty of treasuries coming into the market going forward.
Despite benign inflation numbers today, bonds are drifting a little lower early in the day.
-Doug Harsham
Monday, November 16, 2009
Obama -- Open in China but not on FINRA?
"I think that the more freely information flows, the stronger the society becomes, because then citizens of countries around the world can hold their own governments accountable. They can begin to think for themselves. That generates new ideas. It encourages creativity.
And so I've always been a strong supporter of open Internet use. I'm a big supporter of non-censorship. This is part of the tradition of the United States that I discussed before, and I recognize that different countries have different traditions. I can tell you that in the United States, the fact that we have free Internet -- or unrestricted Internet access is a source of strength, and I think should be encouraged.
Now, I should tell you, I should be honest, as President of the United States, there are times where I wish information didn't flow so freely because then I wouldn't have to listen to people criticizing me all the time. I think people naturally are -- when they're in positions of power sometimes thinks, oh, how could that person say that about me, or that's irresponsible, or -- but the truth is that because in the United States information is free, and I have a lot of critics in the United States who can say all kinds of things about me, I actually think that that makes our democracy stronger and it makes me a better leader because it forces me to hear opinions that I don't want to hear. It forces me to examine what I'm doing on a day-to-day basis to see, am I really doing the very best that I could be doing for the people of the United States.
And I think the Internet has become an even more powerful tool for that kind of citizen participation. In fact, one of the reasons that I won the presidency was because we were able to mobilize young people like yourself to get involved through the Internet. Initially, nobody thought we could win because we didn't have necessarily the most wealthy supporters; we didn't have the most powerful political brokers. But through the Internet, people became excited about our campaign and they started to organize and meet and set up campaign activities and events and rallies. And it really ended up creating the kind of bottom-up movement that allowed us to do very well.
...
So I'm a big supporter of not restricting Internet use, Internet access, other information technologies like Twitter. The more open we are, the more we can communicate. And it also helps to draw the world together.
Think about -- when I think about my daughters, Malia and Sasha -- one is 11, one is 8 -- from their room, they can get on the Internet and they can travel to Shanghai. They can go anyplace in the world and they can learn about anything they want to learn about. And that's just an enormous power that they have. And that helps, I think, promote the kind of understanding that we talked about.
Now, as I said before, there's always a downside to technology. It also means that terrorists are able to organize on the Internet in ways that they might not have been able to do before. Extremists can mobilize. And so there's some price that you pay for openness, there's no denying that. But I think that the good outweighs the bad so much that it's better to maintain that openness."
And so I've always been a strong supporter of open Internet use. I'm a big supporter of non-censorship. This is part of the tradition of the United States that I discussed before, and I recognize that different countries have different traditions. I can tell you that in the United States, the fact that we have free Internet -- or unrestricted Internet access is a source of strength, and I think should be encouraged.
Now, I should tell you, I should be honest, as President of the United States, there are times where I wish information didn't flow so freely because then I wouldn't have to listen to people criticizing me all the time. I think people naturally are -- when they're in positions of power sometimes thinks, oh, how could that person say that about me, or that's irresponsible, or -- but the truth is that because in the United States information is free, and I have a lot of critics in the United States who can say all kinds of things about me, I actually think that that makes our democracy stronger and it makes me a better leader because it forces me to hear opinions that I don't want to hear. It forces me to examine what I'm doing on a day-to-day basis to see, am I really doing the very best that I could be doing for the people of the United States.
And I think the Internet has become an even more powerful tool for that kind of citizen participation. In fact, one of the reasons that I won the presidency was because we were able to mobilize young people like yourself to get involved through the Internet. Initially, nobody thought we could win because we didn't have necessarily the most wealthy supporters; we didn't have the most powerful political brokers. But through the Internet, people became excited about our campaign and they started to organize and meet and set up campaign activities and events and rallies. And it really ended up creating the kind of bottom-up movement that allowed us to do very well.
...
So I'm a big supporter of not restricting Internet use, Internet access, other information technologies like Twitter. The more open we are, the more we can communicate. And it also helps to draw the world together.
Think about -- when I think about my daughters, Malia and Sasha -- one is 11, one is 8 -- from their room, they can get on the Internet and they can travel to Shanghai. They can go anyplace in the world and they can learn about anything they want to learn about. And that's just an enormous power that they have. And that helps, I think, promote the kind of understanding that we talked about.
Now, as I said before, there's always a downside to technology. It also means that terrorists are able to organize on the Internet in ways that they might not have been able to do before. Extremists can mobilize. And so there's some price that you pay for openness, there's no denying that. But I think that the good outweighs the bad so much that it's better to maintain that openness."
Bernanke's speech -- selected highlights Scott Brown, Economist
Monday, November 16 (12:15 p.m.)
Bernanke Speech (“On the Outlook for the Economy and Policy”)
“When I last spoke at the Economic Club of
Today, financial conditions are considerably better than they were then, but significant economic challenges remain. The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible. Nevertheless, I think it is fair to say that policymakers' forceful actions last fall, and others that followed, were instrumental in bringing our financial system and our economy back from the brink. The stabilization of financial markets and the gradual restoration of confidence are in turn helping to provide a necessary foundation for economic recovery. We are seeing early evidence of that recovery: Real gross domestic product (GDP) in the
How the economy will evolve in 2010 and beyond is less certain. On the one hand, those who see further weakness or even a relapse into recession next year point out that some of the sources of the recent pickup--including a reduced pace of inventory liquidation and limited-time policies such as the "cash for clunkers" program--are likely to provide only temporary support to the economy. On the other hand, those who are more optimistic point to indications of more fundamental improvements, including strengthening consumer spending outside of autos, a nascent recovery in home construction, continued stabilization in financial conditions, and stronger growth abroad.
My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds--in particular, constrained bank lending and a weak job market--likely will prevent the expansion from being as robust as we would hope. I'll discuss each of these problem areas in a bit more detail and then end with some further comments on the outlook for the economy and for policy…
The outlook for inflation is also subject to a number of crosscurrents. Many factors affect inflation, including slack in resource utilization, inflation expectations, exchange rates, and the prices of oil and other commodities. Although resource slack cannot be measured precisely, it certainly is high, and it is showing through to underlying wage and price trends. Longer-run inflation expectations are stable, having responded relatively little either to downward or upward pressures on inflation; expectations can be early warnings of actual inflation, however, and must be monitored carefully. Commodities prices have risen lately, likely reflecting the pickup in global economic activity, especially in resource-intensive emerging market economies, and the recent depreciation of the dollar. On net, notwithstanding significant crosscurrents, inflation seems likely to remain subdued for some time.
The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the
The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Of course, significant changes in economic conditions or the economic outlook would change the outlook for policy as well. We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability”
Bottom Line: The Fed Chairman spends most of his time here discussing the tightness in bank lending and the labor market’s weakness. The comments on the dollar are unusual in that the exchange rate is the Treasury’s responsibility, not the Fed’s. However, a weaker dollar has some inflation implications, which the Fed has to consider. Still, Bernanke argues that the Fed can play a key role in supporting the dollar by helping to ensure strong
Scott J. Brown
SVP - Chief Economist
Raymond James & Associates
Saturday, November 14, 2009
The social media
I have always been an early technology adapter, downloading stock quotes and charts since 1982. In the early 90's I was a branch manager and asked to do a presentation on technology for my firm's regional meeting. When I explained how I was able to email stock quotes at the end of every month to a husband and wife, both scientists, who imported them into their software to keep track of portfolios, the compliance officer was appalled. She asked me how I would keep track of things if my brokers used email. I told her that I would have them push "print." She asked me how I would know if they were sending emails without my knowledge. I told her that I wouldn't know if they were sending regular mail without my knowledge. Then, with the usual caveats about how I didn't understand our litigious society (I had managed the Pru office during the limited partnership debacle) and that it was for my own good, she refused to allow me to use email.
My clients moved their million dollar account to Schwab, but another important change was going on. Technology was changing the business. It was inevitable that we would all use these tools. But when we began to use email regularly it was regulators, not those of us in the business who made the rules. Discount brokers, online websites like Motley Fool and penny stock promoters were all over the internet as regulators silenced professionals in order to "protect” the public.
The same process is going on right now with social media.
From the Raymond James Annual Compliance Interview:
“Do you understand that current firm policy prohibits the use of instant messaging as a method for communicating with clients about securities-related issues? The same prohibition applies to securities related bulletin boards, chat rooms, and social networking sites such as My Space, Facebook and Twitter “
From Jim Cramer:
• Name TheStreet.com
• Location New York, NY
• Web www.thestreet.com
• Bio The official Twitter account of TheStreet.com. Follow us for the latest news and analysis on the financial markets from 14 wall street
Clearly social media represent serious issues, just as email did in 1992. But the tail should not wag the dog. Sales, marketing and research should decide how they can use tools such as Twitter. THEN compliance and IT should find ways for these communications to occur in a compliant manner.
My clients moved their million dollar account to Schwab, but another important change was going on. Technology was changing the business. It was inevitable that we would all use these tools. But when we began to use email regularly it was regulators, not those of us in the business who made the rules. Discount brokers, online websites like Motley Fool and penny stock promoters were all over the internet as regulators silenced professionals in order to "protect” the public.
The same process is going on right now with social media.
From the Raymond James Annual Compliance Interview:
“Do you understand that current firm policy prohibits the use of instant messaging as a method for communicating with clients about securities-related issues? The same prohibition applies to securities related bulletin boards, chat rooms, and social networking sites such as My Space, Facebook and Twitter “
From Jim Cramer:
• Name TheStreet.com
• Location New York, NY
• Web www.thestreet.com
• Bio The official Twitter account of TheStreet.com. Follow us for the latest news and analysis on the financial markets from 14 wall street
Clearly social media represent serious issues, just as email did in 1992. But the tail should not wag the dog. Sales, marketing and research should decide how they can use tools such as Twitter. THEN compliance and IT should find ways for these communications to occur in a compliant manner.
Sunday, November 8, 2009
Friday, November 6, 2009
Sentiment is an eye opener
  | | Helene Meisler |
| Sentiment is an eye opener | ||
| 11/5/2009 8:11 AM EST |
While I have a tendency to prefer the Investor Intelligence readings more as they do not jump around like a bunch of day traders in their bullishness and bearishness, I cannot ignore this shift in sentiment. It is eye-opening, especially since it comes when we are so oversold.
New shares issued UUP
DB Commodity Services Files with the SEC to Register 100 Million Additional Shares of PowerShares DB US
Dollar Index Bullish Fund
Thu Nov 05 13:31:00 2009
EST
NEW YORK, Nov 05, 2009 (BUSINESS WIRE) --
DB Commodity Services LLC today announced it has filed a registration
statement with the US Securities and Exchange Commission (SEC) to
register 100,000,000 additional shares of PowerShares DB US Dollar Index
Bullish Fund (NYSE Arca: UUP) in order to meet investor demand.
Creations of new shares in the fund are temporarily suspended pending
clearance of the registration statement by the SEC, the Financial
Industry Regulatory Authority and the National Futures Association and
declaration of the effectiveness of the registration statement.
Additional information is contained in two related 8K filings which are
available at: www.sec.gov.
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