Monday, February 28, 2011

"Can Goldman Sachs Help Facebook Expand Its Hooker Base?"

From DealBreaker:
According to a new study, prostitutes are “flocking” to Facebook to peddle their services in record numbers, with an estimated 83 percent of working girls using the website to reel in clients and projections that by the end of 2011 Facebook will be “the leading online recruitment space” (for those looking to pay to lay). Still, for every, “Molly Ravish,” who says she charges $200 “for an hour of passion, including deep french kissing and oral sex,” and suggests potential customers remember her name because they’ll be “screaming it later,” or Fordham student “Beva Langoria,” who describes herself as an independent escort, or an NYPD spokesman who shrugs and says “everybody is using the internet,” there’s a hooker saying no way, no how. Now that Goldman Sachs has a vested interest in getting as many Facebook users signed up as possible, in addition to making it the premier destination for everything from catching up with old friends to buying ass, will they help change some minds?...MORE

First Solar Et Al. Slide On Italy’s Proposed Subsidy Cap (FSLR; STP; TSL; YGE; SPWRA)

From TechTrader Daily:
Shares of solar technology providers have come under substantial pressure today following a draft proposal by Italy‘s Ministry of Economic development, which some on the Street believe could sharply curtail demand for solar panels in the market that has been the most vibrant for the industry in the last several months.

The ministry’s draft proposal, viewable here, was covered over the weekend by the Italian press, with headlines such as “Fewer Incentives on Photovoltaics,” and even claims by some in Italy that the new rules would be equivalent to breaking the renewable energy industry in the country.

is expected to be considered by Italy’s Cabinet on Tuesday. If it does not meet with objection, it may be passed into law as soon as Thursday, writes Morgan Stanley analyst Smittipon Srethapramote.
Srethapramote,  after looking through the report, notes that not only does it propose suspending subsidies for solar installations once installations of 8 gigawatts of capacity are installed in Italy, but it also introduces some restrictions he had not expected. There would be a cap placed on ground-mounted plans on farmland, and there would be a maximum ratio set of 100 kilowatts of installation “per hectare for ground-mounted plants on farmland.”

The upshot,  Srethapramote thinks, is that if “left unchanged, these provisions could lead to a dramatic slow down in the Italian market.”  Srethapramote thinks that First Solar (FSLR) and SunPower (SPWRA) will be less adversely impacted than other solar names, given that there they have sources of revenue from other markets, such as the U.S. However, he also argues that “they will still likely suffer some degree of multiple compression in the coming months as volume and pricing expectations for the group are reset.”....MORE
The post links to a Barron's Feature that we happened to catch a couple weeks ago, it is worth the read for those beholden and those who be holdin'.

Power One Inc. $8.23 -9.26% (PWER)

From What's Trading:
Power One (PWER) with relative weakness and increasing put activity. Shares are down 10.7 percent to $8.10 and today’s options volume of 12,000 puts and 5,600 calls is more than double the recent average daily. The top trade is a 1,337 Mar 7 puts that recently traded at the 10-cent asking price. Looks like an opening buyer. 5,400 now traded. Mar 8 and 9 puts are busy as well. Looks like mixed trading in Mar 9 calls. Implied volatility is 14 percent to 58 and today’s flow seems to reflect concerns about additional short-term weakness in shares of the Carmarillo, CA power conversion maker. No news on the stock.
Nothing company specific, the story of the day is Italy, Italy, Italy.

Taking a Closer Look at VIX Spikes (VIX; VXX; CVOL)

From Schaeffer's Research:

Monday Morning Outlook: How to Handle a Spiking VIX

Volatility surged last week as stocks took a turn for the worse

...Foreword: There was finally some volatility in the market last week. The S&P 500 Index (SPX) was down 2% on Tuesday, and then fell some more on Wednesday. Over those two days, the index fell a total of 2.6% -- which is its biggest short-term loss since last August. The CBOE Market Volatility Index (VIX), which tends to move in the opposite direction as the market, spiked higher as a result, moving up 35% over the two-day period. The chart below shows the VIX and SPX going back to 2010. The yellow circles denote prior instances where the VIX gained at least 30% over a two-day period.


Previous VIX Spikes

VIX Spikes: When the market begins falling, traders scramble to put on hedges to guard against a significant drop in the market. A popular way to hedge is to buy put options on the SPX. The scramble to purchase these options increases option premiums -- and, in turn, the VIX. That's why the VIX is called the "fear index." Below, we'll see how previous VIX spikes have turned out for the market.
Going back to 2000, there have been 11 other times when the VIX gained at least 30% during a two-day period....MORE

"Solar ‘Gold Rush’ in U.K. May Die With Incentive Roll-Back" While "Italy Drops the Boom" (FSLR; TSL; SPWRA; STP)

"The honest politician is one who when he is bought,
will stay bought."
Our Hero
Simon Cameron


The first recipient (April, 2007) of the prestigious "Climateer: Our Hero" award,
Sen. Simon Cameron, Republican and Democrat of Pennsylvania.

Just making the point that if your business model depends on politicians, you'd best bet on dependable politicians.
Or stock up on Depends.

First up, Bloomberg:

Cornwall, the poorest county in England, said five months ago it expected a “gold rush” of $1.6 billion in solar energy investments. Now, the U.K. government may get in the way.

The central government said this month it’s considering cutting incentives and reducing the size of projects, concerned that the above-market rates it promised through April 2012 may lead to too many solar farms.
Britain is moving faster than any other European country to contain a surge in solar power and prevent the boom-and-bust seen in Spain and predicted for the Czech Republic. The risk is scaring off the investors who would create the “green jobs” Prime Minister David Cameron is seeking to revive the economy.
“It’s going to completely kill the market,” said Tim German, renewable energy manager for the local government in Cornwall at the U.K.’s southwest tip. “Investors are starting to get cold feet.”

Sharp Corp., the Osaka-based electronics maker which employs 1,100 U.K. workers after doubling the size of its panel factory in Wales, says the government may cripple the industry. Already, companies are scaling back. Matrix Group Ltd. and Ingenious Media Holdings Plc suspended solar funds seeking 55 million pounds ($89 million). Low Carbon Solar Ltd. says it can’t spend the 70 million pounds it secured from pension funds.
At Good Energy Group Plc, a clean electricity retailer based in Chippenham, England, Chief Executive Officer Juliet Davenport says she may only get 4 percent of the 100 megawatts of solar power-purchase agreements she wanted.

‘Rug Has Been Pulled’
“It was an industry that for the first time was moving fast and attracting investment,” Davenport said. “Suddenly, the rug has been pulled and everybody’s saying ‘What’s the future? Should we go off to North Africa and develop there and forget about the U.K.?’”

The solar surge began April 1, when the government brought in so-called feed-in tariffs guaranteeing prices as much as 12 times the market rate for electricity generated from the sun. Last year, developers doubled the capacity of solar power generation in the U.K. to 66 megawatts, enough for 9,000 homes....MORE
And from Eric Rosenbaum at TheStreet:
Shares of most of solar stocks were down broadly on Monday as fears of more sudden, and more severe, changes in the boom market of Italy overtook the stocks. Several Street reports indicated that a new draft being introduced this week in Italian parliament would cap solar installations at 8 gigawatts, and the cap would be implemented immediately and with no grandfathering clause.

Trading in solar stocks was heavy on Monday morning, with several of the most traded stocks in the space reaching average daily volume levels before the midday mark. The selloff in solar stocks began on Friday, when the new draft was introduced, though not widely reported by the Street firms.

For any solar investor, the most important caveat in digesting the latest from Italy is to remember that a draft is only a draft. It's far from the final package of solar subsidy changes to be approved in Italy. However, the language in the draft was more extreme than the market expected. The tension that exists in Italy hasn't changed: Is it a market scenario 2011 that is a repeat of Spain 2008 or Germany 2010? 

n both cases, the solar industry was confidently predicting that the changes would not be as severe as feared. In the case of Germany in 2010, the industry was right; in the case of Spain 2008, the industry was wrong. Recent commentary about potential changes in Italy has focused on any changes to its solar support being pushed out to 2012, which allowed solar stocks to rally. Germany has slowed, but it didn't play out as the original draft legislation introduced at the beginning of 2010 would have implied....MORE

Come Join George Soros, Joesph Stiglitz and the Rest of the New World Order Boys In Bretton Woods, New Hampshire April 8-11

From George's Institute for New Economic Thinking:
Bretton Woods Conference
 CRISIS and RENEWAL: International Political Economy at the Crossroads.

INET is pleased to announce that it will hold its annual conference April 8-11, 2011 at the Mount Washington Hotel in Bretton Woods, New Hampshire, the scene of the great conference that established a renewed global economic architecture as World War II drew to a close.

Today, as the aftershocks of our own Global Finance Crisis continue to reverberate, we face our own challenge of reconstruction. The 1944 conference was, famously, largely an Anglo-American affair, whereas today's reconstruction must engage the larger European Union, as well as the emerging economies of Eastern Europe, Latin America, and Asia. In the years since the 1944 conference, the globalization of production, trade, and especially finance, has transformed our economy, but has not yet transformed our system of regulation or our tools of policy intervention. Indeed, our very habits of thought and speech lag behind the realities that we desperately need to think and speak about.

This conference reflects INET's dedication to inspiring and provoking new economic thinking. More than 200 academic, business and government policy thought leaders from around the world will be attending. Speakers include the former United Kingdom Prime Minister Gordon Brown, Mark Carney, Paul Volcker; George Soros, Adair Turner, Joseph Stiglitz, and Harold James. Scroll down this page to see a list of all confirmed speakers....MORE
   
Conference Details

Please note this conference is by invitation only.  You will be required to enter a password to proceed.  If you did NOT receive an invitation and would like to be considered, please email events@ineteconomics.org


...Each attendee is responsible for booking and paying for his/her own air travel. However we will provide complimentary Coach Service from Manchester, NH and Boston Logan Airports....

Repost: First Solar: Analyst Roundup (is the stock in the armpit of a head-and-shoulders top?) FSLR

First posted Friday evening.
The stock closed down $8.96 (5.44%) at $155.72 and is trading lower in very early after-hours action (-7 cents).
Once again Tech Trader Daily leads the way:

Shares of solar energy technology maker First Solar (FSLR) are down $9.26, or almost 6%, at $155.42 after the company last night reported Q4 revenue below analysts’ estimates and cut the top end of its year revenue view while raising its year profit estimate.
The bulls today are inclined to look past the revenue miss, and they are heartened by improvements on cost and efficiency, with the company’s gross profit margin as a percentage of sales having risen a full 8.4 percentage points to 48.7% despite the 24% drop in sales.

Bullish!

Robert Stone, Cowen & Co.: Reiterates an Outperform rating. The company’s project pipeline of 2.4 gigawatts has grown more diverse and is “a buffer against FIT policy changes,” he writes, referring to the subsidies that have helped fund solar projects in various countries. In particular, North America should be 25% to 30% of 2011′s shipment total, up from just 18% last year. Stone raised his 2011, 2012, and 2013 EPS estimates to $9.65, $12.50 and $17, despite cutting his 2011 revenue estimate to $3.75 billion from $3.83 billion.

Stephen Chin, UBS: Reiterates a Buy recommendation and a $180 price target. The Q4 sales shortfall he believes came from the company’s decision to swap out some “non-conforming” solar modules from customer cites, and “isolated” delays in Ontario, Canada and in the U.S. He notes the improvement in manufacturing efficiency, with First Solar’s module cost dropping by 3% to 75 cents per watt, and with its module efficiency rising 0.3 percentage points to 11.6%....MORE
He's got Dan Ries, Collins Stewart in the bullish camp and Gordon Johnson, Axiom Capital; Timothy Arcuri, Citigroup and Aaron Chew, Hapoalim Securities as bearish.
Axiom's $62.36 remains the lowest price target while Hapoalim maintained his sell but raised his target from $110 to $125. That followed the firing of the prior analyst and his $65 target.

Elsewhere:
RBC maintained their outperform and raised the PT from $160 to $190.
Raised to $190 from $180 at Susquehanna
Bachman at Auriga maintained his hold and $167 target, he has had a pretty good feel for the stock

Jeffries lowered their PT from $164 to $160 and provided some color.
Citi also had some color while maintaining their Hold and $150 target.
Barclays maintains an 'Equalweight' on First Solar PT $144. 
Finally Goldman Sachs has maintained their 'Conviction Buy' and raised their target to $190 from $165.

Here's the chart via BigCharts.
Note the Feb. 2 shoulder and Feb 17 head. Perhaps one more run to $165?:

Sunday, February 27, 2011

"Some Heuristics for Evaluating the Soundness of the Academic Mainstream in Unfamiliar Fields"

From Less Wrong:
When looking for information about some area outside of one’s expertise, it is usually a good idea to first ask what academic scholarship has to say on the subject. In many areas, there is no need to look elsewhere for answers: respectable academic authors are the richest and most reliable source of information, and people claiming things completely outside the academic mainstream are almost certain to be crackpots. 

The trouble is, this is not always the case. Even those whose view of the modern academia is much rosier than mine should agree that it would be astonishing if there didn’t exist at least some areas where the academic mainstream is detached from reality on important issues, while much more accurate views are scorned as kooky (or would be if they were heard at all). Therefore, depending on the area, the fact that a view is way out of the academic mainstream may imply that it's bunk with near-certainty, but it may also tell us nothing if the mainstream standards in the area are especially bad.

I will discuss some heuristics that, in my experience, provide a realistic first estimate of how sound the academic mainstream in a given field is likely to be, and how justified one would be to dismiss contrarians out of hand. These conclusions have come from my own observations of research literature in various fields and some personal experience with the way modern academia operates, and I would be interested in reading others’ opinions.

Low-hanging fruit heuristic
As the first heuristic, we should ask if there is a lot of low-hanging fruit available in the given area, in the sense of research goals that are both interesting and doable. If yes, this means that there are clear paths to quality work open for reasonably smart people with an adequate level of knowledge and resources, which makes it unnecessary to invent clever-looking nonsense instead. In this situation, smart and capable people can just state a sound and honest plan of work on their grant applications and proceed with it.

In contrast, if a research area has reached a dead end and further progress is impossible except perhaps if some extraordinary path-breaking genius shows the way, or in an area that has never even had a viable and sound approach to begin with, it’s unrealistic to expect that members of the academic establishment will openly admit this situation and decide it’s time for a career change. What will likely happen instead is that they’ll continue producing output that will have all the superficial trappings of science and sound scholarship, but will in fact be increasingly pointless and detached from reality.

Arguably, some areas of theoretical physics have reached this state, if we are to trust the critics like Lee Smolin. I am not a physicist, and I cannot judge directly if Smolin and the other similar critics are right, but some powerful evidence for this came several years ago in the form of the Bogdanoff affair, which demonstrated that highly credentialed physicists in some areas can find it difficult, perhaps even impossible, to distinguish sound work from a well-contrived nonsensical imitation. [1]...MUCH MORE
HT: Overcoming Bias who, being an economist, highlighted this bit:

[But] what happens when a field fails both of them, having no clear research directions and at the same time being highly relevant to ideologues and interest groups? Unsurprisingly, it tends to be really bad.
The clearest example of such a field is probably economics, particularly macroeconomics. … Even a casual inspection of the standards in this field shows clear symptoms of cargo-cult science: weaving complex and abstruse theories that can be made to predict everything and nothing, manipulating essentially meaningless numbers as if they were objectively measurable properties of the real world, experts with the most prestigious credentials dismissing each other as crackpots....

We linked to Feynman's speech within ten days of starting this blog in 2007. Here's a reference from a 2008 post:
One way to ascertain a person's intelligence is to examine how they simplify the seemingly complex.
If you read Richard Feynman's 1974 Caltech Commencement Address "Cargo Cult Science" you get a feel for how a superior mind works. Another example is a comment he made after serving on the Presidential Commission that investigated the space shuttle Challenger disaster:
"For a successful technology," Feynman concluded, "reality must take precedence over public relations, for nature cannot be fooled.
It is almost childlike in its simplicity....

Heartland Tech Titan (MMM)

From Barron's:

3M's innovation machine launched 1,300 products last year. With sales and profits rising and the company's footprint in emerging markets growing, the stock looks like a buy.
Think that the axis of American ingenuity lies squarely in sun-drenched California? Think again, and direct your gaze at an unremarkable corporate park in the icy reaches of Minnesota.

This is the home of 3M, and people around the world interact daily with its products—from fiddling with Scotch tape, to leaving urgent messages on Post-its, to parking their posteriors on Scotchgarded furniture. Last year, Booz & Co., the consultant, named 3M the third most innovative company in America, after Apple (ticker: AAPL) and Google (GOOG). On any given day, you can find 3M's inventors working on such products as ultra-skinny panels for solar cells, or anti-microbial touch screens that let your fingers dodge co-workers' germs. Yet while shares of Apple have soared since the market bottomed in March 2009, 3M's stock (MMM) has crawled ahead. Last year, it climbed 7%, about half the S&P 500's gain. That's about to change. Shares of the former Minnesota Mining and Manufacturing Co. are entering a sweet spot, thanks to a blizzard of new products and the rising popularity of 3M's wares outside the U.S. Over the next several years, 3M brass say, sustainable top-line growth will double, to 7% to 8% a year. If that prediction is correct, annual earnings probably would rise at least 60% over the next five years, boosting the stock commensurately.

Given this scenario -- which seems very plausible -- 3M shares look tremendously appealing. Robert Hagstrom, who runs the Legg Mason Capital Management Growth Trust, counts 3M among his largest holdings. "It has a clean balance sheet, it's a multinational, and megacaps are without a doubt the cheapest part of the market," says the money manager, who has been adding to his stake lately. Hagstrom, who is the author of The Warren Buffett Portfolio, believes that the company, especially at its current price, has many attributes of a classic Buffett selection.

Last year, 3M made $4.1 billion, or $5.63 a share, on $26.7 billion in revenue. The earnings blew past the guidance the company had provided early in the year, when the economic outlook was cloudy, and were well above the depressed level of 2009, when the big manufacturer earned $3.2 billion, or $4.52 a share. For the current year, 3M is forecasting 5.5% to 7.5% internal revenue growth and earnings of $5.95 to $6.20 a share, after pension expenses. (Without them, the range is $6.17 to $6.42.) Management contends that 20%-plus operating margins are doable over the next several years, which would be an industry-leading level. The robust sales forecast reflects the company's success at refreshing a stale product line over the past few years, improving productivity and rationalizing capacity.

The main hand behind the revival is that of CEO George Buckley, who took the helm in 2005, after having worked at powerboat maker Brunswick. Even in the Great Recession, Buckley pushed to boost sales abroad, do more research and manufacturing outside the U.S. and broaden 3M's product lines, without staunching its lifeblood -- research and development. The holder of 16 patents himself, he was an excellent candidate to head a company whose stock in trade is innovation.

ON A SUB-ZERO DAY this month, the Minnesota roads are crunchy with salt, and the 3M campus in St. Paul is mercilessly icy. Inside, Buckley is fighting a cold. Still, he's peppy. The company has just raised its dividend for the 53rd consecutive year and announced a major stock buyback, and Buckley seems confident that strong sales growth is sustainable, despite 3M's size. "If the law of averages takes over, how do you break that pattern?" he asks, rhetorically. "You find a way to create pockets of growth within the 3% [growth] market that are growing at 6% or 7%. You do that through innovation, through the creation of new markets, by expansion geographically."

For all that 3M is known for Scotch tape and Post-its (a boyfriend famously breaks up with a Sex and the City heroine via Post-it), it derives about a third of its revenue from industrial and transportation products, such as car waxes and abrasives.

The company's second-largest unit, at just under 20% of sales, is health care, whose wares include inhalers and orthodontic devices, including Incognito "invisible" braces for teeth. The health-care business is growing swiftly, and its earnings growth stacks up nicely against that of rivals like Smith & Nephew (SNN) and Covidien (COV).

The consumer and office division, which houses Post-its and consumer tapes, accounts for less than 15% of corporate revenue, but it is expanding nicely, too. So is the display and graphics unit, which makes reflective signage for highways, enormous graphic film for advertising, plus films that boost the brightness of electronic-device displays.

3M also is involved in safety, security and protection (which includes security systems and face masks). It also has an electro and communications unit that sells clear adhesives, high-capacity cables and flexible circuits for printers.

Last year, 3M spent about $1.43 billion -- 5% of sales -- on R&D, the highest percentage among its peers, except for Danaher. It has 35 international labs, and 7,500 of its 80,000 workers are in R&D. In 2010, it won 2,400 patents and launched 1,300 products. Today, about 31% of revenue comes from new products, up from 21% five years ago. The goal: 40% by 2015....MUCH MORE
Previously:
How 3M Got Its (Innovation) Groove Back (MMM)

Saturday, February 26, 2011

Société Générale's Albert Edwards: On The Resurgence Of The "Conspiracy Of Optimism" (Feb. 26, 2011)

A couple days ago the Telegraph's Ambrose Evans-Pritchard had a line that I found hilarious:
 I share the view of Albert Edwards at Societe Generale that this is a deformed economic recovery...
We once described Ambrose's writing as running "the gamut from despondent to suicidal'.
We are fans of them both.
Here's Zerohedge's intro to Albert's latest:
As regular readers know too well, one topic Zero Hedge enjoys ridiculing with the disdain it deserves is groupthink of any form. The phenomenon, which is nothing but transference of laziness by those who manage other people's money with complete disregard for the consequences of their actions, was among the main reasons for the Great Financial Crash.  As nobody was willing to engage in any form of critical thought, and with the market "only" going up, any investment thesis was predicated solely on what the "other guy" was doing. Of course when it all blew up, it was time to blame the evil rating agencies. After all, heaven forbid someone actually think about the logic behind the credit ratings of hundreds of billions in synthetic CDOs, or worse still, take responsibility for their own stupidity and laziness.

We are now precisely in the same place we were when the market peaked last time around, with groupthink rampant, with any attempt at opposing thought squashed for fears it will end the party early, with sellside analyst optimism at all time highs, and with the administration actively encouraging rampant lies and perpetuation of the myths that take hold in the market with no factual footing whatsoever. The "conspiracy of optimism", as dubbed once by James Montier, has once again fully taken hold.

As SocGen's Albert Edwards points out "despite another post mortem on forecasting failure, nothing has or will change": this is true... until the next crash. Then the finger pointing will begin anew, theatrics about the change in the Status Quo will resume, and once again the Fed will attempt to reflate the latest bubble crash. Only this time there will be no reflation, as the central planning committee's reign of terror will be over, and the fiat monetary system will have ended. Below we present Edwards' most recent solemn and very troubling thoughts on the latest break out of the great groputhink malaise, which will only last as long as the great chairsatan has some control over events. Luckily, with the amplitude from a stable market equilibrium shifting ever greater in either direction, and as the Fed's very existence (remember: the whole point of the central bank is to contain price stability) is repudiated, the time until the reset is now shorter than ever before in history.
Edwards laments:
I was leafing through a critical report into the IMF’s performance in the run-up to the financial crisis by the Independent Evaluation Office of the IMF (see IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07 – link).

"Groupthink” mentality effectively sums up the reports criticism in one word. In Chapter 4 entitled Why Did The IMF Fail To Give Clear Warning?, the series of sub-headings reads just like my erstwhile colleague, James Montier’s papers with pronounced cognitive bias being cited as the basis of the view that almost everything in the garden was rosy.

But suppose you were a dissenter – well ... “Staff incentives were not well aligned to foster the candid exchange of ideas that is needed for good surveillance—many staff reported concerns about the consequences of expressing views contrary to those of supervisors, management, and country authorities.” Or let’s shoot the messenger!

Dissenting voices were ridiculed throughout the mid-2000s as the US and UK housing bubbles defied the pessimists’ pronouncements of collapse. For the vast majority of the analytical community, the fact that the cassandras were proved wrong gave them more and more confidence that there was, in fact, no bubble to burst at all, whereas it was clear to many that the crash would end up being all the deeper when it eventually came.

But what has changed? The new groupthink is that the Chinese economy will not crash in the same way as the US economy did in 2008. China’s own Great Moderation has continued for so long, the mainstream will only extrapolate this into the indefinite future. And in developed markets, despite two gut-wrenching equity bear markets in a decade, QE2 has taken analyst optimism back to all-time highs (see chart below).
...MORE
Recently:

Société Générale's Albert Edwards (And Goldman Sachs) On "The Biggest Scandal Of The Last Decade": Plunging Labor Force Participation (Feb. 12, 2011)

Société Générale's Albert Edwards: "I Have Been Wrong – I’ve Been Too Bullish" (Jan. 17, 2011)
Société Générale's Albert Edwards: "SocGen Bear Takes a Bite Out of China" (Jan. 3, 2011)
Corrected: Société Générale's Albert Edwards "This Will End in Tears-Again" (December 15, 2010)

Société Générale's Albert Edwards:“Commodity and emerging-market bulls ignore the weak Chinese leading indicator at their peril...” (DEC. 1, 2010)
(lots o'links)

"Oil Hits Most Overbought Level Since 1999"

Crude was up again on Friday following Thursday's intraday reversal. WTI up 60 cents at $97.88, Brent up 78 cents at $112.14.
From Bespoke Investment Group:
Following its monster surge earlier in the week, the price of oil closed more than three standard deviations above its 50-day moving average on Wednesday.  This is a feat that hasn't been accomplished in more than ten years, and going back to 1983, it has only occurred in eight other periods.  In the table below, we highlight the first day in each period where this occurred as well as the commodity's performance over the next week and month.  In more than half of the prior periods, crude continued to rise, averaging gains of 1.07% over the next week and 4.03% over the next month.  These gains are somewhat skewed by the spike in August 1990, but even if we use median returns the results are still positive, albeit less so.

See also:
Oil: As the Thundering Herd Thinks of Profit Paradise...

Friday, February 25, 2011

As Climateer Investing Moves Into its New World Headquarters we Say: "At Least I Have My Wheat"

Following up on Wednesday's "Okay Kids, I Think it's Safe to Get Back in the Water":
...Three trades:
Long the futures with SPX at 1304.49 (missed the 1299 bottom)
Long FSLR 170's with the stock at $162.10 dn $2.00 (low $159.90)
Wheat at $793.50 (KC's already gone green)...
The SPX closed at 1319.88 and FSLR was devastated on earnings, closing at $155.72; Wheat is at $811.250.
At least I have my wheat. And My SPX's
We will be taking up our new digs over the weekend:

When asked "Mr. Morgan, what will stocks do?"
the great man responded "They will fluctuate"
To weather the fluctuations:

Associated Press
HT on the pic: an old MarketBeat post.

Posting may be light.
Should you have the inclination, conjugate the verb 'to fluctuate':

Infinitive - to fluctuate
Present participle - fluctuating
Past participle - fluctuated


1. Present Tense

Singular
I fluctuate
You fluctuate
He/she/it fluctuates

Plural
We fluctuate
You fluctuate
They fluctuate


2. Present Progressive Tense

Singular
I am fluctuating
You are fluctuating
He/she/it is fluctuating

Plural
We are fluctuating
You are fluctuating
They are fluctuating


3. Past Tense

Singular
I fluctuated
You fluctuated
He/she/it fluctuated

Plural
We fluctuated
You fluctuated
They fluctuated


4. Present Perfect Tense

Singular
I have fluctuated
You have fluctuated
He/she/it has fluctuated

Plural
We have fluctuated
You have fluctuated
They have fluctuated


5. Present Perfect Progressive Tense

Singular
I have been fluctuating
You have been fluctuating
He/she/it has been fluctuating

Plural
We have been fluctuating
You have been fluctuating
They have been fluctuating


 
6. Past Progressive Tense

Singular
I was fluctuating
You were fluctuating
He/she/it was fluctuating

Plural
We were fluctuating
You were fluctuating
They were fluctuating




...MUCH MORE





Ha! UBS: The Pacific Decadal Oscillation Means Five More Years Of Very Bad Fed Luck

Ha I say. Ha!
We've been babbling about the PDO since we started this blog. Links below but most of the posts have been along the lines of this one from January 2009:
...Watch that Pacific Decadal Oscillation. A New York Times archive search for the term "crop failure" returns 1950 hits, with a preponderance of stories written during the cool phase of the PDO. With the interconnectedness of the world's grain markets, a failure anywhere would raise prices everywhere.
(more on this follows the headline story)
Please note, I've never heard the PDO referred to as 'oscillator'. The folks at the University of Washington who discovered it called it 'oscillation'.
From ZeroHedge:
These days the Fed is blamed for everything: from liberating the world from oppressive regimes, to the resultant genocide that accompanies such a process, not to mention to reflating record bubbles that guarantee to wipe out another generaton's wealth as soon as this latest and greatest episode of central planning fails. Yet one thing the Fed can not be blamed for (yet) is the weather. And unfortunately for the Chairsatan, storm clouds are (literally) building up for the next five years. While some have blamed the recent surge in food prices on inclement weather, including floods here, droughts there, and massive conflagrations in Russia, the case is, as UBS points out, that weather over the next five years will likely be very unpredictable, and result in increasingly supply shocks and commodity price imbalances (at least for those commodities that are harvested; that the Fed's liquidity is at base reason for the surge in everything not nailed down, just look at the price action in items that do not need watering, or direct sunlight). Enter the Pacific Decadal Oscillator, and if UBS is right, things will continue to be ugly at least until 2016.
From UBS Julien Garran

The pacific decadal oscillator (PDO) has turned cold. We highlighted in Cost Push, December 2010, that the UN  Intergovernmental Climate Change Committee now forecast that the PDO would remain cold until 2016. The importance of this is that a cold PDO makes it four times more likely that there is a La Nina in any given year. There were three La Ninas in the ‘70s, we are currently experiencing our second in three years, and we will likely see another couple over the next five years.

La Ninas, combined with other climate change patterns, are immensely disruptive to food and fuel production. In the past 12 months we have seen major food production losses in Russia, China, Australia and Brazil. And, as we have highlighted before, La Nina generates major rain disruption to 70 percent of the worlds thermal and coking coal production for export.

The importance of cold PDOs, and frequent La Ninas is that each La Nina leaves behind lower food and coal inventory levels, tighter markets, and greater potential for disruptions and price spikes.
In the mining team, we believe that it is more than just a coincidence that all the major warm periods in the PDO over the past century coincided with bond bull markets (the 20s to the early 50s, the 80s and 90s) while all the cold periods coincided with extended bond bear markets (mid 50s to the late 70s, now?).
In other words, even the weather is now conspiring to end the Fed's (and the global banker cabal's) ridiculous monetary policy which as was highlighted earlier can be summarized in three words: "everyone is printing" and the smallest flashpoint of climatic instability leads to riots, revolutions, deaths, and mass starvation. If even god is sending a message to the Chairsatan, just what other signs does he need?
The PDO will remain in the cold phase past 2016. It displays a 30 year quasi-cycle.
Previously: 
July 2010
This could be very bad. As I commented in April '08's "Climate Change and the Pacific Decadal Oscillation":
You might want to look up the word famine. And store a couple tons of wheat in a vermin proof room. The risk of a major crop failure somewhere in the world over the next ten years just went up. My best guess (wild-ass variant) would be northeastern Russia/Ukraine. Which could get interesting...[note: should have been Northwestern i.e. bordering Ukraine -ed]
April 2008
Um, folks, um, maybe we should start thinking about rebuilding our grain reserves.
May 2008 
A Black Swan in Food
And many, many more, use the 'search blog' box keyword PDO.

Here's a bit of historical flavor from our April '08 post "Food Riot Watch: Haiti. Just Wait for the Moche Climate*" that should be an object lesson to our leaders:

*From Wikipedia:

...There are several theories as to what caused the demise of the Moche political structure. Some scholars have emphasised the role of environmental change. Studies of ice cores drilled from glaciers in the Andes reveal climatic events between 536 to 594 AD, possibly a super El Niño, that resulted in 30 years of intense rain and flooding followed by 30 years of drought, part of the aftermath of the climate changes of 535–536.[3] These weather events could have disrupted the Moche way of life and shattered their faith in their religion, which had promised stable weather through sacrifices.

The BBC had a show on the Moche a while back. Here's what they say happened:

...If the weather on the coast was the opposite, then it suggested a 30-year El Nino - what climatologists call a mega El Nino – starting at around 560 AD, which was followed by a mega drought lasting another 30 years. Such a huge series of climatic extremes would have been enough to kill off an civilization – even a modern one. Here, at last, was a plausible theory for the disappearance of the Moche. But could it be proved?...
It turns out that the Moche adapted to the 30 years of floods and the 30 years of drought which followed.
They ended up killing themselves after surviving all that:

...Dillehay now put together a new theory. The Moche had struggled through the climatic disasters but had been fatally weakened. The leadership - which at least in part claimed authority on the basis of being able to determine the weather – had lost its authority and control over its people. Moche villages and and/or clan groups turned on each other in a battle for scare resources like food and land. The Moche replaced ritual battles and human sacrifices with civil war. Gradually they fought themselves into the grave....


"Special Report -The biggest company you never heard of" (Glencore)

CI readers have certainly heard of Glencore, and $195 Billion revenue Vitol too.
A Glencore IPO, along with a Carlyle Group offering were two of the signs we said would cause us to move closer to the exits.
From Reuters:
BAAR, SWITZERLAND | Fri Feb 25, 2011 7:30am GMT
 
"Glencore is looked on as guys screaming into telephones, but it's more the dull old business of logistics," says a mining industry source, describing hours spent on the phone and organising trade-related paperwork. "Glencore trading floors are more akin to DHL offices than Goldman Sachs."

Yet within the commodities and mining sectors, Glencore is regarded with a mix of admiration and fear. "It's an incredibly performance-based culture -- investment banking times three, probably," says a second outsider.
Glencore's client list is a roster of the world's largest firms including BP, Total, Exxon Mobil, ConocoPhilips, Chevron, Vale, Rio Tinto, ArcelorMittal and Sony, as well as the national oil companies of Iran, Mexico and Brazil and public utilities in Spain, France, China, Taiwan and Japan.

Physical commodities traders, like Glencore and its main rivals Vitol, Trafigura and Cargill, make their money finding customers for raw materials and selling them at a mark-up, using complex hedges to reduce the risk of bad weather, market swings, piracy or regime change.

Unlike Chicago traders who scream out bets on the future prices of orange juice or pork bellies, physical commodity traders negotiate prices and arrange shipments of cargo quietly, keeping their positions well hidden from others.

"It's modern financial engineering meshed with an old-fashioned commodity trading house," said John Kilduff, a partner at the hedge fund Again Capital LLC in New York. "It's amazing how this formula has flown under the radar for so long, as the profits and growth of these firms has been astounding."
Glencore's profit after tax topped $4.75 billion in 2008, not far off its best year ever, 2007, when profit ran to around $5.19 billion. Even in the gruesome market of 2009, it raked in more than $2.72 billion.
Performance is rewarded on a scale that would turn even Wall Street green, with bonuses for star traders running into the tens of millions. Glencore's 500 partners and key staff are sitting on a book value of $20 billion.

The secret, says the second outsider, is the traders' incredible focus. "I don't recall talking to any of these guys -- and I've spent a lot of time with them -- about anything other than business," he told Reuters. "I have no idea what sort of family life these guys have. This is everything."

Employees are hired young and expected to make a career at the group, where they are known as either "thinkers" -- bright number-crunchers who design the company's complex financial deals -- or "soldiers", the hard-driven traders who fight to win the transactions.

The company's 10 division managers are aged 37 to 52 and remain largely anonymous outside Glencore's business circles. "They're really bright guys, they are really focussed, they play to win every day," says a mining executive in North America. Or as the second outsider puts it: "They look like kids, really -- but they are incredibly impressive individuals."

Nobody more so than Chief Executive Ivan Glasenberg, a lean publicity-shy operator whose sport is race-walking. Glasenberg, 54, grew up in South Africa and has been a champion walker for both South Africa and Israel. Each morning he runs or swims, often with colleagues. "The thing about Ivan, he can fly in and meet presidents of countries but he also talks to the guy on the trading floor," said Jim Cochrane, chief commercial officer and executive director of the Kazakh mining group ENRC.

After earning an MBA at the University of Southern California in 1983, Glasenberg was hired by Glencore as a coal trader in South Africa. He does not suffer fools and has a fiery temper, but is also intensely charming and has a sharp memory for details about people, according to people who know him. Despite being a billionaire in charge of thousands of staff, "this is a guy that picks up his own phone," the second outsider said.

THE MARC RICH LEGACY
Glencore likes to promote from within and build a kind of closed, self-sustaining network of senior traders, a culture encouraged by the company's founder Marc Rich. Not that Glencore likes to mention Rich, a figure so notorious that he's not even mentioned in the official history on Glencore's website.
Rich escaped Nazi Europe as a seven year old, and grew up in the United States. He launched the trading group which would become Glencore under his own name in 1974....MUCH, MUCH MORE
(this is page 2 of 7, the link takes you to page 3, here's page 1)
Previously: 

Commodities: A Glencore London float could value group at £30 billion plus 
"And the winner so far in the wheat crisis is...." 
Ambrose Evans-Pritchard: "Agflation fears as Russia halts all grain exports"; Albert Edwards: "This is more Deflationary than it Looks
FACTBOX: The world's top oil trading houses

California Panel Calls for Cuts to Government Workers’ Pensions

Rather a big deal, eh?
Now comes the politicking.
From Bloomberg:
California should scale back pension promises to public workers and reshape the benefits system to make it similar to those used in industry to rein in costs, a state oversight panel recommended.

Government pension costs are no longer sustainable, the independent Little Hoover Commission said yesterday. It called on lawmakers and Democratic Governor Jerry Brown to hold benefits at current levels and recalculate yet-to-be-earned payments under a new hybrid that includes elements of a traditional pension plan and a 401(k) account where beneficiaries bear the investment risk.

The rising cost and underfunding of public employee pensions has sparked a national debate, most recently in Wisconsin where Republican Governor Scott Walker has asked the Legislature to boost contributions from state workers. California’s 10 largest public pension funds were short a combined $240 billion in 2010, the commission found.

“California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently,” commission President Daniel Hancock said in a letter to lawmakers and Brown yesterday. “Unless aggressive reforms are implemented now, the problem will get far worse, forcing counties and cities to severely reduce services and lay off employees to meet pension obligations.”...MORE

Kyle Bass Buys Seahawk Drilling (HAWK)

One of the brighter global macro guys.
From Market Folly:
Kyle Bass' hedge fund firm Hayman Capital has disclosed an 8.4% ownership stake in Seahawk Drilling (HAWK) with 1,000,000 shares. Hayman filed this information via a 13G with the SEC per portfolio activity on February 15th, 2011. This is a new equity position as they did not own equity as of December 31st, 2010.

We've covered Bass on the site before, but if you're unfamiliar with him, he has gained notoriety over the years due to his prediction of not one, but two 'bubbles.' First, he predicted and profited from the subprime crisis. Second, he was one of the first to call for sovereign defaults and that thesis has gained steam over the past year. For our prior coverage on this hedge fund manager, check out Bass' presentation at the Value Investing Congress....MORE

Here we go Kids, "Goldman Sachs raised their price target on Conviction Buy List-rated First Solar from $165 to $190" (FSLR)

Just the headline at StreetInsider for now, more to follow.

UPDATED: Various Analyst's Pre-release Thinking on First Solar (We'll track the changes) FSLR

Update: "First Solar: Analyst Roundup (is the stock in the armpit of a head-and-shoulders top?)"
Original post:
In early pre-market action the stock is down $4.68 at $160.00.
Tech Trader Daily's Tiernan Ray did the heavy lifting yesterday:
Dan Ries with Collins Stewart reiterates a Buy recommendation on the stock today, writing that his projection of $629 million is below the Street’s estimate, but that’s to be expected given, “the lumpy nature of FSLR’s project revenues.” His EPS estimate for the quarter is $1.75.
Ries is not sure if First Solar will raise its forecast for the year, initially offered back in December. It’s possible, given that the company subsequently received a U.S. Dept of Energy guarantee for a loan for its “Aqua Caliente” project. If First Solar does update the forecast, Ries imagines it’s possible there could be upside potential up to $11 per share this year, versus the formal forecast of $8.75-9.50 the company has put forward.

To review, some other notes have circulated in the last 48 hours as well:
Caris & Co. analyst Ben Pang yesterday reiterated an Above Average rating on FSLR today and says he thinks the company will rise to the occasion and deliver a higher forecast this evening. “The pace of solar projects and installations has continued to improve and FSLR’s improved regional diversity should allow them to capture high value projects around the world,” writes Pang. “We think FSLR will be able to slightly raise full year guidance, but expectations are already high based on improved guidance from competitors.”
Pang is modeling $650 million in Q4 revenue and $1.69 in non-GAAP EPS....MORE
We'll be updating throughout the day.

Soros and Former Obama Admin's Cathy Zoi Join New Private Equity Fund

From Forbes:
Private equity firm Silver Lake is launching a new fund, Silver Lake Kraftwerk, with billionaire financier George Soros to invest in clean energy businesses.

Silver Lake manages $14 billion and has offices in both Silicon Valley and China. The new fund will focus on providing growth capital to companies that “leverage technology and business model innovation to improve energy efficiency, reduce waste and emissions, harness renewable energy, and more efficiently use natural resources, among other applications,” according to Reuters.

In addition to Soros, the new fund also secured a commitment from Cathy Zoi, who recently resigned as the Obama administration’s acting under secretary for energy and assistant secretary for energy efficiency and renewable energy, to join the fund in April. Zoi earned her spurs working for Al Gore as a climate-change crusader and has since ascended the ranks to become a star in her own right at the U.S. Department of Energy....MORE
For more on Ms. Zoi see our May '10 post "The Company you Keep: 'Bloom, Fisker and Serious Materials Raising Cash from Advanced Equities'".

"Paul Tudor Jones On The ‘Undervaluation Of The Chinese RMB And The Subsequent Loss Of Competitiveness In The US Manufacturing Sector’"

DealBreaker has the scoopage.

Live Blogging AIG’s First Earnings Call in Two Years (AIG)

Not me, the WSJ's Deal Journal:
AIG on Thursday posted net income of $11.2 billion in the fourth quarter, aided by large reported gains on overseas units the giant insurer sold to repay its government bailout.
But the company’s core insurance businesses, whose growth prospects will factor heavily in a large stock offering that AIG is preparing for this spring, turned in a weaker performance during the period. Overall, AIG’s remaining units reported an operating loss of $2.2 billion in the fourth quarter, versus a $1.3 billion operating loss a year ago; their full-year loss was $898 million.

This morning AIG officials led by Chief Executive Robert Benmosche will host AIG’s first earnings conference call in two years to discuss the company’s performance and outlook for its businesses.
Deal Journal colleagues Serena Ng and Erik Holm are live blogging it:

7:05
AIG CEO Robert Benmosche is starting the call with a thank you to the American people, and says the company is on a path that will allow the U.S. to recoup its entire investment in AIG....MORE

Oil: As the Thundering Herd Thinks of Profit Paradise...

...they may indeed find paradise.

bison_over_a_cliff

Both Brent and WTI are dramatically off their Thursday highs.

California to collect sales tax on medical marijuana

It's all about the money.
From the Los Angeles Times:
California's tax collectors want their share of the burgeoning medical marijuana business.
The state Board of Equalization announced Thursday that medical marijuana dispensaries are not exempt from paying sales tax.

The decision reaffirms current policy that the selling of medical marijuana involves taxable tangible property, the board said.
Marijuana The decision, reached in a vote Wednesday, involved the Berkeley Patients Group Inc., a Northern California dispensary, which maintained that marijuana should have the same exemption from sales tax as other medicines prescribed by doctors. Audits conducted for the period of July 1, 2004, through June 30, 2007, found that the Berkeley Patients Group owed the state in excess of $6.4 million in taxes and interest.
The decision underscores the need to regulate and tax marijuana distribution and sales, said board Chairman Jerome Horton, who represents Los Angeles County.
"The time is overdue for the state to provide leadership for this industry regarding the manufacturing and sale of marijuana similar to what we did for cigarettes and liquor," Horton said. "Such proposed controls will have the same effect of regulating and controlling sales and capturing appropriate sales tax."...MORE

Thursday, February 24, 2011

Corrected: First Solar Misses on Revs, Beats on Earnings, Guides Higher, Stock Down (FSLR)

The stock is down $72.28 $7.28 (sorry 'bout that, call it chair aerobics to test your HRmax and drop us a check for the cardio) after closing up $1.68 in the regular session. I won't be on the conference call so will have to go by the transcript tomorrow. Gut call: the stock trades higher.
First up Tech Trader Daily:
Solar energy technology provider First Solar (FSLR) this afternoon reported Q4 revenue below analysts’ estimates but beat on the bottom line. The company reduced the top end of its year revenue view while raising its year profit estimate.

First Solar stock is currently down $4.87, or almost 3%, at $159.81 in late trading.
Q4 revenue fell 5%, year over year, to $610 million, yielding EPS of $1.80. Analysts had been expecting $648 million and $1.77 per share.

First Solar attributed the decline in revenue of $188 million from Q3 to “due to the timing of system sales and the December implementation of 2011 pricing, partially offset by an increase in volume.”
For the full year, First Solar cut the top end of its projected revenue range, forecasting $3.7 billion to $3.8 billion in revenue versus a prior forecast of $3.7 billion to $3.9 billion offered back in December....MORE
From StreetInsider:

First Solar (FSLR) Shares Drop on Mixed Q4 Results; Guides Strong FY11 EPS
First Solar Inc. (NASDAQ: FSLR) shares are down more than 4 percent in extended trade on Thursday after the company posted mixed fourth-quarter results and guides full-year earnings ahead of the Street.

The solar equipment maker reported fourth-quarter earnings of $1.80 per share, 4 cents better than the analyst estimate of $1.76 per share.

Revenue for the company fell to $609.8 million from $641.3 million in the same period last year, missing the market consensus of $647.8 million.

The company said that module manufacturing costs int he fourth quarter fell 11 percent to 75c/watt.

“In the fourth quarter the operations team executed well, and we sold 400 MW of projects in North America, positioning us to achieve our 2011 growth goals,” said Rob Gillette, CEO of First Solar. “We have good demand visibility in 2011 and a broader geographic reach, which gives us confidence in our ability to sell the 2 GW that we plan to produce.”

Looking forward, the company sees full-year 2011 earnings in the range of $9.25-$9.75 per share, topping the estimate of $9.10 per share....

"Chart of the Day: Real Egg Prices, 1890-2011"

Who knew?
Well, apparently the always optimistic Prof. Perry at Carpe Diem:
The cost of wholesale eggs today (adjusted for inflation) is about 50% lower than during the 1970s, about 75% lower than during the 1940s and 1950s.   

See also:
Mix Butter, Onions, Cheese and Eggs. Add Electricity... 
Egg Decorating

Go Long Government Motors (Apparently the Government has the power to force you to buy a Chevy Volt:) GM

GM reported today, the stock is down 5.88% at $32.66.
Tell me if I'm reading this right (like I could stop you).
From the Obamacare mandate ruling by Judge Gladys Kessler:
...As previous Commerce Clause cases have all involved physical activity, as opposed to mental activity, i.e. decision-making, there is little judicial guidance on whether the latter falls within Congress’s power....However, this Court finds the distinction, which Plaintiffs rely on heavily, to be of little significance. It is pure semantics to argue that an individual who makes a choice to forgo health insurance is not “acting,” especially given the serious economic and health-related consequences to every individual of that choice. Making a choice is an affirmative action, whether one decides to do something or not do something. They are two sides of the same coin. To pretend otherwise is to ignore reality....
Here's Prof. Jacobson at Legal Insurrection, who got me thinking about what a big deal this ruling is:
...Our thoughts are now actions.  There literally is nothing the federal government cannot regulate provided there is even a hypothetical connection to the economy, even if the connection at most is in the future.

Our thoughts are now actions.  Whoops, I already said that.  I just can't get over it.  The following sentence has now become a justification for regulating decision-making even where the decision is just to do nothing:

The Congress shall have power.... To regulate commerce with foreign Nations, and among the several States, and with the Indian tribes;
I think I'm going to be ill.  Which of course, is now subject to regulations to be promulgated by the Secretary of Health and Human Services....
And which led to a quick search of the interwebs, leading to this fellow who obviously isn't thinking of turning the judge's ruling to his pecuniary advantage:

Excuse me while I sit down and ponder all of that for a moment. Anytime you make a choice not to act you are “acting”. Therefore, the court has now decided, any decision to not to act (related to commerce) is an act and you can be therefore required to do what the government says you must do.
Or, more succinctly, you have no real choice regardless of what you decide, so sayeth the court.
If I decide not to buy a car, I’m acting, and if the government wanted to require me to buy a car, under this ruling, it could.
Good lord.
As I repeated in "JP Morgan Says Buy GM Calls Using the Proceeds from Your Sell Ford Calls (GM; F)":

See also:
If You Absolutely Insist on Having Some General Motors, Look at the Convertible Preferred (GM; GM.Pr.B)


1961 Chevrolet Corvette Convertible

What's not to love about a GM convertible?
('61 Vette Roadster)

"How Institutional Investors Destabilize Commodity Markets"

This is the first time we've linked to Paul at his new gig so I'll link to the front page of the blog.
From Kedrosky at Bloomberg:
Interesting new paper arguing that institutional investors, not speculators, have destabilized commodity markets:
Rational destabilizing speculation, positive feedback trading, and the oil bubble of 2008
Abstract
This article examines how the interaction of different participants in the crude oil futures markets affects the crude oil price efficiency. Normally, the commercial market participants, such as oil producers and oil consumers, act as arbitrageurs and ensure that the price of crude oil remains within the fundamental value range. However, institutional investors that invest in crude oil to diversify their portfolios and/or hedge inflation can destabilize the interaction among commercial participants and liquidity-providing speculators.
We argue that institutional investors can impose limits to arbitrage, particularly during the financial crisis when the investment demand for commodities is particularly strong. In support, we show that commercials hedgers had significantly reduced their short positions leading to the 2008 oil bubble—they were potentially aggressively offsetting their short hedges. As a result, by essentially engaging in a positive feedback trading, commercial hedgers at least contributed to ‘the 2008 oil bubble’. These findings have been mainly overlooked by the existing research.
We made this point in a non-empirical way a few dozen times during the 2008 price spike.
In particular I became obsessed by CalPERS  and other "Long-only index investors" and the shenanigans they and Goldman Sachs were playing with Goldman's "Commercial" designation, using swaps to evade position limits. It ended well though, Goldman bagged 'em on GS's $200 oil call and took their purported "clients" deep. From "It’s official, Goldman capitulates on oil":
...On Thursday, Goldman said it was ”closing” its recommendations for oil trades. Meaning that in a perilous time when the traders who pay attention to Goldman’s recommendations could use some guidance the most, Goldman has opted to give them the least. And some traders are furious about it, comparing the maneuver to then-strategist Abby Cohen’s decision to abandon her targets for equity indexes in the fall 2001, citing the uncertainties abounding in the market.


Goldman specifically talked about four trade recommendations it previously issued, and said clients shouldn’t put any stock in them any longer. One particular trade, a Nymex-WTI swap on the 2012 contract, issued in September, when crude already had declined to below $70, suggested that the contract would reflate to a range of $120 to $140. Obviously, that hasn’t happened....MORE
Good times, good times.
Some more of the GS/oil posts:
"REVISITING SPECULATIVE COMMODITY BUBBLES" (GS) 
"Bread and Derivatives: Goldman’s control of market structure might just starve us, strand us, and leave us in the dark. Literally." (GS) 
Commodities: $50 bln in 'long-only funds' flees commods markets. And: Calpers says staying the course on commodities
Oil: the Market is the Manipulation

Problem Solved: "Small Nuclear War Could Reverse Global Warming for Years"

From National Geographic:

A file photo of a nuclear bomb being detonated at French Polynesia.
A nuclear bomb explodes in a test on the Mururoa atoll in French Polynesia in the early seventies.
Even a regional nuclear war could spark "unprecedented" global cooling and reduce rainfall for years, according to U.S. government computer models.
Widespread famine and disease would likely follow, experts speculate.

During the Cold War a nuclear exchange between superpowers—such as the one feared for years between the United States and the former Soviet Union—was predicted to cause a "nuclear winter."
In that scenario hundreds of nuclear explosions spark huge fires, whose smoke, dust, and ash blot out the sun for weeks amid a backdrop of dangerous radiation levels. Much of humanity eventually dies of starvation and disease.

Today, with the United States the only standing superpower, nuclear winter is little more than a nightmare. But nuclear war remains a very real threat—for instance, between developing-world nuclear powers, such as India and Pakistan....MORE
When it looked as if India and Pakistan might start lobbing nukes at each other a few years ago we ran some investing scenarios. I'll dust them off if things hot up. In the meantime here's one of the oddest displays on the face of the earth, the nightly evening retreat ceremony at the Wagah border crossing. Narrated by Monty Python's Michael Palin no less:

A Two Year La Niña?

As we said in "Weird Weather, Food Price Inflation and La Niña":
Just a bookmark.
Really.
I'm not predicting a never ending La Niña
Really.
This quote from NOAA's Klaus Wolter was brought to my attention yesterday:
...Stay tuned for the next update (by March 5th) to see where the MEI will be heading next. While La Niña conditions are guaranteed well into 2011, it remains to be seen whether it can rally once more to cross the -2 sigma barrier, and/or whether it will indeed last into 2012, as discussed six months ago on this page. I believe the odds for a two-year event remain well above 50%, made even more likely by the continued unabated strength in various ENSO indices. 
That is not what the world needs right now.
Recently:
AccuWeather: "Three of Next Five Winters Could be as Cold or Colder" 
Wheat Up Again as Cold Drought Grip China, La Nina Resumes Downtrend
"La Nina deepens fears of poor Kansas wheat crop"

"Wheat Resumes Plunge as African Unrest Drives Away Speculators"

In Chicago the futures are down 5 3/4 cents to $7.925.
Yesterday's "Okay Kids, I Think it's Safe to Get Back in the Water" said:
Three trades:
Long the futures with SPX at 1304.49 (missed the 1299 bottom)
Long FSLR 170's with the stock at $162.10 dn $2.00 (low $159.90)
Wheat at $793.50 (KC's already gone green)
So we're down a penny on wheat, the S&P futures are indicating a down 5 open, around 1300 even and in premarket action FSLR is down 2 cents at $163.00.
As I said in a 2007 post:
When I think I know what's going on I have to consciously remind myself of General Custer's comment as he rode into the valley of the Little Big Horn, variously reported, here's Time's version: "Hurrah, boys, we've got them! We'll finish them up and then go home."
From Bloomberg:

Wheat extended a collapse and corn and soybeans also fell as traders speculated that a jump in energy costs caused by protests across North Africa and the Middle East will curb growth and demand for grains.
Riots already ousted leaders in Egypt, the world’s biggest wheat importer, and in Tunisia, and opposition groups have seized control of eastern cities in Libya. While wheat traded in Chicago dropped 10 percent in the past four sessions, crude oil traded in New York jumped 14 percent.

Grain prices surged last month as North African and Middle East nations bought more shipments to damp a surge in domestic prices that helped spark the protests from Morocco to Bahrain. Speculators including hedge funds last week cut their bets on higher wheat prices by 20 percent, U.S. Commodity Futures Trading Commission data show.

“Everyone has been bullish corn and wheat for an extended period,” Michael Pitts, commodity sales director at National Australia Bank Ltd., said by phone from Sydney today. The unrest in North Africa and the Middle East meant “they really ignored some positive fundamentals and sold off.”...MORE

Time to Go Long Gallium: Google Ventures Leads $20M Round In Transphorm (GOOG)

From PEHub:
Transphorm Inc. emerged from stealth on Wednesday with a $20 million Series C round led by Google Ventures.


The round was joined by existing investors Kleiner Perkins Caufield & Byers, Foundation Capital and Lux Capital, bringing the company’s funding to $38 million.

Transphorm hopes to transform energy conservation by recouping the 10% of all electricity lost when power is converted from one form to another. The Goleta, Calif., company does this with the use of gallium nitride components, which switch power at higher frequencies and therefore more efficiently....MORE

Wednesday, February 23, 2011

Contrarian Indicator of the Day: James (Dow 36000) Glassman Now Advising Caution

Too funny.
From Wikipedia:
Dow 36,000 (co-author). In this book, published in 1999, near the peak of the late 1990s stock market bubble, Glassman and his co-author declared that the stocks making up the Dow Jones Industrial Average, then around 10,000, were undervalued and that the stock prices would rise sharply, with the index reaching 36,000 within three to five years. In its introduction, Glassman and his co-author wrote that the book "will convince you of the single most important fact about stocks at the dawn of the twenty-first century: They are cheap....If you are worried about missing the market's big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average."[5] During the next three years the index declined by over 30%, bottoming at under 7,200 in the fall of 2002.[6] And nearly ten years later, the Dow reached a new multi-year low of around 6,300.
From Schaeffer's Investment Research:
Stocks have been swimming in red ink this week, so it's only natural that traders are beginning to wonder whether the bull market has run out of steam. Well, take heart in this contrarian indicator: James K. Glassman, who predicted in 1999 that the Dow would rise to 36,000, is out with a new book titled Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence....MORE