Tuesday, August 31, 2010

"Hurricane Earl Forecast: Storm Increasingly Likely for New York"

We have the five-day track projections after the jump. Note that the headline use of "Storm" does not mean a dirrect hit on NYC, a topic we've looked at a couple times over the last few years.
From the Wall Street Journal's Metropolis blog:
Meteorologists around the tri-state — along with anyone planning weddings and other events this weekend — likely have another sleepless night ahead as Hurricane Earl continues churning toward the east coast. While the storm’s final path is still far from certain, the tri-state could possibly see a major storm make landfall this week — something that hasn’t happened in a decade.

As of 5 p.m. Tuesday, Hurricane Earl was spinning furiously near the Turks and Caicos Islands with sustained winds of 135 mph after rapidly intensifying yesterday from a Category 1 to a Category 4 hurricane on the Saffir-Simpson Hurricane Scale. Hurricane watches have also been posted for coastal North Carolina. Over the next 48 hours, the hurricane will traverse the warm waters of the Gulf stream before a likely landfall on North Carolina’s Outer Banks sometime Thursday as a Category 3. That said, any westward deviation could spell trouble down the line for Greater New York, which hasn’t experienced a direct storm hit since Hurricane Gloria struck the region in 1985.

Here’s a not-unlikely scenario:
Wednesday afternoon: Tropical storm watches are posted from the Northern Jersey Shore to Islip, Long Island, with hurricane watches posted for the South and Central Jersey Shore and Eastern Long Island.
Thursday afternoon: Officials close local beaches as six to 10-foot waves begin to batter the coast. (This is also the time when surfers, and the TV crews that ogle them, turn out in force.)
Friday morning: Tropical storm-force winds begin to affect the southern Jersey shore.
Friday afternoon: Conditions rapidly deteriorate in South Jersey while heavy winds and rain enter the New York metro area. (Those who hold tickets to Friday’s U.S. Open matches, consider yourself warned.)...MORE
From the National Hurricane Center:

Coastal Watches/Warnings and 5-Day Forecast Cone for Storm Center

Click image to zoom out – Download GIS data
Other images: 5-Day track off3-Day track off3-Day track on [Image of 5-day forecast of predicted track, and coastal areas under a warning or a watch]

Sedimentary evidence of hurricane strikes in western Long Island, New York
More on the Possibility of a Hurricane Striking New York City
And referenced in the Metropolis post:
Experts say it's only a matter of time before a major hurricane
Imagine the following: It's a beautiful Labor Day weekend. Sunny, cloudless, 80 degrees. Backyard barbecues are fired up all over the metropolitan area, and the beaches of New York City, New Jersey and southern Long Island are jam-packed with bathers. The only sign that something unusual is happening is the relatively big waves rolling up on Coney Island. It's a surfer's paradise. Mike Lee isn't enjoying the long weekend. For the last two weeks, Lee, the Director of Watch Command at New York City's Office of Emergency Management, has been observing a series of weather systems form off the western coast of Africa, organize themselves into the familiar swirling pattern of tropical storms, and line up like airplanes coming in for a landing on the Caribbean. One of those storms, a category-4 monster hurricane with sustained winds of 140 m.p.h., is violently churning the ocean 350 nautical miles off the coast of Georgia.

A hurricane like this one can usually be counted on to curve eastward and die a harmless death over the Atlantic. But with a large area of high pressure hovering just off the east coast, the computer models at the National Hurricane Center in Miami are largely in agreement: This one is heading north, tracking a direct hit on New Jersey somewhere north of Atlantic City. Like the legendary "Long Island Express" of 1938, the fastest-moving hurricane ever recorded, it's moving quickly....MORE

"Ethanol On The Rise: New Life For Refiners?" (ADM; GPRE; PEIX; VLO)

Although not mentioned in the article, Valero has quietly bought it's way into big-playerdom, number #2 or #3 in the industry, acquiring ten plants with 1.1 billion gallon/year capacity, to date.
In July they came out and declared that the ethanol subsidy is not needed. A power play indeed.
From Hard Assets Investor:
Summer's winding down and with it, demand for gasoline. Wholesale unleaded gasoline blendstock prices have dipped 7 percent since the end of June, as inventories have risen to five-month highs.
There have been no summer doldrums for ethanol, however. Prices for the alcohol fuel have climbed 20 percent since June, as its correlation with corn prices tightened. Currently, ethanol's 21-day rolling coefficient is 83 percent.

Ethanol Vs. Gasoline
Ethanol Vs. Gasoline

That correlation has been mirrored by a 20 percent upsurge in corn prices since June. The September CBOT delivery spiked above $4.25 a bushel on Monday, as second-month ethanol prices stretched to $1.83 a gallon.

The fundamentals for ethanol were laid out in the latest Energy Department report, which showed a third consecutive weekly decline in ethanol production. High corn prices have discouraged refining. Inventories, according to the latest government figures, have fallen to a seven-month low of 17.9 million barrels.
Viewed from another perspective, refining margins have improved along with the fuel's price. The corn crush now yields $1.80 in product sales proceeds (ethanol and distillers' dry grains) for each bushel processed. Since June, gross processing margins have widened by 269 basis points (2.69 percent). Crude oil refining margins, meantime, have sunk 365 basis points....MORE

Currencies: "Is Goldman Preparing To Reevaluate Its EURUSD Target... Again?" (EUR/USD)

Earlier posts after the jump.
From ZeroHedge:
The firm, whose calls so far in 2010 on the EURUSD have been a reactionary disaster and cost clients millions, once again contemplates its navel, after the EURUSD has been trending increasingly away from its latest mid-term 1.35 target (but directly toward its 3 month target of 1.22). That said, it appears the Goldman FX guys are about to drop their 6 and 12 month forecasts on the pair once again, now that the EURUSD has tumbled almost 700 pips from recent 1.33+ highs, at the peak of Europe's artificial and so very temporary, export-driven economic golden age. Goldman's Mark Tan explains why.
EUR/$ has been Trading Strong, Especially Given the Peripheral CDS Widening

We have been keeping close watch on the EUR/$ price action and have been using a simple EUR/$ benchmarking exercise to give us a sense where EUR/$ should be trading given basic fundamentals. As Robin Brooks described previously (see Global Markets Daily July 6, 2010), this involves a regression incorporating 5y CDS spreads, 2y EUR and US swap rates, oil prices and the VIX.

EUR/$ seems to be trading strong currently, considering the widening in peripheral CDS spreads over recent weeks. A simple average of 5y CDS in Greece, Italy, Portugal and Spain shows an increase of around 140bps over the past month, now above pre-stress tests levels and not that far off from recent peaks. Our aforementioned benchmarking exercise gives a current EUR/$ value of around 1.22, which coincidentally also happens to be our 3-month forecast (which we had set when we last revised in mid July).

Correlations between CDS spreads and EUR/$ are still at extremely high levels, and as a result this simple benchmarking exercise suggests that EUR/$ should be trading lower. So what is causing this apparent disconnect?

Eurozone vs US Relative Data Surprises Have Been Supportive of EUR/$

One explanation could be that the recent widening in the peripheral CDS spreads is very different in nature to the widening observed in May/June. the funding conditions for the likes of Italy Spain and France are actually pretty much better. The widening is mainly driven by broader growth concerns. And as we expect growth to be broadly robust in Eurozone with significant differentiation across members, it is also likely that the response across different assets also varies and is much less systemic than in May/June.

However, another explanation could be linked to the magnitude of relative Eurozone vs US data surprises that we have seen over recent months. We can gauge the extent of surprises simply by looking at our proprietary Surprise Indices constructed by our European and US economics teams.

The US surprise index has been in negative territory over June and July, indicating that economic data has been coming in generally lower than consensus expectations, unsurprising given the slew of weak US economic data recently. On the other hand, our Eurozone Surprise index has been posting large positive readings in recent months. In fact, the July reading of our Eurozone Surprise Index is at the highest level of positive surprises since construction of the index. Overall, this means that the relative data surprises (looking at the EU vs US Surprise Index differential) has been massively favouring the Eurozone in recent months. The latest readings of these indices cover up to the month of July but looking at the trends of recent cross-Atlantic data, the latest relative surprise ‘spread’ should continue to remain wide and largely still in favour of the EUR.

The EU vs US relative growth surprises are to a certain extent captured by the inclusion of the EUR vs US swap spread in our benchmarking model described above. But assuming correlations with CDS spreads remain in-line with past trends, then it is plausible that the magnitude of data surprises that have been favoring the Eurozone are supporting EUR/$ to a greater extent than what is captured by the rate differentials. In other words, the hugely supportive Eurozone vs US ‘Surprise Spread’ seems to be a key factor that has been supporting EUR/$ recently, despite the backdrop of CDS spread widening.

Key Spreads to Monitor: Eurozone vs US Data ‘Surprise Spread’ and Peripheral CDS

This could mean that once this ‘surprise spread’ starts narrowing, we could see EUR/$ trade lower, especially if CDS spreads widen or stay elevated. This could happen as expectations for US data continue to be revised lower while Eurozone activity also start to moderate, which is to be expected after the inventory cycle led acceleration over the past few quarters. Meanwhile, Eurozone political tension could rise over the next few weeks as Thomas Stolper highlighted in last Tuesday’s Global Markets Daily. This is mainly the potential for rising tensions as most of Europe return from summer holidays. The next milestone to watch is the upcoming September 7 general strikes planned in France....MORE
July 16, 2010 
"Goldman's FX Team Validates Cynical Critics, Capitulates On EURUSD Recommendation ONCE AGAIN" (EUR/USD)

June 10, 2010 
"Goldman Formally Lowers EURUSD Target From $1.35 To $1.15; Time To Go Long"(GS)

April 1, 2010 
Goldman Sachs on EUR/USD: "no freaking clue where the EUR will go next" (GS)

"Solar Plays for California Subsidies" (FSLR; TSL; YGE)

Auriga's Mark Bachman is one of the best analysts in the space.
As the heard moves on in search of tasty subsidies...
From Barron's Soapbox:
Auriga USA
THE ACTIONS BY OUR legislators at the federal level have done little to spur renewable energy adoption, so we look to the states in order to drive the market. U.S. demand has largely been driven through renewable portfolio standards (RPS) where 29 states now have plans in place, while some have dabbled with their own forms of subsidy programs.

Some states use additional tax incentives while others have used pilot programs to test the adoption of feed-in-tariffs (FiT). California has been the clear leader in adopting solar energy into its portfolio of renewable-energy solutions and is now positioned for further penetration with the new subsidy program. The long-term hope is that the program is successful and that other states will adopt similar mechanisms, which could result in a massive expansion of solar installations in the U.S.

The California Public Utilities Commission (CPUC) has a proposed decision to adopt a renewable auction mechanism (RAM). The subsidy will work as a FiT, but the rates will set by an open bidding process (auction) rather than being administered by the CPUC. This is a key attribute of the program because the FiT rate will use market-rate pricing that is set by a competitive bidding process and carries the ideas that project developers can garner fair returns while ratepayers are not overly burdened by excess subsidies.
The program is scoped at 1,000 megawatts over two years; we figure 500 megawatts in both 2011 and 2012. Solar projects are limited to 20 megawatts or less and the electricity will be delivered to one of California's three primary investor-owned utilities (IOUs) through standardized must-take contracts. Auctions will take place roughly every 180 days, and each auction will allocate 250 megawatts to each of the three IOUs.

Just as subsidy cuts are always negative headlines for the solar group, the introduction of new subsidy program is a positive indicator, thus we are encouraged by this news. To put some perspective around this news, the announcement from California far outweighs the recent subsidy cuts in France as we see little to no impact from the subsidy cuts (internal rates of return are still attractive) while the U.S. could add another 1,000 megawatts of shipments by 2012. We further note that this is a proposed decision, but that a final ruling could come in just 30 days.

Lastly, while the new RAM provides a means for new subsidization, solar projects are still susceptible to permitting, financing and not-in-my-backyard woes. All said, as the California Solar Initiative is winding down, the RAM provides a new avenue for growth.
Several solar companies could benefit from the RAM. In our view, we find several companies that could benefit either through increased modules sales, or through their respective project development businesses.

First Solar (ticker: FSLR) (rated at Buy): Best positioned out of the group because of its captive module supply and significant project development business (acquisitions of Turner Renewable Energy, Optisolar, NextLight). But more importantly, we believe the company can deliver the lowest cost-per-kilowatt-hour solution and garner the highest project returns.

Yingli Green Energy Holding (YGE) (rated at Buy): We see Yingli as the stealthiest play in the group. Yingli's U.S. operations have been quietly establishing a beachhead here in the states and could surprise the market with significant module sales into the U.S. for projects covered by the RAM. Yingli's low-cost products should produce very competitive bids.

Trina Solar (TSL) (rated at Buy): Trina has just started to penetrate the U.S. market, but plans to ship several hundred megawatts into this market by 2012. The recent 45-megawatt supply announcement with Southern California Edison is an indication of its cost-competitive solutions.

MEMC Electronic Materials (WFR) (not rated): Through its acquisition of SunEdsion, MEMC could prove to be competitive with low-cost modules from China. The 20 megawatts restriction looks to play into MEMC's (SunEdison) strength.

Suntech Power Holdings (STP) (rated at Hold): Suntech has been a market leader in terms of shipments in the U.S., so it has a well-established position here already. In addition, the acquisition of EI Solutions and Suntech's focus on being a module supplier, rather than a project developer, should enable the company to be a player in some of these projects.

SunPower (SPWRA) (rated at Hold): Always a dark horse in this race because of its project development skills. We still see the broken cost-model as a disadvantage, but the company can always source more Serengeti modules from India in order to compete on a cost-per-kilowatt-hour basis.

-- Mark W. Bachman
Recently at Soapbox:

States that Receive the Most Federal Funds

From Economix:

DESCRIPTION Source: U.S. Census Bureau, Consolidated Federal Funds Report for Fiscal Year 2009.
Obligations for federal domestic spending rose 16 percent in fiscal year 2009 to $3.2 trillion. That comes out to $10,548 per person living in the United States.

Alaska received nearly twice the national average, taking in $20,351.13 per resident, the most of any American state. The state with the second-highest total in per-capita federal funds received was Virginia, at $19,734.

The District of Columbia, however, received an even higher amount per capita than both those states. The nation’s capital received $83,196.12 per resident, mainly because of salaries and wages paid to the many federal employees who work there....MORE

Deere ^ Co. to Sell Wind Unit to Exelon for $900 Million (DE; EXC)

DE is up 1.05% at $63.64, EXC's down a dime.
Exelon has the largest nuclear generating capacity in the country and had been expected to be a big winner under a cap-and-trade regime.
From BloggingStocks:
Early Tuesday morning, tractor titan Deere & Co. (DE) announced that it will sell its wind energy business to a subsidiary of Exelon (EXC). The sale of John Deere Renewables will net the firm $900 million and will allow DE to turn its focus back to producing farm equipment.

Back in February, the company was looking at different options for its Renewables arm. DE will lose a bit of money in the exchange, as it invested roughly $1 billion in wind energy products during the past five years.
Through the purchase, EXC is receiving 36 completed projects in eight different states. These projects have an operational capacity of 735 megawatts.

DE stated that it would record a $25 million post-tax charge in the fourth quarter, but the sale was not taken into account in the company's fourth-quarter earnings estimate....MORE

From MarketWatch:
Exelon Corp. makes big wind energy purchase
Exelon Corp. on Tuesday said it would push further into the wind energy business in a $900 million deal with Deere & Co., as the operator of the largest fleet of nuclear plants in the U.S. looks to boost its emission-free generation business.
Exelon (EXC 40.50, -0.02, -0.06%) said it will buy John Deere Renewables from Deere & Co (DE 63.75, +0.77, +1.22%) , owner of 735 megawatts of wind energy projects now operating in eight U.S. states - enough to power up to 220,000 households.

Chicago-based Exelon also gets rights to pursue 1,468 megawatts of new wind projects in development, including 230 megawatts in advanced stages of launching.

Before this acquisition, Exelon was already the largest wholesale marketer of wind energy east of the Mississippi, with 352 megawatts of wind power capacity from five wind projects in Illinois, Pennsylvania and West Virginia. Exelon Power also owns and operates a 10-megawatt solar plant in Chicago, which the company bills as the largest urban solar plant in the U.S....MORE

Monday, August 30, 2010

How you know the climate fight is over? (Think Brünhilde from Der Ring des Nibelungen)

From the Washington Observer:
The last few weeks have seen those who advocate strict regulatory regimes on greenhouse gases scrambling to regain their footing in the wake of a landslide of bad news that started with the comically weak vote last Summer for climate legislation in the House (just 219 yeas), continued through the release of the Climategate emails, the disastrous breakdown of the international effort to address global warming at the U.N. Conference of the Parties at Copenhagen last December, the embarrassment of the Senate Democrats refusing to even allow a vote on climate change legislation this Summer, and concluded with a rash of Republican candidates for Senate announcing their disdain for the notion of man-made climate change (the nerve!).

As bad as those were, the sharpest, most telling, and perhaps lethal blow came earlier this month. Almost entirely ignored by the media, Deutsche Bank announced that it was exiting the carbon trading business in the United States (reported here). As explained to Reuters by Kevin Parker, global head of the Asset Management Division, “You just throw your hands up and say ... we're going to take our money elsewhere.” Parker also noted that Deutsche Bank will focus its "green" investment dollars more and more on opportunities in China and Western Europe, where it sees governments “providing a more positive environment.”...MORE
Deutsche Bank is a major contributor to the Society of Friends of Bayreuth which puts on the annual Wagner shindig.
Their departure from the U.S. carbon biz was the proverbial Fat Lady singing, a phrase associated with some of the ladies who have played the Brünhilde role:


(Photo stolen from
these guys)

Here's the end of the Ring:Götterdämmerung, conducted in a manic practice session by Sir George Solti:

China and Potash M&A Mania (POT)

The stock is trading down 91 cents at $146.82.
From Mineweb:

As mining headlines around the world are consumed with BHP's bid for Potash Corp, Chinese investment funds seem spurred into action
The recent headline-grabbing $39 billion bid by the world's largest mining company for the planet's top potash producer appears to be spurring potash-hungry Chinese investment funds into action.
On the heels of BHP Billiton's (NYSE: BHP) unsuccessful initial takeover offer for Potash Corp. of Saskatchewan (TSX: POT) (NYSE: POT) last month, China Mining United Fund has announced a move to more than double its treasury to $760 million. Launched just last year, it is one of China's first private mining-oriented investment funds.

China Mining United Fund's mandate is to secure long-term supplies of key minerals and commodities. Most of which are needed to stoke the furnace of China's thriving economy and to sustain a growing urban labour force that is increasingly demanding feed-intensive animal protein in their diets.

Hence, potash is obviously at or near the top of the fund's shopping list, especially since it already has small but strategic investments in place with privately-owned Brazil Potash Corp. and Toronto-based Allana Potash Corp. (TSX.V: AAA).

Investment industry analysts believe that China Mining United Fund will likely favor Allana's Ethiopian potash project in the near-term. That's partly because the Chinese government committed earlier this year to investing billions of dollars in Ethiopia's underdeveloped economy, which obviously also buys plenty of political influence.

Allana's deposit, which sits at the heart of Ethiopia's historic Danakhil potash basin, has an inferred resource of 105 million tonnes of potash, averaging a favorable grade of 20.8%. Drills continue to turn in the anticipation of building upon this initial resource estimate, as well as validating the company's view that one of the world's lowest cost potash mines is in the offing.
Company president Farhad Abasov says that as yet he hasn't received any solicitations from China Mining United Fund to take a bigger stake in his company.

"However, we're already in talks with several other prospective Chinese and Indian investors, as well as other international mining organizations," he says. "That said, there's no urgency on our part to strike any additional deals, especially since we believe that our ongoing drilling successes will allow us to double or triple our existing potash resources by the year's end."...MORE

Hurricane Watch: Five Day Track Projections

From the National Hurricane Center:

Coastal Watches/Warnings and 5-Day Forecast Cone for Storm Center

Click image to zoom in – Download GIS data
Other images: 5-Day track on3-Day track on3-Day track off [Image of 5-day forecast and coastal areas under a warning or a watch]
Click Here for a Printer Friendly Graphic

Carlyle Group Getting Into Brazilian Panty Hose; No Word on Waxing Preferences

I put up this post not just because the idea of the private equity poobahs prancing about is so ludicrous but because Carlyle is putting a lot of money into Brazil.
From the Wall Street Journal:
Carlyle Group LP Buys 51% Stake In Brazil's Scalina- Report 
U.S.-based private-equity firm Carlyle Group L.P. acquired the control of Brazilian company Scalina for 280 million Brazilian reals ($160 million), local newspaper Folha de S. Paulo reported in its Sunday edition.
The newspaper, which quoted an unnamed person close to the operation, said Carlyle acquired a 51% stake in the Brazilian company. Scalina, which produces the local famous panty hose called Trifil, posted a revenue of BRL400 million last year.
The deal came amid Carlyle's growing interest in Brazil.

In July, Carlyle announced the creation of a fund with Brazil's largest bank, the state-run Banco do Brasil SA (BBAS3.BR, BDORY), in order to invest in Brazilian companies. The fund, with up to BRL400 million, will invest in local companies with plans to expand international operations.

Earlier this year, Carlyle Group acquired a controlling stake in Brazilian health-care company Grupo Qualicorp for an undisclosed amount. In January, it acquired control of the largest local travel agency, CVC.

Ambrose Evans-Pritchard: "Backlash over China curb on metal exports" (MCP)

Although the story doesn't mention Molycorp, the company plans to re-open the Mountain Pass mine and reestablish major rare earth production in the U.S. The stock is trading up 3.54% at $16.38 in early pre-market action.

From the Telegraph:

China's draconian export curbs on rare earth minerals needed by the rest of the world for frontier technologies is escalating into a serious diplomatic and trade clash with the United States and other leading powers. 
Japan's foreign minister Katsuya Okada issued what amounted to a formal protest at top-level meeting with Chinese officials in Beijing over the weekend, saying the sudden cut-off was "affecting the global production chain". 
It is the latest sign of rising pressure after angry complaints by companies outside China that rely on this family of 17 metals for hybrid cars, mobile phones, superconductors, navigation, and a host of high-tech industries. 
China's commerce minister Chen Deming said that Beijing would not back down over the export quotas. "Mass-extraction of rare earth will cause great damage to the environment, that's why China has tightened controls," he said, repeating the official line.

Beijing set off shockwaves in early July when it announced a 72pc reduction in rare earth exports over the second half of this year. The country has acquired a near monopoly, with 97pc of global output after under-cutting the rest of the world with Mongolian ores in the 1990s. The sudden cut-off since July has drastically restricted supplies to the rest of world. 
The last US mine shut 14 years ago, discouraged by tough US environmental rules. The US General Accounting Office said China now has a "dominant position" with market power. "Rebuilding a US rare earth supply chain may take up to 15 years," it said....MORE
See also:
With a Name Like Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., it has to be good ( 600111:Shanghai) 
China: Ministry of Industry and Information Technology "Encouraging Consolidation In Rare Earth Sector" 
"Mining hordes invade Mongolia, the 'Kuwait of Central Asia'" and "Hong Kong a good market for Mongolian IPOs"

"Citigroup Goes After Mike Mayo Over Accounting Accusations" and "Bove: Nothing Amiss" (C)

Three takes on the story, first up Gasparino at the Huffington Post:
The people who run the big Wall Street firms and banks have notoriously short memories, which is why, for all the mea culpas that came after the 2008 financial collapse and taxpayer bailouts, you know these guys are going to screw up again and screw the country again in the process.

Recently, I was reminded of just how short their memories on Wall Street are by two new stories. In the first one, Morgan Stanley thinks it's a grand idea to throw a lavish party for its past and present partners in mid-September at a place called the "Temple of Dendur," a swanky room in the Metropolitan Museum of Art that gets rented out to the mega-rich and big profitable corporations that want to hold special events around artifacts of ancient Egypt. The event is supposed to commemorate Morgan's 75th anniversary as a firm even if it will be held on another important anniversary in its history: Nearly two years to the day, Morgan, along with the rest of Wall Street, received billions of dollars in bailout money from the American

OK, so throwing an expensive party on the anniversary of the bailouts may look bad, and may also require a police presence (so many former Morgan Stanley people viscerally hate the guys now in charge, and vice versa), but it isn't potentially illegal. But the second story underscoring Wall Street's memory loss involves something that could be.

As I reported early in the week on Fox Business Network, Citigroup, one of the most bailed-out banks in the history of bank bailouts, has the nerve to wage an increasingly vindictive war against a securities analyst named Mike Mayo for doing nothing more than telling the truth about the bank's questionable -- some would say illegal -- accounting practices.

First a little primer on Mayo: For the past 10 years, he has been criticizing Citigroup and its piss-poor management, right up to the time the bank cost taxpayers hundreds of billions of dollars to survive the 2008 market implosion. For that, he's been denied access to top managers (including CEO Vikram Pandit and CFO John Gerspach), ridiculed on analyst conferences calls and belittled by Citigroup personnel behind his back.

One Citigroup executive recently said because Mayo has no clients at his most recent firm, CLSA, he picks fights to get his name in the press. Despite the absurdity of that argument -- Mayo (a) has clients and (b) he will have even fewer of them if he did nothing more than pick fights for the sake of fighting -- officials at Citi continue to insist that Mayo is attacking the firm for no other reason than to see stuff written about him, even if they refuse to address in a straightforward manner the validity of his recent and maybe most damning critique of the bank....MORE
From Barron's Stocks to Watch Today (Aug. 27):
Citi: Nothing Amiss in Deferred Assets, Says Bove
Rochedale Securities analyst Dick Bove weighs in this afternoon on the purported spat between Citigroup (C) and CLSA analyst Mike Mayo regarding Citi’s accounting for its deferred tax assets.
Mayo has criticized the bank for not writing down the value of those so-called DTAs, Citi has maintained it is comfortable with its accounting and that there has been no material inquiry on the matter by the Securities & Exchange Commission.

Bove writes in a note today that he thinks there’s nothing amiss in Citi’s accounting.
Citi has a net tax asset of $46.1 billion, writes Bove. Citi has to justify maintaining that balance on the books by showing regulators it can earn $99 billion over a period of years that has variable components of between 7 and 19 years.

Bove argues no one’s actually shown that Citi can’t make that kind of money over 19 years, merely implied such.

Bove notes Mayo’s own profit estimates don’t contain any hint of a write-down to come, suggesting he thinks Mayo himself is disingenuous....MORE
From Fierce Finance:
Citigroup takes aim at star analyst
Mike Mayo, a well-known name in the bank stock analyst world, has long been an bête noire at Citigroup (NYSE: C).
The latest: The CLSA analyst has angered executives because of his view, which he's hardly shy about, that Citigroup should take a writedown of $50 billion on "deferred-tax assets," or DTAs, which he thinks have inflated profits at the bank by up to $10 billion, according to FOX Business. Mayo also thinks the bank may be violating some securities laws by not doing so. Citi denies the accusation.
In retaliation, "Mayo has been denied one-on-one meetings with top players of the firm, including CEO Vikram Pandit, Chief Financial Officer John Gerspach, and any other member of management, while other analysts enjoy full access to the bank's top executives....MORE

Thursday, August 19, 2010

I Got Nuthin' "Economists React: Jobless Claims Cast Doubt on Recovery"

Initial Unemployment claims back over 500,000, bad.
From the WSJ's Real Time  Economics:

Economists and others weigh in on the jump in jobless claims.
– Initial claims climbed to its highest level in the past 9 months. Although new claims are often very volatile during the summer due to seasonal adjustment difficulties, these data still suggest a softer labor market. Although new claims are still much lower than they were a year ago, they are still relatively high and are no longer trending lower. –Steven A. Wood, Insight Economics

–The rise in initial jobless claims over the past three weeks makes it difficult to maintain confidence in the recovery and suggests the labor market is backtracking more than we first expected. This latest rise may pressure the Federal Reserve to put its contingency plan into motion. –Ryan Sweet, Moody’s Economy.com

–Today’s report is not only significant because the number of claims are headed in the wrong direction, but the impact of reaching 500,000 from the perspective of market psychology is a clear negative. There’s still too much of a rotating door in the jobs market, with the impact of those employers who are hiring being muted by those who continue to shed jobs…For job-seekers, this is another blow to their confidence. For investors, it’s another unfortunate sign that the economic recovery continues to weaken, a factor likely to contribute to further market volatility. –Jim Baird, Plante Moran Financial Advisors

–While the figure is clearly disconcerting, one reading does not make a trend, and we prefer to wait and see further evidence before suggesting that labor demand has indeed deteriorated sharply. In any case, given that today’s figure is for the payroll survey week, there may be some downward revisions to the August payroll estimates. –RBS Securities

–Federal programs picking back up.
With the extension of the EUC program people resumed eligibility in the program and claims continued to pick up. Those collecting state continuing claims and federal (EUC and extended benefits) claims jumped to 10.1M from 9.9M in the July 24th week. –Jill Brown, Credit Suisse

Wednesday, August 18, 2010

Yield: Dow 30 Components vs. 10-year U.S. Treasury

From the Economic Forecasts and Opinions blog by way of Investment Postcards from Cape Town:

On the other hand, stocks are relatively cheap compared to bonds. For investors looking for yield and inflation protection, the average 2.94% dividend yield (see Dow table) − plus the potential stock price appreciation − of all 30 Dow Jones Industrial average stocks is looking a lot better than the 2.568% yield on the 10-year Treasury.

Why We Didn't Spend the Stimulus Money on Infrastructure: "No Country for Burly Men" (BGC; CAT; FLR; JEC: PWR)

Following up on the post immediately below,"White House Under Fire for Unspent Infrastructure Cash" (BGC; CAT; FLR; JEC: PWR)"

This story is from the Weekly Standard. If Kos, DU or the HuffPo had chosen to cover the story I'd have linked to them.
They didn't.
By Christina Hoff Sommers
June 29-July 6, 2009
How feminist groups skewed the Obama stimulus plan towards women's jobs.
A "man-cession." That's what some economists are starting to call it. Of the 5.7 million jobs Americans lost between December 2007 and May 2009, nearly 80 percent had been held by men. Mark Perry, an economist at the University of Michigan, characterizes the recession as a "downturn" for women but a "catastrophe" for men.

Men are bearing the brunt of the current economic crisis because they predominate in manufacturing and construction, the hardest-hit sectors, which have lost more than 3 million jobs since December 2007. Women, by contrast, are a majority in recession-resistant fields such as education and health care, which gained 588,000 jobs during the same period. Rescuing hundreds of thousands of unemployed crane operators, welders, production line managers, and machine setters was never going to be easy. But the concerted opposition of several powerful women's groups has made it all but impossible. Consider what just happened with the $787 billion American Recovery and Reinvestment Act of 2009.

Last November, President-elect Obama addressed the devastation in the construction and manufacturing industries by proposing an ambitious New Deal-like program to rebuild the nation's infrastructure. He called for a two-year "shovel ready" stimulus program to modernize roads, bridges, schools, electrical grids, public transportation, and dams and made reinvigorating the hardest-hit sectors of the economy the goal of the legislation that would become the recovery act.

Women's groups were appalled. Grids? Dams? Opinion pieces immediately appeared in major newspapers with titles like "Where are the New Jobs for Women?" and "The Macho Stimulus Plan." A group of "notable feminist economists" circulated a petition that quickly garnered more than 600 signatures, calling on the president-elect to add projects in health, child care, education, and social services and to "institute apprenticeships" to train women for "at least one third" of the infrastructure jobs. At the same time, more than 1,000 feminist historians signed an open letter urging Obama not to favor a "heavily male-dominated field" like construction: "We need to rebuild not only concrete and steel bridges but also human bridges." As soon as these groups became aware of each other, they formed an anti-stimulus plan action group called WEAVE--
Women's Equality Adds Value to the Economy.

The National Organization for Women (NOW), the Feminist Majority, the Institute for Women's Policy Research, and the National Women's Law Center soon joined the battle against the supposedly sexist bailout of men's jobs. At the suggestion of a staffer to Speaker of the House Nancy Pelosi, NOW president Kim Gandy canvassed for a female equivalent of the "testosterone-laden 'shovel-ready' " terminology. ("Apron-ready" was broached but rejected.) Christina Romer, the highly regarded economist President Obama chose to chair his Council of Economic Advisers, would later say of her entrance on the political stage, "The very first email I got . . . was from a women's group saying 'We don't want this stimulus package to just create jobs for burly men.' "

No matter that those burly men were the ones who had lost most of the jobs. The president-elect's original plan was designed to stop the hemorrhaging in construction and manufacturing while investing in physical infrastructure that is indispensable for long-term economic growth. It was not a grab bag of gender-correct programs, nor was it a macho plan--the whole idea of economic stimulus is to use government spending to put idle factors of production back to work.

The president-elect responded to the protests by sending Jason Furman, his soon-to-be deputy director at the National Economic Council, along with his senior aides to a meeting organized by Kim Gandy and Feminist Majority president Eleanor Smeal. Gandy described the scene:

I can't resist saying that this meeting didn't look like the other transition meetings I attended. In addition to the presence of more women, the room actually looked different--because Feminist Majority President Ellie Smeal had asked that the chairs be set in a circle, with no table in the center....MORE
 From Aug. 4, "Transmission: "General Cable Has a Line on Growth" (BGC)":
The infrastructure companies would have been the place to be had the politicians been telling the truth about where the stimulus money was going. Remember "Shovel Ready"?
Instead the dough went to puppet theaters and public sector jobs....

...As can be seen from the chart the stock has worse-than-flatlined since the stimulus bill was passed.
Meanwhile the executive director of the puppet theater was quoted as saying:
"An employed artist is as valuable as an employed computer programmer, employed plumber, employed contractor, employed construction worker."

"White House Under Fire for Unspent Infrastructure Cash" (BGC; CAT; FLR; JEC: PWR)

UPDATE: "Why We Didn't Spend the Stimulus Money on Infrastructure: "No Country for Burly Men" (BGC; CAT; FLR; JEC: PWR)"
Original post:

I've commented on this a few times in the last month, here's the Wall Street Journal:
The Obama administration has paid out less than a third of the nearly $230 billion allocated to big infrastructure projects in the economic-stimulus program. Now Republicans are zeroing in on the unspent stimulus money in fresh attacks on the administration's economic policy.

"More people believe that Elvis Presley is alive than [that] the stimulus created jobs," U.S. Rep. Kevin McCarthy (R., Calif.), a member of the House Republican leadership, said Sunday on CNN's State of the Union. "And that's because what have they spent the money on?"

They are suggesting that unspent stimulus money should be used to cut the deficit or pay for other initiatives, such as extending the Bush tax cuts. "I would roll back the stimulus," Mr. McCarthy said. "That's $260 billion."

House Republican leader John Boehner (R., Ohio) has called in recent days for a halt to stimulus spending and recently sparred with the White House over whether stimulus projects have boosted hiring in his district.
The administration has said that stimulus spending was always intended to roll out in stages, over two years, and that the pace of outlays for infrastructure would be slower than for parts of the package that provided tax cuts and subsidies for programs such as Medicaid.

White House economist Jared Bernstein, in an Aug. 11 blog post, said that when Republicans call for a halt to stimulus spending, "they're essentially talking about taking away middle-class tax cuts, leaving unemployed workers unexpectedly high and dry without an unemployment check, halting road and bridge projects and leaving them unfinished, leaving contractors unpaid for the work they've already done and more."
Recent opinion polls suggest the White House has struggled to communicate its message, particularly after its emphasis on "shovel-ready" projects during the debate over the plan's passage in early 2009.

Criticism of the pace of the stimulus appears to be resonating with voters. In a Wall Street Journal/NBC News poll in May, 18% of respondents said the plan was already helping to improve the economy, and 20% said they thought it would help in the future. Confidence appears to have slipped from July 2009, when 48% of respondents said the plan was helping the economy already or would help it in the future....MORE

Clobbered in Copenhagen: "Vestas Wind shares slump up to 26% after group slashes outlook" (VWS.CO)

The stock is down 18% in late trade.
From MarketWatch:
Delay to orders in U.S., Spain and Germany cited for lower forecasts
Shares in Vestas Wind Systems slumped as much as 26% Wednesday after the Danish wind-turbine manufacturer slashed its outlook for the year and reported second-quarter results that fell short of market expectations.

The group said it swung to a second-quarter net loss of 119 million euros ($153 million) from a profit of €43 million a year earlier. Revenue fell 17% to €1.01 billion as the group's top line felt the impact of its low order intake last year.

Analysts polled by Dow Jones Newswires had expected a loss of €45 million....MORE

"Death Knell for Some Clean Tech Companies"

From MIT's Technology Review:

With prospects dim for comprehensive climate legislation, companies focused on carbon emissions could fail or be forced to scale back their ambitions.
The U.S. Senate's failure to pass a comprehensive climate and energy bill this summer could spell doom for startups founded to help reduce carbon-dioxide emissions. Others will limp on, limited to markets much smaller than they originally expected to target.

"For companies depending on some type of CO2 subsidy, this is probably the death knell," says James Kim, a partner at Khosla Ventures who has carefully reviewed the business plans of several such companies.
Last year, Congress seemed on track to pass legislation that would make it progressively more expensive, over the next two or three decades, to emit carbon dioxide. (Economists often call this "putting a price" on carbon.) That was good news for a stampede of companies developing technologies that would reduce carbon-dioxide emissions--technologies such as solar panels, wind turbines, and biorefineries for producing biofuels--or capture carbon dioxide from smokestacks or the atmosphere.

But a version of the bill that once seemed headed for success faltered and was abandoned for much more modest energy legislation that itself hasn't attracted enough votes to pass. There is little prospect that a comprehensive bill will be passed this year, in spite of efforts by some senators to push through a bill after the midterm elections. If Republicans, who generally oppose carbon restrictions, gain seats in Congress this fall, it could be years before such legislation is passed.
David Victor, director of the International Law and Regulation Laboratory at the University of California, San Diego, says that at the federal level in the U.S., "political forces for a price on carbon are spent."...MORE

Out Standing in His Field: John Deere Profit Tops Estimates on Farm Equipment Demand, Market Wants More (DE)

The stock is trading down 1.3% at at $65.35.
I first heard the "Out standing..." line in reference to wheat agronomist Norman Borlaug who went on to win the Nobel Peace Prize for preventing up to one billion premature deaths.
The Peace prize committee had different criteria in 1970.
We are finding some serious problems with the input intensive approach that he favored but judged by the standards of the time his work was miraculous.

From Bloomberg:
Deere & Co., the world’s largest farm-equipment maker, reported third-quarter profit that beat analysts’ estimates. The shares fell after it forecast weaker demand in Western Europe.
Net income climbed to $617 million, or $1.44 a share, in the three months through July, from $420 million, or 99 cents, a year earlier, the Moline, Illinois-based company said in a statement today. The average estimate of 17 analysts in a Bloomberg survey was for profit excluding some items of $1.22.

Deere, led by Chief Executive Officer Sam Allen, said full- year sales will rise 5 to 10 percent in the U.S. and Canada on “solid” commodity prices while Western Europe industry sales will fall as much as 20 percent.
“While the company’s guidance looks a tad light relative to expectations, this is a conservative management team and is probably trying to set a reasonable bar to exceed,” Joel Levington, managing director of corporate credit at New York- based Brookfield Investment Management Inc., said in an e-mail....MORE 
From Dow Jones via NASDAQ:

Deere 3Q Profit Jumps, Helped By 'Strong' Demand; Shares Down
Deere & Co.'s (DE) fiscal third-quarter earnings jumped 47%, handily topping Wall Street's forecasts, as the company's sales and margins improved amid what the company called "strong" demand for its big farm machinery.

Deere also said it expects equipment sales to be up about 32% in the fourth quarter from year-earlier levels, and it projected earnings of about $375 million. Analysts polled by Thomson Reuters expected $385 million. The company also sees sales for the year near the midpoint of prior projections.

Chairman and Chief Executive Samuel Allen exercised caution, saying, "While we have benefited from positive conditions in the U.S. farm sector, particularly in terms of demand for large equipment, European markets are down sharply. Demand for construction and forestry equipment is improved from last year but still remains far below normal levels."

Deere shares fell 1.8% to $65.99 premarket as the quarter's equipment sales rose less than expected. As of Tuesday's close, the stock had risen 49% in the past year....MORE

"Hapoalim Securities Cautious On Solar Names" Climateer Asks "Who Really Cares What they Think?" (FSLR, SPWRA)

I am not all that impressed with Hapoalim.
Back on June 8 we posted "Hapoalim Cuts First Solar Target to $65 on Cadmium Telluride Risk; It Won't Matter and Probably Sets an Intermediate Low (FSLR)".

The stock did indeed set an intermediate low that day, at $100.19. It started running and didn't look back until it hit $140.00 on July 23.
On July 29 FSLR reported second quarter numbers.
The next day Hapoalim upped their target with nary a mention of the CdTe risk that was ostensibly the reason they initiated at sell:
Analysts at Hapoalim Securities maintain their "sell" rating on First Solar ( FSLR), while raising their estimates for the company. The target price for FSLR is set to $100....MORE
The stock headed south.
Monday they came out with a bit o'the bloomin' obvious:
Hapoalim Securities is out with a research report this morning, where it takes a look at the price performance of solar stock following strong results and higher guidance.
The analyst said that the stocks have typically sold off in the following weeks as both positives and negatives become worked into the stock price; profit taking then occurs.
The analysts noted “fuzzy guidance” and price reductions by First Solar (FSLR ) and Sunpower Corp. ( SPWRB)...MORE 
Both links via Benzinga.
I'm starting to think that Hapoalim could cost an investor some real money.

At least they didn't pull the grandstanding stunts of Brigantine Advisors Ramesh Misra who put out a sell on CREE and a Buy on FSLR the very days they reported.
As the British nature shows used to say, when the lions approached the Wildebeests:

Sadly now, there can be but one outcome.

The sell, CREE released after-hours and ran 17.30% the next day.
The buy, FSLR reported AH and the next day dropped 8.14% the next day.
Personally I think we'll see some multiple contraction in FSLR but that is very different from what Hapoalim (or Brigantine) are saying. See:
First Solar Shows Utility Type Growth, Does it Deserve a Utility Type Multiple? A VERY Important Article for Solar Investors (FSLR; SPWRA; STP; TSL)
Is Brigantine Advisors Analyst Ramesh Misra (PhD.) the Dumbest Guy on the Street? (CREE; FSLR) 
UBS Cuts Cree to Neutral, Our Pal Ramesh at Brigantine Maintains Sell (CREE)

Tuesday, August 17, 2010

Italian Researchers: "Pizza Will Save Your Life, Maybe" and "Playboy playmates, the Dow Jones, consumer sentiment, and the Doomsday Clock: A critical examination of the Environmental Security Hypothesis,"

Truth be told I was actually going for “Playboy playmates, the Dow Jones, consumer sentiment, and the Doomsday Clock: A critical examination of the Environmental Security Hypothesis”.
But the link isn't working. This paper may however be proof of the intellectual superiority of social scientists over natural scientists in this morning's "Modern IQ ranges for various occupations".

I mean, how many physicists have had the brains to get funding for studying playmates?
Ta da! Found the link. (19 page PDF).
HT on PpDJcs to Improbable Research
Here's the pizza story from the same source:
A series of Italian research studies suggest that eating pizza might do good things for a person’s health. These benefits show up, statistically speaking and seasoned with caveats, among people who eat pizza as pizza. The delightful statistico-medico-pizza effects do not happen so much, the researchers emphasise, for individuals who eat the pizza ingredients individually.
Back in 2001, Dario Giugliano, Francesco Nappo and Ludovico Coppola, at Second University Naples, published a study in the journal Circulation called Pizza and Vegetables Don’t Stick to the Endothelium. The thrust of their finding was that, unlike many other typical Italian meals, pizza does not necessarily cause clogged blood vessels (atherosclerosis) and death....Cites
I'l make a note of that [how about a powerpoint:  Pizza good, doesn't kill -ed]

Hurricane Watch: Atlantic Tropical Cyclone Activity

From the National Hurricane Center:

TC Activity

Graphical Tropical Weather Outlook   |   Active Storms   |   Marine Forecasts
Atlantic High Seas Forecast Caribbean Offshore Waters Forecast Gulf of Mexico Offshore Waters Forecast Northeast Pacific High Seas Forecast Southeast Pacific High Seas Forecast Default Map of Marine Forecast Areas
Atlantic - Caribbean Sea - Gulf of Mexico

  There are no tropical cyclones at this time.

Chart Porn: A Two Thousand Year History of Who's Who in World GDP

I like simplicity in presentation. From the Economist:

Thanks Alphaville: "Testing the Hindenberg Omen"

Although CXO Advisory is one of our 1300 feeds and one I try to get to at least twice a week I somehow missed this. FT Alphaville didn't.
First CXO goes through the methodology of their test, in-depth as always, then:
...In summary, evidence from simple tests of a publicly available set of “confirmed” Hindenburg Omens suggests the possibility of usefulness, but reservations regarding small sample size and potential sample bias are strong.
The vivid image evoked by the name may be an important factor in media attention to the Hindenburg Omen.
Gee, d'yuh think?

FT Alphaville also directs us to an interesting story of attempted 'corners'.

For those not old enough to remember the Erie Wars, the standard procedure for officers and directors on the receiving end of an attempted stock corner was simply to issue more stock. Completely illegal but it was a effective as all get out.
(as a side note one of my mentors once warned me off a similar adventure by saying "They got more stock than you got money")

This was how Jay Gould, Jim Fisk and Daniel Drew cost Cornelius Vanderbilt a bundle as he tried to buy the Erie Railroad..
On the other hand the Commodore was able to corner the New York & Harlem Railway in both 1863 and 1864 to punish short-selling elected officials.
In 1863 it was the City Council who had granted the franchise, sold the stock and then pulled the franchise, in 1864 it was the state legislature who sold more than the issued and outstanding.

That means he got to set the price they were allowed to cover at.
The same thing happened with the Northern Pacific corner of May 1901, gunning the stock from just under $150 to $1000 per share. This of course caused a panic as the shorts sold everything else they owned in an attempt to stay liquid.

Robert Sobel's Panic on Wall Street has an entire chapter called "Battle of the Titans" devoted to the story.
I suppose he wasn't being melodramatic being that James J. Hill's broker was Pierpoint Morgan and E.H. Harriman's was Jacob Schiff of Kuhn, Loeb & Company.

Good times, good times.

Whither Wheat?

Chicago wheat closed below $7.00 yesterday.
The withering wheat [cute -ed] story is over, the question is: Will the Russians be able to plant next years crop?
The soil around the Black Sea is dessicated, it is going to take steady rains over the next four to six weeks to recharge the soil. And it can't come in the form of gully-washers or the fields will be impassable for machinery, people and even animals.

I disagree with the blanket statements in this story, the truth is nobody knows right now, but they touch on the main points.
From Barron's:
Wheat Rally Won't Dry Up 
Continuing drought in Russia and logistical problems with the U.S. crop should keep prices high.
IF RUSSIA STAYS DRY through September, the record rally in wheat prices will see new shoots.
So far the focus has been on Russia's four-month export ban scheduled to start on Aug. 15. Russian President Vladimir Putin said his country, which had been expected to be a big player in export markets this year, wouldn't ship grains abroad in response to the record heat wave and drought that has blanketed many regions in Russia in wildfires and smoke.

More worrisome for grain-consuming countries, especially those that aren't self-sufficient, is that the small window to plant next year's harvest in Russia is fast approaching without any rains in sight. The ground is as hard as rock in some areas, which will make planting difficult. The lack of moisture across broad swathes of Russia's grain-growing regions is already seeding concerns about next year's crop.

While many traders assume some rain must come eventually, the market to date has underestimated the extent of the drought and the damage, and may be erring on the side of optimism this time around, too.

Given the uncertainty surrounding weather, there's talk that $7 a bushel is the new floor for wheat futures traded on the Chicago Board of Trade. Wheat recently spiked as high as $8.41 (Aug. 6). This is almost double the nine-month low the grain hit in early June.
"If Russia's out for two years, that changes the dynamics," says Daniel Basse, president of AgResource Co., a research firm....

...Jerry Gidel, an associate with North America Risk Management Services, says it could be a "logistical nightmare to get wheat, corn and soybeans out through our export channels....MORE
You can doublecheck our real-time commentary:
Wheat: "Have we turned the corner in grains?"
"Ready Or Not, Here Comes A Corn ETF" (CORN)
"Agricultural Commodities Take Flight" (CORN; WEAT; BDA; MOO)
Wheat: "Have we turned the corner in grains?" 
"Wheat Rises as Russia Drought May Boost Demand for U.S. Crops" Has it Peaked? 
Corn: A one day Wonder? 
"Surprising Corn Numbers"
"Amber Waves of Pain" Pitfalls in Commodity ETF's (DBA; MOO; RJA)
"Commodities -- the Crash You Didn't Hear" (DBA; GLD)
Making Ethanol from Wheat is Stupid  
Herschel and Me (Sunspots and Wheat) 
Wheat Closes on $7.00/Bushel Getting Close to a Top (ZWU0; WEAT)
We have a Bingo: "Wheat-Price Spike Ignores Abundant Inventories "

Wheat Limit Up on Russian Decision to Halt Exports; Wheat Sales From Australia to Get `Very Strong Start'... (BG)

"Wheat's in a sweet spot, but run may not last"

Wheat Closes Limit Down 

Climateer Line of the Day: Staff of Life Edition 

"Wheat prices ease after Russia predicts stable exports" and "...Speculators ‘Hunt What’s Moving"

And many more.

"Modern IQ ranges for various occupations"

It appears that Finance, Insurance and Real Estate (FIRE) practitioners are not the smartest guys in the room.
This may be a bit dated, it is from 2007. I can't imagine the FIRE occupations improved their ranking, they sure didn't improve their reputation.
The social scientists ranking generally higher than natural science professionals should hearten some of my friends.
Just remember, the study of I.Q.'s is a social science.
From IQ Comparison.com:

IQ ranges for occupations
This graph was adapted from Figure 12 of Hauser, Robert M. 2002. "Meritocracy, cognitive ability, and the sources of occupational success." CDE Working Paper 98-07 (rev). Center for Demography and Ecology, The University of Wisconsin-Madison, Madison, Wisconsin. The figure is labelled "Wisconsin Men's Henmon-Nelson IQ Distributions for 1992-94 Occupation Groups with 30 Cases or More" and is found at http://www.ssc.wisc.edu/cde/cdewp/98-07.pdf.  Used with permission.

Monday, August 16, 2010

2016: "U.S. Facing a `Painful Period' as Debt Is Unwound, Berkshire's Sokol Says" and Fortune's Everything You Ever Wanted to Know about David Sokol article (BRK.B; BRK.A)

We have been using 2014-15 as a fuzzy target for the end of the secular bear market. Some prognosticators say 2015-2020 but we believe there will be a few 'Next Big Thing's' going into commercial production that shorten the timeline a bit. The last secular bear lasted 18 years and elicited this comment from Mr. Sokol's boss:

December 31, 1964: DJIA 874.12
December 31, 1981: DJIA 875.00
"Now I'm known as a long-term investor and a patient guy, but that is not my idea of a big move."
-Warren Buffett
-In this 1999 Fortune article "Mr. Buffett on the Stock Market"
Here's the first headline, from Bloomberg:
The U.S. is facing a “painful period” in the next five years as homeowners and governments unwind debt built up during the housing boom, Berkshire Hathaway Inc.’s David Sokol said today.

“All of that just feeds into a slow-growth environment,” Sokol, who heads Berkshire’s energy and luxury-flight divisions, said today in an interview at Bloomberg headquarters in New York. “If we could average 2 percent for the next five years, we’d be pretty happy.”...MORE
And the Fortune story:

Warren Buffett's Mr. Fix-It: Full Version
The day after Lehman collapsed in September 2008, David Sokol noticed that the stock of Constellation Energy, a Baltimore utility, was plummeting. He called his boss, Warren Buffett, and said, "I see an opportunity here." Buffett, who had noticed the same thing, replied after a brief discussion: "Let's go after it."

Constellation (CEG, Fortune 500) held vast amounts of energy futures contracts that had gone sour, and the company appeared to be on the verge of bankruptcy. Sokol, as chairman of the Berkshire subsidiary MidAmerican Energy Holdings, knew the utility industry and saw a chance to buy solid assets at a bargain price. The deal, however, had to be done within 48 hours or the company would have to file for bankruptcy.

Sokol phoned the office of Constellation CEO Mayo Shattuck III, who was in an emergency board meeting. When his assistant answered, Sokol told her he'd like to speak to him. The secretary replied that if she interrupted the meeting, she might lose her job. Sokol replied, "If you don't interrupt the meeting, you might lose your job."

Sokol boarded a Falcon 50EX and sped to Baltimore. He met with Shattuck and struck a deal that evening to buy the company for $4.7 billion, staving off bankruptcy.
Within weeks, before the acquisition was completed, Constellation's board received a competing bid from Électricité de France for about a 30% premium. The board liked the offer, and so did Sokol -- who walked away with a $1.2 billion breakup fee for Berkshire....MUCH MORE

At the time the Constellation deal was announced I said:
Damn those Omaha boys move fast.

*Julian Robertson: US To Face Poor Economy for 10-15 Years (And Warren Buffett Stops By)

Gail Dudack on What's Ahead for the Stock Market

Bull Markets; Bear Markets; Secular and Observant

Best strategy for long bear market 2010-2020
Why Stocks Won't Come Out of the SECULAR Bear Market Any Time Soon

Death of the American Dream? (nah)

Where in the Bear are We?
The Mathematics of Losing Money

Wheat Wars: "Agrium Unveils Offer for Australian Wheat Exporter AWB" (AGU; AWB.asx)

Wheat is headed south again, down 8.25 cents at $7.26 in Chicago.
From the Wall Street Journal:
In an unexpected move, Canada's Agrium Inc. on Monday unveiled what could be a compelling offer for Australian wheat exporter AWB Ltd., which is working through a merger proposal with rival GrainCorp Ltd.
According to the conditional all-cash offer that values AWB at 1.24 billion Australian dollars (US$1.1 billion), Agrium proposes to pay A$1.50 for each AWB share, 24% more than the value Monday of the share-based merger with GrainCorp.

Agrium said its proposal represents a 57% premium to AWB's closing price of A$0.955 on July 29, just before the merger plan with Graincorp was announced. Under that plan, AWB shareholders were to get one GrainCorp share for every 5.75 shares held. At Monday's GrainCorp closing price of A$6.53 per share, that works out to around A$1.14 for every AWB share.

AWB shares surged 30%, or 32.5 cents, following the Agrium bid to A$1.42, the former wheat export monopoly's highest close since February 2009.

If successful, this could be the second case of a major Australian agricultural concern being taken over by a Canadian company in less than a year. Late last year, South Australia-based ABB Grain Ltd. was taken over by Canada's Viterra Inc. for about A$1.65 billion.

Calgary-based fertilizer company Agrium said it sees significant potential to enhance its product and service offerings to Australian and New Zealand growers. Through the 400 outlets in AWB's Landmark national rural merchandise and service network, Agrium is hoping to market its international fertilizer and crop protection capabilities, President and Chief Executive Mike Wilson said....MORE

From Deal Journal:
(click to enlarge)

Economics: "Sex in China"

The writer, Marina Adshade is an econ prof. at Dalhousie University.

From Big Think:
For anyone interested in sex and economics, China is fascinating. It takes in 30% of the worldwide pornography revenue,* and prostitution income makes up 8% of its massive GDP**. I’ve just spent two (wonderful) months in China, and while sex and economics had nothing to do with my trip, I was left with one surprising observation: I wondered if the Chinese really ought to have more sex.

In the night clubs in China it seems that for every ten men there is roughly one, extremely popular, woman....MORE
But of course.

Investing Tips from the World's Richest Economist

No not Paul Krugman. The columnist and Laureate knows how to earn money as exemplified by his lending his name to Enron for $50,000 for four days work.
Judging by his temperament on the Sunday talking head circuit (there's that earnings power/branding again), I would think he's more of a hoarder rather than an investor, speculator or gambler.

And no, it's not John Maynard Keynes.
We had a look at Keynes' investing style in "Keynes The Money Manager". After a disastrous start in currencies, which led to the observation attributed to him by A. Gary Shilling: "Markets can remain irrational a lot longer than you and I can remain solvent."
The performance of the Chest Fund (a sidecar of the Kings College endowment) was indeed impressive.
However, it now appears that Keynes only achieved positive results starting in 1932.
It is probable that this timing indicates he was trading on inside information, knowledge of the British government's abandonment of the gold standard. He was an adviser to the gov. and pushed the policy.
Here are a couple snips from "John Maynard Keynes: Money Manager (Couldn't Trade Lard to Save His Life)":
My two cents:
Climateer (URL) said:
Although Keynes ran King's College's Chest Fund 12-fold, £30,000 to £380,000, '27-'45,
the record is decidedly mixed.
Drawdowns of 32.4% and 24.6% in '30 and '31 exceeded the losses in the London market and had the fund at 1/2 it's '27 value.

1932's 44.8% and '33's 35.1% return's were coincident with and subsequent to, Britain's departure from the gold standard.
As an economic adviser to the government Keynes was well aware of the coming devaluation.
Although King's hasn't opened all the trading records, there is strong evidence to suggest that Keyne's was trading on inside information.

Some things never change.

In a 1983 paper "J.M. Keynes' Investment Performance: A Note" the authors are dubious of his performance, without casting the aspersion that I do in my comment. They on the other hand have a great tidbit:
...Investments in commodities were more substantial. The highest annual gain was for ₤17,000 from September 1936 to August 1937 and the highest annual loss, mainly in lard, for ₤12,600 in the following twelve months...
We too have commented on the lard market, in the March '08 post "Volatility Getting You Down, Bunky?"...
Here is a chart of his record with the college:
The performance of Keynes’s fund from 1927 to 1946 is shown below. During these years the Chest grew at an annual compounding rate of 9.1 percent while the general British stock market fell at an annual compounding rate of slightly under 1 percent.

Chest Fund Performance 1927 to 1946

Maynard Keynes Chest Fund
The whole thing is worth a read.

It is estimated that Keynes' fortune would translate into $35 million in 2010 buying power.
Here's the big dog, presented by professor Mark Skousen via The Daily Reckoning:

How David Ricardo Became The Richest Economist in History

When David Ricardo started out in business at the age of twenty-one, his property base amounted to £800. By the time he died in 1823, a mere thirty years later, his estate was worth an unimaginable £675,000 to £775,000, from which he enjoyed a yearly income of £28,000. No other economist, not even John Maynard Keynes, has reached this level of affluence.

Ricardo has the distinction of writing erudite theoretical works and making a for-tune. Few economists can boast doing both. Keynes would be one of the few to join Ricardo in this distinction, amassing an estate worth £650,000 during the Great Depression while writing The General Theory.
How did Ricardo do it? If he had written a book on investment, what secrets would he tender?

The Arbitrage King
Ricardo made his money primarily as a stockjobber, handling his own accounts, rather than as a broker . A stockjobber might be compared to a specialist on the floor of the New York Stock Exchange who handles large sums of stock and constantly makes a market in specific issues. During the early nineteenth century, most transactions involved government bonds, known as consols, although great chartered companies such as the Bank of England and the East India Company issued shares. Otherwise, there were no corporations or corporate stock at this time.

Ricardo made most of his money early on as an arbitrager of government debt. He played the forward market, which was ten times bigger than the cash market. A contemporary wrote of Ricardo: “He is said to have possessed an extraordinary quickness in perceiving in the turns of the market any accidental difference which might arise between the relative price of different stocks [government bonds].” His transactions would tend to be short-term and he would “realise a small percentage upon a large sum,” typically £200 to £300 a day. He wrote a friend, “I play for small stakes, and therefore if I’m a loser I have little to regret”.
Historians have debated the extent to which Ricardo profited from insider dealings and stock manipulations. According to Professor Norman J. Silberling, Ricardo often played the villain, a leader of an “inner clique of exchange professionals” known as “bear-jobbers” who would attempt “bear raids” on the government loan market. By panicking the public and pushing consol prices sharply lower, Ricardo and his band could pick up consols on the cheap and profit from high interest rates. Silberling accused Ricardo of writing his pamphlet, The High Price of Bullion, in early 1810, in order to bring about a fall in bond prices. Indeed, the price of bonds fell abruptly in late 1810 and one of the Goldsmids, a primary financier of government loans, com-mitted suicide. However, Piero Sraffa, Ricardo’s biographer, disputes this claim, noting that Ricardo had made a firm bid on a government loan in 1810 and it would have been to his disadvantage if consol prices had fallen. It should also be noted that Ricardo failed in his bid.

Ricardo’s Golden Rules Of Investing
Ricardo never wrote down his trading techniques, but business associates said that he held scrupulously to his two “golden rules”: “Cut short your losses” and “Let your profits run on.” He also took advantage of undervalued and overvalued situations, based on the observation that the investing public often exaggerates events, and he may at times have engineered these overbought and oversold conditions, as noted above.
Ricardo was no miser, however. As quickly as he profited, he moved his wife and family into larger and more expensive housing, and frequently vacationed in Brighton.  He became a country gentleman, buying Gatcomb Park, a large estate, and investing in land, mortgages, and French stocks after retiring around 1815....MORE

I'm pressed for time so I won't do the formal inflation adjustment, here's a quick rule of thumb. Buying power for the 19th and 20th centuries should be multiplied by 20 for each century or a total of 40 for the 200 years.
Taking the midpoint of Skousen's estimate, £725, 000 we get £29,000,000. As the pound was convertible to dollars (via the gold standard) through much of the period at 4.80 we get (and remember this is very rough) $139,200,000. Various inflation calculators might give a result double this.

Cut your losers and let your winners run indeed.