Wednesday, February 29, 2012

"Meth-Smoking Idiot Burns Down 3,500-year-old Tree "

From ecorazzi:
Have you heard the one about the tree that survived over 3,500 year of everything the planet could throw its way only to succumb to the idiocy of a woman smoking meth inside it? Oh boy.

The Senator, a 125-feet pond cypress, the 5th oldest tree in the world, met its end on January 16, 2012 after flames were seen shooting out “like a chimney”. Firefighters helplessly watched as the tree collapsed; ending an amazing life and puzzling investigators. Was it lightning? Arson? Or a meth-smoking idiot?

Meet 26-year-old Sarah Barnes....MORE

EPA in Court Day 2: Plaintiff Attorneys Appear Mentally Retarded While Making Oral Arguments

Either that or we are watching recent stroke victims attempt to articulate the simple argument that the EPA rewrote the Clean Air Act, something usually considered a no-no.
Good grief.

First up some backround from Bloomberg:
EPA’s Greenhouse Gas Rules Are Illegal, Opponents Tell Appeals Court Panel
The U.S. Environmental Protection Agency’s limits on industrial emissions of greenhouse gases including carbon dioxide are illegal and must be thrown out, opponents told federal judges in Washington.
A three-judge panel of the U.S. Court of Appeals today considered challenges to the agency’s rules determining which polluters are covered and when states and industries must comply with regulations curtailing the use of greenhouse gases.

“The agency crossed the line from statutory interpretation to statutory revision,” Peter Keisler, a lawyer for the National Association of Manufacturers, told the judges. He said the EPA violated the law when the agency raised emissions thresholds far above what Congress called for.

Companies such as Massey Energy Co. (MEE), business groups including the U.S. Chamber of Commerce and states led by Texas and Virginia are seeking to stop the agency through more than 60 lawsuits. Some argue that the agency relied on biased data from outside scientists, including some affiliated with the so-called climategate scandal.

The arguments were split into three parts. The panel heard arguments yesterday on the agency’s finding that greenhouse gases are pollutants that endanger human health. They also heard arguments against a 2010 rule on motor vehicle emissions that opponents said improperly sets greenhouse-gas standards for stationary sources, such as steel mills and power plants.

‘Tailoring Rule’
Today, the court considered challenges to the EPA’s “tailoring rule,” which limits the businesses covered by carbon regulation and phases in controls.

The agency aims to phase in industrial polluters covered by the carbon rules through 2016. The EPA argued in court filings that the tailoring rule is acceptable under the Clean Air Act and necessary to avoid states being overrun with permit requests....MORE 
And from Greenwire:

Judges' questions put heat on EPA, rule challengers
Both U.S. EPA and its adversaries faced tough questioning this morning on the second day of arguments over the lawfulness of the agency’s greenhouse gas regulations…

Today, the focus was on the “tailoring” rule, which interprets the Clean Air Act in such a way that only major polluters are required to obtain permits for greenhouse gas emissions. The court was considering it alongside the “timing” rule, which required that new controls of greenhouse gas emissions from stationary sources would be triggered on Jan. 2, 2011, and the challenge to older regulations.

The tailoring rule is considered the most vulnerable to legal attack because EPA was forced to effectively rewrite the Clean Air Act in order to prevent the regulations from applying to nonindustrial sources like schools and apartment buildings.

A key issue is whether the petitioners — industry groups, utilities and states — have standing to challenge the rule because they are not currently injured by its impact and would not be affected if the court struck it down. All that would mean is EPA would have to regulate more polluters.

All of the judges expressed some belief that standing could be a major obstacle for petitioners.

Chief Judge David Sentelle in particular appeared incredulous that the remedy the petitioners seek is effectively to give EPA more power to regulate.

“Counsel, that doesn’t even make good nonsense,” he told Texas Solicitor General Jonathan Mitchell....

Happy Continued Fraction Day

From God Plays Dice:
Why do we have February 29 this year, and not in other years? Of course it’s because the ratio between the Earth’s orbital period and its rotational period is not an integer, but rather is about 365.242199. Let’s call this 365+α. And this is approximated well by the rational number 365{1 \over 4}, the first convergent of the continued fraction. The convergents of continued fractions give, in a sense, the “best possible” rational approximations to irrational numbers.

Yury Grabovsky observes that the next few convergents to α are 7/29, 8/33, 31/128, 163/673, and indeed the Iranian calendar uses 8 leap years in 33. This is a bit harder to compute in one’s head. 31/128 would be pretty easy to work with — a year is a leap year if it’s divisible by 4, except not if it’s divisible by 128.
(Implicit in the Gregorian calendar rules — no leap years in years divisible by 100, except if they’re divisible by 400 — is the rational approximation 97/400, but that’s not a convergent.)

Therefore I nominate February 29 (in years when it occurs) as a new holiday, to be observed by the consumption and/or use of things that rely on rational approximations to irrational numbers.
What are these, you ask?

1. go look at the moon. The Metonic cycle is a period of 19 years, which is very nearly 235 (synodic) lunar months. So the full moon, for example, falls on (approximately) the same day on the solar calendar in the year N and in the year N + 19. The Hebrew calendar has seven leap years in nineteen, where the leap years have 13 (lunar) months instead of twelve. The Islamic calendar has twelve lunar months in each year, with the result that they fall backwards 235-12 \times 19 = 7 lunar months in nineteen lunar years. Oh, and on February 29, 1936 the phase of the moon was the same as it is today.

2. play some music. Western music theory is based on the existence of the circle of fifths, which in turn is based on the fact that $(3/2)12 \approx 2^7$ — that is, twelve perfect fifths is very nearly seven octaves. Taking logs this becomes $\log_2 3 \approx 19/12$. The fact that this is not the best approximation ever — it’s off by $0.0016$ — as well as the desire to incorporate other consonances into musical tuning caused lots of trouble....MORE

"Recent TVIX Volume and VIX Futures Volume" (TVIX; VXX; UVXY; VIX)

UVXY (ProShares Ultra VIX Short-Term Futures ETF) is the best dirty hedge for the TVIX.
From VIX and More:
I managed to let a couple of days pass without mentioning the suddenly white-hot topic of the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) only to discover at a Bloomberg Volatility Symposium in San Francisco last night that there appears to be an insatiable demand for more information on the subject. While the links below should present the lion’s share of the background and context about the key issues related to TVIX, today I am presenting some additional information related to the volume of TVIX for the first two months of 2012 and the corresponding volumes in the front month and second month VIX futures. The graphic below plots daily volume in TVIX (solid black line) on the right Y-axis and volume in the front two months of VIX futures, using settlement prices from the CBOE Futures Exchange (CFE), on the left Y-axis.

Once again I will let the graphic do most of the talking, but clearly when Credit Suisse (CS) announced a suspension of new creation units in TVIX after the close of the regular trading session on February 21, volume in both TVIX as well as the front month (dotted dark blue line) and second month (dashed medium blue line) dropped dramatically, almost in lockstep....MORE
"TVIX Premium Spikes to 13%" (TVIX; VIX; VXX; UVXY)
Perhaps Monsieur Would Like a Few Après-dîner TVIX Calls? (VIX; TVIX)
"Vix dog millionaire" (VXX; TVIX)
"The Vix feedback loop, analysed" (VXX; TVIX; XIV; XXV)

Cost Of Living Now Outweighs Benefits

WASHINGTON, DC—A report released Monday by the Federal Consumer Quality-Of-Life Control Board indicates that the cost of living now outstrips life's benefits for many Americans.

"This is sobering news," said study director Jack Farness. "For the first time, we have statistical evidence of what we've suspected for the past 40 years: Life really isn't worth living."

To arrive at their conclusions, study directors first identified the average yearly costs and benefits of life.

Tangible benefits such as median income ($43,000) were weighed against such tangible costs as home-ownership ($18,000). Next, scientists assigned a financial value to intangibles such as finding inner peace ($15,000), establishing emotional closeness with family members ($3,000), and brief moments of joy ($5 each). Taken together, the study results indicate that "it is unwise to go on living."...MORE
HT: FT Alphaville

Abound Solar Shuts Plant, Fires 180; First Solar is Dead Money (FSLR)

First up, Bloomberg:
Abound Solar Shutters Plant, Raising Specter of Solyndra Failure
Abound Solar Inc., which received a $400 million U.S. loan guarantee to build two factories, shut down production and fired 180 people after panel prices fell by half last year.

Abound stopped making its first-generation solar panels and will refit its manufacturing lines to produce more efficient products, the Loveland, Colorado-based company said yesterday in a statement.

The move is a response to the same forces that drove Solyndra LLC into bankruptcy after it received a $535 million loan guarantee from the same U.S. Energy Department program, said Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston.

“Abound is facing the same headwinds -- cheap crystalline silicon from China -- that made Solyndra a political football,” Molchanov said today in an interview. “I think they made the right decision to conserve cash and focus on improving efficiency so they can ramp up when they’re ready.”

The company expects to resume full production by year-end with cadmium-telluride panels that will be able to convert 12.5 percent to 13 percent of the energy in sunlight into electricity. Its current products have conversion efficiency rates of 10.5 percent....MORE 
And from TheStreet:
Why First Solar Is a Worthless Stock
First Solar(FSLR) shares aren't going to zero, but the stock is worthless. 

The solar company has left investors with way too many questions and too few answers and is dead money in 2012 as the company continues to lay out a vague long-term plan for 2013 to 2015.

Solar has always been a better trade than investment, and the action in First Solar in 2012 is a typical sign of that maxim: Shares rallied to as high as $50 earlier this year, or by 35%, after falling by 70% last year. If shares were oversold they were then quickly overbought and after Wednesday morning's 10% drop, shares are now slightly negative in 2012 trading.
If solar remains good for a trade from time to time, it remains a pass based on 2012 fundamentals which imply profitless years for the Chinese solar companies even as shipments grow, and a year of transition for First Solar.

First Solar may now be back at square one in terms of 2012 trading, but it's not back at square one in terms of either its short-term or long-term outlook. The company seemingly cleared the decks in its December 2011 guidance, after ousting former CEO Rob Gillette and bringing Chairman Michael Ahearn back in as interim CEO. But things now look even worse, or as Stifel analyst Jeff Osborne wrote, a "bleaker outlook" than just two months ago.

"We did not get a sense that the company is firmly on the path to navigate the current challenging environment," Stifel's analyst wrote.

And go figure: Without a permanent CEO in place, First Solar said it will soon unveil a three-year strategic plan that should show investors where it is going and how it will succeed. How can First Solar be cementing a three-year plan that it will unveil in May when it is still conducting a search for a CEO?...MORE

Winners and Losers From Higher Gasoline Prices

Losers first.
From Yahoo's Contrary Indicator blog:
Wal-Mart. Analysts largely miss the boat when they conclude that higher gas prices will eat into all retail spending. A hedge fund manager whose commute consists of a few miles round trip from his home in the back country of Greenwich, Connecticut, to the town's train station won't blow any less dough at Tiffany's or The Palm if gas goes to $5 per gallon, or even $10 per gallon. The millions of workers up and down the eastern seaboard who commute by train, bus, subway, boat or bike are similarly immune from spikes in oil. The Whole Foods on Houston Street in Manhattan won't sell any less wild salmon or precious cheeses due to higher gas prices. But if you're a retailer who caters to people with limited incomes who generally rely on cars for all their transport, and who must travel long distances to get to the store — well, that's another story. For this segment of the population, the cash for groceries and gas tends to come out of the same pool. An extra $10 per week spent at a Mobil station in Kansas is likely to result in $10 fewer spent at Wal-Mart.

Airlines (and their passengers). U.S. airlines have continued to struggle even as the economy expands, in part because fuel is a very large fixed cost that airlines are largely powerless to control. When fuel prices rise, airlines face the unenviable choice of passing the higher costs through immediately to their customers (thus alienating them further), or eating the costs, thus sapping their profits. Companies can protect themselves against spikes in the price of oil by hedging. But that costs money, and involves the use of derivatives. This great chart from Bloomberg on fuel hedging shows that, in the fourth quarter of 2011, American Airlines hedged only 52 percent of its consumption while JetBlue hedged 45 percent of its consumption.

The Kwik-E-Mart. Consumers often wind up expressing their rage over high gas prices at gas stations. But the convenience stores/gas stations that gobble up large chunks of our paychecks are also victims. When gas gets very expensive, people drive less and buy smaller amounts of gas. That's bad for business. And as the National Association of Convenience Stores (NACS) reminds us, more consumers tend to drive off without paying when gas nears $4 per gallon. Also, as NACS reports, the real money at gas stations lies not in the sale of low-margin toxic stuff you put in your gas tank, but in the sale of high-margin toxic stuff you put in your mouth: soda, slushies, nasty hot dogs. As NACS notes: "Motor fuels sales accounted for more than two-thirds of the convenience store industry's sales in 2010 (66.9 percent). However, because of low margins, motor fuels sales contributed less than one-third of total store gross margins dollars (26.4 percent)." When you have to pay $60 instead of $50 to fill up, you're less inclined to shell out for Doritos.

Refiners. High oil prices are great for the upstream components of the business (i.e. crude extraction), but aren't so great for the downstream components, like refining, distribution and retail. Oil refiners perform best when the price they pay for crude oil is low and the demand for finished product is high. The difference between the two is known as the cracking spread. But when crude prices rise sharply, it means refiners pay more for their key input as local demand tapers off. And that tends to compress cracking spreads. (Here's a Bloomberg chart of cracking spreads.) As this one-year chart of the big refiner Valero shows, rising crude prices don't necessarily produce a gusher of profits for refiners.

Daniel Gross is economics editor at Yahoo! Finance....MORE
HT: Abnormal Returns

Private Equity: Fall Line Capital Raising $200 Mil. Farmland Fund

From PE HUB:
A lot of VCs change jobs at some point. But Eric O’Brien, former managing director at Lightspeed Venture Partners, seems to be pursuing one of the more dramatic career switches.

That, at least, is the impression from a securities filing this morning, which lists O’Brien as managing member of Fall Line Farms Fund I, a Palo Alto, Calif.-based partnership that will buy and develop farmland. So far, Fall Line has raised $11 million toward a target of $200 million, according to the filing.

O’Brien had not responded to a request for comment as of press time. His profile at AngelList lists him as founder of Fall Line Capital, which is described as “a PE fund dedicated to acquiring farmland and improving its productivity through the application of technology and cutting edge best practices.”

Also listed as a managing director is Clay Mitchell, owner of The Mitchell Farm, a 2,500 acre farm in northeast Iowa that produces corn and soybeans, with a focus on soil conservation practices. Mitchell, a Harvard biomedical engineering grad, describes the approach on the farm’s website as a “combination of no-till, controlled-traffic farming, farmwide wireless LAN, centimeter-level automation of seed, fertilizer and chemical application, and strip-intercropping."...MORE

Tuesday, February 28, 2012

Day 1: "Appeals Court Hears Challenge to EPA Rules "

From the Wall Street Journal:
Judges on a U.S. appeals court appeared skeptical Tuesday of industry challenges to the Environmental Protection Agency's 2009 finding that greenhouse gases endanger public health and welfare, a key determination for Obama administration rules regulating carbon-dioxide emissions.

The EPA finding set the stage for the government's first greenhouse-gas emissions standards on cars, set to begin with the 2012 model year, and new rules on permits for power plants and factories.

The Washington-based U.S. Court of Appeals is hearing two days of oral arguments on the EPA rules. Industry groups representing chemical, energy, farming and mining companies, as well as Republican lawmakers, are among those challenging the rules. They say the regulations are the most costly, burdensome and precedent-setting regulations the agency has ever issued.

The outcome of the cases could determine whether the EPA can press forward with current and future greenhouse-gas regulations.

During the first day of court hearings, members of a three-judge panel said they were required by law to give deference to the EPA's finding that greenhouse-gas emissions were very likely responsible for most global warming over the last half-century, and were a threat to humans and the environment.

To prevail, the industry challengers would have to show the EPA's findings were arbitrary, capricious or an abuse of government discretion.

"You seem to be asking us to determine that the EPA is incorrect, but that is not the standard," Chief Judge David Sentelle told a lawyer for the challengers. Such a determination "would not be enough to win the case for you," he said.

The appeals court also expressed doubts about challenges to the EPA's ensuing greenhouse-gas standards for cars. The challengers are primarily concerned about how the auto rules triggered EPA permitting regulations on greenhouse-gas emissions from industrial facilities. Auto makers support the rules.
Most of the challengers' arguments Tuesday appeared to meet with resistance from the court....MORE
Tomorrow: the "tailoring" rule. 

"First Solar Q4 Misses By a Mile, Cuts Year View" (FSLR)

The headline and post are from Tiernan Ray at Barron's Tech Trader Daily:
Shares of First Solar (FSLR) are down $1.70, or 5%, at $34.70, after the company this afternoon reported Q4 revenue and profit per share well below expectations, and cut its outlook for the year.

Revenue in the three months ended in December rose 8%, year over year, but fell 34%, quarter to quarter, to $660 million, yielding EPS, excluding some costs, of $1.26.

Analysts had been modeling $773 million and EPS of $1.59....MORE
In late after-hours trade the stock is now down 7.23% at $33.77. In other news:

Attention Entrepreneurs: "A Secondary Market for the iPad 2?"

If Apple releases the 3 next week the sweet spot for selling is...yesterday.
From Knowledge@Wharton:
Sales of the new and used Apple iPad 2 have soared in recent days after it was reported that the iPad 3 may be launched in the first week of March. The rash of iPad 2 sale listings on eBay, Nextworth and Gazelle, among other places, illustrates how an anticipated new product helps create “secondary markets” for older models. But these markets have a limited upside, and don’t necessarily translate into bigger gains for new offerings, say Wharton faculty experts.

As of Monday morning, eBay alone had 2,756 iPad sale listings, and crossed 3,000 listings on some days last week. Do these listings help to create new Apple users, or do they just reinforce users’ loyalty to eBay and the “buy it used” ethos? Wharton marketing professor Jonah Berger says secondary markets are good because they give a wide range of consumers a chance to try a brand’s products. At the same time, companies don’t make any money from customers who buy used products, he notes.

“Most companies would rather extend the product line to have a lower-priced option that reaches consumers who might otherwise have thought about buying used [products],” says Berger. ”Apple did this with the iPhone, for example, dropping the price of the older phones once new ones came out.”

According to Wharton marketing professor Barbara E. Kahn, these secondary markets mostly bolster loyalty to resell sites because people buying used iPad 2s are getting a big discount on the original sticker price. Also, eBay shoppers are generally different from those who rush to buy the newest models, although these secondary markets could become quasi marketing agents for newer models, she adds....MORE

"Lawyers descend en masse for arguments on greenhouse gas rules "

Apparently the judges were asking very pointed questions.
This is a day old but will have to do until later this afternoon. As I said yesterday the "tailoring" rule is the most important of the four questions the court is going to address.
From E&E Publishing:
If the importance and complexity of a court case can be established based on the number of lawyers at the lectern, then the battle over the Obama administration greenhouse gas regulations is of epic proportions.
When the three interlinked cases are argued over two days at the U.S. Court of Appeals for the District of Columbia Circuit this week, no fewer than 18 different attorneys will advocate for their clients before the three-judge panel.

By contrast, a typical appeals court argument over a U.S. EPA regulation usually takes less than an hour and tends to involve no more than a handful of attorneys.

In addition to the 18 attorneys who will actually speak -- representing EPA, industry groups, states and environmental organizations -- there are dozens behind the scenes who have been working on the litigation.
"This is one of the most complex and consequential sets of cases in the history of environmental law," said Michael Gerrard, director of the Center for Climate Change Law at Columbia Law School. "It involves not just one project, industry or regulation, but a whole structure of interlocking regulations that affect broad swaths of the economy."

There are four principal rules under the legal microscope before the court, although two, the "timing" and "tailoring" rules, have been consolidated into one case....MORE

"World Bank Warns: China is a Ticking Time Bomb "

In other news...

Just kidding. Here's MarketWatch via Economic Policy Journal:
Paul Farrell writes:
...just when you though it couldn’t get worse: The World Bank warns that China is headed for collapse. Imagine China crashing. The country holding over a trillion of America’s debt. The same China that’s running all over the world like a 19th century Wild West robber baron, using reserve dollars they got from years of financing America’s costly wars and cheap toys.

Adding insult to injury, China’s now using these reserve dollars to buy and hoard huge land resources, commodity futures and equities worldwide. Yes, China’s rubbing it in: China’s future is being paid for at the cost of America’s future...the World Bank’s game-changing new report predicting China’s headed for a major collapse that will sabotage the global economy.

Yes, a collapse of China. And what’s really fascinating is how China’s predictable doomsday scenario parallels America’s. Yes, we know America’s elite Super Rich gained virtual control over Washington the past three decades. And now, ironically, that same bizarre capitalism is sabotaging the goose that laid the golden egg for China’s Super Rich too....MORE

"USDA warns of corn prices falling back below $5"

If that happens every farmland mortgage approved in the last year goes underwater. Throw in diesel at six bucks and there could be some real problems.
From Agrimoney:
US farm officials signalled expectations that corn prices will return below $5 a bushel as they forecast a doubling in domestic inventories of the grain, boosted by a record harvest.
The US Department of Agriculture, updating outline estimates unveiled last week, forecast the US corn crop soaring 15% to top 14bn bushels for the first time this year, backed by growth in yields as well as sowings.
 Consumption will hit a record high too, supported by expansion at US pork and poultry farms, by growing exports, and the end of a long-term decline in the use of corn-based sweeteners by domestic drinks groups.
Even so, the harvest will cover use with some 800m bushels to spare, allowing a "sharp recovery" in inventories.
Stocks will end 2012-13 at 1.62m bushels, more than doubling year on year, and ending a two-season spell when historically low inventories have supported prices.
'Sharply lower prices'
Indeed, the recovery in supplies will put "substantial downward pressure on futures and cash corn prices" in 2012-13, with values set to drop "sharply lower by fall harvest"....MORE

Chesapeake and 3M Developing Compressed Natural Gas Tanks (CHK; MMM)

This stuff is happening right now (more precisely, one week ago).
Press release via MarketWatch:

3M and Chesapeake Energy Corporation Partner to Create New CNG Tank Technology
ST. PAUL, Minn. & OKLAHOMA CITY, Feb 21, 2012 (BUSINESS WIRE) -- 3M MMM -0.19% and Chesapeake Energy Corporation CHK +0.20% today announced an agreement to collaborate in designing, manufacturing and marketing a broad portfolio of compressed natural gas (CNG) tanks for use in all sectors of the United States transportation market. Currently the fuel tank on a CNG vehicle is its most expensive single component. The new CNG tanks developed through the 3M and Chesapeake partnership will reduce costs while increasing performance. Less expensive tanks will enable greater market adoption of CNG as an alternative automotive fuel source. 

3M's CNG tank solution combines the company's proprietary liner advancements, thermoplastic materials, barrier films and coatings, and damage-resistant films to transform the pressure vessel industry. Using nanoparticle-enhanced resin technology, 3M(TM) Matrix Resin for Pressure Vessels, 3M will create CNG tanks that are 10 to 20 percent lighter with 10 to 20 percent greater capacity, all at a lower cost than standard vessels....MORE
 And that boys and girls is how you write a press release.
Lighter, better, cheaper. Nary a mention of insolvency.

Deutsche Bank: TVIX Explosion Drives Vol-of-vol Higher (TVIX; VIX; VXX)

Alphaville probably had this but if so I missed it. Strat paper dated Feb. 23.
From Volatility Futures and Options:
I just came across an excellent paper from DB about TVIX. There are significant structural changes in the market with increasing TVIX AUM, and its impact on all other volatility instruments.

The main takeaway from the article is that leveraged products are short-gamma - requiring ETN provider to buy after positive move in the underlying, and sell after negative move - whether it is bull or bear. Natural hedge for such product, a long gamma ETN, would require leverage between 0 and 1, and does not exist, or likely to ever appear in the market.

Mandy Rice-Davies Alert: Christina Romer Says Maximum Tax Revenue at 84% Marginal Rate

She would, wouldn't she.*
From Slate:

The Laffer Curve Bend At 84%
If you tax cigarettes, then cigarette tax revenue tends to rise. At the same time, the higher taxes may inspire people to quit smoking or to buy packs on the black market both of which tend to make revenue fall. There's some revenue-maximizing price point out there beyond which higher taxes produce lower revenue. And the same, one would think, applies to income taxes. But where is that number? Christina Romer and David Romer have a new paper looking at evidence from the 1920s and 1930s and find that the revenue-maximizing rate on the highest earners is extremely high—over eighty percent. Among the top 0.05 percent of the income distribution they find an elasticity of taxable income of 0.19 percent which implies "implies that tax revenues would be maximized with a tax rate of 84 percent; that is, you could raise taxes up to 84 percent before people’s reduced incentives to make money would compensate for the higher tax rates."...MORE
*For British politicians of a certain age [often referred to as octo or nona-genarians -ed] the scandal surrounding Secretary of State for War John Profumo's affair with the alleged mistress of a Russian spy was highlighted by the testimony of Miss Rice-Davies, a friend of the alleged mistress, Christine Keeler.
From Wikipedia:

While giving evidence at the trial of Stephen Ward, charged with living off the immoral earnings of Keeler and Rice-Davies, the latter made a famous riposte. When the prosecuting counsel pointed out that Lord Astor denied an affair or having even met her, she replied, "Well, he would, wouldn't he?"
We've tried to keep the phrase alive, using it about once per year:

Gore Says Markets are Key in Battle to Combat Climate Change
"Well, he would, wouldn't he?"
Mandy Rice Davies*
ICE, Skating on Thin

Warning: Mandy Rice-Davies moment ahead.
"...we do not believe that a complete overhaul of the current regulatory structure is either warranted or advisable."
UN Can Regulate Emissions Trading Without Conflict of Interest
All together now: A Mandy Rice-Davies Moment!*
Major Problems at California's Public Pension Fund, CalPERS And: A Mandy Rice-Davies Moment!
One of these days I'll have to tell the story of how CalPERS got to this point. It is an ugly tale. For now we'll just post the slow motion train wreck.
On a positive note: Mandy Rice-Davies* moment ahead!  
One of my favorite usages:
Lord McIntosh of Haringey:  My Lords, I am proud of many things that this Government have done. I pause to anticipate the interjection—"He would say that, wouldn't he?"...
Lords Hansard text for 6 Feb 2002

Oil: Oppenheimer's Fadel Gheit Calls for $160-$170 Brent

From Yahoo's Daily Ticker:
Oil Prices Are Going “Much Higher”: Blame Iran…and Speculators, Gheit Says
Oil and gas futures dipped Monday but the relentless surge in energy prices is very likely to continue in the days and weeks ahead, according to Fadel Gheit, senior energy analyst at Oppenheimer.

In fact, Gheit believes oil prices could go "much higher" — with Brent crude surging into the $160-$170 per barrel range vs. around $124 currently — in the not too distant future because of ongoing tensions with Iran.
Such a surge would undoubtedly put further upward pressure on gasoline and other refined products.

A supply disruption in the Strait of Hormuz is a "nightmare scenario" and the situation with Iran is "coming to a head," he tells Henry in the accompanying video. Tensions between Iran and the U.S. and its allies have been rising in recent weeks over concerns about Iran's nuclear capabilities. On Friday, the International Atomic Agency reported Iran has increased its production of enriched uranium, the latest in a series of events that have alarmed Western policymakers, most notably in Israel, about Iran's capacity to build nuclear weapons....MORE, including video

Whoops: Buffett Says Energy Future Holdings Bet at Risk of Being Wiped Out (BRK.B)

For our younger readers, in 1983 and '84 Mr. Buffett famously bought the bonds of Washington Public Power Supply Service (WPPSS pronounced Whoops).*
From Bloomberg:
Warren Buffett, who bought about $2 billion in bonds of power company Energy Future Holdings Corp., said the investment is at risk of losing all its value after natural gas prices fell.

Buffett’s Berkshire Hathaway Inc. (BRK/A) wrote down the debt by $390 million last year, following a $1 billion impairment in 2010, the billionaire said in his annual letter to shareholders posted Feb. 25 on the company’s website. The market value of the investment was $878 million at the end of December, he said.

“If gas prices remain at present levels, we will likely face a further loss, perhaps in an amount that will virtually wipe out our current carrying value,” wrote Buffett, Berkshire’s chairman and chief executive officer.

“Conversely, a substantial increase in gas prices might allow us to recoup some, or even all, of our writedown.”

Buffett, 81, invested in the bonds in 2007 after Energy Future, then called TXU Corp., was bought by KKR & Co. (KKR) and TPG Capital in the largest leveraged buyout. The private-equity firms wagered that gas prices would rise, pushing up wholesale electricity rates. Instead, prices fell amid an expansion of drilling, forcing down what Energy Future charges in unregulated markets for power produced from sources including coal....MORE 
*The 1984 Letter to Shareholders has a short treatise on  bond valuation:

Washington Public Power Supply System

     From October, 1983 through June, 1984 Berkshire’s insurance 
subsidiaries continuously purchased large quantities of bonds of 
Projects 1, 2, and 3 of Washington Public Power Supply System 
(“WPPSS”).  This is the same entity that, on July 1, 1983, 
defaulted on $2.2 billion of bonds issued to finance partial 
construction of the now-abandoned Projects 4 and 5. While there 
are material differences in the obligors, promises, and 
properties underlying the two categories of bonds, the problems 
of Projects 4 and 5 have cast a major cloud over Projects 1, 2, 
and 3, and might possibly cause serious problems for the latter 
issues.  In addition, there have been a multitude of problems 
related directly to Projects 1, 2, and 3 that could weaken or 
destroy an otherwise strong credit position arising from 
guarantees by Bonneville Power Administration.

     Despite these important negatives, Charlie and I judged the 
risks at the time we purchased the bonds and at the prices 
Berkshire paid (much lower than present prices) to be 
considerably more than compensated for by prospects of profit.

     As you know, we buy marketable stocks for our insurance 
companies based upon the criteria we would apply in the purchase 
of an entire business.  This business-valuation approach is not 
widespread among professional money managers and is scorned by 
many academics.  Nevertheless, it has served its followers well 
(to which the academics seem to say, “Well, it may be all right 
in practice, but it will never work in theory.”) Simply put, we 
feel that if we can buy small pieces of businesses with 
satisfactory underlying economics at a fraction of the per-share 
value of the entire business, something good is likely to happen 
to us - particularly if we own a group of such securities.

     We extend this business-valuation approach even to bond 
purchases such as WPPSS.  We compare the $139 million cost of our 
yearend investment in WPPSS to a similar $139 million investment 
in an operating business.  In the case of WPPSS, the “business” 
contractually earns $22.7 million after tax (via the interest 
paid on the bonds), and those earnings are available to us 
currently in cash.  We are unable to buy operating businesses 
with economics close to these.  Only a relatively few businesses 
earn the 16.3% after tax on unleveraged capital that our WPPSS 
investment does and those businesses, when available for 
purchase, sell at large premiums to that capital.  In the average 
negotiated business transaction, unleveraged corporate earnings 
of $22.7 million after-tax (equivalent to about $45 million pre-
tax) might command a price of $250 - $300 million (or sometimes 
far more).  For a business we understand well and strongly like, 
we will gladly pay that much.  But it is double the price we paid 
to realize the same earnings from WPPSS bonds.

     However, in the case of WPPSS, there is what we view to be a 
very slight risk that the “business” could be worth nothing 
within a year or two.  There also is the risk that interest 
payments might be interrupted for a considerable period of time.  
Furthermore, the most that the “business” could be worth is about 
the $205 million face value of the bonds that we own, an amount 
only 48% higher than the price we paid.

     This ceiling on upside potential is an important minus.  It 
should be realized, however, that the great majority of operating 
businesses have a limited upside potential also unless more 
capital is continuously invested in them.  That is so because 
most businesses are unable to significantly improve their average 
returns on equity - even under inflationary conditions, though 
these were once thought to automatically raise returns.

     (Let’s push our bond-as-a-business example one notch 
further: if you elect to “retain” the annual earnings of a 12% 
bond by using the proceeds from coupons to buy more bonds, 
earnings of that bond “business” will grow at a rate comparable 
to that of most operating businesses that similarly reinvest all 
earnings.  In the first instance, a 30-year, zero-coupon, 12% 
bond purchased today for $10 million will be worth $300 million 
in 2015.  In the second, a $10 million business that regularly 
earns 12% on equity and retains all earnings to grow, will also 
end up with $300 million of capital in 2015.  Both the business 
and the bond will earn over $32 million in the final year.)

     Our approach to bond investment - treating it as an unusual 
sort of “business” with special advantages and disadvantages - 
may strike you as a bit quirky.  However, we believe that many 
staggering errors by investors could have been avoided if they 
had viewed bond investment with a businessman’s perspective.  For 
example, in 1946, 20-year AAA tax-exempt bonds traded at slightly 
below a 1% yield.  In effect, the buyer of those bonds at that 
time bought a “business” that earned about 1% on “book value” 
(and that, moreover, could never earn a dime more than 1% on 
book), and paid 100 cents on the dollar for that abominable 

     If an investor had been business-minded enough to think in 
those terms - and that was the precise reality of the bargain 
struck - he would have laughed at the proposition and walked 
away.  For, at the same time, businesses with excellent future 
prospects could have been bought at, or close to, book value 
while earning 10%, 12%, or 15% after tax on book.  Probably no 
business in America changed hands in 1946 at book value that the 
buyer believed lacked the ability to earn more than 1% on book.  
But investors with bond-buying habits eagerly made economic 
commitments throughout the year on just that basis.  Similar, 
although less extreme, conditions prevailed for the next two 
decades as bond investors happily signed up for twenty or thirty 
years on terms outrageously inadequate by business standards. 
(In what I think is by far the best book on investing ever 
written - “The Intelligent Investor”, by Ben Graham - the last 
section of the last chapter begins with, “Investment is most 
intelligent when it is most businesslike.” This section is called 
“A Final Word”, and it is appropriately titled.)

     We will emphasize again that there is unquestionably some 
risk in the WPPSS commitment.  It is also the sort of risk that 
is difficult to evaluate.  Were Charlie and I to deal with 50 
similar evaluations over a lifetime, we would expect our judgment 
to prove reasonably satisfactory.  But we do not get the chance 
to make 50 or even 5 such decisions in a single year.  Even 
though our long-term results may turn out fine, in any given year 
we run a risk that we will look extraordinarily foolish. (That’s 
why all of these sentences say “Charlie and I”, or “we”.)

     Most managers have very little incentive to make the 
decision.  Their personal gain/loss ratio is all too obvious: if 
an unconventional decision works out well, they get a pat on the 
back and, if it works out poorly, they get a pink slip. (Failing 
conventionally is the route to go; as a group, lemmings may have 
a rotten image, but no individual lemming has ever received bad 

"Dow Theory Divergences" (DIA; IYT)

We posted on this a week ago in "Things that Make You Say Hmmm..."Dow Transports Diverge From Industrials" (IYT; XTN)", here's more.
From Slope of Hope:
...Lastly today I wanted to spend some time looking at the current Dow Theory divergence between the Dow and Transports indices. For those of you who aren't familiar with Dow Theory (DT) I'll recap it very quickly by saying that it is one of the oldest schools of TA, that it has been working well for over a century since being first developed by Charles Dow, one of the founders of the Wall Street Journal, and creator of the eponymous Dow Index. The theory behind it is essentially that in a strong uptrend or downtrend both indices need to confirm new highs or lows, and that when one index makes a new high or low that is not confirmed by the other, then it is a signal that a significant top or bottom may be close.

Here's the weekly Dow vs Transports chart over the last 15 years to illustrate that DT divergences are generally seen at most major highs and lows on the monthly chart, with March 2009 being a notable exception. The current divergence is very striking, with Dow over the 2011 highs and Transports still well below:

Looking at these indices on the one year daily chart, you can see that these indices generally track each other well. There was a new high on Transports in July 2011 that was not confirmed by the Dow and that preceded the waterfall last summer. There was no divergence at the October low, though these divergences do appear more reliably at highs than at lows. The current divergence is very striking, and comparable to that seen at the 2000 and 2007 highs.

What's worth bearing in mind however is that this DT divergence would be eliminated as soon as Transports beat the 2011 high, and that significant previous divergences in 2004 and 2010 lasted for months before confirmation. The divergence in 2004 lasted about six months before Dow confirmed with a new high at the end of that year. It is interesting though, and worth keeping an eye on. If SPX should fall below 1292 I would start paying this signal much more attention:


"Grand Jury Is Convened in MF Global Case"

Window dressing or a real effort?
From DealJournal:
Federal prosecutors in Chicago have convened a grand jury to investigate potential wrongdoing surrounding the collapse of MF Global, the commodities firm once run by Jon S. Corzine, according to a regulatory filing.

The CME Group, the exchange operator and for-profit regulator of MF Global, disclosed in its annual report on Tuesday that it had received two subpoenas related to the brokerage firm: one from a federal grand jury in Chicago and another from the Commodity Futures Trading Commission, the regulator heading up the investigation.

The Federal Bureau of Investigation and federal prosecutors in New York are also examining how the firm misused more than a billion dollars of customer money, which has not been recovered....MORE

"Faber Says Stocks Might `Disappoint' After April, May"

From Bloomberg via the Washington Post:
Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for global financial markets, Europe's debt crisis and his investment strategy. Faber also discusses Facebook Inc.'s initial public offering and reports Glencore International Plc is nearing an agreement to combine with Xstrata Plc. He speaks with Susan Li and Rishaad Salamat on Bloomberg Television's "Asia Edge."...VIDEO

General Electric's Leadership on Taxes: 2.3% Effective Rate over Last 10 Years (GE)

Imagination at Work.
The writer somehow avoids mentioning that GE Chairman Jeffrey Immelt is also Chairman of the President's Council on Jobs and Competitiveness.
From the Huffington Post:
General Electric Tax Rate 2.3 Percent Over Decade, Report Finds 

General Electric
Caption: General Electric CEO Jeffrey Immelt seen during a discussion in Washington. D.C. earlier this month. An analysis of GE's taxes shows that the company paid just 2.3 percent of its profits in federal income tax over the past 10 years. 

General Electric again finds itself the focus of a politically-charged battle over corporate taxes.
A new analysis of the mega-corporation's tax filings shows that 2.3 percent of GE's pre-tax profits have gone to the federal government since 2002. That bears repeating: GE has paid an average tax rate of just 2.3 percent over the past decade, according to an analysis by the non-profit advocacy group Center for Tax Justice.

If you'll think back to your high school math classes, you'll recall that 2.3 percent is less than 35 percent. That means GE is paying well below the top marginal corporate tax rate of 35 percent -- the same tax rate that business leaders, politicians and conservative commentators have repeatedly deplored as high enough to impede economic growth....MORE
HT: the HuffPo's Mark Gongloff "Corporations Are People, But Only Sometimes: Seven And A Half Things To Know:"

Great Moments in Corporate Communications: Q-Cells Corrects that "Overindebted, Insolvency" Line in Last Press Release

From the WSJ Europe's The Source blog:
Q-Cells’s Freudian Milestone
Q-Cells SE—a financially ailing German manufacturer of solar energy components—has long been stressing milestone after milestone on its path back to financial health.

But late Monday, the situation seemed to take a turn for the worse. In an English-language press release, after noting another positive achievement, Q-Cells dropped a bomb, saying management considers the company  “over-indebted” and would have to look into filing for insolvency.

But wait; maybe they were getting ahead of themselves. While the possibility may be in the offing, Q-Cells isn’t on the verge of filing for insolvency, they clarified in a phone call before correcting their press release.

The announcement was a Freudian slip that came as a stray paragraph in a press release that Q-Cells sent out to report that creditors had approved a plan to defer the repayment of a convertible bond that would have matured at the end of this month to April 30, giving Q-Cells more time to sort out the remaining debt issues.

The blunder was promptly corrected....MORE

The 20 Richest Ethiopians 2011

Who knew?
From Ethiopian Review:

The following is a list of 20 richest Ethiopians in 2011. The list is compiled by Ethiopian Review Intelligence Unit. Except for a few of the individuals in the list, most of them, particularly the TPLF members, have enriched themselves through corruption and outright thievery. Girma Birru and Tadesse Haile, for example, forced construction companies to make them partners if they want to win bid for government projects. These are the parasites who made Ethiopia one of the poorest nations in the world. Only Eyob Mamo, who owns most of the gas stations in the Washington DC Metro Area, became rich through sheer hard work, business savvy,  and some luck. Omer Ali, Ketema Kebede, and Minwuyelet Atnafu are not affiliated with the ruling party, but they pay huge sums of money to Azeb Mesfin and the other TPLF thugs to keep working inside the country. 

The 20 Richest Ethiopian in 2011

(The net worth amount is in U.S. dollar)

  1. Mohammed Al Amoudi, owner of Midroc Corporation, estimated net worth: $10 billion

  2. Meles Zenawi, self-declared prime minister of Ethiopia, head of the terrorist group Tigrean People Liberation Front (TPLF), estimated net worth: $3 billion

  3. Azeb Mesfin, wife of Meles Zenawi, member of the TPLF politburo, head of the $40-billion Endowment Fund for the Relief of Tigray (EFFORT), partner in several large businesses in Ethiopia, widely known as “the Mother of Corruption,” estimated net worth: $3 billion

  4. Sebhat Nega, former chairman of TPLF, ex-TPLF politburo member, former head of EFFORT, current chairman of Wugagan Bank, owns several buildings and luxury villas in Ethiopia and the U.S., net worth: $2.5 billion

  5. Berhane Gebrekristos, TPLF central committee members, personal investor for Meles Zenawi, paid his wife $4 million in divorce settlement and hush-up money in Washington DC when he was an ambassador, currently deputy foreign minister, uses his diplomatic immunity to smuggle gold and precious stones for Meles, Azeb and himself, estimated net worth: $2 billion.

  6. Samuel Tafesse, owner of Sunshine Construction, partner with Azeb Mesfin, estimated networth: $1.5 billion

  7. Sioum Mesfin, former TPLF regime foreign affairs minister, currently ambassador to China, smuggles marijuana and other types of illicit drugs to Thailand, China and other Asian countries using his diplomatic immunity, estimated net worth: $1 billion.


Monday, February 27, 2012

The Invisible Hand Touches Germany in No-no Place: China Grabs Putzmeister

It's part of a national strategy.
From Der Spiegel:

Buying Germany's Hidden Champions
Takeover Could Signal New Strategy for China
Concrete pump manufacturer Putzmeister is the first top-tier German company to be acquired by a Chinese company eager to get its hands on Western know-how, but it is unlikely to be the last. The acquisition could be the start of a new strategy as China tries to transform itself into a high-tech economy. And the Germans might even benefit too.

Is there a greater insult for a business owner in Germany's famously house-proud Swabia region than being told its facilities are too dirty? If there is, it would have to be the accusation that he has sold his life's work to the communists.

Karl Schlecht has had to live with this verdict since the Friday before last. Schlecht, 79, has sold the company that he founded, the concrete pump manufacturer Putzmeister Group, to its rival Sany, a construction machinery giant from the southern Chinese city of Changsha.

The deal, hammered out in secret, has triggered a "state of shock" at Putzmeister headquarters in Aichtal near Stuttgart, says a member of the company's works council: "Not even the supervisory board was informed." On Monday of last week, 700 Putzmeister employees gathered in front of the factory gates to protest the sale to the Chinese.

In the meantime, company founder Schlecht went on a tour of China, at the invitation of the purchasers. A butler attended to his needs in a luxury guesthouse in Changsha, and Sany Chairman Liang Wengen put one of his four Maybach limousines, complete with a chauffeur, at Schlecht's disposal. The German guest was also flown in the company helicopter to the birthplace of the former Chinese dictator, Mao Zedong.

'Monumental Stupidity'
Schlecht cannot understand the consternation of his employees in Aichtal. He calls their reaction "monumental stupidity." After touring the Sany plant, Schlecht is convinced that what Sany is doing in China is "something we can only dream of," and that the takeover was the best thing that could have happened to Putzmeister. The Swabian native was also impressed by the Chinese facilities. "It was as clean as a whistle there," he says....MORE
Putzmeister to Fukushima

...The crane is so big it needs to fly on the world's biggest cargo plane, the Russian-built Antonov 225, and requires special permits. Along with the American pump,a 190-foot pump is being sent from Vietnam and two 203-foot pumps are going from Germany. None of the pumps can be returned because all will be too contaminated by radiation....

Things to Talk About on Your FT Alphaville Fishing Trip: "Ten reasons why Tamworth should be the new capital of England"

You could do the whole Oxford Union at Michaelmas thing: "This House has no confidence in Her Majesty's Government" with a segue to:
In tough times we need big ideas – and here's one the whole country can get behind

Every day the government announces a new initiative to steer the country out of recession, each one stupider and more footling than the last. What next? Single parents forced to register as limited companies? National Rolled-Up Sleeves Day? A silver jubilee £10 note with Adele's head on it?

That shower of gormless berks in the cabinet, look at them. Not a clue. Round and round they go on the media carousel, taking it in turns to be interrupted by John Humphrys, jabbering about a "vision for the future". Vision! A SEA CUCUMBER has more vision than this government.

History teaches us that tough times call for BIG IDEAS. Inspirational, forward-looking, optimistic, daring ventures the whole country can get behind. Which is why I am proposing that we relocate the capital of England to Tamworth in Staffordshire. Here are 10 reasons why.
1 London's turn is up. It has been the capital of England since the 12th century. Enough is enough. Samuel Johnson said: "When a man is tired of London he is tired of life; for there is in London all that life can afford." Yeah, no disrespect mate, I'm sure that sentence made perfect sense in the 1760s. But someone looking for a furnished flat in Zone 2 today might put "life" "tired" and "afford" in a totally different order. Let's move the capital city somewhere cheaper. London can continue to flourish as a world class destination for global tourism, centre of banking excellence, playground for foreign gangsters, setting for the BBC's popular Sherlock, etc. A new capital would also neatly resolve the ancient squabble about whether Birmingham or Manchester is England's second city. Let's make LONDON the second city.

2 Tamworth was England's original capital. It would be an inspired act of restorative historical justice to return this unassuming Midlands town (currently home to "the UK's first full-sized real-snow indoor ski slope") to its 8th-century glory. The mighty Offa, King of Mercia and All England, had a palace there, built a bloody great dyke to keep the Welsh out, had the southern ponces of Wessex and Anglia firmly under control for a while and was on excellent terms with the Muslim world. Happy days.

3 It would generate a massive economic stimulus. I've done some preliminary paperwork on this and I calculate it will cost roughly £27 trillion to build a proper new capital city. Imagine the number of jobs created, the construction activity, the sheer economic momentum. Instant recovery.

4 A new geo-political era. Once Scotland goes independent, will Wales and Northern Ireland be far behind?New Tamworth would be much closer geographically to the former United Kingdom than Olde Londonne. Tamworth's bang in the middle of legendary "middle England" so politicians would presumably be thrilled to relocate from Westminster.

5 Rethinking the monarchy. New capital, new palace, a new system for electing the king and queen of plucky little England. Perhaps yearly, by telephone vote. Better still, we could scrap counties and revert to the old Anglo-Saxon Heptarchy. Imagine. Seven kingdoms, seven lots of elected royals. A tourism goldmine. There could be paintballing wars and mead-quaffing contests and proper regional television again. God save the kings and queens!...MORE at the Guardian
We mentioned Come fish with Alphaville in the post bestowing today's prestigious Climateer Headline of the Day award.

That made two in six days for the Alphavillians, the first being last week's "Climateer Headline of the Day: Strange Loops Edition"

Gasoline Prices to Crush 'Blue' States, Dems Call for Strategic Petroleum Reserve Releases

First up, Bruce Krasting:
...The USA has evolved into a two-tier gas market. The supply of crude from Canada and the Bakken fields has created a lower cost of supply for the central portion of the country. This differential is most notable in the market spread between WTI (a futures contract that settles physical delivery in Oklahoma) and LLS (Louisiana Light Sweet Crude) - the pricing of crude for the big Gulf refineries....

Consider this map of the country. The green area is where the Canadian crude is helping to keep prices lower. The dark red areas are those that are dependent on the high-priced, imported crude.

Gas prices are north of $5 in southern California today, but they are as low as $2.95 in Ft. Collins Colorado.

While this may make the folks in Colorado and North Dakota happy, it will crush the national economy. It doesn’t matter what happens in Co. or N.D., they have (relatively) no cars.

A few years ago, the Highway Transportation Department put out a report on registered vehicles by state. The total of all registered vehicles was 244,000,000. Of that total, 33 million were on the roads of California (13%), only 1.8 million (0.75%) were in Colorado, and a measly 700k (0.25%) are in North Dakota. The total of vehicles on the road in the states that are in red in the above map comes to 137 million. Fully 56% of all vehicles are in high cost states. Only 15 million vehicles (6% of total) are registered in the green states!

State GDP is directly correlated with vehicle registrations. The red-colored states, paying the highest prices today, represented 57% of 2010's GDP. Green states, contributed only 8% GDP....MORE 
Due to fears over the situation in Iran, amongst other things, oil prices are at a nine month high, and petrol prices are also at near record levels. These high prices have spurred Democratic Representatives Ed Markey of Massachusetts, Peter Welch of Vermont, and Rosa DeLauro of Connecticut, to write a letter to Obama in order to ask him to use oil stockpiles to help reduce the price of oil in the US. The US holds 696 million barrels of oil, the world’s largest, government owned stockpile, to be used in times of low oil supply.

“This most-recent run-up in prices is primarily the result of fear driving oil markets,” Markey, Welch and DeLauro wrote to Obama. “We urge you to consider again deploying oil” in the reserve “to combat the rapid price escalations resulting from speculation.”...MORE

An Index for the Financial Netherworld: Payday lenders, Pawnshops etc.

From the Washington Post:
Rob Cox and Daniel Indiviglio have created what they call the “Cordray Index” to measure the impact of new regulations on the “netherworld of the money industry”--the payday lenders, pawnshops, and others besides banks that are under new scrutiny from the Consumer Financial Protection Bureau.
These lenders actually benefited from the financial crisis, as banks pushed out subprime customers with poor credit history, forcing them to got to payday lenders and the like. As a result, the 15 companies that make up Cox and Indiviglio’s Cordray Index significantly outperformed the banks in the S&P 500 and the index as a whole:

The assumption is that new regulations from the CFPB will bring these alternative lenders back down to earth. Some listed in the index are facing increasing scrutiny over abusive practices....MORE

As Foretold By the Prophecy: "China May Double Rare Earth Exports" (MCP; REE; AVL)

Drawing on our semi-vast [half-vast? -ed] experience of human nature we said, as early as December 2010:
My short side radar is starting to glow. The perfect play for the Chinese would be to maintain a very tight supply to Japan and the West until MCP, Lynas and REE go into production and then crash the market....
On Feb. 21 Molycorp announced:
Molycorp To Launch Sequential Start-Up of New, State-of-the-Art Rare Earth Manufacturing Facility This Week
Here's today's totally coincidental story, via Bloomberg:
China May Double Rare Earth Exports as Demand Rises on Price
China, the biggest supplier of rare earths, may almost double exports this year and meet quotas set by the government as lower prices stimulate demand.

Chinese exports were 49 percent of the government-alloted quota in the first 11 months of last year because the slowing global economy sapped demand, the Ministry of Commerce said in a Dec. 27 statement. Overseas sales quotas may be virtually unchanged this year at 31,130 metric tons, based on Bloomberg calculations.

“Export quotas may be met this year as overseas demand recovers,” Wang Caifeng, a former official overseeing the rare- earth industry with the Ministry of Industry and Information Technology, said in an interview in Beijing. “High prices last year had deterred purchases and led to inventories’ depletion. Smuggling also hampered exports through illegal channels.”

Rare-earths prices have tumbled since the third quarter as consumers, including makers of electric cars and wind turbines, reduced use. The average price of lanthanum oxide, a rare earth used in rechargeable batteries and refining catalysts, was 129,167 yuan ($20,508) a ton in the fourth quarter, 15 percent less than in the third quarter, according to data from Shanghai Steelhome Information.

Rare-Earth Shares Fall
Molycorp Inc. (MCP), the owner of the largest rare-earth deposit outside of China, fell 2.4 percent to $26.17 at 11:53 a.m. in New York.

Lynas Corp., developer of the world’s largest rare-earths refinery, fell 4.7 percent to A$1.23 in Sydney....MORE
See also:

May 6, 2011 
Goldman Sachs: China to Benefit From Rare Earth Prices until Oversupply in 2013 (MCP; REE; AVL)
July 9, 2011 
People's Daily says China has legal, moral right to curb rare earth exports"
Nov. 1, 2011 
Possible Rare Earth Metal Price Plunge Coming (MCP; REE; AVL

Climateer Headline of the Day: Timely vs. Topical Edition

I'd say it's timely and topical!
(and boy can it catch fish)

From FT Alphaville:

In the category of Best Additional Worry in a Globalised Economy

The nominees are:
Signs of a hard landing in China, looming French elections, the prospect of rising sovereign bond yields, and the threat to oil supplies — lots of issues (other than Greece) have set investors’ nerves a-jangle.

But the Market Oscar goes to… (drumroll)(silence to create tension)(awkward close-ups of nominees)



Also at Alphaville:
Come fish with Alphaville

Cheap BTU's: "Oil to Natural Gas Ratio"

From Bespoke Investment Group:

...The recent divergence between oil and natural gas has caused the ratio between the two to skyrocket.  The average ratio of oil to natural gas prices since 1990 has been 10.  As shown below, the ratio is currently at 43.2....


"Solar: Cowen Cuts Ratings On FSLR, TSL, STP, SPWR"

Stone is one of thetwo or three best analysts in the space.
Eric Savitz writing at Forbes:
Cowen analyst Rob Stone this morning cut ratings on four leading solar stocks, asserting that Germany’s plan to accelerate and deepen feed-in tariff cuts will deepen the pricing pressures that have been pressuring the industry.

The analyst downgrades First Solar, Trina Solar, Suntech Power and SunPower all to Neutral from Outperform.
In this morning’s trading:
  • FSLR is down 38 cents, or 1.1%, to $35.20.
  • TSL is down 28 cents, or 3.6%, to $7.52.
  • STP is up 3 cents, or 1%, to $3.09.
  • SPWR is down 27 cents, or 3.4%, to $7.45.

EPA Chief Jackson Signs Tailoring Rule, Probably Illegal. Coincidentally D.C. Court of Appeals Hears Arguments Tomorrow

This is a pretty big deal affecting approximately 20% of GDP.
The question is whether the EPA or any Executive branch agency has the power to ignore the actual wording of the Clean Air Act to "tailor" the rules. Tomorrow and Wednesday a three-judge panel of the D.C. Circuit Court of Appeals will hear two full days of oral arguments on this and three other issues.
First up Reuters:
E.P.A. proposes streamlining CO2 permitting for heavy industry
U.S. environmental regulators have proposed a new rule that limits requirements for factories to hold permits for greenhouse gas carbon emissions to the largest sources such as big coal-fired power plants and big manufacturers.

The Environmental Protection Agency's chief Lisa Jackson signed on Friday the third step of a so-called "tailoring rule" on carbon emissions which proposes to keep greenhouse gas permitting at current levels of at least 100,000 tons per year of carbon dioxide equivalent.

Plants with that level of pollution that make changes that would lead to an increase in the pollution of 75,000 tons per year would have to get another round of permits.

Under the new rule, the EPA will not require industrial plants that emit 50,000 tons per year of carbon dioxide, or a bit more, to hold permits for releasing carbon dioxide, according to documents on the agency's web site.

The EPA's program on fighting emissions blamed for warming the planet will be challenged in a federal court this week, with opening arguments being heard on Tuesday and Wednesday.

An environmentalist said the proposals limiting permitting to the largest sources made sense.

"I don't think you'd get much gain from the headache of going after the smaller sources," said Frank O'Donnell, president of Clean Air Watch. He said state and local permitting agencies that have faced budget cuts could have trouble handling work load if permits for the smaller polluters were required....

Here's Inside Climate News on the Appeals Court hearings:
Appeals Court to Hear Arguments over EPA Carbon Rules This Week

EPA’s endangerment finding and tailpipe, tailoring and timing rules to face legal challenges in a single case consolidated from dozens of lawsuits.
WASHINGTON—Opponents intent on blocking EPA's "endangerment finding" and the agency's other efforts to regulate emissions of heat-trapping gases via the Clean Air Act will have their two days in court this week.

A three-judge panel with the U.S. Court of Appeals is slated to hear oral arguments on the legal challenges Tuesday and Wednesday in the nation's capital.

In addition to the endangerment finding, the court will be reviewing a trio of other regulations—abbreviated as the "tailpipe," "tailoring" and "timing" rules. Combined, they are the bedrock of the Environmental Protection Agency's attempts to regulate emissions of carbon dioxide and other greenhouse gases from vehicles and big industrial sources.

All four rules represent the agency's response to Massachusetts v. EPA. In that landmark 2007 decision, the Supreme Court gave EPA authority over carbon pollution. The high court justices also made it clear that agency officials could not shirk that authority unless they could provide a scientific basis for refusing to act.
The appeals court's rulings, expected to be issued this summer, are significant because they have the potential to halt, delay, modify or increase the scope of EPA's regulation of carbon under the Clean Air Act.
To streamline the two-day exercise, dozens of lawsuits by the petitioners have been combined under the name Coalition for Responsible Regulation v. EPA....MORE 

The Center for Progressive Reform blog lays out some of the issues but focuses on the standing issue:
EPA's Standing Argument: A Sleeping Giant in the Tailoring Rule Litigation?
On Feb. 28 and 29, the D.C. Circuit is scheduled to hear arguments on a suite of industry-led challenges to EPA-issued greenhouse gas rules.  While attention has focused on industry’s challenge to EPA’s finding that greenhouse gases (GHGs) endanger the environment, industry’s challenge to the greenhouse gas permitting “tailoring” rule – a rule limiting the CAA’s application to only the largest GHG sources – is just as important, and just as interesting a battle.  At issue is constitutional law’s most hard-fought doctrine in environmental litigation: standing to sue.

In its September 2011 brief, EPA contends that the Tailoring Rule is designed to alleviate the burden that the CAA would otherwise impose on a wide variety of stationary GHG sources.  Because it is alleviating, not imposing, a burden, the Tailoring Rule does not create the “injury” that industry must demonstrate to have standing to sue.  If the plaintiffs lack standing, then the court must dismiss industry’s challenge.  The injection of standing into the case makes the tailoring litigation all the more interesting because, as a result, the court may have a strong basis for dismissing what is otherwise considered a robust legal challenge to the Tailoring Rule.

As an industry group argues in the Tailoring Rule case, Coalition for Responsible Regulation v. EPA, the agency’s rule raising the emission thresholds for Prevention of Significant Deterioration and Title V permits flatly contradicts the express language of the Clean Air Act.  The Clean Air sets these thresholds at 250 and 100 tons per year, multiples lower than the Tailoring Rule’s regulatory thresholds of at least 75,000 tons per year. EPA argues that upping the thresholds was “necessary” to avoid “absurd results” that would otherwise flow from the administrative burdens created by low statutory thresholds, thresholds that could subject numerous small-scale sources, like restaurants and other small businesses, to CAA permitting requirements for the first time. (EPA has said that simply implementing GHG controls without the Tailoring Rule would theoretically require 230,000 new employees to handle the permitting). This is a good common sense argument, but many courts are reluctant to ignore a statute’s literal language.  The courts may never reach the merits, however, if EPA succeeds in having the suit dismissed on standing grounds....MORE

Blackstone Takes a Flyer on Liquified Natural Gas (BX; CQP; LNG)

 Rather than exporting the stuff it would be strategically smarter to build out the residential distribution system in the Northeast but no one asked me.
Here are today's economics, via the AP:
...Cheniere hopes to export 2.6 billion cubic feet of gas per day, about 4 percent of daily U.S. production.

U.S. natural gas futures closed at $2.55 per thousand cubic feet on Friday. It costs about $3 per thousand cubic feet to liquefy the gas. LNG sells for roughly $10 per thousand cubic feet in Western Europe and $15 in Asia...
Here's Bloomberg via the Houston Chronicle's FuelFix blog:

Blackstone Commits $2 billion to Cheniere Gas-export Plant 

Cheniere Energy Partners LP, operator of the largest U.S. natural gas-import terminal, said Blackstone Group LP agreed to invest $2 billion toward construction of a $10 billion plant to export the fuel.
The investment by the New York-based private equity firm may help convince creditors to lend the rest of the money needed to begin construction of the facility in southwest Louisiana. Cheniere, which has been seeking to add export capacity to its import terminal since 2010, plans to begin construction by the end of June, Chairman and Chief Executive Officer Charif Souki said in a statement.

A flood of gas from shale and other unconventional North American rock formations produced a surfeit of the furnace and factory fuel that pushed the price to the lowest in a decade. ConocoPhillips, Apache Inc. and Sempra Energy are advancing plans to ship gas in liquid form aboard tankers to overseas markets such as Japan and Spain, where it commands higher prices.

“The U.S. now has some of the cheapest gas in the world,” Leonard Coburn, president of Washington-based Coburn International Energy Consultants LLC, said in a telephone interview. “The gas glut has got people seriously talking about exporting.”...MORE