Saturday, February 28, 2015

"Live Analysis: Warren Buffett’s Annual Berkshire Letter" (BRK)

As I note the early AM timestamps I am reminded of a 2008 post from MoneyBeat's predecessor, MarketBeat:
The 5 a.m. Buffett Breakfast Club
They’re rich. They’re cheerful. They’re morning people.
An awesome piece from MoneyBeat:
The annual missives that billionaire investor Warren Buffett writes to shareholders of his Berkshire Hathaway Inc. are always carefully scrutinized by big-name investors and small-time stock-pickers alike. But this year’s letter promises to get even more attention.
That’s because this year’s letter has been five decades in the making.
It was in 1965 that Mr. Buffett and his vice chairman, Charlie Munger, took over a troubled textile company called Berkshire Hathaway and began transforming it into the massive conglomerate it is today. Along the way, the “Oracle of Omaha” has amassed a fortune, built a following, and become a celebrated figure in many corners of the world. Mr. Buffett has promised that this year’s letter would look back on the past five decades, and speculate on the next five.
The MoneyBeat team is providing analysis on the letter in real time as we read it Saturday morning. Join us as we dive in.
    • 6:07 am
    • Welcome
    Welcome aboard. The Berkshire letter due out in about an hour has been 50 years in the making, but it’s also been many months in the writing.
    In the very last paragraph of last year’s letter, Warren Buffett piqued the interest of his most ardent followers—the ones who read all the way to the end of his annual missives—with this line:
    Next year’s letter will review our 50 years at Berkshire and speculate a bit about the next 50.
    It wasn’t a promise Mr. Buffett took lightly. In December, Mr. Buffett told the Journal that he’s already written 20,000 words of the upcoming letter. In normal years, the letter runs about 15,000. We’re going to have a lot of reading to do today.
    • 6:11 am
    • Hearing from Munger
    Berkshire shareholders and those who follow the conglomerate’s activities will get a bonus this time around: Berkshire Vice Chairman Charlie Munger is also writing down his vision for Berkshire for the next 50 years. Shareholders love Mr. Munger’s sometimes bruising wit and deadpan delivery, but his voice has been absent from last letters.
    Mr. Buffett said in December that he and Mr. Munger had agreed not to read each other’s accounts until shortly before today’s publication. The letter will contain a note from Mr. Buffett stating that neither he nor Mr. Munger changed a word of commentary after reading the other’s piece.
    • 6:16 am
    • What to Expect
    So now that the letter is finally arriving this weekend, what can Berkshire shareholders and Buffett acolytes expect? We covered that in detail in this post on Friday, but we’ll hit some of the key point as we wait for the letter to land.
    (And don’t think we didn’t try to find the letter on Berkshire’s website already . It’s not there yet, but it should be at this link when it goes live.)
    • 6:19 am
    • Together or Apart?
    As he looks 50 years into the future, we expect Mr. Buffett will address the question of whether Berkshire should stay together–and perhaps, how it could be organized under his successor.
    At a time when more and more companies are spinning off operations to narrow their focus and make their operations easier to value, Mr. Buffett will likely say Berkshire works better as a conglomerate. Berkshire’s insurance units, including car insurer Geico Corp., fueled Berkshire’s growth over the past five decades by giving Mr. Buffett funds to invest elsewhere. Barclays analyst Jay Gelb said in a research note this week that Mr. Buffett is likely to argue that “excess cash from Insurance and other operations can be effectively and tax-efficiently deployed” to grow other parts of the company.
    That’s not unalloyed good news for all Berkshire shareholders. Some of them think the company is so massive that some crown jewels of the company aren’t being fully appreciated by the market. Mr. Gelb says that “means substantial value could remain unlocked for several major units.”

      • 6:25 am
      • About that Dividend
      How will Berkshire use its capital in the future? Mr. Buffett has made it clear that Berkshire is very unlikely to pay a dividend in his lifetime. He argues that he can use the money that would be spent on a dividend to grow Berkshire instead–and he has the track record to prove it.
      A small but vocal group of shareholders has long tried to push Mr. Buffett to pay one, but a vote on the topic at last year’s annual meeting was roundly defeated. In fact, it attracted so little support that it likely set back the cause.
      Yet at that same meeting, when asked what Berkshire will look like in 20 years, Mr. Buffett acknowledged that there would come a time when the company has more capital than it knows what to do with.
      “What I do know is that we will have more cash than we can intelligently invest in the future,” he said. “It’s not on a distant horizon. The number is getting up to where we can’t intelligently deploy the amounts coming in.”
      Does that mean Mr. Buffett could revisit the dividend question this weekend as he peers into his crystal ball? Perhaps. But he may instead focus on the topic of share repurchases. Berkshire has already instituted a program of buying back stock when shares fall below a specific target (which is adjusted each quarter). There’s a chance he could discuss Berkshire’s target and argue for making it less restrictive.
      • 6:34 am
      • The Next Buffett
      Mr. Buffett likes to joke that he’ll continue to run Berkshire via seance after he’s gone. Joking aside, though, the question of who will take over the role of chief executive is the biggest topic hanging over the company and its shareholders. Mr. Buffett has said it’s the most important thing that Berkshire’s board discusses when it meets.
      That said, the chances that Mr. Buffett will name his successor in the CEO role today are essentially zero. I’m confident making that prediction even though I could be proven horrible wrong in under half an hour. It’s just not going to happen....
    ...MUCH MORE

    In case you missed the link:
    Warren Buffett's Letters to Berkshire Shareholders
    Updated February 28, 2015

"Game Theory Calls Cooperation Into Question"

From the Simons Foundation's Quanta Magazine:

A vervet monkey will scream an alarm when a predator is nearby, putting itself in danger.
 A vervet monkey will scream an alarm when a predator is nearby, putting itself in danger.
A recent solution to the prisoner’s dilemma, a classic game theory scenario, has created new puzzles in evolutionary biology.

When the manuscript crossed his desk, Joshua Plotkin, a theoretical biologist at the University of Pennsylvania, was immediately intrigued. The physicist Freeman Dyson and the computer scientist William Press, both highly accomplished in their fields, had found a new solution to a famous, decades-old game theory scenario called the prisoner’s dilemma, in which players must decide whether to cheat or cooperate with a partner. The prisoner’s dilemma has long been used to help explain how cooperation might endure in nature. After all, natural selection is ruled by the survival of the fittest, so one might expect that selfish strategies benefiting the individual would be most likely to persist. But careful study of the prisoner’s dilemma revealed that organisms could act entirely in their own self-interest and still create a cooperative community.
Press and Dyson’s new solution to the problem, however, threw that rosy perspective into question. It suggested the best strategies were selfish ones that led to extortion, not cooperation.

Plotkin found the duo’s math remarkable in its elegance. But the outcome troubled him. Nature includes numerous examples of cooperative behavior. For example, vampire bats donate some of their blood meal to community members that fail to find prey. Some species of birds and social insects routinely help raise another’s brood. Even bacteria can cooperate, sticking to each other so that some may survive poison. If extortion reigns, what drives these and other acts of selflessness?

Press and Dyson’s paper looked at a classic game theory scenario — a pair of players engaged in repeated confrontation. Plotkin wanted to know if generosity could be revived if the same math was applied to a situation that more closely resembled nature. So he recast their approach in a population, allowing individuals to play a series of games with every other member of their group. The outcome of his experiments, the most recent of which was published in December in the Proceedings of the National Academy of Sciences, suggests that generosity and selfishness walk a precarious line. In some cases, cooperation triumphs. But shift just one variable, and extortion takes over once again. “We now have a very general explanation for when cooperation is expected, or not expected, to evolve in populations,” said Plotkin, who conducted the research along with his colleague Alexander Stewart.

The work is entirely theoretical at this point. But the findings could potentially have broad-reaching implications, explaining phenomena ranging from cooperation among complex organisms to the evolution of multicellularity — a form of cooperation among individual cells.

Plotkin and others say that Press and Dyson’s work could provide a new framework for studying the evolution of cooperation using game theory, allowing researchers to tease out the parameters that permit cooperation to exist. “It has basically revived this field,” said Martin Nowak, a biologist and mathematician at Harvard University....MORE
 Well, other than that what have you been up to?

"Private Bank Survey: Where to Invest Cash Now"

I know America has some fine private banks but when I hear the phrase it's always Pictet or Lombard Odier or Rahn that I think of. Personal quirk.
From Barron's:

America’s top 40 asset managers predict a grind in 2015.
What happens when asset managers believe that equities are still the best and perhaps only play in town, but that shares, particularly in the U.S., are close to being fully valued, and long-term bonds are risky? Answer: Cash positions spike, as wealth managers park money in cash or cash equivalents and wait for dips in the market before buying more stocks. 

“We think stocks are going to deliver reasonable returns. The problem is, you’re not going to get return from bonds, so we’ve put some risk mitigation into cash,” says Seth Masters, chief investment officer at Bernstein Global Wealth Management. 

There’s an important nuance here. The larger-than-normal liquid positions that we are spotting don’t mimic the defensive crouch seen in a recession. Rather, they are often cautious and temporary sideline holdings, awaiting the right buying opportunities. 

That, in essence, is where our 40 asset managers stood at the end of 2014, a story that can be found buried deep inside our asset-allocation table of America’s largest asset managers, on pages 28 and 29.
At first blush, allocations by the group of 40 haven’t changed much because of contradictory and uncertain views. Overall stock allocations average 51%, the same as a year ago, but U.S. stock holdings are up slightly, to 33% compared with 31% last year. Counterintuitively, with U.S. interest rates soon to rise, allocations in fixed income are also slightly higher this year -- at 27% versus 26% last year. 

But that’s our story: A good portion of those fixed-income holdings are due to asset managers quietly parking cash in “cash equivalent” short-term fixed-income instruments. Among them are a smattering of corporate bonds, commercial paper, and mortgage-backed securities, and a bigger proportion of asset-backed securities, such as those backed by consumer loans, mortgage-servicing fees, and communication-tower lease revenues.
JPMorgan Chase, Highmount Capital, Wilmington Trust, and Barclays are some of the wealth managers that have increased cash or cash-equivalent investments in this way. Consider Brown Brothers Harriman, which had 27% in cash and equivalents on hand at year-end 2014, by far the largest stash -- some to offset risk, but most on hand to deploy on market dips, says the firm’s chief investment strategist, Scott Clemons. 

Here is why Clemons’ cash position isn’t easy to spot in our table: Brown Brothers has just 3% in pure cash, but it has quietly shifted 24% of its portfolio into ultrashort-term instruments that are lumped into the firms’ fixed-income bucket. 

It’s an opportunistic holding. When the oil-price collapse triggered a fall in shares in early December, Brown Brothers added modestly to stockholdings. With cash levels still over 20%, Clemons said he is poised to pounce further into emerging markets, encouraged by temporary oil-price-induced weaknesses. Brown Brothers Harriman is not alone. Among other firms with cash embedded in their fixed-income allocations are Genspring, with 8% of its total portfolio; Atlantic Trust, with 9%; and Barclays, with 7%. It raises the question: Why?

BLAME IT ON UNCERTAINTY. Wealth managers are all privy to the same data, but they’re coming up with very different conclusions about the meaning for investors. It’s a sign of abnormal times.

“Earlier in the recovery cycle, people were more certain in their allocations and there was more uniformity in outlooks, but now everyone realizes growth isn’t bouncing back as it has historically,” says Bruce McCain, chief investment strategist at Key Private Bank. “Since you can’t frame what’s going on based on historical trends, you get a wider range of ideas about how to exploit what’s happening.” 

Barron’s annual asset-allocation survey typically finds strong majority opinions, such as last year’s 75% that backed an increase in foreign developed stocks. But in this year’s survey, for which data were gathered in December, only U.S. stocks got a thumbs up, with 56% of wealth managers recommending adding a touch more. In other asset classes, a roughly equal number of wealth managers were positive or negative....MORE

Friday, February 27, 2015

In Which Bloomberg's Matt Levine Goes All "Let's Use Words Correctly, Class" On Us

Not that there's anything wrong with that.*
Following up on this morning's "Meet The Dumbest Insurance Company In The World And the 68.6% Annual Return".

From Bloomberg:

Arbitrage Discovered
Webster's New World College Dictionary defines "arbitrage" as "a simultaneous purchase and sale in two separate financial markets in order to profit from a price difference existing between them," but who reads dictionaries, come on.   The practical definition of "arbitrage," at least in the marketing of financial products, is "a thing we think we can make money doing, keep your fingers crossed." So when someone comes to you and offers you a thing called a "Fixed Price Arbitrage Life Insurance Contract," he's not actually offering you the ability to buy and sell the same thing at different prices, locking in a risk-free profit. It's not actually an arbitrage.

Life insurance is a popular savings product in France, and typically the customer allocates their money among different investment funds offered by the insurer. But this contract was not typical: prices for the funds were published each Friday, and clients were allowed to switch funds at those prices anytime before the next price was published, even if markets moved in the meantime.
L’Abeille Vie called this an arbitrage, but really it was a gift. Is the stock market up this week? Just call your broker to buy it at last week’s price and pocket the difference.
That's from Dan McCrum at FT Alphaville, and while I suspect that most of my readers who enjoy a good derivatives-mispricing yarn also read Alphaville, I figured I'd point it out here because it is the best of all derivatives-mispricing yarns, and I would hate for anyone to miss it. So go read him, and/or the French magazine -- aptly named "Challenges" -- that first reported this....MUCH MORE, including four footnotes:
  1. Webster's is a little weird on this point. I quoted definition 1 in the text, but definition 2 is "a buying of a large number of shares in a corporation in anticipation of, and with the expectation of making a profit from, a merger or takeover." That normally goes by the name "merger arbitrage," or the delightfully paradoxical "risk arbitrage"; in my idiolect you can't just call it "arbitrage." But you see why Webster's would put it there, because otherwise "merger arbitrage" becomes incomprehensible.
*I've been known to go off on this issue myself:

1. 2013's "My Second-to-Last Comment on Izabella Kaminska at Tyler Cowen's Marginal Revolution":

 ....steve May 3, 2013 at 12:28 pm
I was taking the article half seriously when I read the “end of arbitrage”. All I can say is this marks it as quackery. Oh sure, arbitrage may end up being primarily the domain of computers working at lightning speeds. But, the end? Hogwash, there will never be perfect markets.
People, people, people arbitrage opportunities have been disappearing for the past 150 years!

I guessing the two commenters didn't have the definition: "The simultaneous purchase and sale of the same instrument in different markets at different prices" pounded into their head so often their ears bled.
I did.
How many arbitrages do they think present themselves each year?

Spotting and acting on an arb is pure alpha and here is a dirty little secret:
The entire amount of alpha available to the entire hedge fund industry is only $30 billion per year.
As reported by a hedge fund maven via Investment News back in 2006:
...PHILADELPHIA - Everyone in the crowd assembled for the CFA Institute's hedge fund conference took notice when David S. Hsieh said that the amount of alpha available in the hedge fund industry each year is $30 billion.

Mr. Hsieh, a professor of finance at the Fuqua School of Business at Duke University in Durham, N.C., presented a synopsis of his ongoing research, which focuses on the style, risk and performance evaluation of hedge funds, at the Feb. 16 conference here. As part of his work, Mr. Hsieh questioned whether flows into hedge funds are causing a decline in hedge fund returns and what might happen if the high rate of inflow continues.

Because of difficulties in obtaining reliable hedge fund data, Mr. Hsieh used fund-of-hedge-funds data and broke down returns into alpha and beta sources. He said the research led him to "feel comfortable" determining that there is a finite amount of alpha - conservatively, $30 billion - managed by the approximately $1 trillion hedge fund industry. And even if capital invested in hedge funds were to rise, the amount of alpha would remain the same.... 
Got that? All alpha not just arbitrage but all alpha was just $30 bil. in '06.
Here's CBS MoneyWatch in March 2013:
Hedge funds are too big to beat the market
This is probably just a definitional problem so let's say it plainly:

In so called risk (merger) arbitrage the emphasis is on the first word.
Cash-and-carry, buying physical and shorting a derivative is not arbitrage.
When people use the term "arbed away" when talking about market anomalies the are not talking about an arbitrage.
Shorting an ETF and buying the component equities is not an arb, it's just a hedged trade.
Same for Index Arbitrage.

The total pool of arb opportunities may be as small as $1 billion.
Even the old Royal Dutch and Shell Transport trade was not an arb, just a fairly good pair trade.....MORE

2. 2012's "Arbitrage: Historical Perspectives"

3. 2014's "Gold and Backwardation or: Why to Hate Izabella de Alphaville"
The faux-eastern-European sounding sub-head is to honor one of her commenters at Dizzynomics who thought that, because of her last name (technically feminine adjectival surname, I looked it up), she was an English-as-a-second-language émigré from points east.*
That's pretty funny.

The hate terminology comes from the fact that I was dithering whether to link to the piece that is the basis for her post "The time value of gold and anything" while she was using it as a take-off for some fancy commodities-and-more writing. From Dizzynomics.....
4. 2014 again: "As John Paulson Discovers Once Again: Risk-arbitrage Is Pronounced with the Accent On the First Syllable"

5. 2011 "Glencore: The Perfect Arbitrageur"
6. 2011 "Mispricing of Dual-Class Shares: Profit Opportunities, Arbitrage, and Trading"
7. 2007 "How Buffett Made a Killing in Chocolate, And Warren's Letters to Shareholders":
Warren on arbitrage:
Some offbeat opportunities occasionally arise in the
arbitrage field. I participated in one of these when I was
24 and working in New York for Graham-Newman Corp.
Rockwood & Co., a Brooklyn based chocolate products
company of limited profitability, had adopted LIFO
inventory valuation in 1941 when cocoa was selling for
50 cents per pound.In 1954 a temporary shortage of cocoa caused the price to
soar to over 60 cents. Consequently Rockwood wished to
unload its valuable inventory - quickly, before the price
dropped. But if the cocoa had simply been sold off, the
company would have owed close to a 50% tax on the proceeds.

The 1954 Tax Code came to the rescue. It contained
an arcane provision that eliminated the tax otherwise due
on LIFO profits if inventory was distributed to shareholders
as part of a plan reducing the scope of a corporation’s business.
Rockwood decided to terminate one of its businesses, the sale
of cocoa butter, and said 13 million pounds of its cocoa bean
inventory was attributable to that activity. Accordingly, the
company offered to repurchase its stock in exchange for the
cocoa beans it no longer needed, paying 80 pounds of beans
for each share.

For several weeks I busily bought shares, sold beans, and
made periodic stops at Schroeder Trust to exchange stock
certificates for warehouse receipts. The profits were good
and my only expense was subway tokens....
And many more.
And apparently, for some reason the FT Alphaville journalist Izabella Kaminska makes me think of  arbitrage.
All together now: "The only perfect hedge is at Sissinghurst":

El-Erian: "10 Things to Know About Negative Bond Yields"

From Bloomberg:
As yields on German bonds plunged further yesterday, with some maturities closing at record negative levels, the worldwide trend toward ultra-low interest rates remains largely intact. Yet the causes and implications of this movement are quite complex. Here are 10 things to know, from the well understood to the speculative.
Less Than Zero
  1.  Although German bond markets are leading this historical phenomenon -- more than 30 of the 54 securities in the Bloomberg Germany Sovereign Bond Index are at negative yields -- other European government markets also are increasingly seeing ultra-low yields dip into negative territory. JPMorgan has estimated that as much as 1.5 trillion euros ($1.7 trillion) of euro-zone debt trades with negative yields in a growing number of countries, including Austria, Denmark, Finland, Germany, the Netherlands and Switzerland. Moreover, this isn't limited to the secondary market; some countries have issued debt at negative yields.
  2. “High quality” European fixed income markets aren't unique in experiencing an extraordinary period of ultra-low yields. Peripheral government bonds, such as those issued by Italy and Spain, have been trading at record low yields, as have corporate securities issued by companies such as Nestle and Shell.
  3.  The seemingly illogical willingness of investors to pay issuers to borrow their money is neither irrational nor driven by just noncommercial considerations (such as regulatory requirements or forced risk aversion). As the European Central Bank prepares to start its own large-scale purchasing program next week, some investors believe they could make capital gains on such negative yielding investments.
  4. There are many immediate reasons to justify this investor optimism. The impact of the ECB’s quantitative easing program (whose scheduled purchase of government bonds is likely to run into a relative scarcity of supply) is amplified by still-sluggish growth, “low-flation” and the threat of deflation. Geopolitical developments also play a role, along with messy national and regional politics in Europe....

The Brent/WTI Spread Makes Saudi Arabia Smile

Refiners too.
From Reuters:
Watch the shale spread: Brent vs WTI crude oil prices
U.S. shale oil is deepening the discount of U.S. crude prices to global benchmarks, with the price gap turning into the de facto indicator of the health of American shale supply, a shale spread of sorts.

The gap between West Texas Intermediate (WTI) and Brent expanded to its biggest in a year at almost $12 a barrel as U.S. oil stocks hit records while global demand supported Brent. The surging U.S. production and inventories point to an "oversupplied market which is hard to ignore," ANZ Bank said in a report on Friday.

Prior to the rise of U.S. shale oil production more than half a decade ago, the spread between WTI and Brent had moved very little for 20 years, largely hovering around zero.

The emerging U.S. glut has since weighed on WTI, which is increasingly a more domestic price gauge than a global one, while non-U.S. benchmarks rise up and down according to demand from Asia and geopolitics in the Middle East.

One factor that could narrow the spread would be a dramatic cutback in shale production as weaker crude prices challenge the economics of shale oil. The spread could shrink further if, or when, the United States adds to world supply with crude exports, which are banned for reasons of protecting national resources for domestic consumption.

And from, Feb. 26:

Opec's blueprint?
The spread between Brent crude and WTI has widened to a 12-month plus high of $10.78/barrel and someone very high up in Opec is probably enjoying the wryest of smiles as we speak.

Far be it for from the floor to suggest a masterplan has been at work here, but with the global oil cartel's pricing linked to the Brent benchmark, the hold market share at-all-costs strategy embarked upon at its November meeting is starting to pay dividends.

"This is a really nice situation for Opec and its members with their profitability going up while WTI stands still and that means there is very little support for the shale sector in the US," says Saxo Bank's head of commodities, Ole Hansen.

Demand is on the rise for Brent, according to a senior Opec official yesterday from Saudi Arabia, helping to propel it to $61.45/barrel at 0755 GMT today, a stark contrast to WTI's laboured $50.73/b.
Yet another huge increase in US oil inventories in yesterday's EIA report is stymieing any hopes WTI has of joining Brent on its upward trajectory with inventories at main US storage hub Cushing rising to 48.6 million barrels.

That has also seen the contango between the front-month WTI price and the second-month widen to $2/b leaving the US benchmark seemingly marooned in "rangebound territory for a while," says Hansen.
Hansen suggests that while there may be a selloff this morning, Brent crude could yet go higher to test the $63/b and even the $65/b area while WTI "is going nowhere fast".

So, What's Up With Liliane Bettencourt And The L’Oréal Billions?

From NY Mag's Daily Intelligencer:

Here’s What’s Going on With the L’Oréal Fortune
One of the biggest trials in French history is wrapping up: At its center is 92-year-old Liliane Bettencourt, France's richest woman and the heiress to the L'Oréal fortune. (Her father, Eugène Schueller, founded the beauty giant.)

The proceedings drew comparisons to the Brooke Astor trial (or Downton Abbey, in yesterday's New York Times), and they captivated the French public despite their confusing nature — hence the spate of explainers in the French press geared toward "les nuls," or dummies.

The case concerns Bettencourt's $41.2 billion fortune (as estimated by Forbes) and her ability to manage her affairs. Bettencourt lives on an estate in Neuilly-sur-Seine, outside Paris, and until recently owned a private island in the Seychelles. Her poor health has prevented her from attending the trial, where it is being determined whether she was taken advantage of by various figures in her life — or whether she was in control of her own faculties and gave them money and gifts willingly.

Bettencourt has given much of her fortune, including artworks by Matisse, Picasso, and Man Ray, to the photographer François-Marie Banier — an estimated 1 billion euros over the course of their long friendship. She even changed her will to make Banier her sole heir. Banier's camp insists that Bettencourt was of sound mind when she gave him money and gifts, while the opposition has suggested that her dementia and the fact that she was on 56 different medications clouded her intentions....MORE
56 meds?

"Oil rebounds, with Brent set for biggest monthly gain since 2009"

ICE Brent $61.23 up $1.18.
NYMEX April's $48.89 up 72 cents.
From MarketWatch:
Crude-oil futures rebounded Friday, with Brent crude set for its biggest monthly gain in nearly six years, ahead of U.S. rig-count data due later in the trading day, and Chinese official manufacturing numbers expected over the weekend.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in April CLJ5, +1.47%  rose $1.07, or 2.3%, to $49.24 a barrel in the Globex electronic session. April Brent crude LCOJ5, +1.98%  on London’s ICE Futures exchange rose $1.26, or 2.1%, to $61.31 a barrel.

Oil bounced back after dropping sharply in the last trading session, with Brent crude better supported than Nymex West Texas Intermediate, but prices are likely to remain volatile in the near-term.

The premium of Brent crude to Nymex WTI crude remains wide at almost $12 a barrel, its widest in more than a year. On a monthly basis, Brent is headed for a gain of nearly 14% for the active April contract, the biggest monthly gain for an active monthly contract since May 2009, when Brent tacked on nearly 29%.

This week’s U.S. rig-count data will be released by oil-field-services firm Baker Hughes Inc. later Friday.
“It is pretty obvious that a fall in rig count does not translate immediately to a drop in oil output. But both the time lag as well as the extent to which a declining rig figure translates into lower production, are tricky to project,” JBC Energy said in a report....MORE

Meet The Dumbest Insurance Company In The World And the 68.6% Annual Return

From FT Alphaville:

Meet the man who could own Aviva France
When he was seven years old, Max-Hervé George was given a magic ticket by his father. It lets him turn back the clock, to invest with perfect hindsight week after week, steadily accumulating a fortune.
The ticket is a life insurance contract and Mr George, now 25, has fought for years in the French courts to preserve its magic. He could be a billionaire by the end of this decade and, by the end of the next, his contract would be worth more than the insurance company which stands behind it, Aviva France.
There is no mystery to the financial magic, however. Instead it is a story of grand stupidity, of how a French insurer wrote the worst contract in the world and sold it to thousands of clients.

The company was L’Abeille Vie. In 1987 it began to offer a special deal to its richer clients, a Fixed Price Arbitrage Life Insurance Contract.

Life insurance is a popular savings product in France, and typically the customer allocates their money among different investment funds offered by the insurer. But this contract was not typical: prices for the funds were published each Friday, and clients were allowed to switch funds at those prices anytime before the next price was published, even if markets moved in the meantime.

L’Abeille Vie called this an arbitrage, but really it was a gift. Is the stock market up this week? Just call your broker to buy it at last week’s price and pocket the difference.

In a world where the price of everything is now a mouse click away, offering a hindsight investment service seems incredible, if not suicidal. Yet thirty years ago prices for funds were published infrequently. Trading involved calling your broker, visiting him person, or maybe sending a fax. It could take days for the trade to be processed, during which time the market could move again.....READ ON

EIA Natural Gas Supply/Demand Report: Told Ya

Long suffering time readers know our pitch for this heating season: Average temperatures overwhelmed by natural gas supply.
We expect the trend to continue at minimum into the spring and will try to stave off the boredom that comes from guessing correctly by designing exotic shoulder season spreads to get widowmaker trapped in.
From the Energy Information Administration:

In the News:
As record setting cold blasts the East, western temperatures warmer than normal
When looking at the nation as a whole, since the start of the year, natural gas consumption has remained relatively flat and temperatures, on average, have been close to normal. Regionally, however, there is a stark difference between the eastern and western halves of the country.

Nationally, natural gas consumption from January 1 through February 20 was 2% higher this year compared to last year, with 6 of the top 20 U.S. natural gas consumption-days occurring during that period, according to data from Bentek Energy. Driven by regional weather patterns, consumption was up 4% in the eastern half of the country (Northeast, Southeast, and Midwest) over last year, but was down 9% in the West (Northwest, Rockies, and Southwest) during that period. In particular, Texas and the Southeast saw increasing demand, mostly due to power burn for space heating, of more than 10% during this period over the year-ago period.

Since the start of the year, record cold temperatures and significant snowfall have occurred in the eastern half of the country. Long-standing temperature records tumbled east of the Rockies, and cumulative heating degree days from January 1 through February 20 equaled 2,220, 11% more than normal. This is in contrast to the western half of the nation where daily temperatures have often been above average. Seven states — California, Idaho, Nevada, Oregon, Utah, Washington, and Wyoming — have reported average temperatures for the month of January in the top 10 warmest on record, with cumulative HDD since the beginning of the year totaling 922, 25% under normal.

With lower demand, spot volumes in the West have traded this year near or below that of the Henry Hub price, the U.S. natural gas benchmark, which averaged $2.88 per million British thermal units (MMBtu) January 1 to February 20. Average spot pricing for PG&E Citygate in California, Opal in Wyoming, and Northwest Sumas in Washington were $3.10/MMBtu, $2.64/MMBtu, and $2.54/MMBtu, respectively, for that period and much less than the key Northeast trading hubs, which have been trading four or more times higher than the West....MUCH MORE

Reinsurance: "Global insured catastrophe losses lowest for five years"

From Artemis:
Despite intense snowstorms in Japan, severe hail and windstorms in Europe, major flooding in parts of the UK and several aviation tragedies, global insured losses for 2014 were the lowest for five years, at roughly $33 billion, according to Guy Carpenter & Company, LLC.

The international risk and reinsurance broking specialist’s annual ‘Global Catastrophe Review’ report has recently been published, highlighting a significant drop in insured losses throughout 2014 from natural and man-made disasters.
Significant natural catastrophe insured losses 2011 to 2014
Significant natural catastrophe insured losses 2011 to 2014 - Source: Guy Carpenter

The Americas, which includes the U.S. and Canada, contributed around 57% of the global insured loss figure, while Europe, the Middle East and Africa comprised roughly 21%, and Asia, Australasia regions fronted approximately 23% of the losses, according to Guy Carpenter’s study.

“Although insured losses for 2014 were among the lowest recorded in years, we still observed powerful impacts and significant losses from both natural and man-made catastrophes,” advised James Waller, Research Meteorologist at GC Analytics.

Interestingly, Artemis reported at the end of last year that Swiss Re’s sigma research unit had estimated 2014 global insured losses would reach $34 billion, while reinsurer Munich Re provided a global catastrophe insured loss figure for 2014 of just $31 billion.

Similarly, and again differing from Guy Carpenters review, Aon Benfield’s Impact Forecasting division recently reported that catastrophe insured losses for 2014 were 38% below the ten-year average, at $39 billion, also discussed by Artemis.

Regardless of varied totals from several of the world’s leading brokers and reinsurers it’s clear to see that whether at the high or low-end of estimates, 2014 was someway below previous years and long-term averages.

The low-level of catastrophe losses has of course been exacerbating the softening of catastrophe reinsurance pricing. With traditional reinsurers and insurers finding the levels of loss manageable, excess has built up which alongside growing alternative capital results in ongoing pressure on rates.

Of course, this is not a bad thing for anyone, except perhaps for traditional reinsurers who are more accustomed to higher margins on this catastrophe exposed business. Lower reinsurance costs ultimately benefit insurance consumers and force capital to be more efficient, something that ILS excels at....MUCH MORE

Chartology: Oil Exploration and Production (XOP)

The  SPDR S&P Oil & Gas Explore & Prod. (ETF) closed yesterday at $51.54. The home of the larger oils, the Energy Select Sector SPDR (ETF), closed at $79.35.
We expect both to trade lower before all is said and done.
Meanwhile, more is said than done.

From Slope of Hope:
When Springheel referred to One More Heave in his post this morning, I had something like this in mind. Anyway……..
My obsession with crude oil and energy stocks is well-documented. I wanted to talk a bit about this daily chart of the oil & gas explorers ETF. I see it going through these phases:
+ Magenta – a very well-formed head and shoulders top; the bulls didn’t have any idea what was about to happen to them;
+ Yellow – the initial plunge, prompted by the magenta pattern, with some stabilization;
+ Cyan – after the Saudis said they weren’t going to curtail production, all bets were off. After Thanksgiving, things went into another free-fall, double-bottoming in late December and early January;
+ Grey – this is what I’ve been stomaching all month – – a blinkered recovery

In spite of crude oil weakening quite clearly, the energy stocks seem to be giving me the bird and not budging. I think they’re going to budge sooner or later, and to the downside. At a minimum, I think they’ll challenge the lows we saw last month. If deflation really grabs hold, we could conceivably see oil in the 30s this year, with energy stocks following it south.

Thursday, February 26, 2015

"Market Wrap: Oil Hammered As Analysts Say Storage Space Running Out; NatGas Plunges; Gold Up"

I think Izabella Kaminska was the first journo to seriously raise the possibility, last week, which post we linked to in Monday's "Oil: Cushing Storage Capacity Should Be Maxed Out By May".
After trading down to $47.80 the April futures have reversed a bit and are trading at $49.02.
Natural gas did not reverse and is changing hamds at $2.691.
We expect both to be lower a month from now.

From Hard Assets Investor:
Energy underperformed, while other commodities advanced.

Most cost commodities rallied today, shrugging off a big spike in the U.S. dollar. However, energy prices were the exception as both oil and natural gas were hammered. Meanwhile, stock markets retreated amid profit-taking after running up to record highs earlier this week.

In today's economic news, the Bureau of Labor Statistics reported that the Consumer Price Index in the United States fell by 0.7 percent in January, slightly more than the expected 0.6 percent decline. At the same time, the core CPI, which excludes food and energy, increased by 0.2 percent in January, faster than the anticipated 0.1 percent increase. On a year-over-year basis, the headline CPI was down by 0.1 percent, the first negative reading since 2009, while the core CPI was up by 1.6 percent....
  • Crude oil fell as traders focused their attention on the record inventory levels in the U.S. That pushed WTI to an $11.79 discount to Brent, the highest level in more than a year. The U.S. benchmark was last trading lower by $2.29, or 4.49 percent, to $48.70, while the European benchmark lost $1.14, or 1.85 percent, to $60.49.

    "We're going to see pretty fast inventory builds over the next few weeks," Francisco Blanch, head of commodity research at Bank of America-Merrill Lynch, told CNBC. "If you run out of  [inventory] space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that's what we expect over the next few weeks," he said, forecasting both WTI and Brent will fall toward $30 a barrel.

    "Within around two months, [onshore storage will] be completely exhausted," Ivan Szapakowski, a commodity strategist at Citigroup, added. "The only remaining storage globally will then be floating storage, tankers."
  • Natural gas plunged $0.20, or 6.88 percent, to $2.70/mmbtu after the EIA reported that operators withdrew 219 billion cubic feet from storage last week, less than the 233 to 238 bcf that most analysts were expecting.

    "Everyone, myself included, over-estimated the cold," said Stephen Schork, President of Schork Group Inc. "From the mid-Atlantic, up to New England and through the Midwest it was cold, but it was relatively warm out West and you had the President's Day weekend. Those two factors were hard to gauge."

    "The market appears to be discounting the overall impact of the end-of-season reduction in inventories, electing instead to look beyond the winter to the possible record-breaking injection season ahead," added Teri Viswanath, director of commodities strategy at BNP Paribas....MORE

"Tesla Motors Inc Rumors Drive Bullish Betting" (TSLA)

$206.77 up $3.01.
From Schaeffer's Investment Research:
After hovering around breakeven for the first hour of trading, Tesla Motors Inc (NASDAQ:TSLA) shot higher on rumors out of China that Apple Inc. (NASDAQ:AAPL) -- which is reacting to its own buzz -- intends to invest in the electric vehicle maker. As a result, TSLA options are flying off the shelves, especially on the bullish side, with traders placing last-minute bets.

The equity's 30-day at-the-money implied volatility has edged 2.5% higher to 38.2%, reflecting the growing popularity of near-term contracts. In fact, the 10 most active TSLA options expire at tomorrow's close, and calls are crossing the tape at twice the average intraday pace.

Most active is the weekly 2/27 210-strike call, which bulls are once again buying to open to bet on a move north of $210 by the end of the week....MORE

"Natural gas futures fall despite frigid temperatures"

Following up on "Natural Gas: In The Face Of Another Cold Spell, Prices Head South".
Front futures down another 11 cents since the above was posted, $2.706, down 0.156.

From the Houston Chronicle's Fuel Fix blog:
HOUSTON — Not even powerful cold could save natural gas Wednesday.

Traders sent the price down on the benchmark futures market in spite of chilling temperatures and a winter front that has blanketed much of the country in snow.

The U.S. Energy Information Administration’s weekly report on natural gas inventories showed a higher-than-normal withdraw of natural gas for the week ending Feb. 20, but even that strong draw didn’t measure up to analysts’ expectations.

The EIA data released Thursday showed inventories at 1.94 trillion cubic feet, down 219 billion cubic feet from the prior week.

A survey of 25 analysts had projected that cold weather would drive about 241 billion cubic feet of gas from inventories, according to data compiled by Bloomberg....MORE
Here's the EIA report.
Platts' analyst survey came in at between 239 billion cubic feet and 243 billion cubic feet.
Today's action via FinViz:

UPDATED--Why Google Gave Up On Their Renewables-For-Less-Than-Coal Program (RE < C )

Update: I forgot the link to IEEE Spectrum, now fixed.

Following up on "Google Partners With SolarCity On $750 Million Residential Solar Fund (SCTY; GOOG)" where we reiterated, the money is in the finance, not the manufacturing.

Since 2007 I've been recommending Professor David J.C. MacKay, who used to hang his hat at Cambridge's Cavendish Laboratory, where as best as I can tell, they manufacture physics laureates for the Nobel folks. (29 at last count).
He has a bunch of letters after his name. 

Mackay left the lab in 2013 to be the University's first Regius Professor of Engineering but remains Chief Scientific Advisor to Great Britain's Department of Energy and Climate Change
Here's his Cambridge website.
When people want to talk energy with me I usually ask if they have read his book.  

Finally, here is the new download page

If you've read the book you understand some of the challenges.
Alternatively here are a couple of the engineers who helped spearhead the GOOGs efforts writing for the brainiacs at IEEE Spectrum:

What It Would Really Take to Reverse Climate Change
 Ross Koningstein and David Fork are engineers at Google, who worked together on the bold renewable energy initiative known as RE < C .
They dedicate this article to the memory of Tim Allen, who led the project. Allen inspired them to question their assumptions about what it would take to reverse climate change. “He wasn’t married to one approach,” Koningstein says. “He was intent on solving the problem.”
Google cofounder Larry Page is fond of saying that if you choose a harder problem to tackle, you’ll have less competition. This business philosophy has clearly worked out well for the company and led to some remarkably successful “moon shot” projects: a translation engine that knows 80 languages, self-driving cars, and the wearable computer system Google Glass, to name just a few.

Starting in 2007, Google committed significant resources to tackle the world’s climate and energy problems. A few of these efforts proved very successful: Google deployed some of the most energy-efficient data centers in the world, purchased large amounts of renewable energy, and offset what remained of its carbon footprint.

Google’s boldest energy move was an effort known as RE, which aimed to develop renewable energy sources that would generate electricity more cheaply than coal-fired power plants do. The company announced that Google would help promising technologies mature by investing in start-ups and conducting its own internal R&D. Its aspirational goal: to produce a gigawatt of renewable power more cheaply than a coal-fired plant could, and to achieve this in years, not decades.


Natural Gas: In The Face Of Another Cold Spell, Prices Head South

Ahead of today's storage report, some pretty pictures.
There is a lot of gas around.

From WXMaps, cooler than average for the next week:

And from FinViz, $3.04 to $2.81 in 72 hours:


What if it had been warm?

Google Partners With SolarCity On $750 Million Residential Solar Fund (SCTY; GOOG)

The money to be made will be in financing and financialization, not solar manufacturing.
But you knew that.
From GigaOm:
Solar installer and financier SolarCity announced on Thursday that it plans to raise a $750 million fund to invest in installing solar panels on the rooftops of home owners, and $300 million of that fund will come from tech giant Google. While Google has put over $1 billion into clean energy projects over the years, the commitment to the SolarCity fund is Google’s largest to date, and the entire fund will be the largest one ever created for residential solar projects.

The deal shows the momentum behind the booming solar panel industry in the U.S. Solar energy represented over a third of all new electricity in the U.S. in 2014, and that could grow to 40 percent in 2015, which would be a new record. The solar industry is now a major U.S. employer, employing twice as many workers as the coal industry; SolarCity employs more workers in California than the state’s three large utilities combined, said SolarCity CEO Lyndon Rive at the ARPA-E Summit earlier this month....MORE
The writer, Katie Fehrenbacher, has been on this beat for quite a while and is pretty sharp but falls into the industry's PR machine when she  repeats the "twice as many as the coal" industry chestnut.

The reason it takes more people is that the solar industry is so darn inefficient. In a comment at Environmental Capital's December 2008 post "Green Jobs: Are They Just a Myth?" I tried to explain the problem as it related to energy:
The key to greencollar jobs is inefficiency. The more labor intensive the energy production the more people you will employ.

Doing a reductio ad absurdum, you would construct a human powered generator.
At a spacing of one meter, a 950 mile diameter wheel would employ five million people.
At 1/10 horsepower per person you would generate 3 million kWh/day.
Of course paying even the minimum wage gets your cost up to the $90.00 kWh range (i.e $80,000/month for the average home’s usage) but you’ve put 5mm folks to work.

This is an extreme example but the concept is pretty well fleshed out in the literature.
Comment by Climateer - December 10, 2008 at 11:49 am
We'll have more as details come out.
See also:
Why Google Gave Up On Their Renewables-For-Less-Than-Coal Program (RE < C )

Nun with a Switchblade: Julie Andrews and The Fiftieth Anniversary Of The Sound Of Music

From MetaFilter:
As she and Plummer munched their respective fractions of peanut-butter bar, they recalled A Royal Christmas. “We played every awful hockey rink all the way from Canada to Florida,” Andrews said. “We had huge buses we could sleep in. It was with the London Philharmonic and the Westminster Choir and the Somebody Bell Ringers and the Something Ballet. And Chris and me doing our bit. It turned out to be great fun under awful circumstances, didn’t it?” “The bus was the most fun,” he said. “We had our own bar, so we couldn’t wait to get there.”
If you have not yet read this Vanity Fair article about Julie Andrews, Christopher Plummer, their lifelong cranky friendship, and the 50th anniversary of The Sound of Music, doing so will probably make your day at least 50% better.
posted by Stacey (1 comment total) 5 users marked this as a favorite
"It would surprise no one, perhaps, to learn that Julie Andrews travels with her own teakettle."

No. No it would not.

Warren Buffett's 50th Anniversary Letter to Berkshire Shareholders and Some Thoughts on the Early Years

We've been following the Omaha insurance salesman since passing on BKHT at $800.

One of the things to note about the partnership and early Berkshire days is that Warren was a bit wilder than subsequent hagiography would have one believe. Some of our posts after the Financial Times links.
From FT Alphaville:

A portrait of the takeover artist as a young man: Warren Buffett’s 1965 letter
No doubt readers have set aside a few hours this coming Saturday to digest Warren Buffett’s annual letter to Berkshire Hathaway shareholders, which this year weighs in at a record 20,000 words.

It is the Golden Anniversary edition, with musings not just on the past year but also on what the next 50 might hold. We are promised a little reminiscing, too — which prompted us to look back to the time when Mr Buffett assumed control of an ailing New England textile manufacturer and set out on his most extraordinary journey.

Fifty years ago, the Omaha oracle was running an investment fund, the Buffett Parternship, for which Berkshire was just the latest in a number of positions. The annual letter covering 1965 is recognisably Buffett; you can tell from the LBJ joke at the very beginning.
The partnership had been buying shares in Berkshire for more than two years before the 34-year-old Mr Buffett resolved to take control of the company, getting himself elected to the board on May 10, 1965 and installing new management. This is how he first described Berkshire to his investors (there are points for identifying the “West Coast philosopher” mentioned below)....MORE

Some of our posts on the early Warren:
Oct. 2010
"Warren Buffett: Buying Berkshire Hathaway Was $200 Billion Blunder" (BRK.B; BRK.A)
Oct. 2010
"Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 (BRK.A; BRK.B)"
We first posted the partnership letters in September 2007 when it was one of our most popular offerings.
This is a repost from Sept. 2008 with the special bonus feature of a few of the early Berkshire Letters to Shareholders.
But Wait, there's more! The link to Warren's Mr. Market quote....
Nov. 2012
Buffett Redux: How Would the Oracle Do It If He Was Starting Over Today? (BRK)
Buffet's partnership days were more akin to hedge fund behavior than they were to deep value investing.
So, for that matter, were some of the Graham-Newman trades. See for example the cocoa bean/common stock arbitrage in "Living La Vida Cocoa: Warren Buffett, Berkshire Hathaway and the Chocolate Wars (BRK.A; BRK.B; CBY; KFT; HSY)", it pretty much puts the lie to the Efficient Market Hypothesis.
Feb. 2013
Warren Buffet's Columbia University Talk Upon the 50th Anniversary of 'Security Analysis' (he doesn't seem to have much use for EMH)

May 2013
The Question Most Asked of Warren Buffett in 1961 (Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 )

July 2014
"Warren Buffett’s Early Investments" (BRK.b)
Much closer to gunslinger than the current iteration.
And a slightly different take:
Warren Buffet: The King of Leveraged Low Beta (BRK.B)

In addition we have around 500 other Buffett and/or Berkshire posts, use the search blog box, top left, if interested.

Wednesday, February 25, 2015

"Why You Won't Be Able To Buy An Apple Car"

From Jalopnik:

 ​Why You Won't Be Able To Buy An Apple Car
Apple probably isn't getting into the car business. At least not in the way we know it today. It's getting into the mobility business, where you dial up a ride on your smartphone, Uber-style, get to where you're going and move on with your life. No monthly payments, no insurance, no maintenance and repairs. That's what Apple could bring to the game, and it's obviously not alone.

After the last two weeks of news, exclusively composed of "leaks" and unnamed sources, Apple is obviously doing something big with Project Titan, the codename of its car-related project. It's poached battery and automotive engineers and executives, and put an estimated 200 people working on the project in an undisclosed location in the Valley.

That's led to a string of analysis and speculation about exactly what Apple is doing and how a company known for PCs, phones, and tablets could possibly survive in the traditional automotive space. It can't because it doesn't need to.3

Ex-GM CEO Dan Akerson's comments about Apple having "no idea" what it's getting into were actually prescient, because he doesn't have a clue. Akerson is looking at building and selling cars from the traditional standpoint of an industry that's been optimizing, iterating, and churning them out for over 100 years. Unlike an iPhone, the profit margins are slim and the cost of doing business is massive. It doesn't matter Apple has nearly $180 billion in the bank, a market cap that's triple the size of Toyota, and is spending money any way it can.4
​Why You Won't Be Able To Buy An Apple Car


Greek Banks: Doin' It Iceland Style

[insert Björk joke here]

From A Fistful of Euros:

The good, the bad and the foreign: Icelandic lesson for stabilising the Greek banks*
Ever since 2010, when Greece first turned to the IMF for assistance, the crisis handling has been characterised by too little too late, which is why Greece is still grabbing the headlines. The Greek banks are a serious part of the problem with liquidity crunch and non-performing loans at 33.5% 2010-2014 according to World Bank data. Banks with such numbers can hardly perform their role of stimulating the economy with sustainable lending. Whatever measures Greece will use to tackle its problems the banks have to be dealt with.

In October 2008 the three largest banks in Iceland experienced liquidity problems due to a series of mistakes, fickle foreign funding, outright fraud, bad luck and a weak lender of last resort.
The Greek banks are in a less dire situation than their Icelandic counterparts in 2008. However, if Athens, Brussels and Frankfurt do not soon present a credible plan for Greece a bank run (compared to the recent trot of €100-200m a day) unavoidably ensues at some point: depositors, distrusting the deposit insurance system, take out their savings and stash them at home rather than waiting for a bail-in, as in Cyprus or bankruptcy proceedings.

Here is a lesson from Iceland. In October 2008 the Icelandic government acted on a bank run by forcing the dysfunctional banks, by then lacking liquidity, into receivership, splitting their operation in two. Instead of the classic split into a good bank/bad bank the domestic operations were consolidated in a New bank with the foreign operations left in the estate of the Old failed bank; in effect a split into a good domestic bank and a bad foreign one. Some weeks later, capital controls were put in place, forcing investors to stay put and shoulder the risk.

An aside on the Icelandic capital controls: they came into being with full support of the International Monetary Fund, IMF because the foreign currency reserves were not enough to meet demand. This is a very different situation from Cyprus where capital controls were put in place for the banks to hold on to deposits, as would be the case if capital controls were used in Greece.

The Greek banks do now rely on both domestic and foreign funding: domestic deposits and European Central Bank, ECB, funds (through various mechanisms) amounting to 20-25% of the balance sheet.  The assets are mostly domestic: performing and non-performing loans, cash, real estate etc. Hence, a clean domestic/foreign split is not possible – but a mixed split is....MORE

Oil Chartology: Holy Crap!

This move isn't real.
At least not until the nice lady says she'd like to see some more variation margin.

From ZeroHedge:

How To Trade Oil For HFT Idiots
While we previously exposed the 1430ET NYMEX Close Ramp trade, it appears a new algo-idiot trade has made an appearance. "Sell API Inventory data, Buy DOE Inventory Data"

On both of these occasions, the DOE build was much higher than expected BUT the spin, of course, was that it wasn't as bad as the API build the prior evening...

Stocks even gave up on it...

Don't forget - today's DOE data showed record production, record inventories, and the biggest inventory build in 5 weeks... but apart from that it all makes perfect sense.
From the linked piece:

Crude Oil Inventories Surge For 7th Week In A Row To Record Highs Amid Record Production
...US Oil Production hit a new record high... (despite the declining rig count - perhaps finally putting a nail in that meme)...

"Why ETF Creation Halts Are Dangerous, in Two Charts"

Following up on "PowerShares ‘Temporarily’ Halts Creations in 11 Commodity/Currency ETFs (DBC; UUP)".

From Barron's Focus on Funds:
Exchange-traded funds can jump off the rails and trigger higher trading costs when disruptions hit their normal trading mechanism.

A good example cropped up on Wednesday, just hours after PowerShares announced that it “temporarily” suspended new creation units for 11 ETFs. Normally, specialized dealers work to create and destroy the number of ETF shares on the market. These dealers (called authorized participants) work with ETF companies to hammer an ETF’s price in line with the value of its holdings. This process keeps share prices for, say, the SPDR S&P 500 ETF (SPY) closely aligned with the S&P 500 index.

But look what can happen when there’s no way to expand the share count: the ETF can trade at a big premium. The $481 million PowerShares DB Oil Fund (DBO) is among the ETFs affected by PowerShares creation halt.

Soon after the opening bell, DBO’s price jumped way above its NAV. As illustrated below, it also rose well above prices for United States Oil Fund (USO) and the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL).

The white line at the top is the price of DBO just before 11:00 a.m. Eastern, more than 2% above the other oil funds:
That premium quickly collapsed. Some traders appear to have gotten wise to DBO’s artificially high price and sold shares short, traders said. At the same time, oil prices rose. Less than an hour later, prices for the three funds had converged.