The Endless War: Saudi Arabia Goes on the Offensive against Iran (with U.S. equipment)

Back in February Iran's parliamentary speaker told Gulf Arab states there will be 'consequences' if they continue to aid US sanctions on Iran:

"Iranian parliamentary speaker Ali Larijani warned Gulf Arab nations Tehran "will not forgive" them if they continue backing "US plots" against the Islamic Republic.

"We recommend to some of the countries in the region who sided with Saddam [Hussein] and now are siding with the US plots against the Iranian nation to give it up," state news quoted him as saying.

"Iran will not forgive them again. There will be consequences in the region if new plots against our nation are carried out," Larijani said". -Arutz Sheva

These guys do not get along.
From Oilprice via Turkish Weekly:

Saudi Arabia has gone on the offensive against Iran to protect its interests. Their involvement in Syria is the first battle in what is going to be a long bloody conflict that will know no frontiers or limits.

Ongoing Disorders in the island kingdom of Bahrain since February of 2011 have set off alarm bells in Riyadh. The Saudis are convinced that Iran is directing the protests and fear that the problems will spill over the twenty-five kilometer long COSWAY into oil rich Al-Qatif, where The bulk of the two million Shia in the kingdom are concentrated. So far, the Saudis have not had to deal with demonstrations a serious as those in Bahrain, but success in the island kingdom could encourage the protestors to become more violent.

Protecting the oil is the first concern of the government. Oil is the sole source of the national wealth and it is managed by the state owned Saudi Aramco Corporation. The monopoly of political power by the members of the Saud family means that all of the wealth of the kingdom is their personal property. Saudi Arabia is a company country with the twenty-eight million citizens the responsibility of the Saud Family rulers.

The customary manner of dealing with a problem by the patriarchal regime is to bury it in money. King Abdullah announced at the height of the Arab Spring that he was increasing the national budget by 130 billion dollars to be spent over the coming five years. Government salaries and the minimum wage were raised. New housing and other benefits are to be provided. At the same time, he plans to expand the security forces by sixty thousand men.

While the Saudi king seeks to sooth the unrest among the general population by adding more government benefits, he will not grant any concessions to the eight percent of the population that is Shia. He takes seriously the warning by King Abdullah of Jordan back in 2004 of the danger of a Shia Crescent that would extend from the coast of Lebanon to Afghanistan. Hezbollah in Lebanon, Assad in Syria, and the Shia controlled government of Iraq form the links in the chain....MORE

Like any good war profiteer the U.S. is turning the situation to its advantage. The numbers are stunning.

From Sunday's New York Times:
U.S. Arms Sales Make Up Most of Global Market

Weapons sales by the United States tripled in 2011 to a record high, driven by major arms sales to Persian Gulf allies concerned about Iran’s regional ambitions, according to a new study for Congress.

Overseas weapons sales by the United States totaled $66.3 billion last year, or more than three-quarters of the global arms market, valued at $85.3 billion in 2011. Russia was a distant second, with $4.8 billion in deals. 

The American weapons sales total was an “extraordinary increase” over the $21.4 billion in deals for 2010, the study found, and was the largest single-year sales total in the history of United States arms exports. The previous high was in fiscal year 2009, when American weapons sales overseas totaled nearly $31 billion.

A worldwide economic decline had suppressed arms sales over recent years. But increasing tensions with Iran drove a set of Persian Gulf nations — Saudi Arabia, the United Arab Emirates and Oman — to purchase American weapons at record levels. 

These Gulf states do not share a border with Iran, and their arms purchases focused on expensive warplanes and complex missile defense systems. 

The report was prepared by the nonpartisan Congressional Research Service, a division of the Library of Congress. The annual study, written by Richard F. Grimmett and Paul K. Kerr and delivered to Congress on Friday, is considered the most detailed collection of unclassified arms sales data available to the public.

The agreements with Saudi Arabia included the purchase of 84 advanced F-15 fighters, a variety of ammunition, missiles and logistics support, and upgrades of 70 of the F-15 fighters in the current fleet.

Sales to Saudi Arabia last year also included dozens of Apache and Black Hawk helicopters, all contributing to a total Saudi weapons deal from the United States of $33.4 billion, according to the study....MORE

Saudi Arabia is the real Strategic Petroleum Reserve.

"Google Inc. Posts Rare Ad on Its Homepage" (GOOG)

Dante was right: "Abandon all hope, ye who enter here".
From Insider monkey:

Google Inc. (NASDAQ:GOOG) has always been one of those rare companies that would never post advertising on its homepage. The page was always clean and straightforward – with an occasional Google Doodle for color and entertainment – inviting visitors to type in search keywords. But finally, Tuesday morning, Google had placed an ad right under its iconic search bar....MORE

A Strong Case That Economic Growth as We Know it Is Over

My first instinct is to recoil from the mere suggestion that we will have to adapt to a steady-state economy.
Then I read the paper.
This is a cogent argument that I am wrong.
From FT Alphaville:

Ahhhh! No robots!

Says this guy here with our paraphrasing, naturally (click through for the full paper):

Gordon concentrates solely on the US and ignores the separate questions of whether the recession and slow recovery have pulled down the trend growth rate, output, and the size of the “gap” between the trend path and actual real GDP. From the abstract:

It questions the assumption, nearly universal since Solow’s seminal contributions of the 1950s, that economic growth is a continuous process that will persist forever. There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely. Rather, the paper suggests that the rapid progress made over the past 250 years could well turn out to be a unique episode in human history.

Before getting all provocative:

A provocative “exercise in subtraction” suggests that future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.

Well, there are those who have a less pessimistic view (read here, here, here and here). Also, just because the dreams of our grandfathers didn’t quite match up to reality isn’t so much a cause for despair as a reminder of the perils of this type of forecasting.
The paper is, nonetheless, worth a read. The basic points are:

1. Since Solow’s seminal work in the 1950s, economic growth has been regarded as a continuous process that will persist forever. But there was virtually no economic growth before 1750, suggesting that the rapid progress made over the past 250 years could well be a unique episode in human history rather than a guarantee of endless future advance at the same rate.
2. The frontier established by the U.S. for output per capita, and the U. K. before it, gradually began to grow more rapidly after 1750, reached its fastest growth rate in the middle of the 20th century, and has slowed down since. It is in the process of slowing down further.
3. A useful organizing principle to understand the pace of growth since 1750 is the sequence of three industrial revolutions. The first (IR #1) with its main inventions between 1750 and 1830 created steam engines, cotton spinning, and railroads. The second (IR #2) was the most important, with its three central inventions of electricity, the internal combustion engine, and running water with indoor plumbing, in the relatively short interval of 1870 to 1900…
4. The computer and Internet revolution (IR #3) began around 1960 and reached its climax in the dot.com era of the late 1990s, but its main impact on productivity has withered away in the past eight years…
5. The article suggests that it is useful to think of the innovative process as a series of discrete inventions followed by incremental improvements which ultimately tap the full potential of the initial invention. For the first two industrial revolutions, the incremental follow-up process lasted at least 100 years. For the more recent IR #3, the follow-up process was much faster. Taking the inventions and their follow-up improvements together, many of these processes could happen only once. Notable examples are speed of travel, temperature of interior space, and urbanization itself.
6. The benefits of ongoing innovation on the standard of living will not stop and will continue, albeit at a slower pace than in the past. But future growth will be held back from the potential fruits of innovation by six “headwinds” buffeting the U.S. economy, some of which are shared in common with other countries and others are uniquely American. Future growth in real GDP per capita will be slower than in any extended period since the late 19th century, and growth in real consumption per capita for the bottom 99 percent of the income distribution will be even slower than that.

Those headwinds, says Gordon, include the end of the “demographic dividend”; rising inequality; factor price equalisation stemming from the interplay between globalisation and the internet....MUCH MUCH MORE

"Dick Bove: Ignore Fiscal Cliff, Buy Stocks"

I'm not sure "ignore" is the term to use.
Perhaps "don't be blinded by" or "assign a lower weighting to".
Not "ignore".
From CNBC:

Investors appear unwilling to make big bets in either direction ahead of a hotly anticipated meeting of central bankers at Jackson Hole, Wyoming, on Friday.

Stocks have rallied in recent weeks on growing expectations for a third round of quantitative easing from the Fed, as well as possible action from the European Central Bank.

News from Jackson Hole could determine whether the summer rally that drove the S&P to four-year highs is sustainable or not.

According to widely followed bank analyst Dick Bove of Rochedale Securities if history is any indication, the Fed will make a move.

"The Fed provides seasonal easing this time of year," said Bove on CNBC's Kudlow & Company. "And they do it because of the holidays."...MORE

Well he's outed himself as a calendar freak.

Back when Eastern banks loaned money to their Midwestern country cousins who in turn lent it out to farmers until the autumn harvest, there was indeed a seasonal flow of funds.
These days not so much.
April 15th excepted.

Because our readers are intelligent, funny and good looking I won't belabor the point but must at least state it:
Any seasonality will disappear as more and more investors make their purchases earlier and earlier.

Anomalies do exist and some persist for years but this is simply because markets are both complex and chaotic systems. If there are excess returns it is because we haven't, for whatever reason, quantified the risks.
As far as I know the anomalies can't be arbitraged away, so to speak of arbs in this context is nonsensical.
The best you can do is some variation of "Time Arbitrage" which isn't really an arb but is a real tool to be aware of.

For more on anomalies see CXO Advisory's search results for "Anomalies", a good start for anyone interested.

Obama Administration: "Autos must average 54.5 mpg by 2025"

That's a big number.
From the Washington Post:

The Obama administration will finalize strict new fuel-efficiency vehicle standards Tuesday, requiring the U.S. auto fleet to average 54.5 miles per gallon by 2025, according to individuals briefed on the matter.

The new rules, which expand on existing standards requiring American-made cars and light trucks to average 34.5 mpg by 2016, will significantly cut U.S. oil consumption and greenhouse gas emissions by the time they are fully implemented, the Environmental Protection Agency says. Unlike many energy policies enacted under President Obama, the vehicle standards are a relatively uncontroversial move embraced by industry and environmentalists alike.

Phyllis Cuttino, director of the Pew Clean Energy Program, said the fact that so many people now accept the idea of greater fuel efficiency does not lessen the rules’ “historic” importance.

“We’ve just come a long way in five years,” Cuttino said, noting that in 2007 lawmakers debated whether the U.S. fleet could average 30 mpg by 2025. “This gives me hope for energy policy in this country."

This second phase of standards, which apply to model years 2017 to 2025, will double the efficiency of the U.S. fleet compared with vehicles manufactured in 2008....MORE

Big Money: Natural Gas Trader Sets Up Philanthropy Education Site

From Forbes:

Hedge fund titan John Arnold shocked the investment world in May when he announced he was retiring at age 38. “After seventeen years as an energy trader, I feel that it’s time to pursue other interests,” wrote the former Enron trader who was one of the industry’s best performers over the past decade.

At the time Forbes speculated that Arnold, who signed the Giving Pledge with his wife Laura in 2010 and whose foundation had assets of $711 million, according to a 2010 filing with the IRS, might devote more of his time to philanthropy.

Today we learn a bit more about John’s and Laura’s latest $4 million project. The couple, who now work in offices next to one another with a removable divider, launched the Giving Library, a collection of videos featuring 250 charities, on Tuesday to help philanthropists learn about the nonprofits....MORE

Recently:
Major Adios: "Natural gas Trade Whiz Arnold Shutting Centaurus fund" (Special Bonus: Natural Gas Weather Forecast!)

Weekly USDA Crop Progress Report: Stabilized, Combines Rolling

From Agriculture.com:

Crops stable; corn combines roll -- USDA

Corn and soybean conditions both took small steps lower in the last week as farmers start to put more of a dent into this fall's corn harvest.

As of Sunday, 22% of the nation's corn crop is in good or excellent condition, while 52% is in poor or very poor shape, according to Monday's USDA-NASS Crop Progress report. The latter figure's up 1% from last week's report. The same move is true for soybeans; 30% of the nation's bean crop is in good or excellent shape while 38% is in poor or very poor condition.

Rain -- some in amounts in excess of 8 inches -- fell over the weekend, which could help the soybean crop make the final push through pod-fill. "The widespread rain this weekend was very welcome and hopefully helped the soybean crop set and fill a few more pods," Iowa Secretary of Agriculture Bill Northey said Monday afternoon. "The crop continues to mature rapidly and will likely result in a record early harvest in many parts of the state this year."...MORE

And from CattleNetwork:

...Corn harvest going strong
About one-fourth of the nation’s corn is mature, with 76 percent dented. Looking at the past 27 years of Crop Progress reports, last week’s report was the earliest in the season that harvest has been reported.
This week. the progress continued with 11 states reporting progress in the early harvest season:

Percentage of corn harvested
	--Week Ending--
	Aug. 26, 2011	Aug. 19, 2012	Aug. 26, 2012	2007- 2011 Average
U.S.	2	4	6	2
Illinois	1	3	6	1
Indiana	-	-	2	-
Iowa	-	-	2	-
Kansas	7	17	25	3
Kentucky	-	11	25	3
Missouri	5	18	32	3
Nebraska	-	1	4	-
North Carolina	28	7	15	11
Pennsylvania	-	-	1	-
Tennessee	6	18	33	7
Texas	52	51	56	50

...MORE

Shanghai Stocks Fall to 41 Month Low

From Reuters:

Hong Kong shares slip, Shanghai tumbles to lowest since March 2009

Shanghai shares tumbled to their lowest since March 2009 on Monday, dragged by non-banking financials whose sagging fortunes are dependent on a more aggressive policy easing regime, which now seem unlikely.
Chinese brokers and insurers, which are heavily invested in mainland stock markets, were also among the biggest drags in Hong Kong. China Life Insurance was among the biggest weight on benchmark indices in both markets.

China Premier Wen Jiabao's comments, while on a visit to Guangdong over the weekend pledging new measures aimed at stablising export growth, were seen by some market watchers as diminishing the chances of Beijing reducing bank reserve requirements or cutting interest rates....MORE

Among other reasons for concern, earnings.
Sinopec erns were down 40% due in part to an 18 billion Yuan loss in refining.

The Decreasing Impact of "Fed Cash to Primary Dealers" on the Stock Market

I donned the academic hat for the headline, pretty boring, huh?
From Winter (Economic and Market) Watch:

Lee Adler’s Fed Cash to Primary Dealers Indicator

Lee Adler uses a Fed cash indicator which he defines in the Q&A below.  To me in eyeballing it, markets show a positive effect from this priming when stock values and assets were very cheap such as 2009 and near fair value in 2010.  I don’t see this Fed cash as having much effect when asset values are inflated as they are now, although it might be a factor in maintaining inflated asset prices for an undetermined period of time.  The Fed has increased this total Fed cash to primary dealers by 50% since January 2011, and the market has climbed about 10%, and punctuated by several steep corrections.  But it seems that just to maintain these levels requires a parabolic angle of ascent.   I say the heroin from this Fed cash effect is greatly diminished or even finished.

 

 

Question : Explain who the primary dealers are and their role in facilitating “fed cash”. What is Fed cash exactly?...MORE

Hurricane Watch: Will Isaac Break the Drought?

Following up on last month's "What Could Break the Drought? A Hurricane Would Be Nice (88% of Corn Areas in Drought)".
We used Hurricane Ike as our analog, Jeff Masters uses Gustav.
From Wunderblog:


Figure 4. Track of Hurricane Gustav of 2008, which followed a path very similar to that of Isaac's predicted path.

While rain would not help this year's corn crop it would at least start recharging the soil.
If Isaac doesn't track over the hardest hit areas of the country, Arkansas, Missouri, Indiana and Kentucky, could be facing a multi-year drought.

Reminder: "For natural gas, why hurricanes may not matter anymore"

After opening up a few cents the front futures are down 2.4 cents at $2.678 and appear headed to the $2.60-2.63 range we were babbling about in Aug. 9's "Why Trading Natural Gas Can Cause Strokes, Heart Attacks Etc.".

We described that Aug 9 spike and collapse as "...very negative and sets up a decline to the 2.60-2.63 area."

From Platt's The Barrel blog:

As Tropical Storm Ernesto veers away from Gulf of Mexico production and the market shrugs off this force of nature, one has to wonder: Will hurricanes ever affect the gas markets again?

The last time gas markets--both spot and futures--reacted sharply to such storms was the year of Katrina and Rita, when hurricanes effectively took out the benchmark Henry Hub and its surrounding infrastructure. 

That same year, GOM production went from a seven-year high of 10.63 Bcf/d (16.4% of total US production) to 4.35 Bcf/d once the storms struck, according to Energy Information Administration data. 

NYMEX gas prices went screeching on the supply shortfall to a high of $14/MMBtu and Henry Hub to the high $13.60s/MMBtu later that year, .

Hurricanes have since had little impact on GOM production for one single reason: shale. Why risk a supply cut-off when supplies can be gotten onshore? In some cases, they're very far onshore. 

Take a look at the next times after Katrina and Rita that GOM production took a battering: hurricanes Gustav and Ike in 2008....MORE

"The Smoothest Con Man That Ever Lived"

From Smithsonian Magazine:

On a Sunday night in May 1935, Victor Lustig was strolling down Broadway on New York’s Upper West Side. At first, the Secret Service agents couldn’t be sure it was him. They’d been shadowing him for seven months, painstakingly trying to learn more about this mysterious and dapper man, but his newly grown mustache had thrown them off momentarily. As he turned up the velvet collar on his Chesterfield coat and quickened his pace, the agents swooped in.

Surrounded, Lustig smiled and calmly handed over his suitcase. “Smooth,” was how one of the agents described him, noting a “livid scar” on his left cheekbone and “dark, burning eyes.” After chasing him for years, they’d gotten a close-up view of the man known as “the Count,” a nicknamed he’d earned for his suave and worldly demeanor. He had long sideburns, agents observed, and “perfectly manicured nails.” Under questioning he was serene and poised. Agents expected the suitcase to contain freshly printed bank notes from various Federal

Reserve series, or perhaps other tools of Lustig’s million-dollar counterfeiting trade. But all they found were expensive clothes.

At last, they pulled a wallet from his coat and found a key. They tried to get Lustig to say what it was for, but the Count shrugged and shook his head. The key led agents to the Times Square subway station, where it opened a dusty locker, and inside it agents found $51,000 in counterfeit bills and the plates from which they had been printed. It was the beginning of the end for the man described by the New York Times as an “E. Phillips Oppenheim character in the flesh,” a nod to the popular English novelist best known for The Great Impersonation.

The Eiffel Tower at the Exposition Universelle, Paris, 1889. Photo: Wikipedia

Secret Service agents finally had one of the world’s greatest imposters, wanted throughout Europe as well as in the United States.  He’d amassed a fortune in schemes that were so grand and outlandish, few thought any of his victims could ever be so gullible. He’d sold the Eiffel Tower to a French scrap-metal dealer. He’d sold a “money box” to countless greedy victims who believed that Lustig’s contraption was capable of printing perfectly replicated $100 bills. (Police noted that some “smart” New York gamblers had paid $46,000 for one.) He had even duped some of the wealthiest and most dangerous mobsters—men like Al Capone, who never knew he’d been swindled....MORE

HT: The Browser

"A Fine Time for Timber" (WY)

There are a half-dozen ways to invest in timberland, the REIT's being one of them. Unfortunately for non-institutional investors there are no pure play portfolio investments and neither the ETF's (CUT; WOOD) nor the REIT's are perfect proxies for timber. POPE Resources is set up as a Master Limited Partnership with a higher correlation to timberland. A couple of London traded vehicles, Phaunos Timber and Cambium Global Timberland Limited also have higher correlation to timberland.

If you can do direct investments the Timberland Management Organizations (TIMO's) will get you even more correlation with Forestland Group (3.5 MM acres) Campbell Resources (3.1 MM acres)  and Hancock Timber Resources Group ( 6.5MM under management) being the largest.

From Barron's:

A recovery in housing could boost Weyerhaeuser's sales and earnings, and unlock the value of its high-quality timberland and real-estate assets. A REIT with rising payouts.

Money doesn't grow on trees, but a recovery in America's depressed housing market could produce lots of it for timber giant Weyerhaeuser .

Suddenly, signs of a nascent pickup in housing are everywhere, from rising building permits and housing starts to improved sentiment among builders. Add higher lumber prices to the list, along with a powerful liftoff in the shares of home builders such as Toll Brothers (ticker: TOL) and PulteGroup (PHM).

Weyerhaeuser's stock (WY) has been no slouch, either. It shot up 50% in the past year, to a 52-week high of $24.62, and the rally could be in the early innings. The shares, which topped $85 in 2007, look rich at 29 times next year's expected earnings of 85 cents a share, but the P/E ratio is misleading, as it is based on trough earnings.

Headquartered in Federal Way, Wash., Weyerhaeuser is best viewed as an asset play, and its assets are sorely undervalued. The company owns six million acres of timberland, including some of the best properties in the U.S., chiefly old-growth forests in the Pacific Northwest and the South. It also makes wood products and cellulose fibers—Weyerhaeuser is one of the biggest producers of absorbent pulp used in diapers and feminine-hygiene products—and operates a real-estate development company. Some analysts and investors calculate its net asset value at more than $30 a share, or about 30% above the current stock price....MORE

As I said in June's "Investing in Timber and Farmland":

I haven't heard that Harvard Management Company is back in the market for timberland.
Their sales, beginning in 2005 were pretty timely and as recently as May of this year they were still in liquidation mode....

I should have mentioned that even after the sales Harvard Management Company still has around 80% of their hard assets (which comprise 10% of the portfolio) in timberland.

A Plan to Solve All The World's Problems

From the Miami Herald:

...On Aug. 17, Iranian President Mahmoud Ahmadinejad proclaimed that Israel’s existence is an “insult to all of humanity.” A couple of weeks earlier, he told a gathering of Muslim diplomats that, “anyone who loves freedom and justice must strive for the annihilation of the Zionist regime.”

Ever the optimist, the president explained that this would help “solve all the world’s problems.”...

Well there you go.
Ahm a dinner jacket, a man with a plan.

Read more here: http://www.miamiherald.com/2012/08/20/2960474/listen-to-what-iran-is-saying.html#storylink=cpy

The Biggest Reason Why California Is Bankrupt

We have a rule, usually observed in the breach,* that we don't link to the same source twice in one day.
A reader had sent this piece in last week and I meant to post it on Friday.
From The Atlantic:

The Sacramento Bee unearths a stunning fact about the growth in spending on state workers.

After crunching some census data, Dan Walters of The Sacramento Bee reports a remarkable figure. In the decade that ended in 2011, California's state government employed roughly 9.3 percent more people, a number that roughly tracks the increase in population seen in the Golden State.

You'd think that payroll costs would've increased by roughly the same amount.

Nope.

Says the newspaper: 

California's state government had 9.3 percent more employees in 2011 than it did 10 years earlier - closely tracking overall population growth - but its payroll costs had jumped by 42.4 percent, according to a new Census Bureau report.

Needless to say, California residents are not earning 42.4 percent more than they were just prior to 9/11....MORE

*The actual Hamlet quote is:

...And to the manner born, it is a custom
More honor'd in the breach than the observance

Which is not at all the same thing as 'honor'd"

For Sale, Cheap: Former Solyndra HQ

This story just gets better and better.
From Fox Business:
Solyndra headquarters could sell at fraction of original price

Taxpayers are about to take it on the chin again when it comes to solar-panel firm Solyndra, as the now-defunct company looks to sell off its glimmering headquarters for a fraction of the original price.

Bankruptcy court documents filed earlier this week show that Seagate Technology -- which makes hard drives and other storage products -- is offering to buy the Fremont, Calif., building for $90.3 million. The original building cost was cited in earlier documents as roughly $300 million....MORE

Zeitgeist: "Italy miners barricade themselves underground with explosives"

From CNBC:

Up to 100 Sardinian miners armed with hundreds of kilograms of explosives have barricaded themselves nearly 400 meters underground in Italy's only coal mine to put pressure on the Rome government to protect its survival.

The miners from a 460-strong workforce seized 350 kilos of company explosives and locked themselves inside the Carbosulcis mine west of Cagliari overnight on Monday, one of them said, ahead of a government meeting this week to discuss the pit's future.

"We are worried that the mine may close. We are afraid for our jobs," said Sandro Mereu, 54, a miner who has worked there for 28 years.

"We are prepared to stay here until we hear a response from the government that secures the future of the mine. We will stay here indefinitely," Mereu told Reuters by telephone....MORE

"60 Years of American Economic History, Told in 1 Graph"

From the Atlantic:

In the 60 years after World War II, the United States built the world's greatest middle class economy, then unbuilt it. And if you want a single snapshot that captures the broad sweep of that transformation, you could do much worse than this graph from a new Pew report, which tracks how average family incomes have changed at each rung of the economic ladder from 1950 through 2010....MORE

Crude Oil Gets Smacked On SPR Release Rumors

The Hill had the first mention we saw last Friday.
Both Brent and WTI are down 1%.
From ZeroHedge:
Crude Plunges As SPR-Release Rumor Trumps QE/Isaac Efforts

UPDATE: Isaac downgrade (from potential CAT 2 to CAT 1) is helping.

In the immortal words of the movie 'Something about Mary', "we got a bleeder" in Crude oil. The front-month WTI contract just snapped over $2.50 lower as SPR-release rumors reassert on fears of Isaac's impact (and of course Jackson Hole).

"Shale Gas Assets - Overpriced Or a Liquid Turn for Mining Giant BHP?" (BHP; CHK)

We haven't visited The Oil Drum in a while, the 'Peak oil' crowd was wearying.
As Churchill said "A fanatic is one who can't change his mind and won't change the subject".
Here's hope that they will go back to what they used to do so well, independent analysis.
From TOD:

This is a guest post by Dr. Ruud Weijermars, geologist, senior partner, and strategy advisor at Alboran Energy Strategy Consultants, and by Matthew Hulbert, Lead Analyst for European Energy Review, consultant to a number of governments and Forbes energy writer.

Australian mining giant BHP has lost a quarter of its former market capitalization since its acquisition of US shale acreage from Petrohawk and Chesapeake last year. The company is keen to point out that worldwide economic conditions have impacted the price and volume of the commodities that BHP extracts and sells on a global basis. BHP’s US shale gas assets are part of its declining performance. Having paid a whopping $19bn for the shale plays in 2011, BHP now faces serious write downs. Ruud Weijermars and Matthew Hulbert ask the serious question whether the lost value simply is a result of changed market conditions - or was the acreage already worth much less at the actual time of its purchase by BHP?

BHP management concedes it is currently assessing the near-term gas price effect on the value of its gas properties acquired last year from Chesapeake (CHK) and Petrohawk (HK). To many industry analysts this is no surprise; the economic fundamentals of US shale gas production and reserves were already questioned long before the BHP sales went through. Petrohawk had never managed to earn any operational profit from its shale gas assets over its 15 years of operations. HK sold gas below the full-cycle production cost and its accumulated losses amounted to some $1 billion when the company was bailed out by BHP last year.

In short, Petrohawk was a ‘precursor’ to Chesapeake’s recently publicized cash-flow crunch predicament. The lack of access to financing, combined with overleveraged debt and lack of operational earnings from gas wells meant one thing: sell assets quickly. One can confidently conclude that HK shareholders were remarkably lucky to receive a very handsome price – twice the market value - for their distressed gas assets in June 2011....MUCH MORE