It's dumb, they use 'carbon trading' to make it sound like it uses market forces to value what was previously a market externality. However it fundamentally works via a bureaucratic process in which some official body decides who and how many carbon credits are given out.
They should just set a tax for all carbon emissions over a certain size if it were taken up globally via international treaty there wouldn't even be issues of unfair advantages.
Sunday • December 28 2008
Economics & Finance
Trader's Corner 2008
BlueGhostNo2
CarlosFerreira
BlueGhostNo2 wrote:
It's dumb, they use 'carbon trading' to make it sound like it uses market forces to value what was previously a market externality. However it fundamentally works via a bureaucratic process in which some official body decides who and how many carbon credits are given out.They should just set a tax for all carbon emissions over a certain size if it were taken up globally via international treaty there wouldn't even be issues of unfair advantages.
2 things:
1. the process of giving away credits based on past emissions - grandfathering - will all but disappear after 2012, when there will be auctions (with loopholes, like Poland's case)
2. a global tax sure is easy to negotiate, with all partners worldwide. We all know that. Than, the fact that we all use the same currency, with the same value, in every country makes it really efficient to have a tax like the one you propose. Also, all countries have effectively equal abatement costs. Sure.
Really, when you really delve into it, it makes some sense. It's not perfect, I grant you, but with the auctions and letting the market work, this might help.
Oliver
In recent times, it has been seen that WTI trades at a heavy discount (as high as $7 per barrel) to Brent. Logically, WTI is a higher grade crude and should trade at a higher price. So, what is the reason for this divergence from the norm?
The last time we saw such a divergence it was due to strike at the Fos-Lavera oil terminal near Marseille (France) or to political tensions with Nigeria and Iran because their oil grades are priced according to a Brent-based formula so as the political situation gets tense, Brent shows a bigger increase in prices. But this time a don't see anything like these or do i miss a news ?
The last time we saw such a divergence it was due to strike at the Fos-Lavera oil terminal near Marseille (France) or to political tensions with Nigeria and Iran because their oil grades are priced according to a Brent-based formula so as the political situation gets tense, Brent shows a bigger increase in prices. But this time a don't see anything like these or do i miss a news ?
sparky
.
West texas intermediate is an imaginary grade ,
it's a trading device with little reality behind it
technicaly it's a blend of other light grades as nominally traded at cushing
similarly Brent field is and has been dry for some time now
you would be hard put to buy and sell it
a bit like a trading desk on the dodo feathers ,making the price for poultry
traders are essentially technical morons and would buy and sell anything as long as there is a market (I.E. an other sucker ) for it .
the only real trading is for Opec basket and ,the real linchpin
Saudi heavy sour ex Ras Tanura ,
the oil with the biggest footprint on the market ,
the maker and breaker of price .
.
West texas intermediate is an imaginary grade ,
it's a trading device with little reality behind it
technicaly it's a blend of other light grades as nominally traded at cushing
similarly Brent field is and has been dry for some time now
you would be hard put to buy and sell it
a bit like a trading desk on the dodo feathers ,making the price for poultry
traders are essentially technical morons and would buy and sell anything as long as there is a market (I.E. an other sucker ) for it .
the only real trading is for Opec basket and ,the real linchpin
Saudi heavy sour ex Ras Tanura ,
the oil with the biggest footprint on the market ,
the maker and breaker of price .
.
MrBill
Oliver wrote:
In recent times, it has been seen that WTI trades at a heavy discount (as high as $7 per barrel) to Brent. Logically, WTI is a higher grade crude and should trade at a higher price. So, what is the reason for this divergence from the norm?The last time we saw such a divergence it was due to strike at the Fos-Lavera oil terminal near Marseille (France) or to political tensions with Nigeria and Iran because their oil grades are priced according to a Brent-based formula so as the political situation gets tense, Brent shows a bigger increase in prices. But this time a don't see anything like these or do i miss a news ?
It is more pronounced at the front-end of the curve and less so the farther out you go. The contango is very wide. Looking at the front months it is about 40% annualized from Brent, and for WTI even more pronounced due to an over-suppy in the front month. This reflects an over-supply in physical crude for the domestic US market versus a more balanced picture for the rest of the world.
Crack margins are terrible. Between $5-10 per barrel. The margins for heating oil/diesel are still quite attractive at around $12-17 per barrel, but gasoline (or RBOB) is a paltery $1-2 per barrel depending on which futures month you look at. If refiners do not have any front demand for gasoline then they are not going to big buyers of crude either.
There is also the problem in the longer term that WTI is becoming less of a global benchmark even though it is a lighter, sweeter grade than Brent. Simply because the USA is producing less oil, while worldwide production and consumption is growing faster elsewhere. The trend is for heavier, more sour grades that require more refining, but are more plentiful. Should their price reflect unique supply and demand fundamentals in the USA or do we need new global benchmarks that have less basis risk than WTI.
Quote:
So here’s the situation: the economy is facing its worst slump in decades. The usual response to an economic downturn, cutting interest rates, isn’t working. Large-scale government aid looks like the only way to end the economic nosedive.But there’s a problem: conservative politicians, clinging to an out-of-date ideology — and, perhaps, betting (wrongly) that their constituents are relatively well positioned to ride out the storm — are standing in the way of action.
No, I’m not talking about Bob Corker, the Senator from Nissan — I mean Tennessee — and his fellow Republicans, who torpedoed last week’s attempt to buy some time for the U.S. auto industry. (Why was the plan blocked? An e-mail message circulated among Senate Republicans declared that denying the auto industry a loan was an opportunity for Republicans to “take their first shot against organized labor.”)
I am, instead, talking about Angela Merkel, the German chancellor, and her economic officials, who have become the biggest obstacles to a much-needed European rescue plan.
I have already commented directly to Paul Krugman on this article as well as contributed to the comments section of his blog to another of his posts on this topic. As many posters have pointed out Germany as well as many EU members of the EMU are and have been running budget deficits that are by their nature stimulative. No one is making the mistake of tightening either monetary or fiscal policy in the current global slowdown, although many think the ECB is being too cautious. However, they do not have a twin mandate like the Fed, so their priority is always fighting inflation first.
The challenge to countries like Germany is to maintain spending as social demands rise along with unemployment, while tax receipts decrease due to the economic slowdown. This will temporarily test the upper bands for EMU members on debts and deficits. Many countries routinely break the Maastricht Criterion already that threatens the very stability of the eurozone. Witness the widening spreads between German bunds and Italian or Greek government bonds.
Basically, Dr. Krugman greatly over-estimates the limits of Keynesian policy by debtor nations, and in Britain and France he finds willing converts to the idea that we can spend our way out of this financial crisis. A crisis that has been caused by global financial imbalances as many countries ran large, persistant, structural deficits, and then exacerbated those imbalances by borrowing the capital to service those debts and deficits. This is far removed from the pure Keynesian idea that budgets should be balanced over the normal business cycle, while governments run temporary deficits during slowdowns, but pay down debt during recoveries. The bastard child that governments can run deficits all the time, and increase them during recessions is not sound economics. It is bound to lead to asset bubbles and busts.
Germany best serves itself and the global economy by being a responsible power and not lurching into excessive deficit spending just because its neighbors would like it to. It already offers generous support for low income earners, the unemployed and seniors as well as healthcare for unemployed workers that is a great social safety net in a recession. It also has an excellent public transport network. So it is far more important to financially support that basic infrastructure and safety net rather than give consumers a one-off cut in VAT that worsens public finances in the long-run, while adding very little extra spending to the economy in the short-term.
If there is little consumer demand then lowering VAT is no more an effective strategy then dropping interest rates if consumers and businesses are unwilling to borrow and banks are even less willing to lend. Both are like pushing on a string. Those that have money are in no hurry to borrow, and those that need to borrow are not credit worthy. As many posters subsequently pointed out Dr. Krugman's math was off as to the money multiplier effect of such a stimulus, and he also failed to take into account the second degree Ricardian implications. So not only was his argument flawed, but his numbers were not very solid either.
That he would use the bully pulpit of his recent Noble prize to criticize Ms Merckel, Mr. Steinbrueck and Germany for not blindly following the crass fiscal advice of England and France ignores that it was their own reckless spending policies that contributed to those global financial imbalances in the first place. Not Germany's low, slow growth since reunification and the introduction of the euro that Germany has painfully endured to put its finances on a solid footing and to live within the means of the Maastricht Criteria.
This was more of a cynical move by Mr. Brown to salvage his reputation for financial stewardship that now lies in tatters. And, of course, Mr. Sarkozy not only loves the spot-light, but France never passes up the opportunity to try to spend someone else's money. Germany is completely within its rights to explore how best it can stimulate Europe's largest economy without bowing to half-baked plans cooked up in a panic by cynical leaders with their own political agendas and Dr. Krugman's Keynesian ideology on steroids.
Carlos wrote:
Quote:
2 things:1. the process of giving away credits based on past emissions - grandfathering - will all but disappear after 2012, when there will be auctions (with loopholes, like Poland's case)
2. a global tax sure is easy to negotiate, with all partners worldwide. We all know that. Than, the fact that we all use the same currency, with the same value, in every country makes it really efficient to have a tax like the one you propose. Also, all countries have effectively equal abatement costs. Sure.
Really, when you really delve into it, it makes some sense. It's not perfect, I grant you, but with the auctions and letting the market work, this might help.
Carlos, I believe you need cap & trade as well as carbon taxes to both cut emissions in absolute terms instead of just shifting them around and to reduce demand for dirty energy by increasing its price to end-users or consumer. They both need to be used in tandem.
The current system of cap & trade is insufficient. It is too ridden with loopholes, and the whole concept of grandfathering, granting exceptions, opting certain industries out, etc., show how susceptible such a system is to political interference. Dirty industries cannot make the necessary investments in their plant to cut emissions unless they have clear, long-term goals as well as efficient markets that correctly send proper price signals.
Also, a global system is far preferable to a piece-meal one where standards and efficiency vary widely. However, this is usually shorthand for calling on rich countries to subsidize poorer ones whereas developed countries are already losing manufacturing jobs to lesser developed countries where the ground rules on environmental, labor and safety standards are not always fair to say the least. This amounts to little more than paying poorer countries to take our jobs away. Whether or not this is good public policy depends on how the losers are compensated.
One huge problem that I see with carbon credits in emerging countries is long-term monitoring of performance. It is all well and fine to spend money to buy credits, but once that money is spent who controls what happens 5-10 years down the road. Those protected forests may be illegally harvested. If a country runs out of heating oil or natural gas then poor residents may cut down those trees for fuel. This certainly happened to the ancient cedars in Lebanon during their civil war there. It can happen elsewhere. But also there is good, old fashioned green mail. Poor countries may come back to donor nations at some point in the future for a second fill-up to protect those already supposedly protected forests. Rich world anti-globalization protesters might even support such moves as a form of debt forgiveness as has happened with low-cost loans in the past that are unrepayable. Trust is good, but control is better.
International treaties have not stopped illegal logging; trade in endangered species; the illegal ivory trade or poaching; whaling; over-fishing; etc. So I am quite dubious that we can implement a global system of cap & trade with iron-clad rules on carbon set asides that will stand the test of time. That does not mean we should not work in this direction, but we have to be aware of unintended consequences. In the meantime, carbon taxes are an immediate way to reduce consumption of dirty energy by using price as its rationing mechanism. Hit 'em where it counts.
shakespear1
Nice to see that you are still around Mr. Bill
Here is something I was reading on iTulip and must admit I have no clue what the guys is saying. I vagly understand that there is some monkey business going on behind the scenes of the oil trading market.
Here is the comment of $#* which got me curious,
Can you translate in layman's terms
iTulip
Here is something I was reading on iTulip and must admit I have no clue what the guys is saying. I vagly understand that there is some monkey business going on behind the scenes of the oil trading market.
Here is the comment of $#* which got me curious,
Mega, there are a least two explanations here:
A) one is my explanation from the oil bubble thread with a financial bubble anchored in commodities prices/futures . The vehicles of this financial bubble is what I call the ETN-like paper (synthetic derivatives based on commodities futures) which have very little to do with the crummy ETF/ETN's the beloved J6P buys through his e-trade account.
This ETN-like paper is traded on parallel, private and completely unregulated markets (144a OTC market) through private equity pools open only to institutional investors (dark pools). According to the latest BIS quarterly report the commodities (non gold) OTC derivatives increased in the Q2 -2008 (compared to Q1) with 56%, to a total amount of $12.6 trillion. This scam was so profitatle that even the iron ore , which is not traded on any regulated commodities market was made to behave like oil, rice, copper ... well you get it.
http://www.metalprices.com/metalNews...svc=ODJ&type=1
You can think of ETN-like paper as the CDO's of commodities, but there is an essential difference. The ETN-like paper (unlike mortgage CDO's ) is a synthetic derivative, and that means the sellers/originators of this paper don't have to actually hold the underlying asset (physical commodes or futures). The paper has only to provide a return mimicking the possesion of a physical commodity or another paper based on commodities (futures).
This detail allows the kings (originators) of this type of paper to pit the investors (dumb casino gamblers) against each other by netting longs against the shorts. The differential netted is hedged in futures. As a result Goldman Sachs (for example) not only makes great money by driving the price of oil to $147/bbl , but also can make another truckload of money by driving the oil price down to $35/bbl. The whole idea is to have the position differential netted against the price derivative.
A) one is my explanation from the oil bubble thread with a financial bubble anchored in commodities prices/futures . The vehicles of this financial bubble is what I call the ETN-like paper (synthetic derivatives based on commodities futures) which have very little to do with the crummy ETF/ETN's the beloved J6P buys through his e-trade account.
This ETN-like paper is traded on parallel, private and completely unregulated markets (144a OTC market) through private equity pools open only to institutional investors (dark pools). According to the latest BIS quarterly report the commodities (non gold) OTC derivatives increased in the Q2 -2008 (compared to Q1) with 56%, to a total amount of $12.6 trillion. This scam was so profitatle that even the iron ore , which is not traded on any regulated commodities market was made to behave like oil, rice, copper ... well you get it.
http://www.metalprices.com/metalNews...svc=ODJ&type=1
You can think of ETN-like paper as the CDO's of commodities, but there is an essential difference. The ETN-like paper (unlike mortgage CDO's ) is a synthetic derivative, and that means the sellers/originators of this paper don't have to actually hold the underlying asset (physical commodes or futures). The paper has only to provide a return mimicking the possesion of a physical commodity or another paper based on commodities (futures).
This detail allows the kings (originators) of this type of paper to pit the investors (dumb casino gamblers) against each other by netting longs against the shorts. The differential netted is hedged in futures. As a result Goldman Sachs (for example) not only makes great money by driving the price of oil to $147/bbl , but also can make another truckload of money by driving the oil price down to $35/bbl. The whole idea is to have the position differential netted against the price derivative.
Can you translate in layman's terms
iTulip
MrBill
I do not think that Goldie Sachs gamed the crude market using OTC contracts based on ETFs. They are more like a bookmaker who takes bets from gamblers where some think Chelsea will win and some that Arensal will win instead. The bookmaker stands in the middle, but if their exposure gets too big they will lay-off some of the bets on another bookmaker. Just like GS - or Barclay's Capital - would hedge the net exposure in the future's market, but it would only reflect a very small portion of their overall book.
However, far from making a fortune lately GS has a substantial trading loss on its proprietary positions in Q4'08. They were one of the biggest bulls on the way up and were very slow to change their minds as crude dropped. UBS is no longer in the commodities business. Neither is Lehman for that matter. Others - except maybe Barclay's - have scaled back their exposure to commodities, and most have reduced their exposure to commodity hedge funds as prime brokers. BNP Paribas has picked up some of that business in prime brokerage. While many hedge funds and prop traders that would have used commodity and energy stocks as collateral for repos or loans have either had to unwind those longs or stump-up increasing amounts of collateral to cover margin calls. I know we have.
Not only is there a lot of unwinding of long positions and deleveraging going-on, but the steep contango also helps fund the shorts. Basically being short since $147 has been a win-win proposition as not only have the shorts made a flat-price profit, but they have also earned the roll. It is possible that GS traders were doing the opposite of what their analysts were writing in their research, but I somehow doubt it, and as I said they have posted trading losses in the fourth quarter. Apparently enough that they have shifted their year-end. Probably so that they do not have to revalue their entire book at November's stock market lows, but now I am just speculating. I do not know.
Coincidentally, I received this today:
OPEC cuts unlikely to relieve pressure on prices in the near term
Likely implementation of the announced OPEC cut in line with our expectations
OPEC announced a remarkable headline 4.2 million b/d cut from September's production levels yesterday, which brings OPEC 11 production targets to nearly 2.5 million b/d below November's target. While at face value, this reduction from November's target is larger than the 2.0 million b/d decline we are currently embedding in our forecasts, we believe that full implementation of the cuts is unlikely and estimate that an average 75% compliance rate would keep the announced cut in line with our expectations. As a consequence, we maintain that prices will remain under pressure in the near term and will reach our $30/bbl average target in 1Q2009. The full implementation of the cuts, although unlikely in our opinion, poses upside risks to this near-term price outlook as non-OPEC producers would bear less of the burden of returning the market to balance, muting the need for prices to decline significantly to motivate non-OPEC production declines.
Crude stocks near full storage against average product stocks levels support product cracks
A combination of extremely high level of inventories at Cushing, Oklahoma, the delivery point of the NYMEX WTI contract, and technical issues linked to the front month contract expiry has exacerbated the weakness in front WTI timespreads, leading refining margins to rebound from the lows of the past few weeks. This price behavior is also consistent with the broader pattern of
inventories, with OECD crude oil inventories at almost full storage levels against still average product stocks. We believe that this divergent inventory situation will continue to pose near-term upside risk to product cracks as crude inventories approach full storage. This will likely create an incentive to refine the excess crude and store it as product until product inventories build as well and margins weaken.source: Goldman Sachs Global ECS Research
December 18, 2008
I also received this today from a friend of mine in shipping here:
This came as an investment bank estimated that Fortescue Metals could be looking at total losses of $300m on charters fixed to the end of 2010.
Armada, an offshoot of Switzerland's Armada Shipping, took action after Fortescue Metals told the company that a CFR shipment due in December was not going to happen.
Armada was contracted for a total of 65 cargoes which if the present conditions persist are unlikely to take place.
The firm has filed a claim against Fortescue Metals in New York's
Southern district court for damages. It also has a rule B attachment
which works like a lien so that any US dollar payments made to Fortescue through the US bank clearance system are frozen.
Armada declined to say how much it was owed but in court documents the firm is claiming for almost $2.53m in damages. This covered the difference in charter rates between the contracted rate of $14.7 per tonne and the $3.7 per tonne spot rate for a maximum cargo of 187,000 tonnes, together with legal and associate costs.
An Armada insider confirmed that while legal action was taken in New York to secure the claim the dispute would be settled by arbitration in London.
Fortescue Metals confirmed that ship owners and operators were taking legal action against the company on 10 contracts.
This came after it suspended all its long-term CFR contracts due to
unforeseen circumstances which it did not explain but were related to the dramatic collapse of bulk charter rates. Fortescue Metals contracted its CFR business at much higher rates than current spot prices.
The firm said about 66% of its iron ore sales have been on CFR terms but this is likely to reduce to around one third of sales".
Fortescue's FOB contracts are unaffected.
Morgan Stanley said Fortescue could have fixed long-term charters at rates of about $20 per tonne in the first six months of this year.
Consequently, total losses on charters fixed for voyages between the second half of this year and the end of 2010 could top $300m.
Fortescue Metals said each of the 10 contracts in dispute need to be considered on their specific facts and merits as Fortescue will use all the appropriate legal mechanisms for determining the disputes that have arisen between some of the parties and any future disputes that may arise".
The company added: Fortescue sought legal advice prior to taking its decisive action under the contracts and will continue to do so in the prudent management of this issue.source: WORLD SEA TRADE S.A. wstrade@otenet.gr
You may also want to give this a read as well:
Both the US and the UK had housing and finance centric economies. Both have significant external deficits. And both are inclined to use monetary and fiscal policy aggressively to combat a downturn.
But with global trade collapsing, the euro’s rise can not be all that comfortable for members of the eurozone. It isn’t clear that any one wants a stronger currency right now. Currencies though are relative prices — and can go up or down amid a global contraction. In theory, everyone could ease monetary policy equally without changing the relative valuesource: Brad Setzer - That was fast
So that's it for me. I am working all of next week, but then off to Asia again over year-end, back in January. I will post returns year to date before I go, although they might change slightly in the last 3-business days of the year after I leave. I can always update them in January. Have a nice weekend and speak to next week. Cheers.
However, far from making a fortune lately GS has a substantial trading loss on its proprietary positions in Q4'08. They were one of the biggest bulls on the way up and were very slow to change their minds as crude dropped. UBS is no longer in the commodities business. Neither is Lehman for that matter. Others - except maybe Barclay's - have scaled back their exposure to commodities, and most have reduced their exposure to commodity hedge funds as prime brokers. BNP Paribas has picked up some of that business in prime brokerage. While many hedge funds and prop traders that would have used commodity and energy stocks as collateral for repos or loans have either had to unwind those longs or stump-up increasing amounts of collateral to cover margin calls. I know we have.
Not only is there a lot of unwinding of long positions and deleveraging going-on, but the steep contango also helps fund the shorts. Basically being short since $147 has been a win-win proposition as not only have the shorts made a flat-price profit, but they have also earned the roll. It is possible that GS traders were doing the opposite of what their analysts were writing in their research, but I somehow doubt it, and as I said they have posted trading losses in the fourth quarter. Apparently enough that they have shifted their year-end. Probably so that they do not have to revalue their entire book at November's stock market lows, but now I am just speculating. I do not know.
Coincidentally, I received this today:
Quote:
Energy WeeklyOPEC cuts unlikely to relieve pressure on prices in the near term
Likely implementation of the announced OPEC cut in line with our expectations
OPEC announced a remarkable headline 4.2 million b/d cut from September's production levels yesterday, which brings OPEC 11 production targets to nearly 2.5 million b/d below November's target. While at face value, this reduction from November's target is larger than the 2.0 million b/d decline we are currently embedding in our forecasts, we believe that full implementation of the cuts is unlikely and estimate that an average 75% compliance rate would keep the announced cut in line with our expectations. As a consequence, we maintain that prices will remain under pressure in the near term and will reach our $30/bbl average target in 1Q2009. The full implementation of the cuts, although unlikely in our opinion, poses upside risks to this near-term price outlook as non-OPEC producers would bear less of the burden of returning the market to balance, muting the need for prices to decline significantly to motivate non-OPEC production declines.
Crude stocks near full storage against average product stocks levels support product cracks
A combination of extremely high level of inventories at Cushing, Oklahoma, the delivery point of the NYMEX WTI contract, and technical issues linked to the front month contract expiry has exacerbated the weakness in front WTI timespreads, leading refining margins to rebound from the lows of the past few weeks. This price behavior is also consistent with the broader pattern of
inventories, with OECD crude oil inventories at almost full storage levels against still average product stocks. We believe that this divergent inventory situation will continue to pose near-term upside risk to product cracks as crude inventories approach full storage. This will likely create an incentive to refine the excess crude and store it as product until product inventories build as well and margins weaken.
December 18, 2008
I also received this today from a friend of mine in shipping here:
Quote:
BULK owner, Armada (Singapore) and at least five other operators are taking legal action against Australia's Fortescue Metals after the iron ore producer suspended all cost and freight (CFR) contracts of affreightment and consecutive voyage contracts.This came as an investment bank estimated that Fortescue Metals could be looking at total losses of $300m on charters fixed to the end of 2010.
Armada, an offshoot of Switzerland's Armada Shipping, took action after Fortescue Metals told the company that a CFR shipment due in December was not going to happen.
Armada was contracted for a total of 65 cargoes which if the present conditions persist are unlikely to take place.
The firm has filed a claim against Fortescue Metals in New York's
Southern district court for damages. It also has a rule B attachment
which works like a lien so that any US dollar payments made to Fortescue through the US bank clearance system are frozen.
Armada declined to say how much it was owed but in court documents the firm is claiming for almost $2.53m in damages. This covered the difference in charter rates between the contracted rate of $14.7 per tonne and the $3.7 per tonne spot rate for a maximum cargo of 187,000 tonnes, together with legal and associate costs.
An Armada insider confirmed that while legal action was taken in New York to secure the claim the dispute would be settled by arbitration in London.
Fortescue Metals confirmed that ship owners and operators were taking legal action against the company on 10 contracts.
This came after it suspended all its long-term CFR contracts due to
unforeseen circumstances which it did not explain but were related to the dramatic collapse of bulk charter rates. Fortescue Metals contracted its CFR business at much higher rates than current spot prices.
The firm said about 66% of its iron ore sales have been on CFR terms but this is likely to reduce to around one third of sales".
Fortescue's FOB contracts are unaffected.
Morgan Stanley said Fortescue could have fixed long-term charters at rates of about $20 per tonne in the first six months of this year.
Consequently, total losses on charters fixed for voyages between the second half of this year and the end of 2010 could top $300m.
Fortescue Metals said each of the 10 contracts in dispute need to be considered on their specific facts and merits as Fortescue will use all the appropriate legal mechanisms for determining the disputes that have arisen between some of the parties and any future disputes that may arise".
The company added: Fortescue sought legal advice prior to taking its decisive action under the contracts and will continue to do so in the prudent management of this issue.
You may also want to give this a read as well:
Quote:
Only a few days ago, so it seems, it took about $1.25 to buy a euro. Now it takes closer to $1.45 (it was more earlier today, but the dollar subsequently rallied). And — as Macro Man notes — the dollar’s move pales relative to the recent slide in the pound. Not so long ago a pound bought 1.5 euros. Now it buys a euro and change. The Anglo-Saxon currencies haven’t had a good two week run.Both the US and the UK had housing and finance centric economies. Both have significant external deficits. And both are inclined to use monetary and fiscal policy aggressively to combat a downturn.
But with global trade collapsing, the euro’s rise can not be all that comfortable for members of the eurozone. It isn’t clear that any one wants a stronger currency right now. Currencies though are relative prices — and can go up or down amid a global contraction. In theory, everyone could ease monetary policy equally without changing the relative value
So that's it for me. I am working all of next week, but then off to Asia again over year-end, back in January. I will post returns year to date before I go, although they might change slightly in the last 3-business days of the year after I leave. I can always update them in January. Have a nice weekend and speak to next week. Cheers.
cube
December 31st will be my last day here.
It's been fun guys but it is time to move on.
Thanks to everyone. A lot of people made some really good posts but I'd have to say MrBill takes the cake.
//
I feel that we have reached a saturation point where everything that could of been said about peak oil has already been said.
Furthermore it's my opinion that the general quality and mood of this website has definitely gone downhill.
Even if somebody did have a new or interesting point to make it's too much work to try and separate the Wheat from the Chafe.
Or should I say the EROEI is not worth it.
//
*back to trading*
I am currently holding a short position YMH9MINI DOW MAR 2009 *
wish me luck guys.
It's been fun guys but it is time to move on.
Thanks to everyone. A lot of people made some really good posts but I'd have to say MrBill takes the cake.
//
I feel that we have reached a saturation point where everything that could of been said about peak oil has already been said.
Furthermore it's my opinion that the general quality and mood of this website has definitely gone downhill.
Even if somebody did have a new or interesting point to make it's too much work to try and separate the Wheat from the Chafe.
Or should I say the EROEI is not worth it.
//
*back to trading*
I am currently holding a short position YMH9MINI DOW MAR 2009 *
wish me luck guys.
MrBill
Merry Christmas everyone! I will try to post some charts later as it will be a quiet day in the office. Take care and all the best over the holidays. MrBill.
BigTex
Cube, check back in from time to time.
Sorry to see you go.
Sorry to see you go.
drew
See you Cube!
You're one of the keystones of "Traders Corner et al", I'll miss your contributions.
Your comments about the rest of this place generally are spot on. It is an angry and depressing site.
Best of luck in the markets!
Drew
You're one of the keystones of "Traders Corner et al", I'll miss your contributions.
Your comments about the rest of this place generally are spot on. It is an angry and depressing site.
Best of luck in the markets!
Drew
MrBill
Arsalan wrote:
Is a bubble in treasury debt market forming? If so, how long could it still go on? How might it burst? What would be the consequences and the collateral damage of its bursting?
The recent rapid expansion in money supply is barely reaching consumers and small businesses in the form of loans, to a great extent due to structural damage suffered by the institutions and credit intermediaries which act as conduit for the flow of funds in the economy. As such, quantitative easing is having limited success in stimulating demand, but the excess supply is creating a bubble in the treasury debt market. The 30-yr. treasury yield closed at 3.04% on Friday, Dec. 12th, 2008.
Have an honest look at the fed's balance-sheet, US budget deficit, record public debt which is still expected to dramatically and indefinitely grow, the exploding liabilities of the entitlement programs, the slowing US economy and the increasingly Japanese style of bailouts of failing private enterprises with public funds. Does it make economic sense to lend money to the US for 20+ years for a paltry 3% return?
Hiten wrote:
Greetings Arsalan,
(a) Is there a bubble forming in Treasuries?
Very likely... it will burst when the Banks open their end of the spigots again.
(b) If so, how long could it still go on?
Almost impractical to put a hard timeline on this... many risk events yet to play out, even though Ben Bernanke and compatriots are trying to flood the market with liquidity; "trying" being the operative word here. Remember, the likes of Merrill Lynch are still advocating that Treasuries will outperform other markets in 2009... which is quite difficult to believe.
Recent demand for Treasuries has been rather buoyant based on bid-to-cover ratios, seemingly due to large Corporates and institutional holders not having faith in even the major banks to hold their temporary client funds or other short term capital.
(b) How might it burst?
Quite simply, return of risk appetite and release of liquidity by the major banks to end economic agents, i.e. you and me, corporates, etc.
(c) Consequences?
The US dollar could take a major toll among other things. The Greenback's fall over the last five years took a breather in the past six months, but we may see that downward trend resuming in the foreseeable future.
If there is not enough demand for US sovereign debt, what's going to happen to the funding shortfall? Recent TIC (Term Inflows) statistics show that the US was having a hard time attracting capital.
Remember, if major risk events continue to happen, such as sovereign default in key countries, or requirement to further recapitalise banks globally, it may help keep a temporary floor in the Greenback's value.
Lending to Uncle Sam for a measly 2% a year does not make economic sense, but neither does it make sense to loose 15% to 20% of your capital by committing to equity or corporate debt markets. Investors are not relying on Corporate Debt because of high risk of default and loss of earning power which could have significant impact on interest and principal payments.
Another thing is that a lot of banks outside the United States have Dollar denominated liabilities for which they required adequate collateral, hence the swap lines being established by Federal Reserve with various countries.
It's merely a safety play which will unwind at some point in the foreseable future bar any major black swan events (default of certain G8 economy, etc).
Lets not even get started on the unfunded public liabilities, fiscally irresponsible lending windows, bailout programmes, etc !
Hope that helps.
Hiten added:
Arsalan,
Here is another article from Bloomberg, which discusses that Treasuries are not in a bubble because there is more room in the Long Bond for falling yields:
Bloomberg Link
I don't totally deny that there is some room left in the long end of the curve but when investors flee various parts of the curve, it's going to be like a springboard effect !
A good rule of thumb is that when you think you're already in a bubble, and no doubt this applies to the UST at the moment, that it can inflate another 50% before it implodes. We may see 10-year UST yields near 2% before that happens. Ditto for the German bund.
Edit: my bunds are up 10% YTD plus I am earning the 4% p.a. coupon and they are safe. the question as always is when to exit this trade and go back into stocks? At some point before they reach 2% YTM
There is no value in these bonds at those types of yield, especially given the fiscal stimuli and loose monetary policies as well as a race to the bottom with regards to currencies as everyone tries to devalue in order to remain export competitive. As I wrote yesterday there were some very interesting headlines in Reuters:
China says to allow for yuan-denominated settlement of trade between some provinces and ASEAN countries – Xinhua
-and-
China raised export tax rebates on machinery, electronic products – Xinua
It sounds like they are determined to break the link to the US dollar for trade, but in the meantime they are also going to be exporting over-capacity and disinflation by increasing tax rebates that are effectively export subsidies. This newest wrinkle comes at an awkward time for the USA as more exports in CNY mean fewer export receipts in USD, which reduces the demand for USD-denominated treasury bills.
UPDATE: China-US trade frictions
The U.S. Trade Representative's office on Friday announced it had begun legal action at the World Trade Organization (WTO) aimed at halting Chinese government subsidy programs to boost the sale of Chinese-branded goods around the world.
The action, against a patchwork of cash grants, preferential loans and other incentives paid to Chinese exporters, follows recent U.S. moves to put import duties on Chinese goods, including steel products, paper and off-road tires.
China, where millions of workers have been laid off in recent months amid slowing exports, has protested against the charge, casting incentives given by local governments to exporters as merely one-off, symbolic "rewards."source: Sino-U.S. trade ties face test amid global slump
Schadenfreude Corner
Here are some of the worst predictions that were made about 2008. Savor them—a crop like this doesn't come along every year.
1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008source: The Worst Predictions About 2008
Some moral support from Caroline Baum against Paul Krugman's crass Keynesian policies on steroids. I used the example of giving everyone brooms and sending them out to sweep the streets to create jobs, she uses digging ditches to make her point. The conclusion is the same: it is not just about creating jobs, but what kind of jobs, and at what cost? Fiscal conservatives are a rare breed facing extinction it seems.
There are currently about 10 million unemployed workers in the U.S. (The Bureau of Labor Statistics defines as unemployed those persons who didn’t work in the week of the monthly employment survey, were available for work and made an effort to find work in the previous month.)
“If we write a check for $75,000 to each of the unemployed, we won’t have anyone ‘unemployed,’” said former Treasury Secretary Paul O’Neill.
The recipients may not be working in the traditional sense of going to the office each day, but the government can provide for their needs without anyone having to lift a finger.
The Obama administration’s goal of creating 3 million new jobs by January 2011 will run smack into “the natural demographic flow, which will add 3.2 million people to the workforce” in the same time period, O’Neill said. In effect, “we are going to spend $750 billion, the number of unemployed will rise and the (unemployment) rate will go down slightly.”
Shoveling to Prosperity
O’Neill did the math so you don’t have to. Each job “will cost $250,000, which doesn’t suggest much labor intensity for the dollars spent,” he said. “It makes me wonder if any of the planners or commentators are good at arithmetic.”
They’re not good at arithmetic. And one wonders about their facility with economics.
If putting people to work is the goal, we could get rid of all the heavy earth-moving equipment and go back to digging ditches with shovels.
Why stop there? If it takes one man two days to dig a trench three feet deep and 30 feet long with a shovel, how long would it take 100 men using spoons?
You get the point. We can always create jobs by replacing capital with labor, by going backward. The entire history of civilization has been characterized by an effort to move in the opposite direction and become more productive, which is another way of saying produce more with less.
Automation and technological innovation have had the effect of replacing humans with machines. Yet the unemployment rate isn’t perpetually rising. As countries develop, they create new and better jobs, not more of the same old ones. The goal is to raise the standard of living, something that (all economists agree) can only be achieved through higher productivity growth.
source: Obama’s Job-Creation Program Flunks Basic Math
Quote:
Is a bubble in treasury debt market forming? If so, how long could it still go on? How might it burst? What would be the consequences and the collateral damage of its bursting?
The recent rapid expansion in money supply is barely reaching consumers and small businesses in the form of loans, to a great extent due to structural damage suffered by the institutions and credit intermediaries which act as conduit for the flow of funds in the economy. As such, quantitative easing is having limited success in stimulating demand, but the excess supply is creating a bubble in the treasury debt market. The 30-yr. treasury yield closed at 3.04% on Friday, Dec. 12th, 2008.
Have an honest look at the fed's balance-sheet, US budget deficit, record public debt which is still expected to dramatically and indefinitely grow, the exploding liabilities of the entitlement programs, the slowing US economy and the increasingly Japanese style of bailouts of failing private enterprises with public funds. Does it make economic sense to lend money to the US for 20+ years for a paltry 3% return?
Hiten wrote:
Quote:
Greetings Arsalan,
(a) Is there a bubble forming in Treasuries?
Very likely... it will burst when the Banks open their end of the spigots again.
(b) If so, how long could it still go on?
Almost impractical to put a hard timeline on this... many risk events yet to play out, even though Ben Bernanke and compatriots are trying to flood the market with liquidity; "trying" being the operative word here. Remember, the likes of Merrill Lynch are still advocating that Treasuries will outperform other markets in 2009... which is quite difficult to believe.
Recent demand for Treasuries has been rather buoyant based on bid-to-cover ratios, seemingly due to large Corporates and institutional holders not having faith in even the major banks to hold their temporary client funds or other short term capital.
(b) How might it burst?
Quite simply, return of risk appetite and release of liquidity by the major banks to end economic agents, i.e. you and me, corporates, etc.
(c) Consequences?
The US dollar could take a major toll among other things. The Greenback's fall over the last five years took a breather in the past six months, but we may see that downward trend resuming in the foreseeable future.
If there is not enough demand for US sovereign debt, what's going to happen to the funding shortfall? Recent TIC (Term Inflows) statistics show that the US was having a hard time attracting capital.
Remember, if major risk events continue to happen, such as sovereign default in key countries, or requirement to further recapitalise banks globally, it may help keep a temporary floor in the Greenback's value.
Lending to Uncle Sam for a measly 2% a year does not make economic sense, but neither does it make sense to loose 15% to 20% of your capital by committing to equity or corporate debt markets. Investors are not relying on Corporate Debt because of high risk of default and loss of earning power which could have significant impact on interest and principal payments.
Another thing is that a lot of banks outside the United States have Dollar denominated liabilities for which they required adequate collateral, hence the swap lines being established by Federal Reserve with various countries.
It's merely a safety play which will unwind at some point in the foreseable future bar any major black swan events (default of certain G8 economy, etc).
Lets not even get started on the unfunded public liabilities, fiscally irresponsible lending windows, bailout programmes, etc !
Hope that helps.
Hiten added:
Quote:
Arsalan,
Here is another article from Bloomberg, which discusses that Treasuries are not in a bubble because there is more room in the Long Bond for falling yields:
Bloomberg Link
I don't totally deny that there is some room left in the long end of the curve but when investors flee various parts of the curve, it's going to be like a springboard effect !
A good rule of thumb is that when you think you're already in a bubble, and no doubt this applies to the UST at the moment, that it can inflate another 50% before it implodes. We may see 10-year UST yields near 2% before that happens. Ditto for the German bund.
Edit: my bunds are up 10% YTD plus I am earning the 4% p.a. coupon and they are safe. the question as always is when to exit this trade and go back into stocks? At some point before they reach 2% YTM
There is no value in these bonds at those types of yield, especially given the fiscal stimuli and loose monetary policies as well as a race to the bottom with regards to currencies as everyone tries to devalue in order to remain export competitive. As I wrote yesterday there were some very interesting headlines in Reuters:
China says to allow for yuan-denominated settlement of trade between some provinces and ASEAN countries – Xinhua
-and-
China raised export tax rebates on machinery, electronic products – Xinua
It sounds like they are determined to break the link to the US dollar for trade, but in the meantime they are also going to be exporting over-capacity and disinflation by increasing tax rebates that are effectively export subsidies. This newest wrinkle comes at an awkward time for the USA as more exports in CNY mean fewer export receipts in USD, which reduces the demand for USD-denominated treasury bills.
UPDATE: China-US trade frictions
Quote:
Trade frictions between Beijing and Washington are expected to grow amid a deepening world recession and as U.S. interest groups demand President-elect Barack Obama put "tough on China" trade talk into action.The U.S. Trade Representative's office on Friday announced it had begun legal action at the World Trade Organization (WTO) aimed at halting Chinese government subsidy programs to boost the sale of Chinese-branded goods around the world.
The action, against a patchwork of cash grants, preferential loans and other incentives paid to Chinese exporters, follows recent U.S. moves to put import duties on Chinese goods, including steel products, paper and off-road tires.
China, where millions of workers have been laid off in recent months amid slowing exports, has protested against the charge, casting incentives given by local governments to exporters as merely one-off, symbolic "rewards."
Schadenfreude Corner
Quote:
Just about everybody got wrong-footed by 2008, but some people's mistakes were truly spectacularHere are some of the worst predictions that were made about 2008. Savor them—a crop like this doesn't come along every year.
1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
Some moral support from Caroline Baum against Paul Krugman's crass Keynesian policies on steroids. I used the example of giving everyone brooms and sending them out to sweep the streets to create jobs, she uses digging ditches to make her point. The conclusion is the same: it is not just about creating jobs, but what kind of jobs, and at what cost? Fiscal conservatives are a rare breed facing extinction it seems.
Quote:
Obama has been working with his advisers so that the proposed $750-billion-and-counting package of tax breaks and spending on infrastructure, education, health care and unemployment insurance is ready to go on Day One. (No on-the-job training necessary!)There are currently about 10 million unemployed workers in the U.S. (The Bureau of Labor Statistics defines as unemployed those persons who didn’t work in the week of the monthly employment survey, were available for work and made an effort to find work in the previous month.)
“If we write a check for $75,000 to each of the unemployed, we won’t have anyone ‘unemployed,’” said former Treasury Secretary Paul O’Neill.
The recipients may not be working in the traditional sense of going to the office each day, but the government can provide for their needs without anyone having to lift a finger.
The Obama administration’s goal of creating 3 million new jobs by January 2011 will run smack into “the natural demographic flow, which will add 3.2 million people to the workforce” in the same time period, O’Neill said. In effect, “we are going to spend $750 billion, the number of unemployed will rise and the (unemployment) rate will go down slightly.”
Shoveling to Prosperity
O’Neill did the math so you don’t have to. Each job “will cost $250,000, which doesn’t suggest much labor intensity for the dollars spent,” he said. “It makes me wonder if any of the planners or commentators are good at arithmetic.”
They’re not good at arithmetic. And one wonders about their facility with economics.
If putting people to work is the goal, we could get rid of all the heavy earth-moving equipment and go back to digging ditches with shovels.
Why stop there? If it takes one man two days to dig a trench three feet deep and 30 feet long with a shovel, how long would it take 100 men using spoons?
You get the point. We can always create jobs by replacing capital with labor, by going backward. The entire history of civilization has been characterized by an effort to move in the opposite direction and become more productive, which is another way of saying produce more with less.
Automation and technological innovation have had the effect of replacing humans with machines. Yet the unemployment rate isn’t perpetually rising. As countries develop, they create new and better jobs, not more of the same old ones. The goal is to raise the standard of living, something that (all economists agree) can only be achieved through higher productivity growth.
Carlhole
Bloomberg
He says he's a lousy market timer, but there are great opportunities in commodities and recommends that people look at ETFs and ETMs. Says oil will eventually go way high again.
Still liquidating his remaining dollar positions.
He says he's a lousy market timer, but there are great opportunities in commodities and recommends that people look at ETFs and ETMs. Says oil will eventually go way high again.
Still liquidating his remaining dollar positions.
cube
Carlhole wrote:
He says he's a lousy market timer, but there are great opportunities in commodities and recommends that people look at ETFs and ETMs. Says oil will eventually go way high again.Still liquidating his remaining dollar positions.
rule 1) Lose only 1 and Win at least 3
rule 2) Be right 50% of the time
It's my observation that most people are actually pretty good with rule 2) -------> it's not being able to follow rule 1) that kills most people.
For example how many people had a profit in stocks by October 1929, 1987, and 2007?
I don't know why people keep on saying making money is hard.
On the contrary I think it's easy, it's just holding onto it that is hard.
//
As for commodities I don't know?
I used to be very bullish on it but the crash has left even me shocked!
If the market dropped by 33% and you said, "Don't worry it's still a bull market. That's just a correction / retracement."
Okay I'm willing to buy that argument.
But a 66% drop is NOT a correction. That's called a bear market.
MrBill
Final post for 2008!
World Equity Index
World Bond Index
S&P 500 YTD
S&P Energy Index YTD
German 10Y Bund
Money Supply & Inflation
Commodity Prices YTD
S&P Equity Winners & Losers (bankrupt firms not shown)
Commodity Returns YTD
Gold as an Inflation Hedge YTD
I am off to the ME and Asia tonight, back in mid-January, so this will be the final post for 2008. It has been a rough year to say the least. January-June looked completely different than July-December. At least for energy and commodity investors as well as for emerging markets and even dollar bulls or bears. There was something for everyone. A real trader's market that separated the market timers from the merely lucky.
As for predictions I expect more bad news from the real economy in Q1'09, and probably all of 2009 will be a write-off as far as global growth is concerned. I am expecting an L-shaped recovery at best, although I am sure unemployment and store bankruptcies will no doubt spike after the last Boxing Day sale takes place. Volatility will remain high regardless, so on a risk adjusted basis returns will remain under pressure. I believe energy and commodities are now over-sold, and that selectively one can re-enter some sectors, but cautiously. This is a beggars' banquet and not a moveable feast.
Looking further ahead I see the results of excessive money supply creation, zero real interest rates, loose fiscal policies and relative currency weakness as manifesting inflation down the road or at least devaluing financial assets and paper currencies as any credible store of wealth or hedge against inflation. It does not help that governments are constantly re-writing rules and regulations making prudent planning impossible as they openly use taxpayers' money to discriminate against some asset class holders in favor of other stakeholders. Appreciating this shift from disinflation to re-inflation will mean ignoring nominal prices and looking instead at asset prices relative to one another.
However, this is something you will have to figure out on your own as there will be no Trader's Corner 2009. Thanks to everyone that contributed. I appreciated your insights and thank you for allowing me to think aloud on these pages. It has been a great help to me personally and professionally. Now it is time to move on. Take care and all the best in the new year. Cheers. MrBill.
topcat
MB: Thanks for the charts. I do not see much change to them in the next few days.
My real thanks goes to you for baring & sharing your insights!
My real thanks goes to you for baring & sharing your insights!
cube
MrBill wrote:
....However, this is something you will have to figure out on your own as there will be no Trader's Corner 2009. Thanks to everyone that contributed. I appreciated your insights and thank you for allowing me to think aloud on these pages. It has been a great help to me personally and professionally. Now it is time to move on. Take care and all the best in the new year. Cheers. MrBill.
However for every beginning their must be an end. That's the way life works.
Rules to live by:
1) never lose more than 10% of your money on a trade.
2) cut your losses short let your profits run
3) the most important position is NO position. You don't always have to be in the market.
good luck to everybody
BigTex
Perhaps we could have a Traders Corner with MrBill as an occasional contributor, rather than host.
It's interesting that treasuries were the best performing asset of 2008 (I think). I doubt if anyone would have believed that a year ago.
For those who lament the decline in quality here at the site, I think that these things ebb and flow, just like everything else.
It's interesting that treasuries were the best performing asset of 2008 (I think). I doubt if anyone would have believed that a year ago.
For those who lament the decline in quality here at the site, I think that these things ebb and flow, just like everything else.
mkwin
Thanks for contributing Mr Bill.
I would also like traders corner to continue. I can certanily contribute more although hosting it would be a little too much work than I can spare at the moment.
I also believe we are just about there with commodities.
I am buying a big postion in OIH in the new year. It is not far from multi-year bottoms and the upside is huge. Much of the growth in new oil supplies will involve the oil service companies in one way or another.
The downside is maybe 25% - the upside 200% plus.
Have a great New Year all.
I would also like traders corner to continue. I can certanily contribute more although hosting it would be a little too much work than I can spare at the moment.
Quote:
As for predictions I expect more bad news from the real economy in Q1'09, and probably all of 2009 will be a write-off as far as global growth is concerned. I am expecting an L-shaped recovery at best, although I am sure unemployment and store bankruptcies will no doubt spike after the last Boxing Day sale takes place. Volatility will remain high regardless, so on a risk adjusted basis returns will remain under pressure. I believe energy and commodities are now over-sold, and that selectively one can re-enter some sectors, but cautiously. This is a beggars' banquet and not a moveable feast.
I also believe we are just about there with commodities.
I am buying a big postion in OIH in the new year. It is not far from multi-year bottoms and the upside is huge. Much of the growth in new oil supplies will involve the oil service companies in one way or another.
The downside is maybe 25% - the upside 200% plus.
Have a great New Year all.
drew
As you know, Mr Bill, we've all appreciated the great work you've done here. In all seriousness, I've always wondered how many hours a day you spend posting! Anyways, being you've not said you're leaving, like Cube, I expect you'll still have great commentary/debate from time to time for the hoi polloi at PO.COM. Have a good new year!
Drew
Drew
sparky
.
Thanks for the ride Mr Bill , it was a blast
a few from the thirties
when the paper boy talk about making a killing on the stock market ..sell
Don't tell me what to do , any fool know that .. tell me when
Nobody got broke from selling too soon .
.
Thanks for the ride Mr Bill , it was a blast
a few from the thirties
when the paper boy talk about making a killing on the stock market ..sell
Don't tell me what to do , any fool know that .. tell me when
Nobody got broke from selling too soon .
.