Saturday, January 13, 2007

Stay Alert

1/14/07 Stay Alert

The weather has changed. That's true in California, Kansas, Oklahoma, Minnesota, and so on moving eastward. Japan was hit with a 8.2 earthquake. The weather changes will impact oil and gas prices, crop prices, and inflation expectations over the next 30 to 60 days.

Saudi Oil Minister Ali Al Naimi will attend the Petrotech conference in New Delhi - the Indian oil and gas industry's premium event - from January 15, together with Iranian Oil Minister Kazem Vaziri-Hamaneh and Nigeria's energy minister Edmund Daukoru. Ministers from Yemen and Sudan will also attend. India and China will continue to be larger and larger consumers of oil and gas. Look for more deals between Iran, Nigeria, Venezuela, Russia and China and India.

China's forex reserves stand at about $1.1 trillion and Japan's at roughly $900 billion. Both countries require growing amounts of oil and gas and other commodities, such as, iron ore. Those forex reserves will increasingly be recycled away from dollar denominated goods and services.

China has cut the retail price of petrol and aviation fuel for the first time in 19 months. Petrol prices have been cut by 3.8% but the prices in the much larger diesel market have been left unchanged.
There are close to three million private cars in China and parts of the country have been hit by petrol shortages.
The price of petrol was cut by 220 yuan ($28.22) a tonne, the energy policy-making National Development and Reform Commission said on its website.
The cut, only the second in five years, will also see the ex-refinery price of jet fuel cut by 90 yuan a tonne.

Meanwhile, regular unleaded gas remains around $2.75 a gallon in and around San Francisco and Seattle.

Friday, January 12, 2007

Looking Forward

1/13/07 Looking Forward

The ministers of the Organization of Petroleum Exporting Countries will consider the need for an emergency meeting to address halting the recent decrease in oil prices, according to a Thursday media report. OPEC will also consider asking other major oil producers to trim output, according to a story on The Wall Street Journal's Web site that cites a senior OPEC official. Doug McIntyre pointed out one source inside OPEC even went to far as to say that those betting on lower oil prices will "get their fingers burned".

Rep. Ron Paul has filed papers in Texas to create a presidential exploratory committee that will allow him to raise money, the Associated Press reported late Thursday. The nine-term congressman from southeast Texas was the Libertarian nominee for president in 1988.

Ford Motor Co. plans to close its Indianapolis steering systems plant by the end of 2008, according to a media report Thursday. The automaker was unable to find a buyer for the plant, which makes hydraulic steering systems that many industry players are replacing with electronic systems, the Associated Press reported, citing Ford spokeswoman Della DiPietro.

SAP said Thursday that it now expects growth of software sales for the year of 11%, compared to previous guidance of sales growth between 15% and 17%.

AMD expects its fourth-quarter results to be hampered by lower sales of it PC chips.

Cablevision Systems Corp.'s founding family has lifted its bid to take the cable operator private, the company said Friday. Charles and James Dolan, who say this is their final offer, are proposing to acquire the company's shares for $30 a share in cash.

U.S. retail sales rose a better-than-expected 0.9% in December, the best gain in five months, the Commerce Department estimated Friday. The sales gains were concentrated n electronics and gasoline stations. Excluding autos, sales rose 1.0%, the biggest gain since January.

Prices of goods imported into the United States climbed by 1.1% in December, led by big increases in the prices of imported petroleum and natural gas. Imported petroleum prices rose by 4.8%, their biggest increase in seven months. Imported natural gas prices climbed by 10.1% in December, following a gain of 43.2% in November. Year-over-year, import prices have climbed 2.5%.

Intel Corp. plans to invest in a major new plant in China to make leading-edge chips, its biggest investment in the country to date, two sources with knowledge of the plan said. The plant will make 65-nanometre multi-core processors, the sources, who asked not to be identified, told Reuters. This would make it Intel's first such manufacturing facility in Asia.

There is speculation that GE is close to making a big acquisition in healthcare or energy. GE has been making smaller acquisitions within the medical field for several years. and only the other day, GE made a buyout of an energy company, and I continue to believe that area will be of increased interest to GE. Most energy stocks are selling way below the p/e of GE shares and would add to their earnings and cash flow.

Financial Tines editorial: "George W.?Bush’s new direction in Iraq is certainly not a strategy for victory, whatever that word, which is used ever more desperately by the US president, now means. It may be one last heave. It may be a cover for US withdrawal. But two things are quite clear.
Right now, Mr Bush has the support of no more than one in four Americans for this so-called surge of an extra 20,000 or so troops. Very soon, as the already indecipherable ethnic and sectarian patchwork of Iraq is pulled further and even more bloodily to pieces, he will have none.
Second, this policy will not succeed in fixing an Iraq traumatised by tyranny and war and then broken by invasion and occupation. But it may end with the US “surging” into Iran – and taking the Middle East to a new level of mayhem that will spill into nearby regions and western capitals."

It was 4 1/2 years ago that I wrote Bush and company would invade Iraq, and that the ultimate goal was to invade Iran. Bush began that process by breaking into the Iranian Consulate in Iraq. He is attempting to bait Iran and have that country retaliate and then Bush will order the bombing of the Iranian nuclear facilities. I have predicted over the past 6+ years that he would be the worst president in our nation's history. In addition, he is endangering the lives and the well-being of all Americans. He and Cheney must go. Now!

Nationwide, supplies of corn are expected to drop to 752 (m) million bushels from last month's forecast of 935 (m) million bushels -- a steep decline from last year's supply of one-point-97 (b) billion bushels. Corn has moved up 60% in price since I discussed purchasing it. The plan for ethanol was doomed before it even got off the ground. What Bush understands about supply and demand you can put on a head of a pin.

Bernard Ber: "The current level of complacency has been reflected in the record low levels of stock market volatility indicators (such as the VIX). Some people such as economist Hyman Minsky have noted that it is precisely when people are most complacent that economic and financial market risk are at the most dangerous point. The current public complacency has been so great that some have made humour of this prevailing perception through the tombstone heading “RIP: The Death of Risk”.
Our financial markets have innovated products (such as asset-backed securities and derivatives) that essentially enable the sharing of risk among many parties, instead of the risk being concentrated with one party. While it may appear that risk is reduced for a single party as a result of these innovations, nonetheless the total level of risk across the entire system is completely unchanged (it is only redistributed). The perception of risk reduction encourages people to extend more and more credit, which results in the risk level for the entire system to keep escalating, even though this may not be evident to the single party engaging in one credit transaction. This risk redistribution mechanism is fatally flawed because of two key elements. The first flawed element pertains to derivatives in that they hinge on one party assuming the obligation to pay the counter-party in the event that the value of the underlying asset changes in value (counter-party default risk)...The second flawed element of our risk redistribution mechanism pertains to asset-backed securities in that they are dependent on credit rating agencies to measure the credit risk for the lender (investor) and assign a credit rating to the security. There is a division of labour implicit in the asset-backed security. The original lender is no longer assigned the task of assessing the credit-worthiness of the borrower (as was formerly the case when banks were the primary conduit of credit in the past). In the past, the fear of credit loss ensured that the bank was very diligent in assessing credit risk. This responsibility has now been delegated to a credit rating agency.
The key point that I want to make is that the credit rating agency does not face any financial loss if the borrower defaults. As a result, they don't have the same incentive to be as diligent in assessing credit risk as the bank used to be when it was "on the hook" in the event of a loan default."

The 10-year Treasury note fell 10/32 to close at 98-27/32 with a yield of 4.774% and the yield on the 2-year rose to 4.89%.

February gold rose $13 to close at $626.90 an ounce Friday. March silver added 42 cents for the day to close at $12.88 an ounce -- up 5.3% for the week. March copper fell 5.6 cents to close at $2.603 a pound, but ended the week 2.7% higher.

The number of rigs drilling for oil and natural gas in North America rose by 191, or 9%, to 2,303, according to a weekly update by Baker Hughes Inc. on Friday.

The Organization of the Petroleum Exporting Countries saw 10 of its 11 members produce an average of 27 million barrels per day in December, down 70,000 b/d from November, Platts reported on Friday. Including Iraq, which doesn't participate in the cartel's output agreements, total OPEC production was 28.9 million b/d in December, compared with 29.06 million b/d in the prior month, Platts said. According to the survey, only three countries among the OPEC 10 reduced output in December: United Arab Emirates, Saudi Arabia and Libya. "After a significant 660,000 b/d drop in production in November, it is apparent OPEC's output in December largely leveled off," said John Kingston, global director of oil for Platts, in a statement.

February crude rose $1.11, or 2.1%, to close at $52.99 a barrel Friday. February natural gas added 30.9 cents, or 4.9%, to close at $6.601 per million British thermal units.

Thursday, January 11, 2007


1/12/07 Surprises

The number of initial claims in the week ending Jan. 6 fell 26,000 to 299,000, the lowest level since late July. The consensus forecast of economists was a reading of 320,000. Meanwhile, the benchmark 10-year Treasury traded to a 2 1/2-month high yield of 4.741%.

In a surprise move to many, the Bank of England raised rates by one quarter point to 5.25%. Meanwhile, the ECB chose to stand pat with their rates for the time being.

The Bush administration and Congress must work together to restore confidence in U.S. fiscal management by reducing the "unsustainably large" fiscal deficit, said Timothy Geithner, president of the New York Frederal Reserve on Thursday. The U.S.' large current account deficit will have to come down over time and how this process unfolds will depend on a number of factors, Geithner said. "Confidence that the U.S. political system will act to generate a sustainable fiscal trajectory is important to seeing that this process of adjustment unfolds with less risk." With spending for Iraq about to reach $500 billion, I see no fiscal improvement on the horizon.

Cerberus Capital Management is preparing an offer for real estate investment trust Equity Office Properties Trust, according to the WSJ. In November, Equity Office, the nation's largest public owner and manager of office properties, agreed to be acquired by the Blackstone Group for $36 billion including debt.

ConocoPhillips said it expects to end the year with about 11.1 billion BOE of proved reserves. Also, the initial reserve additions for the joint venture with EnCana Corp. (ECA) are expected to occur in 2007 and are not included in the 2006 reserves.

French optics company Essilor International might acquire U.S. contact lens maker Cooper Companies for 2.1 billion euros ($2.7 billion), brokerage Oddo Securities said in a research note this week.

M/I Homes Inc. said new contracts for the quarter ended Dec. 31 fell 61% from a year earlier to 353 homes. The Columbus, Ohio-based home builder said its cancellation rate rose to 63% in the fourth quarter from 27% in the year-ago period, and from 42% in the third quarter. "Conditions in most of our markets remained difficult throughout the fourth quarter," said Chief Executive Robert Schottenstein in a statement. "For the past six months, we have consistently stated that housing conditions are likely to remain challenging throughout 2007 and we see no reason to deviate from that belief."

Marc Faber points out that, according to the Financial Times, the concentration of wealth is extremely high in the United States, with 10% of the population currently holding 70% of the country's wealth, compared to 61% in France, 56% in the UK, 44% in Germany, and 39% in Japan. I believe this wealth disparity will play an important role in the 2008 elections.

The Energy Department said natural-gas inventories fell 49 billion cubic feet for the week ended Jan. 5. Total stocks now stand at 3.025 trillion cubic feet, up 401 billion cubic feet from the year-ago level. Let's check in 30 days from now. I expect natural gas inventories to plummet due to extremely cold weather across the U.S.

The S&P Energy index dipped into oversold territory as indicated by its 14-day relative strength index falling below 20 for the first time since the end of the summer driving season. In recent years, any time the 14-day GSPE RSI has dipped below 20, energy shares have rebounded.

Rigzone notes that, recent developments in Saudi Arabia's plans to boost production, and briefings by a former consultant to the Saudi ambassador to the U.S. have raised questions about whether the country is considering new strategic oil options to counter Iranian influence in the region. Some analysts say Saudi Arabia is preparing its massive crude oil reserves as its own "nuclear" weapon to undercut Iranian power.

The White House seeks to increase royalty rates on all new deepwater leases in the Gulf of Mexico by a third.

Goldman Sachs raised estimates by $0.09 for the current quarter on Google, raised estimates on Genentech, and Tiffany.

The dollar rose to a seven-week high against the euro and a 13-month high against the yen.

February natural gas sank 46.3 cents to close at a nearly one-week low of $6.292 per million British thermal units. Meanwhile, February crude dropped $2.14 to end at $51.88 a barrel, its lowest level since May 2005 and marks a decline of 15% since the beginning of 2007 as well as a 34% decline from its high of $78 a barrel.

In mid-July of last year I pointed out that the housing stocks had rallied for four consecutive days, and that despite the bad news coming out on the sector, the worst could be over for the stocks. I envision this type of action to occur within the oil sector- and that includes refining, marketing, drilling and exploration, and oil service. From a cash flow standpoint, most the companies in this group have dropped to such undervalued levels, that just about any could be a prime takeover target- with the possible exception of ExxonMobil or Chevron. The assets are so lucrative that the payback in a leveraged transaction could be swift and quite extraordinary. For example, look at BJ Services. Citigroup cut its price forecast from $58 to $38--the stock is selling at $26!

Wednesday, January 10, 2007


1/11/07 Developments

Gannett Co. Inc., McClatchy Co. and Tribune Co. plan to sell advertising jointly on their Web sites in a bid to capture more online revenue as circulation slips.
The companies plan to offer advertisers one-stop shopping for display ads on Internet sites, a spokeswoman for Gannett said on Wednesday.
The companies are likely to contribute 10 percent of their online advertising space to the network, The Wall Street Journal reported on Wednesday.

Bronco Drilling Company, Inc. acquired Eagle Well Service, Inc. and related subsidiaries for $2.5 million in cash, 1,070,390 shares of Bronco common stock and the assumption of debt, net of working capital, estimated at approximately $3.0million. The purchase will include 31 workover rigs, 24 of which are currently Theworking. The remaining 7 rigs will be deployed periodically over the coming monthswith all 31 expected to be active by the end of the second quarter of 2007. Eagle currently operates in Oklahoma, Texas, Kansas, and New Mexico...Frank Harrison, Bronco's Chief Executive Officer, said, "Historic levels of drilling activity have served as a catalyst for expanding demand for well services. We anticipate this acquisition will be immediately accretive and allows Bronco to capitalize on service demand that is not tied directly to the drill bit. This is the first step in executing our diversification strategy. We believe the well services business is a natural complement to ours and an entree into more mid-to-late cycle assets that could provide insulation from cyclicality. Eagle is a company that has been around for more than fifty years and has a terrific operational reputation and strong customer base. We are extremely pleased that Kim Snell, majority owner, will join the Bronco team and participate in the continued growth of our Company."

International Aluminum Corp. agreed to be acquired by Genstar Capital, a San Francisco-based private equity firm, for roughly $228 million. Genstar said the deal values International Aluminum at $53 per share, compared to Tuesday's close at $50.

Business confidence in the European Union has overtaken optimism in the US for the first time in five years, according to a survey published on Wednesday by the professional services firm Grant Thornton.

US Airways Group Inc. said on Wednesday it raised its takeover offer for larger bankrupt rival Delta Air Lines Inc. to $10.2 billion in cash and stock.
The new bid offers $5 billion in cash and 89.5 million US Airways shares. The original offer, made in November and rejected by Delta last month, was for $4 billion and 78.5 million US Airways shares.
US Airways said the offer would expire on February 1, unless it gets support from Delta creditors to perform due diligence and postpone a February 7 hearing that would start the voting on Delta's stand-alone plan.
Northwest Airlines Corp. and Delta Air Lines Inc. have held recurring talks regarding a potential link-up of the carriers after they emerge from bankruptcy-court protection, according to a media report on Wednesday.

The U.S. trade deficit shrank 1 percent to $58.2 billion. Despite the slight monthly narrowing, the trade gap through the end of November totaled $701.6 billion, keeping it on track to set a new annual record for 2006. Chief Long-Range Forecaster Joe Bastardi believes that if the weather pattern reaches its full potential, the dramatic change from warmth to cold could result in "one of the top-five coldest 30-day stretches in the past half century."

Belarus said a compromise had been found to resume exports of Russian crude to Europe via the Druzhba pipeline following a trade row. Belarus said it had scrapped transit tariffs on Russian crude. Moscow has yet to confirm the deal.

Inventories at U.S. wholesalers jumped 1.3% in November, the Commerce Department said Wednesday.

Kodak agreed to sell its health-imaging business, which sells X-ray films and medical printers, to Canada's Onex for up to $2.55 billion.

China's trade surplus in goods expanded 74% in 2006.

Venezuela's plan to nationalize four multibillion-dollar crude oil projects could impede investment in the OPEC member nation and hinder its ability to boost production, the chief economist of the International Energy Agency said Wednesday.
Venezuelan President Hugo Chavez said Monday that Orinoco heavy crude projects would become state property, just after ordering the nationalization of his country's biggest telephone company. Oil projects in the Orinoco Belt have so far attracted $17 billion in investment by foreign oil companies, more than any other part of the country. About 600,000 barrels a day are produced from its tar-like deposits, which are easy to find and expensive to extract. Companies with investments in the basin include Irving, Texas-based Exxon Mobil; BP Plc; Chevron Corp. of San Ramon, California; and Total SA of France. Other investors include ConocoPhillips, based in Houston, and Statoil ASA of Norway.

The American Petroleum Institute reported a drop of 7.7 million barrels in crude supplies for the week ended Jan. 5. The Energy Department had reported a decline of 5 million. Motor gasoline supplies were up 8.6 million barrels, the API said, vs. the government's reported rise of 3.8 million. Distillate supplies rose 4 million barrels, the API said, compared with the 5.4 million-barrel climb reported by the government.

Merrill Lynch & Co. analysts Francisco Blanch, Sabine Schels and Gustavo Soares said in a report Tuesday that mild temperatures in the Northeast reduced oil demand by 80,000 barrels a day in December and 90,000 this month.
The Northeast is the world's largest market for heating oil.

The U.S. trade gap with China reached $214bn in November, shattering the 2005 annual record of $202bn and putting the total on track to exceed $230bn.

Chevron Corp. warned that lower commodity prices and a decline in production and refining margins will hurt fourth-quarter earnings. The company sold crude oil at an average price of $52.26 a barrel in the December quarter, down from $63.98 in the third quarter and $52.87 in the final three months of 2005. During the fourth quarter, the average spot price for benchmark crude fell to $60.06 from $70.56 in the third quarter. Realized natural-gas prices fell to $5.42 per thousand cubic feet in the fourth quarter, a sequential decline from $5.92 and nearly half of the $10.22 that Chevron said it generated in the fourth quarter of 2005.

February crude fell $1.62, or 2.9%, to close at $54.02 a barrel Wednesday. February natural gas climbed 12.4 cents to close at $6.755 per million British thermal units.

February gold fell $1.60 to close at $613.40 an ounce in New York Wednesday. March silver lost 15 cents to end the day at $12.445 an ounce, but March copper added 10.8 cents, or 4.2%, to finish at $2.664 a pound.

10-year Treasury ended down 5/32 at 99-18/32 to yield 4.681%.

For the first time, an oil company wants to revive a Norwegian offshore oil field that had been closed as unprofitable, the Oil Ministry announced Tuesday.
The Yme oil field off southern Norway produced about 60 million barrels of oil during five years of production. However, in 2001, the state-controlled oil company Statoil ASA abandoned the field, due to low crude oil prices and high water content in the wells. Talisman Energy Inc. took over Yme's operatorship, and presented a plan to the government Tuesday for restarting the field, based on high crude prices and new technology. It hopes the 4 billion kroner ($635 million, euro487 million) project will produce another 60 million barrels of oil over 10 years starting in 2009.

Tuesday, January 09, 2007


1/10/07 Momentum

The drop in the price of crude picked up in early Tuesday morning trading with the low below $54 a barrel. This caused selling by chartists and the bearish sentiment increased. As I looked at my positions, the losses grew, and even though natural gas was holding up, the portfolio took it on the chin. It's not the first time, and I'm patient.

James Neale at Citigroup said: "The weather is forecast to remain warm for now, but this is a temporary phenomenon, and in 2007, the key to the macro will lie in non-OPEC’s ability to deliver its 1.6m-1.8m barrels a day forecast for volume growth, and in OPEC’s resolve to defend prices."

NY Post: "Goldman cut the energy portion by as much as 50 percent in some of the sub-indexes that comprise the widely followed Goldman Sachs Commodity Index, tamping down moves to buy them by large investment funds who mimic Goldman's index.
The changes took effect this month and apply for all of 2007, a Goldman spokesman said... The GSCI is influential because large institutional investors like pension funds and endowments invest according to its allocation model."

Marc Faber said global assets are poised for a ``severe correction'' and it's time to sell. "In the next few months, we could get a severe correction in all asset markets,'' Faber said in an interview with Bloomberg Television in New York. ``In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate."

From Seeking Alpha comes this from J.D. Steinhilber (Agile Investing):"We are going to take advantage of the recent sell-off in the commodity sector to re-establish a position in a diversified commodities fund. We held a position in a diversified commodities fund in our model portfolios in 2005 and the first four months of 2006, but exited the asset class on April 30, 2006. At the time, the commodities sector, particularly the energy and metals areas, had experienced a very sharp run-up and appeared over-extended and vulnerable to a lengthy period of correction and consolidation.
After exiting, we said we would look for an opportunity to re-enter the asset class at more attractive prices. With diversified commodity indexes now 10-20% lower (depending on their level of exposure to energy and industrial metals commodities, which have experienced the sharpest corrections), and with sentiment now quite nervous about the outlook and prospects for the asset class, we believe we have reached a point in time where it makes sense to re-establish a position in diversified commodities in our portfolios.
We believe that commodities are in a secular bull market that began in 2001 and will extend for several more years, due to a variety of bullish catalysts, principally including favorable supply/demand dynamics and paper currency depreciation/devaluation. Moreover, commodities are an attractive component of a diversified portfolio, due to their history of positive returns, their historic negative correlation with stocks and bonds, and the hedge against inflation they provide."

Shares of Sprint Nextel Corp. sank as much as 9% Tuesday morning after the company issued a weak forecast for 2007.

Meritage Homes Corp. said quarterly net sales orders fell 42% to 1,201 homes from a fourth-quarter record of 2,072 in the year-ago period. As a percentage of quarterly gross sales orders, cancellations rose to a record 48%, the residential builder said.

Thai stocks tumbled Tuesday after the military government announced another set of restrictions of foreign investment in the country that would reduce foreign ownership in Thai companies to less than 50%.

D.R. Horton Inc. said first-quarter net sales orders fell $900 million to $2.3 billion from $3.2 billion in the year-ago period. First-quarter cancellation rate fell to 33% from 40% in the year-ago period.

The European Union sharply criticised Russia on Tuesday for closing a pipeline supplying oil to Europe in a price dispute with Belarus and said the move hurt Moscow's reputation as a reliable energy provider. Russia has stopped crude exports through the Druzhba pipeline, halting supplies to Poland, Germany and several central European countries.

The WSJ stated that the Gap was seeking various alternatives, and had hired Goldman Sachs in this effort.

February gold rose $5.60, or 0.9%, to close at $615 an ounce Tuesday. March silver gained 23.5 cents, or 1.9%, to close at $12.595 an ounce and March copper added 2.8 cents to finish the session at $2.556 a pound.

Steve Jobs: "Apple is going to reinvent the phone," Jobs said during his keynote speech at Macworld. The iPhone will have a 3.5-inch diagonal screen and be 11.6 millimeters thick. It will sync with iTunes and have a 2 megapixel camera. The phone will use new "multi-touch" technology."

February natural gas rose 25.3 cents, or 4%, to close at $6.631 per million British thermal units in New York Tuesday. That marked the contract's strongest closing level since Dec. 22, as U.S. weather forecasts called for the return of more winter-like weather. February crude fell 45 cents to close at $55.64 a barrel; however, that was about $1.75 a barrel higher than the worst levels of the day.

The Organization of Petroleum Exporting Countries should fully implement all 1.7 million barrels a day of crude oil the group has announced it plans to cut before embarking on additional reductions, Nigerian oil minister Edmund Daukoru said Tuesday.
"Let's implement the 1.7 million fully then we'll see if there's a need for additional cuts," Edmund Daukoru told Dow Jones Newswires.

Oil Daily reported Forest Oil has agreed to acquire Houston Exploration in a cash and stock deal worth $1.5 billion. The transaction was brokered by hedge fund Jana Partners which had been prodding Houston Exploration to buy back stock and put itself up for sale.

Monday, January 08, 2007


1/9/07 Voices

John Williams (Shadow Government Statistics): "The U.S. economy and financial markets face significant peril in 2007, with the dollar sitting on the brink of a major collapse. The positive 2006 U.S equity markets and reasonably tranquil credit markets belie the pending turmoil that already has been set in motion by a rapidly deepening inflationary recession and exacerbated by the de facto long-term insolvency of the U.S. government."
NCR hired J.P.Morgan to separate into two independent publicly traded companies through the spin-off of the company's Teradata Data Warehousing business, via a 100% tax-free spin-off to NCR shareholders.

The U.S. dollar depreciated by 0.5% in December against a trade-weighted index of 15 currencies, the Federal Reserve Bank of Atlanta reported Monday. The dollar fell 2.4% against European currencies in December and is down 10.2% against them in the past year. Against Pacific currencies, the dollar fell 1% in December and is down 5% in the past year.

Jim Lentz, executive vice president for Toyota Motor Sales (TM), said in an interview Monday that while the Japanese automaker is forecasting industry vehicle sales in the U.S. of about 16.6 million in 2007, he believes that number could fall as low as 16.3 million.

Bloomberg reported Russian oil flows to Europe were cut off by a disagreement with Belarus, the third time in as many years that energy supplies have been disrupted because of a dispute between Moscow and nations that ship its crude and gas.
The cutoff comes after Belarus introduced a transit tax in retaliation for higher charges imposed by Moscow for crude supplied to the former Soviet state. Last year a disagreement between OAO Gazprom and Ukraine lowered deliveries to Europe from the Russian natural-gas producer.

Donald Kohn: "The economy appears to be weathering the downturn in housing with limited collateral effects and inflation appears to be easing with the aid of lower energy prices, well-anchored inflation expectations, and competitive labor and product markets." Yet, he said, it's "too early to relax our concerns" about price pressures.

An old adage is the market accomodates the fewest number of people at any one time. In light of that adage, it is not surprising that, the first rally after a sharp decline, does not hold. This can be very frustrating for many value investors. The smart ones know patience is required. On Monday we saw crude rally above $57 only to stall and that fall beneath $56. For those who bought early on Friday morning it might have led to some second guessing. Again, a smart investor knows what he or she is buying.

Marathon Oil Corp. estimated fourth-quarter production sold of 355,000 barrels of oil equivalent per day. Houston-based Marathon also estimated oil and gas production available for sale in the fourth quarter of 360,000 boepd, within the company's previously forecasted range. The company stated market indicators for refining margins (crack spreads) in the Midwest (Chicago) and Gulf Coast were weaker during the fourth quarter 2006, when compared with the fourth quarter 2005. In addition, crude oil prices decreased more significantly in the fourth quarter 2005 than they did during the fourth quarter 2006. Based on these indicators and other company specific information, the Company projects its refining and wholesale marketing gross margin per gallon during the fourth quarter of 2006 will be approximately 25 percent lower than the fourth quarter 2005. The Company continued its $2 billion share repurchase program during the quarter, reducing the quarterly average diluted share count to an estimated 354 million common shares outstanding for the period. The Company purchased approximately 6.3 million shares of its common stock during the fourth quarter, at a cost of approximately $550 million. At year-end 2006, the Company has repurchased almost 21 million shares at a total cost of approximately $1.7 billion.

According to Daily FX, average daily volume in the global foreign exchanges could rise above a much-hyped $3 trillion this year, more than 50 per cent up from three years ago and dwarfing volumes in other financial markets.

International air freight, a key indicator of world trade health, grew by 3.1 per cent in November after its poorest performance in a year in October, the airline industry body IATA said. Despite the improvement against the 2.3 per cent growth the previous month, the November figure -- calculated against the total for the same month in 2005 -- showed the air freight business was still sluggish, IATA said.
Growth for the January-November period was running at 4.8 per cent over the same period in 2005, it reported.

"In the next several decades, 2040 to 2050, it will be very difficult to lessen our addiction to oil, but we may lessen it a little," said Fatih Birol, chief economist at the International Energy Agency, adviser to industrialised countries.
The IEA's 2006 World Energy Outlook to 2030 foresees ever-rising oil demand led by Asia met by a dwindling band of major producers, mainly in the Middle East.
World consumption would hit 116 million barrels per day (bpd) by 2030 or 103 million bpd if governments adopt policies to curb use -- in either case, up from 84 million bpd in 2005.

Ed McCarthy: "We are perhaps in the 1st quarter of the residential downturn. That quarter usually sees the first signs of slippage give way to a market “FREEZE” where foreclosures are not yet hitting comparable with auction numbers, and sellers still have Kudlow type sugarplums rather than reality dancing in their heads. A wild prediction, the eventual residential downturn will approach the Texas 1980’s or the New York 1974-5’s. Maybe worse!"

The European Central Bank and the U.S. Federal Reserve may have to raise interest rates once more to keep inflation in check, International Monetary Fund Managing Director Rodrigo Rato was quoted on Monday as saying.

February gold rose $2.50 to close at $609.40 an ounce in New York Monday. March silver closed at $12.36 an ounce, up 13 cents, or 1.1%, for the session. March copper fell by 0.7 cent to close at $2.528 a pound.

Byron Wien: "Despite a world-wide economic slowdown, crude oil remains in short supply because of Asian demand and the price per barrel returns to $80. Development of alternative sources of energy and sales of hybrid cars remain disappointing. There is a movement in Congress to encourage the construction of nuclear powered electric utility plants and local resistance seems to be softening as the "green wave" starts to take hold."

Sunday, January 07, 2007


1/8/07 Happenings

Israel has drawn up secret plans to destroy Iran's uranium-enrichment facilities with tactical nuclear weapons, London's Sunday Times newspaper reported, citing military sources. Two Israeli air force squadrons are training to blow up an Iranian facility using low-yield nuclear "bunker-busters," several Israeli military sources told the newspaper. Under the plans, conventional laser-guided bombs would open "tunnels" into the targets. "Mini-nukes" would then immediately be fired, exploding deep underground to reduce the risk of radioactive fallout, the paper reported. Israel denied the story.

The headlines focus on Iraq, but Afghanistan is a growing story. One of our generals stated that, the gains achieved by us over the last several years, are quickly evaporating as the Taliban grow in number and gain additional strongholds.

This morning crude rallied over the $57 a barrel level and natural gas gained as well. Possibly, just as important, was the action taken by GE, a savvy buyer.
General Electric Co. said on Monday that it will buy Vetco Gray, a Houston-based oil and gas fields equipment supplier, for roughly $1.9 billion as it expands its presence in the oil and gas industry.
Vetco is expected to generate more than $1.6 billion in sales in 2006, GE said. The company has 5,000 employees in more than 30 countries, with key centers in Houston in the U.S., Aberdeen in the UK, Stavanger and Oslo in Norway and Singapore, GE added. You might recall that I believe 2007 will mark an active period for oil and gas mergers.

Caremark Rx said late on Sunday it had rejected a roughly $26 billion takeover bid from rival Express Scripts, saying it favored an offer of about $22.2 billion from drugstore chain CVS Corp.

Global economic growth this year may well be close to that of 2006, European Central Bank President Jean-Claude Trichet said Monday.

United Surgical Partners said it was being acquired by Welsh, Carson, Anderson & Stowe affiliate UNCN Acquisition Corp. for $1.8 billion in cash and debt. UNCN will pay $31.05 a share for each United Surgical share outstanding.

A greater number of drilling rigs were in operation worldwide seeking oil and natural gas last month, Baker Hughes Inc. said. The global rig count for December was 3,125, up 48 from 3,077 counted in November and up 132 from 2,993 in December 2005.

Saudi Arabia will fully implement production cuts agreed in previous meetings of the Organization of Petroleum Exporting Countries. That would mean a cut of 158,000 barrels of oil a day starting in February, in addition to the 380,000 barrels a day cut the country agreed to in November.