Saturday, February 17, 2007


2/18/07 Happenings

BBVA, Spain’s second-largest bank, on Friday stepped up its push into the US by unveiling an agreed $9.6bn acquisition of Compass Bancshares, a franchise covering six states.

Pertaining to rumors of GM buying Chrysler, a GM source said the company had nothing to say because: "We decided not to comment when something makes no sense."

"Loan officers, mortgage agents, real estate employees, development executives and construction workers are among the array of people who have lost jobs in the East Bay or are wondering when the ax might fall," Northern California's Contra Costa Times reports. "And directly or indirectly, those job losses are tied to a drastic slump in the sales, construction and financing of new homes...Now, a slowdown has arrived and relief has yet to arrive on the horizon."

Carl Swenlin: "Bottom Line: The Rydex Cash Flow Ratio shows that investors have been extremely reluctant to accept the market advance from the summer lows. Until they do, the advance is likely to continue."

George Ure: "You'll see a link to the Minneapolis Federal Reserve's inflation calculator. I want you to click on it because it has now been updated to 2007 data (they should have done a press release, but the effects of harsh economic facts are difficult to predict, so we had to make do with Chairman Ben's comments this week which were about as vanilla as one could hope for).
You'll see that if you plug in 11,723 which was the 2000 Dow high, and then put in 2007 (sort of like asking "What should the Dow be priced at today to have just kept even with inflation?) you'll find we need the Dow to have hit 13,989.99 to have just held its value.
No, that's not likely to make a front page headline in the WSJ or Forbes. After all, what kind of fool editor would proclaim "Dow Loses 8.6% (excluding commission/dividends/etc) Despite Record Highs" except me?"

"Examination of data within the quarter shows home prices stabilizing toward the end," said a statement from David Lereah, the NAR's chief economist. "When we get the figures for this spring, I expect to see a discernable improvement in both sales and prices." This guy is the second coming of Helicopter Ben.

"Doug Noland: "It is my view that, at least for the most part, subprime is not a viable business over the entire life of the business cycle. Invariably during the boom - with cheap finance too readily available and a broadening cadre of aggressive lenders, financiers, and speculators actively pursuing their share of ballooning profits - subprime loans will be under-priced and grossly overextended. There will be dire circumstances. And the more protracted the boom, the greater will be the systemic impact of the mispricing and overexpansion of subprime finance. Inevitably, there is no escaping the reality that the industry is a Ponzi Finance Unit, acutely dependent upon new liquidity to sustain lending volumes and, hence, asset prices, borrower solvency and loan quality. Importantly, amidst Credit Euphoria, the overextension of loans will inflate collateral values (home prices) and boost the general economy. With home prices up, unemployment down, and Credit all around, few will be forced into default and foreclosure. Subprime profits will be distorted both by inflated revenue growth (surging loan volumes, gain on sale at inflated prices, and attractive spreads on retained portfolios) and by artificially low Credit losses. The outstanding performance of subprime securitizations and related derivatives will entice only greater speculator interest and sector liquidity overabundance, pushing up the price (down the yield) of risky mortgages. In the real economy, easy finance and housing price inflation spur overbuilding, overspending, and a misallocation of resources...Wednesday, California originator ResMae filed for bankruptcy after Merrill Lynch sought to return $520 million "worth" of mortgages."

John Mauldin: "The subprime mortgage market is going to be a scandal by the end of this year, as these loans have been packaged and sold as investment-grade bonds by numerous investment banks, mostly to European and Asian institutions. Some of these Collateralized Debt Obligations, or CDOs, are going to default and there is going to be a major wave of lawsuits.So, will there be a recession? I still think so, and I think the culprit is going to be the housing market, which is going to trigger a slowdown in consumer spending, the first such slowdown since 1991."

Long Overdue

2/17/06 Long Overdue

Goldman Sachs on Friday cut its earnings estimates on Home Depot Inc. for 2007 to $2.77 a share from $2.92 a share, and for 2008 to $3.08 a share from $3.36. These new estimates were long overdue.

The Commerce Department said housing starts last month plunged 14.3% from December levels to a seasonally adjusted annual rate of 1.408 million, the lowest rate for starts since August 1997. Building permits dropped 2.8% to 1.568 million in January, 28.6% below the same month a year ago.

Prices paid by producers fell 0.6% in January, while core prices, which exclude food and energy prices, rose 0.2%.

Real estate investment trust Mills Corp. said Friday that Simon Property Group Inc. and hedge fund Farallon Capital Management will acquire the company for $25.25 a share in cash. The group had earlier offered to acquire Mills for $24 a share.

The Philadelphia region's manufacturing weakened in February since orders fell and shipments weakened. The derived composite fell to 49.5 from 53.5. That is the lowest level of the composite since August 2003.

Rigzone: " Worldwide offshore rig utilization inched up slightly this week to 83.6% with 556 of 665 offshore rigs currently under contract. Worldwide rig utilization and the worldwide rig count have been setting highs not reached since the 1980’s."

According to researchers at the University of Michigan on Friday. the consumer sentiment index retreated to 93.3 in February after jumping to 96.9 in January from 91.7 in December. The current conditions index fell to 108.3 in February from 111.3 in January. The expectations index slipped to 83.7 from 87.6 in the previous month.

"This country needs a dramatic change of course in Iraq and it is the responsibility of this Congress to consummate that change," said Rep. John Murtha.

The U.S. warned that militant attacks in Nigeria, Africa's biggest oil producer, may expand to new areas and become more violent. Nigeria is the fifth-biggest U.S. oil supplier. Refineries in Pennsylvania, Delaware and Ontario have slowed output this week because of fires and power outages.

From Oil Drum: "They cannot increase; the only way is for production to go down," said Mohamed Zine, Middle East regional manager for energy analyst firm IHS. "There has been no improvement, nothing," said Zine, whose views on the situation in Iraq are often less dramatic than Chalabi's. "It is getting worse."

Xerox said late Friday it expects 2007 operating cash flows to fall to a range of $1.2 billion to $1.5 billion from $1.6 billion last year.

SanDisk said it is cutting expenses with actions such as reducing its worldwide workforce by up to 10%, or 250 employees, and reducing salaries for all executives, with the chief executive's base pay falling 20%.

Crude for March delivery closed up $1.40 at $59.39 a barrel on the New York Mercantile Exchange. Natural-gas futures were up 21.1 cents at $7.503 per million British thermal units, down 4.1% from a week ago.

Gold for April delivery closed up $1.40 at $672.80 an ounce on the New York Mercantile Exchange. March silver closed up 2.8 cents at $13.99 an ounce. April platinum ended down $6.50 at $1,210.40 an ounce, and March palladium dropped $1 at $341.80 an ounce. March copper closed down 1.95 cents at $2.6445 a pound.

Thursday, February 15, 2007

New Threats

2/16/07 New Threats

A Saudi wing of al Qaeda called for attacks on suppliers of oil to the United States around the world, saying targets should not be limited to the Middle East and listing Canada, Venezuela and Mexico as under threat.
The threat appeared in the al Qaeda Organisation in the Arabian Peninsula's e-magazine, Sawt al-Jihad (Voice of Holy War), which was posted on a website used by Islamist militants.
"It is necessary to hit oil interests in all regions which serve the United States, not just in the Middle East. The goal is to cut its supplies or reduce them through any means," it said.

China and Russia are fighting U.S. efforts at the United Nations to prevent Iran from building nuclear bombs while working to strip North Korea of the same weapons.
Diplomats said the international effort to punish Iran has been stymied, chiefly by China and Russia. Russian diplomats said they favor negotiations aimed at persuading Iran to halt nuclear enrichment work, rather than carrying out sanctions right away. Chinese envoys expressed the same view.

Hershey Foods Corp. detailed a three-year plan to change its supply chain operations, saying it expects a total net reduction of about 1,500 jobs.

Proved reserves of natural gas and oil added through drilling replaced 197% of EnCana's North American production for 2006, the company said.

Baker Hughes said that it's expecting revenue outside North America to rise by between 17% and 19% in 2007.

From the Financial Times: "Expectations that the Bank of Japan would raise interest rates soon strengthened on Thursday after fourth quarter GDP figures showed the Japanese economy grew at its fastest pace in nearly three years.
The Japanese economy in the October to December period grew 1.2 per cent from the previous quarter, much stronger than a consensus forecast of a 0.9 per cent increase. It translated to an annualized 4.8 per cent growth, the highest in nearly three years."

Import prices fell 1.2 percent in January after increases of 1.1 percent
and 0.5 percent, respectively, in December and November. A 7.3 percent
decrease in petroleum prices drove the overall January drop, as petroleum
prices resumed a recent downward pattern after increasing 4.6 percent in
December. Nonpetroleum prices were unchanged in January after a 0.5
percent advance the previous month. Prices for nonpetroleum imports rose 1.6
percent over the 12 months ended in January.
Changes in prices for nonpetroleum imports were highlighted by a
turnaround in the index for nonpetroleum industrial supplies and materials
prices, which declined 1.0 percent. The January decrease followed increases
of 1.7 percent and 4.1 percent, respectively, in December and November.

The Federal Reserve Bank of New York's general economic index rose to 24.4 in February from 9.1 the month before, the bank said today. The increase was the largest since July 2005.

George Ure: "an email from a long-time reader/contributor Bruce C who laid an amazing series of emails on me:

"Since the July '06 low, the SPX has run nearly 20%; this 7-mth. rally eclipses the 7-mth. blow-off episodes before the '00 top, the '87 top, and the '73 top.
It required 13 mths. to rally a similar 19-20% to the top in '72-'73; 9-10 mths. in '87; and 12-13 mths. in '00.
Additionally, it took 17-18 mths. for the 19-20% rise and blow off in 1891-93; 16 mths. in 1906-07; 9 mths. in 1919; only 2-3 mths. in 1929; 7 mths. in '36-'37; 17 mths. in '67-'68; 7-8 mths. in '90; and 6-7 mths. in '98.
Thus, we're duplicating, even surpassing, the periods immediately preceding the tops in '19, '37, '68, '73, '87, '90, '98, and '00.
Again, it is "different this time". We might well look back on this 7-mth. period, and the 3-4 years that preceded it, as the last best period for stocks for many years to come, perhaps a decade or more."

George Ure asks: "If the Saudis really have all the oil that's claimed, why would they even think of pursuing a nuclear deal with Russia? " If you are short oil and/or the oil sector, then you might think carefully about this question. In the stock market one should watch the flow of money.
In the Saudi Ghawar oil field, one should watch the flow of water.

U.S. industrial production fell 0.5% in January, the biggest drop since Hurricane Katrina struck the Gulf Coast in September 2005, the Federal Reserve reported Thursday. Capacity utilization fell sharply to 81.2% from 81.8%. Manufacturing output fell 0.7% in January.

Monthly capital flows to the United States reversed in December to the first outflow in a year-and-a-half, the Treasury Department reported Thursday. Monthly capital flows reversed to an outflow of $11 billion in December compared to an inflow of $70.5 billion in November. Net long-term capital inflows, meanwhile, fell to $15.6 billion in December from $84.9 billion in November. This is the lowest inflow since January 2002.

Rigzone reports as an aging generation of workers retires, industry experts say the resulting shortfall in skilled labor could lead to an increase in delays and problems on mega oil and gas projects.

"We're running out of water," said Montana Gov. Brian Schweitzer. "It's getting worse every year as Wyoming is using more and more water our farmers and ranchers who depend on this water for irrigation are having difficulty raising their crops."

The Energy Department said natural-gas inventories fell 259 billion cubic feet for the week ended Feb. 9. Total stocks now stand at 2.088 trillion cubic feet, down 193 billion cubic feet from the year-ago level, but 268 billion cubic feet above the five-year average, the government data said.

The Labor Department reported the number of Americans filing first-time claims for state unemployment benefits rose to 357,000 last week from a revised 313,000 the prior week.

March crude closed at $57.99 a barrel Thursday, ending the session with a loss of one penny after dropping to a low of $56.65 earlier. March natural-gas also recovered from a low of $7.05 to close at $7.292 million British thermal units, up 5.1 cents.

George Friedman (courtesy of John Mauldin) : "Russia is not only a major exporter of energy supplies, it is currently the world's top oil producer. The Russians have a need to maintain robust energy prices, and working with the Iranians and Saudis in some way to achieve this is directly in line with Moscow's interest. To be more specific, the Russians do not want the Saudis increasing oil production."

"Some of the Windows revenue forecasts I've seen are overly aggressive,'' Chief Executive Officer Steve Ballmer said at a meeting with analysts in New York today. ``You shouldn't think of a huge surge in fiscal year `08 relative to `07. There's a few that think we are going to do so much better than PC growth.''

Home prices fell in half of U.S. cities in the fourth quarter as a housing slump forced sellers to accept lower prices, the National Association of Realtors said.
The median price for a single-family home fell in 73 of 149 metropolitan areas studied by the Chicago-based real estate trade group. The national median price for a previously owned house was $219,300 in the fourth quarter, down 2.7 percent from a year earlier when the median price was $225,300, the group said in a report today.

A majority of Americans -- 53 percent -- said the U.S. should withdraw from Iraq, according to Pew. That is up 5 points in the past month and the highest percentage favoring a troop pullout since the war began almost four years ago. Thirty-five percent said the withdrawal should be gradual over the next year or two, and 16 percent said it should be immediate.

Mike Steinhardt: " Very few people have the ability to pick a high, and I don't think that this is the exact moment. One stays long, but one becomes very sensitive. You say to yourself that the next major, major move is going the other way.''

All of the greater Houston area, with the exception of the immediate coast, will experience freezing temperatures overnight.
Temperatures will fall below freezing around midnight, likely falling into the upper 20s, and will remain so until the sun rises Friday, forecasters at the Houston/Galveston office of the National Weather Service said. The record low at Bush Intercontinental Airport for Feb. 16 is 28 degrees, so it could be tied or broken. If the temperature falls below 30 degrees it will be the coldest night of the 2006-2007 winter. Temperatures this month are about 2.2 degrees below normal, and temperatures have been cooler than normal on 25 of the last 31 days.

Wednesday, February 14, 2007

Shifting Sands

2/15/07 Shifting Sands

Tribune Co. after Tuesday's closing bell said the review of strategic alternatives is ongoing, and the media company's board expects to make a decision on a course of action and have an announcement before the end of the first quarter. "The review process has been rigorous and will continue to move forward with the assistance of our outside financial and legal advisors," said William Osborn, Tribune's lead independent director, in a statement.

DaimlerChrysler dropped its long-standing commitment to the Chrysler group today and said it was prepared to review all its options, including finding new partners for its loss-making U.S. arm. The company is
going to cut 13,000 jobs from 2007 to 2009, with 11,000 hourly workers being cut and 2,000 salaried employees losing their jobs.

In the fourth quarter of 2006, there were 1,444 mass layoff events that
resulted in the separation of 255,886 workers from their jobs for at least
31 days, according to preliminary figures released by the U.S. Department
of Labor’s Bureau of Labor Statistics. Both the total number of layoff
events and the number of separations were higher than during the October-
December 2005 time period. (See table A.) The over-the-year increases
in layoffs were most notable in transportation equipment manufacturing,
insurance carriers and related activities, and food and beverage stores.
Fifty-seven percent of all employers reporting an extended layoff in the
fourth quarter of 2006 indicated they would recall some number of workers.
This was the lowest proportion of employers expecting to recall workers for
any fourth quarter since 2002.

A growing body of research is being done exploring the
relationship between the potential of melanocortins to
treat hypertension. This could have a significant impact
on Palatin in future years.
The company is starting a melanocortin 1 receptor agonist program.

Oil Drum points out Matt Simmons thinks that we will peak in oil production this year, because the spare
capacity to replace the collapsing fields of Mexico and the North Sea
is just not there.

Nouriel Roubini: "It now looks like the alleged growth rebound in Q4, from the 2.0% of Q3
to the 3.5% of Q4 was an illusion based on incomplete data. Based on
recent data on inventories for December (much lower than initially
predicted by BEA) and today’s December trade balance figures (much
worse than initially forecasted by BEA) the initial estimate for Q4
growth will be revised downward to 2.0% or at best 2.2%."

Russia will spend at least $11 billion to build the first leg of its oil pipeline to Asia, up from initial estimates of $6.6 billion, pipeline monopoly Transneft said in its eurobond prospectus.

Sol Palha: "When the oil to Gold ratio drops below 9 then it pays to get out of oil and buy Gold. When this ratio trades above 11 the opposite is true; it's good to jump out of gold and buy oil...The current ratio stands at 12.5 and thus it more then makes sense to go long Oil and get out of Gold. What this pattern is basically illustrating is that Oil is now a better investment then Gold."

The U.S. is the main supplier of weapons to the oil-rich kingdom but relations have been strained since the Sept. 11 attacks and Saudi Arabia may be looking to Russia to diversify its military suppliers.

David S. Elliott: "Thus, it is indeed disquieting to note that the volume of water used to obtain Ghawar's oil has been steadily increasing. In fact, on a daily basis, an astounding 7 million barrels of seawater is being injected into the old oil reservoir to increase the oil flow. According to industry experts a few months ago Ghawar was producing 55 percent water -- in other words, more than half of the fluid brought to the surface was not oil.
In fact, a number of signs clearly indicate that Ghawar is in decline. Back in April 2006, a Saudi Aramco spokesman admitted that its mature fields are now declining at a rate of 8 percent per year. This, of course, implies that Ghawar may have peaked. The spokesman went on to say that measures were being taken to offset the decline, but that the only true solution to declining oil supplies is to locate new fields, and it is beyond debate that discoveries have not kept pace with growing global demand. Roughly 80 percent of oil being produced today is from fields discovered before 1973."

The first Iran's Oil Refining Forum is to be held in Tehran on February 17-18 with the participation of 300 domestic and foreign experts in the field of oil refining, IRNA reported. Organized by the National Iranian Oil Refining and Distribution Company (NIORDC), the conference is aimed at attracting foreign sponsors for investments on development of Iran's oil refining industry.

The American Petroleum Institute reported a fall of 372,000 barrels in distillate supplies for the week ended Feb. 9. The Energy Department had reported a decline of 3 million barrels. Motor gasoline supplies were down 603,000 barrels, the API said, vs. the government's reported fall of 2 million. Crude supplies were down 3.4 million barrels, the API said, compared with the government's 600,000-barrel decline.

Noble Energy Inc. said it expects to record year-end 2006 reserves of 834.6 million barrels of oil equivalent. The Houston-based energy company said it sees reserve additions from all sources totaling 122.1 MMBoe, or 179% of 2006 production.

April gold climbed $3.50 to close at $672 an ounce Wednesday March silver gained 5 cents to close at $13.965 an ounce. Over the past several months we have been able to
realize a profit of $100 an ounce in gold. I would recommend booking that profit and investing the profit in crude oil at roughly $58 a barrel.

Masco will cut 8,000 jobs by the end of the first quarter, including 1,000 salaried positions, Chief Executive Officer Richard Manoogian said today on a conference call. Fewer purchases at Lowe's Cos. and Home Depot Inc. and the slowdown in new home construction, which accounts for 40 percent of Masco's sales, hurt revenue in the fourth quarter. This does not sound like the worst of the housing decline is behind us.

The price of West Texas Intermediate, the benchmark U.S. crude, may average $69 this year, Goldman economist James Gutman said Feb. 8. Others like Sanford Bernstein predict oil prices will decline. That's what makes for horse racing, as one might say.

March crude fell $1.06 to close at $58 a barrel Wednesday. March natural gas fell 12.6 cents to close at $7.241 per million British thermal units.

Tuesday, February 13, 2007


2/14/07 Events

At the end of trading Monday, Palatin closed at $2.29 per share. Prior to Tuesday's trading this was released: "Palatin Technologies, Inc. announced today that it has priced an underwritten offering of 13.75 million shares of its common stock at $2.00 per share, for $27.5 million in gross proceeds, before commissions and expenses. Palatin expects the net proceeds from the sale of the shares will be approximately $25.5 million. Under the terms of the financing, the underwriter has agreed to purchase the shares from Palatin. All shares of the common stock offered by Palatin are to be issued pursuant to effective shelf registration statements on Form S-3. The closing of the offering is scheduled to occur on or about February 15, 2007 and is subject to customary closing conditions. Pacific Growth Equities, LLC acted as the sole underwriter for this offering."

KB Home swung to a loss of $49.6 million, or 64 cents a share in the fourth quarter driven by previously announced land charges of $343.3 million. In a statement, Chief Executive Jeffrey Mezger said during the second half of 2006, "an oversupply of unsold new and resale homes, reduced affordability, and greater caution among potential homebuyers heightened competition among homebuilders and sellers of existing homes, prompting the aggressive use of price concessions and sales incentives." The result was pressure on profit margins, while results "were further affected by declining land values and the resulting charges we recorded in the fourth quarter to reflect lower land values," the CEO added.

Mills said it has received a definitive offer from Simon and Farallon to acquire the company for $24 a share in cash by means of a tender offer for all outstanding shares of Mills' common stock.

The Commerce Department said the nation's trade gap widened by 5.3% in December to $61.2 billion, exceeding the MarketWatch forecast for an increase to $59.5 billion. The higher-than-expected monthly trade gap is expected to contribute to a downward revision of fourth-quarter growth from an initial projection of 3.5%.

Applebee's is exploring a possible sale or recapitalization.

Barry Ritholtz: "The changes in the GSCI led to a subsequent sell off in the gasoline futures market. After a 5 year run in energy prices, there was a 30% drop in the price of oil after their rebalancing -- and during the 2 months prior to the election. Another lucky coincidence! Another fortuitous coincidence: GS had a blockbuster quarter following the ramp of the markets."

Oil exploration and production costs have climbed 53 percent in the past two years as prices for everything from drilling rigs to labor continue to surge, according to a new price index released Monday.
The Upstream Capital Costs Index, a compilation of nine items central to the oil and gas industry, has been on the rise since 2000, but it spiked sharply beginning in 2005, said Richard Ward, senior director of upstream research for Cambridge Energy Research Associates, which is holding its annual conference in Houston this week. Starting with 100 as the base in 2000, the index rose gradually to 103.9 in 2002, 105.8 in 2003 and 109.5 in 2004. But in 2005 it shot up to 126 and reached 148 by last November.
In the past year, the largest increase came in the cost of leasing offshore drilling rigs, which rose 309.2 percent. Rig contractors are expected to expand their fleets by more than 100 in the next four years, but rates likely won't ease until 2009
Rates for offshore equipment installation vessels, such as heavy-lift cranes that lay undersea pipelines, rose 41 percent in the last year. And rates for engineering and project management staff have grown 23 percent, despite an increase in new design centers in Asia and the Middle East, where labor costs are cheaper.

Coca-Cola Enterprises Inc., the biggest bottler of Coca-Cola Co. beverages, said it will cut about 3,500 jobs as part of a restructuring expected to cost $300 million.

Unit Petroleum Company set new company-records for nearly ever major category: total proved reserves, annual production, and wells drilled and achieved its stated annual goal to replace more than 150% of its production.

Nouriel Roubini points out that Ed Altman argues that the reason behind the very low corporate default rates is not better corporate and economic fundamentals as default rates are well below what fundamentals would predict based on historical data. Rather temporary factors such a surge in liquidity and demand coming from non-traditional lenders (hedge funds and private equity) explains - among other factors - the very low corporate risk spreads and the unprecedented record low default rates. Once these temporary conditions fizzle out - as he expect them to in 2007 - default rates will return to their higher historical averages as predicted by firm and economic fundamentals.

Martin Weiss: "Overall, Latin America's exports to Asia have surged to $47.5 billion, growing by a breakneck pace of 20% per year since 2000. Brazil's trade with China, which was under $20 million in the mid-1970s, has now grown by over one thousand times, to nearly $20 billion. And it's still skyrocketing. With no slowdown in sight. The value of Brazil's iron ore exports have tripled just in the last six years -- from $2.9 billion in 2001 to at least $10 billion this year. And most of that new growth is driven by China."

China's dependency for import oil has risen to 47.0 percent of its annual demand in 2006, an increase of 4.1 percentage points from the previous year, sources with the Ministry of Commerce said on Tuesday.
Last year, China produced 183.68 million tons of crude oil, up 1.7 percent. Its net oil imports amounted to 162.87 million tons, up 19.6 percent. The total net imports included 138.84 million tons of crude oil, up 16.9 percent, and 24.03 million tons of oil products, up 37.9 percent.
Industry observers forecast that in 2007, China's crude oil output will grow only less than two percent, while demand for both crude and oil products will rise six percent or so.
According to the General Administration of Customs, in January China imported 13.69 million tons of crude oil, up 3.5 percent over the same month of last year, and 2.77 million tons of oil products, up 5.7 percent.

The IEA said 2007 global oil demand is expected to rise at almost double the pace from last year on robust demand in China and the Middle East and warned that global consumption may outpace the growth of new oil supplies. This should have been anticipated some time ago but the market price for crude has yet to keep up with reality.

Aon Corp. said on Tuesday that a previously announced restructuring would likely reduce head count by about 3,600 employees.

Rigzone: Baker Hughes' U.S. gas rig count hit a 21-year high of 1,466 in January, and has spent 25 of the last 26 weeks above 1,400 rigs. Despite flat gas prices, the count is likely to hover around 1,370 in 2007, according to Ziff Energy Group, a Calgary-based gas consulting firm.

Leanan on Oil Drum: "Oil and gas production in the North Sea is now expected to be about 10 per cent lower over the next few years than previously thought, according to the leading survey of the state of the industry. The faster than expected decline in production is bad news for Britain’s energy security, increasing the country’s dependence on imported oil and gas, and also for the exchequer."

The Times of London reported that Australia-based mining companies BHP Billiton Ltd. and Rio Tinto PLC are each considering offering to buy Pittsburgh-based Alcoa for $40 billion. Billiton denied the report.

Richard Daughty: "Paul van Eeden writes that to calculate real, inflation-adjusted interest rates, the kind that determine your buying power tomorrow, you combine the two inflations: Monetary inflation and price inflation. Ergo, "Real interest rates should be calculated by subtracting monetary inflation (as calculated by M3, for example) from interest rates. If you did, you would find that real interest rates are negative." Wow! Negative interest rates! Let's see: 4% interest rates minus 11% inflation in the money supply equals (and I can't believe what I am seeing!) a negative 7%! What in the hell are bondholders thinking about, paying these ridiculous prices for bonds in order to lock in these insanely-low interest rates? What in the hell are the central banks thinking about when they create the money to let people borrow money to do that?"

Sony Corp. plans to cut capital expenditures at its semiconductor operations by a “large amount,” a company executive said.

Well Fargo is going to offer its brokerage customers up to 100 free trades, if they keep at least $25,000 in their accounts. Bank of America made a similar offer several months ago.

The full text of an internal European Union document on Iran reveals that officials from the bloc are pessimistic about the chances of stopping Iran from getting enough fissile material for a nuclear bomb.

India's domestic crude oil import requirement may go up to about 85% by 2012 from current level of 70%. At the same time, refining capacity in India is poised to increase by 58% to touch 235 million tonnes in the next 5 years from present level of about 159 million tonnes in view of growing demand of energy and few resources at India`s disposal for harnessing its alternate sources.
As per industry body ASSOCHAM, that present trends indicate that oil will continue to hold an important position as the preferred fuel in the long term.
The chamber is of the view that India’s energy demand would multiply and would rise to the level of 12-13% compared to 7-8% now. It also says that India`s dependence on crude oil will increase as domestic discoveries have not been taking place and at the same time it is unable to harness its alternate sources of energy though it is available in abundance.

April gold climbed $1.20 to close at $668.50 an ounce in New York, but it was below the day's peak of $673.70, which was the contract's highest level since August. March silver ended at $13.915 an ounce, up 1.5%, or 20 cents, for the session. March copper gained 4.3%, or 10.7 cents, to close at $2.5845 a pound.

A winter storm dumped about a foot of snow on the Midwest U.S. as it headed toward the East Coast, impeding travel and prompting advisories in more than 20 states. More than 500 flights have been canceled into and out of Chicago's O'Hare International Airport, a hub for both AMR Corp.'s American Airlines and UAL Corp.'s United Airlines, with some flights delayed as much as two hours from the storm. Snow- covered highways in Illinois, Missouri, Ohio, Iowa and Kansas made conditions hazardous for drivers.``We expect a pretty broad area of heavy snow,'' said Bob Oravec, a meteorologist with the U.S. National Weather Service's Hydrometeorological Prediction Center in Camp Springs, Maryland. By tomorrow, the storm will ``spread out across from the mid- Mississippi Valley into the Midwest and then into part of the northeastern states -- Pennsylvania and upstate New York.''

March crude closed at $59.06 a barrel, gaining $1.25 Tuesday after losing over 3% on Monday. March natural gas tacked on 2%, or 14.1 cents, to end the day at $7.367 per million British thermal units.

Monday, February 12, 2007


2/13/07 Thoughts

Art Smith, head of John S. Herold research: "I'm in the camp that says we could easily have $80 oil this year."

Ali al-Naimi, Saudi Arabia's oil minister: "If you are asking me are we (OPEC) going to take additional cuts or increase supply, I do not know," the Wall Street Journal quoted Naimi as saying in an interview. "Most probably, if the trend is like what it is like today, with the market getting in much, much better health and balance, there may not be any reason to change."

Warren Buffett: "I think people would be better off if they only had 10 opportunities to buy stocks throughout their lifetime. You know what would happen? They would make sure that each buy was a good one. They would do lots and lots of research before they made the buy. You don¡¯t have to have many 4X growth opportunities to get rich. You don¡¯t need to do too much, but the environment makes you feel like you need to do something all the time...Rationality is the only thing that helps you. One thing that could help would be to write down the reason you are buying a stock before your purchase."

Adeza Biomedical Corp. has agreed to be bought by Cytyc Corp. for $24 a share, or approximately $450 million.

China¡¯s trade surplus reached $15.9bn in January, up from $9.6bn year-on-year, driven by a rise of 33 per cent in the value of exports. China¡¯s trade surplus, according to its own figures, nearly doubled in 2006, to $177bn, and is expected to top $200bn this year, despite recent statements from top leaders that China¡¯s trade should be ¡°basically balanced.¡±

Warren Buffett: "When we invest we ask one question, how long do you have to wait to raise the prices?"

Nawaf Obaid on Nov 9th 2006 in a PowerPoint presentation to the Center for Strategic and International Studies (CSIS) in Washington D.C.:
Slide 3: Saudi Arabia has a production capacity of 11.1 - 11.3 mb/d; exports 8 mb/d; and produces between 8.6 - 9.0 mb/d and 1 - 1.3 mb/d of natural gas liquids.

Slide 6: March 2006 - Aug 2009 estimated sustainable oil production capacity will increase by a net of 1.55 Mb/d. Depletion rate used works out at about 1.8% per annum.
11,000,000 b/d Estimated sustainable capacity in March 2006
+ 2,350,000 b/d Estimated increase in capacity 2006-09
- 800,000 b/d Estimated natural production decline 2005-09
¡Ö 12,550,000 b/d Estimated sustainable capacity in August 2009

Slide 9: Aug 2009 - 2011 estimated sustainable oil production capacity will increase by a net of 0.9 Mb/d. Depletion rate used works out at about 2.8% per annum over two years.
12,550,000 b/d Estimated sustainable capacity in August 2009
+ 1,400,000 b/d Estimated increase in capacity 2009 - 2011
- 500,000 b/d Estimated natural production decline 2009 - 2011
¡Ö 13,450,000 b/d Estimated sustainable capacity by 2011
In summary:
Net new capacity to 2009: 1.55 Mb/d
Net new capacity 2009-2011: 0.9 Mb/d
These charts were provided by the Oil Depletion Analysis Centre.
Therefore, the net new capacity offered by Saudi Arabia in the next few years has been grossly overstated.

Toyota Motor Corp. plans to build a new plant by 2010 in southern Indian concentrating on inexpensive, smaller model cars, the Nikkei business daily reported on Monday.
The new plant, which would be built close to the company's first plant in the country near Bangalore, would aim at producing 100,000 cars a year, roughly doubling the firm's output capacity in India.

There is a definitive agreement to take Four Seasons private at $82 a share by Bill Gates and Saudi Prince Alwaleed Bin Talal for $3.8 billion including debt.

SXR Uranium One Inc. agreed to buy UrAsia Energy Ltd. for $3.1 billion, to form the world's second- largest uranium producer as rising demand for nuclear fuel drives prices to records. SXR, owner of South Africa's largest undeveloped uranium deposit, offered C$7.05 ($6.01) a share in stock for Vancouver- based UrAsia, which owns uranium mines in Central Asia.

WCI Communities retained Goldman Sachs to assist it in identifying ways to increase shareholder value. The company said that it expects to generate $1 billion in free cash flow in 2007, and will look at asset sales to help reduce debt. Once the balance sheet is improved, the company will review strategic alternatives.

Tenaris SA, the world's largest maker of seamless steel oil and gas pipes, agreed to buy Hydril for as much as $2.2 billion to gain valves, meters and related equipment used in deepwater drilling and nature reserves. Tenaris, based in Luxembourg, will pay $97 a share in cash for the ordinary and B-class stock of Houston-based Hydril, 17 percent more than the closing price on Feb. 9.

Jim Cramer: " What do Hydril, Hanover Compressor and Universal Compression have in common? Two things. First, they're all in the compression services business for oil and gas. Second, they're all involved in mergers; UC and Hanover are getting together, and today Tenaris, an oil and drilling giant from Europe, buys Hydril. These deals are extraordinary for two reasons: nobody on Wall Street gives a darn about them and the companies are very oriented to natural gas, the pariah part of the energy business (witness the pronounced underperformance of nat gas-linked Nabors and Halliburton). When you consider that General Electric also made an acquisition in this sector a month ago, you would think that there's some froth in these oil and gas suppliers. Just the opposite."

The Wall Street Journal's ad sales rose 5.7 percent on a 7.5 percent increase in advertising volume. Increases in financial and general advertising volume were partially offset by decreases in technology and classified advertising volume. Classified advertising in the Journal fell 1 percent because of fewer real estate ads.

Lamson & Sessions said Monday its board hired Perella Weinberg Partners as financial adviser to explore "a range of strategic and financial alternatives" for the company.

Snow, rain and sleet will move into the Eastern Seaboard tomorrow and become heaviest the following day, according to Casey Crosbie, a meteorologist at the National Storm Prediction Center in Norman, Oklahoma. Travel in Washington and Philadelphia is likely to be impaired because of slippery conditions from freezing rain and sleet, he said.

BJ Process and Pipeline Services announced that it has opened a new base of operations in Doha, Qatar. The base joins BJ PPS facilities throughout the Middle East in Dubai, United Arab Emirates and Damman, Saudi Arabia. It will serve as the centre of operations for all BJ PPS activities in Qatar. "By providing greater support and resources to our clients operating in Qatar, we are firmly focused on achieving consistent, solid growth in this vibrant country," said Lindsay Link, general manager of BJ PPS.

April gold fell $5 to close at $667.30 an ounce Monday. March silver lost 1.4%, or 20 cents, to end the day at $13.715 an ounce and March copper fell by 4.05 cents to close at $2.477 a pound.

Subprime loans that have gone bad are at the highest level in at least six years, according to a Friedman, Billings, Ramsey Group report. The U.S. Mortgage Bankers Association said payments were late on almost 13 percent of subprime loans in the third quarter of 2006.

John Hussman: "With regard to present stock market conditions, it would take a correction of only about 10% in the S&P 500 to put the market behind Treasury bills for the most recent 3-year period."

March crude fell 3.5%, or $2.08, to close at $57.81 a barrel Monday. March natural gas dropped 60.1 cents to close at a two-week low of $7.226 per million British thermal units.