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Showing posts from May, 2012

More proof that the CAD is a Petro-Currency

So over the past few weeks, petrol has gone from $99/bbl to about $91/bbl.  During that time the CAD has gone from parity to the USD to 0.97 to the greenback.  Now my Western Canadian friends can say what they want but it remains that the correlation between the CAD/USD trade and the price of crude is well correlated (factor of 82% -- which is high).
Anyway, where oil price are going from here I have no idea.
On a related note several Shale Gas Cos are facing dramatic financial pressures.  Looking at the numbers it would seem that break even is around $8/MMBTU whereas price are around $2.6/MMBTU.  Turns out that the wells depletion rate is the issue -- Shale Gas Cos have been hiding the dramatic drop in production via faster and faster new drillings; a shell game that eventually blows up!
Turns out not only is Shale Gas exploration dangerous; its also a money losing proposition, who knew!

Vampire Squid anyone?

If it were not so sad it would be funny; after the mortgage backed securitization fiasco in which GS played a leading role in mis-stating the facts for their clients -- like they had no role whichsoever on selecting the mortgage pool.

GS's muppets have been playing the games for years, they suspected that the bank was screwing them; now they know.  I had friends who work at GS (note the tense) I always though they have a certain moral fiber (and I don't mean it as a compliment), an ability to see the real world in a way that fits their own reality (thruthiness if you will).

The lastest, thanks to their (soon to be ex) grossly incompetent lawyer (and apparently not much of a human being) was to provide the world with the proof they they treat clients as muppets, unless of course they are favoured clients (read hedge funds).  Turns out that not only did GS actively promote naked shorting (which is in the same ballpark as insurance a house you don't own and then burning it d…

What's going on in China?

Some very strange things are happening in China, but the overall theme is:  Capital outflow.  The discussion is remarkably technical, but in a nutshell investors because of global uncertainty and apparent economic growth deceleration in China are looking to hold US dollars.

First, it would seem that the opening gambit is the deceleration in China's export machine -- America is limping along and Europe is at the edge of the abyss.. so the Chinese government's "usual" source of dollars is drying up (e.g. exporters).  More to the point those exporters now appear to be short US dollars.  While foreigners are finding fewer investment opportunities in China.

Now, China has an easy out, it could sell US treasuries and replace these IOU with American dollars (the same thing really), but China is reluctant to admit to this problem, because it could create a vicious cycle outcome with more people believing that there is an excess of Yuan.   BTW the impact of selling US-T bonds…

So if the CAD is not a petro currency why is it falling?

OK,

Over the past few weeks there's been a debat in Canada as to whether the Canadian economy was facing the "dutch disease", which for those who don't know -- the Dutch economy was decimated when the country discovered oil, that drove up its currency and killed its manufacturing sector (we're talking the late 50's and early 60s).

First and foremost the whole "dutch disease" has always been a side bet, even in the Netherlands -- other factors played an equally important role in the destruction of the manufacturing sector; bad management, bad labor practices and bad government policies -- added to a strong currency caused by the the oil & gas sector.

For some reason Westerners  (Canadian -- not global)  have taken the view that the strong commodity sector -- and oil in particular have nothing to do with the strength of the CAD, of course this is complete bullshit, but where they are right, its not the only reason.  Several studies have showed tha…