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Showing posts from December, 2014

America, democracy and torture

Did you know that in a recent Poll (yesterday) 78% 59% (if you exclude -- sometime justified) of Americans thought that torture was A-O-K! Jack Bower proved that torture is a righteous tool!  That it works and it should be used.  That its OK for ordinary people to be killed by drones (even though their only crime is to be live in country that are not America).

Across gender, race and income levels Americans are pro-torture!

Right now its foreigners (mostly) that get tortured, but how long will that last, when will it become ok to torture an guy so that he tells you who were his accomplices in a bank robbery (still no problem).  How about we torture a couple of bankers to tell us how the made sure their deals would fall apart... how about then.

How about when Americans protest about their civil rights... a OK turns out they don't care about that either.

Rouble is back... for now, and other news

(1)  Less than 24 hours after the Russian Rouble became unconvertible its back.  Again, this could be temporary, this could be permanent, but its clear that the world's central banks decided that the impact of having the Rouble out of the equation was not acceptable.  

Will it last, don't know

(2)  Yesterday Greece (a non-consequential country) continues to play its political games, the opposition announced that if elected they will repudiate parts of its foreign debt (that's more like it).

(3)  This morning inflation numbers came in (USA) and they are -0.3% for the month; that a 3.4% deflation rate on an annual basis -- fuel cost have half, and fuel is core to the inflation calculator

Where we go from here?  Don't know

(4) Christmas is around the corner, trading (for real accounts and not algo) is about to collapse -- cause the punters are full of turkey.

(5) Heavy oil (Canada) is in the low $40 -- we are close to variable cost of extraction in Canada for the Tar san…

Could this be it?

I've often said (in this blog) that when the end comes it will come from an unexpected direction.  First off, those who are losing in the oil price "war" are producers - they are many, but they are still far fewer than consumers.  So this correction left a lot of very big losers and many many small winners. This morning the Russian Rouble ceased to be convertible, and "trades" will be unwound.

Russia was always on the edge, its been playing political hard ball for some months/years now. Russia has been funding its world stage presence with oil at $105/bbl.  As the saying goes: "being elegant is expensive", but being a bully even more so!  Especially when a oligopolistic business system is driven by high borrowings -- driven by a desire to limit dilution, but also driven by a junk bond market primed for risk and yield -- in a world of very low yields junk bond financing is attractive.  Russia borrowings were not cheap before -- the prime rate was aroun…

First comes the reassurance, then the penny drops


GS says that the extraction costs for Bakken fields (fracking oil) are in the low $40s.... at most.  Well that sounds not right.  First off, this stuff is deep, so deep that at times radioactive waters are extracted at the same time -- the oil has to be heated out of the rock, and then cleaned from all the chemicals used to extract and make it more viscous.  All together this is not a simple process, or inexpensive.

GS is the same gang that says that oil extraction in Libya (where the stuff is almost lying on the ground) is very expensive, but the "North American deep and expensive wells costs are around $40" is their new song -- why?

The reason is that GS is well aware that lots of investors (in the junk bonds they issued over the past few years) are starting to either (a) read the prospectus they were given, and (b) are just starting to panic -- and are thinking the worse case scenario.  Now, I am certain that GS is not lying (hey they know how to be "economica…

Oil price, elasticity winners and losers!

Sunday night I began writing on the astounding drop in the oil sector, at the time (Tokyo time 9am Monday) the price of oil was on its way to $64/bbl down from $105 in January -- this is a 39% drop in price -- a singularly important component of the world economy, just became much cheaper. Since then oil prices have risen back to the $67/68 range, so crisis averted...

The retracement in the oil market is natural, a function of properly working financial market.  My guess was that at $64.55/bbl we were looking at a massive natural barrier to further drops, there's a futures market out there, and for the players there are "natural" inflection points.  Now these are usually technical (rules of thumb) issues, but it remains that they are real for the market.  What is happening is "consolidation", the market overshot and now its finding a new (maybe temporary) equilibrium.  Oil prices are not independent, they are a transfer of wealth between the user and the suppli…