CWall

Point/Counterpoint: David Andrew Taylor Misreads Current Oil Inventories

I think that your post has merit, not withstanding the math error, because it points to the crucial factor affecting oil prices: inventory cover. There are a couple of points that I think add to the discussion and alter the conclusion. The first is that demand is being destroyed so quickly that numbers being used in forward demand are almost certainly too high. That serves to understate the inventory cover. Second, the actual inventory has recently become much larger than the recorded inventory at Cushing. Tankers, and now rail cars are filled with crude and sit idle as storage facilities for speculators trying to arb the profits from record wide contango in crude. There is no official record of this type of storage (that I am aware of). Leaving this out of the inventory calculation also serves to understate actual inventory cover. Finally, there is reporting lag. The situation is changing so rapidly that 3 week old information can be significantly off the mark. One has to extend the lines and do some good old fashioned guesstimating. Consequently, I think these three additional factors when considered add to the actual number of days supply of crude available to cover forward demand. And I suspect that when you update your chart with new data next month you will find the number of days continues to rise. It all suggests to me that oil has another leg down in price over the short term. The trend will only abate when OPEC makes significant production cutbacks.

Missed Steel Rally? Massey is Purest Play on Metallurgical Coal

Met coal prices have been reset at the high end of the expected range: over $300 per ton. MEE has the highest percentage of metalurgical coal in its production of any of the US majors that I am aware of. But it is only 25%, which does not make it a "pure play". Further, MEE has numerous contracts in place to provide coal at the old prices. I agree that MEE will benefit from the increase in met coal prices. But that benefit will seep gradually onto the income statement over the next three years; there will not be a significant, immediate step up as would be the case if all its production were met coal and if it sold strictly at spot prices.

Ambac: More Smoke and Mirrors?

What do you want your readers to think from your rather abrupt ending? "A rights offering with a mere backstop?" That backstop is all important as it guarantees the full $2.5 million is subscribed. It appears to be enough new equity to preserve the all important AAA rating... for now. Which means premiums on the existing book will continue to be paid which means the company stays around. If we must use the word, it is "merely" the difference between life and death.

The issue now is what is the future for the equity? How do you value a no growth company that is effectively in workout mode? You give it a big discount to its net asset value. And no one really knows what NAV is until the dust on the CDO's settle. But here is a hint: the ABX index which tracks the value of CDO's currently prices them at $0.64 on the dollar. For triple A rated paper. Shave 36% off the value of their roughly $160 billion of CDO's and the shareholder's equity is gone.