A Real Worst-Case Scenario for BP: 20M Barrels, $560B Damages [View article]
Okay, we don't know how much oil is being poured into the gulf. Nor does the govt., or some frisky prosecutor. There will be all sorts of discovery and opinions, but that's just it - they're opinions. Unless the number can be bracketed (and how do you do that absent a flow meter on a pipe?), it's conjecture, and thus, so is the balance of your post.
Soros is a super smart guy, obviously, but he's ALWAYS talking his book, or perhaps more accurately, front running his book with his mouth. Salient situation is as he describes, but the color he puts on it - sure sounds like hes lined up in the gold bug camp.
What was it Bernard Baruch said? Oh yes: "Buy when there's blood in the streets". Metaphorically apt and sound advice, as oil is the life blood of the world's economy. The longer this goes on (and I earnestly hope it doesn't go on one second longer than necessary), the more hysterical the rhetoric becomes, and the richer the opportunity will be for unemotional investors.
Is It Wrong to Exploit the BP Oil Spill for Profits? [View article]
Oh really? What's happened here (BP Mocando) is deplorable - no right thinking person would dispute that. Should procedures, regulation, etc be revisited - absolutely.
But other forms of deplorable exist, and you've glossed over them. Nondispatchable renewable energy at costs 5 to 10x what's available from fossil fuels would fit in this box. To say nothing about renewables inability to meet overall energy needs from the available (or projected) renewable energy resource opportunity.
That future is neatly encapsulated by Spain, which has spent a ton on renewables. They don't dispatch well, Spain has spent their way into the poor house, and they are still dependent on imported fossil fuels. As Ayn Rand would say: "A is A". The world is what it is. Not what we would wish it to be.
Suggest that investors need to put numbers to the thesis "If the company survives, it will be damaged for years to come."
The numbers: $765 MM for cleanup and plugging efforts to date. This includes a relief well that is underway, which is probably the only thing that will work. The so called "top-kill" is unlikely to plug the well. At best, it will staunch the flow of oil. Politically and environmentally desirable, but it doesn't shut it off. Exxon Valdez was about 2.1 billion dollars in 2010 terms (Using CPI as a deflator) Right now, the market is discounting the stock 15x the Valdez event. I arrive at this number by using the decline in oil ETF's as the beta impact, thus the balance of decline is alpha, which is what we are seeking on this website :^). Relief wells are about $300 MM a pop. Cleanup will be (pick a number) 5 billion, 10 billion. Nobody's mentioned anything near $33 billion.
Yes, there will be lawsuits for years. Eventually, all parties will tire and they'll come to terms. Washington will have its public excoriation of BP. But that doesn't cost money.
So - the numbers would indicate that what you suggest isn't possible. $33 billion of alpha vs. worst case clean up of $15 billion.
The company's survival? PLLLEEEAAASSSEE.
The chart scares the bejeebers out of me, and I'm trailing it with stops. But BP's looked cheap from 45 on down. To me, anyway.
BP: What Options Does an Investor Have? [View article]
Stock has gone from $60-ish to $45-sh, so about $50 Billion of market equity has gone POOF! Now, I'll accept that a lot of this is probably market selloff, ie, beta, not alpha. But, BP's beta is 0.75. Using the S&P as a proxy, we've seen the market go from 1220 to 1120 or down 8%. If BP's beta is .75, then that's .08*.75 or 6% to market action, balance to Macondo, I guess.
Using an energy ETF: (VDE) - high was 91, presently trading @ 81, drop of 9%. (USO) - 42 to 34 = 19% drop, but I think they have a BP position, so they don't count. (XLE) - 62 to 56 = 9.6%. So, I'm saying the oily stocks have a 9% hit due to CL pricing & market dreariness.
The math: .09 x 193 (This is the approximate BP equity @ $60/sh) billion = 17.3 billion. Alpha (Macondo) valued at 50 - 17.3 or 32.7 billion?!?!
Hmmm... a deep sea completion like this costs what? $500 million? Relief well another 500? Replacement another 500? Cost of a dead (and soggy) semisubmersible? 600 million Cleanup 2 billion? Lawsuits? 1 billion?
Other cleanup #'s I've seen: $5 x $7 billion. Exxon Valdez in 2010 $: Settlement in 1991, all figures are millions USD:
CPI in 1991: 136 CPI today: 215 Postulated cost: 215/136 x 1117 = 1,766 Still way less than 33 billion. Point is: NO WAY to get to 33 B.
I'm not saying you buy it today. I'm just saying that it's WAY overdiscounted, and it bears watching. Once the momentum traders get tired of jumping on it, it sure looks cheap 2 me.
Why China Investing in a U.S. Steel Mill Isn't as Big a Deal as It Seems [View article]
?!? Western Cos. invest in China? Hasn't your earlier work identified China as a high cost region? After all, they are paying high seas ore, coal, and Ferro Alloy prices? So they can export steel here? And, steel companies that would do as you suggest would have a great deal of WIP in the supply chain as Auto Cos. want premanufacturing and JIT deliveries. Maybe we should give that thought another think.
The rest of your analysis, right on! Let's call this Mississippi investment what it is: A very tiny fig leaf for very naked MERCANTILISM!
Hugoton Royalty Trust Should Rebound on Discovery of Monthly Volume Distortion [View article]
Well, I like HGT for its concept, but I just don't see how anyone could be bullish NG right now. Unlike world oil reserves, there has been a step change in the perceived north american natural gas resource base, a.k.a. shale gas.
So, revenue = P x Q. For HGT - the Q side looks okay (or better with a bump!), but the P side just plain stinks.
Hugoton Royalty Trust Offers High Income From Cheap Clean Fuel [View article]
When you are buying the royalty trusts, you are saying (ideally) 4 things: 1) I'm bullish the underlying commodity (which I'm not), 2) I like the inflation hedge aspect of owning a close proxy to a commodity (I do), 3) I like income as opposed to appreciation (in my IRA's - yes), and importantly 4) I think HGT is undervalued relative to the underlying commodity Nat Gas
Let's talk #4: To me, the way to trade HGT (or SJT, BPT) is to develop a simple over/under priced model. For HGT, I plot the closing prices of the trust units, and create a chart of similar dimensions, plotting the closing prices for the rolling 12 month strip for Nat Gas. Then, I'll overlay the charts, pushing the gas chart up and down until the lines more or less overlay each other. HGT crosses below the NG chart - it's undervalued. Above, it's overvalued. You could do the same thing mathematically, using the prices, developing a least squares fit, blah blah blah, but you can see the concept. This really helps the timing on this commodity.
I work in the energy biz, so I have decided views on nat gas pricing, but beyond that, it's super important not to overpay for what is, after all, a forward stream of commodity. I've been in and out of HGT a dozen times. The foregoing keeps me disciplined.
When Priced in Gold, U.S. Markets Are Actually Down Since Last Fall [View article]
A thought provoking article, and one that would augur for investment in things that a) favor yield over capital appreciation, and b) are close proxies for the commodities you hold as the arbiters of value. Makes me think of BPT (15% yield), HGT (9% yield), and so forth.
Costs Forcing China to Crack Down on 'Maverick' Steelmakers [View article]
I'm with Ms. Applebaum - steelmills are like Dracula. Put'em in the casket, bury'em, and they pop back to life 6 months later. Witness Rouge Steel, and its ilk in the U.S. The siren song of a low fixed cost basis via bankruptcy or its Chinese equivalent is just too strong for any steelmaker to resist.
Why U.S. Steel Fell, And What to Do About It Now [View article]
Something you may find useful for X and MT Hot rolled sheet steel is the baseline commodity in this industry. I overlay a price trend chart for hot rolled sheet steel on the stock chart. When they cross - there's your buy/sell signal. Commodity usually leads the equity by a little bit. You can get hot roll pricing data at purchasing.com and a few other places, I believe.
Aluminum, Steel and the Difference Between Miners and Manufacturers [View article]
Well, there's some good arguments here, but you're missing a couple of important variables:
1) Steel is only valuable when in the hands of a customer, so the "landed" cost is what counts. China's distance from markets + relatively poor internal transport is a big disadvantage. I peg it at +/- $60/Metric Ton based on present Baltic Freight Index.
2) Steel (at least to large volume demanding customers) is only valuable when appropriate premanufacturing is applied (blanking, ISO quality certs, JIT delivery on 15 minute windows, etc). To do that from China for a European or N. American delivery point puts enormous amounts of WIP in the system, which is a cost to be borne by the manufacturer. Closer is easier.
3) From a raw materials standpoint - China is not quite the 800 lb gorilla made out here - witness the merger of BHP and Xstrata. WHo has who? World iron ore markets are effectively a duopoly: BHP and Vale. Who has who? Also, the US is the primary world exporter of scrap, making U.S. minimills the most advantaged in terms of their input costs (scrap is 70 - 75% of a minimill's cost.
While X is certainly looking perky, and is probably overpriced, I'm not as clear on the underlying cost input/cost of manufacturing story.
A Real Worst-Case Scenario for BP: 20M Barrels, $560B Damages [View article]
Banks, BP, Tax Increases: State Sponsored Muggings [View article]
Soros: Financial Crisis, 'Act II' [View article]
Gulf of Mexico Oil Spill: Liability Payment Capacity View [View article]
Is It Wrong to Exploit the BP Oil Spill for Profits? [View article]
But other forms of deplorable exist, and you've glossed over them. Nondispatchable renewable energy at costs 5 to 10x what's available from fossil fuels would fit in this box. To say nothing about renewables inability to meet overall energy needs from the available (or projected) renewable energy resource opportunity.
That future is neatly encapsulated by Spain, which has spent a ton on renewables. They don't dispatch well, Spain has spent their way into the poor house, and they are still dependent on imported fossil fuels. As Ayn Rand would say: "A is A". The world is what it is. Not what we would wish it to be.
Gulf Oil Spill: Will BP Survive? [View article]
The numbers: $765 MM for cleanup and plugging efforts to date. This includes a relief well that is underway, which is probably the only thing that will work. The so called "top-kill" is unlikely to plug the well. At best, it will staunch the flow of oil. Politically and environmentally desirable, but it doesn't shut it off. Exxon Valdez was about 2.1 billion dollars in 2010 terms (Using CPI as a deflator) Right now, the market is discounting the stock 15x the Valdez event. I arrive at this number by using the decline in oil ETF's as the beta impact, thus the balance of decline is alpha, which is what we are seeking on this website :^). Relief wells are about $300 MM a pop. Cleanup will be (pick a number) 5 billion, 10 billion. Nobody's mentioned anything near $33 billion.
Yes, there will be lawsuits for years. Eventually, all parties will tire and they'll come to terms. Washington will have its public excoriation of BP. But that doesn't cost money.
So - the numbers would indicate that what you suggest isn't possible. $33 billion of alpha vs. worst case clean up of $15 billion.
The company's survival? PLLLEEEAAASSSEE.
The chart scares the bejeebers out of me, and I'm trailing it with stops. But BP's looked cheap from 45 on down. To me, anyway.
BP: What Options Does an Investor Have? [View article]
Using an energy ETF: (VDE) - high was 91, presently trading @ 81, drop of 9%. (USO) - 42 to 34 = 19% drop, but I think they have a BP position, so they don't count. (XLE) - 62 to 56 = 9.6%. So, I'm saying the oily stocks have a 9% hit due to CL pricing & market dreariness.
The math: .09 x 193 (This is the approximate BP equity @ $60/sh) billion = 17.3 billion. Alpha (Macondo) valued at 50 - 17.3 or 32.7 billion?!?!
Hmmm... a deep sea completion like this costs what? $500 million? Relief well another 500? Replacement another 500? Cost of a dead (and soggy) semisubmersible? 600 million Cleanup 2 billion? Lawsuits? 1 billion?
Other cleanup #'s I've seen: $5 x $7 billion. Exxon Valdez in 2010 $:
Settlement in 1991, all figures are millions USD:
Environmental fine: $150
Forgiven <$125>
Criminal Liability $100
Civil Settlement $900, structured over 10 yrs.
Reopener $92
Total (w/o discounting) $1,117
CPI in 1991: 136
CPI today: 215
Postulated cost: 215/136 x 1117 = 1,766 Still way less than 33 billion. Point is: NO WAY to get to 33 B.
I'm not saying you buy it today. I'm just saying that it's WAY overdiscounted, and it bears watching. Once the momentum traders get tired of jumping on it, it sure looks cheap 2 me.
Why China Investing in a U.S. Steel Mill Isn't as Big a Deal as It Seems [View article]
The rest of your analysis, right on! Let's call this Mississippi investment what it is: A very tiny fig leaf for very naked MERCANTILISM!
April Chinese Steel Exports Surge: Turning Gold Into Straw [View article]
Or are they just garden variety mercantilists?
Hugoton Royalty Trust Should Rebound on Discovery of Monthly Volume Distortion [View article]
So, revenue = P x Q. For HGT - the Q side looks okay (or better with a bump!), but the P side just plain stinks.
Hugoton Royalty Trust Offers High Income From Cheap Clean Fuel [View article]
Let's talk #4: To me, the way to trade HGT (or SJT, BPT) is to develop a simple over/under priced model. For HGT, I plot the closing prices of the trust units, and create a chart of similar dimensions, plotting the closing prices for the rolling 12 month strip for Nat Gas. Then, I'll overlay the charts, pushing the gas chart up and down until the lines more or less overlay each other. HGT crosses below the NG chart - it's undervalued. Above, it's overvalued. You could do the same thing mathematically, using the prices, developing a least squares fit, blah blah blah, but you can see the concept. This really helps the timing on this commodity.
I work in the energy biz, so I have decided views on nat gas pricing, but beyond that, it's super important not to overpay for what is, after all, a forward stream of commodity. I've been in and out of HGT a dozen times. The foregoing keeps me disciplined.
When Priced in Gold, U.S. Markets Are Actually Down Since Last Fall [View article]
Costs Forcing China to Crack Down on 'Maverick' Steelmakers [View article]
Why U.S. Steel Fell, And What to Do About It Now [View article]
Aluminum, Steel and the Difference Between Miners and Manufacturers [View article]
1) Steel is only valuable when in the hands of a customer, so the "landed" cost is what counts. China's distance from markets + relatively poor internal transport is a big disadvantage. I peg it at +/- $60/Metric Ton based on present Baltic Freight Index.
2) Steel (at least to large volume demanding customers) is only valuable when appropriate premanufacturing is applied (blanking, ISO quality certs, JIT delivery on 15 minute windows, etc). To do that from China for a European or N. American delivery point puts enormous amounts of WIP in the system, which is a cost to be borne by the manufacturer. Closer is easier.
3) From a raw materials standpoint - China is not quite the 800 lb gorilla made out here - witness the merger of BHP and Xstrata. WHo has who? World iron ore markets are effectively a duopoly: BHP and Vale. Who has who? Also, the US is the primary world exporter of scrap, making U.S. minimills the most advantaged in terms of their input costs (scrap is 70 - 75% of a minimill's cost.
While X is certainly looking perky, and is probably overpriced, I'm not as clear on the underlying cost input/cost of manufacturing story.