skip to main |
skip to sidebar
Oil
Crash Wipes $11.7 Billion From Buyout Firms’ Holdings - (www.bloomberg.com) Oil’s
plunge makes energy a great investment for the coming years, according to Blackstone Group LP (BX)’s Stephen
Schwarzman and Carlyle (CG) Group
LP’s David Rubenstein.
For private equity firms, it’s also been painful. More than a dozen firms --
including Apollo Global Management LLC
(APO),
Carlyle, Warburg Pincus and Blackstone -- have lost a combined $11.7 billion in
27 publicly traded oil producers since June, when crude prices reached this
year’s peak before beginning their six-month slide, according to data compiled
by Bloomberg. Stocks of buyout firms with exposure to energy have slumped, and
bond prices suggest some closely held oil producers may struggle to pay for
their debt. “It’s been a really volatile period, and frankly that’s how Saudi Arabia wants it,” said Francisco
Blanch,
head of global commodity research at Bank of America Corp. “This is a battle of
endurance.” Brent crude oil slumped 47 percent to about $61 late last week from
its high this year of $115 a barrel, dragging down energy stocks, as the
Organization of Petroleum Exporting Countries sought to defend market share
amid a U.S. shale expansion that’s adding to a global glut. The group,
responsible for 40 percent of the world’s supply, will refrain from curbing
output, U.A.E. Energy Minister Suhail al-Mazrouei said on Dec. 14.
Whitney’s
Fund Said to Drop 11% as Office Put on Market - (www.bloomberg.com) Meredith
Whitney,
who started a hedge fund after becoming one of Wall Street’s most famous
analysts, has found it harder to bet on stocks than scrutinize them. Her fund
is down 11 percent this year through last month, its main investor has demanded
money back, top executives have left and her full-floor Madison Avenue office
is now on the market. Her American Revival Fund LP fell in eight of the past 11
months and was up less than 1 percent in two others, returns reviewed by Bloomberg
News show.
The Standard & Poor’s 500 Index was up about 12 percent over that span.
Soured investments include a loss of more than $2 million on Conn’s Inc. (CONN), an electronics retailer that dropped 56 percent in
that period, according to a person with knowledge of her fund who asked for
anonymity to describe its performance.
Medicare
Patient Skips Mortgage to Cope With $20,000 Bill
- (www.bloomberg.com) Each
month, William Piorun has to choose between paying his mortgage or buying
medicine that keeps his pituitary-gland tumor in check. This month and last,
the 65-year-old Medicare patient paid the mortgage, and stopped taking a drug
that his doctor says he needs to ward off the risk of premature death. Once,
hard choices like these were commonly forced only on those without health
insurance. Now more patients who have insurance or Medicare must confront them
as drug bills for those with chronic and life-threatening decisions soar. Earlier
this year, Piorun faced out-of-pocket bills of $1,000 a month for medicines.
That -- together with $2,000 in monthly mortgage and home-equity payments,
other bills and living expenses -- was too much for him.
Ukraine
Central Bank Conned Into Swapping Its Gold For Lead Bricks - (www.zerohedge.com) Just
when one thought the story of Ukraine and its (now non-existant) gold could not
get any more surreal, it did. As a reminder, it was about a month ago when we learned courtesy of an interview on
Ukraine TV with the country's central bank head Valeriya Gontareva, that
Ukraine's gold was virtually all gone, when she made the stunning admission
that "in the vaults of the central bank there is almost no gold left.
There is a small amount of gold bullion left, but it's just 1% of reserves."
That in itself would have been sufficient to explain why just a few short days
later, the Netherlands shocked the world when it announced it had secretly
repatriated 122 tonnes of gold from the NY Fed, and had the story of Ukraine's
missing gold ended there (or even with the criminal probe launched by Ukraine whether the central bank head had
abused her power and misused her office when she "intentionally committed
an extremely unfavorable transaction for the gold and forex reserves of
Ukraine"), it still would have been one of the most bizarre, surreal
stories of 2014. Luckily, the story just got far better, and far, far more
bizarre and surreal. As Bloomberg reports, Ukraine opened a criminal probe after
several gold bars at the central bank’s storage in the southern city of Odessa
turned to be painted lead.
[Washington
Post] Oil scandal in Brazil just keeps growing; optimists see chance for change
- (www.washingtonpost.com) On
the surface it could not be much worse for Brazil. With the economy faltering,
its cherished government-controlled oil company Petrobras spiraled into a $3.8
billion corruption scandal just as it was finally ramping up production in its
vast deep water reserves. Since the unfolding corruption investigation became
public in March, charges have been filed against 91 people, including
executives from Petrobras and some of Brazil’s biggest construction and
engineering companies. And it’s not over. On Friday the Estado de S. Paulo newspaper
was the latest publication to name politicians it said were linked to the
scheme. Prosecutors say that Petrobras executives, including Paulo Costa, the
former director of the supply department who has turned state’s evidence,
collected 1 to 5 percent bribes on fattened contracts and that contractors from
six companies formed a “club” to fix Petrobras bids. The newspaper’s Web site
named 28 politicians, mostly from the ruling Workers Party and its coalition
allies, who, according to Costa, benefited from the scheme — accusations that
were denied.
Bond
Issues From Russia and Ecuador Serve as Cautionary Tales for Junk-Rated Debt - (www.nytimes.com) If David
Letterman did a top 10 list for dubious bond
investments, a case might be made for including two fast imploding issues from
Ecuador and Russia. The euphoria for junk bonds from emerging market economies,
fueled by rock-bottom interest rates in the United States, Japan and Europe,
has offered up any number of fallen angels, from OGX, the bankrupt Brazilian
energy firm, to a spate of Mexican home builders. But, in many ways, a $600
million bond issue by a Russian train company in 2012 and, two years later, a
$2 billion offering by the government of Ecuador, serve as cautionary bookends
for high-yield bond segment, even though it shows no sign of ending anytime
soon. When Brunswick Rail, Russia’s largest private-sector train company, offered $600
million worth of bonds to global investors in 2012, the deal was a blowout.
More than $3 billion in demand came from yield-starved global investors. Oil
prices were high and Russian railroads were seen as a good growth play,
notwithstanding the competition the company faced from state owned firms and
the fact that Brunswick was borrowing in dollars and getting a good chunk of
its revenues in rubles.
Major
dry bulk carriers finish 2014 at standstill – (www.shippingwatch.com) Spot rates for
the major benchmark Capesize vessels continue to slide, and the ships are
seeing very low activity in the Pacific and virtually none on the Atlantic. "Rates
are falling further and further below Opex and decreased on Wednesday to USD
4,109 per day. Panamax is also quiet, and many owners are eager to sign
contracts, which pulls the the rates down," said Fearnley on Thursday. According
to analysts Platou, charter earnings for Capesize stand at USD 5,400 per day -
below operating costs, which typically come to USD 6,500 per day for a newer
vessel. It is unusually difficult to predict the future bulk market at this
time, says Platou, citing developments in China with the country's reduced
consumption and lower coal imports, developments that have hit dry bulk in
2014. And there is a big chance that next year will bring similar developments
if Chinese politicians continue to favor their own domestic industry to the
detriment of overseas suppliers.
Norway's
oil sector faces tougher times as prices fall - (www.dailymail.co.uk) Norway's oil sector is facing difficult times
and energy investment forecasts may have to be cut further if prices continue
to drop, central bank governor Oeystein Olsen said on Thursday. Prices have
fallen to a 28-month low, hitting the Nordic country's vast oil industry, which
accounts for a fifth of the economy and half of its exports. Oil and gas
investments are expected to fall by 10 percent next year on investor demands
for higher returns and a drop in oil prices. "If the oil price continues
to drop, it will eventually reach a point where we'll have to reconsider our
estimates for future (oil industry) investments," Olsen told reporters
after a speech to business leaders. A weak PMI reading released Wednesday adds
to the worries, on top of a steady stream of projects delays, cancellations and
layoffs in the oil sector. The Norwegian purchasing managers' index (PMI) fell
to 49.4 points in September from 51.8 in August. Analysts polled by Reuters had
expected the index to fall to 51.0.
"Houston,
You Have A Problem" - Texas Is Headed For A Recession Due To Oil Crash,
JPM Warns - (www.zerohedge.com) It was back in August 2013, when there was nothing but clear skies ahead
of the US shale industry that we asked "How Much Is Oil Supporting U.S.
Employment Gains?" The answer we gave: The American Petroleum Institute
said last week the U.S. oil and natural gas sector was an engine driving job
growth.Eight percent of the U.S. economy is supported by the
energy sector, the industry's lobbying group said, up from the 7.7 percent
recorded the last time the API examined the issue. The employment assessment
came as the Energy Department said oil and gas production continued to make
gains across the board. With the right energy policies in place, API said the
economy could grow even more. But with oil and gas production already
at record levels, the narrative over the jobs prospects may be failing on its
own accord.... The API's report said each of the direct jobs in the
oil and natural gas industry translated to 2.8 jobs in other sectors of the
U.S. economy. That in turn translates to a total impact on U.S.
gross domestic product of $1.2 trillion, the study found. Fast forward to today when we are about to learn that Newton's third law
of Keynesian economics states that every boom, has an equal and opposite bust. Which brings us
to Texas, the one state that more than any other, has benefited over the past 5
years from the Shale miracle. And now with crude sinking by the day, it is time
to unwind all those gains, and give back all those jobs. Did we mention: highly
compensated, very well-paying jobs,not the restaurant,
clerical, waiter, retail, part-time minimum-wage jobs the "recovery"
has been flooded with. Here is JPM's Michael Feroli explaining why Houston
suddenly has a very big problem.
How
a freight bill went from $5,000 to $68,000 - (www.cnbc.com) There are 620
cycling trainers stuck in Long Beach, California. They spent close to five days
stuck on a boat outside of the port. When the container they were in was
finally unloaded off the ship, it was parked in a rail transfer yard for two
days. At this publication time, they are still there. The cycles were supposed
to be in Atlanta on Wednesday. Given the delay there was no way the equipment,
already pre-sold to customers, would make it to their destinations by
Christmas. So the importer, Wahoo Fitness, loaded another 620 of its training cycles,
called KICKRs and retailing for about $1,100 each, onto an airplane and flew
them over from Asia. It cost $68,000. The ocean freight bill is typically
between $3,000-$5,000. "It will reduce our gross margin by a third to a
half," said Mike Stashak, vice president of sales and marketing at Wahoo,
in an interview. "We're still making money off it, but not a whole
lot."
Martin
Armstrong Asks "Will They Hang Bankers Again On Wall Street?" - (www.zerohedge.com) What took place in Washington over the past
two weeks with the repeal of Dodd Frank and then the effective repeal of the
Volcker Rule sounds strikingly familiar to at least three previous periods in
American History that led to total disaster. There were of course the Northern
“carpetbaggers”, whom many in the South viewed as opportunists looking to
exploit and profit from the region’s misfortunes following the Civil War. The
“carpetbaggers” would play a central role in shaping new southern
governments during the Reconstruction period who were joined by Southerners who
saw economic gain in joining the Northerners in the exploitation of the South. They
were called “scalawags”. Then there were the Silver Democrats who were bought
and paid for by the mining industry. William Jennings Bryan’s red-hot
emotional speech at the 1896 Democratic Convention will forever live on in
history. The shenanigans of the Democrats and Republicans, who tried to
overvalue silver, led to the near bankruptcy of the nation and made JP Morgan
famous thanks to the Panic of 1896 when he had to arrange a gold loan to
save the country. Then there was what people called the First Gilded Age more
than a century ago, when senators and representatives were owned by Wall
Street and big business. This culminated in the 1929 Crash.
Greek
premier prepared European ground before vote gamble - (www.reuters.com) Prime Minister Antonis Samaras has bet on
Greece's future with an early vote for the presidency. But in contrast to a
recent predecessor, he made sure before dropping the bombshell that Berlin and
Brussels wouldn't stand in the way. Samaras's decision last week to bring the
three-stage parliamentary vote forward to this month from February took the
Greek establishment and financial markets by
surprise. But a select few knew it was coming, among them GermanFinance Minister
Wolfgang Schaeuble. With Berlin playing a decisive role in European aid for Greece,
Samaras and Schaeuble spoke repeatedly by telephone in the days before the
early vote was announced on Dec. 8, according to a euro zone official
with direct knowledge of the talks.
Crude
Below $60 Tests Petrobras’ Deepwater Discoveries - (www.bloomberg.com) Petroleo Brasileiro SA (PETR4) Chief
Executive Officer Maria das Gracas Foster said in June that the development of Brazil’s giant oil
discoveries beneath a layer of salt would be cheaper than competing North
American projects. That advantage is quickly evaporating. Brent crude fell to
as low as $58.50 in London this
week, approaching the state-run producer’s break-even range of $41 to $57 a
barrel for the so-called pre-salt projects mentioned by
Gracas Foster six months ago when oil was trading above $100. Petrobras, which
planned to invest more than $100 billion to tap deposits trapped two miles (3.2
kilometers) beneath the seabed off Rio de Janeiro, is slowing total spending
after lowering its oil price estimate next year to $70 a barrel, it said last
week.
Bankers
See $1 Trillion of Investments Stranded in the Oil Fields - (www.bloomberg.com) After crude prices dropped 49 percent in six
months, oil projects planned for next year are the undead -- still standing
upright, but with little hope of a productive future. These zombie projects
proliferate in expensive Arctic oil, deepwater-drilling regions and tar sands
from Canada to Venezuela. In a stunning analysis this week, Goldman Sachs found
almost $1 trillion in investments in future oil projects at risk. They looked
at 400 of the world’s largest new oil and gas fields -- excluding U.S. shale --
and found projects representing $930 billion of future investment that are no longer
profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over
yet, but zombies are beginning to crash it. The chart below shows the
break-even points for the top 400 new fields and how much future oil production
they represent. Less than a third of projects are still profitable with oil at
$70. If the unprofitable projects were scuttled, it would mean a loss of 7.5
million barrels per day of production in 2025, equivalent to 8 percent of
current global demand.
GM,
Audi Suspend Car Sales in Russia on Ruble’s Collapse - (www.bloomberg.com) General
Motors Co. (GM), Audi and Jaguar Land Rover temporarily stopped selling cars in Russia this
week, deciding that taking a timeout from the market was the best way to deal
with the ruble’s collapse. Automakers are battling a more than 40 percent drop
in the value of the ruble since June, Russia’s biggest financial crisis since
1998. In recent weeks, Russian customers has been snapping up Porsches and
other cars to convert their savings into something tangible. That temporary
boon for the industry soon turned to a liability as the ruble’s drop ate into
what the manufacturers got for their vehicles. GM suspended
sales to dealers on Dec. 16 to “manage its business risk” in light of the
volatility of the ruble, the Detroit-based carmaker’s Russian unit said by
e-mail. GM, which didn’t set a date to resume wholesale deliveries, will
deliver Chevrolet, Opel and Cadillac cars that have already been purchased at
the agreed-on price.
Russians
Are Flooding Out Of London's Housing Market As The Ruble Crumbles - (www.businessinsider.com) Russian
buyers are flooding out of London's property market, according to an amazing Bloomberg piece. Sanctions, bank limitations on
withdrawals, and the shattered ruble are killing Russian demand for luxury
London housing. All but the wealthiest oligarchs are getting hit by the
country's crisis, according to the article: The number of Russians registered
through Christie’s International Real Estate to buy homes in the city dropped by
70 percent in a year, said Giles Hannah, the broker's senior vice president.
That has led to a plunge in offers for properties priced at less than 10
million pounds ($16 million) as it becomes more difficult for all but the
wealthiest to take money out of their home country. "The banks are
limiting what they can withdraw and we're expecting further impact as sanctions
kick in," said Hannah, who advised Russian families on 180 million pounds
of London property deals in the past two years. "The oligarchs are still
spending. They already have banks or lawyers over here that allow them to make
purchases."
Bankers
See $1 Trillion of Investments Stranded in the Oil Fields - (www.bloomberg.com) There
are zombies in the oil fields. After crude prices dropped 49 percent in six
months, oil projects planned for next year are the undead -- still standing
upright, but with little hope of a productive future. These zombie projects
proliferate in expensive Arctic oil, deepwater-drilling regions and tar sands
from Canada to Venezuela. In a stunning analysis this week, Goldman Sachs found
almost $1 trillion in investments in future oil projects at risk. They looked
at 400 of the world’s largest new oil and gas fields -- excluding U.S. shale --
and found projects representing $930 billion of future investment that are no longer
profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over
yet, but zombies are beginning to crash it. The chart below shows the
break-even points for the top 400 new fields and how much future oil production
they represent. Less than a third of projects are still profitable with oil at
$70. If the unprofitable projects were scuttled, it would mean a loss of 7.5
million barrels per day of production in 2025, equivalent to 8 percent of
current global demand.
The
Blacklist That Rules Wall Street’s Loan Market - (www.bloomberg.com) What do Highland Capital Management, Fortress Investment Group LLC and Cerberus Capital Management have in
common? The firms, which manage some $110 billion among them, are on a list
that says they can never invest in a $155 million loan that’s trading in U.S.
markets. RBS Holding Co., the owner of direct marketer Quadriga Art,
banned the three firms and seven others last year from buying parts of the
loan, according to two people with knowledge of the matter who asked not to be
named because the decision was private. They were deemed, the people said, to
be too demanding in debt restructurings, a fate that executives at RBS -- which
has no relationship to the Scottish bank -- considered as Quadriga’s business
faltered. Unlike any other market in the U.S., the blacklist rules in leveraged
loans. No regulator polices trading in the $800 billion market. Here, borrowers
-- and the investors who control them -- choose who gets into the club. It
would be as if Apple Inc. got
to decide who could buy its stock.
Justice
Department Probes Currency Exchange Site That Vanished With Cash - (www.bloomberg.com) The U.S. Department of Justicehas begun a criminal investigation into the
foreign exchange trading website Secureinvestment.com, which vanished last May
1 with as much as $1 billion from investors around the world. The Financial and
Capital Market Commission in Latvia is also probing the involvement of
Latvian banks used by Secure Investment, says agency spokeswoman Elina Avotina.
An investigator with the U.S. Attorney’s office for the Eastern District of New York has interviewed Secure investors in the
U.S. and Canada,
according to the people who were contacted. Two of those people were quoted in
“Anything But Secure” in the December issue of Bloomberg Markets magazine.
Bloomberg had interviewed customers in 11 countries on five continents who said
they saw their money evaporate with Secure Investment when its website
disappeared.
The
Skinheads of Europe Don't Like Refugees. Neither Do the Doctors and Lawyers - (www.bloomberg.com) The diplomats, lawyers and celebrities living
on the priciest street in Germany’s wealthiest city aren’t thrilled about their
new neighbors. Refugees fleeing war zones are moving into the empty office
building around the corner from their lakefront road, Harvestehuder Weg, in
Hamburg. The four-story building being transformed by borough Mayor Torsten
Sevecke sits on a leafy plot abutting a luxury development where apartments cost as much as 7
million euros ($9 million). Locals are suing the city because they’re worried
their properties will lose value. “Where will these people buy their groceries?
The cheaper supermarkets are far away,” said Barbara, a 70-year-old pensioner
who lives in the area but spends most of the year in Spain. She asked that her last name not be published
because it would be “embarrassing.” “I’d prefer if the government invests the
money in a new building somewhere else.” Record numbers of refugees are
arriving in Europe,
roiling regional politics and leaving local officials struggling to provide
shelter while managing their constituents’ unhappiness. Most displaced people
head to Germany and Sweden, where lodgings are being created any place there’s
space: in empty schools, campgrounds, a boat on the River Elbe, even
purpose-built aluminum crates that resemble shipping containers. In France and
Italy, many end up on the street.
