Monday, February 28, 2011

Margin Compression Soon To Hit All Producers

Commodity price explosions aren't just igniting Middle Eastern protests against the rising cost of food staples.  They're now impacting the margins of producers in the earliest links of the global supply chain.  Witness the margin compression at PPG Industries over copper prices.  Its market dominance in specialty coatings means it can afford to pass price increases to its customers.  That's good for PPG's bottom line and bad for every single industrial user of its coatings. 

Companies in competitive industries are in for a rough ride.  The big U.S. automakers will face a very difficult climb back to health in the face of rising material costs.  Indian car and bike makers are feeling the pinch from input prices.  Companies at the very end of most value chains (that is, retailers and their servicers) will be in the worst possible position in 2011. Expect more stories of companies facing hard choices between raising prices for end customers or reporting lower earnings. 

Middle Eastern Kleptocrats Demand Gold

Retail investors aren't alone in their flight from unstable currencies to precious metals.  Dictators in the notoriously unstable Middle East know the value of gold all too well.  They place such esteem in gold as a store of value that they're willing to rely upon it as a ticket out of a crumbling regime. 

Zine el-Abidine Ben Ali and his wife Leila Trabelsi looted the Tunisian central bank of one and a half tons of gold bullion.  Such an audacious move did not escape the notice of either the international press or European financial regulators.  Yet the Ben Alis have not been remanded to the custody of law enforcement.  They got away with the heist! 

Hosni Mubarak apparently had a similar plan all worked out long ago.  He didn't have to wait until the last minute like his Tunisian friends.  He spent years sequestering his gold and other investments all around the world, far away from prying Egyptian eyes.  How does a President become a billionaire?  Inquiring minds at Interpol would like to know.  They can start by asking any oil companies or defense contractors who've done business with his regime just how much they had to pay all those years for "access" in Cairo. 

Libya's Muammar Gaddafi (just how does that guy spell his name?) has been taking notes.  His private jet is rumored to be loaded with gold and other precious goodies, ready to spirit him away to a comfy retirement far from the hassles of cracking down on protesters.  A planeload of bullion can buy lots of African savannah. 

Perhaps this uncovers a hidden force behind the strong performance of gold in recent years.  Dictators in the Middle East and North Africa (that's the MENA neighborhood for you investors looking for a new BRIC bloc) have been quietly taking lots of supply off the market.  Sarcasm aside, the World Gold Council will have to update its gold reserve figures with appropriate subtractions for looting by deposed autocrats. 

Full disclosure:  Long GDX with covered calls.

Sunday, February 27, 2011

The Limerick of Finance for 02/27/11

Shale oil and gas are now in play
Large producers will show us the way
Drilling set to begin
May the lowest costs win
Hydrocarbons will light a new day

Plenty Of Oil Left In U.S.

Forget what you've heard about Saudi Arabia's oil fields approaching their production peaks, if they haven't already passed them.  New techniques involving proppant injections, hydraulic fracturing, and horizontal drilling are unleashing the untapped potential of oil fields right here in the U.S.:

This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers.

Shale oil and gas are going to be big domestic winners thanks to petroleum engineering.  Don't thank policymakers for this bonanza.  Thank high world oil prices that have incentivized new exploration and production.  The free market works just fine when we leave it alone.

Companies are scrambling to line up shale oil and gas properties for production.  Chesapeake Energy just sold a large shale gas property to BHP Billiton for $4.75B.  EOG Resources wants to double its rig count this year in the Eagle Ford shale oil formation.  Occidental Petroleum has long been confident that its shale properties in California will drive its future growth.  Shale producers are not pure-play situations; companies like BHP (with ROE over 34% and a very healthy balance sheet) are in a much better position to deploy capital and expertise into virgin territory. 

Full disclosure:  No positions in CHK, BHP, EOG, or OXY at this time. 

Saturday, February 26, 2011

Wisconsin Approaches Sanity On Union Smackdown

The Wisconsin legislature is one step closer to fiscal solvency for the state after its lower house passed a measure to curtail state employee unions' bargaining power.  The state Senate can now consider the bill once enough absentee lawmakers are corralled into performing their sworn duties.  Putting a muzzle on unions is absolutely necessary if state governments are going to balance their budgets. 

Union leaders expecting sympathy from the country at large are in for an unpleasant surprise.  America isn't Greece, where half the population works in cushy government jobs.  Union representation has been on the decline in the private sector for decades.  Those unions that still operate in the for-profit sector do nothing but drag their employers down. 

The clock is winding down on the union era in America.  Hallelujah. 

Friday, February 25, 2011

GDP Growth Not Where We Thought It Was In Q4 2010

Anybody still crooning about a recovery needs to check this out.  The economy's purported growth rate is weaker than recent reports indicated:

U.S. economic growth slowed to an annual rate of 2.8 percent in last year’s fourth quarter, largely because of reduced spending by state and local governments, the Commerce Department said.

These consistent downward revisions should be big news but they don't seem to make a dent in rising consumer confidence.  Joe Six Pack is either a slow learner or so deeply in hock to his mortgage holder and credit card sponsor that he just doesn't care anymore. 

Thursday, February 24, 2011

Italy Depends On Libyan Oil

This one's fast and easy to digest.  Libya's turmoil has cut its oil production.  Italy gets 22% of its crude from Libya.  Direct substitutes for light sweet crude are not easy to obtain on a moment's notice.

Short ideas involve obvious candidates like ENI SpA (E) and the iShares MSCI Italy Index Fund (EWI).  Similar short ideas are probably available for Spain, Ireland, Austria, and any other country drinking from Libya's tap. 

Full disclosure:  No positions in E, EWI, or anything else mentioned above.

Wednesday, February 23, 2011

U.S. Infrastructure Deals In Brazil

America's commercial infrastructure is in a sorry state.  This nation's bridges, railway overpasses, dams, locks, ports, and various other skeletal appendages are in dire need of repair and retrofit.  This is a legitimate place for governments at all levels to spend stimulus money because it supports aggregate use of a public commons that benefits everyone.  Just when we have a great reason to spend money here at home, we find a way to spend it abroad:

U.S. President Barack Obama plans to offer new financing for joint infrastructure projects between U.S. and Brazilian companies when he visits Brazil next month, sources with knowledge of the situation told Reuters.

The Administration has a stated goal of doubling U.S. exports in five years (really closer to four now as this idea was launched last year).  Washington can do the right thing if it follows through on a plan to spend half a trillion dollars on infrastructure here at home.  Promoting trade is ususally worthwhile, but goods will never get from here to there if we spend money on foreign infrastructure before rebuilding our own first.

Tuesday, February 22, 2011

Updating The Alpha-D For Feb. 2011

Options expiration last week left me with choices to make.  I allowed a small portion of my TDW holdings to be sold away and renewed my short covered calls on the remainder.  That stock has been on a tear recently so pocketing some gains is okay by me.

Similarly, I allowed some of my GDX to be called away and I renewed my covered calls on what was left.  The shares called away were sold at the exact price I was forced to pay a month ago when they were put to me.  That doesn't happen often, so I'm grateful to be lucky enough to have collected the cash from those covered call options. 

My covered calls on FXI expired unexercised.  I renewed them this month with no change in the size of my underlying equity position. 

I also still have my long ATHR position with covered calls and cash-covered short puts.  This special situation play still looks like it will pay off. 

I am not shorting any other puts this month against anything.  Markets worldwide are far too overvalued right now given the debt loads most companies and countries are carrying.  I'd rather not have any overvalued equities put to me at this time. 

I don't ignore fixed income, as I did when I was younger.  I added to my holdings of short-dated California state muni bonds.  I even grabbed some short-dated Treasuries.  It's hard to turn down a little extra yield.  The stagflationary U.S. economy could break either way towards depression/deflation (ruinous for equities) or higher inflation (bad for bonds).  No one knows in advance which will prevail, or even if stagflation will persist (my current opinion).  I'm just staying flexible, with cash on the sidelines ready to buy anything that breaks the right way. 

Full disclosure:  All positions described reflect my true portfolio. 

Monday, February 21, 2011

The Haiku of Finance for 02/21/11

Euro inflation
Heating up with some warning
Caused by debt bailouts

Monday Newsreel for 02/21/11

The U.S. stock market is closed, so I need something to do.  Reading headlines is just the thing.

The IMF (i.e., the U.S.) is unable to help the EU solve its debt crisis.  The Fed is too preoccupied with buying U.S. sovereign debt to make any QE available for Europe.

Speaking of U.S. debt, there's more of it now than there has ever been since World War II.  Remember what FDR's Treasury Secretary said prior to WWII about how the New Deal did nothing but put the U.S. deeper in debt?  That was when the U.S. was still the world's largest creditor nation.  Now that we are the world's largest debtor, we have no spare room to launch any great projects. Growth won't save us this time.  Inflation is not a substitute for real growth. 

Speaking of inflation, China continues to fight it by raising fuel pricesThe rising price of oil due to Middle East turmoil will magnify the impact of this policy.  China's economy will hit the brakes faster than its Mandarins expect. 

Egypt wants the bond market to buy almost a billion dollars worth of debt.  They should send the bill to former President Mubarak.  He can easily cover it.  The new government is taking its first steps to locate the assets he grabbed.  Recovering all of the national wealth he stole will take some time, and of course even a corrupt former head of state is innocent until proven guilty.

Finally, U.S. investor behavior continues to defy common sense.  The stock market's dizzying rise does not deter new investors despite indications it is overvalued.  The U.S. economy's fundamentals have not improved at all since 2008.  The Fed's QE provides liquidity to the i-bank dealers of U.S. debt, who are emboldened in turn to extend credit to hedge funds that churn and pump the stock market to no end.  This cannot end well for investors when QE ends. 

Wind Energy Costs Decline Despite Transmission Obstacles

Wind energy may be catching its second wind lately.  How's that for a pun?  The cost of generating electricity from wind is now close to the cost of coal-fired generation.  That's good to know for utilities planning capital outlays.  That study only pertains to onshore developments, which can sometimes be sidelined by NIMBY objections (noise, ruined views, and other baloney excuses) and relevant reasons (like the fact that tall wind towers can interfere with FAA and DOD radars).  Offshore wind developments are becoming increasingly attractive and may not fall prey to the same obstacles as onshore developments.  They may of course pose a whole new set of problems, like locations that fall in the middle of shipping channels or prime fishing areas

Cost competitiveness isn't the only feasibility factor relevant to planning wind farms.  Energy providers need to consider the capacity of the transmission grid that serves a proposed wind project.  Lack of convenient transmission lines was the Achilles heel in T. Boone Pickens' plan for a giant wind farm in Texas.  Wind power enthusiasts in China have yet to figure this out.  China's vaunted leadership in building wind installations may prove meaningless if grid upgrades lag behind new generation.  Wind power is a waste without the grid lines to bring it to market. 

Utilities planning wind projects should tread carefully.  All of the relevant ducks need to be in a row - including enablers like transmission infrastructure and environmental considerations - before a green energy project gets a green light. 

Saturday, February 19, 2011

YRCW Way Behind In Mobile Apps

Here's a clue as to how badly YRC Worldwide is hurting.  The company is just now rolling out a mobile phone application that allows customers to track shipments.  Its main competitors have had similar apps out for a long time.  Check out some old news.

UPS launch its app in December 2008.

FedEx launched its app in early 2009.

Con-way Freight launched its app in August 2010. 

It's really sad when you're just starting to explore a service that others have spent more then two years bringing to maturity.  It's all too easy to fall behind when you're distracted by your unionized workforce's insane demands and work rules.  High-performing companies always have an external focus.  Unions demand an inward-looking focus that ignores the competitive landscape.  I certainly hope YRC Worldwide isn't entrusting the application's data entry or interface design to union labor. 

Full disclosure:  No positions in YRCW, UPS, FDX, or CNW at this time.

Thursday, February 17, 2011

Day Of Greed In Wisconsin From Unions

Arab street protests have given the world a "Day of Rage" on several different days.  Now some misguided Americans are making this concept their own to protest the imminent destruction of their union benefits.  The state of Wisconsin is doing the right thing by moving to curtail state employee unions' collective bargaining rights.  The state has even thrown the unions a bone by promising no layoffs in exchange for higher employee contributions to their own pension and health care benefits.  In other words, the state asks its employees to accept the same lifestyle deal faced by the private sector taxpayers who pay their salaries.

On the plus side, passage of this fiscally responsible legislation will make credit analysts look more favorably upon the state of Wisconsin's finances.  The state's muni bonds will look more secure and taxpayers will save on interest costs.  On the minus side, unionized teachers and other employees show how clueless they can be when sufficiently roused. 

Unions are responding to this common sense legislation with their typical childishness, greed, and arrogance.  This goes to show that union leaders just aren't intelligent enough to grasp economic concepts.  These protesters may be even more dense than the Teamsters at YRC Worldwide, which I didn't think was possible until I read the stories coming out of Wisconsin today. 

Wake up, unions.  Your time is almost up.  Do your members a favor by breaking the news to them that the days of generous benefits and job security for low-skill occupations are rapidly drawing to a close. 

Full disclosure:  No position in YRCW or Wisconsin muni bonds.

Tuesday, February 15, 2011

Tuesday Newsreel for 02/15/11

It's time to comment on whatever strikes my fancy.  Join the fun.

Wireless monitoring looks to be another next big thing in oil and gas extraction.  Wireless connections also open up SCADA systems to penetration from malware like the Stuxnet virus.  Wireless Ethernet connectivity is not any more secure. 

Here comes some bad news in the form of cognitive dissonance.  Retailers forecast import growth at the same time as overall retail growth is slowing down.  That means the component of retail sales from domestic goods production is seriously deteriorating.  Forget about solid GDP growth in 2011.

The Japan-India free trade agreement is about more than tariffs.  Japan needs a counterweight to China if the U.S. is no longer able or willing to play its role as a regional balance of power.  Look for Japanese-domiciled multinationals to seek supply chain security in India's resources. 

I'm proud of the logistics action in the Bay Area, my neck of the woods.  The Port of Oakland is firing on cylinders.  It almost sounds too good to be true.  It would be even better if their shore-side electric power came from renewable sources.  They should stick some solar panels on the roofs of those long warehouses at the former Oakland Army Base. 

Egypt is probably in for serious macroeconomic instability if the ruling military coalition has to deal with general strikes.  It's odd to see the only Egypt-tracking ETF rally since Mubarak's departure.  Amateur traders and naive hedge funds might be betting the worst is over.  I wouldn't take that bet.

PIMCO has drastically cut its U.S. debt exposure.  They've decided to get off the bond train before it crashes into the next station.  Buying debt from emerging market nations may be the next bubble to inflate. 

Monday, February 14, 2011

Hedge Funds Buying Munis In Extremely Stupid Move

Stupidity isn't the exclusive provenance of people with low IQs.  Ostensibly well-educated people do dumb things too.  Hedge funds run by investment professionals who are supposed to be intelligent are jumping into muni bonds:

A spike in yields and a desire to diversify portfolios is prompting some unusual investors to jump into the municipal bond market, say traders and analysts.

This comes in the face of warnings of massive deficits facing municipal governments and unfunded pension liabilities that will now affect states' credit ratings.  Hedge funds buying New Jersey's bonds hoping for bargains may get more than they bargain for thanks to rating cuts driven by pension costs

The pension fund managers whose liabilities are contributing to muni bond haircuts are just as stupid as hedge funds.  CalPERS can't resist the siren call of higher returns from less liquid investments, which is exactly why it cannot solve its funding shortfalls. 

There's nothing wrong with buying munis for their triple tax free cash flow and ability to stabilize a diverse portfolio.  Buying munis from solvent governments or even insolvent governments that are prohibited from declaring bankruptcy (like California) makes sense if the bonds are held to maturity.  Unfortunately, that's not the typical hedge fund's approach.  Hedgies place their client's money at risk by using algorithms to play a guessing game with interest rates and credit ratings.  Due diligence and credit quality probably play a minor role.  That's what makes this latest hedge fund craze sound so stupid. 

Full disclosure:  The author has a small position in California state municipal bonds at this time. 

Sunday, February 13, 2011

The Limerick of Finance for 02/13/11

Mubarak ran off with the gold
He's worth billions, or so we are told
Grabbing all of that cash
Piled up in a stash
Down the Nile's where his country was sold

Saturday, February 12, 2011

China Prepares Tough Hurdles For Mergers

China wants to have its cake and eat it too.  In a throwback to imperial China's historical insistence that foreigners kowtow and pay tribute, the Middle Kingdom is preparing to exact a new form of tribute from foreign investors:

Foreign investments in military, agriculture, energy and resources, key infrastructure, transport systems, key technology sectors and "important equipment manufacturers" may be subject to reviews, according to a statement published on the central government Internet portal,

This isn't merely a response to other countries' barriers to China's strategy of resource acquisitions.  Replace the words "national security" with "rare earth metals" and you'll see the hidden agenda.  China wants to ensure that foreign investment adds to its high-end manufacturing capability without surrendering control of its rare earth metals.  Note the article's comparison to Australia's own review board.  The common theme is that resource-rich countries seek to husband their deposits for the strategic advantage they confer.  Those investments that are permitted will be exclusively to China's advantage. Western corporations will pay a huge premium if they wish to secure their supply chains from China. 

The main driver of strategic conflict in the rest of the 21st Century will be a contest for resources in high-value manufacturing.  The main contestants will be China, India, and the Anglo-West's transnational corporations.  You heard it here first. 

Friday, February 11, 2011

Trucking Success Implies High Yield

Let's talk a little about yield, or the trucking measurement for revenue per hundredweight.  How does a company maximize it?

Hiring a senior exec who focuses on yield management is one way, as Con-way Freight is doing right now.  It works if the exec has a plan to cut across the firm and gets buy-in from every business unit.  This hire had better have an excess of charisma and networking ability. 

Product focus helps.  Limiting your freight to stuff that commands a premium - like perishables - means you've staked out a niche in a channel where customers absolutely must pay to have something delivered on time.  It also means you deliberately prune away low-cost business lines using your hand-dandy BCG growth-share matrix. 

Tiered pricing helps.  Charge more for rush deliveries.  Don't eat costs like bridge tolls if you can compete on non-price service metrics like timeliness.  If you have to pass on fuel surcharges to your customer, don't count them towards yield.  Fuel costs are mostly out of a company's control although they can be partially hedged with energy futures. 

Reader, your thoughts are always welcome.  There must be plenty of people out there with relevant wisdom.

Thursday, February 10, 2011

SF American Legion Does Justice 02/10/2011

Local veterans upheld honor today by rendering a verdict on corruption. I'm glad I was able to offer testimony. 

Tuesday, February 08, 2011

Tuesday Newsreel for 02/08/11

Headlines are not crystal balls. 

Berkshire Hathway is buying Wesco Financial.  Warren Buffett is taking his partner Charlie Munger's firm completely private.  It seems to be a departure from typical Berkshire acquisitions, as Wesco has no durable competitive advantage and currently clocks an ROE that's less than the 10-year Treasury yield.  Maybe Mr. Buffett likes the float from the reinsurance lines so much he's willing to pay a premium (38 P/E!!) for a lackluster, no-growth business.

AOL buys Huffington Post for $315mm, but founder and namesake Arianna Huffington only gets something like $18mm.  Founding principals typically get way more than 5.7% of the takedown at liquidity.  I think her early backers took her to the cleaners.  She should have asked former gubernatorial rival Arnold Schwarzenegger for advice. 

It finally dawns on The Economist that TIPS are not reliable as a way to discount against inflation.  Individual bonds probably aren't as they don't reset their principal often enough to account for daily price changes in a high-inflation environment.  A TIPS bond fund or ETF on the other hand would be subject to routine daily price discovery.  Hmmm, looks like TIPS turn the traditional bond roles - stabilizing a diverse portfolio and providing cash flow - upside down. 

Chinese manufacturing has a long way to go to catch up with the U.S., says an editorialist.  Here's my editorial response.  The gap will close rapidly as manufacturers realize they'll have to relocate to China to keep rare earth metals in their supply chains.  Our only hope is to develop technologies in the U.S. that aren't rare earth dependent.  Hope is not a method. 

Speaking of China, they just raised interest rates again.  They really are serious about fighting inflation and revaluing the yuan on their own terms.  The after-hours announcement will probably make the SSE and SZSE open lower on Wednesday.  Don't hold your breath; after all, this headline isn't a crystal ball. 

Monday, February 07, 2011

Time Is Precious And Fleeting

Permit me a brief departure from finance into philosophy.  I tend to do this sometimes.

My time is precious. I have wasted far too much of my limited life on people who aren't worthwhile.  I simply cannot afford to do that as I grow older.  I've learned enough through trial and error about whom I must avoid. 

I do not wish to meet jackals, hyenas, troglodytes, psychic vampires, fools, idiots, mental defectives, ding-dongs, ding-a-lings, morons, losers, idiots, numbskulls, arrested development adolescents, and others of their ilk. 

I sure do love living in San Francisco.  It's hard to reconcile that with my desire to avoid insanity but I'm always up for a challenge.  :-)

Sunday, February 06, 2011

The Limerick of Finance for 02/06/11

Union labor has become a joke
Workers should free themselves from its yoke
Unions have no real role
But remain on a dole
This can drive a good company broke

YRC Worldwide Reports Profit Solely Due To Tax Gain

Don't look now, but YRCW is pulling out all the stops to dress up its problems as successes.  The company reported a Q4 profit of $23mm.  Look closer, optimists.  That profit is solely attributable to a one-time gain on debt redemption.  Subtract that $52mm gain from the $23mm profit and the real result is a net loss of $29mm.  One telling lesson is that the company continues to experience difficulty earning real money while gross revenues rose by 4%. 

The company claims to possess rising pricing power.  They're going to need sustained increases in yield if tons per day keep declining by 5.2%.  Consider the weakening competitive position of a company that relies on "pricing power" to keep revenues rising while tonnage is falling, and can't even translate that combination into real operating profits.  If that pricing power comes solely from fuel surcharges, it will evaporate when fuel costs eventually come down (and come down they will, because commodity prices move randomly over the long run).  If it comes from LTL market leadership, that will erode with continued tonnage declines and further asset sales. 

Kudos to management for turning a freefall into a slow decline, but YRCW's problems persist.  March 15 is D-Day for a deal to keep its balance sheet above water.  Realistic solutions include debt haircuts and dilution of equity, so investors will feel more pain.  Operating results that continue to be marginal will give management a lever to keep the Teamsters from demanding restored concessions.  Persistent difficulties may be a blessing in disguise for YRCW and other truckers if they use these problems to keep a lid on the Teamsters' greed and force them to actually do some work.  Management has made it clear (at the very end of this article) that Teamsters need to be part of the solution by extending concessions to help the company survive.  That's asking a lot given the problems unions tend to cause. 

Full disclosure:  No position in YRCW. 

Walk Like An Egyptian ETF - With Caution

The world's eyes were until recently glued to Greece, the cradle of civilization.  Now they're mesmerized by that other font of ancient mystery, Egypt.  U.S. retail investors have little access to the Egyptian stock market except through thinly traded instruments like the Market Vectors Egypt Index ETF (EGPT).  This ETF isn't as liquid as others because many of its underlying equities are illiquid, requiring new shares to be handled via in-kind creations.  Van Eck has suspended those creations now that Egypt's turmoil has closed its equity market.  Investor cash intended for EGPT can't be put to work in the fund, so the Egyptian market remains largely inaccessible to new investors despite increased investor attention.  Even ETF experts are unable to estimate a fair value for EGPT thanks to the implied tracking error of all that sidelined cash. 

Daily trading volume in EGPT has exploded in the past two weeks.  Long investors might be betting that the crisis will soon be resolved and stability will return.  Short investors can bet on further chaos.  Value investors need to consider the long-run implications of Egypt's problems.  Credit default swaps on its debt are extremely high, with yields rising due to uncertain bond market interest in new issues.  There is some risk that Egypt's logistics infrastructure can be compromised by political violence.  The Suez Canal seems safe for now but an explosion has taken a very important natural gas pipeline offline.  It is too early to tell whether that explosion was due to sabotage, but any any infrastructure vulnerability puts additional pressure on the military to implement backup measures. 

The risks of investing in emerging markets are obvious.  Egypt is a boiling cauldron right now, and investors can easily get burned. 

Full disclosure:  No position in EGPT. 

Friday, February 04, 2011

Flash Crash To Splash Crash

Remember the last flash crash, when the Dow Jones Industrial Average dropped something like a thousand points?  I sure do, even though I'd had a drink or two just so I could enjoy the spectacle.  The markets may now be facing the even more horrific phenomenon of a "splash crash" according to a new report:

With memories of last May's "Flash Crash" still fresh in investors' minds, now comes warning of a market meltdown that could extend beyond stocks—a possible "Splash Crash" that also would affect currencies, commodities and bonds.

The splash crash takes valuation resets to a whole new level.  The world's central banks can in theory float enough liquidity to refloat equities, bonds, commodities, and every other asset class that a splash crash can impact.  The only problem that will cause is the spawning of a global liquidity trap that forces up the long end of every yield curve in the world.  Oh, that will in turn force down the value of the world's major trading currencies - dollar, pound, euro, yen, etc.  I guess splashing is an appropriate image for all of that liquidity yet to be spawned. 

The splash crash may look something like the picture below if you need a helpful visual aid.

Splash!  You're all wet and so are your assets.
 What an awesome deal for a bargain-hunting bottom feeder like yours truly.  The splash crash will usher in a new era of cheap, affordable investments across all asset classes priced especially for those of us who've stayed liquid throughout the quantitatively eased phantom recovery.  We'll have to act fast, before the liquidity refloat obliterates that brief buying window. 

Thursday, February 03, 2011

Whither The Suez Canal In Early 2011

Unrest in Egypt makes Suez-bound shippers nervous.  Is there really cause for concern? 

The Suez Canal itself remains open to throughput traffic, but some Egyptian ports remain inaccessible due to unrest.  This could pose a short-term problem for Egyptians if any overland routes into the country are disrupted.  Transnational firms exporting from Egypt think their supply chains are secure.  They are probably very fortunate that Internet access was restored so soon.  In-transit visibility can be lost very quickly when all of your query systems are Web-based.

Oil prices continue to rise purely on fear of the unknown.  We know now that the Egyptian military has a big stake in maintaining that nation's stability, is moving to secure ports, and is probably the most powerful institution in the country (and thus most able to broker a way out of the political crisis).  Shippers are balking at changing crews in the canal but the Egyptian army's history of securing it during crises should put them more at ease. 

Concerns about disruptions of Suez Canal traffic are probably overblown. 

Wednesday, February 02, 2011

Unions Predominate Among Health Plan Exemptions

It's time for me to get angry.  I am slow to anger and rich in kindness, just like the fictional deity of the Western world's solar cult.  This news item warrants a much speedier escalation from my normal laconic state into blood-boiling rage.

Last year's national health care act force-fed a whole new slew of regulations to health care providers and burdened employers with a whole new set of taxes.  Federal courts are taking a harsh look at the law's mandates.  The law's loopholes allowing escapes for favored players deserve similar harsh looks. 

The federal Department of Health and Human Services is one of those agencies Americans could probably live without and not miss.  While it exists, it needs to occupy its time somehow.  It does so by granting exemptions from mandated health coverage to health plan sponsors who have that "something special" going on.  Here's the official list of those very special plan sponsors.  A quick scan reveals a predominance of unions and other non-profit groups, along with a few private corporations and municipal government agencies. 

It would be far too generous of me to suggest that the union exemptions were granted to ensure the widest possible coverage for employees under multi-employer plans.  The federal government is now the largest employer of union labor and thus has much more power to wring costs out of health plans through periodic regnegotiations.  These union exemptions are more likely than not a simple political payoff to a favored constituency.   

High mandates paid by productive taxpayers and their employers will cost much more than these mini-med plans benefiting union workers until 2014.  These union workers receive more pay for less work than the more productive taxpayers who must pay through the nose for comparable coverage.  That's the kind of thing that makes me mad.  It's the patent unfairness of it all. 

Excuse me while I go kick some holes in the nearest wall. 

Tuesday, February 01, 2011