Conquer The Wallstreet !!!: Thursday, November 6, 2008

Thursday, November 6, 2008

Oil prices will bounce back to $100

The Financial Times
By Javier Blas and Carola Hoyos in London
November 5 2008 22:26

Oil prices will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030, the International Energy Agency will say in its flagship report to be published next week.

The Financial Times' report video

“While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” the report states.

The developed world’s energy watchdog has doubled its long-term price expectation from last year’s $108 a barrel for 2030 and assumes oil prices will rebound from today’s $60-$70 a barrel to trade, in real terms adjusted by inflation, at an average of more than $100 a barrel from 2008 to 2015.

The IEA’s World Energy Outlook has come to this conclusion largely because it believes companies will struggle to pump enough new oil to offset the steep production declines of the world’s older fields.

“Current global trends in energy supply and consumption are patently unsustainable,” the report states.

In its WEO report, an executive summary of which has been obtained by the Financial Times, the IEA estimates that by 2010 oil companies will have to commit to projects producing almost as much oil as Saudi Arabia – or about 7m barrels a day – if the world is to avoid a supply crunch by the middle of the next decade.

The IEA refused to comment.

The stark assessment comes as companies cancel projects from Kazakhstan to Canada because the collapse in oil prices makes them uneconomical.

The industry will have to invest $350bn each year until 2030 to counter the steep rates of decline of existing fields and find enough extra oil to satisfy the growing demand of countries such as China, the report states.

Output from the world’s oil fields is declining at a natural rate of 9 per cent, the IEA found, following the most comprehensive review of its kind. This decline rate is curtailed to 6.7 per cent when current investments to boost production are made. However, even with such investments, the decline rate worsens significantly to 8.6 per cent by 2030.

The declining rates are steeper than the industry had previously assumed. They are also slightly steeper than an earlier draft of the report because the IEA has expanded the study to 800 oil fields, adding 250 smaller fields.

Click the image to enlarge

Ultra Oil & Gas ProShares          DIG  $30.31  -4.11 (-11.94%)
ProShares UltraShort Oil & Gas ETF DUG  $41.50  +4.20 (11.26%)

Sources :

The Financial Times: IEA predicts oil price to rebound to $100, November 5 2008 22:26

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Ambac’s rating was cut four levels by Moody's

The Ambac building at One State Street Plaza is seen
in New York March 5, 2008. REUTERS/Joshua Lott
From Bloomberg
November 5, 2008 17:55 EST

Ambac Financial Group Inc.'s bond insurance rating was cut four levels by Moody's Investors Service from Aa3 to Baa1, forcing the company to post collateral and causing a cash shortfall of about $3 billion at its investment unit. That was based on figures released today after the company reported a $2.43 billion net loss. Ambac Chief Executive Officer David Wallis told investors today the company would seek regulatory approval to shift money from its insurance arm to the financial services unit to bridge the gap.

Ambac's guaranteed investment contracts require it to terminate transactions or post collateral if it is downgraded. Ambac Chief Executive Officer David Wallis told investors today the company would seek regulatory approval to shift money from its insurance arm to the financial services unit to bridge the gap.

Ambac said today it took third-quarter charge of a $2.7 billion to reflect a decline in the value of securities it had guaranteed using credit-default swaps. That type of mark-to- market loss, which doesn't always indicate an expected cash payment, this time forced the bond insurer to set aside about $2.5 billion to make good on those contracts, according to the statement. Ambac also took a charge of $607.7 million for expected claims on bonds backed by home equity loans.

Moody's cited four reasons for its downgrade. The ratings company said it anticipates increasing losses from mortgage debt. If the economy worsens even more, creating an ``extreme stress'' scenario, those losses could be even higher, Moody's said. The company also faces diminished business prospects and impaired ``financial flexibility,'' Moody's said.

Moody's and Standard & Poor's stripped Ambac and MBIA Inc. of their top ratings in June. Moody's also has MBIA's A2 rating on review for a downgrade. S&P rates Ambac AA and MBIA AA. MBIA today also reported an $806.5 million net loss after setting $961 million aside for guarantees on bonds backed by home-equity loans.

Sources :

Bloomberg: Ambac Insurance Strength Rating Lowered by Moody's (Update2), November 5, 2008 17:55 EST

Will Warren Buffett Buy Wells Fargo Stock?

Bloomberg
November 6, 2008 09:36 am EST

Buffett is Wells Fargo's #1 Shareholder; Company Selling 316 Million Shares, Buffet's Stake Totals 291 Million Shares; Wells Fargo Outperforming in 2008.

CDS Prices (Default Risk) for Major Banks & Brokers

Sources :

Bloomberg Video: Video: The Bloomberg Edge: Will Warren Buffett Buy Wells Fargo Stock?

CDS Prices (Default Risk) for Major Banks & Brokers

From Bespoke Investment Group
November 6, 2008

Below we highlight current credit default swap prices for 13 global financial firms. The prices indicate the cost per year to insure $10,000 of bonds for five years. These prices were much, much higher a few weeks ago, so it's good to see them come down, but they still remain elevated.

Morgan Stanley and Goldman currently have the highest CDS prices, followed by Merrill and Citigroup. As of yesterday's close, Wells Fargo and HSBC were the only two financials of the group below to have CDS prices below 100.

Click the image to enlarge

BOE: The global finance's toxic debt losses now $2.8 trillion (Update 1)

Sources :

Bespoke Investment Group: Default Risk for Key Financials, November 6, 2008

Are Interest Rate Cuts Still An Effective Tool To Boost The World Economy?

From Bloomberg
November 6, 2008 04:04 am EST

BOE, ECB and Swiss slash interest rates

Sources :

Bloomberg Video: Analysis by Thomas Mayer of Deutsche Bank; Analysis by Willem Buiter of London School of Economics

Now, there are no demands for credit card backed bonds

Bank of America promotes a personal credit card with Star Wars characters
at the 39th annual Comic Con Convention in San Diego July 24, 2008.
More than 125,000 people are expected to attend the four-day event
and indulge in a veritable feast of the latest in comic-related books,
movie toys, games and memorabilia. REUTERS/Mike Blake (UNITED STATES)
There are no investors eager to buy credit card security cause credit card bond sales at zero. This situation is driven by lack of confidence of investors to hold credit card backed bonds.

The current weakening job and looming recession are making harder for consumers to make monthly payment. It's the first month since April 1993 that there have been no sales, according to Wachovia Corp. data. Issuers sold $17.1 billion of the debt in October 2007, the data show.

Top-rated credit card-backed securities maturing in three years traded at a gap, or spread, of 475 basis points over the London interbank offered rate, or Libor, during the week ended Oct. 30, JPMorgan Chase & Co. data show, 25 basis points higher than the previous week. The debt was trading at 50 basis points more than Libor in January.

The higher cost to sell the bonds makes it more expensive for banks and credit card companies to fund loans to customers. New York-based American Express Co. paid 160 basis points more than Libor at a Sept. 11 sale of the securities compared with 30 basis points over the benchmark at a similar sale in October 2007, Bloomberg data show.

As consumer spending deteriorated, U.S. credit-card lenders may report record high customer defaults in 2009, Fitch Rating said in a Nov. 3 statement. Sales of credit card asset-backed debt are down 29 percent to $60.3 billion from a year ago, according to JPMorgan.

American Express used the Federal Reserve's commercial facility program for the first time on Oct. 29 as available funding shrank. The lender is slashing 10 percent of its work force as part of a plan to cut costs as cardholders failed to repay loans at almost twice the rate of a year earlier.

American Express has lost 47 percent of its market value this year on concern that higher funding costs and rising defaults will hurt profit. Bank of America Corp., JPMorgan and Citigroup Inc. also rely on the asset-backed market to fund their credit card portfolios, but the banks' large deposit bases give the firms another option to fund originations, according to Deutsche Bank's Grady.

ETFs/Stocks :

JPMorgan Chase (JPM)
Citigroup Inc. (C)
American Express (AXP)
Capital One (COF)
Discover (DFS)
HSBC Holdings Plc (HBC)
Providian (Wash. Mutual) (WAMUQ)
Wells Fargo (WFC)
U.S. Bancorp (USB)

Rising credit card bill delinquencies vex card securities

Sources :

Bloomberg: Credit Card Bond Sales at Zero, First Time Since 1993 (Update1), November 5, 2008 17:12 EST

IMF approves $16.5 billion loan to Ukraine

Ukraine's Prime Minister Yulia Tymoshenko speaks during her televised
address in Kiev, October 19, 2008. Tymoshenko urged political parties
on Sunday to from a new government, draft a plan to shield Ukraine
from the world financial crisis and abandon an election called by
the country's president. REUTERS/Alexander Prokopenko/Pool (UKRAINE)
From The International Herald Tribune
November 6, 2008

The International Monetary Fund has approved a $16.5 billion loan program for Ukraine that will include changes to monetary and exchange rate policy to ease strains from the global financial crisis.

The IMF, in a statement issued late on Wednesday, said it would immediately disburse $4.5 billion to the government under the two-year loan agreement.

The authorities' program is designed to help stabilize the domestic financial system against a backdrop of global de-leveraging and a domestic crisis of confidence, and to facilitate adjustment of the economy to a large terms-of-trade shock.

Ukraine President Viktor Yushchenko said, "it provided a signal to the international community to boost the rating of trust in our country. The authorities' plan incorporates monetary and exchange rate policy shifts, banking recapitalization, and fiscal and incomes policy adjustments. The economy is getting a powerful resource to develop priority sectors and guarantee the liquidity of the banking system".

While Prime Minister Yulia Tymoshenko, the president's former ally turned rival, described the loan as a "great victory" and would allow Ukraine to stabilize completely the financial situation.

The IMF decision was issued along with forecast indicators predicting that Ukraine would sink into recession next year, with a 3 percent fall against 6 percent growth this year.

Ukraine's central bank has been intervening since early October to lift the hryvnia currency from record lows last week. It began offering buy-sell rates for currencies this week after previously only selling or buying a currency.

ETFs/Stocks :

The Claymore/BNY Mellon Frontier Markets ETF (FRN)

Sources :

The International Herald Tribune: IMF approves $16.5 billion loan to Ukraine, November 6, 2008

BOE, ECB and Swiss slash interest rates

A symbol of the euro stands outside the European Central Bank
headquarters in Frankfurt, Germany The European Central Bank cut
its main lending rate by half a percentage point to 3.25 percent, it said
on Thursday, to bolster slumping economic growth
and fragile financial markets. Photo courtesy of Breitbart.com
The Bank of England slashed its benchmark interest rate by 1.5% from 4.5% to 3%, while the European Central Bank lowered rates by 0.5% to 3.25% and The Swiss National Bank has cut its key interest rate by 0.5% to 2 %, only its second reduction since March 2003.

The BOE's decision was a qualified surprise. A Dow Jones Newswires survey last week found that 15 of the 20 economists who were polled expected the BOE's Monetary Policy Committee to cut the bank rate to 4%. But the other five expected the MPC to cut to 3.5%, and weak economic data released during the week added to expectations that the move would be aggressive.

The rate reduction is aimed to bolster slumping economic growth and fragile financial markets.

Related Posts :

Sources :

The Wall Street Journal: BOE, ECB Slash Interest Rates, November 6, 2008
Breitbart.com: Swiss central bank cuts interest a half point, November 6 08:38 AM EST
Breitbart.com: ECB cuts main lending rate to 3.25%, November 6 08:56 AM EST
Reuters: ECB cuts rates by 50 basis points, more action expected, November 6 07:53 AM EST

South Africa does not resist to global economic slowdown

Image courtesy of WSJ
The current-account deficit, a broad measure of the country's trade and financial dealings with the rest of the world, got another blow with a report the trade deficit in September swelled to 7.11 billion rand ($729 million) from a 5.12 billion-rand shortfall the month before.

Metals prices as a key component of South Africa's exports were hit hard in October, with gold prices falling 18%, silver down 21% and copper off 37%. Metals rallied early this week but stumbled again Wednesday, falling along with equities markets. South Africa's economy slowed substantially this year. The National Treasury recently forecast growth of 3.7% for 2008 after an average of about 5% in the last four years.

But the slowdown was already evident in January as industry struggled with electricity shortages. South Africans also were being pinched before the U.S. subprime-lending trouble, with interest-rate increases aimed at countering rising inflation. A new National Credit Act forced lenders to be stricter in their practices.

When Razia Khan, regional head of research at Standard Chartered in London, was asked, "Does South Africa belongs in the same category as Hungary or Iceland?” Fundamentally, I would think not," she said.

ETFs/Stocks :

 iShares MSCI South Africa Index ETF (EZA)  $33.18 -4.05 (-10.88%)

Hong Kong Investors’ portfolio was damaged by accumulators

Sources :

Metals Prices, Swelling Deficit Pose Threats to South Africa, November 6, 2008

Hong Kong Investors’ portfolio was damaged by accumulators

According to Bloomberg on November 4, Asian regulators may curb all derivative products in their market soon after losses helped push the South Korean won to a decade low, led to lawsuits in India and caused shares of China's Citic Pacific Ltd. to collapse. The Wall Street Journal today wrote that accumulator -- one of derivative products –- is now wreaking havoc on private portfolios and corporate balance sheets.

Accumulator as a corporate product was from Europe. It was designed primarily for companies looking to build stakes in one another without causing sudden spikes in the share price of the target company. The Accumulators were spread widen in Asia when private bankers began marketing the product to retail investors as the Asian market proved a lucrative source of new business.

How a stock accumulator works (Click the image to enlarge)
Image courtesy of WSJ

Huge volatility in the recent global financial markets has been wreaking havoc on private portfolios and corporate balance sheets. Among the hardest-hit victims have been wealthy individual, or "retail," investors who bought stock accumulators in Hong Kong, by far the biggest market for the product, according to bankers. Hong Kong's financial regulator, the Securities and Futures Commission, estimated earlier this year that about $23 billion in accumulators remained outstanding.

As a result, recent losses from stock accumulators in Hong Kong have led to dozens of complaints to regulators and legislators from disgruntled investors. But contrarily, many of investors didn’t fully understand the risk or blame their private bankers for pushing them into the products. Some individuals he has talked to have lost as much as $25 million. While Citic Pacific Ltd., a Chinese-backed conglomerate listed in Hong Kong, recently reported a possible loss of nearly $2 billion.

Some investors have settled quietly for undisclosed sums with their private banks, according to people familiar with those negotiations. Others have opted to cut losses and terminate the accumulators, by selling them back to private banks for far less than their original purchase prices. Still others are hanging on to those investments, hoping a market rebound will restore ailing account balances.
Here is how an accumulator might have worked for an investor interested in accumulating a large position in China Mobile, one of the country's biggest telecom stocks.

A year ago, China Mobile was trading around 142 Hong Kong dollars (US$18.32) a share. An accumulator might have offered investors the ability to buy 1,000 China Mobile shares every month for a price of HK$114, or 20% below market price. The contracts typically included a "knock-out" clause, which terminated the contract once the stock appreciated 5%, or in China Mobile's case reached HK$149. If the stock reached that level, the return on the investor's outlay was 31%.

But here's the rub: Investors were contractually obliged to keep purchasing the shares at HK$114 regardless of whether they rose or fell. There was another nasty twist: Many accumulators required investors to double down on purchases if shares dropped, buying 2,000 shares instead of 1,000 at a price that now put them in the red.

For the 12-month accumulator, set in November 2007, investors quickly found themselves in this situation, as China Mobile's stock bounced around in the market's volatility. On Wednesday, the company's shares closed at HK$71.60 -- down 37% from the HK$114 purchase price. And because the investor is locked into making more purchases over the life of the contract, he keeps adding to his losses with each purchase.

Related Posts :

China publicly revealed its worries about a liquidity crunch

Sources :

The Wall Street Journal: Asian Investors 'Accumulate' Big Losses on Risky Contracts, November 6, 2008

Stocks may fall in the 1st month after Obama's victory before picking up

Bloomberg Video
November 6, 2008 00:45 am

Obama & the Market - S&P 500 on Cusp of Rally in January, Based on Speed of Tumble from Peak In Recoveries of 1975, 1982, and 1991; Economic Contraction Seen Ending in July; Obama May Benefit From Economic Cycle by July 2009.

ETFs/Stocks :

ProShares UltraShort S&P500 ETF   SDS  $85.74  +6.89 (8.74%)
ProShares Ultra S&P500 ETF        SSO  $31.06 -3.19 (-9.31%)

Who's going to Finance the rising US National Debt ?

Sources :

Bloomberg Video: Stocks May Fall First Month After Obama's Victory, November 6, 2008 00:45 am

Dennis Gartman Sees Fewer Moderate and Conservative Democrats

From Bloomberg on the economy
November 5, 2008

Listen/Download this podcast (Duration: 08:23 , Format: *.MP3)

Related Posts :

Dennis Gartman Letter: Suggests investing in gold

Sources :

Bloomberg on the economy: Dennis Gartman Sees Fewer Moderate and Conservative Democrats, November 5, 2008

Who's going to Finance the rising US National Debt ?

by Andrew Hughes
Global Research, November 5, 2008

Election Fever is over and President Elect Barack Obama has until January to formulate a realistic game plan to address the unprecedented financial morass that he will shortly be inheriting. He will , no doubt, have to have the moral character to honestly inform his electorate of the true gravity of the situation they now face. Gone is the time for platitudes, electioneering and vacuous speeches. The time of "Change we can believe in" is over; now it's time for "Change we have to Go Through"

The most difficult aspect to Obama's mission will be to inform the American Public that the Party is actually over and it's time to pay the bill that has been steadily mounting out of control and is now a mathematically impossible amount for the country to actually ever pay back. The lifestyle enjoyed during these last years has been possible using the rest of the world to pick up the IOU's. With the Wall St Nuclear Financial Strike delivered through credit default swaps, mortgage backed securities and derivative trading, the world is now reeling and stands over an abyss of enormous proportions. Despite the Wall St Media Machine, Governments around the World have realised that they are already over the edge and falling headlong downwards with no sight of the bottom.

First on the list will be the $1 Trillion budget deficit. The Treasury has just announced that it has to borrow $550 Billion in the October - December quarter. Goldman Sachs estimates that another $2 Trillion to finance the current deficit, to buy $500 Billion in bad assets and roll over $561 Billion in Maturing Treasuries securities. This is all before Obama spends a single penny on Healthcare, Alternative Energy research, infrastructure, Medicaid or unemployment insurance. This does not address the Trillions that have been borrowed from the Social Security Fund either. So where's the money coming from ? The population is already taxed to the hilt and cannot afford to pay anymore. Unemployment is rising, poverty is rising, homelessness is rising. Obama has said to the banks that they can only qualify for Taxpayer money if they "Temporarily" suspend foreclosure proceedings on these same taxpayers. Why doesn't he just give the money to the taxpayers right there, let them pay off their mortgage, keep their house and have some leeway to pay the extra taxes that Obama is going to ask them for ? Treasury Notes ? The rest of the world has already started to back off 10 year T Bills as witnessed by the rising yield and falling price of the latter. "There has been a real diminishing of demand from foreign investors over the last few months" said Tom Tucci, head Treasuries trader at RBC Capital Markets in New York. "We've seen them pulling back"

As the steadily worsening Real Economic data floods in to International view, foreign investors and Governments are beginning to realise that the US cannot spend it's way back to Economic stability. Something has to give. Reality has to have it's say eventually. The only, single way that the US can get out of it's current predicament is through the trust of these foreign investors and Governments, and that is fading away. Brazil, Russia, China and India have formed BRIC, a group of nations that have decided to look out for their own interests where the Dollar as the Reserve Currency is not considered beneficial to anyone anymore. In Europe we have seen a turn towards the Euro as a posssible reserve currency. The Dollar has outlived it's usefullness and the rest of the World is paying the price for it's former fealty.

These are the facts that the new President should be talking about when he promises..."There are many who won't agree with every decision or policy I make as president, and we know that government can't solve every problem. But I will always be honest with you about the challenges we face.''

Global Research Articles by Andrew Hughes

Related Posts :

Treasury to sell $55 bln 3 years note to refund $54.9 bln in maturing debt

Sources :

Global Research: Who's going to Finance the rising US National Debt ?, November 5, 2008

UBS maintains negative rating on boeing

From Bloomberg Video
November 5, 2008

Boeing May Need to Raise Capital Via Finance Arm, May Sell $2 Billion of Debt to Help Airlines; UBS Maintains Negative Rating on Boeing, Cutting 2008-20009 Profit Estimate on Declining Air Traffic.

ETFs/Stocks :

iShares Dow Jones Transport. Avg. ETF   IYT  68.42  -4.64 (-6.35%)
The Boeing Company                      BA   49.55  -3.67 (-6.90%)
Lockheed Martin Corporation             LMT  84.39  -1.52 (-1.77%)
UAL Corporation                         UAUA 14.46  -1.02 (-6.59%)
AMR Corporation                         AMR  10.42  -0.63 (-5.70%)
Delta Air Lines, Inc.                   DAL  10.48  -0.80 (-7.09%)
US Airways Group, Inc.                  LCC   8.75  -1.32 (-13.11%)
Republic Airways Holdings Inc.          RJET 12.98  -1.79 (-12.12%)
Continental Airlines, Inc.              CAL  16.53  -1.41 (-7.86%)

Darker Outlook for Solar Stocks

Sources :

Bloomberg Video: Video: Another Bad Week for Boeing

Darker Outlook for Solar Stocks

From Bloomberg Video
November 5, 2008

Solar Stocks Tumble This Year, May Not See Gains Anytime Soon Despite Obama Support.

ETFs/Stocks :

Claymore/MAC Global Solar Index ETF  TAN    11.49  -2.06 (-15.20%)
First Solar, Inc.                    FSLR  152.09  -25.43 (-14.33%)
JA Solar Holdings                    JASO    5.05  -1.32 (-20.72%)
Evergreen Solar, Inc.                ESLR    4.39  -0.90 (-17.01%)
Canadian Solar Inc.                  CSIQ   10.53  -1.97 (-15.76%)
SunPower Corporation                 SPWRA  32.99  -17.51 (-34.67%)
SunPower Corporation                 SPWRB  25.76  -15.80 (-38.02%)

Sources :

The Bloomberg Edge: Darker Outlook for Solar Stocks

Thursday, November 6, 2008

Oil prices will bounce back to $100

Ambac’s rating was cut four levels by Moody's

Will Warren Buffett Buy Wells Fargo Stock?

CDS Prices (Default Risk) for Major Banks & Brokers

Are Interest Rate Cuts Still An Effective Tool To Boost The World Economy?

Now, there are no demands for credit card backed bonds

IMF approves $16.5 billion loan to Ukraine

BOE, ECB and Swiss slash interest rates

South Africa does not resist to global economic slowdown

Hong Kong Investors’ portfolio was damaged by accumulators

Stocks may fall in the 1st month after Obama's victory before picking up

Dennis Gartman Sees Fewer Moderate and Conservative Democrats

Who's going to Finance the rising US National Debt ?

UBS maintains negative rating on boeing

Darker Outlook for Solar Stocks

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