Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Saturday, October 04, 2008

Saturday Morning Reading

In 1910, the dirigible America tried to cross the Atlantic. Due to mechanical problems, it didn't make it. This photo is the last shot taken after the crew abandoned the America and it drifted off, never to be seen again. Hat-tip:

I woke up this morning all pumped up to ride my bike to the park and exercise -- and I when I got halfway down the street the sky opened up with buckets of rain. Damn. So, I've detoured into reading the blogs.

At Minyanville, you can read 5 Things You Need to Know Why Stocks Went Down After the Bank Bailout Passed
How can this be? How can the passage of the Bailout Bill find stocks limping awkwardly into the close? Wasn't this supposed to be our finest hour? The desperate resolution to the year-long crisis? Well, the reality we have tried to reveal here in Minyanville is that the Bailout simply will not work.
Jeff Cooper gives us an interesting analysis in Snowball From Hell. It's a long piece, but I'll share some of his conclusion and strategy:
Conclusion: I suspect that after the House approves a bailout bill that there may be a coordinated effort by central banks to inject rocket fuel (as one trading bro calls it) into the market. It's the last exit to Brooklyn---can they afford to let the market sag on the passage? I may be wrong of course but the point is if it happens I warn against buying into any carrot that they try to stick into this snowball and pass off a a friendly Frosty the Snowman. It is not. The daisy chain of systemic issues are vast. I for one don't believe that the markets are always a great forecaster of the economy. What did the markets know in October 2007 or was that that years version of a 'rescue plan' to prop up the market so that insiders could take capital gains right into the beginning of the new year, not to mention bonuses? What did the market know in August of 1929 as opposed to August 1987? It is entirely possible that the Great Depression was an effect of the way the aftermath of the crash was handled---the snowball was bobbled.

The dollar was not the whipping boy in the 1920's it has been this decade. Real estate was not crashing prior to 1929. There was leverage in stocks, but there were not the derivative dominoes that are plaguing us now. The global counter-party and systemic complexities that exist today dwarf those of the prior two experiences. There are many land mines to tiptoe around today and unfortunately the dog and pony pork show put on by Congress is not the kind of deft action that inspires confidence in leadership. We can only hope they get it before we get it.
Strategy: 1080 S&P is .618 of the 2002 to 2007 range. A tag of that level will carve out a three point trendline from the 2002 lows. Of course we may have already come close enough for government work, pun intended. We are NEAR the ideal place for a bounce. We may gap up Monday--next week being the anniversary of many historical turns such as the Oct. 2002 low, the Oct. 1990 low, the Oct 2007 high and the Oct 4th 1987 fake out blastoff.
Matt Simmons: America's Gasoline Shortage is a Bigger Threat Than Wall Street Crisis, and Much Harder to Bail Out
"Congress should realize we have two diseases crippling America today," warned Matthew R. Simmons, Chairman of Simmons & Company International. "While the financial crisis is like asthma or tuberculosis to the economy, a gasoline supply crisis could be terminal cancer," Simmons argues. "The government can print more money but gasoline is a hard asset. If we drain the pipelines, we won't be able to drive; if we don't ban driving we could run out of food within 5-6 days and face the greatest crisis in the history of the United States," Simmons said on WorldEnergy.TV, where he focused on the current financial crisis, the price of oil, the gasoline shortages, and the upcoming presidential election.
XX Sean's note -- I thought the gasoline shortage was a crisis, too, but we went long the UGA (gasoline ETF) in Red-Hot Commodity ETFs and were stopped out. Gasoline prices are going down despite the fact that areas of the country have simply run out of gas. It seems like market manipulation. Yet is it proveable? Probably not.

Oil May Fall to $50 in Global Recession, Merrill Says (Update2)

Crude-oil prices may fall as low as $50 a barrel next year, about half current levels, in the "unlikely'' event of a global recession, weighing on shares of petroleum producers, Merrill Lynch & Co. said.
XX I really doubt that, but my reasons are too long for just a comment. Maybe I can turn it into a longer post.

Dubai Moves Into the Slow Lane
Are the wheels coming off Dubai? Momentum in the spendthrift emirate certainly looks to be grinding to a halt. Last week, Dubai received a $15bn (£8.5bn) bailout from Abu Dhabi, its cash-rich big sister. At least that's how the lending facility set up by the UAE central bank is being privately interpreted. It's just one of a number of warning signs.
Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs
We are now facing:
- a silent run on the huge mass of uninsured deposits of the banking system and even a run on some insured deposits are small depositors are scared;
- a run on most of the shadow banking system: over 300 non bank mortgage lenders are now bust; the SIVs and conduits are now all bust; the five major brokers dealers are now bust (Bear and Lehman) or still under severe stress even after they have been converted into banks (Merrill, Morgan, Goldman); a run on money market funds restrained only by a blanket government guarantee; a serious run on hedge funds; a looming refinancing crisis for private equity firms and LBOs);
- a run on the short term liabilities of the corporate sector as the commercial paper market has totally frozen (and experiencing a roll-off) while access to medium terms and long term financings for corporations is frozen at a time when hundreds of billions of dollars of maturing debts need to be rolled over;
- a total seizure of the interbank and money markets.
Chronology: Financial Crisis Spreads From US to World Markets
The crisis in world financial markets began when prices started declining in the US real estate market in late 2006. So far, it is estimated that banks worldwide have had to writedown more than $550 billion in assets.

Check out my new gold and energy blog at