Investors starting to shun Chinese real estate bonds

Bloomberg's headline says that China's real estate bubble has burst in the bond market but I'm not so sure. In any case, here is the story:

Dollar bonds sold by China real estate companies this year are the worst performers among Asian non-financial corporate debt denominated in the U.S. currency amid concern the nation’s property market is overheating.

Yields on the $3.9 billion of bonds issued by Kaisa Group Holdings Ltd., Country Garden Holdings Co. and seven other developers since January widened by an average 2.26 percentage points relative to Treasuries as of last week, according to data compiled by Bloomberg. That’s more than the 2.05 percentage- point increase in spreads for the seven dollar-denominated bonds sold by other companies in Asia outside Japan.

Investors are demanding greater yields to lend to China property firms, a sign they expect borrowers will have a harder time meeting debt payments amid a government clampdown down on lending.

The amount of dollar bonds issued by China developers represents 45 percent of all corporate dollar debt sales in Asia outside Japan this year, Bloomberg data show. The yield spread on $350 million of 13.5 percent notes sold by Shenzhen-based Kaisa last month widened the most of the nine issues, expanding to 16.52 percentage points from 11.07 percentage points, Nomura Holdings Inc. prices on Bloomberg show.

Kaisa is developing 18 projects in Shenzhen, Dongguan and other cities in the Pearl River Delta, most of them high-rise residential complexes that combine recreational and commercial space, according to its website. An investor who bought the company’s 2015 bonds at par would have lost 15.5 percent.


China property developers paid coupons as high as 14 percent to issue dollar debt this year, compared with an average 9.2 percent for other companies in Asia and 6.2 percent for U.S. property companies. On average, Chinese property companies are paying a 10.875 percent coupon.


Sunday Spectacle LXXII

Apple's Market Cap Surpasses Microsoft's

(source: "A sour taste - Microsoft loses its top spot to Apple," The Economist, May 27, 2010.)

In what would have been unthinkable 10 years ago, Apple's market cap surpassed Microsoft to become the second most valuable publicly-listed company in the world (behind ExxonMobil.) Apple and Microsoft were major rivals in the past but don't really compete directly anymore. Of course, using other metrics the gap is still fairly large (for instance, as the chart shows, Microsoft's earnings are still over 2x higher.)

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Saturday, May 29, 2010 1 comments ++[ CLICK TO COMMENT ]++

Is Google (GOOG) a value stock?

There is a long-running debate in the value investing community over whether technology, Internet, and new media companies can be considered as value stocks. Traditionalists tend to believe that these emerging industries cannot generally be considered as value stocks given their uncertain earnings, seemingly high valuations, and the lack of long-term history.

There are other value investors, such as Bill Miller—admittedly some don't consider him a value investor—who claim that technology/Internet/etc companies can be value stocks depending on the purchase price.

Of course, ultimately a value investment is based on buying at a low valuation and that is in the eye of the beholder.

Recently, there has been some debate over Google. Is it really a value stock? GuruFocus recently picked up an opinion by Ockham Research suggesting it was. Vgm, one of the respondents to that story, referenced Glenn Greenberg's thoughts on Google and I thought I would quote it.

For those not familiar, Glenn Greenberg has run successful investment funds for over 30 years. He is generally considered to be a value investor, although I think he is more of a 'growthy' investor who probably belongs in the category of John Neff and Bill Miller. In an interview with the Graham & Doddsville publication, Greenberg was asked about his ownership of Google shares (bolds by me):

Graham & Doddsville: How does Google fit in that framework? Earlier you mentioned that you tend to stay away from tech stocks, similar to a lot of value investors, so why do you think you can find value in Google that the market does not already see?

Glenn Greenberg: I think it comes back to your comment that with so many data points and so much buzz, people can get very distracted and make generalizations based on one data point. For example, when Google decided to withdraw from China, there was a huge amount of buzz that revolved around China being the fastest growing market and this being a terrible scenario for the company. Yet, it is actually such a small in part of Google.

For example, the exploding growth of smart phones means so much more to their growth. Or the growth in display advertising is much more important to them. Obviously, it would be better to be in China, but it’s about $300 million of revenue now for a $28 billion revenue company.

I do not think you can get great precision around Google. They own the search market with staggering market shares. I think you have to start out by saying, how is it priced? It is generating about $30/share of free cash flow this year and $34 next year. At the end of 2010 it will be sitting on $100/share of cash, as long as they don’t spend it all on high-priced acquisitions. Thus, at $540, you are paying $440 for $34 of free cash flow in 2011, an 8% yield. That seems really cheap.

Even though there are competitive threats from Apple and Facebook, and traffic acquisition costs that are uncertain for some of these rapidly growing areas, it still seems to me that you are paying a market-type multiple for a well-above markettype company with all sorts of growth avenues, which they should be able to exploit to varying degrees.

Basically, the face of advertising is changing – with internet based advertising it is much easier for the advertiser to calculate an ROI on ad spend. I think that change will be beneficial for Google and something you are not paying a crazy growth multiple for. When I compare Google’s growth to some of the other companies we have in our portfolio with an 8-9% free cash flow yield, it seems materially undervalued.

Greenberg's thinking is more along the lines of Bill Miller than classic value investors. If you relied on the balance sheet, you would never find a company like Google attractive. On the other hand, the risk with Greenberg's thinking is the sustainability of the earnings. The FCF yield looks good if you project it out but can Google maintain that? One has to make a qualitative call on that. For what it's worth, I think a company like Google is far safer than one like Apple. I can't say I'm too knowledgeable about either of them but I have less confidence that Apple can earn the same (or higher) free cash flow 10 years from now; whereas I can see Google maintain it (or increase it.)

Anyway, the point of this post is to not to debate the merits of Google. Rather, it is to illustrate how some investors value such companies. Hopefully it'll make you think about these companies in a different manner.

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An investment opportunity that may interest some - Icahn Enterprises (IEP)

I ran across an article in Barron's—it should be free—detailing a bullish case for Icahn Enterprises (IEP). I don't usually share the opinion of mainstream publications but this is an interesting opportunity. I don't invest in companies like these but I think some of you may find it worth researching.

Here is a snippet from Barron's (bolds are by me):

ICAHN ENTERPRISES, A diversified investment company run by Carl Icahn, offers the little guy a good way to play alongside the Wall Street billionaire.

Structured as a limited partnership, the company has a $2 billion stake in Icahn's hedge fund, Icahn Partners; $1 billion of real-estate holdings, including two office towers in Atlanta and Dallas; $840 million of cash, and $1.6 billion of investments in other public companies, including a 75% interest in auto-parts maker Federal Mogul (ticker: FDML).

Shares of Icahn Enterprises (IEP) trade for 33, far below a 2007 peak of 134. They also sell at a discount to the company's asset value, which we estimate at $44 a share.


Icahn Enterprises has a market value of $2.7 billion and debt of $2.6 billion. It yields 3%. Shares are thinly traded, at an average of 20,000 a day; Icahn owns 92% of the 84 million shares outstanding.

IEP looks like a better bet for investors than the hedge fund, which charges a base fee of more than 2% of assets, and incentive fees of about 25% of profits. Icahn Enterprises pays no fees on its Icahn Partners holdings.


Icahn's track record isn't perfect. He has tripped up on some investments, including Motorola and Yahoo!, two businesses it appears he didn't fully understand.


ICAHN ENTERPRISES' RELATIONSHIP with the rest of Icahn's empire is complex. Icahn sometimes sells assets to Icahn Enterprises from his private holdings. Some of these deals have done well, but the investor's sale of the management company of the hedge fund to Icahn Enterprises in 2007, for $810 million in stock, hasn't panned out.


Spain loses its AAA rating

Unless I'm mistaken, we may be witnessing the first AAA sovereign rating downgrade since the financial crisis erupted in 2007 (I haven't followed the news enough to know if another AAA was cut—anyone know?.) Fitch downgraded Spain from AAA to AA+ today. S&P downgraded Spain a month ago and now with the Fitch downgrade, a majority of the rating agencies have cut their rating. The Globe & Mail reports on the story:

Fitch Ratings cut Spain’s credit ratings to double-A-plus from triple-A on Friday, saying its economic recovery would be more muted than the government forecast due to strict austerity measures passed this week.

The downgrade follows a cut by another agency, Standard & Poor’s, last month and heaps more pressure on the government, battling to reassure markets its fiscal, political and social woes will not end up in a Greek-style debt crisis.

“The downgrade reflects Fitch’s assessment that the process of adjustment to a lower level of private sector and external indebtedness with materially reduce the rate of growth of the Spanish economy over the medium-term,” Fitch’s analyst Brian Coulton said in a statement.

Ironically, as life would have it, trying to reduce the debt, which will likely weaken economic growth and government tax revenue, resulted in the cut.

Wednesday, May 26, 2010 0 comments ++[ CLICK TO COMMENT ]++

TIP spread - inflation expecations remain fairly high

Even though bond yields are somewhat low—10-year US bond is yielding a little over 3%—inflation expectations remain quite high IMO. Although not perfect, one of the few market-based measures of inflation expectation is the TIP spread (this is the difference between a "normal" bond and an inflation-indexed bond of same maturity.) The following chart plots the spread as of today (I notice a typo in the title but oh well :| ).

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Sunday Spectacle LXXI

The British have a weird sense of humour—am I the only one who does not find Monty Python and the countless British sitcoms funny?—and I'm all for avant-garde and out-of-the-box designs and styles... but even I can't get over the offiical mascots for the London 2012 Olympics. Yikes. Many children, not to mention athletes, are going to have nightmares after encountering these mascots ;)

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Thursday, May 20, 2010 0 comments ++[ CLICK TO COMMENT ]++

Quick look at key commodities

Of all the asset classes, commodities are perhaps the best indicator of forward-looking economic performance. Here is a quick look at 3 key commodity charts (all charts courtesy copper, crude oil, and the CRB index.


SEC speculates on a 'flash crash'

With respect to the abrupt crash from a few weeks ago, well, it looks like the SEC is speculating on a "flash crash." I keep posting about this story because it is an important one. The fact that the stock exchanges rolled back trades, which is extremely unusual and very anti-capitalist, lends credence to the importance of this story. The Globe & Mail reports the following:

A preliminary investigation suggests a “severe temporary liquidity failure” was at the root of the incident, Ms. Schapiro said. The SEC has already ruled out a “fat finger” typing error, hackers or terrorists

What is clear is that the incident exposed serious flaws in today’s fast-paced computer-driven markets, where billions of simultaneous trades are clocked in nanoseconds. The result is that the market moves faster than the human brain can process, let alone stop.

The problem, regulators acknowledge, is that algorithms can be, well, stupid.


Mr. Gensler singled out an unnamed trader, who “sought to hedge its stock portfolio in the futures markets by selling a predetermined amount of futures through an executing broker's automated execution system."

News reports have identified the company as money manager Waddell & Reed Financial Inc.

The SEC and major exchanges have already proposed a rule to suspend stock trading when markets swing violently. The new “circuit breakers” would apply to all stocks in the Standard & Poor's 500 index under a six-month trial rollout planned for June.

Some Senators also complained about the arbitrary way that exchanges later cancelled trades made in the midst of the market mayhem.

“It's hard for me as someone who worked in the market for 31 years to understand how any trades can be broken arbitrarily by an exchange,” said Kentucky Senator Jim Bunning, a former professional baseball player and broker. “Those are arbitrary rules and for someone who was left out of those arbitrary rules, in other words, didn't fit in the box, how do you think they feel?”

Regulators have been sifting through more than 19 billion trades as they piece together what happened May 6. They’re also looking at links between automatic “stop-loss” orders and sudden declines in prices of stock index products such as E-mini S&P futures contracts.

The legality of the actions taken by the exchanges (to roll back select trades) is still not clear to me. Trading seems prone to manipulation if exchanges were allowed to cancel whatever trades they wanted, without giving any reason. Hopefully the SEC will get to the bottom of this. It could take another year or two but I'm hopeful that they will at least identify the cause.

Wednesday, May 19, 2010 15 comments ++[ CLICK TO COMMENT ]++

Li Lu, an up-and-coming value investor

Lately the value investing world has been speculating that Li Lu, an up-and-coming investor, may end up as one of the portfolio managers at Berkshire Hathaway. At one time, the replacement for Warren Buffett, at least on the portfolio management side, mattered a great deal for Berkshire Hathaway. Now, I don't think it really matters very much. Warren Buffett has basically "used up" all his free cash with his Burlington Northern Santa Fe acquisition. My guess has always been that Buffett lost faith in his investment manager picks and decided to safely tuck away all the money into BNSF. Even for Berkshire Hathaway shareholders the future portfolio managers aren't a big issue, compared to 3 or 4 years ago when Berkshire had a big chunk of its net worth in cash.

Having said all that, Li Lu looks like an interesting fellow. He definitely thinks like a value investor and appears to be talented. His track record, from what little I have seen, is good but it's too early to say. Value investors are vulnerable to macro shifts and a seemingly good record can be shattered easily (for instance, recall how Mohnish Pabri looked really good going into the bust but his high reliance on commodity businesses, cyclical businesses, and secondary businesses caused greater-than-market losses.)

There is very little info available on Li Lu and here are two useful sources. The first is a video, originally cited by Ravi Nagarajan at GuruFocus; the other, which I haven't read fully, appears to be a transcription of the same video.

Li Lu Presentation at Columbia Business School
Transcription of Li Lu Presentation by Tariq Ali

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Tuesday, May 18, 2010 0 comments ++[ CLICK TO COMMENT ]++

Germany bans naked short-selling, short-sales of select financial companies, and CDS on government bonds

From Bloomberg:

Germany prohibited naked short- selling and speculating on European government bonds with credit-default swaps in an effort to calm the region’s financial markets, sparking anxiety among investors about increasing government regulation.

The ban, which took effect at midnight and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers, German financial regulator BaFin said late yesterday in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said.


Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.

BaFin didn’t provide details on how it will enforce the ban, or whether it would extend to trades outside Germany. The majority of credit-default swap trading takes place in New York and London.

As the article suggests, it's not clear how Germany is going to crack down on CDS trades given how most of them are transacted in USA and Britain. The impact of the bans is likely to have very little impact on German markets and no impact on global markets. This action by the German authorities appears like a political move to placate voters than anything meaningful.


Sunday Spectacle LXX

(source: "Newspaper industry fights back," May 15, 2010. The Globe & Mail)

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Tuesday, May 11, 2010 4 comments ++[ CLICK TO COMMENT ]++

New theory on what happened last week

There have been many rumours and theories floating around, trying to explain how a broad index in the largest stock market in the world can drop more than 5% suddenly and recover almost immediately. Adding to the mix, The Globe & Mail quotes a story in the Wall Street Journal speculating on a new theory:

One hefty trade in Chicago last Thursday may have played a big role in the afternoon stock market meltdown, The Wall Street Journal reports today. With markets already under pressure from global developments, the $7.5-million bet in the Chicago options trading pits may have served as something of a spark about 20 minutes before the heart-stopping plunge of almost 1,000 points in the Dow Jones industrial average, the newspaper says.

The trade was made by Universa, a hedge fund that, ironically, is advised by Nassim Taleb, who authored Black Swan: The Impact of the Highly Improbable. Universa purchased 50,000 options contracts betting that stocks would continue to fall. Those contracts would pay about $4-billion if the S&P 500, which stood at 1145 points when the trade was made, hit 800 in June.

That appeared to ripple through the markets, The Journal reports, leading traders on the other side of the deal to sell, in a bid to bring down their own risks. Among those on the other side was Barclays Capital, according to the report. “Then, as the market fell, those declines are likely to have forced even more ‘hedging’ sales, creating a tsunami of pressure that spread to nearly all parts of the market.”

This theory looks as weak as the 'fat fingers' theory of last week, which claimed a Citigroup employee was responsible. I dismiss this latest speculation because it is hard to fathom how $7.5 million can cause such a big decline. If it were $7.5 billion then it's a bit more plausible; but it's not. It's just $7.5 million (admittedly, like most derivatives, this trade had super-high leverage but that shouldn't matter; those on the opposite side wouldn't enter the trade if they weren't wiling to lose $4 billion—or another way of thinking is that those on the opposite side would only enter the trade if they could hedge properly.)
If such a little amount could cause such a big move, market maniuplators and criminals, not to mention terrorists and foreign hostile agents, would be attempting it all the time.

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Sunday Spectacle LIX

A New Breed of Protestor in Greece

(source: "In Greece, a new breed of protester that won’t be muzzled," May 7, 2010. The Globe & Mail.)


Gary Shilling Bloomberg interview from April 13th of 2010

One of the readers mentioned Gary Shilling and I was wondering what his stance is these days. Well, I ran across this Bloomberg video interview conducted a little less than a month ago (if link doesn't work, go here and click on video at the top.) Gary maintains his past stance (which likely means he hasn't done too well in the last year) and there isn't anything new in the video but it's still good to hear his contrarian stance on several issues.

One thing did stand out in the interview for me: Gary is one of the few suggesting that the renminbi could go down. Gary throws in a big caveat—that being that all capital controls are removed, which is highly unlikely—but it's still interesting to see anyone remark that the renminbi could actually go down. Gary Shilling's view is that Chinese citizens will send capital abroad, hence pressuring the renminbi; whereas my view is that renminbi may decline because the Chinese government ends up devaluing it.

As one of the few true deflationists, Shilling is bullish on long-term US government bonds. Maintaining his past comments, he thinks the super-long-term (30 year) bond yields could fall to 3%. Right now the yield is 4.27%. I never considered this before but, after hearing Shilling suggest it, I am investigating the 30 year zero-coupon US treasury bond (aka STRIP.)

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NYSE, NASDAQ, TSX, and others cancel some trades... SEC launches investigation

If you thought the stock market plunge on Thursday was weird, well, things got even more bizarre when some of the leading stock exchanges, such as NYSE, NASDAQ, and TSX (in Canada) cancelled some of the trades. The SEC has apparently also started an investigation.

I'm just a newbie that has been following the markets for a few years but my impression is that it is rare for an exchange to roll back trades. It is even rarer when a trade is rolled back with no errors (NYSE and NASDAQ have indicated there were no computer malfunction or other errors on their end.)

I find it hard to believe that rogue trades can impact the capital markets so much (BTW, Citigroup has denied that any of its employees played a role in this—there was a rumour that a Citigroup employee punched in 'billions' instead of 'millions'.) It almost feels like there is a big piece missing from this puzzle. The fact that the SEC is investigating lends credence to this view. Stock markets have crashed in the past and the SEC doesn't generally start an investigation over a collapse.

What happened is a horrible thing and certainly doesn't instill much confidence in stock markets. How could you have mega-caps like P&G (ticker: PG) marked down so easily? How can anyone be confident in ETFs if the Russell 1000 ETF (ticker: IWD) drops from $60 to $0.075?

Something really serious must have happened because it is unusual, not to mention very dangerous, for an exchange to roll back trades. I say dangerous because market participants are acting on prices and they may take positions based on what they see. Investors could be losing millions of dollars either buying or selling, and reversing a trade can cause losses to accrue to one party or another.

I hope the SEC gets to the bottom of this... I have a feeling that some of the senior management at exchanges like NYSE will be shown the door by the end of this year. Something looks very fishy here. The exchanges deny that there is were any errors yet they roll back trades...


Are we seeing a liquidity crisis develop in Europe?

I don't think so but it all comes down to bondholders and money market investors. The real question, as was the case in America, is how much money taxpayers are willing to to transfer to bondholders if banks holding dubious assets (in this case, Greek and possibly other government bonds,) take losses. The Wall Street Journal ponders the issue:

Despite a €110 billion ($138.92 billion) bailout package for Greece, concerns about lending to banks have re-emerged as worries about a looming Greek debt default—or bond restructuring—have spread to other countries, such as Portugal and Spain.

"The risk that we move towards a liquidity crunch situation is substantial," said Marco Annunziata, chief economist at UniCredit Group. "I don't think it's a high risk at this stage but tensions are mounting rapidly and it's definitely something that one should be prepared for."

Investors, such as money-market funds, which have traditionally satisfied the bulk of banks' short-term cash needs, have become concerned that those banks may lose large amounts of money on their holdings of debt issued by these euro-zone governments or go bust if the event of a government default. As a result, they are switching cash from banks to safer assets, such as government bills.


Some traders and analysts say European banks are finding it especially difficult to raise dollars given that U.S. money-market funds, already reacting to imminent regulations requiring them to lend for shorter periods, also are shifting cash to short-dated government bills from European bank commercial paper due to concerns about bank losses.

Of the $850 billion in bank-related paper held by these funds, it's possible they could shift $100 billion to $200 billion to government bills and secured transactions such as securities repurchase agreements, or repos, accord to Barclays Capital.


Many money-market traders say, however, the impact of this liquidity crunch will be less severe than in August 2007, when funds stopped lending to banks due to concerns they held pools of toxic subprime debt. That is because central banks have developed mechanisms to respond quickly by injecting long-term cash to soothe funding concerns.

They say the ECB may reintroduce unlimited cash at six-month or one-year tenders, having stopped such offerings at the end of last year. The central bank currently offers unlimited funds through one-week tenders, and banks compete for cash offered in three-month offers.

They say the ECB could also remove the minimum credit rating requirements on the securities it accepts as collateral against these loans, as it did for Greek debt, so they would be able use euro-zone government bonds to borrow cash even if these securities are heavily downgraded.

Thursday, May 6, 2010 4 comments ++[ CLICK TO COMMENT ]++

US markets temporarily fall off a cliff...apparently due to quotation problems

Weird market behaviour today, with the DJIA down almost 10% (approximately 1000 points) at one point. As MarketWatch reports, it appears that some of the decline was due to trading errors:

The U.S. stock market's rapid freefall Thursday afternoon was accelerated by program trading, which was triggered after a sharp drop in shares of Procter & Gamble and at least one other Dow stock, 3M Co., market watchers said.

Shares of Procter & Gamble plunged to $39.37 from around $60. The New York Stock Exchange said each stock has its own circuit breaker level. When these stocks fall below their levels, then they can be traded on any other exchange or platform at any price. When P&G fell below its circuit breaker, a bid came in for the stock at $39.37 from the Nasdaq, the NYSE said.

Several market watchers said they heard a major firm may have accidentally released an errant program, where a trader accidentaly placed an order to sell $16 billion, instead of $16 million, worth of e-minis, the futures contracts tied to equity indexes.

Traders also also noticed errant trades among exchange-traded funds, including the iShares Russell 1000 Value Index Fund (IWD), which dropped from close to $60.00 to 7.5 cents.

In a seperate story, NYSE said there weren't any erroneous trades. It looks like those ridiculously low prices seen for shares of P&G, MMM, and IWD, were quotation errors.
If you are a newbie like me, you always learn something new every day: I never knew that individual stocks have circuit breakers on them. It's not clear if it's just for Dow components or any NYSE-listed security (anyone know?)

Wednesday, May 5, 2010 0 comments ++[ CLICK TO COMMENT ]++

Gulf oil disaster will probably end up costing $7 billion

Although it won't end up being as damaging as a natural disaster such as an earthquake, the unfolding oil disaster in the southern US will still be quite costly. Oil companies and others in the oil & gas industry have their own estimates of potential costs but perhaps the best estimates are the ones from the insurance companies (and the analysts covering them.) Since insurance companies are the ones that will pay out most of the damages—the oil companies, drilling companies, and equipment suppliers tend to pay a small fraction of the costs—insurance companies don't have any incentive to overstate or understate the losses. MarketWatch has a story on the costs likely to be borne by the insurance industry:

At first, the industry focused on the rig itself. Transocean Ltd., its owner, has $560 million of insurance covering total loss and wreck removal. Several insurance industry executives have estimated this could be an $800 million to $900 million event.

But a much bigger hit could come from liability claims stemming from the oil spill. That's especially true if lots of oil pollutes the shorelines of Florida and other states around the Gulf of Mexico.


BP, which is the operator on the lease with a 65% stake, insured itself, rather than buying coverage from insurance companies.

That means the company is responsible for funding clean-up operations in the Gulf of Mexico, according to rating agency Fitch Ratings. The cost of that could reach $2 billion to $3 billion depending on how much oil eventually reaches the shore, the agency estimated this week.


Neil McMahon, an oil industry analyst at Bernstein Research, estimated that the final cleanup bill could be $7 billion, according to media reports.

Compensation will also have to be paid to other businesses hit by the slick. The cost to the fishing industry in Louisiana could be $2.5 billion, while the Florida tourism industry could lose $3 billion, Bernstein predicted.

Compensation in the billions of dollars may also have to be paid to the families of the 11 rig workers who likely died when the structure exploded and sank.

It's not clear who will be responsible for these costs.

Rig owner Transocean carries $700 million of environmental liability insurance. Cameron, which made the so-called blowout preventer that was fitted to the rig, has a $500 million liability policy.


Over-rated European problems plus... Marc Faber turns bearish on China

I haven't posted much lately and I haven't found any attractive investment opportunities. Like I alluded to in a post a week ago, comparing the present to the 1930's, valuations have gone so quickly from slightly undervalued to overvalued. Yet, there have been some major developments in the background. The issues pertain to macroeconomic matters and is probably ignored by some, but I wouldn't ignore them.

What's making the news comes from the ugly houses in Europe...some of the countries whose ancient civilizations used to represent the pinnacle of humanity on earth... now reduced to the so-called PIGS. But a greater looming problem lies in China. Marc Faber appears to have turned bearish on China.

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Sunday Spectacle LVIII

BP's Oil Rig Collapses,
Unleashes an Environmental Catastrophe


(source: New York Times)

(source: New York Times)

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