Thursday, December 29, 2011

Get Ready: $5 Gasoline on the Horizon

Iran's (probably) hollow threat to close the Strait of Hormuz is a danger that has long faced the oil-consuming world. The 34-mile wide strait offers a strategic chokehold on the Persian Gulf, and Iran appears to have the upper hand in controlling it. In my (as yet unpublished) book Trust Me, I painted a picture of what would happen if Hormuz were closed after an Iranian missile strike on Israel:
Almost 40% of the world's seaborne oil supply goes through the Strait of Hormuz, around 15 million barrels per day. The loss of this oil on the open market, even for a day or so, would send prices even further through the roof. The traders were ready. If the Strait was closed, they would hold and profit. If it didn't they would sell tomorrow morning - and still profit. There was bound to be a bit of a panic in the Asian and European markets when they opened. Oh, life was sweet! Oil markets love a good disaster.
Although Trust Me is fiction, I have drawn a fairly accurate portrait of the oil trading community. Oil is a scarce, highly desired commodity, making it a magnet for traders.

Even at today's prices oil is an extremely cheap source of energy. The reason that prices have been rising gradually but doggedly for the past 30 years is because developing nations need more and more oil to power their cars and factories. But because it comes from countries where democracy is a pipe dream and despots and dictators treat oil reserves as their personal 401K's, it will not remain cheap. From the smallest coup to the most outrageous missile strike against a neighboring country, many of the producing countries' instability is palpable, Every ripple reflects in the price of oil, making the market easy to hype and to spook.

Add to this general uncertainty the snail's pace of refinery development in the western world, and we will see refined products such as gasoline and diesel become increasingly more expensive as demand rises. In fact, the refinery count is decreasing in certain countries. In the US, few permits to build new refineries make it past the environmental lobbyists or local residents. One old, but still productive, 145,000 b/d East Coast refinery owned by Sunoco is slated for dis-assembly to be taken lock, stock and smokestack to India.

Conoco Phillips shut its 185,000 b/d Trainer, PA refinery in September, and Sunoco closed the 175,000 b/d Marcus Hook, PA refinery recently. That effectively removes over 500,000 barrels of refined product per day from the US East Coast market - nearly 3% of daily US consumption.

In Europe the largest independent refiner, Petroplus, has had such terrible margins that its $1bn line of credit has been cut off. It will be tough for it to buy crude to refine if it survives, and even tougher for it to find buyers for its five refineries in this climate if it doesn't.

If there is anyone out there who does not believe that oil prices will stay over $100 a barrel, and probably rise to nearer $200, then they are delusional. And gasoline, jet, diesel and heating oil will rise disproportionately more. Get ready for $5.00 gasoline.

Wednesday, December 21, 2011

Deja Vu All Over Again for JP Morgan

  Twitter is alight with MF Global customers asking for the boycotting of JP Morgan. The bank may have received "stolen goods" when MF Global settled a debt allegedly using $200m of customer money. Dealbook said:
One e-mail chain refers to the transfer of roughly $200 million that MF Global owed JPMorgan Chase on Oct. 28 — the firm’s last business day before it filed for bankruptcy. In that chain, a senior official in the firm’s Chicago office was told to make the transfer, said the people close to the investigation who requested anonymity because the inquiry was still open... The roughly $200 million that JPMorgan Chase received is said to be entirely customer money.
 This must seem like deja vu for JP Morgan, which also pulled a snatch-and-grab before Lehman Brothers hit the dust. JPM asked for two lots of $5bn each in collateral just days before Lehman collapsed, prompting speculation that it and Citi (which did a similar thing) may have caused the lack of liquidity that brought Lehman down. (The case is still in court.)
  I'm no fan of JP Morgan, it comes off as greedy and callous, but from where I sit it looks like it has some bloody good risk management people and processes. Maybe if Lehman and MF Global had had the same, they would still be around.

Monday, December 19, 2011

The Culture of Corruption

  I spent 20 years working on the fringes of the oil industry - mostly writing about trading and oil prices and OPEC, but also broking a bit and doing some (dreaded) marketing of oil price services. Once I left Platts, the oil industry bible owned by McGraw-Hill's Standard & Poors, people within the industry opened up to me a little and I got a taste for just how corrupt the oil industry is. From blatant bribery of government officials to inspectors and, yes, reporters the corruption in that business was (and still is to an extent) all in a day's work.
  The corruption I see today in the financial services arena makes oil traders look like amateurs: Rogue traders such as Kweku Adoboli at UBS, with his $2.3 billion worth of hidden trading losses; MF Global with $1.2 billion of customer money seemingly vanishing into the maw of a bad trade on European debt; Ponzi schemes such as Bernie Madoff's. 
  Few oil traders would steal money from their firms to pay a bribe or for a client's night with an 'escort'. Also, few of them would hide trading losses until they escalated into disaster. It is difficult to hide losses on a cargo that got delivered and paid for. Most of their activities, while under the radar of much of the world, were above board and known by management (if slightly less than legal).
  There is a culture of greed infiltrating the financial markets and it isn't pretty. It leads to the kinds of major corruption we saw in 2011 and all sorts of minor, though still significant, acts of creative accounting which we may never see. But shareholders and customers of these firms are paying the price. Occupy Wall Street may have had a point, even if they weren't quite sure what it was.
  Happy Christmas!

Monday, December 5, 2011

MF Global Story Goes from Bad to Personal

  The MF Global story gets worse and worse; the firm had been dipping into client funds for weeks and the customer shortfall may be as high as $1.2 billion. Therefore I was thrilled to hear that the Board resigned last week, and that Jon Corzine will be forced to testify in front of Congress. Meanwhile regulators moved quickly for a change. Bloomberg reported:  
U.S. derivatives regulators voted today to restrict how brokers can invest customer funds, acting on a delayed rule after as much as $1.2 billion went missing before MF Global Holdings Ltd. sought bankruptcy protection. The Commodity Futures Trading Commission voted 5-0 at a Washington meeting to limit how brokers invest clients’ margin in money market funds, and ban investments in foreign sovereign debt and in-house transactions such as repurchase agreements.
  This is a good start, but it doesn't address the client money segregation bit of the problem. In today's FT, two professors had some suggestions though. Darrell Duffie, Professor of Finance at Stanford University’s Graduate School of Business, and Joe Grundfest, Professor of Law and Business at Stanford Law School and a former Commissioner of the SEC, penned a comment suggesting that the rules be more stringent. 
  They offered two possibilities: 1.) Segregate customer funds with an independent custodian, and 2.) Form an information-technology firewall at the broker, creating a “virtual custodian”. Both of these are valuable and realizable solutions. So why did the comments to the article say things like this is "old news" and one wondered why such a big deal is being made of "tiny MF?"
  I'll tell you why it is a big deal. A good friend of my husband's, his boss, and some colleagues of his are missing hundreds of thousands of dollars of their investments. MF Global has made good only a tiny percentage of their money thus far, and they are very concerned that they may not get any more back. And I know people who are MF Global employees, they are also receiving a good rogering by the firm; part of their compensation was tied up in MF Global shares which are now as good as worthless.
  The fallout is large, it is personal and it tells a story of what happens when transparency is not mandated. And although investors are getting more savvy, as purported by the FT's Gillian Tett's column on November 24th, it should not be incumbent upon them to inspect every crevice and cranny of their broker's books before they turn over their money to be invested.  

Monday, November 21, 2011

Who Comes First - Traders or Shareholders?

  When UBS caught alleged rogue trader Kweku Adoboli with his hand in the till, it must have been pretty clear to other UBS traders that bonus season might be a tad disappointing. Indeed if the missing $2.3 billion wiped 40% off of third quarter profits for UBS, that new Lamborghini Gallardo could be a bit OTT. But it seems the bank had ring-fenced 90% of Q3 revenues for staff pay and bonuses. And although the new CEO Sergio Ermotti has said that the bonus pool will probably be cut (FT) it is likely to be only by 10%.
  This has infuriated shareholders who believe they are left holding the bag for UBS' shocking lack of credible risk management practices. But are they holding the bag? UBS' share price on NYSE actually went UP after the scandal was revealed, and it is hovering around the same levels today as it was pre-scandal. And although one rogue trader did a hell of a lot of financial damage, the other traders appeared to be making money. Do they deserve to be punished for Kweku Adoboli's actions?
  It is an age-old argument in any company that has trading desks. If one desk loses and the rest make money, do the winners get punished with lower-than-expected bonuses? The answer is invariably yes, unless they have iron-clad contracts that guarantee a share of profits. Andy Hall at Phibro had a contract like that, which is one of the reasons Citi had to get rid of Phibro - Hall's $100 million compensation during what can only be termed a market crash was considered obscene. Even though he had made Citi a lot of money (close to $2 billion).
  If UBS cuts trader bonuses by 10% or more, they will probably leave for greener pastures. This leaves UBS temporarily without the money-makers as it scrambles to attract new ones. Traders outside UBS will take one look at the mess the bank got into last year and demand a premium to work there. So UBS will end up paying more for traders than it would if it paid its existing ones their expected bonuses. Shareholders have to be careful what they wish for, because the pay and bonus pool could RISE.
  On the other hand, if UBS is really downsizing its investment banking arm maybe bonus cuts is a good way to achieve that.

Thursday, November 17, 2011

Financial Firms' Shenanigans Show Need for Transparency

  I have been thinking a lot about transparency lately (sad, I know), especially since Pipeline Trading's sneaky tricks and MF Global's seemingly full-scale fraudulent activities were exposed. Since the dawn of financial markets (I include energy and commodities here) people have been able to make great profits, not all of them legal. Over the years I have reported on some of these barely-legal activities, and there are many more that I cannot write about for fear of reprisals. So whenever lawmakers and regulators try to make strides toward transparency I applaud. Transparency makes investors happy, it gives them a warm and fuzzy feeling that the markets or companies they are investing in are as straight-forward as possible.
  MF Global let the transparency side down for brokers and broker-dealers by using segregated customer money for prop trading. What it allegedly did was not only illegal, but immoral. Customers were harmed, the CFTC and CME's reputations for being the good guys were damaged. A slightly loony post today on Zerohedge went so far as to say that MF Global has destroyed the whole system. Written by a broker called Ann Barnhardt from Barnhardt Capital Management, the post blames everyone from Obama to the government for orchestrating a conspiracy to defraud her customers. She has closed her business and says she won't get back in until everyone in power today is either dead or deposed. Here is one alarming passage:
Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.
  Hers is an extreme case, she even invokes God at one point, but it shows how pissed off people can be when their protectors let them down. But regulators and exchanges are only human, and cannot read the minds of fraudsters and tricksters. They can only sniff around the edges and try to ensure that financial firms are doing the right thing. MF Global clearly wasn't, but its timing was perhaps the key to getting away with swiping customer money. A Dealbook article in today's New York Times says that the brokerage probably used some of the money to cover trading losses. Where the rest went is thus far a mystery. The NYT said: "The firm may have used some of the cash to keep its own lenders at bay, which means the money could be sitting in an account at another firm." OK...which firm? Who are the trading partners? This is the opposite of transparency and I can see where this might royally piss off clients and counterparties.
  One firm's actions post-M F Global warmed my little heart. Market maker Jefferies Group's shares got hammered when it was mentioned in the same breath as MF Global as having a preponderance of European debt on its books. Jefferies took the bold step of revealing its positions, then selling out of about half of them to mollify shareholders. Now that's what I call transparency. Unfortunately, the firm remains tarred with the MF Global brush.

Tuesday, November 1, 2011

Goldman Sachs Taste on an MF Global Budget

  Jon Corzine, the Goldman Sachs trader/governor/Senator/broker, thought he had MF Global under control. He would leverage what little cash the brokerage had, make a huge bet on European debt, flatter his contacts at the ratings agencies, and walk away with a gigantic bonus for 2011. Except he ran out of money - even customers' money it appears.
  There is an old saying in the markets that goes "He who has the most money wins". It refers to playing poker, where if you have more money than your opponents you can keep on betting until they all fold - broke. But it is also applicable to trading. If you have a very large position which you believe is right and will be profitable, you have to have enough capital to stick with it when it is going wrong. Jon Corzine made the mistake of using his Goldman Sachs champagne taste on MF Global's beer/broker budget. The money wasn't there. Capital requirements are not just for large investment banks, Mr. Corzine.
  Corzine never really seemed to understand what a brokerage actually did. He started out on the wrong foot, I heard, when he told the brokers that they would all take pay and bonus cuts. They responded by putting two fingers up and walking into other brokerage shops, for the same money they had been making previously at MF Global. I get the feeling he had no idea what brokers actually do, and tried to treat them like lowly floor traders.  Then took the money they brought in and tried to leverage it into a Goldman-like fortune. You can file this blog under "hubris."

Wednesday, October 26, 2011

Pipeline Trading Systems Takes Privacy Too Far

  One of my favorite companies to cover over the past few years, dark pool provider Pipeline Trading Systems, has been nailed by the SEC for operating an affiliate company that was actually trading against its customers. 
  The Pipeline case is disappointing, and brings to light a whole new area that regulators now have to worry about - privately held trading venues. Because Pipeline Trading Systems LLC and Pipeline Financial Group are both registered in Delaware, the state that offers the least litigation and the most privacy (does not require director or officer names to be listed in the formation documents), there is little information to be found on its owners or its subsidiaries. 
  What can be found online is that Federspiel's original company - eXchange Advantage Corporation - exhibited at a venture capital beauty pageant in 2001, so it stands to reason that it received backing somewhere. This was apparently Pipeline's vehicle for providing liquidity to its dark pool ATS, it changed the name to Aurora then to Milstream, and was residing in the same NYC building as Pipeline. The whole thing flew in the face of Regulation ATS, and you would think both partners must have known that. Yet no one sussed that something was off.  
  The financial press has barely scratched the surface in this story, only looking at the SEC filing and not digging much further.The FT did turn up one interesting nugget: A non-exec at Pipeline, Giles Vardey, also serves as non-exec chairman at London micro cap exchange Plus Markets Group. He has been asked to step down from Plus Markets by a Middle Eastern investment syndicate. Curiouser and curiouser... 
  It isn't an easy task putting the pieces together. With private companies there are no legal identifiers, and audit trails often end in - well, Delaware. I believe in privacy but this goes too far. Scary.

Wednesday, October 12, 2011

A Tale of Two Regulatory Regimes

     One of these things is not like the other. In a tale of global regulatory disharmony, European regulators say they are going to crack down on high frequency trading, perhaps by forcing perpetrators to become de facto market makers, according to today's FT. They are concerned that HFT algorithms can remove liquidity when trading conditions go against them or are too volatile to read - as happened on the May 6th Flash Crash.
     Fair enough. But forcing HFTs and banks to be market makers in each and every instrument they trade is begging for trouble. It would require a huge amount of additional capital, an issue banks are already whining about. And it flies directly in the face of the U.S. Volcker Rule, the guidelines for which have just been laid out. Specifically, no bank should end up with a long or short position while performing market maker or hedging duties for customers.
     U.S. banks are already confused about the distinction between proprietary trading and taking the other side of a customer's trade, along with the risk exposure that it creates. If they sense that regulators will knock heads every time a client-related position is not fully hedged, they might just move their business elsewhere. This is exactly the regulatory arbitrage that Wall Street was worried about, because it could cost them a lot of business. NYC traders will be polishing up their EU passports.

Friday, September 30, 2011

When China Sneezes

     The old cliche 'when America sneezes the world catches cold' still holds true. Look at the damage we did to the world with our housing and credit bubble, and subsequent crash. In the past decade or so the world has morphed into a single organism, a collection of interdependent countries thanks to cross-border trade. With countries such as the USA outsourcing it workforce to Asia, and financial markets becoming increasingly fungible across geographies, the knock-on effect of an event in one country can be devastating. The earthquake and tsunami in Japan earlier this year, for example, is still reverberating through supply chains and damaging revenues globally.
     So, when I read today in the FT that property development in China is looking shaky I got a chill. There are half-built luxury residential properties dotted throughout China's largest cities, and demand for these apartments has all but dried up. If developers are forced to reduce the prices on them in order to sell, it could have an immediate impact on sky-high real estate prices across China. The knock-on effect of this could be significant. Demand for steel, cement, copper and other building materials could hammer prices globally. For a start, China is the world's largest consumer of steel and, according to the FT, real estate construction accounts for 40% of China's steel use. And because China hoards building supplies its demand for fresh stock could languish for years.
     If a housing collapse could flatten the US economy, it could surely do the same for China. If China slides into recession - and I'm being kind, analysts think that it will have a hard landing - we could see the biggest knock-on effect yet. Global recovery would stop dead, and the worst-off economies (Greece, Italy, Spain, etc.) would teeter off the cliff. The US would sink like a stone - China is the largest investor in US treasury bonds, and further investment would likely be curtailed if it fell into recession.
     I am not an analyst, but sometimes the writing is on the wall and this is written in neon. I think my 401K is about to be converted to cash.

Friday, August 19, 2011

High Frequency Trading and Your 401K

     I have had a few people asking me lately about this phenomenon called high frequency trading or HFT. They are - quite rightly - concerned about their 401K's and their stock portfolios, and have been reading some of the sensational headlines about HFT causing the market plunges.
     As a reporter, I started covering HFT and algorithmic trading about 10 years ago, so I know a little bit about it. Quite simply, it is electronic trading of stocks and other automated instruments such as oil and corn futures. What high frequency traders do is build clever computer programs, called algorithms, to dip in and out of these markets and shave off a penny here and there. If they do it enough times - and they do - they can make quite a bundle.
     What is not entirely clear at this point is whether they are ripping off the average investor. My retail brokerage has a low latency trading platform, so in theory it stands a fighting chance of getting me a good price at any given moment. Having said that, last week when Apple shares were puking I put in an 'at market' bid (I know, stupid, but I'm lazy) when Apple was at $363 - I got filled at $366.79. Quite a difference, even though it was done in seconds - seemingly instantaneously. HFT's, however, can get a deal done in less than a millisecond - some a lot less because their trading machines sit right next to the exchanges' machines.
     The jury is out whether regulators will throw their weight around and try to control HFT. The reason? That is where the money is. When the firms that own the big HFT machines trade more than 50% of the equities market volume, there is bound to be some pushback. My advice is this: if you can't watch your investments on a VERY regular basis - not daily but all day long - you are bound to get trampled when the machines take over. Once those magic stop-loss numbers are hit, they will sell all the way down. Until the computer says it is time to buy, that is. In the meantime you will be crushed.
     As Kyle Reese said in the Terminator movie: "Listen, and understand. That terminator is out there. It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until you are dead." Or broke.(Thanks for the line, Tim!)

Monday, July 18, 2011

Removing the Taint of News of the World

     When it became public in 2007 that Rupert Murdoch's News Corp had taken over my one-time employer Dow Jones I was horrified. First because I used to work for Dow Jones. Second because I was then working for Financial News, which a year prior had been taken over by Dow Jones, which meant I was now somehow working for Murdoch's evil empire. And third, because Dow Jones and the Wall Street Journal were some of the last bastions of solid, honest financial news and I knew that Murdoch would damage that reputation. Luckily Murdoch's first move was to axe freelance budgets so I lost my Financial News gig. I was relieved not to have to watch from the inside as News Corp's culture slowly changed Dow Jones into a sensationalist stream of headlines; and the WSJ into USA Today with a fuzzy business angle.
     I was saddened but not surprised that the Bancrofts, the ruling family board of Dow Jones, would sell to such a notorious publisher as Murdoch. The original phone hacking scandal was out there in 2006, so the Bancrofts had to have known what kind of company News Corp was. But money is money, and that is what they wanted. This generation of Bancrofts had never been interested in the newspaper business, only that the share price remained stable so that their fortunes were safe. (One of my favorite tales of the Dow Jones Board came from a London sales VP who attended a meeting. She said that one Board member got so bored that she rolled up her cardigan to use as a pillow and went to sleep on the boardroom floor!)
     Some of my ex-colleagues at DJ were actually thrilled about News Corp, simply because they were hoping Murdoch would throw some money back into the company after years of the Bancrofts sucking it dry. I doubt that they are now so thrilled.The Bancrofts are now saying that they would not have sold to Murdoch if they had known about the extent of the phone hacking scandal. Murdoch's own senior executives who were in charge at the time claimed they didn't know either. This is absolute rubbish. I have never worked for an editor who was so bad as to not know where our stories came from - and I have worked for some clueless editors.
     It may be pure schadenfreude but I am pleased that News Corp's true colors are being shown. News Corp, The Sun, NOTW, and now even The Times give journalism a bad name.  There may yet be hope for the WSJ, since the Bancrofts’ agreement with News Corp included a clause to preserve the integrity not just of Dow Jones, but of all the company’s “publications and newsgathering services,”says the New York Times. A special Dow Jones committee, created to assuage concerns over News Corp tainting Dow Jones and the WSJ's journalistic integrity, is reportedly keeping an eye on the evolving phone hacking situation. But the committee, which inexplicably includes Nicholas Negroponte, co-founder of the Media Lab at the Massachusetts Institute of Technology, is largely toothless. But the rest of the media world is not, and it is pissed off. I think Rupert Murdoch should be afraid, very afraid.

Friday, June 24, 2011

The Silly Season in America; No Tennis or Pimm's

     The Silly Season has begun. In England this season involves regattas and tennis and Pimm's at garden parties and everyone in the City is either a little bit hungover or on holiday. The papers are full of silly headlines involving the Queen or Fergie or shenanigans at Wimbledon. Here in America the Silly Season begins with dozens of little known Republican politicians declaring their candidacy for President. They shout and whinge about the economy, about jobs and about how terrible it is for the average American to pay $4.00 a gallon for gasoline while they walkie-talkie their limo drivers to wait out front.
     Americans like cheap gasoline. They believe it is their God-given right to have cheap gasoline. They drive to the local corner market when they could walk, and they leave their engines running (even when the temperature outside is a tepid 70F as it was here last week). They buy pickup trucks and never use the back of them to carry anything but the family dog, while getting 15 miles to the gallon. They drive ATVs around and around my house in Maine, making me rethink my gun-control stance. They drive from NYC to northern Maine - an 8 hour drive - for a long weekend (they are renting said house).
     The confluence of these two things - silly politicians and average Americans whinging about gasoline prices - led to the silliest of silly things yesterday. President Obama announced he had authorized the release of oil reserves from our SPR and from the IEA's stocks. We are to receive the 'gift' of 30 million barrels of US crude from the SPR and 30 million from the IEA. Oil prices puked, despite much head-scratching. US consumption is close to 20 million barrels per day, so that's a day and a half's worth from the SPR. The IEA link is more surprising, but it could be that it to try and hammer down the unnaturally high Brent/WTI spread.
     I heard that the news of the SPR/IEA release leaked out (probably in Europe, the IEA has to notify the producing/holding nations before tapping its reserves). Some oddly anomalous spread trading was noticed about a week before the announcement. There's one for you Commissioner O'Malia....

Tuesday, June 21, 2011

Guest Post: The Story of the Carolina Wren

     This was written by my Mum, Jeanne Wold. The bird's lessons should replace many a firm's 'mission statement'. Enjoy.
     "When Spring arrived in Tellico Village, TN my husband, Just, moved his stained glass workshop out of the sun porch and into the garage. A few days later he noticed a small, brown bird flying around the space, then leaving. A short time later the bird came back with a twig in her mouth and landed on a plastic magazine shelf above the worktable. She made several trips despite Just's attempts to shoo her outside. She was making a nest.
     Before he left the garage, Just tore out the nest and put it in the rubbish barrel. Back the little bird came the next time the garage doors were open. Again, Just destroyed the nest. This went on for several days. Every time the doors were left open the little bird was hard at work building another nest. It was evident that the persistent little Carolina Wren was building this nest where she wanted to, come hell or high water!
     By this time Just was won over. Whenever he closed the doors he left one garage door open up high enough for the little wren to walk under and then fly to her nest. Although her mate was a frequent visitor, he never came into the garage unless he could fly in or out through a wide open doorway. Instead he stood guard outside while the mom did all the work.
     One day I was surprised to see the mom-to-be land on my desk in the office upstairs, with a twig sticking out on both sides of her beak. She sat there for a moment and then retraced her flight path through the master bedroom and out of the terrace on the second floor. At the time I surmised that she must have mistakenly flown in the wrong door. However, maybe we had forgotten our agreement and had closed the garage doors tight. Could that have been? Was she reminding me? Yes, indeed. There was no opening for her to enter the garage.
     As little and cute as this bird is she has a piercing call; one day last week she let out several screeches as she sat beside her nest. We knew that she had finished laying her eggs and the next phase had begun.
     Both Just and I enjoyed this experience immensely. Our little messenger has taught us the following: She knows exactly what she wants and how to go about getting it. She shares her enthusiasm with others and invites them to participate. She makes each of us an intricate part of the plan by keeping us up to date on the progress and alerts us whenever we are forgetful. She never for a minute puts aside her goal and - happily - we make her goal our goal."

Thursday, June 9, 2011

Saudi Arabia and the Price of Oil

     Yesterday's OPEC meeting ended with the Saudis being outvoted on raising production. This is a double-edged sword for the Kingdom, which is pumping billions into jobs and mosques in a bid to avoid a popular uprising. The Arab Spring, which started with Facebook and ended with Egypt, Tunisia, Syria, and Yemen in tatters, won't come to Saudi as long as the money holds out. A trader told me that Saudi tried to look like the "good guys" in yesterday's OPEC meeting, cajoling and pushing to raise the production ceiling. In truth, Saudi is angry with the US for supporting all the riff-raff rebels in the Middle East and loves that the current high price of oil is hurting the US economy. According to analysts, if Saudi keeps up its social and religious investments to keep the peace, the price of oil has to reach $300 a barrel to support it. Take that, American infidels!
     And, although US demand for oil is said to be quite a bit below normal, you wouldn't know it on the road. I've been on Route 95 from MA to ME and back a bit lately and I haven't seen so many huge RVs in years. One caravan of about 10 RVs came all the way from Oregon - imagine their collective gasoline tab. And up in the North Woods of ME our peace and quiet was repeatedly interrupted by kids on ATVs going around in circles for hours.  If Americans continue to believe that cheap oil is a national entitlement then the Saudis will get their wish. I'm putting a bet on at Ladbrokes that we reach $300 by the end of the decade.

Monday, May 16, 2011

Beware the Rush to Go Public

     Today's rumors that Facebook is rushing to IPO are not surprising given that LinkedIn does so on Thursday. These are two of the biggest scams I have seen since the bubble pre-2001. Airware is what we used to call it when a company has little that is tangible to offer. But the public is familiar with what Facebook and LinkedIn do at least, so let the buyer beware.
     Would that this were true with prospective investors in Glencore, the company born of Marc Rich and Clarendon (anyone remember that name?).Glencore is now wrapped up in a  package that has pretty pictures of mining and metals all over it, but under the gift wrap it remains a speculative commodities trading company. The deals that it makes in some of the dodgiest regimes will be - ahem - difficult to achieve when it is under the public microscope. It therefore has to be said that making money for Glencore will be more of a challenge going forward. A trader tells me that he knew Glencore was serious about floating when it suddenly had a shiny new website. Previously, Glencore's website had a couple of office addresses and generic phone numbers.
     So, what are we to make of Vitol's fancy new website? Last year when I was looking for a media relations contact there was nothing more than a phone number on the site, along with a couple of sentences describing Vitol as one of the world's largest oil trading companies. Now it has chapter and verse of what it does, along with THREE media contacts. Hmmm.

Monday, May 2, 2011

Goodbye Osama Bin Laden and Good Riddance

I rarely talk about 9/11 - unlike some people who somehow can't seem to get enough of reliving the horror. Today, however, I will say goodbye and good riddance to Osama Bin Laden. I lost 17 friends and colleagues and dozens of industry contacts at the Risk Waters technology conference in Windows on the World that day. Bin Laden's death will come as a relief to Neil and Dinah and David and Simon's families, but it won't bring them back. Sick freaks who carry out attacks such as 9/11 in the name of religion or politics or whatever the cause deserve justice. Today we can feel that a little bit at least has been served.

Monday, March 28, 2011

The Lie in LIBOR; Tip of the Iceberg

I love the furor over the London Interbank Overnight lending Rate, LIBOR. It seems one or more of the bulge bracket banks might have - gasp - lied about the rates they would offer their competitors.
I first heard of LIBOR when I started working at Telerate (later part of Dow Jones) in the early 1990's. I was on the energy desk and our reporting counterparts on the finance desk would take the LIBOR calls. The participating banks would call in, tell them their prices and the finance desk would average them and post them online for the British Bankers Association. That's it. Just taking the calls, averaging the prices - throwing out the top and bottom five - and posting them online. Then gazillions of dollars were priced using that figure. When I heard how important it was I said: "You are kidding." But no, they weren't.
Then I told them that in the oil business, gazillions of barrels of oil each day were priced using journalist's assessments of the market. They said: "You are kidding." But no, I wasn't. Then I said: "How do you know the banks don't lie about LIBOR rates? Everyone lies to Platt's about the prices." The finance desk was shocked. First, that banks would lie about their rates. And second, how could most of the world's oil supply be based on price assessments by journalists? And why would their sources lie?
When you think about it, it IS quite shocking that over 90% of global oil production - around 87 million barrels per day - is priced using subjective assessments. So Platt's moved to try and get away from the journalist's powerful input a few years ago by inventing something they call The Window. The Window is a Yahoo (or Reuters) instant messaging tool whereby buyers and sellers of oil enter their bids, offers and selling prices. Then the journalists take averages of these prices for each product or crude oil type and publish them. Despite all assurances, the oil traders do lie about what they would pay or offer or what they have done. It is, in fact, easier for them to lie using The Window than it was talking to journalists who made the assessments subjectively.
Why they lie is not difficult to understand. If you are loading a cargo in, say, Russia you would like to get it at the lowest price possible - then you can sell it at a profit. So you tell Platt's that the market is crap by lying on The Window. Then all of your buddies who are also loading will support you with their lies. The traders that have sold oil to end users that is being delivered at that time understandably want the oil to be priced higher. So they lie to The Window to try and get prices up. Therefore, it probably averages out in the end.
And so, probably, does LIBOR. If one bank wants to be able to borrow money cheaply, it will report lower interest rates. It seems likely that there will be another bank out there that wants to lend at higher rates, so it reports higher rates. See? Quits. So people can stop freaking out that financial markets participants lie. It is part and parcel of the markets.

Sunday, February 27, 2011

Andre Dubus III and the Future of American Publishing

I walked over to the Old South Church in Newburyport last night to see Andre Dubus III discuss his new book "Townie". The place was packed - over 400 people bought tickets from our wonderful local bookstore Jabberwocky - and most had already bought (and read) the book.  He told us the story of his childhood in local mill towns - Haverhill, mainly, and Newburyport - and had everyone laughing. Andre is a natural performer and something of a celebrity (after House of Sand & Fog), which is part of the reason so many people pitch up for his talks. But he is also a good writer with some cracking stories to tell, and he is supremely lucky to have been published in these hard times.
American bookstores are going out of business at a record pace; hundreds of independent stores have gone under since the financial crisis bit in 2008. Borders filed for bankruptcy this month, and is closing 200 of its coffee-klatch n' books outlets. In the UK, Books Etc. - my lifeline bookstore when I worked on Fleet Street and in the City - was bought by Borders UK and then closed down.
Digital publishing expert Mike Shatzkin in The Shatzkin Files blog said: "I’m expecting that what brick-and-mortar booksellers will experience in the first six months of 2011 will be the most difficult time they’ve ever seen, with challenges escalating beyond what most of them are now imagining or budgeting for."
The reading public appears to be the reason. In 2009 U.S. book sales were $23.9 billion, down 1.8 percent from sales in 2008, according to the Association of American Publishers.Although e-book sales are often blamed for the decline, their sales - $313 million in 2009 - comprised less than 0.015% of all book sales. E-readers like Kindle are rising in popularity, but they can hardly replace the experience of shopping for, touching, buying and reading a real book. And that experience can only happen in a bookstore.
Maybe it is the American publishing industry that's to blame for declining sales rather than Kindles and e-books. When I shop for books today (particularly in a chain bookstore) I am dismayed by the rubbish that dominates the shelves. Previously-published authors with nothing left to say, but have a winning formula, are clearly a safe bet for publishing houses. Literary fiction with a clutch of meaningless awards are next; flowery prose that is so hard to plow through that when you are finished you have to go back to the start to remind yourself what the book was supposed to be about. Then there is the bandwagon stuff: vampires, zombies. It is no wonder people turn around and leave the bookstore having bought nothing.
In the UK, where I buy most of my books, the bestseller shelves run the length of the store. There are some American stalwarts there and the prize-winners, of course, but mixed in you'll find light fiction, romantic comedy, gentle satire and historical novels. Many are from authors  who have never - gasp - been published before. Publishers in the UK don't adhere to the strict, infrequent publishing schedules that American ones do.There are books released for Christmas, for Easter, for Summer holidays and many in between. Unfortunately book sales have declined there as well.
I don't have the answer. All I know is that as a wannabe novelist it is depressing to think that the hardcover or paperback book will be relegated to history. Any idiot with a computer can turn out an egotistical, unedited e-book full of psychobabble and coming-of-age crap. Well-written, thoughtful books with finely drawn characters and a good plot (yes, a goddamn plot - sorry literati) are the stuff of life. And if Andre's turnout last night is any example, I am not the only one who feels this way.

Sunday, February 6, 2011

The Cost of Winter

The sub-Arctic, northern Canadian weather in New England this year is wreaking havoc with my life. So much snow has fallen in the Boston area (more than 70 inches and counting) that there is nowhere to put it when you go to clear the driveway. Our two car driveway is so narrow that the snowbanks are halfway up our ground floor windows and had to be cut back so that we could fit more than one car in. The leftover snow went in the back garden which now resembles the bunny slope at Sugarloaf ski area. I hate winter and New England winters were one reason I decamped at the age of 22 and moved to Europe (which is now getting its comeuppance). Now that I am back, I can't help but wonder what on earth I was thinking.
Meanwhile, on my way back from a canceled writing class in Boston last Tuesday, I calculated the cost of this winter. For me it has meant finding blokes with shovels and snowblowers and plows to take care of our various properties. At Beaver Cove, ME our plow guy had to clear the driveway 7 times between December and mid January. In Boothbay Harbor our caretaker had to shovel the walk 5 times and clear the roof once so far. In MA we have had the blokes in 6 times with some remedial work on top to cut back the snowbanks. My class in Boston has been canceled twice after I paid for and took the bus to get there and back, missing prime working hours. Several hours in mornings have been wasted shoveling and then tracking down the blokes to get it finished and mopping salty floors. I gave up on trying to fit my car into the drive (and keeping it from getting smooshed by giant falling icicles) and took it to a storage unit for the next two months. I reckon the winter has already cost me a few thousand dollars that I would really have rather spent going to the Caribbean.
But I am a small fish in the ocean. My colleagues and contacts have had to work from home more often than not. This leaves empty, heated, lit offices sucking up money and does God-knows-what to productivity. Municipalities and states are already over budget for snow removal, having to go begging for extra Federal dosh. This is on top of the serious deficits in municipal budgets already and a looming pensions crisis. (About which, BTW, Meredith Whitney is completely right. I was tipped off about the looming pensions shortfall a year ago when writing an article for CME Group Magazine, by someone who should know.)
All in all, the weather in the winter of 2010-11 could be the straw that broke the camel's back the second time. A fragile recovery may not be strong enough to withstand the costs of this winter. I know I'm not - strong enough that is. Off to Florida....

Wednesday, January 19, 2011

“If You See Anything Suspicious…”

In today’s seemingly terrorism-filled world, people are becoming accustomed to being watched and monitored. The tolerance comes from the hope that the relevant authorities will catch would-be criminals before they do any harm. (Or, at the very least, ID them after the fact for punishment.) Closed circuit television cameras (CCTVs), phone tapping, stakeouts by police are all traditional and ways of monitoring the population for criminal activities.
In London the number of CCTVs has increased exponentially in the past few years. Ignoring cries of civil liberties violated and privacy invaded, the London Metropolitan Police have been quietly increasing the number of cameras (from 21,000 in 1999 to nearly 60,000 today) leading to more criminals caught. According to BBC News and the Met, in 2010 the number of suspects identified by the camera system went up to 2,512 in 2010 compared to 1,970 identified in 2009.
When it comes to monitoring financial markets, things get a little trickier. Few regulators are equipped with the technology or the expertise to monitor markets for abuse and/or mistakes. This is partly due to a lack of money, and it seems likely that the newly GOP-led Congress will nix any budget increases. Also, the push-back from market libertarians has been loud and consistent, with legions of anti-regulation lobbyists beating down politicians' doors in Washington.
The regulators appear resolute regardless. There are already proposals on the table as they prepare to define and enforce new rules under the Dodd-Frank Act. In the case of the Volcker Rule, the authorities are proposing a three tiered approach.  First "tripwires", such as the length of time a trader holds a position, its size or riskiness, would alert banks’ compliance departments who would then (#2) quiz the trader on the nature of the position. And (#3) regulators that keep inspectors on banks’ premises would see the tripwires and monitor both traders and compliance departments.
Over at the CFTC, regulators are looking at a similar approach to monitoring and controlling position limits on products such as oil and metals with a "points" system that would give the CFTC monthly reports that it could use to red-flag traders with large positions. The tracking and red flag approach is definitely moving in the right direction. Investor confidence, already at worrying lows, is in danger of becoming pandemic if nothing is done.
A TABB Group survey revealed that 63% of respondents believe that the recent insider trading probe has put a damper on investor confidence. Because the recent insider trading arrests in the U.S. have been in prominent mutual  funds and hedge funds, ordinary investors could be more wary about investing in those funds and others. TABB says that, while enforcement actions can have positive or negative influence on confidence, respondents agree the current probe is having an overwhelmingly negative impact.
Regulators have a mandate to protect investors, and the best way to do this is by using monitoring and surveillance technology to help catch insider trading, market manipulation and avoid fat fingered trading errors. Congress needs to give them the wherewithal, and naysayers need to remember that CCTVs catch criminals.
(This blog also ran on TABB Forum:

Saturday, January 8, 2011

CSI: Influenza

On Monday, January 2nd I awoke at 3:00am GMT to find my head pounding and my throat on fire. It was 5 hours before I had to take a flight back to Boston from London so going back to sleep was impossible. As I lay there fuming about being mugged by a drive-by flu virus, I began to construct a mental CIS-style investigation of where I could have picked up the offending virus. Everyone knows that colds and flu viruses (apart from Swine Flu) take 7-10 days to incubate. I totted up the requisite numbers and found myself on Xmas Eve in a bar in MA - before going to see True Grit (great film, BTW).
Possible Crime Scene (PCS) #1: We were having a beer and some lunch when a couple came in and sat down next to us. The man was coughing and hacking up a storm, so I suggested we move. My husband knowingly responded that the germs would travel up to 25 feet anyway so what was the point. (I was planning to sit BEHIND him, as it happens, but never mind.) We stayed put. Was he the offender?
PCS #2: Logan Airport. A very kindly British Airways employee upgraded us to Business Class. We giddily waved him a merry Xmas and went to the departures lounge where we sat in front of a woman with obvious laryngitis and a child (I guessed a boy and was correct) who had a broken, wet cough and was hacking up a storm. The kid had clearly not taken the slightest bit of notice of the Swine Flu posters all over the airport, as he was neither covering his mouth nor coughing into his armpit or elbow. Since he was sitting BEHIND me, could he have been the possible culprit?
PCS #3: Westfield Mall, London. We trotted off with mum-in-law in tow to hit Marks and Spencer's at the glorious new mall in Shepherd's Bush. (It has done precisely nothing to gentrify that area, BTW.) All around us swirled crowds of frantically shopping Brits and tourists, hoping to snag a bargain before VAT goes up by 2.5%. The number of people coughing and hacking was alarmingly high.
PCS #4, 5, 6: We saw three plays in crowded theatres: Yes, Prime Minister (hilarious, although the second lead was out ill...hmmm), Potted Panto (a scream) and The Rivals (disappointingly boring). In all three instances there was one or two loud coughers in the audience. Maybe too late to have been the offenders?
After spending most of the following week in bed I went to see the doctor, where the nurse told me I should have had a flu shot. Well, Duh. Then, yesterday, my husband - the knowledgeable one about how far flu germs can travel who HAS had a flu shot, of course - came down with the same virus. He is now sweating and swearing in bed about the offending mugger.
Lessons learned?
*A flu shot does NOT protect you from all types of flu, particularly if you are travelling.
*People are NOT heeding the US and UK government warnings about staying at home if they are ill and possibly contagious. Nor are they paying the slightest attention to the posters telling them how not to transmit disease.
*Net transatlantic flight I will pretend to be Muslim (although the blond hair is a bit of a giveaway) and wear a scarf over a medical mask.
* In future I will wash my hands more, if that's even possible. And not sit at bars during flu season. Or go to the theatre or shopping malls, or restaurants. I feel a Caribbean beach beckoning for Xmas 2011.