tag:blogger.com,1999:blog-77981931389578771492024-02-22T07:08:06.228-05:00The Wold ReportThe Wold Report strips away the spin and offers thoughtful commentary on financial & commodities markets.Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.comBlogger204125tag:blogger.com,1999:blog-7798193138957877149.post-37222344091650525182020-03-18T02:10:00.003-04:002020-03-18T02:10:36.475-04:00Ella and the tea plantationThe Halpe tea factory tour was one of the highlights of our week. We learned how they grow, pick and sort the leaves (all by hand) for taste and color, and then how it is dried and sorted. Fascinating.<br />
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The factory dates back to 1867 when the English ruled Ceylon and decided to compete with China for tea production. Ceylon tea is black, because it is full of antioxidants. Its smokey flavor comes from the burning of land (and rubbish) that is ubiquitous in the area (and stings the eyes).<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPSIjLNDBAI1RGoXb5D0xTK9_DKFL7zaSRZb4uWsNie4SDHtevoLVss7uFGAcEGww-_WVk1IeG0Io9GaTh6CAqa3sFA9hb1l423iMuMUH0_-FMizvY6pluxb1D6dwBF-YqIyCp4b_sDQs/s1600/tea+man.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="1600" data-original-width="989" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPSIjLNDBAI1RGoXb5D0xTK9_DKFL7zaSRZb4uWsNie4SDHtevoLVss7uFGAcEGww-_WVk1IeG0Io9GaTh6CAqa3sFA9hb1l423iMuMUH0_-FMizvY6pluxb1D6dwBF-YqIyCp4b_sDQs/s200/tea+man.jpg" width="123" /></a>As Shamus said, the 1800's methods - which have barely changed since - meant that anywhere else (like the UK or USA) the factory would have been closed down for safety reasons. No hard hats, no shoes, no gloves!<br />
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We bought loads of tea, and drove back to Ella for lunch. Ella is a really cute little town, full of bars and restaurants. We tried La Mensa, which despite the Spanish name was 100% Sri Lankan. For a bottle of white wine, they had to go to another restaurant to 'borrow' one! Wine is not a 'thing' in Sri Lanka.<br />
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Our hotel was on the mountain; it was fairly basic but the view - OMG.<br />
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(Victor's hotel was also on the mountain, but up a really hilly, bad road - and the van could not get up the hill. We got out, and after several runs at it our driver got up. It was about 9pm by then and pitch dark.)<br />
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After two nights in Ella, we drove the 3.5 hours on really windy roads to Yala. Upon arrival, we sorted the guide for the next morning's safari and Shamus was ordering a breakfast box for the morning when the hotel worker said 'By the way, safaris are cancelled!' Coronavirus strikes again. All national parks and activities, including whale watching, were cancelled.<br />
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Disappointed, we spent the next couple of days sunning ourselves by the pool and still managed to see loads of wildlife - boar, Langur monkeys, birds...<br />
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Sri Lanka was cracking down, and there were already visibly fewer tourists. Luckily, we decided to check on our flight for Saturday, although Sri Lankan Air had not sent any notice of any changes. Turned out, the last flight to London was leaving on the 18th - and there would be none after that for the foreseeable future.<br />
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We love Sri Lanka, but really did not want to be stuck here for a month - without our laptops we couldn't even work from here. I got on the phone to the airlines and got us seats on the last flight - economy. Even though we paid for business class each way, we will be stuck in economy - for the SAME price! So much for no penalties.<br />
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Our last 4 nights on Talpe Beach were reduced to 1. We checked into our fabulous hotel, which was empty bar another couple. It is a very windy beach, so swimming was out of the question. We went for lunch instead at Victor's Wijaya Beach hotel and cafe - fantastic. <br />
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At the airport now, in business lounge then to our economy seats (argh). Fingers crossed!Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-60047931664150591282020-03-13T00:05:00.001-04:002020-03-13T00:05:34.028-04:00Train journey Kandy to EllaWe got the the train station at Peradeniya (Kandy) at 11:30 Thursday to check in for the 12:35 train. Two hours later, at about 1:30, we finally pulled out of the station, chugged for 5 minutes, stopped, went back to the station on a different track and then we were on our way...<br />
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The Kandy to Ella train journey is legendary; some of the best scenery in Sri Lanka can be seen from your seat. We were booked on the Viceroy service, a 'luxury' train car with comfy seats.<br />
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Full bar service and a pre-ordered curry lunch meant that we were set for the 6-hour trip. If only it were to be 6 hours.<br />
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The scenery was all it was cracked up to be - stunning tea plantations, tiny villages, temples, local boys running outside their homes to watch the train come by.<br />
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The train chugged along at 7 km per hour max, rocking violently from side to side. A trip to the loo was an adventure in finding your sea legs (but it was perfectly clean once you got there).<br />
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We finally arrived in Ella at 8:30pm. Darshana, our driver, was waiting for us and we got the address for Victor's hotel and took off. Darshana was a bit concerned about getting the van up some of the mountain roads, but he had not checked the road to Hotel Laura. Unfortunately.<br />
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We turned where Victor's GPS said to turn, past a mountain of garbage (first time I have seen any real mess/litter here) and down the narrowest part-tar track imaginable. No Hotel Laura sign anywhere, so D asked a local - he told us to keep going and we would find it. Dead end road. No turnaround.<br />
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A 9-point turn and then we got stuck going back up the steep road to the main street. One hour later and lots of burned rubber, the van made it to the top and we got a tuk-tuk to our hotel. Victor got one to Hotel Laura - it WAS on the same road where we got stuck. Just no signs.<br />
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Lessons learned: Never assume a car will fit down the roads in Ella. Never assume a hotel will have a sign on the road.<br />
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The view from our room made up for the hellish arrival.<br />
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Tea plantation tour next.<br />
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<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-71600936708417249892020-03-12T00:06:00.004-04:002020-03-12T00:09:01.965-04:00Sri Lanka and the Cultural TriangleAfter a 5.5 hour ride on crowded roads (with a short break to feed some adorable baby elephants at Pinnawara Elephant Orphanage), an aching lower back and a stressed-out husband from watching our driver pass oil tankers with about 1.5 inches to spare, we arrived at Habarana and the Cinnamon Wild resort.<br />
The place is gorgeous, lush and quiet and full of cheeky monkeys. Unbeknownst to us, yesterday was "Full Moon Day" - a Buddhist holiday each month where absolutely no alcohol is allowed whatsoever. No beers in the bar, no wine at dinner.<br />
Luckily we had bought a bottle of red in Negombo, which we enjoyed a glass of before dinner on our patio. We immediately got into trouble with our upstairs neighbors, who were sitting outside on their terrace, because Victor decided to hold a shouty Facetime conversation with Ped. We apologized and went to the restaurant.<br />
Tuesday morning: The news from the outside world is so incredibly grim and glum, that I cannot even bear to watch the BBC. TV off, it's time to explore <a href="https://en.wikipedia.org/wiki/Polonnaruwa">Polunaruwa</a>, the 10th century capital of Sri Lanka and a UNESCO site - which was a fantastic collection of ruins, with a great guide. The architecture reminded me a lot of the Roman ruins we have explored, but they were never here and this (10th C) was a LOT later - so I guess the Roman influence was ubiquitous by then. Monkeys everywhere!! Such fun!<br />
The Cave Temple - 400 steps to get up to - then Kandy for the train journey tomorrow. We are at a sweet, but worn-out hotel in the hills of Kandy outskirts, with the most incredible views. Train to Ella next.<br />
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<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-56858698959140871922020-03-01T03:13:00.000-05:002020-03-01T05:17:26.563-05:00Coronavirus Travel Diary - One Week and Counting<br />
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<span style="font-size: 14pt;"><b>Saturday 29
February, 2020</b></span></div>
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<span style="font-size: 14pt;"><b><br /></b></span></div>
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<span style="font-size: 14.0pt; line-height: 107%;">T minus one
week and I am packing my case for Sri Lanka. The virus panic is spreading by
the minute – Iran, South Korea, Italy, USA – but Sri Lanka has only one reported
case (and he recovered). The England cricket team has decided it is safe to go there for the tour,
and if it’s good enough for them (and their no doubt uber-cautious insurance company)
then it’s good enough for us. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; line-height: 107%;">UK press headlines
are roiling with accusations against the government for not being prepared –
which is not completely fair as there are only 20-odd cases here so far. When
you think of how much the Brits travel, that is not many at all. </span><span style="font-size: 14pt;">I do fear,
however, that the NHS is not prepared for an onslaught of people needing hospitalization.
For some obscure reason, they hospitalize flu patients each winter, leading to
a shortage of beds every year. Hospitals are 87% full at the moment.</span></div>
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<span style="font-size: 14.0pt; line-height: 107%;">Our friends
in Thailand have been alternatively excited and panicked. Unless Thais are confined to base, he (an intrepid Brit) will come with us but his Thai wife will not. The news there is even more hyped than in the West, and she is very nervous of catching the virus. <o:p></o:p></span><span style="font-size: 18.6667px;">(“We’re doomed, doomed I tell you.”)</span></div>
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Living in London, there are a million viruses flying around the tube, the theatres, the pubs every day. I do not intend to seal myself away at home in hopes of not catching something. Sri Lanka, here we come.<br />
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This will be our first stop: <a href="http://nationalzoo.gov.lk/elephantorphanage/about_us/">http://nationalzoo.gov.lk/elephantorphanage/about_us/</a>Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-78069623704011331912014-07-08T10:55:00.001-04:002014-07-09T08:37:36.432-04:00Greed and the Bakken: Explosive Oil Needs Stabilizing <br />
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Today's Wall Street Journal article about Bakken crude oil production makes my blood boil. I have been following the crude oil quality issue since the Lac-Megantic explosion last year, trying to get Platts reporters (when I was editor there) to find out why it was so explosive. They failed, whereas the WSJ investigation has unearthed some very disturbing facts.<br />
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From today's issue: <br />
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<blockquote class="tr_bq" style="color: black; font-size: medium; line-height: normal;">
<span style="font-family: inherit;">W<span style="color: #333333; font-size: 15px; line-height: 1.4em;">hen energy companies started extracting oil from shale formations in South Texas a few years ago, they invested hundreds of millions of dollars to make the volatile crude safer to handle.</span><br />Now the decision not to build the equipment is coming back to haunt the oil industry as the federal government seeks to prevent fiery accidents of trains laden with North Dakota oil. </span><i style="color: #333333; font-family: inherit; font-size: 15px; line-height: 1.4em;"><b>In North Dakota's Bakken Shale oil field, nobody installed the necessary equipment. </b></i><span style="color: #333333; font-family: inherit; font-size: 15px; line-height: 1.4em;">The result is that the second-fastest growing source of crude in the U.S. is producing oil that pipelines often would reject as too dangerous to transport.</span></blockquote>
</blockquote>
</blockquote>
North Dakota shale oil contains 33% light ends - the flammable stuff like gases and gasoline. In other words, 33% of a barrel of oil from the Bakken is highly flammable. It also has a high Reid Vapor Pressure (again, thanks to <a href="http://online.wsj.com/news/articles/SB10001424052702304908304579562471022167310">WSJ's</a> excellent investigative reporting), making it one of the most explosive barrels of oil on the planet. Around one million barrels per day comes out of the Bakken and makes its way to refineries around the USA and Canada through pipelines, barges and - mainly - by rail (more than 60% currently moves by rail).<br />
<br />
Only one stabilizer - which would remove the most volatile gases - is slated for the Bakken. Why? Money. Stabilizers are expensive; the ones built for the Eagle Ford shale area in Texas cost producers hundreds of millions of dollars. So far, Bakken crude has been one of the best deals going for American (and to a lesser extent Canadian) refiners. It is cheap to produce and cheap to move by rail. Making Bakken more expensive to produce would hit the American consumer, say refiners and politicians.<br />
<br />
Who wants to add to the costs by adding stabilizers? I would say that the next group of people to experience a crude by rail crash and fireball in their town might think it worthwhile. I would also say that after the next rail crash and fire, lawsuits could very well target Bakken producers. And a multi-billion dollar lawsuit could very well make adding stabilizers look cheap.<br />
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<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-42795661773607190752014-05-02T11:14:00.000-04:002014-05-02T11:18:28.551-04:00Get it Through Your Heads: U.S. Crude Oil is Explosive<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT22naQDqXeh4iv7DcqO9VNvSPvY4yBBJlqKQba8L0zM3FgFGqpwOoAAmySwlzA1I2EnBsMlR3oPxbtWzeFf4d-8aAQ-wmQ-qwYtk87lXyU8WUUvlmt6wdNILjIL4kjT3KnN45Yc68LO0/s1600/fire.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT22naQDqXeh4iv7DcqO9VNvSPvY4yBBJlqKQba8L0zM3FgFGqpwOoAAmySwlzA1I2EnBsMlR3oPxbtWzeFf4d-8aAQ-wmQ-qwYtk87lXyU8WUUvlmt6wdNILjIL4kjT3KnN45Yc68LO0/s1600/fire.jpg" height="320" width="310" /></a></div>
<span style="font-family: Arial, Helvetica, sans-serif;">The latest derailment of a train carrying crude oil -- which exploded violently and caught fire </span><span style="font-family: Arial, Helvetica, sans-serif;">in Lynchburg, Virginia</span><span style="font-family: Arial, Helvetica, sans-serif;"> </span><span style="font-family: Arial, Helvetica, sans-serif;">-- proves yet again that U.S. crude is no average oil. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"> On the whole, crude oil does not explode, nor does it easily catch fire. But newer sources of American crude, particularly from the Bakken field in North Dakota, are proving to be an unwelcome anomaly. </span><br />
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;"> Crude oil coming from the Bakken, and also Eagle Ford in Texas, is of high quality. It is very low in density and sulfur. But that does not necessarily make it explosive. </span><br />
<span lang="EN-GB" style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;"> After the crash and explosion that killed 47 people in Lac-Megantic, Quebec last year, I urged reporters at Platts (where I was an editor) to dig deep and find the specifications for Bakken from their sources. None of their sources would release any but the most rudimentary of specs. </span><br />
<span lang="EN-GB" style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;"> Then analysis done by the<a href="http://online.wsj.com/news/articles/SB10001424052702304834704579401353579548592?KEYWORDS=bakken&mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304834704579401353579548592.html%3FKEYWORDS%3Dbakken"> Wall Street Journal</a><u> </u>showed that Bakken crude has an unusually high Reid Vapor Pressure, which is a measurement of volatility. As there are no laws mandating RVP tests for crude, the combustible nature of Bakken and Eagle Ford was largely ignored. </span><span style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;">Regulators were slow off the mark to test the quality of the oil being shipped by rail. Oil producers and refiners -- in their haste to sell and refine these cheap feedstocks -- often misclassified them as less hazardous than they really were. </span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;"> Because the infrastructure supporting oil transportation in the U.S. is sorely substandard, with barges and existing pipelines overbooked (and proposed new pipelines like Keystone XL unlikely to be built), t</span><span style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;">he U.S. and Canada too quickly embraced moving crude by rail car. </span><span style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;">They neglected to test crude quality from newer U.S. fields and failed to strengthen safety regulations until after several fiery crashes. They allowed inferior quality rail cars known as DOT 111s to continue to be used, even as they proved themselves to be very good moving firebombs. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;"> Now, however, responsible producers and users are beginning to take steps of their own to try and prevent further accidents, and avoid the wrath of the law and punishing insurance claims. <a href="http://www.reuters.com/article/2014/04/23/railways-regulations-canada-idUSL2N0NF0LS20140423">Canada</a> will phase out the older cars by 2017. U.S. oil distribution company </span><a href="http://www.bizjournals.com/albany/morning_call/2014/05/new-york-gov-cuomo-and-global-partners-take-action.html?page=all" style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;">Global Partners</a><span style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;"> just announced that it would immediately switch to newer specification tank cars called CPC 1232, trying to head off New York Governor Cuomo's move to slow down a Global oil by rail development in Albany. </span><br />
<span style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;"> Oil producers, gatherers, traders and end users surely knew the kind of oil they were dealing with, yet they put it onto rail cars that were not fit for the task. </span><span style="font-family: Arial, Helvetica, sans-serif; line-height: 21.466665267944336px;">The sooner DOT 111s stop carrying oil the better. And the sooner railway operators and regulators get a grip on crude oil, its specifications and flammability, the sooner these accidents will stop happening.</span></div>
Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com1tag:blogger.com,1999:blog-7798193138957877149.post-63979116827546864462014-04-02T16:55:00.001-04:002014-04-02T16:58:13.361-04:00The High Frequency Trading Debate is Not NewI love Michael Lewis. He is the writer I most want to be. I live in his world, I am a journalist and have been a broker and am married to a trader. I know stuff. But I am not Michael Lewis. He is a brilliant writer. I am a hack and part-time flack. HOWEVER, I take exception to the recent the fuss over his book "Flash Boys." I keep hearing on CNBC that NO ONE knew how big the problem of high frequency trading was. I did. Here is one of the tongue-in-cheek blogs I wrote about the issue - <b>in September, 2010</b>.<br />
<blockquote class="tr_bq">
In the 1960's American sitcom Get Smart there were two opposing agencies - CONTROL and KAOS. At CONTROL you had The Chief, Maxwell Smart (Agent 86) and Agent 99 as the good guys. KAOS was the bad guys of course.<br />
In today's seemingly perplexing world of electronic trading The Chief appears to be played by U.S. Senator Charles Schumer. The well-meaning but hapless Maxwell Smart is played by U.S. Securities and Exchange Commission Chairman Mary Schapiro. (The SEC staff can take turns as Agent 99.) KAOS is represented by high frequency and algorithmic trading.<br />
The Chief (Schumer) made a strong suggestion (order) to regulators to get a grip on KAOS, by looking into slowing down some high-speed trading at times of market stress and investigating manipulative strategies including quote stuffing.<br />
Agent 86 (Schapiro) got on the case and the investigation is underway. One telling statement by Schapiro this week alluded to the algos that automate execution when she said that regulators need to decide whether they "are subject to appropriate rules and controls."<br />
"An out-of-control algorithm not only can cause serious losses to the firm that uses it, it can also cause severe trading disruptions that harm market stability and shake investor confidence," Schapiro said in the statement. She added that the SEC will review market fragmentation and the role of dark pools of liquidity that fall outside the traditional market structure.<br />
“High-frequency trading firms are subject to very little in the way of obligations,” Schapiro said at an event held by the Security Traders Association in Washington. “We will consider carefully whether these firms should be subject to an appropriate regulatory structure governing key aspects of their market behavior, including quoting and trading strategies.”<br />
The SEC may also need to peer a little more closely into the market structure that preceded all of these issues. A third of <a href="http://www.tabbforum.com/">TabbFORUM</a> readers polled said that the Securities and Exchange Commission had something to do with the May 6 flash crash: 31% of respondents to the poll blamed the crash on Reg NMS. (Still, 29% said it was “something else." Cue Siegfried - the Vice President in charge of Public Relations and Terror at KAOS).<br />
All of this investigating is good news, as long as moderation is the byword for resolution. If indeed your opinion is that HFT and algos are run by a shady KAOS-style cartel on Wall Street then the more controls the better. It is my opinion that KAOS-as-HFT is a figment of non-financial industry scaremongers, and that a lighter touch is needed.<br />
CONTROL can best come out on top if it deploys the proper tools: pre-trade risk management and controls, real-time risk management, real-time market monitoring and surveillance. All of these will help to stop KAOS in its tracks before it has the chance to throw another bomb into the room (flash crash...get it?).</blockquote>
I knew about HFT. The SEC knew about HFT. The trading firms and exchanges and brokers knew about HFT. And everyone knew it was a bomb waiting for a detonator. I just wish I had written the book!<br />
<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-63283685672358161732014-03-27T11:27:00.003-04:002014-03-27T11:31:24.246-04:00Banning crude by rail in North America<div class="MsoNormal">
<span style="font-family: Cambria, serif; font-size: 14pt; line-height: 115%;">When a train loaded with crude oil from North Dakota rolled away
from its night-time berth near the town of Lac-Megantic, Quebec</span><span style="font-family: Cambria, serif; font-size: 14pt; line-height: 115%;">,
no one would have predicted the scope of its devastation.</span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">The July 2013 derailment and explosion left 47 people dead,
a town decimated and the fires took days to extinguish. Rail cars were piled up
like charred sausages from the grill scraped off a plate into the rubbish bin; the
burnt remains of a BBQ gone wrong. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Regulators and the oil industry were astonished -- crude oil was
not supposed to explode. But Lac-Megantic was only one example of American crude
oil from North Dakota doing just that. </span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"></span><br />
<a name='more'></a><span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Oil is essential to modern society. It fuels our cars, heats our
homes and powers our factories. The United States, once heavily dependent upon
foreign oil, is headed toward producing as much oil as it consumes.
<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">The country is in a bumper production period and production has
grown by an astonishing 2.4 million b/d since 2008, to around 7.4 million
barrels per day in 2013, according to the Energy Information Administration.
The EIA anticipates additional output of 1.5 million b/d by 2015. Much of the
new production comes from the Bakken field in North Dakota and Eagle Ford in
Texas. North Dakota is remote and is underserved by the U.S.'s existing
pipeline infrastructure,
and getting the oil out and to refineries is a problem. Cue oil by rail. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">In 2013, around 400,000 carloads of crude oil moved by rail across
the United States, a staggering 4000% increase over the previous five years, according
to the Association of American Railroads,
and the volumes continue to rise.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Every day, trains bristling with 100 or more cars containing oil
make their way through major cities including Chicago, Little Rock or Fort
Worth. The next derailment and explosion could kill hundreds, if not thousands,
of people. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">In December, in Castleton, North Dakota,
a mile-long train carrying crude oil, believed to be from the Bakken, derailed
and exploded in a "giant fireball" after colliding with another
train. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">In November, a 90-car train was crossing a trestle above a wetland
in western Alabama when it derailed, spilled almost 3 million gallons of Bakken crude into the
wetlands, and ignited a two-day fire. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Since 2008, at least ten incidents of trains hauling crude oil
across North America have derailed and spilled "significant quantities of
crude," according to the Associated Press.
<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Last year's derailments focused a harsh light on the safety of the
tank cars, known as DOT-111s.
Even though some U.S. and Canadian railroads and oil companies have pledged<u> </u>to upgrade their thin-bodied DOT-111 railcars to newer specification cars,
serious concerns remain. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">The newer railcars will remain only bolted on to an undercarriage,
rather than permanently welded onto wheels which means that their round bodies
can still fly off in a derailment as they did in Quebec and Alabama. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">A regulator-mandated slowdown when going through populated areas and towns may reduce this possibility, but
there is still the chance of a runaway train, such as in Lac-Megantic, or a collision
with other vehicles. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">In general, crude oil does not explode. It is usually viscous,
heavy, thick and lacks the gassy volatility needed to blow itself up.
Yet railcars loaded with Bakken crude are exploding when they crash. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Crude oil coming from the Bakken and Eagle Ford is of high quality
- very low in density and sulphur. Analysis done by the Wall Street Journal<u> </u>showed that Bakken crude has an unusually high Reid Vapor Pressure, a
measurement of volatility. As there are no laws mandating RVP tests for crude,
the combustible nature of Bakken and Eagle Ford oil has been largely ignored. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Regulators were slow off the mark to test the quality of the oil
being shipped by rail. Oil producers and refiners -- in their haste to sell and
refine these cheap feedstocks -- often misclassified them as less hazardous than they really were. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">The U.S. and Canada too quickly embraced moving crude by railcar,
neglecting to test crude quality from newer fields and failing to strengthen
safety regulations until after several fiery crashes. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">The U.S. and Canadian governments should ban railcar shipping of crude
oil that comes from Bakken and Eagle Ford fields. The flammable nature of the
crude oil, coupled with the missile-like properties of the railcars, turns
these trains into moving bombs which are a clear danger to human life. American
energy independence should not be gained at the expense of human life. <o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: "Cambria","serif"; font-size: 14.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"><i>[This essay was written for a graduate business school application.]</i></span></div>
<div class="MsoNormal">
<br /></div>
<div>
<div id="edn15">
</div>
</div>
Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-10785897913445670792013-10-06T09:42:00.003-04:002013-10-06T09:42:41.767-04:00Commodities: Private equity takes over where banks leave off(<i>Originally published on Platts.com</i>)<br />
Just as the US oil industry starts to get really interesting, banks are being forced to leave it.<br />New regulations and over-zealous government, nervous over the presence of banks in physical oil and commodities markets, are pushing the banks to shed their assets—and making room for other moneyed institutions to jump in.<br />Profitable opportunities are visible, with production soaring as the US winkles out tight oil and gas. E&P beckons investors, as do infrastructure plays such as rail terminals and blending facilities.<br />But banks are wary of making new investments and are seriously considering sloughing off the ones that they already have.<br />The US Senate Banking, Housing and Urban Affairs Committee is looking into whether large merchant banks, such as JP Morgan, should be allowed to own or operate oil terminals, pipelines, or warehouses that hold vast amounts of aluminum and other businesses that deal in global commodities.<br />JPMorgan Chase is selling or spinning off its entire physical commodity trading operations, as a Platts Oilgram News story reported. The bank emerged over the past few years as a major commodities trader, along with other US banks as Morgan Stanley, Goldman Sachs, Citigroup and Bank of America Merrill Lynch.<br />So, as the banks begin to shed their trading and physical assets, private equity firms are quietly sneaking in to take their place, and one of them at least is on the verge of an IPO in London.<br />Riverstone Holdings, an American private equity fund with over $24 billion committed to E&P, midstream and power investments, is planning an initial public offering for Riverstone Energy Ltd. The company will launch in late October on the London Stock Exchange, and is expected to raise up to £1.5 billion ($2.4 billion).<br />Riverstone has already gone where banks (now) fear to tread, taking ownership in refining maverick Tom O’Malley’s PBF, UK shale gas company Cuadrilla, and US deepwater E&P company Cobalt, among many others.<br />Perhaps Riverstone’s founders, both from Goldman Sachs, had inklings that commodities would be yanked away from investment banks once they became Fed-controlled “real banks.” After all, banks owning oil storage, and refineries — and trading the oil — when the market was rising was never going to look altruistic.<br />But from a private equity firm, no one expects altruism. <br />Riverstone is just one of many that are investing heavily in energy assets. Denham Capital, which flies under the oil industry radar, has $7 billion under management in oil, gas, power and renewable funds. Billionaire Mikhail Fridman’s L1 Energy Fund will invest $20 billion (that his Alfa Group made from the TNK-BP sale in March this year) in oil and gas projects. And these are just the tip of the private-equity-in-energy iceberg.<br />According to Forbes, private equity accounted for 10% of 2012 energy buyout deal value worldwide. And 83% of energy-related buyout deal value was for oil and gas properties—nearly half of them in North America. (This included 2012’s biggest buyout, Riverstone Holdings and Apollo Global Management’s $7.2 billion acquisition of EP Energy, Forbes said.)<br />So, is this a new trend or one that is destined to become dull and mainstream? Is this a case of the bandwagon having sailed past already?<br />According to fund management firm Hamilton, in an article in Pensions & Investments magazine, limited partners are beginning to question if there is too much private equity capital chasing the energy sector.<br />“The simple answer is: No,” it said. “The size of the market, the long-term growth prospects and the complex nature of the energy value chain will continue to present investment opportunity. The massive capital spending requirements to meet expected global demand dwarf the amount of private equity capital available today.” <br /> <br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-55806985446774769562013-09-11T08:45:00.003-04:002013-09-11T08:45:28.656-04:00Oil investors spurn Mexico and Latin America<!--[if gte mso 9]><xml>
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<div class="MsoNormal">
(<i>This blog originally appeared on Platts.com</i>) </div>
<div class="MsoNormal">
Everyone knows there is a lot of oil in Mexico. Venezuela
has its fair share, as do Brazil and Argentina. There’s even more oil to be
found in Ecuador, and the Falklands is having its day in the sun. But the news
about oil exploration and production investment today is predominately focused
on the US and Canada. Why is that?</div>
<div class="MsoNormal">
Decades of nationalistic sentiment have created a no-go area
in Mexico and Latin America, with foreign nationals and major oil companies
mostly conspicuous by their absence.
</div>
<div class="MsoNormal">
When Enrique Pena Nieto was elected last year as Mexico’s
new president, he pledged to reform the oil industry. Last month, he proposed
that Pemex, the state oil and natural gas monopoly, would be able to launch
contracts on the basis of profit-sharing rather than production-sharing.<span style="mso-spacerun: yes;"> </span>But then the analysis started coming down,
and it wasn’t good.
</div>
<a name='more'></a><br />
<div class="MsoNormal">
In Platts reporting by correspondent Ron Buchanan, an
analyst was dismissive of Pena Nieto’s reforms. “What Churchill once said about
Russia–’a riddle wrapped in a mystery inside an enigma’–is an apt description
of the energy reform,” said independent Mexico City-based analyst David
Shields.<span style="mso-tab-count: 2;"></span><span style="mso-tab-count: 1;"> </span>
</div>
<div class="MsoNormal">
Buchanan says Mexico has had trouble attracting foreign
investment for its oil industry since the 1938 nationalization. By law, all
hydrocarbons found in Mexico belong to the state. That means that concessions
and production-sharing contracts are banned.
</div>
<div class="MsoNormal">
“The Pena Nieto proposal was meant to have opened Mexico’s
oil to private enterprise. But so far the proposal is very unclear. It talks
about ‘profit-sharing’ rather than production-sharing. That could sound like
more incentives for service contracts but no real share of oil for operators,”
he adds.
</div>
<div class="MsoNormal">
This will need to be resolved by upcoming Congressional
debates, almost certainly amid very large street protests by defenders of the
state monopoly. The protesters have already achieved a significant victory.
There will be no “Big Bang” IPO for state monopoly Pemex because that would
mean privatization, says Buchanan.
</div>
<div class="MsoNormal">
Argentina is also too unpredictable, say industry insiders,
after having famously wrenched Repsol’s 51% stake in domestic oil company YPF
away from the Spanish company in April 2012. Platts correspondent Charles
Newbery says: “There is no certainty that an investment will pan out as
planned.”
</div>
<div class="MsoNormal">
Nor is there rule of law, stability or sanctity of
contracts, all of which are important for investors. “If you compare the
investment climate in other shale-rich countries like Australia, Poland and
South Africa, it is a lot more secure to do business in those,” says Newbery.
</div>
<div class="MsoNormal">
Argentina has taken a few steps to repair this bad rap by
increasing the wellhead price of gas to $7.50/MMBtu from $2.30/MMBtu from new
developments, and by allowing oil companies that invest more than $1 billion
over five years in a production project to export 20% of the output tax free
and keep the foreign earnings outside of the country, Newbery said.
</div>
<div class="MsoNormal">
Some majors are willing to try. Chevron, ExxonMobil and
Shell are about to start drilling for shale resources in Argentina’s Vaca
Muerta, one of the world’s most promising plays for unconventional oil and gas
production.
</div>
<div class="MsoNormal">
And the Falklands? Just try poking a hole in the earth’s
crust offshore and see how long it takes for Argentinian lawyers to turn up.
</div>
<div class="MsoNormal">
Ecuador has just made the controversial decision not to
preserve a huge swathe of rainforest where the major
Ishpingo-Tiputini-Tambococha oil field lies, underneath the Yasuni National
Park, in favor of drilling for oil.
</div>
<div class="MsoNormal">
But Platts’ correspondent Stephan Kueffner says that foreign
companies believe there isn’t enough potential upside to compensate for the
amount of risk they face, which ranges from volatile taxes to protests and
lawsuits from indigenous communities.
</div>
<div class="MsoNormal">
Brazil has a number of problems with getting foreigners to
invest, says Platts correspondent Dom Phillips: “The issues often get summed up
as the ‘Brazilian cost’: high wages, difficult and cumbersome bureaucracy,
crumbling infrastructure, high taxes, low competition. It is expensive to do
business here and it can be hard to make money.”
</div>
<div class="MsoNormal">
Also, rules requiring local content minimums stump
outsiders, says correspondent Lucy Jordan. Oil companies in the exploration
phase are required to use between 37% and 85% local goods and services, and
sometimes the quality offered by Brazilian suppliers simply isn’t up to
standard. “There is also little English spoken,” says Jordan, “And nearly a
third of Brazil’s foreign direct investment comes from English-speaking countries.”
</div>
<div class="MsoNormal">
In Colombia, where production passed the 1 million b/d mark
this year, uncertainty is also the issue. Platts writer Chris Kraul says it has
to do with a resurgence of guerrilla attacks on pipelines, and the current
limbo of the peace talks underway. Also, the government’s intention to sell
part of its 88.5% stake in Ecopetrol, which produces two-thirds of the
country’s oil, creates another unknown factor.
</div>
<div class="MsoNormal">
“Another factor is the failure of explorers to find any big
new reserves in Colombia over the last decade, despite the big increase in
exploration,” says Kraul. “The big jump in Colombian production is mainly
attributable to companies getting better at pumping heavy crudes in the eastern
Llanos that were known to be there.”
</div>
<div class="MsoNormal">
Trust is again the problem in Venezuela, and the death of
President Hugo Chavez is unlikely to change that. In March this yea,r
Venezuela’s oil minister and president of PDVSA Rafael Ramirez said he would
continue to follow the oil policy of the deceased President “always,” a source
told Platts.
</div>
<div class="MsoNormal">
Venezuela has had its ups and downs with foreign investment,
but lately the downs are winning. In the mid 1990s, Venezuela created a new
fiscal framework to induce foreign investments in its heavy oil projects in the
Orinoco Belt. In 2007, it turned around and expropriated ConocoPhillips’ not
insubstantial investments in their entirety without fair compensation and
forced “haircuts” in the ownership stake held by other companies in various
projects that were made possible only by that 90′s reform.
</div>
<div class="MsoNormal">
Platts stringer Mery Mogollon says that “legal insecurity”
is the main obstacle, along with PDVSA’s debt issues with suppliers of services
and equipment. “These companies cannot continue working if PDVSA does not
pay.<span style="mso-spacerun: yes;"> </span>And there is great doubt that PDVSA
will pay in the future,” says Mogollon.
</div>
<div class="MsoNormal">
Also, the deterioration of oil facilities and infrastructure
in the country is causing a high rate of accidents and losses, she adds.
</div>
<div class="MsoNormal">
Even oil protestors are not safe. Environmentalists are more
likely to be killed in Brazil, Costa Rica, Mexico and Peru than anywhere else,
according to the UN.
</div>
<div class="MsoNormal">
In contrast, in Canada, a combination of easy upstream
access, repatriation of profits and a willingness among Canadian producers to
welcome foreign capital helps to attract investors, notes Platts writer Ashok
Dutta.
</div>
<div class="MsoNormal">
In the past year we have seen China’s CNOOC pay more than
$15 billion to take over of Nexen Inc., the largest-ever foreign acquisition by
a Chinese company, and Malaysia’s Petronas pay more than $5 billion for
Progress Energy Resources Corp. (although the Canadian government has drawn a
line in the sand over further foreign takeovers).
</div>
<div class="MsoNormal">
In the US, Bakken and Eagle Ford and Marcellus continue to
lure new foreign investment, and CNOOC’s Nexen deal gave it a chunk of US Gulf
Coast offshore leases.
</div>
<div class="MsoNormal">
There are new pipeline routes springing up seemingly weekly
and crude by rail is growing exponentially. Jones Act barges and tankers are
overbooked. The only fly in the ointment is that exports–apart<span style="mso-spacerun: yes;"> </span>to Canada–are still banned.
</div>
<div class="MsoNormal">
In essence, the North American countries are all about
making it work for investors, while making them money.
</div>
<div class="MsoNormal">
But, Latin America and Mexico? Not so much. They are seen as
takers, not givers. Fields have been repatriated, NOCs have kicked out foreign
partners, royalties reneged upon, and minor spills treated like BP Macondo.
Clearly there is a lot of work yet to be done in these countries to attract
serious investors.
</div>
Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-57618850011056797112013-07-09T17:12:00.000-04:002013-07-10T11:37:32.039-04:00Lac-Megantic oil-by-rail crash could be rail's Exxon Valdez<!--[if gte mso 9]><xml>
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<![endif]--><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> As
the smoke clears in Lac-Megantic, Quebec after a runaway train
packed with crude oil tankers crashed, the oil industry is coming to terms with
a business that has perhaps grown too far, too fast. </span><br />
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> The
Lac-Megantic accident is shining an unwelcome spotlight on the lack of
regulatory oversight on oil by rail in both the US and Canada. The fact that
the rail cars (belonging to the Maine, Montreal & Atlantic rail
company) that crashed and exploded were considered unfit to carry hazardous
materials sharpens that focus. </span></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> Getting
landlocked crude out of newer fields in North Dakota, Canada and other far
flung parts of North America has become an obsession with producers, traders –
and with refiners, looking lustfully at the cheaper feedstock. </span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> The
oil rush has changed the face of rail in North America. In a country where
passenger and cargo-bearing rail was largely replaced by the car and large
18-wheel trucks half a century ago, the speed with which new railroad lines,
railcars and loading facilities are being built is simply astonishing.</span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> Today
around one million barrels per day of crude oil is moved via rail across the US
and Canada. To put that into perspective, it equates to more than the total output
of the UK North Sea, which fell below 1.0m b/d last year. Or roughly to four
VLCC’s worth of crude oil every week. In other words, it is a lot of oil. </span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> And
this is set to grow. In the US, crude by rail shipments are expected to reach
to near 1.10 million b/d at the end of 2014, up from about 718,000 b/d this
month and about 156,000 b/d in January of 2012, according to Bentek Energy, a
division of Platts.</span></div>
<div class="MsoNormal" style="text-autospace: none;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> The Railway Association of Canada estimated that
as many as 140,000 carloads of crude, totaling about 91 million barrels, will
be shipped on Canadian tracks this year, compared with 500 carloads, or about
325,000 barrels, in 2009.</span></div>
<div class="MsoNormal" style="text-autospace: none;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> The headlong dive into crude by rail may have
just been stopped short by the Lac-Megantic incident. And, just as the Exxon
Valdez oil spill in Alaska in 1989 spelled the end of single-hull oil tankers
coming to the US (and banned them worldwide in 2010), the Lac-Megantic crash
would spell the end of using DOT-111A railcars. And it could herald a new rash
of regulation for the rail industry. </span></div>
<div class="MsoNormal" style="text-autospace: none;">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> A US National Transportation Safety Board
study in 2012 said that 69% of tank cars are DOT-111A. In Canada, these are
known as CTX-111A, and comprise 80% of the fleet, according to Canada
Transportation Safety Board’s </span><span lang="EN-CA" style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ansi-language: EN-CA; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">chief investigator
Donald Ross</span><span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">.
</span></div>
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<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;">Ross
said that changes as a result of the MM&A investigation could include
thicker steel or shields for the tank cars. The American NTSB had already
changed the specifications of DOT-111 from October, 2011 to include thicker
shells and a ½ inch thick head shield. But there is no rule on retrofitting
existing cars, which have a long service life. </span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> Like
the single-hull tanker post-Exxon Valdez, DOT-111As could be the next casualty
of the oil rush in North America. </span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> But
there are other issues raising their ugly heads, including the state of some of
the railroad tracks around both countries: While the oil industry is spending
billions on railcars and loading/unloading facilities, who is spending the
money to maintain and upgrade the railroads? </span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> As
Avrom Shtern, a rail-transport policy representative with Montreal-based Green
Coalition, said in Oilgram News July 9: The Canadian government's budget cuts
have left the rail industry to police itself. "That's unacceptable. You
can't just write rules and expect the railways to police themselves," he
said.</span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> Also,
questions over the capital adequacy of smaller gathering and distribution
companies such as World Fuel, which owned the oil on board the MM&A train, and
others are rife. Will they have the financial stability to survive a lawsuit? </span></div>
<div class="MsoNormal">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; line-height: 115%; mso-ascii-theme-font: major-latin; mso-hansi-theme-font: major-latin;"> The
crash was only a few days ago, so most of these questions will be answered over
time. But one thing is for sure, crude by rail has come a long way fast. But the
Quebec accident could slow the pace and the way in which the industry grows
going forward in both Canada and the US. </span></div>
<div class="MsoNormal">
<br /></div>
Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-47653048511541847622013-05-21T16:18:00.001-04:002013-05-21T16:19:37.682-04:00Commodities trading: Not for the faint-hearted(First published on Platts.com) Once the darling of hedge funds, commodities are now looking like a poisoned chalice. Last year, hedge funds such as BlueGold, which specialized in crude oil; Centaurus, in natural gas; and Fortress Commodities, across all raw materials, shut down. Several commodities fund of funds also closed last year after clients fled.<br />
<br />
Commodities trading, it seems – and in particular oil – is not for the faint of heart. The field is littered with failed ventures and prison sentences.<br />
<br />
International sanctions on exporting countries such as Iran can make trading crude an even more dangerous game. On May 9, the US Treasury said it was penalizing Sambouk Shipping for contravening these sanctions. Sambouk is allegedly associated with Dimitris Cambis, who, along with a network of front companies, was executing ship-to-ship transfers of Iranian oil to obscure its origin.<br />
<br />
Getting access to less-than-transparent sources of oil, metals, grains and other commodities has become more hazardous as the US Department of Justice and Securities and Exchange Commission begins to aggressively enforce the Foreign Corrupt Practices Act (FCPA). Archer Daniels Midland became the first commodities trading house to suffer under it.<br />
<br />
Because of the global importance of commodities such as oil and foodstuffs, the commodities markets have become a target for public criticism regarding manipulation, bribery and corruption.<br />
<br />
So much so that Switzerland, the go-to location for commodities trading houses over the past ten years, is fretting that it will suffer reputational damage because of its newish role as a trading hub. Switzerland is home to the world’s biggest oil and other commodity trading houses, including oil traders Vitol, Glencore, Trafigura, Mercuria and Gunvor.<br />
<br />
In a world where deep knowledge, hands-on experience and extensive personal contacts are necessary to do a deal, even those at the top of their game can get into hot water or lose money.<br />
<br />
So it is not surprising when Wall Street and City of London hedge funds miss the boat. Trading paper contracts, such as energy futures and derivatives, can be difficult when you don’t have an insider’s view into the physical movements of oil.<br />
<br />
What is surprising, perhaps, is that some of the mega-importers of oil have not succeeded in entering the oil trading game. After all, purchasing vast quantities of crude oil and products should theoretically teach importers some of the tricks of the trade.<br />
<br />
But many new entrants apparently fail to grasp the basics of the oil trading culture. One recent example is PetroChina. It hired a small staff of traders and operations people in Houston in 2008, with the aim of increasing the Chinese company’s US trading volumes and growing the Houston office.<br />
<br />
Last week, a team of six of its Houston oil traders (and reportedly some support staff) left the Chinese oil company en masse, allegedly because promised bonuses were not paid.<br />
<br />
The oil trading game is difficult, dangerous and often loss-making. But there is one caveat that remains true: If a company wants its staff to take the risks involved, it should be prepared to make it worth their while.<br />
<br />
<br />
<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com1tag:blogger.com,1999:blog-7798193138957877149.post-39789063645169239172013-04-15T07:57:00.001-04:002013-04-15T07:57:32.319-04:00Pickens, Chickens and Eggs: Using LNG as Transport Fuel(Originally published on <a href="http://blogs.platts.com/">Platts.com</a>) When T. Boone Pickens takes a notion to invest in something, he tries to make sure that everybody else takes the same notion. So, when he announced that he was putting his money behind LNG filling stations in the US for long-haul trucks, people took notice.<br /><br />But rhetoric is just the beginning. There is a huge need for the actual infrastructure to support the idea, commonly known as the chicken-and-egg conundrum. If Pickens — and Canada and China and Europe — build LNG-filling stations, will they (trucks, ships) come? They should. After all, gas is cheap, clean and plentiful. But support from government and industry is essential to get the egg to grow into a chicken.<br /><br />Luckily, Pickens is not the first person to get behind the LNG-as-transport-fuel notion. It is happening all across the globe, with companies and countries pledging support for natural gas and LNG-powered vehicles and ships.<br /><br />In Canada, the federal government is introducing regulations to discourage ships from using bunker fuel in the Great Lakes and within 200 miles offshore, which will encourage greater use of LNG in marine transportation, according to reporting from our Calgary correspondent Ashok Dutta. Trucks and even locomotives in Canada are also using LNG.<br /><br />Shell is increasing its LNG-for-transport projects to include shipping the fuel to Canada and the US for trucking, and to Europe for marine use. The European Commission is proposing that LNG fueling stations be installed in all 139 maritime and inland ports on the Trans-European Core Network by 2020 and 2025, respectively. Singapore plans to have LNG bunkering in place by 2014. And auto and truck engine makers such as Volvo and Westport are gearing up to make and market so-called HHP (high horsepower) engines which will use LNG as fuel.<br /><br />But LNG is a tricky substance, needing cooling or compressing in order to move it, store it and use it. An LNG-fueled truck has to install a special thermal fuel tank to hold the super-cooled liquid. Also, special engines that run on LNG must be installed. So, is it worth the effort?<br /><br />According to Ben Schlesinger, founding president of Benjamin Schlesinger and Associates energy consultancy, using gas for transport is a no-brainer. LNG is also clean; it eliminates 100% of sulfur and 20-25% of carbon dioxide emissions.<br /><br />Also: “There is no price risk — it has been low for 20 years. It is easy to install in trucks. It is easy to hedge. The payoff for a vehicle is one year,” Schlesinger said at a lunch seminar on March 26 in New York (although other experts have put the payback period at 1-3 years).<br /><br />The shipping industry also thinks that it is a good idea, chickens and eggs aside. At the Sea Asia CEO Roundtable last month, Precious Shipping’s managing director put it this way: “The fuel of the future is gas.”<br /><br />So… LNG is clean, it is cheap, it is plentiful and industry and government are putting some commitment and money into the infrastructure. What more could anyone ask? That it offers a new source of revenue for governments, perhaps?<br /><br />The US state of Georgia has already thought about that, according to the local Times Herald. On March 27, its Senate passed legislation that drivers who use LNG in their cars and trucks will not escape the state’s motor fuel tax. The bill had already been passed by the House of Representatives, and is now awaiting the governor’s signature.<br />Other states and countries will no doubt follow Georgia, making LNG as a transport fuel a win-win.Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com1tag:blogger.com,1999:blog-7798193138957877149.post-3449001724990753072012-12-22T08:45:00.000-05:002012-12-22T08:45:32.378-05:00ICE -- the mouse that roared -- takes on the Big Board<!--[if gte mso 9]><xml>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNEyNmhQv3XuLc-G8XznU46TBQw2XzVzoYHwPAQpmHnqzW7cpeRxf31gSuAO3TIpxiGcR6Nk1d695vJ-Nvf3GGnxvymxil6ppH7bshugS1LHESRqCD0N77DPn9Syj3JrTMpfL9g9GrEYc/s1600/mouse.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="182" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNEyNmhQv3XuLc-G8XznU46TBQw2XzVzoYHwPAQpmHnqzW7cpeRxf31gSuAO3TIpxiGcR6Nk1d695vJ-Nvf3GGnxvymxil6ppH7bshugS1LHESRqCD0N77DPn9Syj3JrTMpfL9g9GrEYc/s200/mouse.jpg" width="200" /></a></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-size: large;"><span style="font-family: Arial,Helvetica,sans-serif;"> <span style="font-size: small;">In
the year 2000, a tiny little upstart energy exchange was born in Atlanta,
Georgia. It began by building an electronic trading system for electricity and
natural gas, something that was a popular idea at the time. </span></span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">But
it was – perhaps – <i>before</i> its time. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">So
the InterContinental Exchange cast its eye over the markets to find something
with a little more liquidity. Maybe something that could benefit from its
technological prowess. ICE spied a very interesting energy exchange on the
other side of the Atlantic and engineered a surprising – to the City of London,
at least - takeover. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> When ICE bought the International Petroleum Exchange in
2001, no one in the oil business could imagine life without the IPE floor. The
idea of oil trading on an electronic exchange was considered heresy.
“Impossible,” traders said. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> The thought was that since oil is the game of professional
traders, and not mom and pop investors, the floor broker was essential to the
game. Swaggering, hard-drinking and mainly Cockney in origin, the IPE floor
brokers were considered a permanent fixture in the business. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> IPE’s own automated trading system had gone through many
technology iterations and was never up to the task, in many traders’ opinions. So,
like a lion stalking the weakest wildebeest, ICE swooped in. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
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<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">It
transformed the International Petroleum Exchange, second only to the New York
Mercantile Exchange in terms of energy futures trading, seemingly
overnight--from an open outcry “pit” into a sophisticated electronic trading
venue. Cockney brokers out, computers in. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> The IPE’s membership and operators should have learned a
lesson from their LIFFE brethren, whose massive open outcry trading floor was
closing down at the time - pit by pit. LIFFE’s main competitor – Deutsche
Borse, had gone electronic with its derivatives trading and was walloping
LIFFE. LIFFE’s state-of-the-art floor closed doors in November 2000, while its
LIFFE Connect electronic trading system went from strength-to-strength. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> The LIFFE exchange itself sold to Euronext, eventually
ending up in NYSE’s hands along with the very valuable acquisitions LIFFE had
made along the way. This included the London Commodities Exchange, where softs
such as coffee, sugar and cocoa were – almost exclusively – traded. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">But
ICE’s CEO Jeff Sprecher was not daunted by his competition. His dogged
determination to make all things electronic took ICE into clearing in a big
way, adding <a href="http://www.blogger.com/blogger.g?blogID=7798193138957877149" name="_GoBack">the capacity for clearing OTC credit default
swaps, and into diversifying its products offerings. </a>ICE’s dominance in
markets from oil to interest rates and credit derivatives prompted NASDAQ in
2011 to choose ICE as its partner in its failed bid for NYSE. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> The fact that ICE persevered with its electronic trading
platform, making it ever-faster, offering clearing electronically – is probably
why it had the money and the ability to buy the venerable New York Stock
Exchange and its many acquisitions. I am sure that during the due diligence
process, ICE had a good look at NYSE’s hodge-podge of trading systems and infrastructure.
</span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> NYSE members and management had initially resisted the
seismic shift to electronic trading, preferring its image as the bastion of
Wall Street with its colorful floor brokers and trading pits and specialists.
It adopted a hybrid model of automated-cum-open-outcry trading, buying--and
then largely ignoring--state-of-the-art trading systems such as ARCA.
Aggressive all-electronic competitors such as NASDAQ and newcomers including BATS
stomped all over NYSE’s model, gradually eating away at the Big Board’s
once-dominant market share. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> ICE was lurking in the underbrush. Sprecher’s strategy of
diversification meant that he needed to further integrate other asset classes,
which – once siloed were now tightly correlated with oil trading. Equities,
interest rates, foreign exchange, and agriculturals such as corn and sugar were
suddenly noticeable as a necessary adjunct to oil futures and swaps trading. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> Limping from its market battering by electronic competitors,
NYSE Euronext was the weakest wildebeest. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> Since 1792, when it was formed under a buttonwood tree on
Wall Street, the New York Stock Exchange has captured the imaginations of
people around the world. It has attracted some of the best and brightest young
people to work on Wall Street, conjuring up an image of stolidity and grace. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;"> Now, although the NYSE brand will remain, ICE will become
the top dog. New York City must be stunned that it has lost its bulwark stock
exchange to a jumped-up little technology upstart from Atlanta. </span></span></div>
<span style="font-size: small;"><span style="font-family: Arial,Helvetica,sans-serif;">
</span></span><br />
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</span></span><br />
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Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com4tag:blogger.com,1999:blog-7798193138957877149.post-33340005614261234382012-10-23T07:28:00.000-04:002012-10-23T07:28:03.243-04:00A Middle-Aged Woman Moves to New York If you are waiting for the punchline - I'm it. In the autumn of my life I upped sticks and moved to Manhattan. (Husband and cat to follow soon.) My friends and most of my family think I am nuts.<br />
Certainly the moving house - twice - and going back to work (more than) full time was a wrench. My time is no longer my own. My home is not my own. I can't find my winter clothes, and I can't seem to get my bills paid on time. Sleep is erratic. And some woman (has to be) has been trying to grab the attention of a sleeping man (has to be) who is double parked outside her VW Beetle (I recognize the horn) since 5:30 am. Otherwise I think it is working out OK. <br />
I often heard older friends of mine in London say "I have one more job left in me" and I think that is what has happened here. I was not ready to retire, which is what freelancing from a leafy New England small town felt like to me.<br />
But retirement is one of the reasons I am here in NYC working full time. As I rush past middle age it becomes ever clearer that I need a lot more money to realize my retirement goals. Which are pretty lofty: a flat in Paris for city/culture/shoulder seasons, a house in a warmer climate (Spain? Florida?) for winter, and a (bigger) house in Maine for summers. <br />
Then yesterday I read an article in the <a href="http://online.wsj.com/article/SB10000872396390443720204578004131575356160.html" target="_blank">Wall Street Journal </a>entitled <i>The Let's-Sell-Our-House- And-See-the-World Retirement</i> by <a href="http://homefreeadventures.com/" target="_blank">Lynne Martin.</a> She and her husband sold their California home and are now spending their retirement traveling from country to country, staying enough time in each one to experience it fully. They stay in flats or houses that they find on Homeaway.com or VRBO.com. They cook and shop and go to museums, and they soak up the culture of each place they stop. Wow.<br />
So I have a new plan, thanks to the Martins. I won't forgo a house or two, as I plan to have them paid off by then. But any extra cash I get I will save for travel, going into a special retirement travel fund - for rent, flights, food, fun. We will spend a few months in every place we want to visit, living like natives and learning as much as we can. Suddenly retirement doesn't feel like death to me. And it makes working (more than) full time even more fun. <br />
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Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com4tag:blogger.com,1999:blog-7798193138957877149.post-48508671105059829972012-09-19T12:14:00.000-04:002012-09-19T15:34:32.556-04:00Why Working from Home Does Not Always Work<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmO9p3qj9ymaONG8PGzmAEWPY8nAvg4V609Mj6L6yw28uxv-o6JSI4xr54VUOygp2huIei-HGyHp7dJQePVm3QDLDZmxhMPtTUQtzVenZFYoerDJ47sZ2lXjhQfGhII1mHV1j1_GDZ7N0/s1600/workfromhome.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmO9p3qj9ymaONG8PGzmAEWPY8nAvg4V609Mj6L6yw28uxv-o6JSI4xr54VUOygp2huIei-HGyHp7dJQePVm3QDLDZmxhMPtTUQtzVenZFYoerDJ47sZ2lXjhQfGhII1mHV1j1_GDZ7N0/s320/workfromhome.jpg" width="257" /></a></div>
I am not the world's most sociable person. I don't like going out for dinner. I don't do parties as a rule. And I get irritable when my house is full of people for more than a few days. So why is it that what seems to be the ideal job for me - working in solitude from home - is far from ideal? <br />
I moved to a small port city, population 17,000, in Massachusetts a few years ago. After living and working in London for the better part of 20 years, this meant that I was moving to an area where I knew no one, had no work colleagues and no family. My husband had secured a great job in a NH town 30 miles north, where he worked with one of his best friends and found an instant circle of like-minded colleagues.<br />
Luckily I had already established myself in freelance writing, so I reached out to colleagues and friends and Wall Street types and got contracts for several financial and technology publications, plus I got a lucrative PR gig with a large UK news agency. I worked from 6:30am until 4:30pm most days, with a one-hour gym break or walk mid-morning. The money was pretty good and it was satisfying to see that the more I wrote the more I got paid. I liked the big house, two cars and clean air but I missed London, I missed my friends. Most of all I missed going to work, where there would be banter and ideas flying and talk of global events or travel or the financial markets.<br />
To help compensate I started a social group of local writers. As I write this we have about 40 members; usually 15-20 would show up to the "potluck" dinners that they all seemed to prefer (rather than meeting in restaurants). I made some friends. I learned a lot about writing and publishing books, something I had always yearned to try. But there was a major flaw. Few of the group had the vaguest notion of what I do for a living - which is writing about issues and trends in financial markets, energy and technology. I would go so far as to say they disliked hearing about it, especially if I mentioned places on the globe I have travelled or "faces" I have met in the course of my work. <br />
Then I discovered a fabulous writers' workshop in Boston and signed up for course after course, where I received encouragement and learned about writing a novel. I finished my novel. And revised it. I met agents at a writers' conference who were encouraging. But I just couldn't drop my paying work to do the work necessary to polish it. Plus - gasp - I found it boring. Re-writing and revising the same 90,000 words over and over again versus writing a hard-punch article about high speed trading? Or a cleverly funny blog about self-learning algorithms? Or a straight-forward story about oil prices? The book lost. <br />
Gradually I realized that even the stories that I loved writing were getting harder and harder to write. I had no context. I was not going to conferences unless I paid for them. I didn't meet anyone in my line of work. Phone calls helped, but being out of the line of fire was really dulling my senses. I was working alone, in a quiet and sleepy little town. My cats were my only companions during the workday. They don't know much about finance. <br />
So when a job at my old alma mater McGraw-Hill was posted on Gorkana, I did not hesitate to apply. It offered a newsroom, a team, offices around the world, a topical subject matter. I got the job, and had to speed up my planned move to NYC. So with much organization and money spent I am on my way to New York on Sunday. I don't intend to work from home again for a very long time. Maybe when I retire. <br />
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<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com8tag:blogger.com,1999:blog-7798193138957877149.post-27063754028937744092012-08-04T07:54:00.001-04:002012-08-04T07:58:07.329-04:00Tilting at Algorithmic Windmills<div class="separator" style="clear: both; text-align: center;">
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The hand-wringing and angst expressed in the media over Knight Capital's $440m rogue algorithm is fascinating. Knight Capital, once known as <a href="http://dealbook.nytimes.com/2012/08/02/trying-to-be-nimble-knight-capital-stumbles/">Roundtable Partners</a> and Trimark, is the virtual Don Quixote of algorithmic trading. I have been to its HQ in Jersey City, NJ and spent some time on the trading floor; the atmosphere is pure testosterone. (And the technology mavens are salesmen-on-speed.)<br />
The damage done by Knight on August 1st was two-fold. The algorithm, buying when it should sell and selling when it should buy, almost cost the brokerage its firm. And it pointed out to an already gun-shy general public that machines are running the stock markets - often badly.<br />
I believe that the uproar is unwarranted, but it may force high frequency and algorithmic trading firms to take stress-testing of algos and trading systems more seriously. Especially after NASDAQ's lack of thoroughness in testing a new program led to the Facebook IPO debacle.<br />
Yesterday I heard someone call for the institution of a new position in trading firms - systems risk manager. The SRM would monitor high-speed electronic trading systems for glitches and fat fingers and fraud, reporting to the heads of risk and compliance. I think that is inspired. For years I have been writing about and supporting real-time monitoring and surveillance of trading systems and exchanges using technology, but it never occurred to me that there should be a specific official in every firm. It will create new jobs on Wall Street and in the City of London, while satisfying regulators and investors. I feel a new campaign coming on...Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-14537174089929314272012-07-03T07:22:00.003-04:002012-07-03T07:22:30.536-04:00The Lie in LIBOR Tumbles Barclays' Diamond It is a shame that Barclays' Bob Diamond had to <a href="http://www.bbc.co.uk/news/business-18685040">resign</a> over the LIBOR rate-fixing scandal, but I guess it was only a matter of time before the whole LIBOR thing was rumbled. Here is what I wrote when the scandal was revealed in 2010: <br />
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<a href="http://www.blogger.com/blogger.g?blogID=7798193138957877149#editor/target=post;postID=86462141233257181">March 28, 2100</a>--"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 (about the methodology): "You are kidding." But no, they weren't."</blockquote>
The LIBOR system was designed in the good old days of 'my word is my bond' where a handshake would suffice for a contract. Those days have changed into today's 'anything for a buck' and 'screw thy neighbor' mentality. I'm pretty sure LIBOR has been manipulated subtly for decades; it took the credit crisis and scrutiny of banks' behavior to "out" it. Any pricing system that relies on interested parties contributing to the end result are bound to be corruptible.<br />
UK politicians are already crowing about Diamond's departure. Labour leader Ed Miliband said it was "necessary and right" that Bob Diamond stepped down, according to the BBC. "But this is about much more than one individual, it's about the culture and practices of the banking industry," Miliband said. <br />
He is correct. Diamond as CEO of Barclays should, of course, have been aware of the banks' LIBOR practices. But I do fear that Diamond will be the sacrificial lamb for the rest of the banking CEO's. Like Homer Simpson the rest of them will be saying "It was like that when I got here." And that's not good enough. <br />
<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-48633770920047876822012-06-14T10:56:00.000-04:002012-07-10T07:25:18.846-04:00Jamie Dimon, Rock Star<div class="separator" style="clear: both; text-align: center;">
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<i>'Cause we all just wanna be big rockstars<br />Livin' in hilltop houses driving fifteen cars<br />Rockstar by Nickelback</i><br />
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On the front page of the <a href="http://www.nyt.com/">New York Times today</a> (June 14) is a photograph of Jamie Dimon looking every bit the rock star on his way into the Congressional hearing about JPMorgan's $2bn (plus) credit derivatives losses in the UK. His testimony was described in awed superlatives by TV presenters. One wag even said that, in PR terms, Dimon's behavior and delivery would become the template for others who find themselves in his shoes going forward. <br />
Jamie Dimon is not a rock star. He is the CEO of a very large financial institution which proved that regulation is not only necessary but essential. What Dimon said in so many words was that his team did not understand the risk involved in the positions they were taking. The chief investment office did not understand the risk? That is tantamount to saying no one in the firm understands risk. One horrified trader told me: "Trading is all about a little bit of analysis, a little luck and a complete understanding of the risk you are taking and its possible repercussions." <br />
Call it hedging or proprietary trading, the bottom line is that JPMorgan's CIO traders did not understand the complex suite of synthetic derivatives they were playing with. They changed their value at risk (VaR) models in the meantime, inexplicably screwing themselves up further, and then changed them back again revealing the <a href="http://dealbook.nytimes.com/2012/06/13/understanding-jpmorgans-risk-models/">losses</a>. <br />
If the CIO at JPMorgan did not understand the risk involved in its derivatives positions, can investors and regulators really believe that trading departments and CIO's at other banks understand it? I think not. The Bank of England was so shaken up that Andrew Haldane, executive director for financial stability, hinted strongly that large banks should be monitored for risk, according to <a href="http://tinyurl.com/7jd26vw">Reuters</a>.<br />
Dimon may look the part of a rock star, but he may have allowed his band to party too long while he was out lobbying against regulation. To paraphrase Nickelback, life hasn't turned
out quite the way Dimon wanted it to be. </div>
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<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-46389000913106028072012-06-08T07:20:00.004-04:002012-07-10T07:24:35.184-04:00Jon Corzine, Chocolate and Football<div class="separator" style="clear: both; text-align: center;">
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Once upon a time, MF Global's CEO Jon Corzine wanted to turn a reasonably profitable, medium-sized brokerage into a global investment bank.It didn't have a happy ending.<br />
Jon Corzine believed that, because he had been a trader and CEO at Goldman Sachs and the Governor of New Jersey, he was invincible. In short, he believed his own PR. My husband is fond of an expression that sums it up really well: "If he were made of chocolate he would eat himself." <br />
I Googled the expression and it seems to have been born in the UK with its roots in football. Now I am not a particular fan of football (English, that is. American football I loathe with a gut-twisting passion; ten seconds of incomprehensible activity and then hours of faffing about and adverts), but having spent 20 years in London knowledge of the sport has seeped into my brain surreptitiously. When you are surrounded by a primordial soup of traders and brokers and bankers who adore the sport, there is a kind of sports-osmosis that takes place.<br />
The first quote I found regarding eating oneself came from Scottish footballer Archie Gemmill: "If Graeme Souness was a chocolate drop, he'd eat himself." I actually knew that Graeme Souness had played for the Glasgow Rangers and that he loved seeing himself on TV, so that made sense.<br />
The second quote came from Scottish football manager Tommy Docherty: "If Jose Mourinho was made of chocolate he would lick himself." When coach Mourinho joined Chelsea he said in a press conference: "Please don't call me arrogant, but I'm European champion and I think I'm a special one," which resulted in the media dubbing him "<a href="http://en.wikipedia.org/wiki/Jos%C3%A9_Mourinho">The Special One.</a>" Brilliant. <br />
I digress into football to make a point. If a person takes him or herself too seriously and believes his or her own PR, that person is like a lightning bolt for criticism. Especially if he loses $1.6bn of his customers' money. <a href="http://www.latimes.com/business/la-fi-mfglobal-corzine-20120604,0,1245238.story">MF Global trustees</a> seem to think Mr. Corzine should have relied less on his own PR and more on common sense and accountability.Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com1tag:blogger.com,1999:blog-7798193138957877149.post-51048324221503366232012-05-11T06:51:00.000-04:002012-05-15T07:14:56.117-04:00JPM: Crows' Nests and Glass Houses<div class="separator" style="clear: both; text-align: center;">
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May 11, 2012-- I was listening to CNBC in my car and the smug Joe Kernen was interviewing a British woman, I do not know her identity. In a nutshell he said to her that since the British had lost their empire and had no Navy they had little right to an opinion on U.S. markets or regulatory affairs. The words which really pissed me off were something like: "The only thing Britain has left is Prince William and his wedding." While I was swearing at him via my radio, this British woman answered him coolly: "What we in the U.K. have learned is not to crow when you are on top." A brilliant answer. And one that Jamie Dimon should heed.<br />
When JP Morgan Chase was on top of the world, having (more or less) successfully fought off the dragons of the credit crisis and financial markets meltdown, Dimon went on a rampage to discourage any sniff of regulatory action. He sent lobbyists by the dozens to Washington, DC (all the banks did) and spoke at any and all conferences or to journalists who wanted a "balanced" opinion on regulation. He was particularly smug when savaging the Volcker Rule. His message: We don't need it. As the British woman on CNBC said, it is a good idea not to crow when you are on top. <br />
Today JPM sits with a $2bn loss on derivatives, which he admits they lost control of. Lost control? Losing $2bn in one month? If the <a href="http://www.ft.com/intl/cms/s/0/4977a324-7ffb-11e1-b4a8-00144feab49a.html#axzz1rXkEGXRo">market was aware</a> that JPM had built up an untenable-looking "whale" of a position in credit default swaps over a month ago, then surely JPM's risk team must have noticed? According to the FT, the bank had implemented some new risk modelling tools in Q1, which it has now shelved. Have they not heard of testing new applications before they go into a live environment? And where did JPM, or any other bank for that matter, get the idea that using VaR was a good idea? It was obvious after the credit crisis that over-reliance on VaR was one of the problems. (I wrote about it in <a href="http://www.financialnews.com/">Financial News</a> in December 2008.)<br />
Note to Dimon: Don't go out throwing stones at regulators when you live in a glass bank.Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-34914911844970152352012-05-01T08:47:00.000-04:002012-05-01T16:47:53.273-04:00Oil Price Reporting Agencies: There for a Reason Here is a little-known fact: Almost 95% of the oil in the world is priced using reporters' assessments. Amazing, no? Oil price reporting agencies (PRAs), including Platts, Argus Media and ICIS, are responsible for much of the contract pricing of crude oil, oil products and petrochemicals around the world, from the wellhead to the refinery to the pump. Regulators have had little interest in these agencies over the years until that fateful day in September 2008 when crude oil bumped up against $150 per barrel. Since then they have been trying to wrap their heads around this industry we call the oil business. The agencies have been under the microscope of International Organization of Securities Commissions since the G20 asked them to look into last year. <br />
Alarmed by the sudden interest, these three PRAs are trying to head off regulators by offering up a self-regulation code, according to today's <a href="http://online.wsj.com/article/BT-CO-20120430-716378.html">Wall Street Journal</a>. This is a knee-jerk reaction and will do little to assuage regulators, which are being beaten up by politicians trying to somehow force oil prices down.<br />
But regulators (and clueless politicians) should take note: there is a reason that PRAs exist. Oil is the most non-homogenous commodity on the planet. A barrel of crude oil from one North Sea platform can differ in specification enormously from one only a few nautical miles away. Every refined barrel of petroleum products and petrochemicals differs depending upon the source of the crude oil, the sophistication of the refinery, and the appetite of the consumer. There is no one way to price oil without using the human brain. Only an experienced price reporter knows how specifications differ. Only a human being can tell when a source is telling a lie (and even with experience this is difficult). I should know. I have worked as a price reporter for all three of the above agencies.All of which are dedicated to ensuring the most accurate, honest, BS-proof prices. <br />
Price reporting is a thankless task, no reporter gets thanked for getting prices right. But the truth is, in the long run they do. They may be wrong for a day, or even a week, but it has been proven again and again that PRAs call the market accurately over time. The regulators should leave well enough alone. The words 'can' and 'worms' spring to mind.Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-5467846128284865792012-04-23T06:43:00.000-04:002012-04-23T16:42:42.311-04:00The Oil Business Will Never be the Same<div class="separator" style="clear: both; text-align: center;">
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A new initiative known as the Extractive Industries Transparency Initiative (EITI - catchy!) caught my eye in today's <a href="http://www.ft.com/intl/cms/s/0/b6c4f348-8a35-11e1-a0c8-00144feab49a.html#axzz1srGHklwg">Financial Times</a>. EITI is a move to improve transparency in the trading of oil cargoes from their source, usually national oil companies, to their buyers - independent traders and oil majors. The wholly justifiable suspicion that there may be some industry shenanigans involved with doing business with producing countries such as Angola, Nigeria, Venezuela, Russia (I could go on...and on) gave me a fit of nostalgia for the good old days.<br />
The good old days were when a trader could take a sackful of cash on a private jet to secure the deal. He (and it was almost always a man) was a brave, resourceful McGyver-with-a-bodyguard kind of trader who often got shot at, or at least threatened with his life, in the name of getting the deal. The stories of oil trading as Wild West were what made working in the oil industry as a journalist so much fun. Not that we could ever publish them...<br />
EITI is mainly a good thing, no matter how much I will miss the stories. Money paid to corrupt government officials in the name of doing business was never a good thing. The money did not go to the people of these mostly poor, third world countries, it stayed in the pockets of the corrupt bureaucrats. <br />
There is a snag, however. Once the bribery is stopped the price of oil coming from a lot of places will rise to market levels, raising overall prices for oil. And trading companies will suffer because there will be little margin in doing such deals. If so, it is another case of 'be careful what you wish for.' On the other hand, a trader friend tells me not to worry, saying: "We'll find a way around it."Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-11203495163417059902012-04-19T12:10:00.000-04:002012-04-23T07:12:29.698-04:00Not so Cuckoo the Swiss<div class="separator" style="clear: both; text-align: center;">
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Switzerland is about to come down hard on hedge funds, which have been flooding into the country for the past few years. The combination of Switzerland's low taxes, light touch regulatory regime, and rich victims - I mean citizens - seemed too good to be true for hedge funds escaping tougher regulatory climes. Dozens of funds and managers fled NYC and London for Geneva, Zug, Zurich and beyond, driving up property prices, filling up international schools and generally pissing off the xenophobic Swiss. <br />
The one thing the hedgies did not expect was that the Swiss would tighten regulations, making it into one of the most “exacting” jurisdictions in the world for money managers, according to the <a href="http://www.ft.com/intl/cms/s/0/679cf570-8596-11e1-a394-00144feab49a.html#axzz1sQISZO4D">Financial Times</a>. The Swiss government is claiming that it wants to be in line with new EU regulations, but that can't be it. Switzerland has never deigned to even be a part of Europe, and especially not the EU.<br />
So why are they doing it? Here is one clue: "Wealthy individuals would also be stripped of their automatic status as 'qualified investors' permitted to deposit money with hedge funds directly," the FT said. <br />
And here is another: There is anecdotal and press evidence that Swiss citizens are having to leave the country to find apartments and houses to rent or buy, because it is too expensive to live in Switzerland. The hedge fund managers, with their vastly deep pockets, are pricing the Swiss out of the market.<br />
My conclusion is twofold:<br />
1.) Swiss private banking is one of the mainstays of the economy, and these banks have been losing business to hedge funds.<br />
2.) Swiss citizens do not want to live in France or any other second-rate country outside their own borders.<br />
The Swiss government takes care of the Swiss first and foremost. Hedge funds better start looking for another place to hide. <br />
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<br />Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0tag:blogger.com,1999:blog-7798193138957877149.post-66005930271006114462012-03-19T12:19:00.002-04:002012-04-23T07:13:46.890-04:00On Honeybees and Goldman Sachs<div class="separator" style="clear: both; text-align: center;">
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I met a bee keeper who told me that honeybees are misunderstood. "They only sting you when they are attacked - or sat on," he said. They don't like to attack because once they sting an attacker they die, disemboweling being a fatal side effect. When this happens, the bee sends out a chemical 'smell' which warns the other bees, and they then attack the killer (if they weren't already). <br />
While I was listening to these fun facts I couldn't help but mentally compare bees' behavior to that of human beings in financial markets. Financial markets players are part of a large hive - the markets, and smaller hives - their own companies. In terms of the 'market hive' if someone on the outside attacks, say a regulator trying to lay down new rules, the entire market hive tries to fight off the attacker. In terms of a 'company hive' if someone from outside the company hive attacks the employees (worker bees) gather to defend the hive. <br />
But what happens when someone from inside a hive attacks, as did the infamous (for now) Greg Smith did with Goldman Sachs? The company's queen (Lloyd Blankfein) and a higher-up worker bee (Gary Cohn) gathered the other worker bees and rallied to the cause that is Goldman Sachs. But the market hive seized on that moment of perceived weakness, in what is arguably one of the strongest hives, and savaged its share price. GS shares fell by over $4.00, instantly wiping over $2bn off of its market cap. All because a worker bee revolted. <br />
What does this tell us about human behavior? That company hives host honeybees which are protective of their own, and that market hives consist of giant hornets that savage a company hive at the first sign of trouble. <br />
In order for a company hive, that is as strong and secretive as a Goldman Sachs, to survive within the greater market hive it probably needs to be a private company. As a public company Goldman's creates envy and jealousy in the market hive. As my gym pal told me, a stinging bee will spend its dying moments distracting its victim by flying around its head as if it were going to sting again. Greg Smith's stinger is gone, along with (probably) his career. But the buzz continues. Goldman's needs to keep its revolting worker bees under control.Melanie Woldhttp://www.blogger.com/profile/02306978528952421177noreply@blogger.com0