NakedShorts

Amateur! Speculators! on bailout line

That ‘nation of whiners’ thing is really catching on.

The Independent Connecticut Petroleum Association joined a host of oil heat dealing associations in the region to ask for loans to help the dealers buy out expensive [heating] oil contracts purchased this summer and help consumers into lower-cost contracts...

...Eugene Guilford Jr., ICPA executive director and chief executive officer, said in a letter to Treasury Secretary Henry Paulson:

“We now have millions of consumers who locked-in their prices at over $4.50 a gallon this summer who now see a retail price substantially lower than that. The only way our retail companies can swap out their higher-priced wholesale futures contracts for newer, lower-cost supply agreements is to literally buy their way out of them and pay their wholesalers.”

Patience, little grasshoppers. We’re just a decent cold snap, a geopolitical thingamajig, China back in the game and Evil! Speculators! getting back their mojo away from the old highs. And anyway, losing money on your hedges is a good thing. Or so I’m assured.

Steeling for the downturn

A far-from-complete, even so far as this particular theme is concerned, selection of headlines from the Thursday and Friday editions of American Metal Market. 

‘Hedge funds’ dumping stock latest

As always, prices move, and then comes the news:

The nation’s largest public pension fund, known as Calpers, is unloading stocks in a falling market to make sure it has enough cash to meet its obligations.

The pressures come as the California Public Employees’ Retirement System has had to raise cash to fulfill commitments to private-equity firms and real-estate partners. The giant fund’s predicament is another sign of how the market selloff is tightening the screws on pension funds nationwide...

...Calpers said it had $188.8 billion under management as of Wednesday [Oct. 22], down 21% from the end of June.

Or, as one especially astute (not to mention modest) market observer said on NPR on Saturday, Oct. 18:

The attempt to pin market chaos on hedge funds is, in my view, giving them rather more credit than they deserve. There are a lot of moving parts and hedge funds are just one of the moving parts in what’s going on in the market at the moment.

More astute still? Let’s start with Calpers’ (former) chief executive officer Fred Buenrostro and (former) chief investment officer Russell Read, whose legacy contribution was to ramp up Calpers’ commodity — err, make that ‘inflation-linked’ — investments beginning in late 2006, hitting the eject button?

Calpers Sells Stock Amid Rout to Raise Cash for Obligations

by Craig Karmin And Joann S. Lublin

The Wall Street Journal Oct. 25 2008

New milestones in price discovery

The Chicago Mercantile Exchange began trading steel futures contracts Monday, four years more or less after what is now its Nymex subsidiary originally announced plans to list the commodity. Things are going absolutely swimmingly, with a total of zero contracts traded in the first four days.

But, as American Metal Market reported in Friday’s edition, price discovery proceeds apace. 

But, it gets better.

And, believe it or not, better.

Brilliant! 

Disclosure: Short NUE, CME. And, after clipping chunks into the recent poopage, quietly hoping some kind soul will run them back up so I can reload. 

Bo goes 0 for 2

Anne Unsolicited-Correspondent checks in:

I doubt it’s worth the pixels to report, but a very reliable source has told me (cue gasps of surprise) that [former Nymex boss and MotherRock founder] Bo Collins has done it again. Blown up, deep-sixed it, bought the farm that is. Statistically I’d say this guy is due for a real big win. I’m in for at least a mill when he starts up his new, new, new hedge fund.

Not quite, although near enough for gummint work:

1. According to a source familiar with developments, Collins is winding down the prop trading entity 1.618 Group, formed amidst much hilarity after the MotherRock debacle. “No outside investors involved, just Bo’s money,” according to the source.
2. Which seems to accord with the following post on an Elite Trader message board on Tuesday evening. According to the pseudonymous contributor, it was received from a friend on Friday (Oct. 17):    

1.618 Group is going through a restructuring that will result in a significant change to its core trading business. The company has closed outstanding positions and its participation in energy markets going forward will be greatly reduced. 1.618 Group will remain in operation but will be refocusing its business and trading efforts. Renovatio will remain an active participant in energy markets. 

Several employees will be leaving the firm to begin a new venture and are exploring strategic opportunities with RBC Capital Markets. The new company will be actively focused on trading energy markets. The separation is amicable and all parties involved are content with the restructuring and new business.

No word on what a Renovatio is. But it all helps explain the recent surge in hits on...

Earlier on NakedShorts

Diddley Bo

Apr. 26 2007

Steel: The bottom is not in

Steelmakers Try to Deal With Weakening Demand

by Robert Guy Matthews

The Wall Street Journal Oct. 7 2008

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Chinese steelmakers set to slash output

by Patti Waldmeir

The Financial Times Oct. 6 2008

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GM’s Europe Unit to Suspend Production

by Chris Reiter

Bloomberg Oct. 7 2008

Earlier on NakedShorts

At a guess, the top might be in
Sep. 10 2008

Disclosure: Short X, NUE (although somewhat less short than he was back when. Just quietly waiting the inevitable rip). 

The commodities hedge fund flap

Metal Bulletin this week runs 1850-or-so elegantly arranged pearls, assembled by yours truly under an assumed name, on the general theme of commodity hedge funds, their beatings in August and year-to-date, and what it might mean for their future.

It probably seemed a good idea at the time, but naming a commodity hedge fund after a solitary bird of prey turned out to be new proof of the old adage that birds of a feather flock together.

Ospraies and Red Kites were not alone in being savagely plucked by summer’s turmoil in the stock and commodity markets, but their spectacular losses set off a rather louder-than-usual dawn chorus of squawks and screeches...

Flight Or Fall
by Greg Newton
Metal Bulletin Sep. 22 2008

Disclosure: NakedShorts, again under an assumed name, headed the US businesses of Metal Bulletin plc (RIP) from 1987-2004.

Steel datapoint du jour

American Metal Market
Sep. 24 2008
(Article not directly linkable)

Earlier on NakedShorts

Here and here and here and here and here.

Disclosures

1. Short X, NUE. 

2. A long, long time ago...NakedShorts wielded, under an assumed name and to remarkably little effect, a business card which said that he was president of American Metal Market LLC.

Crude realities

 

Click for larger image

WTI crude closed the NYMEX floor session at $91.50 yesterday, making this the second biggest percentage decline in the commodity this decade. Based on closing prices, WTI is down 37.2 per cent since topping out on July 14 at $145.78. Saying, not playing, seeing as how the story has kinda gone MIA for the last coupladaze, much to the disappointment of the Evil! Speculators! lynch mob assembled in Washington DC yesterday.

Recent analyses of the role of speculative investment in energy markets

Senate Energy Subcommittee Sep. 16 2008

Webcast

Not quite the whole truth

Philip Falcone, principal of Harbinger Capital Partners, broke cover last night to tell Reuters that 

investors would be mistaken if they thought selling by Harbinger was behind the double-digit percentage declines in stocks it holds, including [The New York] Times, Media General Inc, Cablevision Systems Corp, Cleveland-Cliffs Inc and Calpine Corp.

Unmentioned by either Reuters or Falcone was Harbinger’s ejection button interaction which, over four trading days between Sep. 4 and Sep. 9, cut its stake in AK Steel (AKS) almost in half, from around 10.5 million shares. The stock, which had closed at $45.53 on Sep. 3, dropped 27 per cent to put in what was then a new 52-week intraday low of $33.05 on Sep. 9, during Harbinger’s dumpage; Falcone collected an average $39.00, for proceeds of $182 million or thereabouts. 

Nice trade, given AKS closed yesterday at $31.82, off an impressive 19 per cent amidst the carnage.

Two things:

• US Steel (X) dropped 22 per cent over the same period, indicating that Falcone was not the only big seller of steel shares abroad, so
• Let’s not give Harbinger too much credit. AKS traded almost 42 million shares over the four days in question, making Harbinger’s sales a visible, but hardly dominant, participant in the dumpage. 

Harbinger Capital Partners et al

US Securities and Exchange Commission

Form 4: Sep. 8 2008  Sep. 10 2008 

Harbinger says it’s not dumping Times, Media General

by Greg Newton

Reuters Sep. 15 2008

 

Image source

Weekend reading: Evil! Speculators! Edition

The Commodity Futures Trading Commission yesterday backed off its long-held and repeatedly reiterated conviction that market forces, rather than Evil! Speculators!, were responsible for the recently busted run-up in commodity prices. Now: 

This preliminary survey is not able to accurately answer and quantify the amount of speculative trading occurring in the futures markets. The current data received by the CFTC classifies positions by entity (commercial versus noncommercial) and not by trading activity (speculation versus hedging). These trader classifications have grown less precise over time, as both groups may be engaging in hedging and speculative activity.

Or, from the original sort-of English, markets change. But regulators, not so much. Especially when “the lack of appropriate and predictable funding over the course of many years has had a negative impact on our staffing situation, rendering it unsustainable for the long run. Nothing has brought this point to bear more than our work on the swaps report, to which the CFTC has devoted more than 30 employees and 4000 staff hours.”

But don’t think for a moment that acting (since Jun. 2007) CFTC chairman Walter Lukken doesn’t have his wits about him. Yesterday, Lukkens was alone in the relatively friendly confines of the House Agriculture Committee; next Tuesday, when the topic will be taken up in the distinctly unfriendly free-fire zone of the Senate Energy Committee, where Self! Appointed! Scourge of the Evil! Speculators! Michael Masters will work off a few more of his 15 minutes, Lukken — in another display of the propensity for Republican hacks to be somewhere, anywhere, else when bullets are flying — will be safely offshore, attending a bunfight for international regulators.

Witch hunt latest after the jump.

Houston, we have a problem

Click for updated image. Makes those NOAA graphics look a little 20th century.

At a guess, the top might be in

Production discipline. Lower sales. Tomato. Tomahto. Feels like they’ve called the whole thing off. 

American Metal Market
Sep. 9 2008
(Article not directly linkable)

Earlier on NakedShorts

Here and here and here and here.

Disclosures

1. Short X, NUE. However, given the beating administered to the sector in recent weeks, NakedShorts walks in fear of the inevitable counter-trend rally and is now trailing stops on approximately one-third of the position. 

2. A long, long time ago...NakedShorts wielded, under an assumed name and to remarkably little effect, a business card which said that he was president of American Metal Market LLC.

An unfortunate turn of phrase

Take it with a lump of coal

Barron’s Online ran Friday with a piece on James River Coal (JRCC), swallowing uncontested a Street Cuckoo’s sweet chirping about a couple of familiar names with picks in that seam.

“[SAC Capital Advisors have] become decidedly more convicted with their stake now,” Slava says. “They may be reloading, getting ready for another jump in commodities”...

...“Jim Simons’ Renaissance Technologies, another large shareholder, has also continued to buy, so it’s bullish for the company to have these two hedge funds staying convicted.”

Convicted? According to court records, they weren’t even indicted. And here’s a news flash for Slava and the other Edgar Robot drivers — James Altucher, lookin’ atcha! — braying about the positions of Hall of Fame hedge funds in various stocks.

It needs to be remembered that their devotion to JRCC, to pick a random example, is often (and more often than not in the case of the two names mentioned) inspired by large quantities of data doing high-speed forward triple-somersaults with half-piked twists inside a massive array of Intel’s fastest. Nothing wrong with that, but as anybody holding some of that $700-plus CME knows, momentum begets momentum. Until the acrid stench of reality wafts into the room, and good luck with getting a parole board hearing on restitution of the latecomers’ chips.

Money-losing coal companies ($3.45 a share, according to the not always reliable Yahoo! Finance), which have multiplied their stock price by almost 12 in the last year, even after a 30 per cent...ahem...adjustment over the last two months, define momentum.

Fund Fired Up for James River Coal
by Teresa Rivas
Barron’s Aug. 22 2008

Disclosure: Short Piggyback Artistes.

Did I mention, the top is in?

I did. Here and here and here.

American Metal Market
Aug. 25 2008
(Article not directly linkable)

Disclosures

1. Short X, NUE.

2. A long, long time ago...NakedShorts wielded, under an assumed name and to remarkably little effect, a business card which said that he was president of American Metal Market LLC.

Things that go BOOM! in the night

Until now a little-known, though large, closely held partnership in Tulsa, Okla., SemGroup transports, stores and distributes crude oil and refined products. It filed for bankruptcy protection last week after losing more than $2.4 billion on energy contracts...Exactly what drove the company to that fate remains unclear, but clues have started to emerge amid court hearings and other ripples from the implosion.

After the jump:

News follows price

Another body in the Ritchie cemetery?

Was the hedger speculating?

Public shareholders, meet The Shaft

A laughing stock’s laughing stock

Nice to have that manipulation thing solved

[UPDATED & CORRECTED Jul. 27 2008]

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today its case against Optiver Holding BV, two of its subsidiaries, and three employees, charging them with manipulation and attempted manipulation of New York Mercantile Exchange (NYMEX) Light Sweet Crude Oil, New York Harbor Heating Oil, and New York Harbor Gasoline futures contracts

during March 2007

And the price impact of this alleged vast conspiracy?

For context, 79 cents was 1.33 per cent of oil’s $59.58 closing price on Mar. 16 2007, and accounted for 36 per cent of intraday trading range; the 49 cents worth of alleged manipulation on Mar. 19 was 0.82 per cent (82 bps) of the $59.20 close, and 42 per cent of the intraday range.

On the RBOB trades, the movement attributed to the Optiver shenanigans amount to 1.4 per cent of the closing price and 53.5 per cent of the intraday range on Mar. 2; 1.65 per cent and 44 per cent on Mar. 16; and 1 per cent and 55.5 per cent on Mar. 20.

Three things:

• Manipulation is manipulation, and alleged manipulators should be arrested, given a fair trial and strung up at the corner of North End and Vesey;  
• To its great credit, NYMEX Compliance caught this shell game in a matter of days, and shut it down;
• But this was strictly small...ahem...potatoes (a reference that will be familiar to anyone with even passing knowledge of the history of the New York Mercantile Exchange).

CFTC Charges Optiver Holding BV...with Manipulation
Commodity Futures Trading Commission press release
Jul. 24 2008

More links after the manipulation

Sophisticated crude humor

Click for larger image

Tug o’ the forelock:

How We Know Oil is Going Down
by Jeff Matthews
jeffmathewsisnotmakingthisup Jul. 23 2008

No foole like a dubious causality foole II

What happens when oil makes a big move?

NakedShorts continues his fact-based campaign to undermine the conventional “wisdom”—a word scarcely applicable to the explanations proffered by those charged with excuse-making for every market wriggle, but never mind—that daily swings in oil prices have anything to do with what happens on the stock market.

In a desperate attempt to find some — any! — evidence to support the bloviators’ almost daily exhortations that crude oil prices affect the stock market, NakedShorts may have found something. But it’s hardly visible to the naked eye.

In the three years to Jun. 30 2008, the benchmark Nymex West Texas Intermediate crude oil contract moved by three per cent or more on 100 (out of a total 771) trading days, with 59 of those occasions being gains. Does that affect NakedShorts’ contention that, on any given day, crude price movements have little to do with stock prices on any given day?

Well, yes, but hardly.

• The correlation between energy price changes and moves in the broad stock market becomes more strongly negative.
• Despite that, the broad stock market is still more likely to finish ahead (55% of occurrences) when crude rises by more than three per cent, while XLE finished ahead on almost 90 per cent of those days.
• When crude dropped by 3 per cent or more, the stock market finished ahead 63 per cent of the time. XLE was up on only 20 per cent of those days.

Conclusions? When crude is putting in a big up move, the pontificator who uses that to explain a weak stock market is more likely than not just making stuff up. If, however, he credits a big move down in crude prices for a stronger stock market he is somewhat more likely to have a point.

That said, however, yesterday’s market emphasises the point. Crude dropped 4.4 per cent, with the $6.45 poopage nominally the largest drop since 1991 but not in the Top 100 Down Days in percentage terms; still, SPY was down 1.41 per cent, with a goodly chunk of that accounted by XLE’s encounter with a 4.2 per cent cliff.

Data monkey fodder on the other side.

Earlier on Naked Shorts

No foole like a dubious causality foole I
Jul. 15 2008

No foole like a dubious causality foole I

In the Annals of Dubious Causality®, one of the longest chapters is now being filmed, pixellated and inked by the conflation stock market performance and energy price moves. It’s been in all the headlines, and anybody with access to a financial news channel has regularly seen breathless eruptions from the New York Stock Exchange that  “Oil’s down $3 and still stocks are down, folks” or “Oil’s up $5 but the energy stocks are down,” or some variant thereof.

As though one had something to do with the other.

News flash (but not really): Daily moves in the price of oil — as represented by the benchmark Nymex West Texas Intermediate contract — are almost perfectly uncorrelated with SPY, the ETF that tracks the S&P 500 index. The price of oil is only moderately correlated with XLE, the Energy Select Sector SPDR, which is much more tightly aligned with SPY. Oh, and over the last 12 months, with stocks facing foreclosure and crude moving, debt-free, to a spectacularly luxe McMansion, oil’s correlation with SPY is unchanged, while XLE has become more correlated with SPY, and less correlated with crude.

To summarize:

That’s the guts of the argument. For the elimination of doubt, the point is not whether persistently high energy prices are affecting the economy, and hence the stock market, or not. The argument is whether, on any given day, the direction of oil prices has any impact on the direction of the stock market, and the evidence is that the relationship is entirely random.

Tomorrow: Do big moves in crude make any difference?