Carl Icahn to Chesapeake's Rescue?

More fireworks before Friday 17 calls expire, I hope.

Derivatives Cloud the Greece Analysis

So the one question I would ask CNBC, etc.:  "Why do credit default swaps even exist now????"


http://www.nytimes.com/2011/06/23/business/global/23swaps.html?scp=1&sq=derivatives%20cloud&st=cse 

NYM Natural Gas Futures Chain

http://finance.yahoo.com/q/fc?s=NGH11.NYM+Futures+Chain 

Natural Gas at Six-Month Lows

(c) 2010 F. Bruce Abel

This from off my Schwab newswire.


Natural Gas at 6-month Lows



3:35 pm ET 03/25/2010 - Briefing.com
[BRIEFING.COM] The dollar broke into positive territory after reversing its early losses as the Euro broke down amid numerous Greek rescue headlines. In turn, commodities pared their early gains.

Precious metals held on to minor gains despite the dollar's recovery. April gold closed 0.4% higher at $1090.90 per ounce. May silver closed 0.6% higher at $16.74 per ounce.

April natural gas sold off in the morning ahead of its inventory report this morning. It hit closed 2.9% lower at $3.99 per MMBtu. Natural Gas futures are now at 6-month lows.

Crude oil futures trended higher throughout the session but faded after hitting resistance at the $81.50 level. It closed fractionally lower at $80.53 per barrel.

The Alternate Reality Investors Are In

(c) 2010 F. Bruce Abel

This article has a number of important concepts to dwell on. Many of them are topics we have focused on in the past two months.

The great investment imponderable: where to put money in this new era of distrust. It isn't just a question for the individual.

Many pension funds have concluded, as I have, that the traditional stock market is a casino and nothing more. Or worse, a crooked casino.

If they feel it's the former, they say "let's gamble; we don't have a choice."


http://www.nytimes.com/2010/03/09/business/09pension.html?scp=1&sq=pension&st=cse

Natural Gas Futures -- Near Month

Natural Gas Futures for This Winter

(c) F. Bruce Abel

Prepared for this winter? Natural gas will be low, low, low (compared to a year ago). Natural Gas Futures as of close October 29, 2009:


December 2009 5.062
January 2010 5.428
February 2010 5.481
March 2010 5.456
April 2010 5.454

(cf. with three years ago when I checked on September 25, 2006:

January 2007 7.63
February 2007 7.70)

Add about 2.5 for your delivery cost and you get $7.8 on average for this upcoming winter heating season, which is $.78 per ccf for Duke Energy (Cincinnati) for example, if Duke were solely based on the spot market.

Whereas three years ago the projection was about $1.00 even for the winter of 2006-2007.

[From the Globe and Mail of a few days ago]

The reason for the dirt-cheap heating costs is twofold.
On one hand, enormous supplies of natural gas have been flowing into the North American market, mainly from shale rock formations that until recently were too technically difficult to tap into. At the same time, the recession has dampened demand from industrial users, like manufacturers.
Direct Energy, a natural gas and electricity provider in Canada and the United States, has been able to pass on those savings to customers, said spokeswoman Lynzey MacRae.
But how those changes are reflected depends on whether customers have opted for a variable or fixed price plan, she said. While variable plans “may offer value in a declining market, they do require that consumers pay close attention to changes in market conditions that could trigger increases in their pricing.”
A fixed plan, on the other hand, offers more stability, said Ms. MacRae. “Customers know what price they will pay for the term of their contract, and don't have to deal with the kind of dramatic price fluctuations we've seen over the past year.”
The lower natural gas prices are no doubt welcome, but there are several relatively easy and inexpensive ways for consumers to squeeze more savings out of their home heating costs this winter, said Ken Elsey, president and chief executive officer of the Canadian Energy Efficiency Centre.
“The first thing is, stop air leaks. Caulking is probably the cheapest thing that a consumer can do to save on their heating costs,” he said.
“Look at how you use heat,” Mr. Elsey adds. For instance, Close the heat register in rooms that aren't begin occupied on a regular basis. “It's not rocket science. That's the part that surprises me. It's just trying to change behaviour is the biggest problem that we face.”
A home can lose up to 30 per cent of its heat through poorly fitted windows and doors, said Dave Walton, director of Home Ideas for Direct Energy.
Making sure your furnace's filter is clean could save about 10 per cent on heating costs, Mr. Walton added. “If the furnace filter is clogged, it's going to work that much harder to operate, and in fact could cause premature breakdown of the equipment as well.”
The greatest savings could come from investing a newer, higher efficiency furnace over the long run, but that comes with an up front cost of a few thousand dollars at least.
“Many homes still have furnaces that are upwards of 18, 19, 20 years old. And those furnaces, when they were manufactured, were manufactured to only operate at about 60 per cent efficiency,” Mr. Walton said. “And what that means is 40 cents of every dollar they're spending is going right up the chimney.”
In contrast newer furnaces can be up to 96 per cent efficient.
Mr. Walton also suggests homeowners look into getting an energy audit, in which any potential leaks or other problems can be identified. Any work that results from the audit may be eligible for a provincial or federal rebate. “If homeowners are planning to make any kind of changes to their home... they'd be wise to look into getting an energy audit done.”
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Commodity Related ETF's and the New CFTC Rules

(c)2009 F. Bruce Abel

From Seeking Alpha today:
http://seekingalpha.com/article/158048-new-cftc-rules-may-be-a-boon-to-commodity-related-stocks-and-etfs?source=article_sb_picks

Globe and Mail: Garbage In, Natural Gas Out

(c) 2009 F. Bruce Abel

Not sure this is a new process, but the owner talks like it is. Let's see how it comes out.


http://www.theglobeandmail.com/report-on-business/garbage-in-energy-out/article1260457/

American Energy -- An Exceptional Newsletter

(c) F. Bruce Abel

I always look forward to getting this newsletter every month. These guys are in the field saving money for their industrial clients. They know all aspects, including the trading of energy contracts. And what a time it is for natural gas! With the spot market dipping under $3.00 this week!

Hearings to Curb Energy Speculation by the Likes of Goldman Sachs

Yes!

Spotlight on Goldman as commodities hearings begin
9:06 am ET 07/28/2009 - MarketWatch Databased News
NEW YORK (MarketWatch) -- Goldman Sachs Group Inc., under fire for reaping record trading profits in the teeth of the financial crisis, is now fighting to defend one of its major sources of revenue -- commodities trading -- as regulators consider setting limits on Wall Street speculators.
Goldman and other big investment firms are scheduled to appear at a series of hearings held by the Commodity Futures Trading Commission starting Tuesday, as the Obama administration launches its biggest move yet to clamp down on commodities speculation, which has roiled prices from oil to corn and wheat in recent years.
At issue for the investment bank is a major exemption it enjoys from limits on trading of certain types of agricultural commodities. Such an exemption is usually reserved for traders classified as "hedgers," such as farmers or food producers that depend on stable prices for their businesses.
Goldman opened the door for investment banks to apply for similar status when it won the first exemption 18 years ago to help its big institutional clients in commodity index trading, or investment in a range of commodities by tracking a major index.
The result, according to some members of Congress, has been a surge in all commodities speculation in the last few years, pushing oil prices near $150 a barrel and gold prices over $1,000 an ounce.
Speculators' index trading is "creating price disruptions for producers and consumers," said Sen. Carl Levin, D-Mich., late last month after the release of a 247-page report documenting how index traders have made large purchases on the wheat futures market in Chicago and have pushed up futures prices over the past few years.
It's time for regulators to "change course, rein in commodity index traders, and clamp down on excessive speculation that is disrupting commodity prices," he added.
In addition to taking away the special exemption, the CFTC, the U.S. futures market regulator, is also thinking of adopting position limits on all commodities, not just in agriculture. The move could curb the growth of some major commodities exchange-traded funds.
The commission will hold three hearings, including the one Tuesday. Representatives from Goldman and J.P Morgan Chase Co. , two biggest holders of derivative assets, are scheduled to attend the second hearing on Wednesday.
Goldman argues that any new limits will severely impact liquidity in commodities markets, hurting both large and small investors by reducing their access to these markets. The bank derives almost half of its revenue from trading commodities, currencies and bonds, but it doesn't break out just commodities.
"Attempts to regulate volatility have rarely -- if ever -- succeeded," said Steven Strongin, a Goldman managing director, in testimony delivered last week to a Senate committee regarding Sen. Levin's wheat report. "Yet they often have unintended and significant consequences."
Brad Hintz, analyst at Sanford C. Bernstein & Co., estimated that commodities trading accounts for about 8% to 9% of Goldman's revenue. While the percentage is not as big as fixed-income trading, it's an important sector for Goldman because "there are only a handful of major players."
"It's a powerful, powerful piece of the firm," said Hintz.
The CFTC's rule-making process is still in its early stages, and it's not clear whether the hearings will ultimately lead to the adoption of new rules. Michael Duvally, a spokesman for Goldman Sachs, declined to comment.
Goldman started it 18 years ago
At the crux of the debate are the so-called commodity index investments, the total value of which has been estimated by MarketWatch at about $150 billion. See earlier story on the analysis.
The business started in 1991, when Goldman advised a big pension fund to invest $100 million in commodities by tracking the widely followed GSCI, as the Goldman Sachs Commodity Index has come to be known.
The investment was essentially a bet on the index: If the index rose, Goldman would be required to make payments to the pension fund. In order to protect itself against the risk, Goldman, through its commodities trading arm J. Aron & Co., planned to establish similar buying positions in commodities futures markets.
If commodity prices rose, Goldman's gain in futures markets would offset the payments it had to make to the pension fund.
The so-called swap plan had a major obstacle. Federal rules limit the number of positions a trader can take in some agriculture commodities, such as corn, wheat and soybeans.
While no limits were set in other commodities, the agricultural limits would sabotage the whole swap plan, since index investment covers a range of commodities and a limit in one represents a limit in the whole investment plan.
J. Aron applied for exemption, arguing that the firm should not be treated as a speculator but as a "bona fide hedger" -- a classification usually reserved for farmers, processors, or food producers that enter the futures market to hedge their risks in physical commodities trading.
The CFTC, in a letter to J. Aron dated on Oct. 18, 1991, granted J. Aron the exemption. A copy of the letter was obtained by MarketWatch. See the CFTC letter.
Similar exemptions were granted to other swap dealers, most of them big investment companies.
With the help of swap dealers, more and more institutional investors have diversified their portfolios into commodities to hedge against inflation and a weaker dollar. Their positions have grown so large that legislators and analysts said the trend was pushing commodity prices to levels that couldn't be justified by fundamentals. See earlier story on passive investment.
In a statement released earlier this month, CFTC Chairman Gary Gensler said the agency is considering "applying position limits consistently across all markets and participants, including index traders and managers of exchange-traded funds."
Goldman's Strongin, in testimony before Levin, said passive investment in commodity markets is "a crucial source" of market liquidity, and it was "inappropriately characterized as speculators with no real economic interest in these markets."
Strongin, who had served as a member of the policy committee for the GSCI index, said index investors "rarely invest based on short-term speculative market views," and they "aim to earn a reasonable long-run return."
Setting limits on all commodities?
While the CFTC is considering withdrawing the exemption, it's also considering whether to expand speculation limits to cover all commodity futures, such as oil, metals or natural gas.
Setting limits in all commodities could pose another blow to Goldman, which makes billions of dollars in direct commodities trading.
Goldman's revenues in fixed income, currency and commodities trading stood at $6.80 billion in the quarter ended June, or nearly 50% of the quarter's total revenue.
Setting rules on commodities speculation is "certainly not good news for Goldman," said Jeffery Harte, analyst at Sandler O'Neill. "But the devil is in the details. How are you going to specifically define speculators? We just don't know yet."
The impact of expanding speculative limits to all commodities would put in jeopardy the unlimited access to futures markets that some popular commodity exchange-traded funds now have. The United States Oil Fund and the United States Natural Gas Fund , the two biggest energy ETFs, hold significant positions in energy futures.
Setting position limits on energy futures could also hamper the ability of producers and refiners to hedge their risks. Energy users and retailers sometimes go to a swap dealer to make customized trades, instead of using a standardized futures market. The swap dealer will then go to the futures market to hedge its own risk.
"I will be concerned about artificially limiting the size of positions," said Jeffrey Mayer, chief executive manager of MXenergy, one of the biggest independent retailers of natural gas in the U.S.
"The CFTC should make sure all positions are reported and the categories be broken down more carefully to sort out speculators from commercial hedging interest," he added.
The CFTC had said it will enhance its weekly Commitments of Traders report to separate and categorize swap dealers. The improved COT report also will distinguish professionally managed market positions such as those of hedge funds.

Cramer Last Night

A very important read. Oil is being manipulated.
http://www.madmoneyrecap.com/madmoney_nightlyrecap_070709_2.htm

Cramer Last Night

Oil futures market is a farce:

And Krugman Writes it Best -- Madoff

This puts Madoff into the broader context of Wall Street and our Civil Society, i.e. the magnet of Wall Street and the utter waste of brains and money over the years:

http://www.nytimes.com/2008/12/19/opinion/19krugman.html?hp

The Madoff Economy
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new_york_times:http://www.nytimes.com/2008/12/19/opinion/19krugman.html
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By PAUL KRUGMAN
Published: December 19, 2008
The revelation that Bernard Madoff — brilliant investor (or so almost everyone thought), philanthropist, pillar of the community — was a phony has shocked the world, and understandably so. The scale of his alleged $50 billion Ponzi scheme is hard to comprehend.
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Times Topics: Bernard L. Madoff
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Yet surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?
The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.
Let’s start with those paychecks. Last year, the average salary of employees in “securities, commodity contracts, and investments” was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.
But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.
Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.
O.K., maybe my example wasn’t hypothetical after all.
So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.
We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.
But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.
At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.
Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?
Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.
Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.
After all, that’s why so many people trusted Mr. Madoff.
Now, as we survey the wreckage and try to understand how things can have gone so wrong, so fast, the answer is actually quite simple: What we’re looking at now are the consequences of a world gone Madoff.
More Articles in Opinion » A version of this article appeared in print on December 19, 2008, on page A45 of the New York edition.

The Clawbacks From Hell -- Madoff

In today's New York Times:

http://www.nytimes.com/2008/12/19/business/19ponzi.html?em

and Spitzer's family too was swindled by Madoff:

http://www.nytimes.com/2008/12/19/business/19spitzer.html?_r=1&partner=rss&emc=rss

Duke Energy Natural Gas Rates Should Plunge!

Since Duke Energy buys most on the spot market, Cincinnati natural gas rates should plunge for bills to be received in January, February, March and April (being usage months of December, January, February and March).

So we should go from a low of $1.17 this month to, say, an even lower $1.07 for the rest of the winter. That's an additional "Christmas present" of $.10/ccf for the rest of the winter, say 1200 ccf for an average 3200 sq ft Victorian home, or $120.

As earlier blogs spell out, for such a home you can take the heating degree days for a given day, today's being 33, and divide by 3, and that's about your cost today for natural gas, natural gas being "close" to $1.00 per ccf.

So today, for each of two equal houses, the cost is $11 per house.

Natural Gas Closes at $5.742 Yesterday

http://www.wtrg.com/daily/gasprice.html

Editor's Selection re Krugman and the Nuclear Option Against Derivatives

The Nuclear Option:The president will have to assume FDR-like powers to solve the derivative collapse.He should talk to all the leaders of all the nations in the world whose banks have derivatives. Then, collectively, they should declare all derivatives placed outside of legally regulated markets (90% of them) null and void. These "bets" - worth $180 trillion according the U.S. Office of the Comptroller of the Currency in America alone, and over half a QUADRILLION worldwide - could not have been made in regulated markets, because the players had insufficient collateral.If the parties object to the elimination of their derivative bets, they should be reminded of the penalty for fraud; it is inconceivable they did not know they were establishing positions far beyond their ability to repay.For every buyer there is a seller, so the amounts lost would zero out and no party would gain an advantage. We would just get to reset the clock. This is as fair as things can be made, given where we are.What is causing the panic in the markets right now is the realization that the losers have insufficient money to pay the winners. The domino effect of multiple collapses cannot be stemmed by any government, even by running the printing press overtime. The only solution is to wipe the underlying derivatives off the books and ensure these bets are never made again by creating laws to send those who make them in the future to jail.
— Scott Baker, New York City

The Anti-Energy Speculators' Bill In Congress

Anti-Energy Speculation Bill Stirs Fear
new_york_times:http://www.nytimes.com/2008/07/18/washington/18speculate.html

By DIANA B. HENRIQUES
Published: July 18, 2008
Financial industry executives are mustering on Capitol Hill to head off a Congressional effort to rewrite the rules for the nation’s energy markets, saying it could unsettle already nervous markets and push more energy trading abroad, beyond the reach of domestic regulators.
The primary focus of Wall Street’s concern is a bill entitled the Stop Excessive Energy Speculation Act of 2008, introduced on Tuesday by a group of Democratic senators led by Harry Reid of Nevada, the majority leader.
The bill would substantially broaden federal regulators’ authority over the vast marketplace for privately negotiated derivatives, called swaps. It also would limit the stakes that speculators and other noncommercial energy traders could take, both in private transactions and in the public futures markets, which allow oil producers and users to hedge their price risks.
And it would require regulators to distinguish between “legitimate” and “nonlegitimate” hedging transactions and subject the latter to increased scrutiny and tighter market limits.
Since the bill’s introduction, lobbyists for the futures industry and other institutional interests in the energy markets have significantly bolstered their efforts in Washington.
But their concerns are colliding with the determination of lawmakers, who have held more than 40 hearings on “excessive speculation” this year, to take some legislative action to address the economic pain being inflicted on consumers by soaring oil and gas prices.
“This issue is so serious,” said Gregory Zerzan, counsel and head of global public policy for the International Swaps and Derivatives Association, “that the senior businesspeople on Wall Street are weighing in to make sure that Congress is fully aware of the potential economic consequences of going too far.”
Supporters of the Reid bill say it will address the runaway speculation they blame for as much as 30 percent of the price of crude oil, which fell Thursday for the third consecutive day to about $129 a barrel. It would also substantially increase staff levels at the Commodity Futures Trading Commission, which regulates these markets.
“Right now, Wall Street traders can raise oil and gas prices simply by logging onto their computers and executing a few trades,” Mr. Reid said at a news conference Thursday.
“We’re not saying that all speculation is bad,” he added. “But without proper market oversight, speculation has gotten out of hand, and that is one reason for record gas prices.”
Privately, both lawmakers and lobbyists agree that the bill is one piece in a complicated Congressional chess game involving offshore drilling, the nation’s federally owned oil reserves and the November election.
A bill supported by Senate Republicans, led by Mitch McConnell of Kentucky, would also increase funds for regulators and require them to gather more information about trading activity.
But it focuses primarily on promoting deep-sea exploration and drilling, oil shale exploration and electric vehicle research.
“No reputable economist thinks speculators alone are the reason for the spike in gas prices,” Mr. McConnell said Thursday.
A focus in Congressional hearings on oil market speculation is the sharp increase in the amount of money that pension funds, endowments and other institutional investors have steered into the commodity markets.
Some of that money — hundreds of billions of dollars, by some estimates — has poured in through trades designed to hedge the obligations of funds that track popular commodity indexes.
That is a form of trading that some critics say should be banished from the commodity futures market entirely. The Reid bill does not do that, but does require that such index-hedging trades be subject to tighter speculative limits.
The difficulties of distinguishing among financial and commercial hedgers would be enormous, several critics of the legislation said. A farmer trying to hedge against a fertilizer price increase, for example, may rely on a natural gas futures contract — but, under these rules, he would be considered a speculator.
And so would the financial institutions trying to facilitate his trading, either on public exchanges or through private transactions in the “over the counter” swaps market.
In an open letter to Congress Thursday, Robert G. Pickel, chief executive of the swaps industry’s trade association, argued that the Reid proposal “could actually make things far worse” for consumers by impairing the effectiveness of the hedging markets.
Of concern to the swaps dealers, Mr. Pickel noted, is a provision in the bill that would allow commodity regulators to order companies to liquidate their swaps transactions if it concludes that a major market disturbance has occurred.
In effect, he said, this would require companies “to break their privately negotiated risk management contracts,” even if the swap complied with trading limits that were in place when it was originally negotiated.
The Futures Industry Association, which represents futures brokers and derivatives exchanges in more than 20 countries, has also expressed its opposition to the bill, saying it “would amount to liquidity-robbing, regulatory overkill.”
The bill also would limit the ability of investors in the United States to trade directly on foreign futures exchanges. Supporters say that most of those provisions codify information-sharing arrangements that regulators have already negotiated with their foreign counterparts. But some exchange officials have warned that foreign countries could retaliate by limiting the international expansion of exchanges based in the United States.
Professor James Angel at Georgetown, a financial markets specialist who testified at one of the many hearings examining the energy markets, had a more temperate view of the Reid bill.
“It’s a not-too-bad response,” he said, noting that it gives regulators enough discretion to avoid some of the most devastating consequences. “How it is implemented will be the test.”
According to several legislative aides, no vote is likely on the legislation until Tuesday, giving ample time for negotiation across the aisle and with sponsors of similar proposals in the House.
A speedy conclusion to the debate would be welcome in the markets, some commodity analysts said. Researchers at Barclays Capital, in their weekly oil market review, complained that “lawmakers are no longer largely neutral bystanders to the oil market but have instead become a source of uncertainty.”

Hot Off The Natural Gas Press