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As activist investing in the oil and gas industry metamorphoses from a growing trend into a situation that is starting the rule the day, investors and industry experts alike are starting to wonder whether this is really beneficial for shareholders—and for the American economy in general.
What is an Activist Investor?
Activist investors—also often referred to as “activist shareholders” or “dissident shareholders”—are typically individuals or groups, such as hedge funds, that attempt to fundamentally change a company by acquiring large shares to obtain seats on the board and forcing emergency general meetings (EGMs) to take over a company and remove its management to this end.
This is a phenomenon that has gained momentum in recent years, and which can be particularly prominent in times of oil and gas market crisis and price slumps. The year 2013 was dubbed by many as the year of the activist investor, and indeed, that year saw more than 200 activist campaigns across business sectors.
The shale oil and gas boom and the hydraulic fracturing revolution created a great deal of market turbulence, which was compounded with the dramatic drop in oil prices that began in third and fourth quarter of 2014. The activist investor has emerged out of these new oil and gas realities as a very prominent force pushing shareholders to go to great effort themselves to ensure higher returns.
The trend began in the 1980s. They were called ‘corporate raiders’. Since then, and particularly since 2013, activist investors have begun to win approval from large institutional shareholders.
The first sentence of the 1957 Treaty of Rome – the founding document of what would eventually become the European Union – calls for “an ever-closer union among the peoples of Europe.” Recently, however, that ideal has come under threat, undermined by its own political elite, which adopted a common currency while entirely neglecting the underlying fault lines.
Today, those cracks have been exposed – and widened – by the seemingly never-ending Greek crisis. And nowhere are they more evident than in Greece’s relationship with the International Monetary Fund.
When the euro crisis erupted in 2010, European officials realized that they lacked the necessary expertise to manage the threat of sovereign defaults and the potential breakup of the monetary union. For EU officials, avoiding the eurozone’s collapse became the top political imperative, so they turned to the IMF for help. The irregularities in the Fund’s resulting intervention attest to how serious the eurozone’s problems were – and continue to be.
For starters, the IMF’s Articles of Agreement require it to interact only with entities that are fully accountable for the help received: a member country’s “treasury, central bank, stabilization fund, or other similar fiscal agency.” But the institutions with which the IMF is dealing in the eurozone are no longer responsible for their country’s macroeconomic management; that power lies with the European Central Bank. In lending to Greece, it is as if the Fund had lent to a sub-national unit, such as a provincial or city government, without insisting on repayment guarantees from the national authorities.
Another problem is the sheer magnitude of the Fund’s intervention. The size of the Greek debt necessitated lending on a scale far exceeding what other countries could expect. The “exceptional access” to IMF resources granted to Greece in 2010 was set at a “cumulative limit of 600%” of the country’s IMF quota, a measure of a country’s financial commitment to the IMF. Instead, in April 2013, cumulative financing was programmed to peak at 3,212% of Greece’s quota.
To review briefly, this week’s chart shows a comparison between the 2-year Treasury Note yield and the target rate for Fed Funds, which is set by the FOMC. The NY Fed is then tasked with adding or withdrawing money available to loan to eligible depository institutions so that the “effective” rate of such loans is close to the target set by the FOMC. Read more about that process here.
If the NY Fed overdoes it, that can result in more money than the depository institutions are seeking to borrow at the target rate, and that itself can be stimulative. But so can having a target rate that is lower than it ought to be for the market conditions, which is the subject of this week’s article.
What we have learned from years of looking at this is that if the Fed would just set the target rate at the level of the 2-year T-Note yield, things would go a lot better. We would have a lot fewer bubbles and crashes, and the ones we do see would be a lot less severe. It is when we see the target rate set way above the 2-year T-Note yield that we get bear markets and recessions.
And it is conditions like we see now, with the Fed Funds target rate below the 2-year T-Note yield, that are tremendously stimulative to the stock market. Some would say it is over-stimulative.
globaleconomicanalysis.blogspot.com / Mike “Mish” Shedlock / Friday, February 27, 2015 1:42 PM
In the wake of existing home sales reports on Monday, and new home sales yesterday, GDP and residential investment forecasts came tumbling down.
Check out the latest “GDP Nowcast” from the Atlanta Fed.
“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 1.7 percent on February 26, down from 1.9 percent on February 18. The first-quarter nowcast for real residential investment growth fell from 11.1 percent to 2.3 percent following Monday’s existing-home sales release from the National Association of Realtors and yesterday morning’s releases on sales and construction costs of single-family homes by the U.S. Census Bureau.”
With production and inventories at record levels despite the total collapse in rig counts, all eyes remain on Bake rHughes data for any signal the algos can use to mount a run. The total rig count fell for the 12th week, down 43 to 1267. This 3.3% decline is the slowest drop in 6 weeks and oil prices are sliding on this news. The key level to watch for WTI is $48.24 which moves it into the red for the 8th month in a row.
*U.S. TOTAL RIG COUNT -43 TO 1,267, BAKER HUGHES SAYS
*U.S. OIL RIG COUNT -33 TO 986, BAKER HUGHES SAYS
The pace of decline (and this future possible production) is dropping…
Back in 2013, Botswana was alone among African countries in its vehement rejection of the fraudulent election in Zimbabwe that kept the aging dictator Robert Mugabe in power.
An article in Bulawayo 24 [Bulawayo and Zimbabwe’s online news resource … Ed.] goes on to note that some critics in Botswana believe that the government is not entirely consistent in applying its foreign policy ideals. However, that shouldn’t detract from the fact that it very often finds itself alone in Africa when it is voicing its disapproval of injustice elsewhere on the continent.
“Alone among African countries, Botswana has rejected the results of the Zimbabwean elections. It’s a brave stand, bound to frustrate their neighbors, but not unexpected. Over the last few years, Botswana and its president have shown that they can think and act for themselves. As African countries and institutions fell over themselves to whitewash the results of the Zimbabwean elections, there was a lone dissenter among all the official voices.
In what’s becoming a regular occurrence, Botswana found itself out of step with its regional and continental allies – and unafraid to upset the applecart.
Oil. The commodity. We know what it’s worth – at least we thought we did – but what does a barrel of the black stuff get you in real life? Before we get theoretical, let’s first consider how much oil you use.
If you’re in the United States, that figure is approximately 2.5 gallons of crude oil per day; roughly one barrel every seventeen days; or nearly 22 barrels per year. That’s just your share of U.S. total consumption of course; the true number is harder to discern – minus industrial and non-residential uses, daily consumption drops to about 1.5 gallons per person per day. Subtract the percentage of the population aged 14 and below and the daily consumption climbs back above 2 gallons. This is big picture, and it’s quite variable, so let’s go further.
Most of the nation’s daily crude consumption stems from transportation. If you’re an averagedriver in an average car, your crude consumption is in the order of 12 barrels per year. However, if your car is more than ten years old, chances are that figure is closer to 15 barrels annually. Does an electric car offer significant savings? Of course it does, but for an unconventional comparison let’s assume all of the electricity is sourced from oil – in truth, petroleum is not a very efficient fuel and accounts for just 1 percent of electricity generation in the U.S.. Under this assumption, a Tesla Model S, with an 85 kilowatt-hour (kWh) battery and a range of 260 miles, will consume approximately 8 barrels of crude per year.
Frequent flyer? Say 2,000 miles per year on a U.S. carrier? Add about two-thirds of a barrel of crude to your annual consumption.
Another day, another currency hits a record low against the US Dollar. The Turkish Lira has collapsed in recent weeks since Erdogan rampaged against the ‘independence’ of the Central Bank and extended losses today after the economy minister said the government should discuss changing central bank regulations. Nihat Zeybekci said the Central Bank of Turkey’s independence should be conditional on the body taking “national interest” into account. Turkey continues to dump gold at record rates (money laundering to Iran via Switzerland?) and social unrest is on the rise (despite new laws to clamp down on protests) as the US consulate faces bomb threats.
The movie just played to sold-out venues in Croatia. I did some press interviews there and the tone of the questions is exactly different from the United States. It is sort of we know the US system is corrupt and protects the bankers, but do you feel comfortable being up front about it and are you afraid? This is very interesting take.
I have been asked what will the average person take away from this film. After all, I did not need to do this movie for out clients since they already know the truth behind the curtain. My objective here has been to expose the political-economic system to the average person so they might understand when the economy turns down, who to really blame. We cannot move forward unless we honestly free ourselves from the corruption and manipulation that tries desperately to hide what is going on. This is about the type of world we are leaving behind for our children and as it stands now, we have brought them into a world of economic slavery with the dwindling light of freedom.
thedailysheeple.com / Joshua Krause / February 27th, 2015
Well, tax season is officially in here, as Americans of all walks of life scramble to get their extortion papers tax returns in order before April 15th. Although, I’m not really sure why they call it “tax season.” That makes it sound like you could draw a comparison to something like the “holiday season.” I guess there are some similarities. You will spend months stressing over your finances, as you struggle to figure out how you’re going spend all your money on stuff you don’t need, but I digress.
The audit rate, the percentage of individuals’ tax returns IRS revenue agents examined either in person or via correspondence, fell to 0.86% last year, the data show. That represents the lowest rate since at least fiscal year 2005.
After rising steadily from 2005-10, the number of IRS audits for individual taxpayers fell 21.4% during the succeeding five years, the data show.
The IRS audited slightly more than 1.2 million individuals last year, down more than 162,000 from 2013, and a drop of nearly 339,000 from 2010.
Audits fell in virtually every individual category and across income levels, even as the number of individual tax returns filed rose in all but two of the past nine years, the data show.
As the finances of Venezuela continue to deteriorate under the collapse of crude oil prices, the government of President Nicolas Maduro is becoming more paranoid and vindictive.
Venezuela derives the vast majority of its export earnings from sending oil overseas. With the largestendowment of crude oil reserves in the world, the oil-driven economy worked well for the late Hugo Chavez: he provided generous support for the poor, and built allies in the western hemisphere by dispensing cash and cheap oil in exchange for political allegiance.
But state-owned PDVSA has struggled to keep production up. Rather than using its earnings to develop more fields, much of its earnings have been diverted for political and social projects. Chavez also purgedPDVSA of thousands of experienced workers, leaving the company short of well-trained staff.
Chavez could paper over the decay of PDVSA’s production base because oil prices were so high in his final years. And for the first year or so of Maduro’s tenure, while the economy began showing worse signs of stress, he too didn’t feel any urgency to solve PDVSA’s problems.
However, the utter bust in oil markets pulled the rug out from beneath the Venezuelan economy. Inflation is running at an annual rate of 68 percent. Shortages of food and medical supplies are common. Shoppers at grocery stores need to submit finger prints to ensure they are not purchasing more than their allotted amount of basic goods. A confusing set of varying exchange rates and currency controls are doing very little to slow capital flight.
Maduro is cracking down on political opponents as the country deals with the economic crisis.Antonio Ledezma, the Mayor of Caracas, was arrested on February 20 on charges of conspiracy and working with the U.S. to stage a coup, touching off a wave of protest. Last year, in the wake of the unprecedented riots facing the “Bolivarian” regime, Leopoldo Lopez was also tossed in jail. Dozens of other perceived political enemies remain locked up. A teenager was shot and killed at an anti-government rally on February 24. Maduro’s government was quick to blame the police officer – as if security forces have not been encouraged from above to take a hard line with opposition protests over the last few years.
The story of bloodletting is intertwined in the mysterious fabric of medical lore; it originated from magic and religious ceremonies. The physician and priest were one and the same since disease was thought to be caused by supernatural causes. Witch doctors and sorcerers were called on to drive out the evil spirits and demons. Bloodletting was a method for cleansing the body of ill-defined impurities and excess fluid. The early instruments included thorns, pointed sticks and bones, sharp pieces of flint or shell, and even sharply pointed shark’s teeth. Miniature bow and arrow devices for bloodletting have been found in South America and New Guinea. A small bloodletting instrument resembling a crossbow was once used in Greece and Malta. Wall paintings dating from 1400 B.C. depict the use of leeches for drawing blood from human beings.
On a conference call today to discuss the mortgage-investment firm’s earnings, the chief executive officer talked about “blood-letting,” a “popular prescription for many ills” until the late 1800s, and the similarly abandoned view that life could be created by spontaneous generation to explain her “healthy dose of concern” over the potential results of all the stimulus.
“My hope is that as policy makers of the world continue to prescribe their remedies for the ailing economic patient, that they do not render it worse off,” she said. “As with their predecessors, I suspect there is no doubt in the minds of our central bankers that they are the smartest they’ve ever been. Yet, I fear they are not the smartest they will ever be.”
Note from dshort: The NYSE has released new data for margin debt, now available through January. I’ve updated the charts in this commentary to include the latest numbers.
The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let’s examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.
The first chart shows the two series in real terms — adjusted for inflation to today’s dollar using the Consumer Price Index as the deflator. I picked 1995 as an arbitrary start date. We were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak.
Debt hit a trough in February 2009, a month before the March market bottom. It then began another major cycle of increase. Margin debt hit an all-time high in February of this year.
The Latest Margin Data
Unfortunately, the NYSE margin debt data is a month old when it is published. Real (inflation-adjusted) debt hit its all-time high in February 2014, after which it margin declined sharply for two months, but by June it had risen to a level about two percent below its high and then oscillated in a relatively narrow range. The latest data point for January is four percent off its real high eleven month ago.
As the rest of the world appears happy to assume everything is fixed in Europe (and if it’s not, Draghi will buy it back to being awesome), Greece is looking unwell once again. Initial exuberance has faded dramatically in the last 3 days as IMF default warnings and a 22.5% plunge in tax revenues has sparked concerns about Greece’s sustainability once again. Default (or restructuring) risk is soaring, Greek bond yields are surging, stocks sliding, and Greek banks (bonds and stocks) are getting hammered. As The Guardian’s Helena Smith notes, “the country is in a strategic vacuum,” and next week’s T-Bill auction could be a major catalyst.
With the Dow near 18,200, crude oil still below $50 and gold on the move, today a legend in the business sent King World News a powerful piece warning about one of the greatest threats to the world that would violently impact every major market and individual around the globe.
From Art Cashin’s notes: “Stagnant Reserves – In his most recent “Thoughts From The Frontline”, my good friend, John Mauldin, touches on the anomaly that has frustrated the Fed in trying to get the economy kicking in. It is the velocity of money – or, more correctly, the non-velocity of money in today’s economy. Here’s a bit from John’s note:
Yet the US monetary base has expanded significantly, and there has been no real increase in inflation, and the dollar is actually getting stronger. “So what’s the problem?” Mr. Krugman asks. Inflation is brought about by not just an expansion of the monetary base but also by a stable, concurrent rise in the velocity of money.
It’s complicated, I admit. I have devoted more than a few letters to the concept of the velocity of money. The current period of low inflation has been caused by a rather dramatic fall, over the last eight to ten years, in the velocity of money. As I predicted almost five years ago, the Federal Reserve was able to print far more money than anyone could imagine without the threat of inflation rearing its head.
Iran, unlike Iraq, has not been under sanctions for decades. Meaning it has been able to develop a modern military fighting force.
The combat robot was tested during recent military drills being undertaken by the Iranians. The robot is equipped with a 7.62mm Machine Gun, thermal cameras and has an operational radius of 5-7km. Any attempted attack on Iran will definitely not be a walk in the park.
While they are a little way off from The Terminator, these technologies definitely path the way towards such an idea. See the Iranian robot in action below:
# In which points did Greek delegation change its position?
Last night Eurogroup saw significant changes to the Greek Government position vis-a-vis the current bailout. Firstly, the Government has now abandoned its elections promises to achieve a debt write down and end the agreement with the Troika. Instead, the old agreement has been extended until the end of June on the basis of Greece committing to full implementation of the original Master Financial Assistance Facility Agreement (MFAFA) and, thus, Memorandum of Understanding (MOU). The dreaded austerity programme remains in place, despite the Greek Government claims to the contrary. The dreaded Troika is still there, now referenced as Institutions. Secondly, Greece failed to secure control over banks recapitalisation funding. A major point of Government plans was to use of some of these funds for the purpose of funding public investment and/or debt redemptions. This is no longer an option under the new bridging Agreement. Thirdly, the Greek Government failed to secure any concessions on the future programme. The Eurogropup conceded to allow the Greece to present its proposals for the future pos-MOU agreement, but any proposals will have to be with the parameters established by the current programme.
I’m often astonished by facts that are discoverable but that almost no one knows. Today’s subject is one of them. You would think that such an essential part of our lives would be something that children learned. You’d at least think they’d understand it by the time they were in their teens.
The crazy thing about this subject—where dollars come from—is that most trained economists have no idea. How could there be so very much ignorance on such an essential subject?
But like I say, I regularly find this kind of ignorance. In fact, that is precisely what’s kept me busy with my subscription letter. I’m 56 issues in (number 57 comes out next week), with no end in sight, writing about shockingly important facts that we were never taught.
“That Couldn’t Possibly Be True”: The Startling Truth About the US Dollar
For years I had heard people talking about “the fraud of the Federal Reserve.” But I was busy trying to survive and the dollars I was paid with bought food at the grocery store, so I didn’t give those reports a great deal of attention.
The more I began to study economics, however, the more I understood that this was an essential issue: that if I didn’t understand the foundation, I’d never really understand what was built upon it. So, little by little, I began to pay attention to the question, “Where do dollars come from?”
One of my first discoveries was that almost no one knew anything about this. Shocking though it may seem, they don’t teach this in general economics programs. I’ve had econ grads from well-respected programs come to me and say, “I’m kind of embarrassed to ask, but they never taught it to us in school: Where do dollars come from?”
US Q4 growth revised lower, 0% looms later this year
Europe has consistently beaten the US as regards expectations
Neither EU nor EM have the heft to compensate when US growth fades
Let’s kick off with some data – US Q4 revisions are out today and showed a slowdown from 2.6% to 2.2%.
This makes Q3 (2014) the peak in this cycle and I expect QoQ growth in the US will hit zeroby Q3 or Q4. There are several factors for this including rising real rates, mal-investment into energy but most importantly – falling earnings in the US.
Societe General – Global Quantative Research has published an excellent report titled “Global Earnings Estimate Analysis – Is the US heading back into recession?”.
I have borrowed the main chart – which shows how the six month change in 12-month earnings per share coincide with US GDP – not pretty and definitely not what Janet Yellen and Wall Street promised me less than two months ago.
When the US was justifying the removal of the leaders of Iraq and Libya, they said they were dictators there for 30 years+. I asked, how many Senators were in Washington for 30 years+? It never changes.
"Beware ye of the leaven of the Pharisees, which is hypocrisy. 2 For there is nothing covered, that shall not be revealed; neither hid, that shall not be known. 3 Therefore whatsoever ye have spoken in darkness shall be heard in the light; and that which ye have spoken in the ear in closets shall be proclaimed upon the housetops." - Jesus Christ, Luke 12, King James Bible