Thursday, July 31, 2008

What Would Warren Say?


Postquake Critic Stifled
Online School Photos Bring a Chinese Man A Year in Labor Camp
By GORDON FAIRCLOUGH


July 31, 2008

SHANGHAI -- A man who posted pictures on the Internet of schools that collapsed in May's massive earthquake in southwest China has been sent to a labor camp for a year, a human-rights group said, as Chinese authorities move to stifle allegations that shoddy construction exacerbated the disaster's death toll.
—The Wall Street Journal


Aside from the five hours Warren Buffett and Charlie Munger spend answering any and all questions from shareholders around the world, the most remarkable aspect of Warren Buffett’s “Woodstock for Capitalists”—as the Berkshire Hathaway annual meeting is known—has to be the fact that very few shareholders ask questions about Berkshire’s actual businesses.

Instead, they ask what Buffett thinks of the stock market, the economy, healthcare, global warming. They ask how Buffett takes care of himself, what books he reads, who his biggest influence was, and whether he has a relationship with Jesus Christ.

To a non-Berkshire shareholder, it might seem Berkshire shareholders spend their days wondering “What Would Warren Say?”

For his part, and to his great credit, Buffett answers everybody straight on—even the question about Jesus Christ. And while he never exactly dodges anything, he does a masterful job deflecting issues that would certainly cause a ruckus in any other shareholder meeting.

One case in point is his handling of a question at this year's meeting about whether he had considered asking Coke, of which Berkshire is a major shareholder and Buffett a former board member, to withdraw sponsorship from the Beijing Olympics.

“I think it’s a mistake deciding which country should be allowed and which country shouldn’t be allowed,” Buffett told shareholders, to applause. “We didn’t let women vote in the US until the 1920s and I would say that was a great human rights violation, and I would have hated to see the US banned from the Olympics prior to 1920.”

Buffett's answer was politically correct and wonderfully so; but it was an answer to a question that hadn't been asked.

The question was not whether China should be “allowed” to participate in the Olympic Games. The question was whether Buffett would send a message to the Chinese government by requesting that Coke withdraw sponsorship of the games.

Such a request would be nothing more than an expression of Warren Buffett’s own conscience, which is hardly a remarkable thing for anybody with his ways and means, and even less remarkable for Warren Buffett.

After all, the world’s richest human being has been expressing his conscience for years, by writing op-ed pieces excoriating U.S. fiscal policy, appearing with Tom Brokaw to plead for economic “fairness,” and testifying before Congress to keep the inheritance tax so that the "lucky sperm club," as he calls the super-rich, pay their share. Buffett shies away from nothing—even the most hot-button social issue in the world: abortion.

But he does shy away from talking about China, and for a reason.

Warren Buffett has a large following in China. His unparalleled investment track record, respect for family-run businesses, and long-term time horizon make him a hero in that country. And Buffett is taking advantage of that hero-worship by spreading Berkshire's message of being the place to sell your family company, because he correctly recognizes that China and the rest of the new industrial powers are key to the future of his company.

So Warren Buffett is not about to throw away that goodwill by getting into a spat on an issue that would otherwise appear to be dear to his heart: human rights.

Still, we wondered while reading the rest of The Wall Street Journal’s chilling account of the stifling of the “postquake critic”: What Would Warren Say?

The man, a local school employee named Liu Shaokun, was detained in late June for allegedly "seriously disturbing social order" and disrupting post-quake reconstruction efforts, according to a report in a local government-run newspaper.

Human Rights in China, a New York-based advocacy group, said Mr. Liu's wife was told last week that he must undergo a year of "re-education through labor." Chinese authorities can detain people for such "re-education" for as long as four years without formal charges or a trial.


What would Warren say? Nothing, probably.


Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Monday, July 28, 2008

Banks Not Lending? Blame the Shorts!


Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

So says today’s New York Times, and they back it up with some pretty gory detail.

Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.

But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.

“The exact words were, ‘We’re saying no to almost everybody,’ ” Mr. Greenblatt recalled.

Mr. Greenblatt might want to consider doing what most public company CEOs are doing these days: asking the authorities to crack down on short-sellers.

That seems to be the most common response to the continued fallout of the sub-prime mortgage debacle which—if our memory serves—was not instigated by short-sellers, encouraged by short-sellers, or in any way facilitated by short-sellers.

No matter: CEOs today have learned a thing or two about pointing fingers from a Congress that recently invented a reason for high oil prices that had nothing to do with actual supply and demand considerations: blaming Wall Street.

Too bad for Mr. Greenblatt—and the rest of the country—that bankers at Wachovia and elsewhere weren't saying no instead of yes “to almost everybody” back in 2005 and 2006, when the sub-prime crisis was really ramping up.

If they had, of course, those same bankers could be saying “yes” to Mr. Greenblatt, and everyone else who needs credit, right now.

Ah, what the heck. Let’s blame the shorts instead of the bankers.




Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Friday, July 25, 2008

The Most Amusing Headline You Will Read This Week



The most amusing headline we here at NotMakingThisUp think you will read this week is contained in today’s Wall Street Journal.

Granted, there aren’t all that many amusing headlines these days, what with the housing crisis, the credit crisis and the energy crisis all dominating the headlines, while Congress gears up to pass the Stop Excessive Energy Speculation And Help Us Get Re-elected Act of 2008.

In case you haven’t been paying attention to this last item, sheep who dress like men and woman and vote on things without actually accomplishing anything have suddenly decided that Something Must Be Done to stop the rising price of oil—so long as it doesn’t inconvenience the U.S. Auto Industry and the American Consumer.

And so they are going to put a stop to energy “speculation” at precisely the moment when declining demand for hydrocarbons around the world is looking to make it too late to matter.

In any event, the headline we think you’ll enjoy is found on page B7 of our Wall Street Journal, above a story written by Robert A. Guth and Jessica E. Vascellaro.

And it is this:

Microsoft Makes Case for Online Push

The sub-headline is almost as amusing:

Ballmer Plans to Bulk Up Technology, Marketing And Pursue Acquisitions

The article itself, however, is more disturbing than amusing:

Mr. Ballmer's comments came at Microsoft's annual meeting with analysts at its headquarters in Redmond, Wash. He and other executives devoted much of the meeting to addressing investor concerns about Microsoft's Internet business. Central to his strategy, Mr. Ballmer said, will be boosting spending on online-related technologies and marketing, and on buying other companies.

“We’re going to have to ante up in a significant way to even be in this game,” Mr. Ballmer said.


So what have they been doing with their $2-billion-a-month operating system monopoly money for the last decade?

If Steve Ballmer, the voluble, hard-charging CEO who helped turn Microsoft into the monopoly power it became, weren’t as smart as he is and as rich as he is, we’d swear he’s somehow turned into the “Pointy-Haired Boss” from Dilbert.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Wednesday, July 23, 2008

How We Know Oil is Going Down


After carefully reviewing the current status of supply and demand for crude oil, thoughtful minds might reasonably conclude that the price of crude oil has peaked.

For starters, airlines are going bankrupt left and right, and the level of route reductions the industry is taking in response to the crisis is even larger than what they did following 9/11.

So we know jet fuel demand is headed down.

Meanwhile, the American auto buyer, after years of coddling by an oil-friendly and global-warming-denying administration, not to mention a U.S. Congress full of fools trying to protect the Big Three auto makers from their own bad decision to base their business on making expensive trucks and SUVs instead of low-cost, fuel-efficient cars, has more or less thrown in the towel on trucks and SUVs.

So we know gasoline demand, at least in the U.S., is declining.

Overseas, governments in India, China, Thailand and Indonesia are reducing subsidies for many types of fuel—so demand in developing nations might just be leveling off.

All of which suggests that the old, immutable laws of supply and demand are still in effect, and the price of oil is headed lower.

But the reason we really know the price of oil is heading down has nothing to do with anything like a sober, reasoned analysis.

The reason we know oil is headed down is the comic page.

Specifically, a comic strip called “Wizard” that appeared yesterday in a local newspaper.


Now, we look at the comics page strictly for Dilbert. But when the phrase “140 bucks a barrel” appears in a cartoon, it catches the eye:

Guy: “The Huns are scaling the north wall.”
King: “Prepare the troops for hand-to-hand combat!”
Guy: “Shouldn’t we dump the boiling oil on them?”
King: “Not at 140 bucks a barrel.”


It may not be quite as good as Time Magazine’s peak-of-the-market cover story on “Why We Love Our Homes” back in the summer of 2005, which we highlighted here at the time as a sure sign the peak of the housing bubble was upon us.

But when Congress is moved to blame the spike in oil on “speculators” in order to cover up their own miserable failings, and a comic strip uses the price of crude oil as a punch line, you know we’re at the end of a cycle.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Monday, July 21, 2008

Ladies and Gentlemen, Start Your Acquisitions



The world is coming to an end. We know that already.

But for a world that is coming to an end, a lot of companies are doing remarkably well. The current crop of earnings reports has been nowhere near as bad as many Wall Street observers—us included—might have expected.

Now, we’re not talking about the financials here. That group’s earnings have been pretty much as bad as anybody dreamed in their worst nightmare…despite the fact that Citibank’s $2.5 billion loss was somehow deemed “better than expected.”

It’s the IBMs of the world that have managed to continue to rack up sales and earnings despite the fairly hefty turmoil in the credit markets.

Yes, things might get worse. Costs are rising, sales are harder to come by, and credit remains tight.

But that’s how a business cycle weeds out the second-stringers from the starting lineup. Look at how many third-rate retailers are filing Chapter 11 these days—with Mervyns apparently now on the brink.

The weak are dying, the strong will survive.

And those that have shown they can manage through at least the first half of a credit crisis, it seems to us, are probably looking ahead to the end of the crisis. In particular, we’d bet they’re gearing up to make a deal.

Many deals.

After all, what better time to buy than now, when the credit market for private equity is more or less shut down and players like Apollo Group, which couldn’t pay enough for Huntsman back when money was free, now can’t back out of deals fast enough?

While we here at NotMakingThisUp never comment on the merits of individual stocks, we’d look for good franchises at cheap prices that just might get the attention of a bigger player looking to expand while the expanding is good.

Dow’s recent jaw-dropping bid for Rohm and Haas is, we expect, not the last of its type.





Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Thursday, July 17, 2008

We Told You So: “Naked Shorting” Unveiled!


Street Gears Up for Short Changes
Brokerages Parse New Rules' Details; The 'Naked' No-No

The Federal crackdown on short selling is causing a scramble on Wall Street, with brokerage firms racing to implement new controls before the rules take effect on Monday.

The unprecedented get-tough action by the Securities and Exchange Commission means that securities firms will have to fine-tune their back-office operations to comply with the requirements.

The biggest potential headache: Existing rules allow brokers to sell stock short as long as they reasonably believe they can locate the shares and deliver them on time [emphasis added].

—The Wall Street Journal


Well, we told you so.

Thanks to the SEC’s move to restrict “naked short-selling” in a handful of financial stocks, we now know that the problem is not that hedge funds deliberately short stocks without properly borrowing them—the main charge of at least one CEO looking for a scapegoat to draw investor attention away from his own performance.

It resides with the brokers themselves.

Let's re-read that last sentence from the excerpt quoted above:

The biggest potential headache: Existing rules allow brokers to sell stock short as long as they reasonably believe they can locate the shares and deliver them on time.

Now, several years ago we here at NotMakingThisUp laid out how every hedge fund we’ve ever known goes about shorting a stock: they ask their broker for a "locate." If the broker says the shares are located, the hedge fund borrows the shares and shorts them. If shares can't be located, the hedge fund doesn't sell them.

No borrow, no short-sale.

We described the process in response to a bizarre earnings call in which the CEO of the company hosting the call pretended not to know one of the questioners. The CEO did this in order to allow the questioner to describe a supposedly vast conspiracy against the company on the part of hedge funds selling the company's stock without borrowing it.

For our efforts to set the record straight, we received a number of vituperative comments from fans of the CEO, nearly all overwhelmingly irrational, paranoid and ignorant of the facts of the case.

It was as if we had suggested that Area 51 was not the underground meeting place of government officials and extra-terrestrials, or a lab for time-travel experiments, or the headquarters of the One-World organization known as the Majestic Twelve, but merely a top-secret military base.

Thanks to the SEC's move to limit the so-called "naked no-no," however, we now know that the brokers themselves have been giving "locates" without always actually locating the stock.

Looks like we weren’t making it up after all.

Oh, and Area 51 really is just a top-secret military base. Sorry about that.



Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.



Tuesday, July 15, 2008

No Speech: The New Free Speech


Thomas Jefferson would blush, or at least roll over in his grave.

Seems the authorities are shifting the responsibility for individual actions from corporate CEOs and their Boards of Directors squarely where it belongs: rumor-mongering traders.


So much of this blame-shifting is going on that even a loud-mouthed U.S. Senator is being blamed for the collapse of a lending institution rather than the incompetents who ran the lending institution.

In light of all this blame-shifting, we here at NotMakingThisUp thought it worth reminding readers of something the Powers That Be appear to have entirely forgotten about.

But before we get to that, we first want to tell the story of Eddie the Real Estate Broker.

In these parts of down county Vermont (not the actual state), Eddie (not his real name) is The Guy to go to when it comes to real estate. And Eddie recently told us about a “short-sale” he helped out on for a client.

A “short-sale” in real estate involves property worth less than the loan balance. Rather than foreclose on the property, the bank holding the mortgage agrees to take whatever it can get by selling the property in satisfaction of the loan balance.

The bank eats the difference between the actual sale proceeds and the loan balance.

These “short-sales” are happening more frequently nowadays, thanks in large part to the massive amounts of home equity loans that homeowners applied for, and banks agreeably provided, in recent years.

In this particular case, Eddie’s buyer paid $500,000 (not the real number) for the house and later got the thing reappraised at $750,000 (not the real number, but, yes, it was a 50% increase in the appraised value) for a home equity loan.

Eddie’s buyer twisted no arms to get the higher appraisal: the bank in question, which shall remain nameless, did what Eddie called a “drive-by” appraisal. According to Eddie, the place was never worth more than $500,000, and if the bank had bothered to stop and look around, they would have figured it out.

So the buyer is losing his house, and the bank is eating a good fat number on their loan.

Now, why do we here at NotMakingThisUp tell the story of Eddie the Real Estate Broker and the Short-Sale?

Because it is the story of this real estate cycle.

It was a cycle driven, as all cycles are driven, by human greed on each side of the transaction. On the one side was a guy who bought the house and got it reappraised so he could borrow more money against the house strictly so he could buy more stuff.

On the other side was a bank that willingly and eagerly loaned him the money on the basis of a “drive-by” appraisal, not because it was a good long-term thing to do, but so the bank could show higher short-term earnings.

But, as it turns out, the authorities wish it known that the problem at Fannie Mae was not Franklin Raines’ management of the company; and the problem at IndyMac was not that it led the field in “Alt-A” mortgages; and the problem at the bank here in Vermont was not drive-by appraisals.

It was, we now know, rumor-mongering traders and loud-mouthed U.S. Senators.

Which is why we say, “No Speech is the New Free Speech,” and offer this reprinting of the first article of the Bill of Rights as a public service:


Bill of Rights
Amendment I

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.



Last we knew, that First Amendment wasn't a rumor.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Friday, July 11, 2008

Airline CEO Takes Full Responsibility for Poor Judgment...Kidding!


Help Fight America's Oil Crisis

That’s the headline of an email we recently received from the folks at Northwest Airlines.

In fact, it was signed by the CEO of Northwest, Douglas Steenland, so we knew it must be important.

Steenland has been CEO of Northwest since October 2004. Keep that date in mind as you read what he is telling his customers how to “fight” the oil crisis:


Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now. Visit www.StopOilSpeculationNow.com.

That’s right.

He's not writing about conservation, about how to make our travel plans more efficient, about how we can help Northwest reduce oil demand.

He's writing about so-called speculators.

Steenland elaborates with remarkably little in the way of actual advice for reducing demand and increasing supply, and much in the way of mindless angst directed at so-called “market speculation”:

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers.

Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Remember what I said about Mr. Steenland being named CEO of Northwest in October, 2004? Northwest Airlines did not start hedging its jet fuel needs until 2008.

That’s right.

Unlike, say, Southwest, which hedged most of its jet fuel needs when prices were low, Northwest didn’t bother until oil had spiked to $100 a barrel.

Now, to be fair, Northwest couldn’t hedge without a bankruptcy court approval back when it was in bankruptcy. But that was more than 50% ago, in oil price terms.

Of course, when a big corporate CEO like Mr. Steenland makes a gross error of judgment like not hedging his single biggest cost of doing business, he naturally takes full responsibility and ask shareholders and customers for forgiveness.

We’re kidding!

He blames speculators instead:

The nation needs to pull together to reform the oil markets and solve this growing problem. We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.

Northwest emerged from Chapter 11 in May 2007. Northwest equity holders got nothing. Mr. Steenland got a package worth $26.6 million at the time.

Too bad Northwest didn’t use some of that $26.6 million to hedge itself.

I guess the only thing to do now that it's too late to do anything useful is...blame speculators.


Yep, that's the ticket...for an airline that doesn't know much about hedging, anyway.



Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Wednesday, July 09, 2008

T. Boone Pickens, Blowin’ in the Wind


“Wind power is ... clean, it's renewable. It's everything you want. And it's a stable supply of energy,” Pickens told CNN in May. “It's unbelievable that we have not done more with wind.”

—T. Boone Pickens, quoted by CNBC, July 8, 2008



He’s back.

T. Boone Pickens is back and on a TV set near you, touting “The Pickens Plan” to get America off its “dangerous reliance on foreign oil.”


His solution? Boone wants us to use less oil and gas, and more renewable stuff, like wind.

Grey-hairs like us still remember Boone as the man who shook up the oil industry during a fertile and, for many investors, highly profitable stretch in the early-to-mid 1980s, by putting what seemed like every company incorporated in Texas in play and then letting some other company actually buy them.

His own particular company, Mesa Petroleum, ended badly, the victim of collapsing oil prices and a habit of paying most of his profits—and then some—out in dividends. Boone eventually lost control of Mesa, although his dividend-paying habit outlived his tenure. It was, unfortunately, copied by many other companies that are now mightily regretting it.

(For an excellent look back on Pickens in his prime, as well as many other topics worth remembering, pick up ace New York Times columnist Joe Nocera’s recently published “Good Guys and Bad Guys.”)

After losing Mesa, Boone picked himself up, dusted himself off, and started a hedge fund that made billions out of good old fashioned oil and gas speculation. Give him all the credit he deserves: he bought very low, sold very high, and made his fortune back...and more.

But it's still worth remembering that, like all speculators, Boone doesn’t hesitate to ‘talk his book.’ It wasn’t too long ago, after all, that the same T. Boone Pickens who is now talking up wind power was talking it down.


And thanks to a sharp-eyed reader, we will quote the man himself:

“I was in wind energy for a minute…. I hate it. And when I got to looking at those damn things I said, I don't want to be a part of putting that on the horizon. I think it's homely and I don't like it. We took a loss and got out of it and I'm glad I did.”

—T. Boone Pickens, Bloomberg, February 17, 2005



T. Boone is back. What a $100 a barrel move in crude won't do.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Sunday, July 06, 2008

Fings Are Breaking All Over Russia



BP Sues TNK-BP Russia Partners
Action Is to Recover $370 Million Debt; Venture Rift Widens


By GREGORY L. WHITE and GUY CHAZAN
July 5, 2008; Page B6

MOSCOW -- Fighting back amid a deepening rift within its TNK-BP Ltd. joint venture, BP PLC has sued its Russian partners to recover a $370 million debt.

—The Wall Street Journal



Vlad is at it again.

By “Vlad,” we refer to not to Vlad the Impaler—as Vlad III, Prince of Wallachia and reportedly the model for Dracula, was known—but Vladimir Putin, Ex-President of Russia and now its Prime Minister, who does things Vlad the Impaler did, only with slightly less bloodshed.

For his latest energy grab, The Wall Street Journal reports Putin is turning his attention to British Petroleum’s important Russian venture:

Relations between BP and its Russian partners have worsened sharply in recent months, with the Russians charging BP with mismanagement and the British company accusing its partners of trying to take over the 50-50 venture by stealth. The battle is playing out amid widespread expectations that a state-controlled company like OAO Gazprom ultimately is likely to take a stake in TNK-BP.

How important is TNK-BP to British Petroleum? Pretty bloody important: it accounts for one-quarter of BP’s worldwide oil production.

Without it, BP might have to change it's name to “British Somewhat-Less Petroleum.”

We have, however, no doubt the whole thing will be settled amicably—which is to say Vlad will win. Not that we here at NotMakingThisUp are by any means geopolitical experts. It seems obvious that Russian interests tied to Putin’s Kremlin will eventually “acquire” BP’s interest in the same way those interests acquired Shell’s share of the Sakhalin gas project: by force masquerading as commerce.

To get a sense of why today's headlines should have been no surprise to BP, let’s look back at that sorry Sakhalin episode, reported here for precisely the state-sanctioned thuggery that it was, orchestrated by the man whose eyes George Bush claimed to have peered into before famously announcing, “I was able to get a sense of his soul.”

Vladimir Putin, of course, has no soul: what Bush got a sense of was the ham sandwich Putin had eaten for lunch.

___________________________________________________________________
Tuesday, December 12, 2006
Fings Break in Russia, Don't They?
.
Shell May Cede Control of Project To Russia's Gazprom


The “project” to which that headline in today’s Wall Street Journal refers is the Sakhalin-2, part of a 4.5 billion barrel-equivalent sub-Arctic oil and gas development off the coast of the former Soviet Union.

Sakhalin is a large island: look it up on a map and you will see it actually appears to be an extension of the islands which constitute Japan.

And that’s exactly how Japan thought of Sakhalin, too, until the Russians—pay attention here, we are making a point—forced out the Japanese at gunpoint after invading the island on August 11, 1945. Sharp-eyed readers will recognize that date as coming the week after Hiroshima and Nagasaki had been obliterated by atomic bombs.

Old Joe Stalin really knew how to hurt a guy when he was down!


And so, it seems, does Vladimir Putin, today’s Strong Man at the Kremlin, who appears to have successfully muscled his country’s way into majority ownership of a major LNG project now that Shell has done much of the heavy lifting.

Readers may recall that Royal Dutch Shell could certainly use its 55% stake in Sakhalin-2 to replenish so-called “proved” reserves that became distinctly unproven several years ago after it was discovered Shell's engineers had been using Fannie-Mae-like juggling of its oil and gas reserves.

Which is to say, Royal Dutch’s bookkeepers were making them up. Smelling desperation, Putin’s men cleverly used a cost overrun for the Sakhalin-2 project as a device to muscle Shell out.

Like all good citizens with their backs to the wall in a dark alley and no recourse to either a gun or a passing officer, Shell is putting a very good face on the situation:

Shell has proposed ceding a controlling stake in the Sakhalin-2 project in Russia's far east to state-run OAO Gazprom, an official close to the situation said. Another person close to the talks stressed they are continuing and an agreement hasn't been reached…


So this is what it’s come to in a country with the largest untapped reserves of energy in the world: muckraking journalists get shot, anti-Putin KGB veterans get poisoned, and major oil companies like Royal Dutch Shell get squeezed out of large energy projects in the manner of the old Monty Python “Army Protection Racket” bit, in which Luigi and Dino Vercotti pay a visit to a starchy old colonel:

Dino: ‘Ow many tanks you got, colonel?
Colonel: About five hundred altogether.
Luigi: Five hundred! Hey!
Dino: You ought to be careful, colonel.
Colonel: We are careful, extremely careful.
Dino: ‘Cos fings break, don’t they?
Cononel: Break?
Luigi: Well, everything breaks, dunnit colonel?

Fings are breaking in Russia too.


BP might be wishing they paid more attention.


Jeff Matthews
I Am Not Making This Up


© 2006, 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Wednesday, July 02, 2008

The Least Helpful Call You Will Get Today


The least helpful call you will get today is so unhelpful that, young as the day might be, we think there is no chance it will be superseded by anything even less helpful as the morning wears on.

This particularly unhelpful call comes from the alma mater of the proprietor of this blog, Merrill Lynch, and it is a downgrade of General Motors stock, from “Buy” to “Underperform.”


The analyst has also lowered his price target on the stock from, and we are not making this up, $28 to $7. Last trade: $11.75.

The reasoning behind the change is not particularly important. Like Hamlet’s recounting of Claudius’ commission for the killing of Hamlet, these things are always “larded with many several sorts of reasons” which all avoid the essential issue: the analyst has been wrong; his clients and his sales force all know he’s been wrong; he can’t take it anymore; and he’s throwing in the towel.

We know: been there, done that.



Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.