Off the Wires

Oil at $80 a Barrel Muffles Forecasts for U.S. Shale Boom

October 21st, 2014  |  Source: Bloomberg

The bear market in oil has analysts reassessing the U.S. shale boom after five years of historic growth.

The U.S. benchmark price dropped to $79.78 a barrel on Oct. 16, the lowest since June 2012. At that level, one-third of U.S. shale oil production would be uneconomic, analysts for New York-based Sanford C. Bernstein & Co. led by Bob Brackett said in a report yesterday. Drillers would add fewer barrels to domestic output than the previous year for the first time since 2010, according to Macquarie Group Ltd., ITG Investment Research and PKVerleger LLC.

Horizontal drilling through shale accounts for as much as 55 percent of U.S. production and just about all the growth, according to Bloomberg Intelligence. The Paris-based International Energy Agency predicted in November that the U.S. would pass Russia and Saudi Arabia to become the biggest producer in the world by 2015. Though some forecasts show oil rebounding or stabilizing, any slower increase in U.S. output would shake perceptions for the global market, said Vikas Dwivedi, an oil and gas economist in Houston for Sydney-based Macquarie.

Gain in Home Building Points to Sustained U.S. Growth

October 17th, 2014  |  Source: Bloomberg

Builders started work on more homes in September and American consumers this month were the most optimistic in seven years, signaling the U.S. economywill ride out a global slowdown.

Housing starts climbed 6.3 percent to a 1.02 million annualized rate from a 957,000 pace in August as multifamily and single-family projects advanced, the Commerce Department reported today inWashington. The Thomson Reuters/University of Michigan preliminary sentiment index for October increased to 86.4, the strongest since July 2007, another report showed.

Gains in residential construction will help underpin the economic expansion as the recent drop in mortgage rates lifts home sales and gives builders reason to take on more projects. Other figures showing factory production rebounded last month and claims for jobless benefits dropped last week to the lowest level in 14 years added to evidence the turbulence in global markets has yet to depress the world’s largest economy.

“The fundamentals continue to look solid,” said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly projected an increase in homebuilding. “The turmoil in the market doesn’t reflect the underlying U.S. economic fundamentals.”

Stocks climbed, trimming this week’s decline, as earnings beat estimates (NHSPSTOT) and investors speculated that central banks will support economic growth with more stimulus. 

Dark Pools Said to Rebuff Orders Amid U.S. Volume Surge

October 16th, 2014  |  Source: Bloomberg

Three of the largest dark pools told customers to trade elsewhere during at least part of yesterday’s session as concern about Ebola and global economic growth spurred the busiest day for U.S. stocks in three years.

Goldman Sachs Group Inc. (GS)Credit Suisse Group AG (CSGN) and UBS AG (UBSN) told some clients to temporarily stop sending orders as volume surged, according to five people with knowledge of the matter who spoke on condition of anonymity. The instructions came as the broader market processed11.9 billion shares, the most since Oct. 27, 2011, according to data compiled by Bloomberg.

Dark pools, private trading systems usually owned by banks, are just one component of the fragmented U.S. equity market, where buying and selling is spread across 11 exchanges and more than 40 alternative platforms. Older venues such as the New York Stock Exchange and Nasdaq Stock Market didn’t report any issues.

The dark pools’ requests didn’t prevent the U.S. equity markets from working normally for the vast majority of investors. Volume yesterday was several times greater than the busiest days during the 1990s technology bubble.

“Today shows that the market has the capacity to transact large volumes in a very volatile environment,” Remco Lenterman, managing director at Amsterdam-based market maker IMC, said yesterday. “Sure there are issues, but in the end of the day investors have the ability to transact very large transactions in a very deep and liquid market, no matter what critics will want you to believe.”

Winners and losers from oil price plunge

October 15th, 2014  |  Source: FT

Brent crude at $80 would have effect of huge global QE programm

Crude oil prices have plunged by $25, or more than 20 per cent, since mid-June, raising many questions. How low might prices go? If they rebound, at what level will they stabilise? Will Saudi Arabia and Opec move to cut output when they meet next month? At what price level might US shale oil production be affected and how severely?

One thing is certain: even the current lower prices are rapidly creating winners and losers. Losers are producers, countries and governments. If Brent falls to $80, Opec countries would lose some $200bn of their recent $1tn in earnings, affecting not only their ability to earn enough to cover the post-Arab Spring expanded budgets, but also their capacity to service debt without triggering defaults. And for the US, if prices fall much further, capital expenditures to expand production would have to be cut, potentially slowing the US shale revolution.

On the other hand, the world economy as a whole would enjoy the equivalent of a huge quantitative easing programme, helping to spur stalling economic growth. The decline in prices would generate a $1.8bn daily windfall, about $660bn annualised. Tracking this into gasoline prices, in the US, where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household. It would affect all consumers globally save for those in Opec countries, who already pay little for fuel.

Prices have plummeted for several reasons: some of the decline is attributable to market sentiment, some to market fundamentals and, to a large measure, the geopolitical landscape. Brent crude has averaged around $110 per barrel since the Libyan disruption took 1m barrels per day off markets. Despite a Saudi production increase in 2011, $110 Brent was about $25 a barrel above traded prices just before the Libyan disruption. The main reason why Saudi Arabia could not damp prices was that the disrupted supply was light sweet crude, and refiners who needed it could not replace it with heavier, higher sulphur-content crude.

Ebola epidemic 'could lead to failed states', warns WHO

October 13th, 2014  |  Source: BBC

The Ebola epidemic threatens the "very survival" of societies and could lead to failed states, the World Health Organization (WHO) has warned.

The outbreak, which has killed some 4,000 people in West Africa, has led to a "crisis for international peace and security", WHO head Margaret Chan said.

She also warned of the cost of panic "spreading faster than the virus".

Meanwhile, medics have largely ignored a strike call in Liberia, the centre of the deadliest-ever Ebola outbreak.

Nurses and medical assistants had been urged to strike over danger money and conditions. However, most were working as normal on Monday, the BBC's Jonathan Paye-Layleh in Monrovia said.

A union official said the government had coerced workers - but the government said it had simply asked them to be reasonable.

In a speech delivered on her behalf at a conference in the Philippines, Ms Chan said Ebola was a historic risk.

"I have never seen a health event threaten the very survival of societies and governments in already very poor countries," she said. "I have never seen an infectious disease contribute so strongly to potential state failure."

She warned of the economic impact of "rumours and panic spreading faster than the virus", citing a World Bank estimate that 90% of the cost of the outbreak would arise from "irrational attempts of the public to avoid infection".

Ms Chan also criticised pharmaceutical firms for not focusing on Ebola, condemning a "profit-driven industry [that] does not invest in products for markets that cannot pay".

Ireland Considers Closing Corporate-Tax Loophole

October 12th, 2014  |  Source: WSJ

Multinationals Gird for Possible ‘Double Irish’ Changes; Google, Facebook Would Be Affected

Multinational companies are bracing for their last serving of the “Double Irish.”

Ireland is expected on Tuesday to announce changes to its tax code that could eventually close one of the world’s most famous corporate-tax loopholes, dubbed the Double Irish, after heavy pressure from governments and the European Union, tax experts say. Already, companies particularly in the technology and pharmaceutical sectors are setting up battle plans to cope with potential changes.

“A lot of companies are starting to plan now,” said Francesca Lagerberg, global leader for tax services at Grant Thornton International. “You can’t afford to wait.”

The Double Irish uses a twist in Irish laws to funnel royalty payments for intellectual property from one Irish-registered subsidiary to another that resides for tax purposes in a country with no corporate income taxes. It is often paired with a related tax structure that planners call the “Dutch Sandwich,” which uses a Netherlands-based structure to avoid certain taxes. The Double Irish structure allows companies to legally shift billions of euros in profit to tax havens each year.

Companies using the structure or variants include Google Inc., Facebook Inc.FB -3.95% and cloud-computing firm VMware Inc., VMW -2.44% according to corporate filings. Google and Facebook have said they pay all the taxes they owe. VMware declined to comment.

Icahn Gazes Beyond Known World With $1.2 Trillion Apple Valuation

October 9th, 2014  |  Source: Bloomberg

Carl Icahn’s forecast for Apple Inc. (AAPL) would swell the world’s biggest market capitalization beyond the economy of Argentina to heights never seen in public markets.

The billionaire activist says Apple should trade at $203, twice its current price, an estimate that would push it to $1.2 trillion. He’s asking that of a stock that has gained more than 3,500 percent in the past decade and became the most valuable company in U.S. history two years ago, before adjusting for inflation.

Based on profits, Icahn envisions an unusual though not unprecedented valuation for the Cupertino, California-based company. Boosting Apple’s price-earnings ratio to match the average in the Nasdaq 100 Index would send its stock to $147 and its value to $880 billion. Going by history, it’s another story. Only one company has ever topped $1 trillion, PetroChina (601857) Co., which tripled after its November 2007 debut in Shanghai. The 13-digit sojourn lasted exactly one day.

“That doesn’t happen very often,” Jon Burnham, a New York-based fund manager for Burnham Asset Management Corp., which oversees about $2 billion, including Apple shares, said by phone. At the same time, “this is a very cheap stock in earnings and revenues or any other way you’d want to look at it. I own it and I expect to make much more money over the next coming years so I agree with everything that’s being said.”

J.P.Morgan Hackers Said to Probe 13 Financial Firms

October 9th, 2014  |  Source: Bloomberg

The hackers who raided the data banks ofJPMorgan Chase & Co. (JPM) used computers now linked to possible attacks on at least 13 more financial companies, according to a person familiar with the investigation.

More than a month after the JPMorgan hack was made public, it’s now clear that the perpetrators had attempted a broad campaign aimed at a payroll-servicing company, a popular stock brokerage and some of the world’s biggest banks. The depth of the JPMorgan breach and the scope of the intended targets have sent a shudder throughWall Street, even if the attackers had mixed success.

The group set its sights on companies including Citigroup Inc. (C)HSBC Holdings Plc (HSBA)E*Trade Financial Corp. (ETFC)Regions Financial Corp. (RF) and Automatic Data Processing Inc. (ADP), the payroll firm, according to several people familiar with those companies’ internal probes who said the signs of intruders were found in the computers or logged by protective technology that effectively stopped the hackers.

U.S. intelligence agencies, attorneys general from at least two states, as well as federal prosecutors including from New York are conducting their own investigations, reflecting the urgent concern around the JPMorgan breach, worries over the precise motive of the attack and its ripples throughout the financial system.

Wal-Mart Health Cuts Reopen Debate Over Obamacare Costs, Savings

October 8th, 2014  |  Source: Bloomberg

Wal-Mart Stores Inc. (WMT)’s move to eliminate health insurance for about 30,000 part-time workers underscores the mixed benefits of Obamacare for companies and their employees.

Wal-Mart said yesterday it would no longer provide health coverage to employees who work less than 30 hours a week, following similar moves by retailers such as Target Corp. (TGT)Home Depot Inc. (HD) andWalgreen Co. (WAG) Wal-Mart had already dropped benefits for many new part-time workers in 2012.

The U.S. Patient Protection and Affordable Care Act, known as Obamacare, has brought more health-care options for employees pushed out of corporate benefit plans. That may have made it more palatable for Wal-Mart to make the change, which could save the company about $50 million in premiums this year.

VC Tim Draper Wins Entire Cache in Bitcoin Auction

July 2nd, 2014  |  Source: Bloomberg

Venture capitalist Tim Draper was the single winning bidder for a cache of bitcoins at a U.S. government auction, part of a larger pool of the virtual currency seized from the Silk Road website.

Draper, the co-founder of investment firm Draper Fisher Jurvetson, will work with startup Vaurum to help provide access to bitcoins in developing economies and use the about 30,000 bitcoins won in the auction as a source of liquidity, according to a statement that Vaurum posted on publishing service Medium today.

“Bitcoin frees people from trying to operate in a modern market economy with weak currencies,” Draper said in the statement. “With the help of Vaurum and this newly purchased bitcoin, we expect to be able to create new services that can provide liquidity and confidence to markets that have been hamstrung by weak currencies.”

The auction attracted 45 bidders, including New York brokerage SecondMarket Inc., and 63 bids were submitted during the 12 hours of the auction on June 27, according to the U.S. Marshals Service. The agency, which didn’t disclose the winner’s identity, said yesterday that it notified the bidder and transferred the money.

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