Thursday, May 31, 2012

Milken Institute - The Changing Face of the Middle East

Eugene Fama - If Buffett Lucky or Skilled?

Fama isn't sure if Buffett's record is luck or skill.  Not long enough of a track record I guess.  We will have to check back when Warren is 90.

To Avoid Breaching Loan Covenant Chesapeake Must Sell...

$7 billion assets.  Or at least so says Moody's.

Of course you could always negotiate a waiver on a covenant, or restructure your debt or do something else......but that isn't interesting reading.  We want drama !


Cequence Energy Acquires Open Range

For $1.37 per share, a company that had a share price of $2.00 six months ago.  A victim of low natural gas prices.

Here are the details:

Chart forOpen Range Energy Corp. (ONR.TO)

Bill Gross Talking About Crazy Treasury Yields

Bill Gates Takes NDTV Viewer Questions

Gulf Keystone - May 28, 2012 Investor Presentation

Gulf Keystone Investor Presentation May2012

Why is Chesapeake going up?

Some progress with the activist shareholders?  Asset sales?  Mr. Market just being tricky?

Chart forChesapeake Energy Corporation (CHK)

Is the Mississippian the Next Bakken?

Even CNBC is starting to pay attention!

CVI showcase company Petro River USA was in early on what is now becoming a boom.......

Sprott Asset Management - The Real Banking Crisis Part 2

Here we go again. Back in July 2011 we wrote an article entitled "The Real Banking Crisis" where we discussed the increasing instability of the Eurozone banks suffering from depositor bank runs. Since that time (and two LTRO infusions and numerous bailouts later), Eurozone banks, as represented by the Euro Stoxx Banks Index, have fallen more than 50% from their July 2011 levels and are now in the midst of yet another breakdown led by the abysmal situation currently unfolding in Greece and Spain.


Link to full article:,-part-ii/

Bill Ackman's Ira Sohn J.C. Penney Presentation

Bill Ackman's Ira Sohn JCP Presentation

Notes From a Dinner With Prem Watsa and Others

Includes Prem's observations about Research in Motion (which Fairfax owns):

A Conversation With Jim Rogers

Notes from 2012 Markel Omaha Meeting

Oil Market Ignoring Fundamentals and Iran - Focusing on Greece and Spain

Bill Gross on Wall Street's Food Chain

Wall Street Food Chain
  • Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors.
  • Both the lower quality and lower yields of such previously sacrosanct debt represent a potential breaking point in our now 40-year-old global monetary system.
  • Bond investors should favor quality and “clean dirty shirt” sovereigns (U.S., Mexico and Brazil), for example, as well as emphasize intermediate maturities that gradually shorten over the next few years. Equity investors should likewise favor stable cash flow global companies and ones exposed to high growth markets.​
The whales of our current economic society swim mainly in financial market oceans. Innovators such as Jobs and Gates are as rare within the privileged 1% as giant squid are to sharks, because the 1% feed primarily off of money, not invention. They would have you believe that stocks, bonds and real estate move higher because of their wisdom, when in fact, prices float on an ocean of credit, a sea in which all fish and mammals are now increasingly at risk because of high debt and its delevering consequences. Still, as the system delevers, there are winners and losers, a Wall Street food chain in effect.

Spain's Pray and Delay

Assets Worth Less

“They aren’t officially bankrupt because they have been refinanced time and time again,” Fernando Rodriguez de Acuna Martinez, a partner at the company, said by telephone. “Their assets are worth much less than their liabilities, they struggle to repay loans and they haven’t revaluated them to reflect today’s prices.”
In Ireland three years ago, developer Liam Carroll’s Ronnie Rentals Ltd. was forced to value its assets to market prices. Accumulated losses at the company more than trebled to 541 million euros in the six months through March 2009 after it provisioned for all known liabilities and anticipated losses, according to accounts filed last year with Ireland’s Companies Registration Office.
The Bank of Spain allows loans that are refinanced before turning delinquent and interest-only loans to be considered “normal” or “performing” on banks’ books, according to Manso.

Masking Delinquency

“You won’t find that data anywhere,” Manso said. “There has been a lot of cheating going on where banks have lent developers new money, classed as new lending, so they can pay off their original loans.” That’s masking delinquency, he said.

Wednesday, May 30, 2012

Bond Mania Sweeps the Globe

The flight to safety on global markets is turning into a stampede, as skittish investors pour so much money into safe government bonds that yields in many countries have plunged to the lowest levels seen to date.
On Wednesday, the mania for bonds swept up countries as diverse as Germany, the United States, Britain, Canada and Switzerland. Yields on bellwether U.S. 10-year Treasuries sank to 1.62 per cent in late trading, while comparable German bonds, known as bunds, sagged to 1.27 per cent. Both are record lows. Canada and Britain also benefited, with their key government bond yields falling to 1.79 per cent and 1.64 per cent, respectively.

Mississippi Lime - It Is Real and it is Spectacular

You may have noticed the banner for Petro River USA on this blog.  In the coming months we will hear more from this company which is going to be a company to watch in the emerging Mississippi Lime play in the USA.

Here is an article with some detail on the play:

Recent new household names in Woods County include Chesapeake and SandRidge. Well, the next largest player in the "Mississippi Lime" exploration is Eagle Energy located in Tulsa.
Steve Antry, CEO of Eagle Energy, told the Alva Rotary Club Thursday, May 24, that the oil boom in Woods and Alfalfa counties is only going to get bigger. Right now, Eagle Energy is drilling their 52nd well in this area, and they are expecting to add two more drilling rigs to their current collection of four by the end of the year.
In explaining their explosive growth, Antry said that Eagle Energy was formed about three years ago just when Chesapeake and SandRidge were starting their new efforts in horizontal drilling in this area.
The CEO told the audience, "I think you will find it interesting to get my view on how long this growth and play is going to last. I think this trend in this area will last five, ten, fifteen years because the numbers are right. I think it is just starting."
In developing Eagle Energy, Antry purchased about ten companies for $100 million to consolidate that group with their focus on the Hunton Formation in central Oklahoma. As they worked the Hunton Formation, they had what Antry called "a little blip on the screen," that as they drilled through the Mississippian formations to get to the Hunton, they kept finding oil in the pits and other good indicators so the Mississippian became sort of a secondary idea on the back burner."
“That quickly changed,” he said, "Once we drilled the first Mississippian well, we completely forgot about the Hunton effort and it became a distant memory. I tried to pretend like I knew it was there all along,” Antry joked.

Don Coxe - Gold and Natural Resources Are Incredibly Cheap

Some easy listening:

David Einhorn / Greenlight May 29, 2012 Shareholder Letter


Petrominerales in the Green - A Bit Unusual Again

Still haven't seen anything other than the NCIB announcement which I doubt anyone cares about given that they were buying shares in the high twenties too:

Chart forPetrominerales Ltd. (PMG.TO)

Chesapeake Valuation Seen Luring Major Deal

(CHK)’s depressed valuation is making the company a potential target for acquirers willing to bet that natural-gas prices will rebound from a decade low.
Chesapeake’s equity and net debt are valued at $9.19 for each barrel of oil equivalent, the lowest among U.S. oil and gas explorers with market capitalizations greater than $5 billion, according to data compiled by Bloomberg. While a stock purchase by Carl Icahn helped the $11 billion company’s shares rebound in the past week, Chesapeake is still down 27 percent in 2012 amid investigations into Chief Executive Officer Aubrey McClendon’s personal loans backed by stakes in company-operated wells
The second-largest U.S. natural-gas producer said it may face a cash shortfall as early as next year after prices for natural gas, which accounts for 83 percent of its reserves, reached a 10-year low last month. While a buyer would have to cope with seven joint ventures and $13.1 billion of debt, Exxon (XOM)Mobil Corp. and Chevron Corp. (CVX) may see a chance to scoop up the largest holder of onshore drilling leases before gas prices rebound, said SunTrust Robinson Humphrey Inc.Royal Dutch Shell Plc (RDSA) may also be interested, said Huntington Asset Advisors Inc.
“For any of the major integrated oil companies that want to pick up reserves on the cheap, this would be a good one,” saidPeter Sorrentino, who helps oversee $14.7 billion at Huntington in Cincinnati. Chesapeake and other gas producers will be “worth a whole lot more than they are today. We’ll look back on this and say, ‘Wow, this was really an opportunity.’ There may be some people that end up kicking themselves.”

Tuesday, May 29, 2012

Zuckerberg Nightmare Comes to Life

Poor guy...

As Facebook’s stock price fell below $30 today for the first time, some of Mark Zuckerberg’s worst fears are coming true.
Back in 2010, when Facebook was a mere Internet phenomenon (as opposed to the Universal Harbinger of All Capitalist Things, Good and Bad), bankers were already whispering in Zuckerberg’s ear about the benefits of going public.
If Zuckerberg took Facebook public, advisers told him, early investors and venture capital firms would be able to cash out. Facebook could raise a slush fund to use for acquisitions. And the company could steer clear of the S.E.C.’s 500-shareholder limit, which would have forced it to reveal its financials anyway.
But despite the potential bonanza that awaited a public Facebook, Zuckerberg still didn’t want to do it.

A Rather Spirited Petrominerales Today

Bromelia results?

Chart forPetrominerales Ltd. (PMG.TO)

Ithaca Energy Shares Go Clunk - Maybe Time For a Look?

CALGARY - Ithaca Energy Inc. (TSX:IAE.TO - News) shares lost one-third of their value in trading a day after the energy developer announced it has ended talks with all parties interested in the potential acquisition of the company.
Shareholders sold off stock in the Calgary-based company Tuesday after a late Monday announcement that its board decided continuing takeover talks would result in an offer that does not properly reflect the company's value.
"In reaching this decision the board of directors has fully considered the company's current value, its growth potential, the future value that can be delivered to shareholders and the responses of the third parties with whom discussions have been held," the company said in a release.
It said its shares are currently undervalued both because of global market volatility and because oil prices have weakened significantly in the past weeks.

How Hedge Funds Outsmarted JP Morgan

BOAZ WEINSTEIN didn’t know it, but he had just hooked the London Whale.

It was last November, and Mr. Weinstein, a wunderkind of the New York hedge fund world, had spied something strange across the Atlantic. In an obscure corner of the financial markets, prices seemed out of whack. It didn’t make sense.
Mr. Weinstein pounced.
As the financial world now knows, what was out of whack was JPMorgan Chase & Company. One its traders, Bruno Iksil, the man later nicknamed the London Whale for his outsize trades, was about to blow a multibillion-dollar hole in the mighty House of Morgan.
But the resulting uproar, in Washington and on Wall Street, has largely obscured a simple truth of the marketplace. Yes, Morgan lost big — but, as Mitt Romney has pointed out, someone else won. And that someone or, rather, those someones, turn out to be Boaz Weinstein and a wolf pack of like-minded hedge fund managers.
In the London Whale, these traders saw a rich opportunity, and they seized it with both hands. That, after all, is the way hedge funds roll. His cool calculus has made Mr. Weinstein a very rich man: he is in talks to buy the Fifth Avenue co-op of a reclusive heiress, Huguette Clark, for $24 million.
It might seem remarkable that someone like Mr. Weinstein, a man virtually unknown outside of financial circles, could deal such a stinging blow to one of the world’s largest, most respected banks. Jamie Dimon, the chairman and chief executive of JPMorgan and a face of the banking establishment, is struggling to contain the damage from what he has called a “terrible, egregious mistake.” The loss — JPMorgan put it at $2 billion, but it may turn out to be $3 billion or more — has renewed calls for stronger financial regulation.

Director With "Midas Touch" Buys $3.7 Million Worth of Petrobakken$3-7-million-wort

Is Canada About to Face American Style Housing Collapse?

Actor and broadcaster Jeff Douglas says he knows there are “more responsible” things to do than take on a mortgage he will likely have to pay until he turns 70.

But that didn’t stop him and his wife, interior painting contractor Ana Maria Diez, from charging headlong into the battleground that has become the Canadian real estate market.
Mr. Douglas and Ms. Diez fell in love with and purchased a 1,300-square-foot duplex in a middle-class west Toronto neighborhood last month for $632,000. Like an increasing number of Canadian buyers, they sealed the deal after duking it out with several other couples who also wanted the house. They placed no conditions on their contract and finally paid 112 percent of the original list price of $555,000

Hedge Fund Manager Wins $710k in Vegas

Most attendees of a three-day hedge-fund conference in Las Vegas earlier this month left with a canvas tote bag, some free pens and a stack of business cards. One left with $710,000 in blackjack winnings.

Michael Geismar, who co-founded $4.6 billion managed futures firm Quantitative Investment Management, turned $300 and a $10,000 line of credit at the Bellagio into $470,000 in a six-hour stretch that began on a Tuesday night, the trade publication AR Magazine reported last week.
After a few losing sessions over the next two days, Mr. Geismar turned in another winning performance Thursday night, before the SkyBridge Alternatives conference ended. Betting on other players’ hands and his own, with bets as big as $10,000, he racked up enough to bring his jackpot to $710,000. And that’s after doling out tens of thousands of dollars in tips.

EDG Sees Incredible Opportunities to Buy US Nat Gas Assets

The coming months will be a great time to be sitting on buying power as there will be producers who need to raise cash at desperate prices.  I'm excited to see what Petrobakken does with the $1.2 billion in liquidity that it is sitting on:

Electricite de France SA’s trading unit is looking at a “long list” of natural gas production assets in the U.S. as prices rebound from a 10-year low.
“In the U.S., opportunities are incredible right now,” Steven Lewis, global head of gas at EDF Trading in London, said in a May 25 interview. “U.S. energy and gas markets are very exciting.”

New York State Comptroller Calls for Change at Chesapeake

Our collective voice grows every day.

Dear Fellow Chesapeake Shareholder:

I urge you to WITHHOLD your votes from directors V. Burns Hargis and Richard K. Davidson at Chesapeake’s annual meeting of stockholders on Friday June 8, 2012. The two major proxy advisory firms, Glass Lewis and ISS, agree with my voting recommendation to withhold support from these directors.

The New York State Common Retirement Fund (the “Fund”), of which I am Trustee, is a substantial long-term shareholder of Chesapeake Energy Corporation (“Chesapeake” or the “Company”).  For several years, I have engaged Chesapeake on a number of issues, including board independence and executive compensation, but to no avail.  Like you, I am pained to watch our investment free-fall as shares plummet to lows not seen even during the recent financial crisis.  The Company has lost over $1.49 billion in market capitalization since April 18.   As the chart below illustrates, its stock performance has been dismal:

Chesapeake continues to be perilously overleveraged.  On May 1, when it reported its First Quarter 2012 results, the Company indicated that it could run out of cash by the end of next year.  On May 15, the Company announced it had secured a $4.0 billion unsecured loan that has an effective yield of 14 percent.  While the loan might provide the Company with “breathing room” as it works towards executing an ambitious asset sale plan over the next few quarters, it is clear that negative free cash flow is expected for 2012 and 2013.  (See Barclay’s Research Report, Updated Liquidity Analysis, May 17, 2012). Chesapeake is in a difficult position financially and is therefore a motivated seller of assets; a factor that will work against it should gas prices continue to fall.

Chesapeake’s falling share price and current financial condition are reason enough to WITHHOLD votes from the entire Board of Directors (the “Board”).  However, since only two directors are up for re-election this year, our withhold votes against V. Burns Hargis and Richard K. Davidson should be viewed as a proxy for the performance of the entire Board.

Hargis and Davidson Are Members of Board Committees That Have Failed Shareholders

Mr. Hargis has served on Chesapeake’s Board since 2008 and is Chairman of Chesapeake’s Audit Committee.  Mr. Davidson has served on the Board since 2006 and serves on the Board’s Audit and Compensation Committees.

The Audit Committee is charged with overseeing the integrity of the Company’s financial statements and disclosure, compliance with legal and regulatory requirements, the Company’s internal audit function and the Company’s enterprise risk management program.  The revelations of the past months serve to underline the Audit Committee’s failure:

In the last three years, CEO Aubrey McClendon received over $1 billion in previously undisclosed loans secured by his stake in Chesapeake’s oil and gas wells.  The biggest loans were obtained from EIG Global Energy Holdings, which also serves as a major financier for the Company itself.  At the same time Chesapeake was selling off assets to one firm, Mr. McClendon was taking loans from the same firm.  These loans and inter-relationships were disclosed by the Company only after an exposé appeared in the press.  Though the board was “generally aware” of the loans, it did not review, approve or disclose them to investors until after the appearance of the exposé.  (“After McClendon’s Trades, Chesapeake Board Gave Blessing,” Reuters, May 8, 2012; Chesapeake Form 8K, April 26, 2012; “Board Turns on Chesapeake’s CEO,” The Wall Street Journal, April 26, 2012).

Chesapeake reportedly has $1.4 billion of previously unreported liabilities that relate to ten “volumetric production payments” (“VPPs”), which are essentially debts, with payments made in fuel rather than in cash.  Although Chesapeake has previously made representations about how much cash VPPs made available to the Company, it had never provided details about the costs to fulfill the contracts. The Wall Street Journal hassuggested that these costs will be far larger than analysts had previously estimated based on the Company’s previous disclosures.  (“Costly Liabilities Lurk for Gas Giant,” The Wall Street Journal, May 10, 2012).

For too long, CEO McClendon has been allowed to dominate the Board and the Board has failed to perform its critical role in overseeing the Company on behalf of its shareholders.  Even while promising to replace him as Chairman someday, the Board has allowed Mr. McClendon to continue to serve in this role while it claims that the Nominating and Corporate Governance Committee is searching for candidates to replace him.  As members of the Audit Committee, directors Hargis and Davidson should be held accountable for the Board’s significant failings in its oversight responsibilities.


Withholding your votes for the re-election of Directors Hargis and Davidson is a necessary first step toward reconstituting a Board that is currently entrenched and unaccountable to shareholders.

In my view, there needs to be an evaluation of the entire Board’s competence and performance, including an assessment of whether the current directors have the necessary skills and attributes to continue to oversee the Company.  This evaluation should be done both internally, by the Company, and by an independent third party.  The Company’s largest shareholder, in a letter dated May 7, 2012 and filed with the SEC, has publicly suggested that the Company should be “open to any offers to acquire the whole company.”  Now more than ever, shareholders need to be assured that the Board has the requisite independence and skills to evaluate any offer that might be received.

A fundamental restructuring of the Company’s Board of Directors is essential if the Board is to regain the trust of stakeholders and regulators.  The Board, which holds Chesapeake’s future in its hands, must be held accountable to the Company’s shareholders, and must protect the long-term interests of the Company instead of promoting parochial interests of maintaining incumbent control.

I hope you will consider these comments.
  Sincerely yours,
  /s/Thomas P. DiNapoli
State Comptroller

Pacific Rubiales Acquires Another 18% of CGX Energy

Pure exploration company, looking for some big offshore discoveries:
Toronto-listed Pacific Rubiales, which has plays in Colombia, is paying some C$ 30 million ($29.29 million) for some 18% of CGX in an all-shares deal.
A private placement to pay for the stake is expected within a week and will bring Pacific Rubiales’ holding in CGX to around 35%.
Crucially the share purchase will give the former an option to participate in planned and wholly-owned wells belonging to CGX in Guyana.
If Pacific Rubiales takes up the options, it will fund 50% of the exploration costs and some seismic costs for a 33% share in each well in the Corentyne and Annex licences.
Pacific Rubiales chief executive Ronald Pantin said: "This is a great opportunity for the company to expand its investment in the highly prospective offshore Guyana oil play.
“Through our ownership in CGX, the technical services agreement and a direct earning option, the company will be participating in an exploration campaign in an offshore basin with analogous geology to West Africa and Brazil.”

Robert Rodriguez Q1 Commentary

Your portfolio underperformed its benchmarks in the first quarter of 2012. There were a number of stocks that substantially appreciated in the quarter, but the portfolio’s cash position held back the overall performance. We have written many times in the past, and will continue to mention in the future, our absolute value investment strategy can lag the stock market indices when they are not only rising rapidly, but also richly valued.

As we mentioned last year when we exhibited strong outperformance, our objective is to generate superior returns over a full cycle,  during which we expect to experience periods of underperformance. We are constantly assessing the risk-to-reward ratio of the portfolio’s investments, and as stocks appreciate – all else being equal - the risk-to-reward ratios become less attractive. Hence, in order to protect against permanent impairment of capital, our strategy requires that we trim back or sell positions when stocks reach fair or premium valuations, based on our view of normalized revenues and profit margins.

With most of the major indices exhibiting strong gains in the quarter, it is clear investors are feeling more bullish on the U.S. economy and corporate profits. This bullishness translates into the high price-to-earnings ratio (P/E) that investors are paying for companies today. For example, the P/E ratio for the Russell 2000 and 2500 rose from 23.0x and 20.2x, respectively, at the end of 2011, to current levels of 25.2x and 22.6x. These are very high multiples, exacerbated by the fact that profit margins are near all-time highs. Your account currently has a weighted average P/E of approximately 13x.  Remember, our fishing hole for investments includes only small-to-mid capitalization companies, not the large mega-cap companies like Apple, Exxon, or Wal-Mart, which today are relatively cheaper than smaller companies.

Link to entire report:

Bill Ackman Tells CNBC He Was Motivated By Sex

Hey, he said it, not me:

Oil India Interested in Chesapeake's Mississippi Lime Assets

(Reuters) - State-run Oil India (OILI.NS) is looking to buy stakes in U.S. gas driller Chesapeake Energy Corp.'s (CHK.N) Mississippi Lime basin and ConocoPhillips' (COP.N) oil sand assets in Canada, its head of finance said on Monday.
The cash-rich Indian explorer, whose assets in India's north-east account for its entire crude oil production and the bulk of gas production, has been aggressively scouting to bolster its overseas assets portfolio.
Oil India has earmarked 60-70 billion rupees ($1.3 billion) for overseas acquisition, T.K. Ananth Kumar told reporters after announcing the company's quarterly results.
He said the company had identified the U.S., Canada, Australia and parts of Africa for acquisitions and hoped to seal a deal in the current fiscal year that began on April 1.
When asked if the opportunities included Chesapeake's Mississippi stake, to which the company had earlier been linked, he replied "yes".

Monday, May 28, 2012

Gulf Keystone Spuds Exploration Well

How many multiples of the current share price would this company be trading for if this oil was in North America?

DealBook on the Venoco Management Buyout

Some interesting detail for those who have followed the story:

Some corporate decisions leave you wondering what the board might have been thinking at the time. That seems to be the case with the board of Venoco, a California oil company that is the subject of a proposed $770 million management buyout.
On Jan. 16, the Venoco board of directors agreed to let the company be acquired by its chairman and chief executive, Timothy Marquez, for $12.50 a share. The deal came after Mr. Marquez, the owner of 50.32 percent of the company, and the board had announced that he had made a bid in August 2011 at the same price.
Management buyouts are fraught with peril, and the reasons are fairly obvious. Management not only has superior information about the business, but studies have also found that managers can time a bid opportunistically to pay a lower price.

Justin Beiber "Roughs Up" A Photographer

I have to admit that Beiber is one of the most intimidating 13 year old girls I've seen.......

Iran Will Not Halt Uranium Enrichment

TEHRAN - Iran's nuclear chief, reversing the country's previous statements, said on state television on Sunday that the country would not halt its production of higher-grade uranium, suggesting that the Iranian government was veering back to a much harder line after talks in Baghdad with the West last week ended badly.
The official, Fereydoon Abbasi, said there would be no suspension of enrichment by Iran, the central requirement of several United Nations Security Council resolutions. He specifically said that applied to uranium being enriched to 20 percent purity - a steppingstone that puts it in fairly easy reach of producing highly enriched uranium that can be used for nuclear weapons.
"We have no reason to retreat from producing the 20 percent, because we need 20 percent uranium just as much to meet our needs," Mr. Abbasi said, according to Iranian state television.
Mr. Abbasi's statement will be of particular concern to the United States and Israel because Iran is producing more of its 20 percent enriched uranium in a deep underground site that is considered highly resistant to bombing. The site, called Fordow, is on a military base and was discovered by Western intelligence agencies several years ago, but Iran only acknowledged the work there in 2009.
The Fordow plant, near the holy city of Qum, is so deep that Israeli officials say if Iran makes progress there, it will have entered a "zone of immunity" where it would be safe from Israeli or American military action. Getting Iran to halt its 20 percent enrichment, and ultimately dismantle and close the Fordow plant, has been described by American officials as their top priority.
Mr. Abbasi's remarks, which included an announcement that Iran would start building two nuclear power plants in 2013, are bound to complicate the already difficult nuclear talks between Iran and the world powers, which are to be continued in Moscow on June 18. If the talks fail, the powers are planning to tighten sanctions on Iranian exports and financial dealings as early as July 1, including placing an embargo on all sales of Iranian oil to Europe.

Sunday, May 27, 2012

Sheila Bair - Dimon Should Break Up JP Morgan

FORTUNE – When I was a child, my sister and I loved watching the goings-on at a chicken farm near my grandmother's house in rural Kansas. Chickens are interesting social animals, resembling, somewhat, the way we in Washington interact with one another. They were always on the lookout for one vulnerable bird that they would corner in the coop and then peck relentlessly on its head.
Jamie Dimon, the CEO of J.P. Morgan Chase (JPM), is getting his head pecked these days. To be sure, he set himself up for it by very publicly leading the industry chorus of criticism against key financial reforms. He has made many good decisions for his bank, but Chase's recent serious missteps have provided reform advocates with loads of ammunition. I mean, really. Losing $2 billion (and counting) by "hedging" a bond portfolio against losses? What were he and his minions thinking? If Dimon wants to regain his place in the pecking order, he should take the initiative and shrink Chase to a manageable size.

Why American Nat Gas Will Change the World

‘It was the best of times; it was the worst of times’ – never a truer word spoken for the gas industry. Whilst Chesapeake is fighting for its life in the US, spot gas prices are reaching all-time highs in Asia. In this ‘Tale of Two Cities’ you’ll get $2/MMBtu inNew York (Henry Hub) and around $20/MMBtu in Singapore (Asian spot). The divorce between the Atlantic Basin and Pacific Basin couldn’t be any starker – the question is whether these spreads will incrementally narrow under inexorable laws of economics, or whether politics will throw a spanner in the works. Depending on how you answer this ‘convergence question’ will have dramatic implications for hydrocarbon asset prices in the years to come. Not to mention the contours of international energy relations.
‘Convergence’ makes most sense for the US of course – Chesapeake’s foibles merely mask a structural problem for American gas players; they are selling their gas for a pittance in the US when they could be making an absolute killing overseas, roughly to the tune of $1bn spreads a day in Asia. Whatever the economic merits of keeping ‘US gas for US consumers’ improving balance of payments, fast tracking coal to gas for emissions, as far as gas players are concerned, it’s still a damp squib. Great, they’ll get $5/MMBtu rather than $2/MMBtu with some unfortunate mothballing / defaults in between. Not exactly the giddy heights of Asian LNG.

Aubrey McClendon - Billionaire Wildcatter

Before we sit down to a dinner of steak and fries, billionaire wildcatter Aubrey McClendonhandles the wine bottles arrayed on the table of Oklahoma City’s well-worn Deep Fork Grill. “This one’s okay, a $10 wine. Here’s another $10 wine.” He grins: “It’s up to you, Chris: We can drink cheap wine, or we can drink good wine.”
McClendon’s proposition was rhetorical. He co-owns the restaurant and had already picked the wine, which was decanted two hours ahead of time. Only the royal stuff: a 1989 Petrus, a 1989 Haut Brion and, conspicuously, a 1982 Lafite Rothschild. Easily ten grand worth of tipple.
Erudite and confident, with rimless glasses pinned to a face that looks far younger than his 52 years, McClendon is charming. And he’s not shy about spending money. Professionally, he’s combined those attributes to stunning effect, building Chesapeake Energyinto the nation’s second-biggest producer of natural gas after ExxonMobil, pumping 3 billion cubic feet per day out of the 13.7 million acres it controls—a landholding roughly equivalent to West Virginia.

Chesapeake's Plan to Make Green Gasoline

In announcing his intention to shake things up at Chesapeake EnergyCarl Icahn said in his letter on Friday he was disappointed the company had not followed through on promises Icahn had extracted from Chief Executive Aubrey McClendon a year and a half ago. Icahn wrote that “the promises made in 2010 proved hollow, and the company quickly abandoned their new strategy and not only accelerated land acquisitions but also capital spending on non-core assets.”

One especially puzzling example of this “non-core” spending was McClendon’s formation last year of Chesapeake NG Ventures, a venture capital fund into which McClendon pledged to invest as much as $1 billion in shareholder capital into innovative strategies to increase the use of natural gas. Chesapeake with its high costs of capital and liquidity squeeze can’t really afford to play at being a venture capital investor. Venture capital is something you get into when you have excess cash, not when you have to pay interest rates of more than 10% for emergency loans.

Link to entire article:

Saturday, May 26, 2012

Buffett and Gates Play Ping Pong

Warren moves pretty well for 80 plus

Buffett's Idiot Challenge For Ajit Jain

Ajit Jain, who helped build Berkshire Hathaway Inc. (BRK/A) into a $200 billion firm by underwriting risks that others shunned, is hunting for insurance-premium growth that his bossWarren Buffett says may be a thing of the past.
The funds that Berkshire holds before paying out claims may decline after swelling to more than $70 billion last year from $39 million in 1970, Buffett said in a February letter to shareholders. The billionaire has used the premiums, called float, for acquisitions and investments to fuel expansion over the past four decades. According to Buffett, Jain took the letter as a challenge.

The Chinese Resource Supercycle Slows Down

From the Globe and Mail:

In the far corner of the Haidian district near Beijing’s North Fifth Ring Road highway, a young steel salesman, Sun Minglong, sits in the near-deserted storefront office for the Beijing Jicheng Heng Da Gang Tie Ji Tuan steel company.
The company’s warehouse, once brimming with steel building components, is now only one-third full, Mr. Sun laments. Beijing’s construction boom, in full force up until just a few months ago, has geared down sharply. Mr. Sun says sales are so slow these days, he no longer orders new stock unless a buyer requests it.
“The profits in steel are getting really bad now, because Beijing’s housing market is slowing down. Nobody is building any houses because they don’t make money anymore,” Mr. Sun said. “Compared to last year there has been a real decline. Personally, I think it’s going to get worse and worse.”
The ripple effects from China’s slowing economic growth are being felt from Beijing to British Columbia. At risk is a nearly decade-long run of unquenchable demand and high prices for a range of metals and other commodities, powered by relentless spending on homes, office towers, and transportation and communications infrastructure across China.

Farmers Hit Jackpot In Kansas Oil Boom

This emerging oil play is called the Mississippi Lime.  You may have noticed the banner on this blog for Miss Lime player "Petro River USA".  Petro River is one of Canadian Value Investing's Showcase Companies who you will be hearing more from in the future:

With a knock at the door, many local farmers who have been sitting atop their mineral rights for decades are suddenly seeing their lives change forever.
John Walker, a 63-year old farmer who has been harvesting wheat in the small town of Anthony since he was six years old, has received $1.5 million over the past year after leasing out mineral rights on 2,000 acres of his land.
Walker received $550 an acre for leasing out half of them last year, then received $1,000 an acre for the other half this year. He will also get royalty payments of 20% from any oil that is produced on that land.
"I've had to pinch myself every morning just to know I'm awake ... we've kind of hit the jackpot," said Walker.

Wealthrack - Jason Trennert

Chesapeake Responds to the Icahn 13D filing

OKLAHOMA CITY--(BUSINESS WIRE)--May. 25, 2012-- Chesapeake Energy Corporation (NYSE: CHK) today issued the following statement regarding the Schedule 13D filed late today by affiliates of Carl Icahn with the Securities and Exchange Commission disclosing ownership of approximately 7.56% of Chesapeake’s common stock:
“We share Mr. Icahn’s belief that Chesapeake shares are substantially undervalued by the market today. The Board and senior management are executing a plan that we believe will deliver a higher stock price and better recognize the underlying value of the company’s assets. The Board will carefully review Mr. Icahn’s letter. The Board’s immediate priority is to name an independent Non-Executive Chairman and it is proceeding expeditiously toward that objective having consulted with shareholders. After an independent Chairman is named, the Board’s Nominating Committee will consult with shareholders and carefully review Mr. Icahn’s request for Board representation.
“Chesapeake has built a premier collection of U.S. E&P assets and we are focused on developing the core plays in which we have a #1 or #2 position, continuing the transition from natural gas to liquids-focused production, reducing capital expenditures and paying down long-term debt. We believe successful execution of these initiatives will close the large gap between our current enterprise value and the total value of our premier assets.”

Mr. Icahn, Chesapeake Shareholders Stand Behind You

I've been writing repeatedly that we (shareholders) want change at the Chesapeake Board level.   We don't want a change in how these Directors perform, we want new Directors.

I'm a disgruntled Chesapeake Energy (CHK) shareholder. I'm just a small shareholder, but I've been trying to share my message.
My message is simple. My message is that the current Board of Directors at Chesapeake must be held accountable for their abysmal performance representing (actually not representing) the shareholders of Chesapeake Energy.
As a shareholder I've been trying to tell this Board of Directors that I don't want them to represent me anymore.
wrote this article for Seeking Alpha that spelled out the specific examples of how this Board of Directors has not lived up to its duties of representing shareholders. And based on the feedback I've received through the comment section on Seeking Alpha on this and other articles, and the e-mails I've received through my blog, I believe that many, if not most, of Chesapeake Energy's shareholders feel the same way that I do.
But I'm just a little guy and so are a lot of Chesapeake's shareholders. Our voices are small and our ability to create change limited. I'm not sure Chesapeake's Board has heard my message.

New RIM CEO - 100 Days Into the Toughest Job in Corporate Canada

From the Globe and Mail:

On a brisk Sunday afternoon in late January, Thorsten Heins towers over a long boardroom table in RIM 10, one of the many sprawling low-rise buildings in Waterloo, Ontario, featuring Research In Motion’s logo. The lanky, 6-foot-6 Bavarian physicist is about to officially replace two of Canada’s most famous businessmen. He fiddles with one of the company’s PlayBook tablets as he waits patiently for them to arrive. “I love this system,” he says.

Mike Lazaridis, the man who founded RIM(RIM-T11.340.363.28%) in 1984, appears shortly after, his hair, as usual, combed into an immaculate silver wave above his distinctive heavy-set features. Long-time co-CEO Jim Balsillie, the driven, globe-trotting salesman, arrives last, removing his BlackBerry earbuds as he enters. Including PR reps and two Globe and Mail reporters (I’m one of them), there are seven of us in the room. Even other C-suite executives are said to have no idea that “Mike and Jim,” the men who built the country’s most valuable technology company—a firm that, in 2007, was worth more than the Royal Bank of Canada—are stepping out of the picture. Most will find out later today in an e-mail sent to senior executives. Some will say they are shocked; some won’t be around for much longer.

Link to entire article: