The Pesky Details of Prospectus Disclosure
By Vedran Vuk, Casey Research
In the infamous case of the Goldman Sachs Abacus 2007 AC-1 fund, it doesn’t take a whole lot to figure out the wrongdoing. Paulson & Co., a multibillion-dollar hedge fund, helped select the mortgage-backed securities held by Abacus while at the same time, Paulson was planning on shorting it. This was all unbeknownst to Abacus buyers, since Goldman Sachs conveniently left out the details of Abacus’ creators and their bet against the fund in the investment marketing materials. Ultimately, the case was settled for $550 million.
Goldman Sachs made a huge mistake here. By not telling its clients about the conflict of interest, the whole thing seemed like the coverup of a malicious act in order to defraud investors. What it really should have done is put the fund’s flaws in difficult-to-understand language on page 82 of the hundred-page prospectus. After all, that’s what everyone else in the industry does, and they’re certainly not settling for half a billion dollars with anyone.
The exchange-traded fund (ETF) industry has made millions – if not billions – of dollars on products sold with a similar approach. If the problems are laid out somewhere, it’s not the ETF company’s fault when the fund fails. Better yet for them, ETFs never promise results… they are marketed only as an investment tool. In the majority of cases, this works just fine. It’s wonderful that investors can purchase a whole index such as the S&P 500 with a single ETF.
Unfortunately, these incentives can create a serious problem in the ETF industry, as popularity drives much of its profits, rather than results. When commodities became all the rage in the past decade, retail investors flooded billions into futures commodity ETFs promising to provide an easy way to invest in the asset class. It didn’t matter that the underlying investments were doomed for failure. The funds lay out the risks in the prospectus and then wash their hands clean should the ETF head for the worst. Sometimes the failure of those funds is hardly an accident or the result of bad luck. Continue reading
Iran Says “Gold Is Money”
By Louis James, Casey Research
Economic crises signal that the current system isn’t working as expected and needs improvement. When it comes to monetary systems, questioning their fundamentals can lead to doubts about whether the preferred medium of exchange will continue to be preferred for long. The large-scale whirlwind of economic trouble around the globe has pushed some to rethink the role of gold in the economy – and to actually move toward bringing it back.
A month ago, a rumor that India is going to pay in gold for oil imported from sanction-struck Iran sent shockwaves through the markets. It was no small deal, both in principle and volume: India is one of Iran’s largest oil buyers, responsible for about 22 percent of total exports and worth about US$12 billion per year. China is next with 13 percent, and Japan is third with about ten. All of them are having a hard time dealing with Iranian oil imports, as the country is under sanctions caused by Western fears regarding its nuclear program.
Then an Israeli news site claimed exclusive knowledge of a possible workaround between India and Iran: settling the purchases in gold. Indian government officials refused to comment, which added to the speculation. Continue reading
America’s Oil Supply: The Keystone for Survival
by Marin Katusa, Casey Energy Report
A rancorous debate over TransCanada Corp.’s (T.TRP) proposed Keystone XL Pipeline has given rise to two uncomfortable prospects: If the US$7 billion project is not built, Alberta’s oil sands will become landlocked, at least for a while, and the United States will lose access to one of its few reliable, friendly sources of oil.
Keystone XL is a proposed pipeline that would run from Edmonton—the hub of Canada’s massive oil sands—through Montana, South Dakota, Nebraska, Kansas, Oklahoma, and Texas, to Houston. The line is critical to ensure a continued, smooth ramp-up in oil sands production, because producers need to send the heavy bitumen extracted from the sands to refineries able to handle that kind of crude. Since refineries in the Midwest are reaching their heavy-oil capacity, it needs to go to the Gulf Coast.
Keystone XL is also critical for U.S. oil security – the U.S. is the world’s biggest importer of oil and, as we recently outlined in the Casey Energy Report, almost half of its oil comes from unstable, unfriendly, or declining producers (think Nigeria, Venezuela, Saudi Arabia, and the like). Canadian oil sands may be an environmental controversy, but in terms of U.S. energy security they are a lone bright spot. Denying Keystone XL equates to denying the U.S. its only significant friendly, stable, and growing source of oil.
The pipelines that currently carry bitumen from the oil sands to refineries in the Midwest will reach maximum capacity in as little as four years. At that point, oil sands producers would be stuck with growing volumes of oil and waiting for other transportation options to materialize. Those options would take several years to develop, even if efforts begin now. Continue reading
Forgotten Treasure: Unconventional Oil in the Middle East
As the conventional and cheap oil and gas start to dry up in the Middle East… a bigger, even better opportunity seeks to replace it.
For many who aren’t familiar with the region, the Middle East comes across as an updated version of Lawrence’s Arabia, only with lots of oil. But this mosaic of cultures isn’t made up of only Arabs or Muslims, and most Middle East countries are neither awash with heavily armed, rather excitable citizenry… nor with black gold, which is what we’re interested in. Twenty-three countries comprise the Arab League, but only Saudi Arabia, Iraq, Kuwait, the United Arab Emirates (UAE), and Iran are major oil producers.
No matter; with the exception of Kurdistan in northern Iraq, none of the oil heavies are currently open to us investors anyway. We’re digging for other finds, with three basic criteria. We’re looking for countries in the Middle East that: Continue reading
3 Smart Indicators To Trade Crude Oil With Synergism
Now that we have “Silly Season” behind us, it’s time to get serious about trading
In today’s video we are looking at crude oil. This market has been a disappointment to a lot of traders as has remained in a broad trading range for the past 18 months.
The current trading range will eventually be broken and the market will move in the direction of the breakout. While our long-term indicator, the monthly “Trade Triangle” continues to be positive, short-term “Trade Triangles” are indicating weakness. With a score of -60 for February crude oil, we expect that this market will be range bound in the short term.
One of the indicators we discussed in an earlier video is in an oversold condition, indicating a potential rally from current levels could be at hand. That being said we would wait for some other combination of indicators to confirm that a move is underway. Continue reading
What’s Ahead in the Crude Oil Market
There’s no question about it, 2010 has been pretty difficult for most traders in the crude oil market. This year has produced no discernible, lasting trends in this market. The trends it has produced have lasted little more than just 3 or 4 weeks at best.
So what’s ahead for this market?
In today’s short video we examine the fact that crude oil briefly traded over $90 a barrel before falling back. So what made the crude oil market reverse course and fall back? Was it selling, was it profit taking, a technical point, or something else?We are examining crude oil in detail using a tool that we think is very appropriate for this type of market at the moment.
We have not discussed this technical indicator in any of our previous videos and I think when you see how it works and how you can use it your own trading, you will be pretty impressed. Continue reading
Oil’s Out – Find Out What’s In
The International Energy Association (IEA) has spoken. What the world needs now is a clean energy technology revolution.
June saw the 2010 launch of IEA’s biannual report, Energy Technology Perspectives. Speaking at the launch was Nobuo Tanaka, executive director for IEA. The Gulf oil spill, he said, could prove to be a tipping point in the world’s energy consumption habits. He added that the disaster serves as a tragic reminder that our current path is not sustainable.
As far as the IEA is concerned, this is probably a very important moment to start looking at alternative energy sources. If we, as a collective group of consumers, continue on the business-as-usual path, the scenario for 2050 is looking grim. Continue reading
Florida – Much Worse Problems Than the Oil Spill
By Doug Hornig, Senior Editor, Casey Research
Media coverage of the oil spill’s effect on the Gulf focusing on tourist income lost by the waterfront towns – with footage of empty beaches, restaurants and T-shirt shops – dominates the news. Interviews with devastated business owners are heart rending. But they always end with references to somehow hanging on until “things get back to normal.”
Trouble is, things are not going to “normalize.” Not for the Panhandle of Florida, and probably not for the rest of the state, either.
Projections suggest that Florida can expect oil all along its west coast, and possibly throughout the Keys and up the east coast as well. Yet even before BP’s well began spewing crude, pressures within the state’s economy were building. It was an explosive situation awaiting a match.
Gulf Spill: Obama’s Waterloo?
By Marin Katusa, Chief Energy Strategist, Casey’s Energy Report
The White House might be gaping in shock that the U.S. federal court overturned the six-month drilling moratorium, but it really isn’t all that surprising. Amid the finger pointing and political posturing, the Obama administration seems to have missed a vital detail – the U.S. oil industry is in a spot of bother.
It’s not just America’s oil supply and energy security that’s in danger after the BP oil spill and the subsequent drilling ban. The Gulf economy is hanging by a thread, and it won’t take much to send it over the edge. Continue reading
The Hungry Dragon: China’s New Oil Market
By Marin Katusa, Chief Investment Strategist, Energy Division
If you ever happen to eavesdrop on a conversation between energy investors, two words are sure to crop up – China and oil. Usually, they’re used together and usually, it’s about China’s increasing presence on the global oil scene.
It’s a pretty safe bet that, as one of the world’s fastest growing economies, China needs a lot of energy. And with an oil appetite that grows by 7.5% each year, seven times faster than the U.S., the country’s reserves don’t even begin to compare to the consumption.
But fuelling the blistering pace of its economy is China’s number one priority, and it is on a mission to lock down its energy interests all around the world. The emerging powerhouse has often felt that it was the last one onto the energy playing field with a lot of catching up to do.
