Truckers In China Protest Rising Fuel Costs (Oil, Gasoline Price Charts)

Have you seen the charts of oil and gasoline recently? Protests do not surprise me.

*China moves to defuse Shanghai trucker protests (AP)
*Update: Shanghai offers fee cuts to defuse drivers' strike at port (Reuters)
Chinese Trucks Idle as Protests Continue (Wall Street Journal)
Chinese Truck Drivers Block Road Over Gas Prices (NPR)
Third day of Shanghai strike threatens China exports (Reuters)
Q+A-What is behind the Shanghai truckers strike? (Reuters)
Fuel price strike rattles Beijing (Financial Times)
First Person Account From Inside The China Protests (Zero Hedge)
Truck drivers go on strike at Shanghai ports (AFP)
Related: High crude prices threaten China's oil price controls (WantChinaTimes)
Related: Oil Price Rise Fueled by Investment Funds (VOANews)
Related: Obama blames oil speculators for rising prices! (Reuters)
Related: Oil prices to ease in H2 as disruption fears wane (MoneyControl)
Related: Goldman Sachs tells investors to take profits from oil, cotton and copper (Telegraph)


NYMEX Unleaded Gasoline (StockCharts.com)


West Texas Intermediate Crude Oil (StockCharts.com)


Brent Crude Oil (CMEGroup.com)

Buffett's Letter on Muni Insurance; Berkshire Insured Detroit Revenue Bonds After FGIC

BHAC/FGIC Collaboration (MSRB)
After a post I did a few days ago on Detroit's 2011-12 budget, I found out that Berkshire Hathaway's AAA rated subsidiary, Berkshire Hathaway Assurance Corporation, insured $767 million Detroit revenue bonds on a second-to-pay basis. These bonds were re-marketed and converted into fixed rates in 2008. Berkshire insured $385 million Detroit water revenue bonds (official statement at msrb.org) and $382 million Detroit sewage disposal revenue bonds, but only if bond insurer FGIC failed to pay. Principal and interest payments are backed "solely" by net revenues of pledged assets (water and sewage funds), not by taxes like general obligation bonds.

At that time the large muni bond insurers, Ambac, MBIA and FGIC, were being downgraded as losses mounted on toxic credits they insured (MBS). As a result, Buffett wanted to leverage his AAA rating and grab share in the muni insurance market. Issuers wanted Berkshire's guarantee because it lowered interest payments. Berkshire eventually "pulled out of municipal bond insurance" when he thought he wasn't being compensated for the risk (GuruFocus). Read Buffett's 2008 investment letter below for more details. It is interesting that Financial Guaranty Insurance Co.'s parent company, FGIC Corp., filed for bankruptcy in August 2010 and its insurance company had its muni bond insurance reinsured by a division of MBIA in early 2009. Counterparties squared.

"The majority of FGIC Co.-insured bonds were reinsured in January 2009 by National Public Finance Guarantee Corp., the investment-grade, muni-only insurer owned by MBIA Inc." (Bond Buyer)

From Bloomberg on May 1, 2008 on the Detroit bond deal:

"May 1 (Bloomberg) -- Detroit sold about $383 million of bonds carrying insurance from Berkshire Hathaway Assurance Corp., marking the first foray by Warren Buffett's four-month- old guarantor into the primary market for U.S. municipal debt."

"Detroit sold Berkshire-backed bonds at yields ranging from 2 percent on debt due in July to 4.75 percent on bonds set to mature in 2027. The largest single series of bonds -- $136 million of debt paying a 5.75 percent rate and due in 2031 -- were priced to yield 4.67 percent, 13 basis points less than Municipal Market Advisors' index of top-rated debt at similar maturities. A basis point is 0.01 percentage point."

More information from The Bond Buyer (4/30/2008):

"As the finance team crafted the transaction, they met with several monoline bond insurers with the hope of leaving the FGIC policy in place and bringing in a secondary insurer for additional protection. Officials considered Financial Security Assurance - which insures a remaining piece of the water and sewer bonds - but the insurer backed off because of its heavy coverage of much of the city's outstanding debt.

Only Berkshire Hathaway was interested in acting as a secondary insurer with FGIC, according to a source. "They didn't have the same idea about FGIC being in place on the bonds as the other insurers had," he said. "The Berkshire insurance really gilds the lily [on the bonds]." It will mark the first time that BHAC will act as insurer on a primary market transaction, officials said."

Credit ratings in the news:
Fitch Drops $4.6 Billion of Detroit Water and Sewer Bonds (BondBuyer, April 1, 2011)
Detroit Water and Sewer Revenue Bonds Are Downgraded by Moody’s (BusinessWeek, December 20, 2010)

Since Berkshire Hathaway was directly involved in analyzing municipal credits before the market and economy collapsed in 2008, Warren Buffett is probably a decent source for analyzing municipal credit risk. In Buffett's 2008 letter, he warned about the potential risks involved in insuring muni credits. Read the full portion about tax-exempt bond insurance after the jump.

"Insuring tax-exempts, therefore, has the look today of a dangerous business – one with similarities, in fact, to the insuring of natural catastrophes. In both cases, a string of loss-free years can be followed by a devastating experience that more than wipes out all earlier profits. We will try, therefore, to proceed carefully in this business, eschewing many classes of bonds that other monolines regularly embrace."

Video: Facebook Townhall With President Obama, Mark Zuckerberg (4/20/2011)

Watch the video after the jump courtesy of facebookguests on Livestream. Parts 1 and 2 are archived below. Zuckerberg just asked him about the debt.

St. Joe (JOE) May $24 Call Volume; BlackRock, Fidelity Magellan Own a Huge Chunk of Shares

JOE May 24 Call (CBOE.com)
St. Joe (JOE:NYSE) saw 1,120 May $24 call options trade with 131 open yesterday. It looks like 653 calls traded on the International Securities Exchange (ISE) at 0.91 and the rest traded on the AMEX. JOE has been trading in a sideways channel for 3 years now and is now testing the 200 day moving average. With institutions and mutual funds loading up on the company, you have to wonder if there will be a major short squeeze or a deal led by Fairholme's Bruce Berkowitz, even though the company is only worth $7-10 per share! David Einhorn, hedge fund manager at Greenlight Capital, is, or was, short $JOE shares and released a detailed research report explaining why. On February 8, 2011, St. Joe announced that it was "exploring financial and strategic alternatives to enhance shareholder value".
JOE 3yr chart - Stockcharts.com
"The Board intends to consider the full range of available options including a revised business plan, operating partnerships, joint ventures, strategic alliances, asset sales, strategic acquisitions and a merger or sale of the Company. The Board of Directors has retained Morgan Stanley & Co. Incorporated to assist it in the evaluation of these alternatives." (source)

Look at all of these institutions loading up. Joe Ownership via SEC.gov: Fidelity Magellan (FMAGX) disclosed that it owned 7.4% of the company in a March 31, 2011 13G filing (Fidelity owned 11.4% in total), BlackRock owned 17.69% of JOE in total (13G filing), Fairholme Fund (FAIRX) owned 28.86% (13D filing), T-Rowe owned 11.2% (13G filing) and the Janus Contrarian Fund owned 8.8% of JOE (13D filing). Janus Capital Management owned 13.2% of JOE in total.

Michael Burry's Vanderbilt University Lecture (Video)

Source: Youtube via Vanderbilt
Dr. Michael Burry, who made billions of dollars shorting tranches of subprime mortgage backed securities via credit default swaps (before John Paulson's big short), gave a lecture at Vanderbilt University on 4/5/2011. In June of 2005, Burry used Deutsche Bank to buy his first credit default swap contract (a credit derivative that insures against losses on subprime MBS tranches). In early 2010, Dr. Burry was featured in Michael Lewis's book "The Big Short" and was on 60 Minutes. He also dissed the Federal Reserve, Ben Bernanke and Alan Greenspan in a New York Times oped last year ("I Saw the Crisis Coming. Why Didn’t the Fed?"). He remains very critical of the Federal Reserve and regulators since they failed to foresee the financial crisis (and shut down the financial crack houses before they became a systemic risk). If you can't watch the video, the blog Distressed Debt Investing transcribed the speech. Remember, Michael Burry was a former neurology resident, turned value investor, who was the first hedge fund manager (and credit trader at a big bank?) to buy credit default swaps. Burry placed his first CDS trade six months before the ABX indices were created (1/2006), which Paulson & Co printed money on. I'm listening to his FCIC interview right now and will transcribe the key points. It is hilarious. The mortgage-securitization-CDS engine remains, to this day, the biggest financial joke I have ever seen.

Detroit's 2011-2012 Budget, $200M Savings Needed (Mayor Dave Bing)

Detroit, Michigan - Source: Wikimedia
I'm following the financial situation in Detroit, as I have been for a while now. Not only is the City of Detroit a distressed municipality, there is also the possibility that the State of Michigan could intervene if there's a financial emergency. I linked to the the budget documents, FY 2010 Comprehensive Annual Financial Report and articles after the jump. I'm trying to find yields and recent trades on Detroit muni bonds through TRACE/MSRB databases on finra.gov. This is from Mayor Dave Bing's budget address:

"Good morning Honorable City Council. My budget presentation today marks the next step on the City of Detroitʼs path back to financial stability. We face challenges unlike any the city has ever seen, challenges that demand bold action and a business approach that this administration is prepared to take. We do not have the luxury of waiting for someone else to solve our problems.

Mayor Dave Bing
• We must find savings of $200 million in this fiscal year to present a balanced budget.

• If we do nothing, our deficit which today stands at $155 million will grow to approximately $1.2 billion by Fiscal Year 2015.

• Pension and medical costs are rising at an uncontrollable and unsustainable rate. From 2008 through 2011, the City of Detroit cut $40 million from service delivery to offset the rising cost of benefits.

• Without action, benefit costs will consume a larger and larger portion of our operating funds, potentially growing to 50% by 2015.

• Since 2000, revenue is down from $1.1 billion to $753 million. Our population is down more than 200,000 according to the recent U.S. Census report.