Bad News for Pipelines - Good News for Rail (Guest Post)

Guest post submitted by

Bad News for Pipelines - Good News for Rail

The Association of American Railroads reports the number of rail tankers carrying crude oil and petroleum products in the United States increased more than 35 percent during the first six months of the year when compared with 2011. After the U.S. Energy Department, in its report, noted the lack of pipeline infrastructure in North Dakota, British supermajor BP announced it was considering rail to bring oil from the Bakken formation there to its refinery in Washington state. In terms of the environmental footprint, meanwhile, rail deliveries account for less than 1 percent of the total emissions from the transportation sector. These findings come even though rail shipments are three times more expensive than pipeline deliveries

Infographic on the U.S. Economy

Everything you wanted to know about the U.S. economy is in this infographic produced by (via Business Insider, Zero Hedge).

The Race for Resources - Guest Post

Guest post submitted by U.S. Global Investors

The Race for Resources

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

The world watched in awe as American swimmer Michael Phelps became the most decorated
Olympian of all time. I’ve read he’s been training in the pool for an average of 6 hours a day, 6 days per week, which equates to about 30,000 hours since age 13 and about 10,000 calories burned during a training day. It’s inspiring to see the incredible results of his tremendous sacrifice and commitment.

Investing in global markets requires the same sort of stamina, especially at times like this week, when the month’s reading on the manufacturing industry was not encouraging. The J.P. Morgan Global Manufacturing PMI of 48.4 for July was the lowest since June 2009.

However, I believe there are encouraging pockets of strength to energize and inspire investors.

For example, we’re coming up on the anniversary of the first stimulus move that kicked off the global easing cycle. On August 31, 2011, Brazil unexpectedly cut rates by 50 basis points, and since then, ISI says 228 stimulative monetary and fiscal policy moves have been initiated across several countries, including the Philippines, China, France, and Colombia.

Is Waste Carload Growth Diverging With GDP Signaling Economic Weakness Ahead? (AAR Chart)

Is the divergence between AAR Waste Carload growth and U.S. GDP growth year-over-year signaling economic weakness ahead? It looks like waste carloads decreased more than 20% y/y during Q3 (quarter-to-date average). The year-over-year change is similar to the 2008 decline before GDP crashed. Waste carloads declined more than 40% y/y at the low. Maybe this time is different. Green movement? This chart was posted on TwitPic by Michael McDonough of Bloomberg Brief (hat tip). He actually created an infographic on on June 9, 2010 that confirmed the economic recovery: "Waste on Freight Cars Gains Most Since '94 Confirming Recovery." Also, this may be of interest "Chemical Activity Barometer Has Been Falling Since April, Leads NBER By 8 Months On Average" (June 26, 2012). However, the weakness in waste carloads could also be related to China's slowdown, since trash was the U.S.'s biggest export to China between 2000-2008.

Buffett: Muni Bankruptcies Could Increase, San Bernardino's Mayor on Its Bankruptcy (Videos)

Berkshire's Warren Buffett, who actively insured municipalities before the financial system and economy collapsed in 2008 (Buffett's Letter on Muni Insurance; Berkshire Insured Detroit Revenue Bonds After FGIC), told Bloomberg TV that muni bankruptcies could increase if it becomes "fashionable and tolerable" to follow large cities like San Bernardino into bankruptcy court to renegotiate expensive city contracts and debts (Bloomberg Video). I found the muni portion of the interview on YouTube and embedded it below. Also watch San Bernardino's Mayor explain why the city filed for bankruptcy in an interview.

David Faber: Knight Faces Massive Dilution From Convertible Offering... ($KCG)

Here are Twitter updates from CNBC's David Faber. Read more at Zero Hedge ("Knight To See Another Day Following 60%+ Convertible Dilution").

A Comment on CDS & Peter Tchir Says Put CDS On Exchange (Video)

First, I replied to this comment on my blog:

"OK, while it is nice to see CDS prices, how can a little guy buy/sell them? Did not think that was possible. If not, are they more than just interesting?"

IMF: 200bps Rise in JGB Yields Hits Latin America the Hardest; U.S. Fiscal Cliff vs. Stocks ("2012 Spillover Report")

The IMF released an interesting report on July 9 titled "2012 Spillover Report," which analyzed potential spillover effects from the Euro Area sovereign debt and banking crisis, the U.S. fiscal cliff (fiscal tightening in 2013), China's hard landing, and a 200 basis point rise in Japanese government bond yields (JGB yields). It said a rise in JGB yields would affect EM Latin America the most, and then the Euro Area, U.S. and emerging Asia (China).

The $5 Billion Trade That Destroyed Knight Capital, Down Another 17% In After Hours Trading (KCG) - Update

Source: Google Finance
Seems like it was flash crash-ish.

"A software glitch caused Knight Capital to erroneously buy $5 billion of stock in a trade that was intended to be executed over five weeks but ultimately took place in just 20 minutes, FOX Business’s Charlie Gasparino reported." (via Charlie Gasparino at Fox Business)

Knight Capital Down 56% After Software Glitch Causes $440 Million Loss (KCG)

Knight Capital Group (KCG) is down 56% at $3 after a software glitch caused a $440 million loss at the trading firm. They are looking to raise capital to support their balance sheet (Reuters, WSJ). Financial tech has reverted back to 1998 and 2002 levels (KCG is testing those lows). Below are KCG stock charts, Knight Capital's statement to the press, an interview with Knight's CEO Tom Joyce on Bloomberg TV, and a snapshot of the enormous volume in KCG's Aug $2.50 puts (42,640 with 687 open interest). Make sure you add financial software, too-big-to-fail credit and Federal Reserve risk mis-management risk to your financial models! First here's an update on Knight Capital's bonds: Knight Capital’s $375 Million Of Convertible Bonds Decline (Bloomberg).

FED/ECB Statements (August 1-2) - No QE3 and No Action by ECB (TEXT)

No QE3 by the Fed + no action by the ECB = bearish for risk assets.

CHART: Insane EUR/USD Candle Reacts to ECB and Fed

EUR/USD pierced 1.228 resistance after ECB President Mario Draghi said the "ECB is ready to do whatever it takes to preserve the euro," sold off at downtrend resistance from May after no QE from the Federal Reserve, and is now dropping like a rock after the ECB's disappointing statement (continued uncertainty about their plan). EURUSD is at 1.21931 -0.47%. The next levels to test are 1.204 and 1.187, see the chart below. The U.S. markets just opened and the Dow is down 0.44%.

Grantham: "Entering Dangerous Food Crisis"; Profit Margins Weakening Put Stocks at Risk

Corn Harvest in Iowa (Wikimedia Commons)
In GMO's Q2 2012 Quarterly Letter, Jeremy Grantham, co-founder of the $105 billion investment firm GMO LLC, warned that we are "entering a long-term and politically dangerous food crisis" that could last for decades. And towards the end of the note he mentioned that corporate profit margins weakening could be a warning sign for stocks (hat tip PragCap).

First, here are Jeremy Grantham's thoughts on the "chronic global food crisis" and how to position investment portfolios for this long-term, unfortunate trend.

"1. Last year we reported the data that showed that we are 10 years into a paradigm shift or phase change from falling resource prices into quite rapidly rising real prices.

2. It now appears that we are also about five years into a chronic global food crisis that is unlikely to fade for many decades, at least until the global population has considerably declined from its likely peak of over nine billion in 2050."