Proof that Russia is being hurt more than anyone in recent oil plunge

by finansakrobat


Every few days, @SardonicaX and @finansakrobat (hey, that's me!) do a podcast on finance. We call it AFP - A Finance Podcast. Tune in. 

The tide in the oil market is going out, and it's become pretty obvious who's been swimming naked.

Russia has been hit very hard, anything ultra deepwater and some stuff in the Bakken field. 

Here are the exact numbers of breakevens, courtesy of Goldman Sachs: 

A few days back I highlighted my own theory that the seemingly unexplained (if you disregard shale production and OPEC) selloff in oil, coincided with the escalation in war of words between the US and Russia:

I felt bad bringing this up, since it seemed almost insane. Yesterday this became a widespread theory, and repeated by Jim Cramer on CNBC.

Considering that manipulation in the oil market is not unheard of, there might actually be some truth to this. 


Full text of Fitch's France warning

by finansakrobat


FITCH PLACES FRANCE'S 'AA+' IDR ON RATING WATCH NEGATIVE - RTRS

Full text from Fitch below:

LONDON, October 14 (Fitch) Fitch Ratings has placed France's 'AA+' Long-term foreign and local currency Issuer Default Ratings (IDR) on Rating Watch Negative (RWN). The issue ratings on France's unsecured foreign and local currency bonds have also been placed on RWN. At the same time, Fitch has affirmed the Short-term foreign currency IDR at 'F1+' and the Country Ceiling at 'AAA'.

Listen to AFP - A Finance Podcast

 

Under EU credit rating agency (CRA) regulation, the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations. Fitch interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status. The next scheduled review date for Fitch's sovereign rating on France was 12 December 2014, but Fitch believes that developments in France warrant such a deviation from the calendar and our rationale for this is laid out below.

 

Fitch will seek to resolve the RWN at its next scheduled rating review of France, with the outcome to be published on 12 December 2014.

 

KEY RATING DRIVERS

 

The RWN reflects the following factors and their relative weights:

 

HIGH

 

On 1 October, the French government presented its draft 2015 budget and confirmed a material increase in its budget deficit targets. The slippages were initially announced in August but the full details underpinning the new deficits were not available at that time. The government now projects the general government budget deficit at 4.4% in 2014 (previously in the April Stability Programme it was 3.8%) and at 4.3% in 2015 (previously 3.0%), both slightly worse than the 4.1% of GDP achieved in 2013. It has postponed its commitment to meet the headline EU fiscal deficit threshold of at most 3% of GDP from 2015 until 2017. France's budget deficit compares with a 0.2% surplus for the 'AA' category median.

 

Fitch commented at the time of its previous rating review in June that a weakening in public finances compared with our baseline projections or greater uncertainty over the implementation of budget consolidation efforts could trigger negative rating action. The agency's latest forecasts show wider fiscal deficits into the medium term, with a deficit of 3.3% of GDP in 2017, a negative variance of more than 1.5ppt compared with our previous projection. The French government's own forecasts show material deviations from prior forecasts. Previously, they had projected the deficit to fall to 1.3% of GDP by 2017. This has been revised up to 2.8% in the latest projections. The wider deficits have negative consequences for public debt dynamics.

 

Fitch now expects the gross general government debt (GGGD) to GDP ratio to peak two years later and higher at 99.7% in 2017 with a slower decline to 94.9% by the end of the decade. The revised projections for France compare with Fitch's previous forecasts in June of GGGD peaking at around 96% in 2015 from 93.5% in 2013 and falling below 90% by 2020. Even under the government's own updated forecasts, the capacity of the public finances to absorb shocks has been significantly reduced. The authorities project the debt ratio to peak higher at 98% in 2016 (previously 95.6% in 2014 and 2015) and fall to 97.3% in 2017 (previously 91.9%) and 92.9% in 2019. The projections compare with the 'AA' category median for GGGD of 37%. The only 'AA' range country with a higher debt ratio is Belgium (AA/Stable).

 

Risks to Fitch's fiscal projections remain on the downside owing to the uncertain outlook for GDP growth and inflation in the near term and the increased uncertainty over the government's ability to deliver on a fiscal consolidation path. The French High Council of Public Finance's (HCPF) opinion on the government's latest economic forecast was that the lower GDP growth rates projected for 2016-2017 were more realistic than previous forecasts but still reflect an optimistic view of the external environment and domestic investment potential. The HCPF's opinion on the government's fiscal projections was that there was a risk of deviation from the medium-term objective of lowering the structural deficit from 2.5% of potential GDP in 2013 to 0.4% by 2019. Reflecting these concerns, Fitch's medium-term growth forecasts are weaker and budget deficits wider than official projections.

 

MEDIUM

 

The outlook for the French economy has deteriorated, impairing the prospects for fiscal consolidation and stabilising the public debt ratio. The French economy underperformed Fitch's and the government's expectations in 1H14 as it struggled to find any growth momentum, in common with a number of other eurozone countries. Fitch has revised down its near-term GDP growth projections to just 0.4% in 2014 and 0.8% in 2015 in the latest review, down from 0.7% and 1.2% previously. Continued high unemployment at 10.5% is also weighing on economic and fiscal prospects.

 

The on-going period of weak economic performance which started from 2012 increases the uncertainty over medium-term growth prospects. The French economy is expected to grow less than the eurozone average this year for the first time in four years. The quantitative impact of recent structural reforms is also uncertain, and in Fitch's view does not appear sufficient to reverse the trends in long-term growth and competitiveness. Therefore, we believe there are downside risks to France's long-term growth potential.

 

In Fitch's view, the latest deviations from budget targets and EU excessive deficit procedure commitments weaken fiscal credibility. This is the second time the French government has postponed meeting the EU 3% headline deficit threshold since end-2012. This is despite the introduction of a High Council of Public Finances and new fiscal framework in France and the reinforced EU policy framework. The reaction of the European Commission to the revised French targets remains to be seen. The revised projections for larger fiscal deficits are largely explained by the weaker growth and inflation outlook and technical adjustments to tax credits, but France could nonetheless be asked by the Commission to adopt further reforms or additional fiscal tightening in response. However, Fitch does not expect any sanction or request by the European Commission to materially affect the path of France's debt dynamics.

 

The creditworthiness of France is supported by the following main factors:

 

France has a wealthy and diversified economy. It has a track record of relative macro-financial stability including low and stable inflation. It also benefits from moderate levels of household debt and a high household savings rate. Political stability is entrenched by strong and effective civil and social institutions.

 

While the current account balance has generally been on a deteriorating trend for the past 10 years due to France's loss of export market share, at 1.3% of GDP in 2013 the deficit is not excessive. Fitch projects the deficit to stabilise around current levels. However, France's net external debt is significantly higher than most rating peers.

 

Fitch judges financing risk to be low, reflecting an average debt maturity of seven years, low borrowing costs and strong financing flexibility.

 

There is low risk from contingent liabilities. In recent years, the financial sector has been cleaning up its balance sheets, strengthening funding, liquidity, capital and leverage. The risks from the eurozone crisis management mechanism including the EFSF and ESM have also eased owing to the actions of the ECB and the on-going gradual economic recovery of the single currency area.

 

RATING SENSITIVITIES

 

The RWN reflects the following risk factors that may individually or collectively result in a downgrade of the ratings:

 

  • The absence of a material improvement in the projected trajectory of public debt dynamics following the publication of the European Commission's opinion on France's 2015 budget will likely lead to a downgrade of the ratings by one notch. The Commission is due to publish its opinion on the budget in November.
  • In this context, Fitch will also review any new structural reform measures announced by the government up to the time of its next rating review in December to assess the extent of their potential impact on the outlook for growth and public debt dynamics.


 

KEY ASSUMPTIONS

 

In its debt sensitivity analysis, Fitch assumes a primary surplus averaging 0.5% of GDP over the next 10 years, trend real GDP growth averaging 1.5%, an average effective interest rate of 2.7% and GDP deflator inflation of 1.5%. On the basis of these assumptions, the debt-to-GDP ratio would peak at 99.7% in 2017, before edging back to 87.8% by 2023.

 

Fitch assumes the eurozone will avoid long-lasting deflation, such as that experienced by Japan from the 1990s. Fitch also assumes the gradual progress in deepening fiscal and financial integration at the eurozone level will continue; key macroeconomic imbalances within the currency union will be slowly unwound; and eurozone governments will tighten fiscal policy over the medium term.

 

Fitch's projections for the French economy and public finances are based on the new European System of National and Regional Accounts (ESA 2010) which replaced ESA 1995 this year. The changes for example led to the decline in GGGD to 92.2% of GDP in 2013 from the previous 93.5% at the time of the June rating review.

 

In accordance with Fitch's policies the issuer appealed and provided additional information to Fitch that resulted in a rating action which is different than the original rating committee outcome.

 

Contact:

 

Primary Analyst

 

Enam Ahmed

 

Director

 

+44 20 3530 1624

 

Fitch Ratings Limited

 

30 North Colonnade

 

London E14 5GN

 

Secondary Analyst

 

Ed Parker

 

Managing Director

 

+44 20 3530 1176

 

Committee Chairperson

 

Tony Stringer

 

Senior Director

 

+44 20 3530 1219

 

Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.

 

Additional information is available on www.fitchratings.com.

 

Applicable criteria, 'Sovereign Rating Criteria' dated 12 August 2014 and 'Country Ceilings' dated 28 August 2014, are available atwww.fitchratings.com.

 

Applicable Criteria and Related Research: France

 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm...

 

Sovereign Rating Criteria

 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm...

 

Country Ceilings

 

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm...

 

Additional Disclosure

 

Solicitation Status

 

http://www.fitchratings.com/gws/en/disclosure/solicitation...

 

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


Your next car

by finansakrobat


Check out the podcast AFP - A Finance Podcast

As a Norwegian, it's impossible to not love Tesla. For those of you not aware, Teslas and other electric vehicles are excluded from the insane car taxes of Norway. This means that for us a Tesla has the equivalent cost of a low med-range VW vehicle. So here it's cheap.

And with their latest release, the D-version of the Model S, it's now also a very good winter vehicle. 


I'm baaaack

by finansakrobat


Writing is thinking, so I figured I need to write a bit more. So the blog's back.

I like to have a landing page for all kinds of stuff, and I figured it makes sense now that I'm in the process of bringing out a podcast. 

So far the site just looks like it did in the past, but I'll try to enhance it a bit and blog more. 

 


Pathetic things people do on Twitter - and I've done it all

by finansakrobat


I've got a love-hate relationship with Twitter. On the one hand, it's been very good to me in getting contacts globally, especially in finance. On the other hand, it's a time thief like nothing else. 

Well, maybe Reddit. 

One of the more annoying things on Twitter, is all the schemes people use to try to get followers and attention. 

Manual Retweets: 

A manual retweet is when people choose to not just push the retweet button in their app, but rather do the more time consuming method of writing RT in front of your handle. 

Often this requires editing of the actual text, reducing the meaning and readability. 

There are some rare cases in which manual retweets make sense, but 9 times out of 10, it's all about trying to freeload off of someone else. 

And hell yeah, I've done it. Plenty of times. It was purely done in a cynical way to get some more followers. And I repent. 

Mostly it's a problem cause it messes up your @reply-feed, making it harder to see real interactions. 

Subtweeting:

Oh, this happens so very much on Twitter, especially in the finance space. Be it to bitch about Keith Mccullough, Doug Kass or ... well, mostly it's about those two. 

It's the most cowardly thing to do, and hell yeah I've done it. Cause it's much easier than standing your ground. 

But if I cuss someone out, I always make sure to include them in it, to let them defend themselves and call me a bastard. 

By the way, referring to Keith Mccullough as "Keith" also counts as subtweeting. 

Twitter-fights:

It's a well-known fact that negativity sells better than positivity. That is why radio-DJs argue with other radio-DJs. 

And that is also why people on tiny, tiny, tiny mountain tops decide to go after other people on tiny, tiny, tiny mountain tops. 

When I went to San Diego last fall, this happened to me. A group of people started attacking me for no reason. It was ludacris (hell yeah I spell it like that!). But it was very annoying. And a lot of people noticed it. 

But the truth is, these bullshit controversies do nothing but undermine your credibility, and if you choose to spend your time attacking other people, maybe you should rethink how you live your life. 

Oh yeah, and I hold no grudges against anyone that ever attacks me, calls me a hack or anything else. 

All of the people I have slagged off over the years, like zerohedge and russian_market, I've apologised to, and I'm on good terms. 

The fake hedge fund manager:

There are some truly great hedge fund managers on Twitter, who manage huge amounts of money really well, like Cliff Asness and Peter Warren

Caveat regarding the headline; this one I've not done!

However, the vast majority of self proclaimed hedge fund managers are either simply not that, or run so small funds they are not even able to have employees. 

The very worst case of this, which rather beautifully exemplifies this problem, is the case of Keiko "Cakes" Kawamura

Ms. Kawamura was not a hedge fund manager, which would have been evident to anyone listening to her for more than 5 seconds. She was just selling some BS trading tips. 

But there are 100s of fake-anon accounts out there, some with big followings. 

Here's how to spot the fake ones; 

  • They have hedge in the name
  • They talk a lot of individual stocks
  • They tend to latch on to fads; like HLF
  • They are VERY active

No point in following these. They are mostly just uselessly trying to talk their book.

Scarily sometimes they manage to move big shares, like we've seen in the past. 

Also, as a bonus; given that CNBC does not vet guests, it's not surprising that so many of their self proclaimed hedge fund guests, rarely manage over $20 million, meaning that they are not able to sustain employees or cover basic costs. 

So if you see some hedge fund manager on CNBC, he's likely one of two things; a very tiny fish with enough spare time to waste a few hours for CNBC, or some activist investor that uses the media as part of his investment strategy. Only on a very few rare occasions do they have a real hedgie on. 


Fantastic new feature in the Infront terminal

by finansakrobat


It's fairly well established that I have a trading and information terminal of choice: Infront. 

Last week the guys at Infront added a fantastic new feature, that makes the list of reasons to sign up quite long. This time it's fund information. 

Long story short, you get a bunch of information normally only available to Morningstar clients, except it's right inside the terminal.

Go on, sign up for a free trial, why don't you?