Wrap – Week Ended 07/09/10

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Comments will be in the Monday post.

6 Responses to “Wrap – Week Ended 07/09/10”

  1. 1
    Wyoming Says:


  2. 2
    zman Says:

    Yeah, saw that, unfortunate but you can't blame them


    Containment cap being swapped out now.

  3. 3
    rseidman Says:

         Z: I thought you might read this
                             Jim Rickards – Why BP Will Not Survive
     Why BP will not survive
    By James G. Rickards
    There are two dynamics that BP bull analysts are missing, one political, one economic.
    June 18, 2010
       The economic point is that analysts assume there is some quantum of damage, hard to quantify or know in the short run, but still essentially fixed.  They then do their best estimates, compare the results to BP's balance sheet (including projected earnings over the next 5 years), make a judgment about BP's capacity to pay and their estimate of the franchise value and earnings potential net of the payments and then issue buy or sell recommendations at various market levels.
    But that's not how the world works.
    The damages are not fixed but moving in a critical state system with positive feedback loops.  In layman's terms, the worse things get, the worse they will get.  One year's compensation to a fisherman soon becomes two or three, etc.  Soon getting comped by BP starts to feel better than fishing and who can argue? Ecologies change, vacation habits change, vocations change, etc.  As long as BP has the money, there will be an irresistible dynamic to enlarge the claim until the money is gone.
    The political point is related but starts in a different place.
    Obama's approval ratings are getting close to those of Nixon, Carter and Bush 43.  History shows that once you drop below 40% approval there is no recovery because you no longer have sufficient critical mass with which to reward friends and punish enemies.
    The economy is getting worse, not better.  By election day 2010, unemployment will be higher, real estate prices lower and the banking crisis will be back (or, it never really went away).
    Obama hates the English.  They tortured his grandfather in Kenya. His first official act as President was to order the packing up and return of a Churchill bronze bust which Bush had displayed in the Oval Office.
    Taking all of this into account, BP is an irresistible cookie jar into which politicians will reach their hands over and over.  Again, the dynamic is not "how much do you owe?" but rather "how much can you pay?".  The answer is that you keep paying until you're broke.  They will also need to demonize BP on a continual basis as a prod to pass cap-and-trade or cap-and-tax and as a club to beat Republicans who stand in their way.  Just look at what happened to Rep. Joe Barton (R-TX) today to get an idea of how this will pay out.
    Don't think the law can stop this.  The law will accelerate it.  BP's negligence will turn out to be criminal, not civil and the criminal penalties are exponentially greater than the civil fines and normal tort claims.  Obama will use the threat of criminal prosecution to get more and then use an actual criminal prosecution to get the residual.
    BP may not literally go to zero.  It may go to $2.00 per share or so at which point a pre-packaged bankruptcy will be used to transfer valuable assets to, say, ENI, Total or Exxon with some value preservation for BP debt holders.
    Follow Jim Rickards on Twitter at twitter.com/JamesGRickards


  4. 4
    zman Says:

    Thanks but who is that guy? Doesn't bother with numbers and he really lost me on the grandma bit. He's entitled to his opinion though which I just happen to disagree with.

  5. 5
    zman Says:

    Ah, I see his resume now. Pretty alarmist bent, still don't agree with him.

  6. 6
    zman Says:

    SSN with a new corporate presentation out. Details in the morning. Noting that they are using 82.7 mm shares out in the press release (includes the new shares) which is the same number as in my model put out last week.  Normally wouldn't think a thing of it but they had another deal out there which was altered and I wanted to make sure I hadn't translated something improperly from Aussie speak.

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