I set great score by the accuracy of the material presented in my Blog. A single source of information is not enough.
The level set is that of a Jury; Does the material meet the standard of "Beyond Reasonable Doubt". Because the material is so far beyond what a person is exposed to the standard is higher. You can perform the checks & balances yourself. I hope you will as your life and the future of the Human Race hangs in the balance.
We live in a time that might occur once in 25,000 Years.

Tuesday, July 13, 2010

A Black Swan in more ways than One. The Gulf Mega Disaster

A Black Swan in more ways than One.

BP, the Multinational Global Giant has already lost its AAA rating. Fitch dropped BP’s credit rating an unprecedented 6 notches on June 15th from AA to BBB which followed June 3rd's AA+ to AA cut.

If Lehman Brothers was considered to be the trigger that activated the GFC then consider the implications of a Company the size of many small Countries in its Gross Earnings; and overall effect that a Bankruptcy or Multi Billion Dollar Litigation that will probably result from the disaster in the Gulf of Mexico. It would serve Investors well to do some research on the Economic implications of the disaster as well as the outlook from here on as to the damages already inflicted and the potential for these damages to multiply by factors of 10.

The Deep Sea Drilling represented the cutting edge of technology, during the construction phase problems never before encountered were overcome and the achievement of tapping what might be one of the Worlds largest Oil Deposits, would have made BP the wealthiest Oil Company on the Planet. Unfortunately this outcome did not occur. Workers from the Rig have been quoted as saying the project had problems from the beginning to the moment of disaster. Shortcuts were taken and a lot of vital information has been kept from the public.

What BP achieved was to drill down about 5 Miles into the Earths Crust, under thousands of feet of Ocean. When the Drill finally penetrated the cavity containing the Oil the pressures they encountered were on the order of 60,000 PSI added to that the pressure of the water above another 22,000 PSI for a Total of 70 to 80 Thousand PSI. (A Car Tire has 30 PSI, a Gas Bottle about 100 PSI Max. Hence the difficulties in capping the Well. Imagine trying to push Drilling Mud or Cement down against these pressures pushing back.

Hence all efforts to Cap it have failed, the best they can do is put a “Funnel” over the top and pump as much as you can into a surface ship. Judging by the numbers of Tankers they have not been overly successful even in this. Images of Crack and Fissures breaking open in places away from the Drill Head have been seen. When BP broke into that cavity it landed on a new Planet, a place of impossible pressures, Temperatures and Chemistry.

Soundings have detected a 20 Mile wide ‘Dome’ tens of feet high forming around the Drill Head. This is a giant compressed (80,000 PSI) bubble of Gas and other muck. A very real fear of this bubble reaching a point of bursting and releasing a cloud of Toxic Gas across the lower SE United States. Rainfall containing Toxins from the Oil and from the Dispersant “Correctcit” (Spelled wrong …Corrects it.) A great label for a very toxic substance, apart from Benzene, Hydrogen Sulfide and a dozen others. A Hurricane in the Gulf this year that will cross the Gulf , pick up the Ocean and dump it across the Coastal Cities would be the equivalent of a Chemical Warfare attack on the USA. The chance of a Hurricane of Force 3 to 5 hitting somewhere this season is 100% or as close as you can get. That’s probably one of the few certainties we can be sure of.

This entire event from start till present has been a ‘Whitewash’ / Suppression / Downplay / Spin of Media and Govt. Apart from telling the World the truth (That there is a probability of not being able to Cap the well, even using Nukes is a consideration to ‘Pinch Off’ the well.) We have an Event in motion that threatens the Planet. Its that serious.

Investors should start thinking in terms of BP’s Derivative Exposure and the Counter Parties who will be left hold the Bankrupt Bag, It will cost Hundreds of Billions of Dollars to clean this up, the area (Thousands of miles of coast, fishing, Tourism, the living space of Millions of people. ) People will soon come to their own correct assumption that this is an Oil Chernobyl, in fact Chernobyl would be an easier fix.

Comments from Moody’s:

“In the event of BP’s restructuring or bankruptcy, CSO transactions referencing BP or its affected subsidiaries may experience what is called a “credit event.” If the credit event occurs, the CSO transactions will have to meet their payment obligations to the protection buyers, which will result in the loss of subordination to the rated CSO tranches. In cases where the subordination is no longer available, CSO investors will incur the loss.
We reviewed our entire universe of outstanding CSOs and determined that exposure to BP and its rated subsidiaries appears in 117 (excluding CSOs backed by CSOs) transactions, which represents approximately 18% of global Moody’s-rated CSOs. Exposure ranged from 0.26% to 2% of the respective reference portfolios. The transaction with the largest exposure to BP and its subsidiaries is Arosa Funding Limited – Series 2005-5

The other four companies and their subsidiaries that were involved in the Gulf of Mexico incident, which are Halliburton, Anadarko Petroleum, Transocean Inc., and Cameron International. Halliburton appears in 43 CSOs, Anadarko Petroleum appears in 28 CSOs, Transocean Inc. appears in 79 CSOs, and Cameron International appears in 6 CSOs.”

“A study by Monody’s outlines that a BP bankruptcy would impair 117 Collateralized Synthetic Obligations (CSOs), which would lead to pervasive losses by a broad range of holders. The 117 effected is a startling 18% of the total CSOs outstanding, which is an indication of the scope and impact of BP financing globally. For those that remember the 2008 financial debacle, you will recall its epicenter was the collapse of Collateralized Debt Obligations (CDO) associated with mortgages and Credit Default Swaps (CDS) of financial companies impacted. CSOs are even more leveraged and toxic.”

Fitch dropped BP’s credit rating 6 notches on June 15th from AA to BBB which followed June 3rd's AA+ to AA cut.

“On June 25th BP’s Credit Default Swaps shot up 44 to 580 on the 5 years CDS. This meant it costs $580,000 per year to ensure $10 million in BP bonds over a 5 year contract period. Anything approaching 300 is considered serious risk.”

Political implications parallel the Financial and Environmental, anti British feeling will force Politicos to “Come down Hard” the usual guff, however they Buck doesn’t just stop at the White House it crosses the Ocean to the UK. America cannot afford a Trillion Dollar disaster. That’s what this will cost, count in Trillions not Billions. The cost in lives, displaced people and destruction to the Eco System is on a scale Humanity has never encountered in its recorded history. This ‘News Item’ should be a front page everyday, it seems silence is the only thing enveloping this ‘Spill’.

By the end of October the Gravity of this ‘Spill’ will be obvious to all. Prior to that Investors with any exposure to BP, its Co-Defendants and any Company with exposure to a crippled BP need to get out now before the obvious becomes obvious.

Thursday, July 8, 2010

Silver : The Quiet Metal

October 2010 would be next opportunity providing all follows history; Bull Markets have three stages , first a slow upswing , second consolidated upswing when Investors desperate to find 'Parking Space' for money, (we are in beginning to middle of stage 2. Stage 3 Public and anyone else all gripped by 'don't want to miss out' like a Real Estate / Dot Com / Tulip / boom.

Third stage is a growing bubble, irrational exuberance. Mentioned in evening news programs..."Today Tonight" "Should you be buying Gold?" Koshie holding the Breakfast Show in a Gold Vault. Third stage starts when people become aware of this small corner of the worlds 30 Trillion Economy, possibly strikes during a Sovereign Debt Default or recognition US Dollar is not a Safe Haven.

Note: commentators as applied to Gold rarely use the words “Safe Haven” anymore. Plenty of people ready to buy scrap Gold, very few selling and no big talk from Media about Gold.

Silver, you would not know the stuff exists lest of all that its very cheap, the Media is owned by the Elite, Silver is a very small market. Some estimate 200 Million Ounces actually available in World Stock piles. Half a Billion $ would dry up the Market.

My thinking is when no - one is talking about something, especially Mainstream Media then its probably worth a look at. Physical Possession is only real safe way to own Metals. Stocks are very vulnerable as Silver is Mined as a By Product of Tin , Lead etc mining. Stocks are not a safe option.

Deflation is probably the only scenario where Gold & Silver could be adversely effected. Even during the Great Depression after initial drop during Deflation phase Gold gained 30% after meddling by FDR and JP Morgan.

Little known fact: JP Morgan avoided duty in Civil War by paying $300 to have another serve in his place. This was Legal, can't have the Elite's kids being blown to bits by Bullets Daddy manufactured.

Today Silver is $18.40 USD per Oz, Aust Dollar @.86, that's $22 Australian, for an ounce in a 100 Ounce Bar, a machined coin is $26 to $27 for one Ounce. Buying a 10 Oz Coin the Machine price drops to $25.50.
If buying the 1 Kg coin the cost per Oz is $24.17. It would not take much for Silver to reach an Australian Spot price of 24. Per Oz. ($19.50 US per Oz with Au Dollar at $.81 to the US $ = Aussie Spot of $24 per Oz in Bullion form not a shiny 10 Oz coin.

The price of converting Bullion into Coin is not fixed, at present its about $5 an ounce, if Silver doubled in price the 'machine costs go up as % of cost of coin. Hence Silver coin of 1 Oz at $30 + $9 to $12 in overhead,

Britain is putting a 20% GST on all Silver coins, US is preparing $600 'declaration' limit (Name & Tax Please).

Ideally Silver and Gold will continue upward at steady pace, 14% up this last year. A good Investment is one that has a low probability of loosing 50% -100% of value. Silver is never going to loose 100%; highly unlikely 50%, 10 or 20% on ups & downs always a possibility.

Long Term.... 2 to 5 years, the price should Triple. There is 1 Oz of Gold for every 15 of Silver in the ground. The price of Silver should normally reflect this ratio. Presently it takes 67 Oz Silver to Buy 1 of Gold (67:1). Ratio at (15:1) = $80 per Oz, that just reflecting the fundamental supply ration. If reserves are as low as we think they are ???

"The Commodity Exchange Inc. said there was another 64.5 million ounces stored in COMEX warehouses in the Eligible category, which silver could presumably be coaxed into the Registered class at some silver price.

All together there were about 114 million ounces in both classes of inventory in COMEX warehouses which is about 16.4% of all the silver contracts sold as of June 22.

Historically only a small fraction of open silver contracts are actually held to maturity and delivered into. Currently it would take something on the order of 9,900 contracts standing for delivery to exhaust all the Registered silver now held by the COMEX. That is equivalent to just under $900 million worth of silver at $18.00 USD. "

It would not take much to fire up Silver...One Billionaire