My apologies to Claus Vistesen over at Alpha.Sources. I think I lead him to believe that I was going to write a post focusing on a recent article on demographics in last week’s Economist. And that was what I sat down to write. But when I started writing a long standing grudge against The Economist Click Here to continue reading.

This week’s rant of the week is tangentially related to Michael Moore’s latest movie on the American health care system. Seeing as some of us here at The Ethereal Voice read widely in the field of economics commentators we could have chosen a more technical argument. But instead we have chosen the observations of an someone who has experience with both the French system and the system in the US. The simplicity of her observations are more effective then a long technical argument we think. But we must admit that we considered this post by Dr. Bob for rant of the week instead. One wonders, did we choose the right one to make rant of the week or did the late night get the better of us?

Gazprom has asked the Russia government to cancel already issued contracts to sell gas to China. This from the BBC….

Russian energy giant Gazprom has asked the government to cancel an agreement to pipe large quantities of gas to China from fields in Siberia.

Alexander Ananenkov, the group’s deputy chief executive, said plans to deliver 80bn cubic metres of gas a year to China would leave Russia short.

Needless to say, these are not Gazprom contracts that Gazprom wants canceled. Exxon Mobile, Rosneft, and Videsh own the field that was to ship the gas to China. That makes me wonder about Gazprom supposed justification. If the contracts are torn up, it means that the gas has to be sold to Gazprom (because they are the ones that supply the domestic Russian market). So is Russia really running out of gas, or is Gazprom just making another power play to seize someone else’s assets?

I would go for the latter theory in a heartbeat accept for the fact that Rosneft is owned by the Russian government and Videsh is owned by India(who is generally considered an important Russian ally, though one wonders if this still holds true). So Gazprom’s proposal is going to make India and China mad as well as hurt a company owned by the Russian government. That seems like a lot of trouble to cause for the production of just one gas field.

Maybe Russia really is running short on gas.

This is the latest story to get all those bears out their excited (from DealBreaker.com)…

In case you missed it this weekend, Merrill seized $400mm in assets from a Bear Stearns hedge fund and is auctioning them off starting today. The Ralph Cioffi led fund scrambled to avoid liquidation late last week, auctioning off over $4bn worth of bonds Thursday morning alone, culminating a protracted struggle to sell assets to stay afloat. The fund has sold $7bn worth of bonds since May and frozen redemption requests.

Also, pay attention to the last line in this little news story….

The Bear fund originally raised $600mm in investor capital and borrowed $6bn from banks to bet the wrong way on the ABX.

When you are leveraged 10 to 1 making a mistake hurts. But it hurts your bankers more. After all, guys running the fund have already been paid and investors only invested 600 million. But the banks are on hook for 6 billion dollars.

That is why I think Merrill moved to pull the plug. They probably hoped that if got out first they could leave the banks holding bag. But it has not turned out to be that simple for Merrill (this from Reuters)…

Merrill is delaying selling the assets until it hears the troubled hedge fund’s plan to recapitalize, the network reported. Merrill and Bear are expected to discuss the plan on Monday or Tuesday, CNBC said.

Calculated Risk speculated over in the comments on his blog that Merrill did not like the price that they were going to get if they sold the Bear collateral at a fire sale. He thinks that this is why they are having second thoughts.

Myself, I wonder if this does not have more to do with one division of Merrill saying to the other, “hey, if you make Bear go down you are going to take us down with them.” After all, it was just this February that Merrill was spending big money trying to catch up with Bear Stearns (this from Bloomberg this February)….

Merrill Lynch & Co. Chief Executive Officer Stanley O’Neal was willing to lose $230 million to catch Bear Stearns Cos. and the shakeout is just beginning.

That’s because Merrill is determined to capture a dominant share of trading in bonds backed by home loans, the fastest- growing debt market since 1995 and this year’s most troubled. O’Neal’s enthusiasm for mortgages to potentially delinquent borrowers coincides with the highest default rate in more than six years, a record contraction in demand for so-called subprime loans and descending bond prices.

Merrill already has bankrolled two home lenders that subsequently failed and purchased a third, First Franklin Financial Corp., for $1.3 billion, just before HSBC Holdings Plc disclosed that its bad-loan provisions increased 20 percent because of the unraveling U.S. subprime market.

Now running hedge fund that bets on a bond market is different then trading bonds on the market. Still, I can imagine a scenario where some Merrill bond traders might be telling their bosses that if the Bear’s hedge fund goes down, they go down. That is the fun of modern financial markets. Everyone is dependent on everyone else, even their rivals.

Of course, all that is only speculation. In fact, nobody even seems to no for sure why or how the Bear hedge fund got into trouble or even how much trouble they are really in (though if you are facing margin calls, you obviously have problems). Felix has a good overview of the problem over at his blog. I will only quote the last to paragraphs because they are the most deliciously ironic….

Finally, of course, there’s the possibility that Bear’s Cioffi was forced to cover his short positions on the way up from 62 to 72, and incurred a lot of losses in May, rather than during the more recent move back south. With his ABX short covered, he found himself long the market at its highs, just as the market was set to take another tumble. And with his short-covering losses spurring redemptions, he found himself unable to get out of his long positions in a bear market without suffering even bigger losses. In other words, he lost money on the way up and then lost even more money on the way down.

This is all speculation, of course, and even Bear Stearns itself is probably unclear on some of this: otherwise it wouldn’t have had to alter its official April results from a loss of 6.5% to a loss of 19%. Besides, officials at Bear probably have bigger problems on their hands right now than explaining to journalists exactly what went wrong and how. Still, this is already a salutary case: a hedge fund seems to have managed to go bust by making bearish bets in a down market. Leverage can have that effect, if you’re not careful, or if you’re unlucky.

Edit 6/19/07: Merrill listened to Bear’s plan to get out of their troubles and—drum roll please– decided to sell Bear’s collateral anyway. See this blog post from Calculated Risk.

The cynic gives with eyes averted, and doubts when he hopes, because most of all he fears dissappointment–that is loss of control.
I think I made it clear, when I presented to you the sprouting change, that danger threatened the sprout from every side. I intimated the militant ranks of people who would not take a Click Here to continue reading.

Okay, so technically this is a typhoon not a hurricane. But I could not resist the irony.
People who watch the oil markets have been worrying because they say that one strong Hurricane in the Gulf of Mexico could send gas prices sky high in the US. Now there is a Category 5 typhoon heading towards Click Here to continue reading.

As one of our rants of the week here at the Ethereal Voice, we selected an article by Joel Salatin called, “Everything I want to do is illegal.” It is all about how regulation keeps the little guy out of the market place.

A recent NY Times article demonstrates that this is no accident…..

The Agriculture Department tests less than 1 percent of slaughtered cows for the disease, which can be fatal to humans who eat tainted beef. But Kansas-based Creekstone Farms Premium Beef wants to test all of its cows.

Larger meat companies feared that move because, if Creekstone tested its meat and advertised it as safe, they might have to perform the expensive test, too.

The Agriculture Department regulates the test and argued that widespread testing could lead to a false positive that would harm the meat industry.
A federal judge ruled in March that such tests must be allowed. U.S. District Judge James Robertson noted that Creekstone sought to use the same test the government relies on and said the government didn’t have the authority to restrict it.

Basically, the meat industry is afraid that Creekstone is going to get a competitive advantage by testing all their meat and they are trying to use the Government to stop them. Shows how free market the Bush administration is.