down to zero
Hmm, so what happened to the postindustrial economy? The American global leadership, technology, benefits of globalization, and, last but not least, resilience (yes, how could I forget this buzzword?). One small increase in the price of oil, and thousands of US stock tumble like rows of plastic soldiers under a gust of wind? There's something very embarassing about it. Just think, the mighty S&P dies of expensive oil! Kind of like Napoleon's Grand Armee intending to march all the way to India, only to get infested by lice while crossing the first Lithuanian river on its way.
It seems like with every dollar per barrel of oil, S&P loses 1% of its value. If extrapolation holds, then $243 oil should put the S&P out of its misery by setting it to zero and putting everybody's mind at rest.
Excerpts from Jul 2, 2009 issue of WSJ:
"The slide of the S&P to end by December, Buffett says. -The Oracle of Omaha told the annual meeting of Berkshire shareholders that he believes the bear market to be "substantially over". Buffett cited the fact that after the oil spike of 2008, the SSD ultra-short makes up almost 30% of the total index. According to Buffett, once the relative weight of SSD reaches 33.3%, the index can't go any lower.
Chipotle announces a takeover, shares tumble. - The burrito chain Chipotle Mexican Grill (GMG) announced today that MacDonalds (MCD) agreed to buy the company for $84 a share. Anxious investors dumped the stock, sending the share price to $0.00.
Negative prices ahead? -The Nasdaq exchange is considering letting investors trade options with negative strike prices, a source close to the management said. The extended negative scale would benefit short traders and investors eager to hedge their long positions. With stock prices hovering in single digits, the measure could gain popularity with sophisticated investors. The proposal, however, is likely to strike controversy on Wall Street. "This is a very tricky issue" - said Lawrence Yun, a former NAR mouthpiece who is now consulting hedge funds specializing in commercial real estate. -The ultimate one-million-dollar question is, will buyers be willing to pay a negative sum for a stock?" Others, however, were more optimistic. George Soros said he believed the idea was sound. "Valuations have always been detached from the intrinsic value, - he said, - and you can certainly convince people to sell a stock at a negative price, that is, to pay someone to take ownership of their shares. If there is a perception that prices have still farther to fall, buyers and sellers will come along for the ride".
Is this stock a Shodinger's Cat? - A rare case of superposition was observed yesterday in the US bankruptcy court. The bankruptcy specialist EPIQ had to file Chapter 11 after the lenders refused to extend its credit line. It was determined by the bankruptcy attorneys that the best bankruptcy specialist to handle EPIQ's bankruptcy was EPIQ. However, after the upfont fee was received by EPIQ it turned out that EPIQ could not proceed any further and had to return the fee because it was no longer insolvent. On the other hand, if EPIQ abandoned the case and returned the fee, then it would be insolvent, and would have to process its own banckruptcy after all. The bankruptcy judge ruled to postpone the hearings until oil gets cheaper.
Stranded in Dubai. -US Treasury Secretary Henry Paulson got stuck in the Dubai airport yesterday after the Treasury was unable to afford the return ticket due to the rising costs of fuel. Mr. Paulson was attending the meeting of oil-producing countries to persuade them to invest more money in oil production.
GM to be acquired. - Sudan's sovereign wealth fund will buy a 100% stake in General Motors, the company said yesterday. The transaction would value the company for roughly $60M, at a slight premium to yesterday's closing price. Meanwhile, GM's competitor Ford said the company is conducting negotiations with two potential buyers. The company declined to comment the rumors that Bangladesh Motor Company may be interested in acquiring Ford. Bangladesh Motor Company and privately-held competitor Mongolian Scooter and Bicycle were both rumored to be potential buyers of the troubled US manufacturer of cars and SUVs.
Fed fund rate will fluctuate, Cramer says. - Jim Cramer, the head of the Federal Reserve, announced his intention to let the Federal Funds rate fluctuate with the market. The rate will go up a quarter-point in the first half of the day to fight inflation, and then come down in the second half of the day to fight recession. This policy will allow the Fed to pursue its dual mandate of controlling inflation and promoting growth.
Nigerian company debuts on NYSE. - Nigerian-based Seismology Company of America (ticker SCAM) set up last year to explore drilling projects in North America, made its debut on the New York Stock Exchange. The upstart oil driller became an instant hit with investors seeking to profit from the rising price of oil after it announced its intention to drill a well, more than 15,000 miles deep, that would give American oil companies an easy access to the oil fields of Saudi Arabia. During the first day of trading, CROOK went up from $0.37 to close at $118.00. Prior to its NYSE debut, the stock was traded over the counter under the ticker SCAM.OB.
Oil goes to $250. (here the paper ends).