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one deal made and this stock could go to go anywhere. They seem to have some big money behind them. Vietnam is definatly the place to be in asia currently.
Might be worthwhile to accelerate the buyback cobsidering they believe the stock will be at around 30 cents by the end of september. If these MMs want to give the stock away,NWOG should take advantage of it.
Russian stocks have taught me to smell the roses. Easy to get high on poppy seeds. You usually end up flatlining in the end.
However the addiction goes on.
By the authority invested in me i deem this stock worth 30 cents.
investwise,excellent synopsis. Thanks.
Thanks martin. Regarding GSIEF hopefully they get their Neveda shell soon and then start telling us officially about the contracts they have signed. I see an easy 100% within a month or two.
I'am all for getting out of Iraq,but you may have to look at it from the neocons point of view. When they have alienated everybody out there,Iraq's oil may be the only thing the US has as collateral for its worthless paper,lol.
These are interesting times.
This is the real kicker for the US economy and the dollar:-
« Japanese Prime Minister Shinzo Abe’s nation will comply with Iran’s request to buy Iranian oil with yen rather than dollars. (Reuters)
Japan Drops Dollar to Buy Iran’s Oil
Tuesday, July 17, 2007
Iran has asked Japanese oil refiners to pay for all future deliveries in yen, as opposed to dollars, according to a letter obtained by Bloomberg News.
The request is “effective immediately” for all “forthcoming Iranian crude oil liftings” according to the July 10 letter signed by the National Iranian Oil Company’s general manager of crude oil marketing and exports.
Until now, most Japanese oil importers have used U.S. dollars to purchase Iranian oil. Although confirmation of Japanese oil payments in yen is still forthcoming, as one investment securities analyst in Tokyo said, “What else can Japan do but to accept the request, once the oil producer sent its wish?”
Japan needs the oil, and with energy markets as tight as they are, alternative supplies will be very difficult to come by. Iran is Japan’s third-largest supplier of crude, exceeded only by Saudi Arabia and the United Arab Emirates.
Since 1944, with the signing of the Bretton Woods agreement, the U.S. dollar has been the world’s reserve currency, meaning it is the currency used by governments and institutions to settle their debts and to transact trade in vital commodities such as gold and oil. To conduct international trade, countries were compelled to accumulate dollars and build reserves. Consequently, the increased demand for the dollar gave the U.S. economic benefits not available to other countries and permitted the U.S. to run large trade deficits and fiscal debts without experiencing most of the negative economic impacts normally associated with such large imbalances.
That is beginning to change.
Iran requiring Japan to pay for oil in yen is just the latest move by a nation seeking to reduce its dependence on the dollar. Earlier this year, officials from Chinese-owned Zhuhai Zhenrong Trading, Iran’s biggest crude oil customer, confirmed that they now pay for Iranian crude in euros.
Russia is preparing to sell oil priced in rubles and plans to open the Energy Stock Exchange in St. Petersburg in the first half of 2008, according to a ubs AG report dated June 14. In 2005, Norway’s Bourse Director Sven Arild Andersen said that a Scandinavian oil bourse conducting transactions primarily in euros should be set up.
Many nations are also beginning to diversify their foreign currency reserves away from the dollar, often to the euro.
Central banks in South Korea, China and Taiwan have all announced plans to diversify away from the dollar. Last year Russia, Syria and Italy also said they intended to reduce their dollar holdings. Last Wednesday, Japan’s adviser to the prime minister said Tokyo should diversify its reserves away from dollars, and spend its greenbacks on higher-yielding assets. Bloomberg notes that Japan is the largest overseas holder of U.S. treasuries; as such, it has historically been one of the strongest supporters of the dollar.
Announcements like these have caused the dollar to fall like a rock recently, hitting record lows against the euro, pound and other currencies.
Demand for the dollar is eroding—and trade for oil in other currencies is accelerating this trend. Time will tell how quickly other nations will break away from the dollar as the global currency of commerce. The result could be disastrous for Americans.
“Once the dollar loses its reserve currency status and the collapse ensues, the process of returning to economic viability will be a painful one,” says Peter Schiff, president of EuroPacific Capital, in his book Crash Proof. “Whether the United States is up to the task remains to be seen. Although I am skeptical, I nonetheless remain hopeful.”
For the best strategy for protecting your family from future financial troubles, read “Storm-Proof Your Financial House.”
Also on theTrumpet.com:
• Why the U.S. Dollar Constantly Loses Value
As far as i can tell your the only whinner around. You whine about knowing something,you whine about investor,you whine about how much you know,you whine how about brillant you are etc etc. Why don't you hit the bricks. I've never seen anything you have contributed to AURC other then going to 2C for your DD and making out how knowledgeable you are by feeding off other peoples hard work. You're a joke. Girl scouts,cookies what the hell are you talking about?
Looks like a few charecters from the past have come out the woodwork for a good old fashioned pump and dump. All you have to do is make others think you know more then they do,add few rumours regarding 2C,throw the emergence of Parkin into the mix,keep alive the buyout,and let people think there will be a PR out before the shareholders meeting. After that run the stock up a little create some buzz and voila you have some momentum to draw in some suckers and you dump befor they do.
Thanks xbootie. It really puts into perspective what will happan if the Dow continues to plummet. I just read about an Italian and Australian hedge fund blowing up also. How many more are there out there. Its a race to get liquidity for alot of hedge funds,it will be interesting what happans to the Dow tomorrow.
Have you seen what the Canadian doller has done recently.Check out the chart.
Nord/North-West Targets Saratov Oil Producer
Nord Oil International, Inc. Thursday, June 29, 2006
Nord Oil International/North-West Oil Group is completing negotiations for the acquisition of NK SaratovNefteGeofizika in an all-cash deal. The acquisition is being made in parallel with the Magma deal that was announced last week. Nord/North-West said there is a definite interest by a number of European funds to provide the necessary funding for these acquisitions.
"Russia is a key supplier of petroleum products to Europe, and the European banking and commercial institutions are eager to participate in all oil/gas ventures involving oilfields in Russia," said Ernest Malyshev, Nord/North-West’s president.
Related Products
Introduction to Oil and Gas Joint Ventures
Dictionary of Petroleum Exploration, Drilling & Production
NK SaratovNefteGeofizika is an oil, gas, and condensate-producing company located in the lower Volga basin within the Saratov area, which is a mature petroleum region of Russia.
The purchase will be for 100% of both NK SaratovNefteGeofizika and its subsidiary, ZAO Itilneft. The parent company, which was formed 7 years ago, provides an excellent opportunity to acquire low priced assets in the very prolific Lower Volga Basin; its licenses have significant further upside potential with a large surface to explore within well-defined prospects. The company has all the necessary services and facilities for growth. It presently has 142 employees and 3 certified chemical laboratories.
The assets of the target company include, among other advantages, the following areas of production:
* The Ternovskoye Oil and Gas Field has six wells with a seventh well being set up, and it consists of the four reserves.
* Its Klinsovskii Oil Reserve has 12,446,000 barrels of proven reserves and 17,994,000 barrels of probable reserves. In 2005, annual production was 584,000 barrels of oil.
* The Vorobievskii Gas Reserve has three wells and the probable reserves are 505 MM cubic meters of gas with 83,000 tons of condensate. The gas reserves are to be in production in 2008.
* The Vorobievskii Oil Reserve has three wells with 5,548,000 barrels of reserves of oil.
* The Bobrikovskii Gas Condensate Reservoir has four wells with estimated gas reserves in the amount of 556 million cubic meters.
* The East-Ternovskoye Gas Condensate Field has gas reserves of 107MM cubic meters and 129,210 barrels of condensate. The probable gas reserves are 207MM cubic meters and 250,390 barrels of condensate.
* The Ostrolukskoye Oil Field has two wells with a yearly production of 85,417 barrels, with proven and probable reserves of 85,417,000 barrels of oil. There is also a direct pipeline to the Engels oil and gas base, which belongs to the company.
According to Nord/North-West, the quality of the produced oil from these deposits will obtain a premium price per barrel and will economically provide a most efficient return.
The acquisition should be completed within 2-3 months and will provide Nord Oil International/North-West Oil Group with another step toward its quest to greatly increase its presence in the European oil marketplace.
Malyshev assures his company’s shareholders that this step, along with the Magma acquisition, will dramatically increase value for the shareholders and market presence, value, and strength for the company.
Nord Oil International Inc. is a reporting, publicly traded oil and gas company trading under the ticker symbol NDOL on the U.S. Pinksheets market as well as on the Frankfurt Exchange under symbol CXIA. Nord Oil International and the North-West Oil Group merged on May 11, 2006. The company is in the process of filing all regulatory statements and will change its name to the North-West Oil Group and will be issued a new ticker symbol. The company presently produces more than 120,000 metric tons of crude oil yearly.
I think this is the best news NWOG has ever put out. I just don't understand the lack of enthusaium of the board. I have finanally decided to put more money into this stock. Personally i think this deal is virtually done,very unusual if the bank they are dealing with will pull out now. They saw the feasibility study and gave a prelimany confirmation.
Deals take time to complete. The feasibility study must have taken a good time to get ready.
The company is virtually telling us this deal will be done and they will then be ready to focus on another exchange.
Easily a 200% profit from these levels by the end of the year.
The NDOL fiasco will finally be behind them. Can't believe the share price.
Thats one of the reasons to buy this company niemand because many pension funds and hedge funds will be looking for safer investments for their clients. It may not bring the huge gains of the CDO's due to house prices going up but they will get a good return which is pretty safe.
Initially i thought the price of the asset was around 60 million. Presumbably they will get 45 million bank loan and make up the difference thru a share issue. Makes this share buyback seem rediculous. We need to know if this is occurring.
Can't understand why the stock is going down unless they are also diluting the shareholder base again as part of the deal. Eik is probably better informed about this or could ask this question to the company.
They have put in an application to a Bank to get the money. Probably some Russian or Swiss bank.
They are awaiting the decision. They already have a prelimanary confirmation that they will get the money from a feasibility study of the asset presented to the bank earlier which can be found at their website.
If the Bank initially gave them the go ahead they will probably get a favourable decision within 60 days.
Thats how i read it.
There are no subprime borrowers involved in these type of transactions. Hopefully the credit rating of these type of recievables will not be disguised in anyway.
http://www.marketoracle.co.uk/Article1444.html
THIS IS NOT the idle chatter of permanent bears. The subprime mortgage collapse now hitting Bear Stearns may be just the start.
Serious analysts from big investment firms are talking ominously about "the big one". It will make you angry to learn just how the investment industry has got you involved.
If you can understand what's happening, you should have time to move. So let's get to the bottom of it now, and in plain English.
The humble mortgage
It all starts with the mortgage. About six million people in the United States who have no money have borrowed about 100% of the value of a house, right at the top of a housing market which has since fallen sharply. These are the subprime borrowers.
The lenders, however, did not have to worry very much about the risk of default, because they rolled these mortgages into bonds called Mortgage-Backed Securities, which they then sold. They got to be off-risk within a few weeks, because by then these re-packaged mortgages belonged to other financial organizations.
But it is not always easy to sell a package of these Mortgage-Backed Securities (known as MBS for short). Selling such a product demands that the credit quality is assessed; and because the underlying mortgages are subprime they are quite likely to go into default.
So a credit-ratings agency will only give the subprime MBS a low credit score, which means it is not considered investment grade. That disqualifies it from the portfolios of many professionally managed funds.
This is where it pays to get a bunch of smart investment bankers involved.
The investment bankers slice the MBS into several "tranches". These are known as Collateralized Debt Obligations, or CDOs for short. The idea is to create some higher risk assets and some much safer ones by slicing up the MBS into what are called equity (high risk), mezzanine (middle risk) and the much sought-after investment grade bonds (low risk).
Higher risk equals higher returns, of course, so the equity tranche of the MBS will earn the highest profits if things go well. But if things start to go wrong, the equity is lost first, and then the mezzanine. Even then, the investment-grade bonds could still get fully paid out. This persuades the credit ratings agencies to give the lowest-risk tranche a high enough credit rating to qualify for the critical investment grade rating.
In this way the investment bank has created a decent proportion of highly marketable bonds out of a package of low-quality mortgages. Fairly standard, for example, is to convert a large package of MBS into perhaps 80% investment-grade bonds, 10% mezzanine, and 10% equity.
Distributing the debt
The original mortgage lender is in a hurry to get the whole MBS sold off, because this raises cash which can then go to fund fresh mortgage loans to new subprime borrowers. The investment bank is well motivated to slice up the MBS, because selling investment products is what it does best. It won't want to keep much, if any, of the newly created CDO tranches, because investment banks earn their money primarily by deal-making and distribution, rather than by taking risks with borrowers.
In the market for CDOs, the investment bank will find it relatively easy to sell the investment grade bonds. They go mostly to respectable institutions. But the mezzanine and particularly the equity tranches can be trickier to dispose of. The effect of concentrating the risk, as well as the upside, in these tranches is to make them "hot" � so hot, in fact, that investment insiders sometimes call them "toxic waste".
How can these toxic bonds be sold off? There are several ways.
Method One: Create a hedge fund
The investment bank might choose to set up a hedge fund, possibly even using some of its own money to get the fund started. The hedge fund's objective is to trade in the high-risk equity and mezzanine CDO instruments.
Let's imagine that the investment bank puts up the first $10 million. The hedge fund then buys the equity tranche of the CDO from the investment bank. In effect, the investment bank is actually buying the equity from itself.
With a bit of luck � and this is what happened over recent years � the housing market then goes up. Now the CDO equity is floating higher in the water, because there's a cushion of higher house prices preventing those original subprime borrowers from defaulting. This rather obscure equity instrument, which is not traded on any open market, and so is not a liquid asset that can readily be bought and sold, should now be worth more than it was at issue.
It gets marked up in value, and it gets marked up much faster than the underlying house prices, because all the price volatility is concentrated in this thin slice of CDO equity. The hedge fund is now a real performer! And that means it will be rewarded by further investment from outside. So what started as a vehicle with a little investment bank cash can grow the funds it manages under its own steam.
Next, and this is what hedge funds are all about, it will leverage its risk, too. The hedge fund goes out to an unrelated lending bank, holding its high-performing but illiquid toxic waste in its hand, and it asks to borrow money using the waste as collateral. The lending bank has access to cheap money, and so it has the prospect of lending for spectacular profits.
Now the MBS wheel is fully in motion. With a little co-operation from the investment bank, to which it is closely related, the hedge fund loses no time in marking up the value of its equity CDOs, on the basis of rising house prices. There is an overwhelming pressure to do so, not least because the hedge fund managers are rewarded on performance. Alas, in the absence of a genuine open market, it is too easy to manipulate the CDO's price up to an unrealistic value.
The lending bank can see its collateral floating higher and higher in the water, and so it lends ever more cash against it to the hedge fund, and it picks up the new CDOs bought by the hedge fund as further collateral on new loans. Naturally, as with all collateral, the bank claims the right to sell the bonds if the underlying debt gets into trouble. But it doesn't look like a real danger at this stage.
So the money lent by the bank against the CDO equity goes back to the hedge fund, which buys more CDOs from the investment bank, which buys more MBS from the mortgage lender, which provides more money to subprime borrowers, who then buy more houses, pushing real-estate prices higher again.
This solution only gets into trouble when house price turn sharply down. The lending banks ask for their money back, but the hedge funds haven't got it. All of it has been invested in CDO tranches. So the collateral needs to be sold. No problem, surely. It's in the books at a few billion dollars after all.
But with its concentration of risk in a falling market, the equity slice has been hemorrhaging value, without ever being bought or sold in an open exchange. It's incredibly painful for the investment banker to mark down a paper price in these circumstances. First, he doesn't actually know for sure that the price is falling any more than he knew it was rising when he marked the price up. But he does know that marking the price down will immediately be bad for him, his team, his bank, his customer and everyone else. He doesn't have to be totally evil to put off marking down the price until tomorrow � or maybe the next day.
That's why the lending banks which later get hold of their collateral can be presented with a very nasty surprise when they finally try to redeem the situation with a sale. It simply won't fetch anything like the price it was last marked at.
Something like this is what happened to Bear Stearns' hedge funds. Its two funds were leveraged 5 times and 15 times respectively. That's the number of times they went round the financing wheel of leverage.
The smaller, more cautious fund had 5 times as much money invested in CDOs as it had received from its hedge fund investors in cash. This means that its balance sheet may have looked like this:
Assets
Liabilities
$5bn CDOs $4bn bank loans $1bn hedge fund investment
Whereas the bigger fund was 15 times leveraged. So its balance sheet could have looked like this:
Assets
Liabilities
$15bn CDOs $14bn bank loans $1bn hedge fund investment
So far, only the smaller hedge fund has been rescued and we await developments on the larger one.
The picture that is emerging is that the providers of the bank loans became increasingly nervous as US house prices turned down, and they wanted their money. Clearly, there were no cash assets in the hedge funds. So the banks took hold of the CDOs � their collateral � and went to sell them.
The first out of the door, rumored to be Merrill Lynch, mostly got the collateral it was owed, but it exhausted the CDO market of buyers. The rest found no bids and quickly stopped trying to sell for fear of advertising the rock-bottom prices of something which currently sits in many portfolios at funds all over the world.
Worse still, we are advised that the Bear Stearns funds were not actually invested in the toxic waste. They had bought the investment grade bonds. That clearly means the toxic waste and the mezzanine bonds have no value. We do not know who owns these.
Method Two: Dump the waste in landfill
"If it's not these failing hedge funds who own the toxic waste, then who does?" we asked another banker in a closely-related business.
A core competence of investment banks in this market is the ability to market the toxic waste, so it's one of their most sensitive commercial secrets. Our sources would only hint at where the mezzanine and equity CDOs are now sitting. We learned that at least some of it goes into tame, largely unsuspecting, and almost always "institutional" portfolios � the type of investment fund which looks after your money and lazily signs an indemnity to confirm to its brokers and banks its own professionalism and awareness of risk.
The same source smiles wryly when asked how these "investment landfills" get their daily value for the un-marketable sludge. They phone their investment bankers, and dutifully record in their bond valuation package the numbers they receive back. They have no motivation to do better.
That means some fund managers out there are habitually reporting asset values which are a fiction, and we don't know who they are. It's worth understanding that they are giving us the chance to get out, provided we move fast.
Often the exit price of such a fund is based on the asset value, and they have not yet recorded the worthlessness of their CDOs. For the time being, therefore, this would create the opportunity to do a Merrill Lynch, and get out ahead of the crowd.
Method Two is frowned on, however, and rightly so. Arguments of "moral hazard" demand that the investment bank should hold on to some, if not all, of the riskiest equity class.
Method Three: Synthetic CDOs
The third method on the face of it seems to resolve this question of moral hazard. It leaves the equity and mezzanine tranches with their creator (the investment bank) and thus exposes them to the possibility of being a victim of their own poor judgment.
But we'll see that it doesn't quite work that way. You didn't expect it would, did you?
To explain what happens, we need to delve deeper into the workings of the credit derivatives market. It's not hard to understand, provided we stick with plain English.
We need to get to grips with the "synthetic" CDO; and for that we need to understand its building block, which is the Credit Default Swap (known as a CDS for short). Here's how it works.
The investment bank is now the owner of the hard-to-sell and risky mezzanine and equity tranches. Rather than dumping them into landfill, it decides to retain them, along with all the cash flows that they generate. But the investment banker managing these CDOs also decides to take out an insurance policy � just in case the home loans go into default.
The investment bank pays an insurance premium to another investment institution for underwriting the risk of the underlying home-loans defaulting. Apart from a bit of legal drafting, that's all there is to a Credit Default Swap. In return for a cash payment, you swap the risk of default.
These insurance premiums, paid to the underwriter of the CDS, appear to the receiver as income � just like bond interest payments. But unlike a standard bond, they are paid without the receiver having to part with any cash himself. It's income received without putting your money at the disposal of the person who pays you. You are being paid for accepting risk, not for lending money.
So you see, the investment bankers have been very clever. They have said there are two components in a bond-interest payment: a fee for the use of your money, and a fee for the risk of default. The CDS simply separates out the element for the risk of default.
The investment bank can have still more fun with this. Because what the underwriting institution would see is just a stream of income payments. And just like the boring mortgage streams that we started with, these CDS streams can be aggregated into a pool...then divided into tranches with different risk profiles...producing the magic of higher credit ratings for lower-risk tranches...plus concentrated risk in new toxic waste.
If you can get a credit rating agency to assess these new tranches you have created, then you have something which looks like a CDO � and smells like a CDO � but which is not now based on cash flows deriving from borrowed money. Instead it is based on cash flows deriving exclusively from insurance premiums that are paid to cover the risk of mortgage default.
That's how CDSs get packaged into what is known as a "synthetic CDO", and the investment bank can sell them for what appear to be fantastic yields. Here is their pitch to investment funds that might be prospective buyers:
"You used to have to give me all your money to buy a boring old cash flow CDO, and then you were both lending your money and accepting the potential risk of the borrower defaulting. What I have for you today is the ability to accept only the better half of that deal.
"This new instrument means you can keep your money where it is, earning great returns in the stock market or wherever you're currently chasing performance, yet you will still receive income in return for underwriting the risk on a package of credit default swaps in the mortgage-backed security market.
"Look, I've got a great credit rating on this thing, and because we have eliminated the cash-borrowing aspect of the deal, I can sell you $1 million of synthetic CDO income for just $200,000.
"You get no extra risk above what you'd ordinarily accept, and a huge yield on your investment. You want in?"
It's a really neat deal. The investment bank is selling what the institution was already buying before � a steady income, in return for underwriting the total loss if there's a default. But now the risk of default is dissociated from interest cash-flow. The buyer doesn't need to give anyone the underlying cash lent. He can earn part of the income those assets pay simply by promising to stump up if there's a default.
Meanwhile, the investment bank is now holding onto the original CDO toxic waste. So to the untutored eye it looks thoroughly responsible. But we now know better. The important part of what it was supposed to hold onto � the risk of default � has now been parked in the broader financial markets.
Remember Lloyds of London ?
The yield meanwhile looks irresistible. Of course it does! The synthetic CDO packaging has allowed the investment bank to sell something which previously it would have had to buy.
It is selling to the highest bidder the right to receive its mortgage default insurance premiums � so the buyer is just another "investment landfill". He ends up with what's called a "contingent liability", a prospective claim on other valuable assets in his investment portfolio.
Why would any investment fund possibly fall for this scheme? The modern fund manager has a powerful short-term incentive to get a strong performance out of your invested savings. If he gets 2% more than the next guy he is a genius, and he will get more money under his management, more fees, and bigger bonuses.
But do you remember Lloyds of London? It used to be the world's biggest insurance underwriter. The way it worked was that rich individuals were allowed to keep all their money invested in their favourite stocks and shares, but they could also earn a second income from those assets by pledging that same wealth to underwrite commercial insurance risks which were sliced and diced by syndicates on behalf of their members.
Many Lloyds members lost absolutely everything � houses, furniture and indeed their life � when a series of vicious insurance losses hit the world's insurance market through the early 90s. Acquiring synthetic CDOs is the modern professional money manager's equivalent of being a Lloyds member.
So you can see now how through the use of synthetic CDOs, fund managers can underwrite credit default risk and increase their income accordingly, without outlaying any fund capital. But they are placing their fund capital at risk. Your fund manager is a genius while there are no claims. But if it goes wrong, your fund gets hammered. These styles of risk expose whole portfolios, so a loss to a subprime synthetic CDO could cost a fund its entire holding of US Treasury Bills.
Out of bonds & into the ether
Now, just in case you thought the CDS and its packaging, the synthetic CDO, were as ethereal as a financial product could get, let's fill in a few details and take a few more steps along the road of infinite credit expansion.
It was not long before the investment banking industry had a "eureka" moment. They realised that actually holding the toxic waste was unnecessary. By offering CDSs and synthetic CDOs based on the worst possible companies they could make fantastic profits. In effect they could short-sell the bonds of the world's flakiest borrowers.
With it? These bright sparks started insuring against the default on CDS which they didn't even own! It's like noticing your friend is looking a bit ragged and taking out insurance on his life for your benefit, without him having anything to do with it. When Delphi Corp, a large motor parts spin-off from General Motors, got into serious trouble last year, its bonds fell into default. Incredibly, more than 10 times the nominal value of its bonds were then claimed from investment institution underwriters, by bankers who had insured against the default of bonds they didn't own by issuing Delphi CDSs.
This shows the perverse logic of the markets, which here dictate that the synthetic CDOs which will be found in the greatest numbers are the ones least deserving of the credit rating they've been given. And as long as there is demand for easy income there's no limit to how many of them may have been created.
Synthetic CDO market growth
The synthetic CDO market has shown truly remarkable growth in recent years. Probably the most respected issuer of statistics in international finance is the Bank for International Settlements. On this link http://www.bis.org/publ/qtrpdf/r_qt0506.pdf it says that "credit-related derivatives rose by 568% in the three years ending June 2004." That growth was nearly 5 times as rapid as the overall growth in over-the-counter derivatives. By now you should be getting some idea of why this incredible growth rate occurred. During 2001-2004 interest rates around the globe were deeply depressed as the world's central bankers tried to reflate after the Dot Com bust and 9/11. Fund managers were desperate for yield and the slump in equities had destroyed stock-market portfolios everywhere.
Governments began trying to enforce investment prudence. One of the things they did was require retirement funds to make a better attempt to match their long-term liabilities to their assets. Equities had suddenly and spectacularly failed to do this. So legislation was introduced which forced funds to buy investment grade bonds. Offering a regular income with a very low risk of default, investment-grade bonds looked to be the perfect vehicle for institutions that must make regular payments to the world's pensioners.
It would have been thoroughly wrong of the investment banking industry not to do its utmost to find a source of top-grade bonds to satisfy this demand. Equally, it would have been naïve of them to allow their competitors to have the CDS and CDO market space all to themselves, unchallenged.
So in essence, it was government interference in the market which helped trigger the nascent CDS/CDO boom. Banks were soon queuing up to create investment grade instruments, and the income starved fund managers were gobbling them up. They had to � because we, the public, don't buy underperforming funds.
Want proof of what has been going on? One of the mysteries of recent years (to us anyway) has been the progressive narrowing of credit spreads. Basically what has happened is this.
Four years ago, dodgy bond issuers would have to offer a much higher yield than US Treasury Bills to get people to buy their debt issues. On average, since 1970, Fairly Flaky Debts Inc. � with a credit rating of BAA investment-grade � would need to pay almost exactly 3% more than T-Bills each year to its bond holders.
This difference is known as the "credit spread", and that extra income of 3% covered the fact that once every thirty-five years or so, companies like Fairly Flaky would fail and cost the bondholders 100% of their money; that's your money if the bondholder happened to be your fund manager. Yet by November 2006 bonds issued by Fairly Flaky Debts Inc. were yielding less than 1% above US Treasury bills. The risk premium had disappeared.
Why? The reason is that it had become easy to distribute default risk to income-hungry institutions. Investment banks had a risk-free bet, known as a credit arbitrage. They could borrow cheap money from Japan (that's another story, but there's plenty of cheap money about outside Tokyo too) and buy Fairly Flaky's bonds. They would then issue new CDS to income-hungry funds to offload the risk of default.
The statistical basis of credit ratings
After checking the credit rating the income hungry fund would accept a rock-bottom premium of about 1%, so the bank would be silly not to keep buying Fairly Flaky bonds yielding 3% above T-Bills until the yield dropped to T-Bills plus 1%. It works as long as they can dump the credit risk into landfills by selling more CDSs. That's why the Credit Spread, otherwise known as the risk premium, has now shrunk to a third of its long-run value.
The credit ratings agencies were obeying their standard model of evaluating risk on the basis of recent historic rates of default. That skewed the results, because of course there were almost no defaults in the previous 20 years. Nobody leaves their debt unpaid when the securing asset has risen in price much faster than the value of the debt.
That meant that the rating would be unlikely to fully factor in the risks of a housing price correction such as the one we have seen recently in the US .
Who is going to fail next?
We have hit upon a very rough and questionable method of identifying the next big failure in the CDO/CDS market. It may be coincidence, but if we had used this method a few months ago, it would have shown us to look first at Bear Stearns.
Why? Our sources indicate that Bear Stearns only has problems with those CDOs issued in respect of Mortgage Backed Securities created in 2005 and 2006. This is logical. Those CDOs were issued nearest to the peak of the US housing market, so they have the least float. Older CDO issues should have more headroom before defaults become a problem.
This would suggest that it is those firms who were late to the CDO party who should be in the deepest water. The following data was published by Standard and Poors in a 2005 report entitled "CDO Spotlight: Update To Sizing Collateral Manager Participation In The US Cash Flow CDO Market."
Comparison with LTCM
Long Term Capital Management failed in 1998. It was the last truly serious financial collapse which threatened the financial system. When LTCM went under, the bail-out fund required was $3.65 billion. The fund itself was leveraged to about $125 billion of assets using a similar style of wheel financing to the one described above for Bear Stearns' hedge funds.
There was also the presence of off-balance sheet devices called interest rate swaps � not so different in principle from the CDS described above.
Last week's rescue package announced for Bear Stearns smaller fund has been announced at $3.2 billion. We are awaiting the figures for the larger and more serious case. We believe the overall liabilities of both funds are in the $20-$25 billion range.
Back in 1998 LTCM was ploughing a lonely furrow. Its investment view was something to do with Russian bonds and the Japanese Yen. It was off the main investment spectrum, and there were few copy-cats putting the same market view into action in the same way.
That is where things are very different this time. The data produced by Standard and Poors above show just how conventional a strategy Bear Stearns has been following � all of it trailing the worldwide boom in housing markets. Many banks and funds are involved. Perhaps they are not quite so exposed as Bear Stearns, but it is only a matter of degree. This makes the size of the problem potentially much larger, and of much greater risk to the whole financial system.
How large? Well, the equity lost can be very roughly estimated from first principles. There are about 6,000,000 subprime mortgages in the USA . They typically result from re-financing deals � topping up to utilise whatever equity has accumulated in a house usually to pay off credit card debt; so they stay near 100% outstanding. The average house price in the USA is about $190,000, but we can reduce that to $150,000 on the assumption that we're at the lower end of the market. That gives us a principal sum of $900,000,000,000, which is 7 times the size of the LTCM exposure.
But the more serious figure � the housing equity lost to falling prices � is currently estimated at approaching 8% which is $72 billion. That doesn't include an adjustment for synthetic CDOs created by investment bankers to short the weakest MBSs, which is what they did with Delphi Corp.
Now you can see the difference in scale between LTCM and the subprime bust. This may be 20 times worse than LTCM. And it's getting worse � daily.
Conclusion: Beware toxic waste
At a time like this, we should not underestimate the skill of people like Ben Bernanke at the US Federal Reserve in underpinning the financial system. They have been remarkably effective at organising the lifeboats over many years and many crises. On the other hand the Bear Stearns episode could be the beginning of wider systemic difficulties.
Here at BullionVault we think the Bernankes of this world will one day fail. The result will be a credit squeeze. Bond issues will be pulled, bank loans recalled, and business activity will sharply decline for lack of funding. The first two of these have certainly started � with a rash of failed issues at the end of June. Will these risks be contained? We don't know.
We don't seriously expect that by some fluke we will identify the tipping point as it happens; that would be too lucky. Yet we feel compelled to share our views on the current situation with you. Clearly we're biased against excessive leverage, and against too much financial ingenuity, too.
That's why we're in the physical gold bullion business. We believe that real physical gold is a sensible insurance against today's increasingly weird financial system. It has been astonishingly reliable in that role in the past.
But this time, who knows?
By Paul Tustain
Director, BullionVault.com
Does this mean they are just pending the ok from the Bank for the 45 million and Saratovneftegeofizika then becomes part of NWOG. I think this deal is as good as done. Surprised its only 45 million,i thought it would be more like 60 million. So within 60 days we will know.
Sub360,i have a lot of respect for you also,but as far as i'am concerned i'am fed up of the " I know more then you crowd ".
This is a forum to help each other. If they don't want to divulge what they know then they should not post that they know something.
Yourself,investor,euddogg,eik,Lochan,cmzio,Panning for gold,party and many others who have shared knowledge,you have my respect.
As for you Benzdealor you should be ashamed of yourself feeding on the uncertianties of others,when you yourself have benifited from the hard work of others in the past.
One thing positive i will say for investor is that he has always shared his info. Yes Benzdealor you have been around longer but this secrecy of knowledge is getting tiresome. If you know something relay to fellow investors who have suffered this saga for long enough. Otherwise just shut up and keep your secrets to yourself.
Thanks martingale,i seem to be following you around lately,i've got respect for your judgement. I picked up 500000 shares between yesterday and today. Just seeing how the PPS stands up before i buy more. I thought i would just pick you guys brains to see if i have done the right thing,lol.
Have they got any concrete orders for their product? As i understand it they have not even finished beta testing the product.
Thats seems like alot of shares out there. We are looking at a company currently having a market cap of $17 million. What sort of upside for this year do you give it?
So the rumour now is that 2C is going to work for AURC. Benz and Lochan move the the market.
A little bit to tight lipped in my opinion. Can't say i was totally impressed with the interview. Only intersting point was when he talked about a R/M with another established company. I wonder what he has in mind. At this stage its a hold.
Has evryone given up on this one. It is sad that larry has not given any updates.
Nice one westeffer,brought a smile to my face.
Goldman thanks for correcting me.
I think not too long before takeoff. Glad i bought another 100K earlier today. This could be the real deal,i love the model. The next fannie mae of the health business.
Outstanding news. I'am very impressed with the news. He sure doesn't need the money but he is willing to become a director of a pinkie,blows my mind. Will be accumalating tomorrow.
If one could solve the kylon ownership,i think one would be getting somewhere. Also who now owns Northern Ore? In the end it about who actually owns what license. Actually i think Northern Ore left with Belchenko. Aurus company structure has changed and nobody can find out what it is anymore.
All in all the whole picture is starting to stink. Investors should not have to dig out these details,management just is not upfront.
I hope you get the answers but i can't see you getting anywhere until the shareholder meeting. I hope all the questions will be answered then.
Its all very well talking about Revenues but whats the topline profits. I don't see the huge profitability in this business. Its true Hospitals do find it hard to find Nurses but on the otherhand they just don't have the funds to hire contract Nurses.
Personnel cost are to high unless you go to places like India or the Philipines to hire your contract staff. Then you have immigration issues to think about.
Convince me that there model works. My wife ran a homehealth service so i know first hand the problems she faced. Staffing is a major problem and hence the employment costs are sky high.
The home health sevice she runs is a branch of a major hospital in the area and even they find it hard to keep it profitable and have closed many of the branches.
Even the independent home health franchises with reduced employment costs find it a struggle to stay afloat.
Not knocking anybody invested here just asking questions.
I think he will be right on AENS and NNRF was a great winner for him. NDOL was a winner also but like myself,got greedy. The SGDM and AURC shells showed great potential but lack of communucation skills and transparency by the Russians killed both of them. The lesson to be learned by investors is to stay away from them. 2C's intentions were always honorable unfortunatly the companies did not live up to their potential. They promised much but delivered little but heartache to most of us.
I'am a lot wiser investor after seeing so much incompetance.
Its been painful but very instructive lesson.
Gap filling day. Good sign we have seen the lows now a bit of consolidation and when some news hits its off to the races.
Thisis one of the reasons we need Ron Paul....Bear Sterns wants everybody to trust them again,Lol.
July 18 (Bloomberg) -- Bear Stearns Cos. told investors in its two failed hedge funds that they'll get little if any money back after ``unprecedented declines'' in the value of securities used to bet on subprime mortgages.
``This is a watershed,'' said Sean Egan, managing director of Egan-Jones Ratings Co. in Haverford, Pennsylvania. ``A leading player, which has honed a reputation as a sage investor in mortgage securities, has faltered. It begs the question of how other market participants have fared.''
Estimates show there is ``effectively no value left'' in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and ``very little value left'' in the High-Grade Structured Credit Strategies Fund, Bear Stearns said in a two-page letter. The second fund still has ``sufficient assets'' to cover the $1.4 billion it owes Bear Stearns, which as a creditor gets paid back first, according to the letter, obtained yesterday by Bloomberg News from a person involved in the matter.
Bear Stearns, the fifth-largest U.S. securities firm, provided the second fund with $1.6 billion of emergency funding last month in the biggest hedge fund bailout since the collapse of Long-Term Capital Management LP in 1998. The losses its clients now face underscore the severity of the shakeout in the market for collateralized debt obligations, or CDOs, investment vehicles that repackage bonds, loans, derivatives and other CDOs into new securities.
Bear Stearns spokeswoman Elizabeth Ventura declined to comment.
Risk Soars
Shares of Bear Stearns fell $2.40 to $137.51 at 10:56 a.m. in New York Stock Exchange composite trading, extending their decline this year to 15 percent.
The cost of insuring $10 million of Bear Stearns corporate bonds for five years jumped $2,000 to $76,000, according to credit-default swap prices provided by broker Phoenix Partners Group in New York. That's the highest since November 2002.
More broadly, the risk of owning corporate bonds soared to the highest in two years in Europe and rose in the U.S., credit- default swap prices show.
Ralph Cioffi, the 22-year Bear Stearns veteran who managed the two funds, sought to minimize risk by investing in the top- rated portions of CDOs. Under Cioffi, 51, the funds also borrowed money in an effort to boost returns. Instead, as defaults surged on subprime mortgages, they grappled with ``unprecedented declines'' in the values of AAA and AA securities, Bear Stearns said in the letter.
Market Implications
``That has implications for credit weakness in the next several days and weeks,'' said Peter Plaut, an analyst at New York-based hedge fund Sanno Point Capital Management. ``There's going to be more risk aversion.''
In an interview with the New York Times published on June 29, Bear Stearns Chief Executive Officer James E. ``Jimmy'' Cayne said the debacle was a ``body blow of massive proportion.'' Sanford C. Bernstein & Co. analyst Brad Hintz estimated in a July 16 report that Bear Stearns's profit may decline 6.8 percent this year as the firm restricts lending to hedge funds and declining demand for mortgage bonds cuts trading revenue.
Hedge funds are private, largely unregulated pools of capital whose managers participate substantially in any gains on the money invested.
`Dear Client'
Today's letter, addressed ``Dear Client of Bear, Stearns & Co. Inc.,'' recounts how the firm's two funds unraveled in less than a month. In early June, faced with redemption requests from investors and margin calls from lenders, the funds were forced to sell assets. When those efforts failed to raise enough cash, creditors moved to seize collateral or terminate financing.
The fund that now has nothing left for investors, known as the enhanced fund, had $638 million of capital as of March 31, according to performance reports sent to clients at the time. It also borrowed about $11 billion to make bigger bets. Bear Stearns said last week that the fund's debt had dropped to $600 million.
The larger fund, which had $925 million of capital in March, is down about 91 percent this year, according to a person with direct knowledge of the performance, who declined to be identified because the figures aren't public. It borrowed almost $9 billion, and its remaining debt was taken over by Bear Stearns in the bailout.
As prices of CDOs slumped, lenders demanded more collateral, forcing the funds to sell assets and mark down the value of their investments, creating a vicious cycle. The leverage magnified the losses, wiping out investors' capital, Michael Hecht, an analyst at Bank of America Corp., said today in a report. Hecht doesn't expect the funds' losses to reduce Bear Stearns's shareholders' equity and recommends buying the stock.
Tremont, Paradigm
Investors in the second fund include Tremont Capital Management Inc. and Paradigm Cos., two firms that place client money with other hedge fund managers. Together, they have more than $9 million at risk.
Bear Stearns itself invested about $35 million in the funds, Chief Financial Officer Samuel Molinaro said on a June 22 conference call. The firm bailed out the larger pool to keep lenders from auctioning off assets and driving down prices.
``For them to put up so much capital, just for reputational risk, wouldn't make sense unless they believe they won't lose money on it,'' said Erin Archer, an analyst at Minneapolis-based Thrivent Financial for Lutherans, which owns about 200,000 Bear Stearns shares.
Merrill Lynch & Co., which was among the creditors to seize collateral, considers its ``exposure'' to be ``limited'' and ``appropriately marked'' to market, Chief Financial Officer Jeff Edwards said on a conference call yesterday. Merrill reported a 31 percent increase in second-quarter profit, even after revenue in the business that includes mortgages and CDOs declined.
Mortgage Markdowns
Douglas Sipkin, an analyst at Wachovia Corp., said today in a note to clients that most securities firms probably reduced the value of their mortgage assets during the first half of the year. Any holders that continue to overvalue CDOs and subprime bonds will have to mark them down to market this quarter, he wrote. Sipkin rates Bear Stearns shares ``market perform.''
Bear Stearns shook up its asset-management unit last month, as the losses mounted. The firm ousted Richard Marin as head of the division, replacing him with Lehman Brothers Holdings Inc. Vice Chairman Jeffrey Lane, 65. Tom Marano, 45, Bear Stearns's top mortgage trader, moved over to asset management to help sell the fund assets. Marin, 53, and Cioffi remain advisers to the firm.
In the letter, Bear Stearns said it made such moves to ``restore investor confidence'' in its asset-management division.
``Let us take this opportunity to reconfirm that the Bear Stearns franchise is financially strong and committed to meeting your investment needs,'' the letter reads. ``Our highest priority is to continue to earn your trust and confidence every day.''
To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net
Thanks again party. So many questions very few avenues for answers.
So let me get this clear in my own mind, AURC currently has around 326 million shares outstanding. Of which 100 million are restricted and 226 million are in the float.
So Monimpex exchanged 50% of the restricted for the purchase of Krong. So Valentin received 50 million restricted shares for handing over Krong.
I guess monimpex's restricted became unrestricted at some point and they dumped them on the market.
So if monimpex currently doesn't own any more shares of AURC,why have they not been fired?
Thankyou for your help party.
Yes the servers have crashed. Don't know how soon they will be up again.
Thanks investwise,great news. I will be buying more when TDAmeritrade servers come back on line. Would you believe they crashed just as i was about to place an order.
I'am glad they found about the shell now rather then later. Bit of a bummer thou.