Enron No Lesson to Traders as EU Probes Oil-Price Manipulation

Enron No Lesson to Traders as EU Probes Oil-Price Manipulation

Enron Corp.’s 2001 collapse revealed the extent of its manipulation of spot gas prices. Twelve years later, European Union regulators may discover energy traders never learned the lessons of the scandal.

BP Plc (BP/), Royal Dutch Shell Plc (RDSA) and Platts were visited by EU inspectors last week over allegations they “colluded in reporting distorted prices” to manipulate the published prices of oil and biofuel products, the European Commission in Brussels said after the raids.

Shell, London-based BP and Statoil ASA (STL), three of Europe’s biggest oil explorers, are under investigation for potential manipulation of prices in the $3.4 trillion-a-year global crude market. The involvement of McGraw Hill Financial Inc. (MHFI)’s Platts, which publishes pricing data, hearkens back to other pricing scandals including Enron, and more recently, Libor.

“We’re making exactly the same mistakes we did with Enron, just with a different commodity,” Robert McCullough, an energy consultant, said by telephone from Portland, Oregon. “The same manipulation we saw in electricity and gas pricing is what we’re seeing in oil.”

The Enron scandal started in 2001 as traders used trading strategies called “Fat Boy” and “Get Shorty” to create phantom congestion in the California energy markets. Electricity prices rose 10-fold on average and California consumers endured days of rolling blackouts. Read more of this post

US shale gas may become export rival to Australia

US shale gas may become export rival to Australia

May 20, 2013, Peter Ker

Fears that the US could become a gas export rival to Australia are firming, after the Obama administration approved more liquefied natural gas exports at the weekend.

In a positive indicator for BHP Billiton’s petroleum business, the US Department of Energy gave conditional approval for the Freeport LNG project in Texas to export to nations that do not have a free trade agreement with the US.

The US has traditionally been reluctant to allow energy exports, given the nation has needed imports to meet its energy needs, but the recent shale boom has created a gas glut that has allowed the nation to consider more exports. Read more of this post

Toyota Pulls Bond Deal Due To Soaring Yields: The Japanese “VaR Shock” Feedback Loop Is Back

Toyota Pulls Bond Deal Due To Soaring Yields: The Japanese “VaR Shock” Feedback Loop Is Back

Tyler Durden on 05/19/2013 12:18 -0400

Despite the eagerness of Abenomics and the new BOJ head Kuroda to have their cake and eat it too, in this case manifesting in soaring stock prices, plunging Yen, rising GDP and exports, and most importantly, flat or declining bond yields, so far they have succeeded in carrying out three of the four (assuming Japanese economic data reporting is more accurate than that of its neighbor China), as it is physically impossible for any central planner to completely overrule the laws of math, economics and physics indefinitely. In this vein, we have described on numerous occasions in the past several days the shock to the system that the massive one-way transfer out of all asset classes and into equities has engendered, and resulted in several JGB futures trading halts in an attempt to normalize a market where bond volatility has suddenly exploded. Volatility aside (and it shouldn’t be as the below section from JPM explains), the recent surge in yields higher is finally starting to take its tool on domestic bond issuers. As Bloomberg reports, already two names have pulled deals from the jittery bond market due to “soaring” borrowing costs.The first is Toyota Industries which as NHK reported, canceled the sale of JPY20 billion debt. Toyota is among Japanese firms that put off selling debt as long-term yields on government debt have risen, increasing borrowing costs, public broadcaster NHK says without citing anyone. Last week JFE Holdings announced it would delay plans to sell bonds due to market volatility. Two names down… and the 10 Year is not even north of 1%.

Var Shock 1Var Shock 2_0 Read more of this post

Greying China taps rural elderly to care for those even older

Greying China taps rural elderly to care for those even older

1:08pm EDT

By Li Hui and Maxim Duncan

QIANTUN, China (Reuters) – Two years short of 70, Zhang Guosheng spends his days caring for an 81-year-old fellow villager – washing his clothes, bringing meals to his bed, and keeping him company – a routine he’ll keep up until he himself needs the type of care he is now giving.

“Living here is better than staying at home alone. We help each other and have a common language,” said the spritely Zhang, an enthusiastic dancer. “We are very happy here.”

With younger villagers who would traditionally have looked after their parents and grandparents flocking to the booming cities to seek work as part of Beijing’s urbanization drive, Qiantun village in northern China’s Hebei province has had to pioneer a new model – the old looking after the even older. Read more of this post

Burton Malkiel: Asset Management Fees and the Growth of Finance

Asset Management Fees and the Growth of Finance

Burton G. Malkiel

Journal of Economic Perspectives—Volume 27, Number 2—Spring 2013—Pages 97–108

From 1980 to 2006, the financial services sector of the United States economy grew from 4.9 percent to 8.3 percent of GDP. A substantial share of that increase was comprised of increases in the fees paid for asset management. This paper examines the significant increase in asset management fees charged to both individual and institutional investors. Despite the economies of scale that should be realizable in the asset management business, the asset-weighted expense ratios charged to both individual and institutional investors have actually risen over time. If we exclude index funds (an innovation that has made market returns available even to small investors at close to zero expense), fees have risen substantially as a percentage of assets managed. One could argue that the increase in fees charged by actively managed funds could prove to be socially useful, if it reflected increasing returns for investors from active management or if it was necessary to improve the efficiency of the market for investors who availed themselves of low-cost passive (index) funds. But neither of these arguments can be supported by the data. Actively managed funds of publicly traded securities have consistently underperformed index funds, and the amount of the underperformance is well approximated by the difference in the fees charged by the two types of funds. Moreover, it appears that there was no change in the efficiency of the market from 1980 to 2011. Arbitrage opportunities to obtain excess risk-adjusted returns do not appear to have been available at any time during the early part of the period. Passive portfolios that bought and held all the stocks in a broad-based market index substantially outperformed the average active manager throughout the entire period. Thus, the increase in fees is likely to represent a deadweight loss for investors. Indeed, perhaps the greatest inefficiency in the stock market is in “the market” for investment advice.

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