Sultans of swap: BP potentially more devastating than Lehman!

8 posts / 0 new
Last post
investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Sultans of swap: BP potentially more devastating than Lehman!

I could not have stated it any clearer than Jim Sinclair at jsmineset.com: “People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. You should think about the financial muscle behind a company with 100+ years of proven oil and gas  reserves. Think about that in comparison to a bank with few tangible assets. Then think about what happens if BP goes under. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples…. The price tag and resultant knock-on effects of a BP failure could easily be equal to that of a Lehman, if not more. It is surely, at the very least, Enron x10.”

The most likely scenario is that the US operations of BP will voluntarily attempt Chapter 11 bankruptcy proceedings. This is the worst possible scenario for claimants. The problem here is that this triggers a credit event which has daunting repercussions to the highly leveraged global financial markets. Like AIG before, the government does not want to tamper with the ramifications and fall out of a CDS event. Lehman was one too many.
 
If a US voluntary bankruptcy is stopped by the US and there is a BP corporate  bankruptcy, then there is a strong possibility that the British Government will be forced to step in and bailout BP.  In the end, the tax payer will pay as the ongoing game of Regulatory Arbitrage is played masterfully once again.
 
Deleveraging associated with BP may be the event that triggers the $5T Quantitative Easing spike we have been warning about for some time now. It will be needed to complete the final process of manufacturing of a Minsky Melt-up to avoid the looming pension, entitlement and US state financial crisis.

http://home.comcast.net/~lcmgroupe/2010/Article-Sultans_of_Swap-British_...

 

agitating prop's picture
agitating prop
Status: Platinum Member (Offline)
Joined: May 28 2009
Posts: 854
Re: Sultans of swap: BP potentially more devastating than ...

BP's Gulf oil spill is the hallmark event kicking off the end of the of oil age.  If their termination as a financial powerhouse causes a huge market readjustment, it's all to the good in the long run.  BP has literally become bogged down, mired in the muck of it's own making--a living fossil, testament to the age of dinosaurs.

maxwellbach's picture
maxwellbach
Status: Bronze Member (Offline)
Joined: Oct 13 2009
Posts: 29
Re: Sultans of swap: BP & QEII

Financial readers of CM.com should pay close attention to this article. The author is suggesting that QEII is imminent, just like Chris. He puts fwd a very compelling argument for why this might happen soon. Gordon Long's site is of a high calibre and certainly worth inclusion on the favourites list of any investor.

agitating prop's picture
agitating prop
Status: Platinum Member (Offline)
Joined: May 28 2009
Posts: 854
Re: Sultans of swap: BP potentially more devastating than ...

Hate to sound stupid, but in Canada QEll is Queen Elizabeth the second. What does it stand for, exactly? Woops, got it. Quantative easing! Thanks.

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: Sultans of swap: BP potentially more devastating than ...

Thanks investorzzo for another key update.

You have to wonder how BP can continue on given the still unmeasured and unabated oil eruption.  I have no sympathy for BP but I feel bad for the people who are invested in the effected pension and mutual funds, stocks and other vehicles. 

Hello maxwellback,

Interesting call on Quantitative Easing II (I think this is what you meant - I thought of Queen Elizabeth II too agitating prop).  No matter what they say about austerity (which is meant for We the People), I agree they are going to expand the money supply, probably through the banks. 

To do otherwise would bring on Great Depression II which will soon be hitting Europe through austerity induced rising unemployment, pension robbing, greater rate of foreclosures, higher taxes and shrinking social/health services.  This is only a delay tactic as we reached peak debt.  We have pushed our debt forward to as many generations as possible in what can only be described as a crime against future humanity.

Larry

sofistek's picture
sofistek
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 818
Re: Sultans of swap: BP potentially more devastating than ...

I didn't realise that oil reserves were now measured in years.

What does 100 years of proven oil and gas reserves mean, exactly? I might imagine that it means their "proven" reserves divided by their current production. Which makes it a rather pointless observation by Jim Sinclair unless BP can maintain their current rate of production for 100 years, from their proven reserves.

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Sultans of swap: BP potentially more devastating than ...
agitating prop wrote:

Hate to sound stupid, but in Canada QEll is Queen Elizabeth the second. 

Quite right. And Her Majesty does not appear to be a happy camper in Ottawa yesterday ... though Prince Philip is wearing a nice death-mask grimace.

"BP's demise could cost us billions ... and all she wants to do is dance, dance."

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2237
Re: Sultans of swap: BP potentially more devastating than ...
investorzzo wrote:

Deleveraging associated with BP may be the event that triggers the $5T Quantitative Easing spike we have been warning about for some time now. It will be needed to complete the final process of manufacturing of a Minsky Melt-up to avoid the looming pension, entitlement and US state financial crisis.

http://home.comcast.net/~lcmgroupe/2010/... 

Hey Investorzzo-

   I was checking out the Market Oracle site and found another article by Gordon Long, published just yesterday, that looks pretty interesting.  It is "Next Minsky Melt-Up or Plunging Stock markets", at http://www.marketoracle.co.uk/Article20943.html  .  Here's a clip:

A MINSKY MELT-UP & INCREASING VELOCITY OF MONEY

We will get a dramatic insertion of new Federal Reserve stimulus in the amount of $5T. This will be the last element required in the manufacturing of a Minsky Melt-Up (see: EXTEND & PRETEND - Manufacturing a Minsky Melt-Up). An accelerating Velocity of Money will bring on inflation in the items we “need to have” versus the things we think “we want”. It will be a time of PROTECTING your wealth from the ravages of inflation or possibly hyperinflation.

It is important to appreciate, and contrary to popular perception, it isn’t solely the printing of money that will bring on elevated inflation. It is also the result of a stealth supply shock in basic necessities coupled with a demand shock associated with population. Let me explain.

When the 2008 financial crisis hit, businesses began immediately preserving cash. Capital expenditures were slashed and new projects placed on hold or shelved indefinitely. For industries with long lead times to bring on new and increased production, such as is common in mining, food processing and generally overall in basic commodity businesses, this crimps their abilities to meet ramp ups for any near-to-intermediate term demand. Meanwhile, the Asian and Emerging markets of the world continue to be able to afford to eat better and consume larger quantities of the basic staples of life. These economies have not been hit as hard as the developed economies. This combination along with a future weakening US dollar is going to seriously impact consumer inflation in the US and accelerate Money Velocity when the Fed overlays QE II.

PLUNGING MARKETS AND ASSETS VALUES

If the government is not successful in its reflation efforts, then we can expect a dramatic sell-off in financial assets. The market will retest and break through the 2008 lows of 666 in the S&P 500. It will be a time to PRESERVE your wealth from the onslaught of asset devaluation.

PRESERVE & PROTECT BEGINS

We have now entered into Stage II of Extend & Pretend or what I would prefer to call Preserve and Protect. We must watch key events extremely closely as they unfold, but with a clear understanding of the framework in which they happen. Government policy initiatives, geo-political events and economic trigger points must all be scrutinized.

best,

-pinecarr

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments