Cyprus natural gas

Digging a bit into the Cyprus mess, I think the

key is natural gas.

Cyprus got into trouble by joining the EU, accepting

foreign accounts from Russia when had it had its currency

problems, and then investing the money in Greece.

All three mistakes probably seemed like good ideas

at the time but, as a group, they were dumb.

Now Cyprus needs a bailout of about $10B to cover

the bank losses.  Does it have enough assets?

However ... looking at its natural gas fields, it does

have the possibility of plenty of assets.

So far, the lease held by Noble Energy (NBL) looks like

it has about 5-8 trillion cubic feet of natural gas.

Plus several more areas are under exploration that

could contain 20-30 trillion cubic feet.  Or more.

At current prices, those reserves would be worth

at least 10X its debt.

Sooo, Cyprus could sell its family jewels to cover its

debts.  The question is who will buy it?  Russia

currently makes a lot of money selling nat gas to

Europe and wouldn't like the competition if another

country sells nat gas.  That's why Gazprom wanted

to lease the gas fields but its low-ball offer was

rejected.  Maybe somebody else will jump in.

Is the EU fixed?  Over the past two years, fears grew that the EU was unrecoverable.  However, the sentiment change in late 2012 that the EU would muddle through.

Now in 2013 there is evidence that the twin bulwarks, Germany and France, are not as strong as hoped.  Both nations have economies that are flat or even declining.  Without growth from those two, what will counter-balance the weakness of Greece, Italy, and Spain?

Lots of news articles about gasoline prices.
Time for a quick calculation to see how to get to $5.

The rumor are of a Spring attack on Iran by Israel.
Who knows. Bomb-bomb-bomb bomb-bomb Iran...

The price of a gallon of gas costs:
Fed tax: 18.4 cents
State tax: 26-67 cents (New York is highest)
retail/distributor: ~15 cents
TOTAL: 59-100/gallon

Rather than figuring out refining costs and all the
zillion of variables of production and transporting,
I'll just use the wholesale gasoline price (RBOB).

Note there are dozens of gas formulations, as
required by different states or cities. Plus the
local sales taxes are different.

Current RBOB is about $3.15 for WTI at $108/bbl
http://www.eia.gov/dnav/pet/pet_pri_fut_s1_d.htm

So, to get over $5 gas, oil would need to be over
25% higher -- roughly $135 for WTI or $150 for Brent.

---
GM just announced that it will stop building Volts
for 5 weeks because sales are too slow.
http://www.freep.com/article/20120302/BUSINESS0101/120302035/Volt-production-on-hold-for-5-weeks

There's enough details in that article on the cost of
production for Volts to show that it's a massive money
loser. GM spent over $750M in design costs on it.

With the 2012 Academy Awards over, what is the economic value of winning?

The following chart looked at a decade of nominees versus winner. It's clear that winning gives a large benefit.

http://www.economistsdoitwithmodels.com/wp-content/uploads/2012/02/whats-an-oscar-worth.jpg

This great graph shows the size of the WinTel juggernaut that has dominated personal computing for more than a quarter-century. But with 2011, the emergence of mobile devices has now taken market share from PCs.

Liquidity versus Solvency

Liquidity versus solvency, what's the difference?

Simply put, illiquidity is when an entity owes money but doesn't have enough cash to pay off those debts. insolvency is when all of the entity's assets aren't enough to repay the debt.

As an example, a person may owe $1000 per month but only has $500 in cash each month. To cover the debt payment, the person would need to raise additional cash by selling something.

Corporations face the same problem for their debts. If they can't raise the cash, the corporation can be forced into bankruptcy.

When bankruptcies occur, it is usually due to a liquidity crisis because waiting until insolvency means there is no value left.

More difficult to handle are banks. A bank that doesn't have enough liquidity may be considered insolvent, too, because a bank has a hard job maintaining the value of its assets if it is viewed as illiquid. A "bank run" can quickly drain a bank. Liquidity dries up and the bank can't raise cash by quickly selling assets.

Three 'D's

The markets are scared of the 3 'D's -- debts, deficits, and defaults.

Debt is everywhere. Consumer debt grew into a massive bubble. Government debt too. Corporate debt isn't too bad.

Deficits from government is very troubling. The US deficit is now over $15 trillion.

Finally, the end of too much debt is a default. After defaults in South American and Asia over the last few decades, Europe's PIIGS are risking default.

Investors are watching these three 'D's because they know other Ds can follow -- depression, currency debasing, and maybe deflation.