Jings, what a crazy world – it must be when one of the UK’s largest hedge funds, Man Group, goes squealing to the regulator asking for protection from fellow piranhas bent on tearing it to shreds.
Not content with playing a part in precipitating the current banking debacle – even if only a bit part – the brutes are perfectly happy to turn on their own kind. They come across as being a bit like hyenas – skulking and with jaws of terrifying power.
I wonder how many of you have seen the early-1960s movie, It’s a Mad, Mad, Mad, Mad World, starring Spencer Tracey and others. Basically, the plot is based around the dying words of a thief that spark a madcap cross-country rush to find some treasure – a bit like the lunatic world of investment and banking that has destroyed the “person in the street’s” pension plans.
The abiding memory I have of this utterly crazy movie is when a vehicle full of hopefuls tears into a tunnel, but all that appears out of the other end is a pall of smoke and a single wheel rolling lazily. Bit like the financial markets, really.
I’m like most of us, baffled that we ever landed in the current situation – the result of massive political and corporate failings, coupled with manifest greed – a system that destroys companies at almost the flip of a coin and rewards greed. Quite bizarre.
And, like most of us, I’m deeply unsure as to whether the billions of pounds and dollars ladled into the UK and US (plus some other financial systems) will work.
While I think I can see why the knee-jerk banning of the practice of short selling by hedge funds in the context of a select band of financial institutions has been implemented, I worry that these beasts will simply turn to other sectors – oil&gas, for example – and make a killing there, too. Not that they haven’t already.
Many ignoramuses such as myself who hold a few stocks (of course hoping for that proverbial killing that never comes) are, shall we say, dismayed at what is happening to the share price/valuations of so many companies, including cash-rich revenue generators carrying zero debt. And it’s all taking place in a world of $100 oil – one that Opec will successfully defend, believe me.
One wonders how much of the value destruction is down to hedge funds. Bear in mind, at the time of the Wall Street crash of 1929, such funds commanded something like 1% of the market, compared with 20% or thereabouts today.
Last week, while poking around a few investor boards, I came across an interesting post regarding E&P closing auction activity for September 30.
Sharescope Level 2 recorded the following:
BP 18.3million shares.
Imperial Energy 49,000.
It generated chatter, including the following statement: “No coincidence perhaps that this is the last day of the quarter, so it very much smells to me like a hedge fund reversing a short oil&gas position taken out (very profitably) at the start of the quarter”.
That may or may not be correct, but it makes one wonder whether hedge funds need curbing way beyond just the select financial few, though they do have a place in the system, or appear to.
Meanwhile, the current state of the market means that many E&P companies needing to finance forward programmes will find themselves in a fix – strapped for cash and unable to get hold of the money they need. By the same token, the supply chain that serves them finds itself in a similar fix.
Of course, there are other routes and, for example, it was speculated last week that Tullow Oil might be contemplating a bond issue to ensure that it could adequately finance its part of the huge Jubilee project offshore Ghana without resorting to diluting that stake. Catalyst to that was the fact that Tullow had arranged a capital markets day for October 1. Conventionally, that tends to be a precursor to a bond issue.
Others may be forced into mergers against their will, or simply gobbled up by larger brethren for buttons.
One way or another, the shenanigans of the banks and their wider brethren will damage oil&gas-related investment, which was already flat. A decline seems inevitable rather than the hefty increase which is what is needed.
It is important to keep a sense of proportion. The world is not falling apart and we all need energy – big time. I think Andrew Gould, CEO of Schlumberger, got it right at the company’s 2008 investor conference of September, when he played on the theme, Stronger for Longer. He simply got on with mapping out the huge challenges and opportunities within the sector and barely alluded to the mess in London and Wall Street.
It should never be forgotten that oil&gas is a long-term game and Gould is right to hammer home that message. Companies should do their best not to be swayed by financial storms, even if words like Armageddon and meltdown are being freely bandied about in the media.
And, of course, Big Oil is an ingenious animal. The very nature of what it is will always attract money; witness the increasing activity of sovereign wealth funds and Beijing, where the coffers are overflowing with liquidity.
That chapter of the great oil&gas story has barely opened and the lunatics of the Square Mile and Wall Street are playing straight into their times. What was it that Confucius said?