Good morning, investors and traders! You are reading the Daily Download (”Daily DL”), which includes summaries and links to the day’s selected economic and stock investing news. The Daily DL is maintained by Chain Bridge Investing (“CB”), which is a financial blog at www.chainbridgeinvesting.com. Chain Bridge Investing is constantly improving and adding new financial and investing content to the website. Please let us know if you have any suggestions at the following email address: .

General News & Headlines Summary

News items not covered below are as follows: (1) Accenture, the company with arguably the most exposure to Tiger Woods as a spokesman, severed its ties with Tiger and will seek to formulate a new ad campaign for the future; (2) Abu Dhabi gave $10 billion in financing to Dubai World, of which $4.1 billion will be used to repay Nakheel’s sukak and the rest will be used to help the company’s operations until April 2010; (3)  Citigroup will likely unveil the details to a new capital-raising deal early this week; (4) OPEC does not plan to cut output at the meeting next week; (5) in 2011, Toyota states that it will begin selling plug-in hybrids, which will hold a more powerful lithium-ion battery, in 2011 at affordable prices; (6) the U.S. Senate passed a $1.1 trillion spending bill, which contains six of the 12 appropriation bills for the 2010 budget year; and (7) Beijing Automotive Industry Holding struck a tentative accord for the right to produce older models of Saab.

Upcoming Economic Data for the Day (all times EST)

11:30 AM         3-Month Auction

11:30 AM         6-Month Auction

Initial Public Offerings (”IPOs”) for the Week of December 14- 18, 2009

12-15-09            Cobalt Intl Energy – Deepwater and offshore oil exploration (“CIE”)

12-15-09            Team Health Hldgs – Healthcare professional staffing and administrative services (“TMH”)

12-16-09            Kraton Performance Polymers – Styrenic block copolymers. (“KRA”)

12-17-09            Intl Beef – Holding company and beef processing company (“NBP”)

Data from the WSJ Market Data Group

For Daily Market Performance Data, Please Visit the Daily Market Sheet

Third-Quarter Earnings are Done.

News

Shell Wins “Gold Rush” Iraqi Oilfield Auction – Financial Times

Summary: At present, much of the optimism regarding Iraq and its oil is derived from the potential reserves that exist in a few large fields that have not been explored since the 1970s.  The estimates and data on these fields is old, based on antiquated technology, and conservative previous use.  Currently, the major international oil companies are participating in an Iraqi auction for the rights to 10 of Iraq’s largest and mostly undeveloped oil fields.  These auctions represent the re-entry of foreign oil companies into Iraq for the first time in 37 years.  On Friday, Royal Dutch Shell won the right to develop Iraq’s giant Majnoon oilfield and will have a 45% stake, while Petronas will hold a 30% stake and Iraq the remainder.  In return, Shell has accepted a low fee of $1.39 a barrel and has stated that it will increase Majnoon’s production to 1.8 million barrels a day, which is much greater than the minimum 700,000 barrels a day determined by Iraq’s oil ministry and the 46,000 barrels a day the field currently produces.  With this current auction and one earlier this year, Iraq has put in place the steps necessary for it to reach a national production level of 10 million barrels a day within a decade.  Yet, some of the fields that have higher productions costs have failed to draw winning bids as there remains uncertainty regarding the geology and the future of the pipeline infrastructure.

CB: There is a much work that has to be done in order to have Iraq producing near 10 million barrels a day within the next decade.  This is a goal and may not be reached due to: (1) geopolitical factors; (2) potential problems during the implementation of petroleum gathering systems; (3) OPEC; and (4) the potential inability to optimize the longevity of fields at such high production rates.    Furthermore, much of the current infrastructure is destroyed and needs to be replaced and additional new wells, equipment, and technology have to be implemented.  However, one should be aware that the additional production from Iraq could apply downward pressure on the price of oil as time moves forward and if global oil demand continues to be subdued.  Yet, OPEC, if it can enforce discipline amongst its members, will likely maintain a quota on Iraq that is significantly below the 10 million barrels a day goal, especially if oil demand growth continues to be lackluster.

Related Reading: Baghdad Hails Auction of Oil Fields – The Wall Street Journal

Defense Contractors Resist Fixed-Price Jobs – The Wall Street Journal

Summary: The Obama administration is promoting the use of fixed-price deals for defense contracting as a tool to reduce military spending.  Before this new push for fixed-priced deals, the more common deal type for defense projects was cost-plus, which guarantees a fixed-profit margin and covers the contractor’s expenses.  As a result, these cost-plus projects tend to go over budget due to: (1) the evolving technology; (2) the long-term duration of the project; and (3) the customer’s changes to requirements.  Moreover, some critics believe that cost-plus contracts do not force the contractors to control their costs. Yet, critics of fixed-priced contracts argue that these rigid contracts usually result in expensive legal battles over changed requirements and additional costs.  At present, Washington is using the fixed-price approach on a $40 billion tender to purchase 179 aerial refueling jets, but the two potential bidders, Northrop Grumman and Boeing, are skeptical of placing bids for a fixed-price contract that will last nearly 20 years.  Northrop’s Chief Operating Officer has already stated that the contract would place “contractual and financial burdens” on the company.

Bond Traders Put Pressure on Debt-Laden Nations – The New York Times

Summary: Bond traders are putting pressure on countries with large debt burdens by demanding higher yields on the public-sector bonds that they purchase from these countries.  Higher yields have, historically, had a tendency to force the affected nations to become more fiscally responsible due to the increased financing costs.  Currently, the bond traders are making their presence felt in both Greece and the U.K..  Last week after Greece’s credit rating was downgraded, the spreads on Greek 10-year bonds rose to highs of 250 basis points over their German counterparts, reflecting increased risks.  Furthermore, in the U.K. the yields on gilts were pushed to their highest levels since the financial crisis due to the release of a budget report that did not detail spending cuts.  In addition, troubled members of the European Union like Portugal, Ireland, Greece and Spain are turning to the bond markets to raise additional funds, but may run into problems gathering extra funds if bond traders continue to raise the yields on public-sector debt.  These countries are at a disadvantage because the monetary policy is not being modified to help them recover.  Some analysts believe that continued economic troubles for these countries will force them to break from the currency union; however, other analysts believe that the leaders of the European Union would come to the aid of these distressed European countries.

CB: Some the issues have been covered by CB last week, use the following links for more information:  Daily DL 12-9-09: Greece, Daily DL 12-10-09: Spain, Daily DL 12-8-09: U.S. & U.K.

Digital Gridlock Ahead – The New York Times

Summary: AT&T faces a dilemma as mobile data traffic has increased over fifty fold during the last three years on its network, while revenue from this data traffic is growing at a much smaller rate, an annual rate greater than 30%.  Consequently, the company faces increasing difficulty of gaining an attractive return on the capital expenditures for continued growth.   According to Sanford C. Bernstein & Company, when the estimated costs of capital expenditures are considered versus the data revenue, the data subscribers may add very little to no value to AT&T.  Ralph de la Vega, who heads AT&T’s mobile division, stated that the company is searching for a way to have the 3% of customers using 40% of the data traffic to reduce or adjust their usage to prevent the crowding out of other customers.  This problem is not limited to AT&T, it extends to many other networks including those in Europe.  Yet, if this problem continues, then mobile networks will become a game of capital expenditures and the larger networks will have an advantage as economies of scale and scope become more important.

Gold and Silver Seek to Strike a Balance – The Wall Street Journal

Summary: Since 1970 the gold-to-silver-price ratio has averaged approximately 54 times, but during the crisis in 2008 it jumped to 84 times as scared investors moved their money into gold.  At present, the ratio is near 66 times primarily due to the 54% surge in the value of silver, which increased at a greater rate than gold’s 27% gain, during the year.  Yet, market participants tend to believe that this ratio needs to decrease to a level in the 50s.  The recent decline in the price of gold has a few people believing the ratio could correct itself with a decline in gold; however, gold does not need to decline if silver continues to surge.  Nevertheless, Walt de Wet, an analyst, has stated that the ratio is already near its average if only the last 10 years are considered.  Additionally, the price of gold may face a headwind if interest rates on the U.S. dollar increase.  Such an increase, would make holding dollars more attractive and thus more competitive with gold as an investment.

Economists Warn of Asset-Price Bubbles – The Wall Street Journal

Summary: Leading U.S. and European economists warned that expansive monetary policy and spending policy creates the possibility of asset-price bubbles.  Many blame part of the financial crisis on the U.S. Federal Reserve and other central banks who maintained low interest rates post the 2001 downturn.  Some analysts believe that certain asset prices, including emerging markets and corporate bond market, are rising to  unsustainable levels.  Historically, a sign of a bubble has been rising inflation, but due to the amount of economic slack in the system, wages and prices may remain constrained for some time.  Furthermore, Paul Volcker believes that the stimulus measures should not be removed yet, but policy needs to ” become more restrictive before the need is obvious.”

More Links of Note

The 5 Reasons Gold is in a Bubble and at Risk of Significant Correction – Pragcap

Active Trader: Retracing Fibonacci’s Steps

Paul Samuelson, RIP – Paul Krugman

FDIC Bank Failures – The Big Picture

Volcker:  We Need to Think More Boldly – The Big Picture

Baghdad vs Copenhagen: Oil Companies Bet that Oil Era is Far from Over

We Must Safeguard the Fed’s Independence – Financial Times

‘Titan of Economics’ – The Wall Street Journal

Chain Bridge Investing (“we” or “CBI”) states at the outset that the opinions, judgments and derivation of thinking in this writing are solely Chain Bridge Investing’s. It is imperative that any judgment or valuation you take from information dispersed by CBI be examined within the context of your portfolio investment and overall objectives. To that end we urge you to contact your investment advisor or portfolio manager to insure that the information or suggestions proposed by CBI conforms to your needs and financial strategy.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.