Flag this message
WEEKLY NEWSLETTER VOL 3 ISSUE 18
Sunday, May 3, 2009 11:16 PM
"CAVALIERE CAPITAL CORPORATION" <jose.cavaliere@cavalierecapital.com>
View contact details
From:
cavaliere@cavalierecapital.com
To:
CAVALIERE CAPITAL CORPORATION
WEEKLY LATIN AMERICA PETROLEUM, SUGAR-BASED
ETHANOL, and ECONOMICS NEWSLETTER.
Click here to subscribe
Click here to send this to a friend
Or, visit us at: www.cavalierecapital.com
Sunday, May 3rd, 2009. VOL 3 ISSUE 18.
--PETROBRAS OBTAINS $2 BILLION LINE OF CREDIT.
--PETROBRAS TO RENEW NEGOTIATIONS WITH PDVSA.
--LONDON SUGAR PRICES JUMP TO 2 ½ YEAR HIGH.
--BP IS EVALUATING ETHANOL EXPANSION IN BRAZIL.
--ARGENTINA TO PRODUCE ETHANOL.
--CALIFORNIA GIVES GREEN LIGHT TO BRAZILIAN ETHANOL.
--BRAZILIAN DOMESTIC SUGAR PRICES REMAIN HIGH.
--REGULATORS CLOSE UTAH-BASED AMERICA WEST BANK.
--KARL MARX MUST BE TURNING IN HIS GRAVE. (My opinion)
PETROBRAS OBTAINS $2 BILLION LINE OF CREDIT
PETROBRAS TO RENEW NEGOTIATIONS WITH PDVSA
Brazil's state controlled petroleum company, Petrobras, said last Wednesday that it had
obtained a $2 billion line of credit from the Export-Import Bank, the commercial financial
arm of the U.S. government.
Petrobras stated in a press release to investors that the loan would be used to finance
equipment imports from the U.S., which are needed for its expansion plans.
The company is planning to invest $174 billion between 2009 and 2013 to increase crude oil
production.
Petrobras may draw on the funds in various parcels over a period of two years, and will have
a period of 10 years to repay each one.
"This loan approval strengthens the diversity of options for financing Petrobras' investment
plans," said Almir Barbassa, Director of Investor relations, in a press release.
PETROBRAS TO RENEW NEGOTIATIONS WITH PDVSA
Petrobras will again discuss with PDVSA this week its possible participation in the
construction of a new refinery in Northeast Brazil.
The Venezuelan state owned petroleum company has until May 25th to decide if it will
participate in the construction of the Abreu Lima refinery, in the Brazilian state of
Pernambuco, according to Paulo Roberto Costa, Petrobras' Supply Director.
"This week there will be a new round to try to resolve outstanding issues: investments
already made and the ones to be made, as well as the distribution of fuels according to the
Brazilian law," said Costa to the press. PDVSA's participation in Abreu Lima has been moving
forwards and backwards for years.
The two companies had various disagreements, which included the price of crude oil which
PDVSA will provide to the refinery, as well as the method of selling the resulting products.
Without an exact budget, the project was to be 60% owned by Petrobras and 40% by
PDVSA. Without a final agreement by the parties, Petrobras has begun construction of the
project by itself.
The project was expected to cost $4.5 billion, however, the first round of bids are pointing to
costs twice that amount, according to sources at Petrobras.
Costa, without confirming the expected final cost for the refinery, said that the contracts
were suspended because costs were considered to be too high. "We will receive new
proposals at the end of this month or in early May, but I am optimistic," said Costa.
The Abreu Lima refinery will begin operating in 2011, with a crude oil refining capacity of
200,000 bpd.
LONDON SUGAR PRICES JUMP TO 2 ½ YEAR HIGH
Sugar prices jumped on Friday, with London white sugar hitting a fresh two-and-a-half year
high, underpinned by bets that India, the world's largest consumer, will need further imports
this year and in 2010 to fill a gap in its domestic production.
The surge closed a sweet week for sugar, with New York's raw sugar surging 7.5 per cent, to
a high of 14.93 a pound – nearing a 14-month high – and London's white sugar moving 5.4
per cent higher, to $441 a tonne.
The gains in New York came after the expiry on Thursday of the May contract led to a hefty
delivery of almost 850,000 tonnes of sugar. Jonathan Kingsman, of Lausanne-based sugar
merchants Kingsman, said the tonnage probably was heading to India and Russia.
"Sugar is moving into strong hands," he said.
The rally has attracted lots of speculative interest, but Toby Cohen, head of research at
London-based sugar merchant Czarnikow, warned that the sugar market was moving ahead
of itself. "We are nearing the peak of the Brazilian sugarcane harvest and that will increase
sugar supplies."
BP IS EVALUATING ETHANOL EXPANSION IN BRAZIL
BP might form associations with other companies in order to expand its ethanol operations in
Brazil, according to Mario Lindenhayn, head of BP biofuels in the South American country.
The British company entered the Brazilian ethanol market one year ago by purchasing a 50%
interest in Tropical Bioenergia SA, a joint effort with Santelisa Vale, a Brazilian sugar and
ethanol producer, and Maeda, which grows cotton and grains.
"We consider Tropical to be the foundation for our growth, but we are also discussing with
other parties ways to contribute to our growth," said Lindenhayn. "Our objective is to have a
relevant position in the ethanol consolidation process in Brazil," he added.
BP was the first large petroleum company to invest in the ethanol sector in Brazil. Tropical
has announced plans to invest $1 billion in two new plants. The first, located in the state of
Goias, began operating in September of 2008, and is expected to process 2.4 million tons of
sugar cane. The firm is evaluating the construction of the second plant, also to be located in
Goias.
Lindenhayn indicated that Santelisa Vale's financial problems, one of BP's partners in
Tropical, are not a threat to the plans of the company, which is governed by a separate
board.
With a heavy debt load of $2.3 billion, Santelisa Vale agreed to sell this past month a
participation in the company to Louis Dreyfus Commodities, a broker based in Switzerland.
However, future BP operations in Brazil will not be limited to this alliance.
The company has not ruled out the acquisition of existing facilities, instead of building new
ones, after prices dropped because of the world financial crisis, said Lindenhayn.
"Today there are more opportunities in existing plants than there was in the past, and BP is
looking at opportunities which might be strategic and economically attractive," he explained.
By 2020, biofuels are expected to have a 10% world market share of combustible fuels,
compared to 2% presently, he added.
UNICA ESTIMATES BRAZIL SUGAR CANE HARVEST AT 550 MILLION TONNES
UNICA, the Brazilian sugar cane industry association, has released its first estimate for the
Center/South 2009/10 harvest. According to the association, this year's harvest will reach
550 million tonnes of sugar cane in the Center/South region of Brazil, as compared to 505
million tonnes during the 2008/09 harvest, and 431 million tonnes during the 2007/08
harvest.
Sugar cane production in the Center/South region of Brazil will increase this year, but at a
smaller rate than last year. During the 2008/09 harvest, production increased by 74 million
tonnes when compared to the previous year. This year, the increase is expected to be only
45 million tonnes. Between 20 and 23 new production facilities are expected to commence
operations during this harvest season, much less than the 35 that were planned previously.
ARGENTINA TO PRODUCE ETHANOL
Atanor, an Argentinean company, plans to develop an ethanol business in Argentina, in order
to take advantage of incentives offered by the government to local producers.
A new law provides incentives for local companies to supply the internal biofuels market,
with the goal of substituting for petroleum derivatives, so that by the end of this decade
gasoline will have a 5% ethanol content, while diesel will have a 5% biodiesel content,
according to Cronista.
The company has until May 15 to present a production plan to the government, including
plans for a plant to produce about 50 million tonnes of ethanol, beginning in 2010.
The president of Atanor, Miguel Gonzalez, explained that his company intends to produce
about 20% of the total needed for the local market, which is estimated to be 270 million
tonnes in the first few years.
CALIFORNIA GIVES GREEN LIGHT TO BRAZILIAN ETHANOL
The government of California approved last week, regulations for low carbon emission fuels,
which recognizes the reduction in carbon emissions provided by the use of Brazilian sugarbased ethanol. The decision, by the California Air Quality Counsel, should directly benefit
Brazilian ethanol.
BRAZILIAN DOMESTIC SUGAR PRICES REMAIN HIGH
The price of crystal sugar in the Brazilian local market during the first 15 days of March
continued high despite lower demand, boosted by low inventories.
REGULATORS CLOSE UTAH-BASED AMERICA WEST BANK
State and federal regulators late Friday closed America West Bank, of Layton, Utah. It was
the third financial institution closed Friday and the 32nd failure of the year. The Federal
Deposit Insurance Corp. said in a statement that Cache Valley Bank of Logan, Utah, will
assume all of America West's deposits. As of December 31, 2008, America West Bank had
total assets of approximately $299.4 million and total deposits of $284.1 million. Cache
Valley Bank paid a discount of $352,000 to acquire all of the deposits of the failed bank.
KARL MARX MUST BE TURNING IN HIS GRAVE. (My opinion)
We're getting to see things we never thought we'd see...amazing things.
"US to take majority GM stake in revamp," says the headline in last week's Financial Times.
How about that? America's largest car company is going to be stateowned...nationalized...presided over by the federal bureaucrats.
Only in America, only in 2009, can an annual 18.6% decline in home prices signal
'stabilization' in the housing market.
Just out last week is the latest Case-Shiller index of housing prices in major U.S. metro
areas. The annual 18.6% plunge in February is a teensy improvement from a record 19.0%
drop the month before. It's the first time since the index started falling in early 2007 that it
did not set a record year-over-year decline.
The numbers are in line with economists' expectations. All 20 metro areas measured by the
index fell during the last year. In the case of Phoenix, Las Vegas, and San Francisco, those
drops were more than 30%.
Overall, home prices, on average, are now back to where they were in 2003.
Ah...at last..let's not forget. Marx's dream has come true. The workers - at least those in the
United Automobile Workers union - are taking over the means of production. Between the
government and the unions, General Motors will be almost entirely in the hands of the
sweating proletariat.
And now Newsweek reports that the big banks are gaming the bailout programs by buying
toxic debt at 20 cents on the dollar and selling it to the government at 60 cents a dollar.
The Chicago Fed's latest National Activity Index, which crunches dozens of numbers to come
up with a near-term economic forecast with a not-bad track record, shows the economy still
hovering near the lows of the 1973-75 recession.
The message, as we have seen in other key cyclic indicators, is that free-fall phase of the
recession appears to be done in the United States. But that should not to be confused with
'the recovery has begun.'
The president's chief economic advisor, Larry Summers, chimed in with his own near-term
outlook last week.
The U.S. economy will contract "for some time to come." The head of the president's
National Economic Council also expects "sharp declines in employment for quite some time
this year."
Long bond futures have plunged a whopping 20 points — from 143 in mid-December to less
than 123 last week. The yield on the benchmark 10-year Treasury Note has exploded from a
fall low of 2.06 percent to 3.11 percent this week — a gain of 51 percent. Key technical
levels are giving way all over the place.
This past week alone, Treasury sold a record $26 billion in seven-year notes, a record $35
billion in five-year notes, and $40 billion of two-year notes. Next week, we'll get a record
$71 billion in longer-term debt issuance.
Total net borrowing needs for the second quarter are now up to $361 billion. That's up 27fold from $13 billion a year earlier and more than double the previous estimate of $165
billion.
We just learned the Treasury will start selling 30-year bonds every month, as opposed to
eight times a year. And speculation is running rampant that the U.S. will soon start
auctioning off 50-year bonds! All this issuance is needed to fund a federal budget deficit
that's projected to hit at least $1.75 trillion this year and $1.2 trillion in fiscal 2010.
Next week, the feds will hold the largest auction of Treasury debt in history. They will raise
$71.6 billion...on their way to doubling the U.S. national debt over the next five years.
We are now seeing a rapid unloading of insider shares according to Bloomberg:
"Executives and insiders at U.S. companies are taking advantage of the steepest stock
market gains since 1938 to unload shares at the fastest pace since the start of the bear
market.
While the Standard & Poor's 500 Index climbed 28 percent from a 12-year low on March 9,
CEOs, directors and senior officers at U.S. companies sold $353 million of equities this
month, or 8.3 times more than they bought, data compiled by Washington Service, a
Bethesda, Maryland-based research firm, show."
Not exactly a shining vote of confidence, that. To the degree that this rally has been fueled
by a combination of short squeeze, bogus bank earnings and balance sheet hocus-pocus, the
risk of a big downside whoosh is heightened.
U.S. home prices continued their multiyear slide in February, according to the S&P/CaseShiller home-price indexes, but they did stop their 16-month streak of record declines.
"While the declines in residential real estate continued into February, we witnessed some
deceleration in the rate of decline in some of the markets," said David M. Blitzer, chairman of
S&P's index committee. Still, 10 of the 20 metro areas reported record year-over-year
declines.
The S&P Case Schiller index showed that home prices are still plunging, down 18.8 percent
in a year and down 2.1 percent — an annual rate of 25.2 percent — in February alone.
A massive new explosion of mortgage defaults is expected in May: Beginning early next
month, payments on teaser-rate adjustable mortgages will shoot for the moon. Lenders will
be slammed by an explosion in defaults and foreclosures. Home prices will plunge yet again.
The number of vacant homes -- including foreclosures, properties for sale and vacation
properties -- jumped to a record 19.1 million in the first quarter as the recession sapped
demand for real estate, the U.S. Census Bureau said in a report Monday. The number of
homes that stood unoccupied rose from 18.6 million a year earlier. The U.S. financial crisis
and falling prices have shattered the confidence of homebuyers. The percentage of people
who said they plan to buy a home in the next six months dropped to a 26-year low in March,
according to the Conference Board in New York, Bloomberg reported.
China's retail sales for January and February jumped 15.2 percent overall, with urban sales
up 14.4 percent and rural sales up 17 percent.
Total first-quarter retail sales jumped 15 percent in the urban areas and 17 percent in the
rural countryside. Auto sales for March surged an amazing 27.2 percent!
Meanwhile, there are also signs that China's property markets are picking back up. Luxury
property prices are on the rise again, climbing 2.1 percent so far this year, while property
transactions overall jumped nearly 60 percent over February's pace.
Home sales in Shanghai totaled 1.5 million square meters in March — a whopping 91 percent
increase over January.
Despite a slump in exports, almost all of Asia continues to see growth in their monetary
reserves, with China's piggy-bank just recently hitting $2 trillion.
Russia and China recently signed a multi-billion-dollar, intergovernmental agreement to
construct an oil line from Russia that will supply oil directly to China. Actually seven
agreements in one, the terms depict a deal worth trillions of dollars - including a 20-year oil
contract to pump Russian oil to the Chinese market. In return, China has agreed to provide a
total of $25 billion in loans to Russian oil companies Transneft and OAO Rosneft Oil Co.
The terms of the contract are fascinating - and illuminating. Russia will provide China with
roughly 15 million metric tons of crude per year from 2011 to 2030, with much of the "black
gold" flowing through the 1,030-kilometer pipeline that's being constructed to run from the
Skovorodino refinery in Eastern Russia to Mohe County in China's Heilongjiang province. It's
a branch of the even bigger 4,700 kilometers (2,900 miles) East Siberia-Pacific Ocean
Pipeline that's currently under construction.
Additionally, during talks leading up to the oil-supply agreement, both nations talked turkey
on such topics as natural gas, nuclear energy, coal, electric power and resource-industryequipment manufacturing.
Zimbabwe, is a monetary pacesetter. It led the world in inflation - with a CPI estimated at
230 million percent. And then, it suddenly took the zeros off its currency - leading the world
in deflation.
The latest report from that benighted land tells us that the chief of the Zimbabwe central
bank, Gideon Gono, has found even more novel ways to get his economy rolling. Ben
Bernanke, are you paying attention?
"Zimbabwe's central bank head admits robbing private bank accounts," says a headline.
Need money? Just take it directly from accounts in the country's banks. Of course, thanks to
Mr. Gono and his friends there isn't a lot of money in Zimbabwe's banks. Who would keep
money in Zimbabwe's banks, unless they had to? Still, a few international aid agencies had
significant accounts - which Mr. Gono cleaned out. He said he only did it because he had to,
in order to keep the economy functioning. Besides, he's going to put the money back just as
soon as Zimbabwe gets back on its feet.
For the first time in a couple of decades, some of America's most successful, big-name
investors are buying gold. David Einhorn, the hedge fund manager who predicted the
downfall of Lehman Bros., recently bought gold for the first time. And then there is John
Paulson, the guy who made billions of dollars by correctly anticipating the housing bust and
credit crisis.
Paulson just plunked down $1.3 billion for an 11% stake in AngloGold. He's also got a big
position in Kinross Gold.
Peter Munk, the 82-year-old chairman and founder of Barrick Gold, also offers up his own
anecdote about gold's broadening appeal. "I have had more phone calls in the past six
months than ever before - from people who have $120,000 inherited from grandmother, and
from hedge fund managers with millions," he says. "I am not saying George Soros, but
people of that caliber have told me they are buying gold."
It appears that the 'decoupling' idea does work at an economic level. The United States and
Germany are both in recession - with GDP retreating at 6% per year. Japan is
imploding...with a negative trade balance for the first time in more than a quarter of a
century. But India, China, Brazil and other emerging markets are still growing. Consumer
spending is up in China - at a 15% rate. And this year, more autos will be sold in China than
in the United States - for the first time ever. And just look where those autos are made - in
China, of course.
QUOTES OF THE WEEK
"The crisis did not come about because we issued too little money but because we created
economic growth with too much money and it was not sustainable."
Angela Merkel, Germany's Chancellor
(She went on to suggest that maybe we shouldn't repeat the errors of the past.)
"The value of gold, as the only true 'hard currency,' is coming to the fore, as evidenced by
the investment choices of some of the world's most seasoned investors."
Mark Cutifani, AngloGold Ashanti Ltd. chief executive officer
Yes dear reader. You may be wondering why this week's newsletter is so short. There just
wasn't much going on in South America last week. For one thing, Friday was an international
holiday.
As far as the U.S. goes, I am afraid that the patient is feeling better because of an
abundance of drugs; however, the disease is getting worse, not better.
I hope you do not fall for this obvious ruse.
Jose Cavaliere
cavaliere@cavalierecapital.com
Nothing in this e-mail should be considered personalized investment advice. Although our
employees may answer your general customer service questions, they are not licensed under
securities laws to address your particular investment situation. No communication by our
employees to you should be deemed as personalized investment advice.
The information in this newsletter has been gathered from a number of sources including the
mainstream media such as The Wall Street Journal, the Associated Press, the Financial
Times, as well as CCC's own insights, industry relationships, and analysis of this and other
data.
This e-mail was sent to cavaliere@cavalierecapital.com because you subscribed to this
service.
Please note: It's not our intention to send email to anyone who doesn't want it. If you would
like to remove yourself from this mailing list, please see the instructions at the bottom of this
message.
CAVALIERE CAPITAL CORPORATION
41414 WOODWAY St.
MAGNOLIA, TEXAS 77354-1171
www.cavalierecapital.com