FT : It is time for a fun bubble in commodities

It is time for a fun bubble in commodities

John Dizard wishes for a commodities rally to brighten the frozen wasteland that is the economy
Ihave been inspired by recent thoughtful comments from Lawrence Summers and Paul Krugman, the economists, on the permanent liquidity trap, zero lower-bound constraint, global depression and endless expanse of frozen wasteland that stretches before us. It is time for another fun bubble. A commodities boom, one where everybody sells bonds and buys metals, grains and the “energy complex” with or without ever setting eyes on the stuff in warehouses, silos, or storage tanks.
This is not to dismiss the deflation that has set in on southern Europe, which may be a chronic condition for countries with declining working-age populations. Nor do I believe the US budget deal, or the regulators’ eliding of the Volcker rule, or the endless fixes for healthcare finance have solved any of our long-term structural problems. I said “commodities boom”, not “sustainable long-term global expansion” or “world peace”.
    The commodities rally, boom, or whatever you want to call it has probably already started. It is accompanied by noticeably higher inflation risk premia that are being priced into government bond yields. Those do not support the view that the developed world as a whole is now at risk of falling into a deflationary spiral.
    It is always possible to have price rises that are linked to supply or transportation disruptions, in particular commodities. The fluctuating spreads between the US West Texas Intermediate oil price and the Brent North Sea price are a good example; many of the weekly swings could be explained by pipeline constraints, Norwegian offshore platform shutdowns and other identifiable events driving the “basis” trades.
    The current broader upswing in commodities seems different. For example, US Henry Hub natural gas futures prices are up more than 120 per cent from their 2012 low, despite the much-reported “miracle” of endless low-cost shale gas supplies.
    Then there is the “backwardation” in the copper futures curve. Futures prices are in backwardation when the price of a commodity offered for immediate delivery is higher than the price for delivery at later times. A move to backwardation, or an increase in the backwardation of a futures curve, is generally taken as an increase in real demand for the commodity.
    Now of course there are times when this phenomenon is just commodities sellside talk. Temporary and local backwardations can be over-interpreted by those who have too much of the commodity on hand, or who have commissions at stake. That turned out to be the case with the brief copper futures backwardations that popped up in early 2012. Those were explainable by short-term glitches in the supply chain. Yet the current copper backwardation stretches out along the futures curve. That suggests that a lot of market participants believe, collectively, that the excess of demand over supply will be sustained.
    There are some other encouraging signs for the depressed commodities longs. Major US banks are closing down or selling off their commodities trading and warehousing operations. The regulators and Congress have been pushing for this, and now the banks’ boards of directors are fed up with the endless fines and compliance problems, misaligned compensation schemes and trading losses. Any time the banks are falling over themselves to get out of a trade, you should consider getting in.
    Also, there is a dawning realisation on the part of US macroeconomists that there may be less slack in the labour market than meets the eye. We can all agree that the high rate of people giving up on job searches is a social tragedy. Yet the increasing difficulty employers have in filling vacancies for skilled workers should also get our attention. The outlook for wages and earnings is quite strong for those who are employed, which means there will be less resistance to increases in commodities prices.
    I do not believe in contrarianism for its own sake. Even if your analysis is right, and the crowd is wrong, you can wait for far too long before your position comes into the money. It is also a good idea to be sceptical of many commodities-based alternatives to the overbought bond market. You do not, though, have to squint hard to see the rally already taking shape.

    >>> US Gapping up

    Gapping up

    M&A news: PATH +60.9% (NuPathe to be acquired by Endo Health Solutions (ENDP) for $2.85 per share in cash; in addition, shareholders will receive rights to receive additional cash payments of up to $3.15 per share if specified net sales of NuPathe's migraine treatment ZECUITY are achieved over time), BRD +30% (Primero Mining PPP) to Acquire Brigus Gold; Primero will acquire each outstanding Brigus (BRD) common share for 0.175 of a Primero common share), SLTM +20.6% (Valeant Pharmaceuticals (VRX) agrees to acquire Solta Medical for $2.92 per share in cash; transaction expected to close in the first quarter of 2014), AER +6.3%/ AIG +2.6% (AerCap confirms acquistion of AIG's International Lease Finance Corp), AVGO / LSI halted (Avago Technologies to acquire LSI Corporation for $6.6 bln in cash), S +3.9% (saw late spike on rumor that S could bid for TMUS but there is concern that such an offer could face anti-trust hurdles).

    Select financial related names showing strength: ING +1.9%, RBS +1.7%, DB +1.5%, SAN +1.5%.

    Select oil/gas related names showing strength: TOT +1.7%, STO +1%, BP +0.9% (Government of the Sultanate of Oman gives the go-ahead to BP for the Khazzan Project ),XOM +0.7% ( upgraded to Buy from Neutral at Goldman).

    Other news: HNR +26.9% (announces share purchase agreement to sell interests in Venezuela for aggregate of $400 mln in cash), AGEN +23% (Positive Phase 2 Results from Agenus Brain Cancer Vaccine Published in Neuro-Oncology; Results Show Improved Survival Against Aggressive Brain Cancer; More Than 90% of Patients Alive After Six Months), FVE +16.6% (still checking),PGRX +11.3% ( to extinguish senior debt), LITB +8.7% ( authorizes up to $20 mln share repurchase through Dec 15, 2014 ), TI +6.6% (still checking), YRCW +6.5% ( Solus Alternative Asset Management discloses 14.56% active stake in amended 13D filing out Friday after the close; up from 9.57% previously reported on 12/11 ), HK +6.4% (Halcon Resources intends to offer an additional $400 mln in aggregate principal amount of its 9.75% senior unsecured notes due 2020; lowers its drilling and completions budget guidance for 2014 by 14% to ~ $950 mln), YPF +5.8% (Barron's profiles positive view on YPF), YGE +4.5% ( wins 233 MW of solar PV projects in Algeria)GOL +3.4% (still checking),RYAAY +2.2% (still checking), MYGN +2% (HRD Test significantly predicts response to cisplatin treatment in patients with triple negative breast cancer in second research study), FINL +2% ( following favorable comments on Friday's Mad Money ), CBST +1.9% (Announces Positive Top-Line Results from Phase 3 Trial of Ceftolozane / Tazobactam in Intra-Abdominal Infections; Investigational Antibiotic Meets Primary Endpoint in Second of Two Indications), GILD+1.8% (FDA approves once-daily single tablet HIV-1 regimen Complera for patients switching from a stable regimen ), AMZN +0.8% (may introduce payment installment plans for Kindles, according to reports), IBM +0.6% ( states it will vigorously fight lawsuit filed by Louisiana Sheriff's Pension and Relief Fund), EBAY +0.5% (following positive mention in Barron's), PG +0.4% (considering organization of overseas businesses, according to reports), VZ +0.9% ( Bloomberg discusses that VZ is close to a deal to purchase Intel's TV service), SSRI +0.8% (still checking).

    Analyst comments: TASR +3.7% (TASER upgraded to Overweight from Neutral at JP Morgan), URBN +2.6% (Urban Outfitters upgraded to Buy from Neutral at Goldman), BBRY +2% ( upgraded to Mkt Perform from Underperform at Bernstein), LL +1.9% (upgraded to Buy from Neutral at Goldman), C +1% ( upgraded to Overweight from Equal Weight at Evercore),AAPL +0.3% ( target raised to $650 from $600 at Jefferies)

    >>> US Gapping down

    Gapping down

    In the news: USU -34.2% (reaches agreement with noteholder group to move forward with balance sheet restructuring; USEC to fully meet obligations to customers and suppliers as operations continue ), PIP -14.5% ( SparVax placed on hold, according to reports out), ANH -5.7% (declares an $0.08 per share Q4 dividend), CSUN -3.5% (still checking), ASX -4.1% (Advanced Semi provides an update related to its Kaohsiung facilities; ASE Kaohsiung K7 facility continues to adhere to the standards of the national effluent guidelines and currently remains in normal operation), SUPN -2.7% (discloses it did not receive 3 years of marketing exclusivity for Trokendi XR ), DECK -0.6% (Deckers Outdoor ticking lower following cautious Barron's mention), TMUS -0.5% (saw late spike on rumor that S could bid for TMUS but there is concern that such an offer could face anti-trust hurdles).

    Analyst comments: EVGN -2.3% (initiated with a Outperform at Oppenheimer, with Neutral at Piper, with Outperform at Credit Suisse), JAZZ -0.6% ( downgraded to Neutral from Buy at Goldman)

    >>> US Early premarket gappers

    Early premarket gappers

    Gapping up: HNR +26.9%, AGEN +23%, PGRX +11.3%, LITB +8.7%, TI +6.6%, YRCW +6.5%, AER +6.3%, YGE +4.5%, S +3.9%, PHG +2.6%, MYGN +2%, FINL +2%, ING +1.9%, GILD +1.8%, TOT +1.7%, STO +1%, AMZN +0.8%, BP +0.8%, AIG +0.7%, IBM +0.6%, EBAY +0.5%

    Gapping down: USU -34.2%, IGT -6.4%, ANH -5.7%, CSUN -3.5%, SUPN -2.7%, DECK -0.6%, TMUS -0.5%

    (GS) US Oil : 2014 Outlook: A new barbell – bullish refiners and XOM; XOM to Buy

    2014 Outlook: A new barbell – bullish refiners and XOM; XOM to Buy, MRO to Neutral

    *A new barbell, of sorts: Refiners + XOM
    As we look ahead to 2014, we remain bullish refiners given the potential for wide (and volatile)
    Brent-WTI crude oil spreads. However, our outlook for domestic oils is increasingly mixed,
    given major restructuring are mostly in the past and considering downside risks to oil prices.

    *Macro: Brent (=/-) and Brent-WTI (+/=)
    Brent oil (=/-): Our base-case forecasts remain unchanged at $106.5/bbl for 2014E and $100/bbl for 2015E-2017N. However we see downside risks given improved non-OPEC supply ex-NAM, the potential for MENA disruptions to ease, and concern over EM demand. We will closely monitor all three areas.

    *Brent-WTI (+/=): We believe it is premature to
    call for “saturation” of light crude oil throughout the United States in 2014, though the possibilityhas increased for the 2015-2016 time frame. We expect Brent-WTI spreads to remain wide and volatile around our $10/bbl normalized forecast in
    coming years to the benefit of MidCon/Gulf Coast refiners that can process light crude oil.

    *Top picks and ratings changes
    We upgrade XOM to Buy and downgrade MRO to Neutral as we see greater risk-adjusted upside
    in super majors at this time and prefer to add a defensive element to our list of top picks. Among domestic oils, we keep Buys on OXY and SU for idiosyncratic reasons.

    *Our Buy-rated refiner favourites remain HFC (CL),
    MPC, DK, WNR, ALDW, and NTI, all of which have MidCon or Gulf Coast exposure to light crude oil spreads.

    *Updated estimates, target prices
    We have updated 2013E-2017N EPS estimates and target prices for our integrated/domestic oils and refiners to reflect a 4Q2013 commodity price MTM and generally minor company-specific changes. Our base-case Brent oil deck is unchanged. We now forecast $10/bbl Brent-WTI for 2014E-2017N versus $7/$10/$10/$9 before. We are now 8%/9% above consensus for integrated/domestic oils in 2014E/2015E and 23%/18% above for C-Corp refiners, respectively.

    (BN) *GERMAN COMMISSION: GERMANY SHOULD SELL DEUTSCHE TELEKOM STAKE

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    BN 12/16 10:14 *GERMAN MONOPOLY COMMISSION CITES POSSIBLE CONFLICT OF INTEREST BN 12/16 10:12 *GERMAN COMMISSION: FEW, LARGE TELCO PLAYERS MEAN HIGHER PRICES BN 12/16 10:11 *GERMAN COMMISSION SAYS FEWER PLAYERS WOULD LESSEN COMPETITION BN 12/16 10:11 *GERMAN MONOPOLY COMMISSION COMMENTS IN PRESS STATEMENT IN BONN BN 12/16 10:10 *GERMAN COMMISSION AGAINST FEW, LARGE PLAYERS IN TELECOM MKT

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    *GERMAN COMMISSION: GERMANY SHOULD SELL DEUTSCHE TELEKOM STAKE 2013-12-16 10:14:04.344 GMT

    --CORNELIUS RAHN

    -0- Dec/16/2013 10:14 GMT

    (Exane) Food Retail . Metro & Dia Upgraded - full note attached

    Metro’s (= from -) emerging self-help and DIA’s (+ from =) greater margin resilience mean we raise each rating one notch. Fundamentally, we back the capital-light, proximity-discount formats (Jeronimo and DIA). UK brick & mortar grocery is considered ‘no-go’ – we sympathise, and expect little respite over Christmas, but think modest margin cuts and capex reduction in 2014 will improve the UK grocers’ relative appeal. They represent the ‘contrarian trade’, we play it through Tesco (+).

    * UK margins will be pressured but capex cuts to offset
    We expect Tesco will break from its 5.2% margin ‘guidance’ at its FY results in April, investing more in food, partially recouping the monies from an improved non-food offer. It will be about improving price perception and trust, not collapsing the industry P/L, but will be sufficient to take several tens of bp from quoted UK grocers’ margins. In compensation, we expect a lessening in space addition. Again we expect Tesco will lead, further curtailing its capex, with Morison following. With margin concerns already priced-in, greater capital discipline would be taken well.

    * Continental grocers upping capex, often from a leveraged position
    In contrast to the UK, the continental grocers need to spend more, having underinvested in the store fabric, expansion and multi-channel. The issue is that some operators’ balance sheets remain somewhat constrained against an industry backdrop where leverage needs to reduce in a low growth, multi-channel world.

    * Minority listings and capital raises in vogue – who else may raise funds?
    One solution to fill the funding gap, and demonstrate value is to sell minority stakes or raise new money. Carrefour has already flagged it will do so in Brazil and China, and Metro will do likewise in Russia. With these deals arguably ‘priced-in’, the question is who else will raise funds? Casino needs to delever and could sell cDiscount or its Thai business. Tesco needs to cut its international exposure to focus on fixing the UK.

    * Greater need for differentiation and customer insight in a multi-channel world
    Winning retailers increasingly will have ‘capital-light, P/L heavy’ propositions and ‘big data’ insights to personalise offerings and give consistent service across all shopping channels. ‘Bricks’ still matter but trust is increasingly key for a demanding consumer.

    * Low food CPI should help gross margins, unless competition rises…France?
    Food CPI will be low in H1 2014. That may ease ‘wage-squeeze’ but likely means a relatively soft top-line for the grocers. Gross margins should benefit unless competitive tension is elevated. The UK is ‘priced’ for this. France could be tougher as Leclerc responds to a recovering Carrefour. A recovering macro eases US tensions.

    * Buy JMT, Ahold, DIA, Tesco, Casino…avoid Delhaize, Booker, Colruyt
    Jeronimo and DIA sport the best capital-light models and Ahold best balances capital discipline and growth whilst evolving an on-line offering. We re-iterate our O/P ratings on JMT and Ahold and raise DIA to O/P, better recognising the potency of its franchise model. Tesco faces challenges but the shares know it. We think margins will erode less than feared, capex will come down and international assets will be sold – reiterate O/P.

    * In contrast, Delhaize will need another big margin reset, and Colruyt and Booker are
    just too expensive. Metro’s formats remain constrained but emerging self-help means we raise our rating to Neutral. We think competition in France will be tougher in 2014, keeping us Neutral on the well-travelled Carrefour equity. EM exposure and scope to deleverage keeps our interest in Casino.

    (UBS) European Oil & Gas : 2014 Outlook: Remaining cautious

    * Expecting inertia to prevail over mean reversion
    With the macro not expected to improve, a lengthening track record of patchy execution across the value chain, and no obvious big valuation call we see little reason for the European Oil & Gas sector to reverse its underperformance of 2012 and 2013.

    * Integrateds lack compelling bottom-up appeal
    There is an absence of strong stories and continued failure to meet targets or expectations. While underperforming, the sector has risen with the market and is closer now to fair value. The 1Q reporting/outlook season may be important in re-setting targets and strategies as they relate to shareholder value but we would recommend waiting to see. Our top pick is BG Group (Buy, PT £14.00).

    * Selective in E&Ps; negative in refiners
    Faced with a flat/declining oil price, increased competition, cooling M&A, and project execution issues, clearly the environment is challenging for E&P equities. However the best should still be able to grow NAV and deliver returns in 2014. Our top picks share common threads of valuation upside, frontier drilling and/or exposure to Kurdistan: Afren (Buy, PT £2.00); Genel (Buy, PT £11.20); Africa Oil (Buy, PT SKr72.5); Lekoil (Buy, PT £1.10). We expect some respite from the low refining margins of 3Q/4Q13 but downstream conditions to remain under pressure. We see consensus expectations as risked to the downside and valuations as uncompelling. Our top pick and only buy
    remains Motor Oil (Buy, PT €9).

    * Cautious on Services
    In the long term, we believe the case for oil services growth remains strong. However, in the near term, contract delays and a greater focus on capital discipline and value for money from the integrateds should impact earnings and sentiment across the sector. We think this will likely play out positively for the shares of Integrateds versus Services in 1Q14 at least. We prefer companies with high quality asset bases and good backlogs – this drives our positive view on Technip (Buy, PT €95) and PGS (Buy, PT NKr105). We also like Kentz (Buy, PT 730p) for its good earnings visibility and the earnings accretion from the Valerus transaction. We see the OCTG market as structurally challenged, with Tenaris (Sell, PT $41) our least preferred name in the sector.

    (BFW) Vivendi 5% Holder Bollore Seems Poised to Control Co.: Bernstein

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    Vivendi 5% Holder Bollore Seems Poised to Control Co.: Bernstein 2013-12-16 08:15:28.996 GMT

    By Blanche Gatt Dec. 16 (Bloomberg) -- Vivendi’s appointment of Havas’ Herve Philippe as new CFO means co. could be “controlled” by 5% shareholder Vincent Bollore, Bernstein says in note. * Bernstein says Philippe will be seen as a “protege” of Bollore * Philippe is “low profile” and familiar to Bollore, which means Bollore is “effectively” in a position to control co. * Mkt would probably be “unhappy” if Bollore pushed for Vivendi to acquire Havas * Reiterates outperform, PT EU24 * 16 buys, 14 holds, 2 sells; avg. PT EU20 implies upside of 11%; shrs up 6% YTD: data compiled by Bloomberg * NOTE Dec. 13: Vivendi CFO Appointment Won’t Change Co.’s Direction: Liberum

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    To contact the reporter on this story: Blanche Gatt in London at +44-20-7392-0351 or bgatt@bloomberg.net

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