Daily Alpha
Daily Alpha: Iranian Oil, the Energy Capex Slump, Bill Ackman’s Blues, and Bezos’ Hollywood Dreams

Daily Alpha
Daily Alpha: Iranian Oil, the Energy Capex Slump, Bill Ackman’s Blues, and Bezos’ Hollywood Dreams

Garrett Baldwin

Jan. 4, 2016

Happy New Year.

Following a very long December, a flurry of magazine deadlines and a long-deserved Honeymoon for its editor, the Daily Alpha is back and will be running full throttle in 2016.

As promised…

Let’s dive into it. You know the drill.

“Whatever plan we come up with, if there is one, Iran will oppose it especially after what just happened. For them, it is politics.”

Despite weak Chinese economic data, the oil markets were pushing higher this morning.

Diplomacy between Iran and Saudi Arabia was shredded over the weekend.

Saudi Arabia cut ties with Iran after protestors stormed the Saudi embassy in Tehran. The protest came shortly after the Saudis executed a Shiite cleric. The execution has set off protests around the world. (I could hear one on Michigan Avenue in Chicago from about 15 blocks away on New Year’s Day.)

The ancient battle between Sunnis and Shiites is a topic worth your exploration, one that is incredible vast and would take years and years to half-comprehend after you’ve explored texts from both sides.

Why it matters in the U.S. is that decades of Middle Eastern foreign policy have been upended by the Obama administration.

Since Ruhollah Khomeini took power in Iran, the U.S. had aligned with the Sunnis of Saudi Arabia as they aimed to conduct regional business and manage borders under the rules of the Versailles Peace Conference.

Neither Saddam Hussein or Khomeini ever had much interest in this.

The stakes have grown even higher given a proxy war in Yemen, the Obama administration’s decision to leave Iraq, the administration’s red-line comments on Syria, and the massive political vacuum left in Libya after the death of Muammar Gaddafi.

All four of these countries are (or on the verge of being by a hair) failed states.  

But the stakes rise even higher now due to the low-oil price environment.

Following the lifting of sanctions against the Iranian economy, the nation is set to return its oil back to the global markets and it will receive $50 billion in assets that have been frozen. Saudi Arabia and Iran are the two most important members of OPEC today, and their rift will make it much more difficult for the global oil cartel to reach a sensible conclusion on how to handle their economies with prices so low.

Saudi Arabia recently announced that it has raised taxes on its citizens and cut energy subsidies in order to pay for its social budget. Meanwhile, Iran needs oil prices to be well above $120 per barrel just to break even. That production requirement is a huge burden, one that also impacts nations like Libya (which could run out of federal reserves this year), Venezuela (which is experiencing inflation north of 60%), and other exporting countries that are at the mercy of Saudi and Iranian influence in the cartel’s final decision on production.

Oil prices are up today because traders expect there could be supply constrictions due to the diplomatic break. But that’s not certain. Iran has already suggested that it will sell off its current inventory of fuel below market value in order to clear up storage capacity. 

2016 is off to a very concerning start from a geopolitical perspective.

Just a few weeks ago, everyone was in Paris congratulating themselves that they had “saved the world” by focusing on global temperatures of the world climate 100 years from now.

These same diplomats would do the world a bigger favor if they paid attention to the political climate of the last seven years in the Middle East.

"This will be the first time since the 1986 oil price downturn that we see two consecutive years of a decline in investments.”

More bad news in the energy sector from Bjoernar Tonhaugen, vice president of oil and gas markets at Rystad Energy and Reuters.

This morning, Reuters issues a warning on the state of oil investment in 2016.

Capex in the energy sector is set to plunge all around the globe.

And it’s not just in the United States.

Reuters offers a lengthy breakdown of companies that are cutting cost and the names of firms with the highest and lowest debt ratios, a handy piece of information for investors right now

Here are the numbers.

"Life will go on…"

That’s what Bill Ackman said when asked about the future of Valeant Pharmaceuticals International. The company’s CEO has been treated for pneumonia as it continues to prepare for what could be a bumpy 2016.

Last week, Ackman dumped 5 million shares for tax harvesting reasons.

Pershing Square will still own 8.5% of Valeant's outstanding shares, and this position is still fueling a sharp downturn for the hedge fund. As of December 29, Pershing Square Holdings, was off 19.7%, according to USA Today.

That’s quite a turnaround from 2015, when Ackman showed returns of 41%.

So, what does Pershing’s cutback mean for VRX moving forward?

We break that down at Finalternatives.

“Baha Mar Ltd.’s decision to file for bankruptcy is the direct result of its failure to secure adequate financing and its mismanagement.”

That’s what a Chinese investment group told a bankruptcy court.

But Bloomberg pulls back the curtain on the bankruptcy of the $3.5 billion Baha Mar resort in the Caribbean and tells the real tale of how the destination that features a Jack Nicklaus golf course, 2,200 rooms, and a casino lies shuttered under the sun.

It’s a story so absurd that it deserves to be a Netflix Original documentary.

The bankruptcy is so big that it’s actually jeopardizing the credit rating of the Bahamas, and one rife with corruption stemming from crony forces at state-owned enterprises in China.

Add this to your weekly reading, and then buy some Selsun Blue for all of the ensuing head-scratching.

“We want to win an Oscar.”

Finally, Jeff Bezos is on top of the world right now. The Amazon.com Inc. (AMZN) CEO ­­has seen his net-worth surge as his company’s stock recently hit an all-time high. But the 51-year-old tech tycoon isn’t satisfied with just his $46.7 billion fortune.

He now has his eyes on the Academy Awards.

Amazon Prime’s original content has won several Emmys and Golden Globes, but the Best Picture Oscar – which allows the producers to stand on stage as the credits roll – is the prize he’s seeking next.

Bezos announced that Amazon will aim to produce 16 awards-contending films each year moving forward, and has fired an warning that he intends to disrupt Hollywood.

Some would call him ambitious and successful…

Meanwhile, the editors of The Daily Telegraph went out of their way to liken him to a Bond Villain, hell bent on “taking over the world.” (Maybe he can win for Best Actor as Dr. Evil.)

You can take that trip down the rabbit hole right here.

We’ll see you tomorrow.


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