C.M.O. 8.21.2009
Credit Market Overview
August 21, 2009
How many gas stations have you been to in your life? It’s a nuisance to stop at one so there is not a high value attached to the experience, but a very good majority of people would say “more than I can remember”.
So, how about if you only had stopped at 20 filling stations? Wouldn’t that, as unpleasant as the memory would be, make them each more memorable?
T. Boone Pickens, who some might associate with a recent Quixotian tilt at wind power might not remember that he has been in the energy business for a very long time and is the person who coined the phrase “it’s cheaper to find oil on Wall St. than in the ground” back in the go-go ‘80’s.
The erudite Mr. Pickens penned a piece for the WSJ Op/Ed section on the 17th of this month along with Ted Turner, who, in the decade prior to the ‘80’s did a little something else with the wind; like winning and defending the America’s Cup.
The subject of the Op/Ed wasn’t the wind, but then again maybe it was as Mssrs. Boone and Turner were writing about the tremendous amount of natural gas this country has as a natural resource. 2,000 trillion cubic feet of the stuff, which until the U.S. deficit gets big enough to coin a term and we can alleviate the comma is a whole lotta gas.
T. Boone, to get back to the 20 filling stations, says that that is all it would take for the two major East/West roads in the U.S. (Routes 80 and 40) to have in order for 18-wheelers to traverse this great nation on a resource we happen to have more of than the energy equivalent of Saudi Arabia.
Yes, TBP has made his fare share of moola finding tricks and trades in America’s financial system but anyone that is working this hard at figuring out how to make the U.S.A energy independent is certainly trying to give something back to the system that allowed him to achieve what he has achieved.
Pairing the amount of “nat gas” we have with a project to build filling stations and the pipelines to supply them sounds like an extremely logical way to spend stimulus money on infrastructure that would help us gain energy independence. I won’t even ask why that was never considered by Congress.
As the price of Natural Gas seems more destined to see a decimal point before it sees a comma or, more correctly, nothing to the left of the decimal point but you get the point, what is happening with the players in the space.
El Paso operates the largest interstate pipeline in the U.S. transporting more than ¼ of the natural gas consumed daily.
To say that the CDS/equity combo for EP hit its limits in March makes it like every other combo I speak of so let’s fast forward. After all, it’s Friday and Fred Flintstone is about ready to Yabba Dabba Doo down the back of his trusty dino-loader.
The interesting piece here is that CDS spreads on EP shot up from 555 on August 7th to 757 on the 18th. That’s a 36% rise which was only matched by a 12% decrease in the stock price.
The CDS/equity relationship is not built around hard and fast rules but from my years of watching it does appear to be an outsized move. From here the CDS will have to do a “hard about” as Ted would say, or the stock might.
Its expiration week so we’re all watching the silliness. The amount of natural gas this country has is anything but silly and the need for energy independence and real stimulus (infrastructure) spending has never been greater.
Hopefully someone listens to “T” n “T”.
Enjoy the weekend.
Jim Delaney
