We are watching India today along with the always-fascinating Warren Buffett and the peculiar timing of Italy’s biggest bank suggesting that its domestic market is oversold.
* As reported in a previous article on www.emergingmoney.com, a downgrade of Indian sovereign debt is becoming more likely. Moody’s just downgraded Indian banks. The India Times reported car sales are falling. According to an article in The Wall Street Journal by Amol Sharma and Shefali Anand, “India’s Airlines Feel Squeeze,” combined losses of $2.5 billion are likely for the fiscal year ending in March 2012 for air carriers in the country.
* Warren Buffett posted over an 80% annual return on “special situations” such as arbitrage opportunities, according to the book, Warren Buffett and the Art of the Stock Arbitrage and other Special Investment Situations by Mary Buffett and David Clark. A huge arbitrage opportunity exists now in natural gas as it is selling for $5 per MMBTU in the United States and $15 per MMBTU in Japan. United States Natural Gas (UNG, quote) is at a low for the year. A Financial Times article by Robin Wright quoted Andreas Sohmen-Pao, Chief Executive of a tanker fleet that delivers natural gas in liquid form, as advising, “That must be one of the biggest arbitrages in the world at the moment.”
* Two other Buffett-style arbitrage plays are awaiting with management-buyouts (MBOs). The chief executives of Venoco Inc (VQ, quote) and China Greentech (<a href=”http://emergingmoney.com/tag/grrf”>GRRF, quote) have tendered offers to buy shares to take each company private. Greentech is now trading around $2.80 per share with the offer at $3.10. Venoco is now trading around $8.85 a share with the offer at $12.50.
* UniCredit SPA (UNCFF, quote) was “talking its book” in releasing a report last Friday that advised that declining sovereign debt was a buying opportunity, particularly in a country like Italy. The largest bank in Italy by assets, Unicredit SPA posted a “surprise loss” according to an article in The Wall Street Journal by David Enrich, Dana Cimilluca and Sabrina Cohen. In their piece, “At UniCredit, Job Cuts and Share Sale,” Federico Ghizzoni, the Chief Executive of UniCredit SPA , lamented that, “I don’t believe a bank today can do everything. You must choose.” There is even less you “can do” when your bank is trading around $1 a share on the pink sheets, down two thirds for the year, as is UniCredit SPA.
* The rising price of fuel is grounding both the airline and shipping industry. Air carriers are shedding assets and shipping fleets are mothballing vessels due to higher oil prices. Fuel makes up about 40% of the expenses for an airline, as a point of reference. Partially due to demand and much, much more to the weak dollar policies of Federal Reserve Chairman Ben Bernanke, the exchange-traded fund for airlines (FAA, quote) and the exchange-traded fund for shipping (SEA, quote) are both near lows for the year. By contrast, the exchange-traded fund for oil (USO, quote) is up more than 11% for the month.