Goldman Sachs Analysis of the Government Shutdown

The crux of the matter is that the House GOP is not inclined to pass a budget that doesn’t include some kind of delay or defunding to Obamacare. And obviously Democrats won’t agree to that. So, impasse.

Markets are already falling, it would seem, on the news.

But there are reasons to think this would be good.

Goldman explained why this could be helpful in a note to clients last Friday:

It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.

This seems kind of vague, but there are three distinct reasons it could be a


  1. The market is reacting now. It’s often said that politicians can’t act until they see the stock market crack up in some way. A government shutdown is a good way to precipitate a mini-fall without the kind of full-blown financial collapse we could see in a debt ceiling breach. With the debt ceiling likely to be hit in a few weeks, the pressure builds early.
  2. The GOP will get blamed. Republicans can claim all they want that it’s the Democrats in the Senate or whoever that’s responsible for the shutdown, but everyone knows that if the government shuts down, and the polls ask which side is responsible, the majority will say the Republicans. This is a fact. So, having the party take a political hit now puts pressure on them to solve this before we hit the debt ceiling.
  3. A shutdown will bring outsiders off the sidelines and start exerting pressure now. This is a point that Ezra Klein made this weekend. He writes: “One way a shutdown makes the passage of a debt limit increase easier is that it can persuade outside actors to come off the sidelines and begin pressuring the Republican Party to cut a deal. One problem in the politics of the fiscal fight so far is that business leaders, Wall Street, voters and even many pundits have been assuming that Republicans and Democrats will argue and carp and complain but work all this out before the government closes down or defaults. A shutdown will prove that comforting notion wrong, and those groups will begin exerting real political pressure to force a resolution before a default happens.”

Not everyone shares this view. Molly Ball writes persuasively in The Atlantic that there’s no reason to think a shutdown could “cool the fever,” so to speak. And indeed people have predicted many times (incorrectly) that the GOP fever had finally broken.


Shipping Sector Update

for Sept . 30

Dry bulk shippers lower as capesize rates slide • 10:24 AM

  • Dry bulk shippers are smacked following a sharp decline in capesize shipping rates for a third consecutive day.
  • Overnight, capesize rates fell 4.2% (or $1,598/day) to $36,425/day and have dropped 14% (or $5,786/day) in the last three days; panamax rates fell 0.3% (or $48) to $14,388/day, while supramax rates rose 0.9% (or $100) to $11,279/day.
  • The Dry Bulk Index fell 2.1% (or 43 points) to 2,003 overnight, but has doubled sinceAug. 12, led by capesize rates which have climbed 245%, largely driven by higher iron ore shipments to China out of Brazil and Australia (

Westport Innovations ( WPRT) : Watch Only ! Don’t Invest

I am increasingly concerned about a business model that spends to enter markets like China and then returns to seek new capital because there simply are no profits in sight. Marking up parts is not what Westport or The Motley Fool promotes as the ” next big thing”.

Here is what I have been saying:

“This is a stock to watch not own. The company is one of several seeking to make money on natural gas transport but the goal is years away .See the article on the promotion of the stock to sell subscriptions to Motley Fool at

“Similarly – watch the potential natural gas conversion for trucking offered by Clean Energy and Westport Innovations. Westport has been ” touted ” by Motley Fool . Touted to gain paid followers – the bet has not paid off for the followers.”

HERE IS( are) THE  Argument(s) Today: my edited summary  from Bob the Investor comments

!)   Cummins They invest money and got part of the engine profits,part of putting on ng parts and a mark up on parts  SLOW To No Profits On Investment   Better to own Cummins who can buy through WPRT without a big investment in the WPRT systems or research.

2) In China(Weichai )
They got nothing on the engine . WPRT had to invest in part of plant that put ng on and got a mark up in parts and a partial profit of putting on parts
Because the Chinese business is so competitive little money was made or will be made
There are so many competitors that Westport systems which are costly – and the best may never be successful. That leaves Asia out.
3) Volvo they invested little and will just get a mark up in parts
4)  USA   Now they are going into cars
They will be the ones paying to have their system adapted
They will only get a parts mark up

In the USA they are now having to invest and in the future all deals will be just  supplying parts and parts mark up – not as much as they have been getting
Ng system pricing will come down in price as volumes increase
So they will be getting a smaller share of a smaller pie per vehicle and having to pay the ongoing research out of their own pocket
Gasoline engine and gasoline small vehicles will be getting much better gas millage so the need for ng will be less as millage improves or at least the gas engine will be more competitive for autos than it is for highway trucking.

The world or most of it does  not want the WPRT costly system
So WPRT  must quickly get its cost down and that’s what they are trying to do – Watch them but invest in better prospects.

Which Tax Haven Should You Use

You can view more articles on tax savings at another of my blog sites ( The Tax Haven Guru) but in answer to a number of requests:

The new nations seeking to add ” tax haven ” as a financial resource to their country increased as the publicity of U.S. crackdowns became front page news.

Too many of the most recent – like The Gambia lack the infrastructure – at least at the present time. You need a competent number of fiduciaries and intermediaries to effectively establish a center ( centre for the English)  for International Business Corporations ( IBC).

We recommend using the larger established centers such as Seychelles – and this may vary – but use a centre that does not have a reciprocal tax treaty with  your country – wherever possible.

When setting up a trading account you get to name yourself and Jack A. Bass as portfolio mangers .This allows you access to the account – yet your name does not appear as the holder or owner of the account. We charge only 1 % to set up the account and earn our fees through performance.There are fees to incorporate , open a bank account and a trading account – these run to approximately $ 5,000 dollars.

For more information email or call me direct at 604-858-3202

Synergy Resources Target Price $12

Target: US$12.00

Synergy Resources Corporation is a domestic oil and natural gas exploration and production company with over 40,000 net acres in the Denver-Julesburg Basin, as well as 180,000 net acres in East CO/West NE. The Wattenberg Field in the DJ Basin ranks as one of the most productive fields in the U.S. Synergy’s corporate offices are located in Platteville, Colorado.

Assuming coverage; maintain BUY rating, increase price target We assume coverage of Synergy Resources (SYRG : NYSE MKT) with a BUY rating and $12 price target. As we eagerly await the first Hz Niobrara results in the very near term, we believe SYRG offers attractive risk/reward exposure to a small-cap pure-play Niobrara stock. Based on a detailed production-based wedge model and NAV construct, we maintain our BUY rating and raise our price target from $9 to $12. Our bull case NAV of $13.50 incorporates attractive optional value from the NE Extension area.
Pad drilling of multiple benches indicates steep production growth SYRG has gathered substantial well control through more than 135 operated vertical wells drilled in the Wattenberg. In addition, SYRG operates more than 80% of its net Wattenberg wells and is a fast follower of its non-operated partners that are far ahead in the Niobrara life cycle.

All of these are reflected in management’s 20-well program for 2014 ahead of the first results. Surrounding acreage actively derisked by neighbors Even though SYRG is early in Hz Niobrara, its acreage is in the right zip code, as PDCE and NBL are actively drilling in the vicinity. In a steep learning curve environment, non-op activity with these E&Ps is giving SYRG exposure to Hz development. In addition, SYRG’s veteran DJ Basin management team has the ability to guide the company through early derisking of the Niobrara.
Valuation and risks
Our price target is derived from a NAV model that incorporates our in-house commodity price deck. We build wedge models specific to the play, well type (Hz/vertical), and drilling program to forecast prod and value 2P reserves. We acknowledge infrastructure and commodity price as key risks for SYRG to miss our 12-month price target.

Autodesk Update

ADSK : NASDAQ : US$41.94
Target: US$42.00

Autodesk is a global design software company that sells high function, low-cost 2D and 3D computer-aided design (CAD)
applications. The firm also provides visualization and simulation tools, which in conjunction with the company’s design apps,
enable customers to experience their ideas early in the design process through the development and analysis of virtual
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Applications

We really wanted to upgrade ADSK . However, our view is that while management is absolutely taking the correct steps to improve the firm’s future execution, the incremental improvement likely to be discussed at the analyst day isn’t quite sufficient to offset ongoing (but diminishing) macro headwinds we independently see in the design software space.

We would need to see either a more aggressive move to subscription or additional evidence that an improving macro is nearer. Therefore, we are closer to an upgrade (thus the price target increase on a higher multiple), but not quite there yet.
 Analyst day on tap.

Autodesk will hold an analyst day on October 2 in San  Francisco. We consider what the firm is likely to talk about – the most
important topic being the shift towards more subscription revenue that management hinted at off of the firm’s August 22 earnings call.
 Our conclusion: gradual steps toward subscription. Two weeks ago, Autodesk posted a fairly extensive discussion of its go-forward rental pricing plans – something that most of Wall Street seems to have missed. Autodesk plans to offer perpetual, subscription (access to upgrades), and rental models, but as best as we can tell there is not a material pricing
differential that will aggressively push customers toward subscription.
 Is this the right strategy? Yes.

Autodesk has very good software and an impressive franchise, but it is not so dominant that it can force-march customers too aggressively to subscription and cloud offerings. The firm, in our opinion, is gently pushing customers to a better place in terms of consuming ADSK software functionality – and we believe this will pay off for both parties. Customers will have the newest features and ADSK will see more predictable, less pirated revenue streams. In addition, the rental option could be a positive wildcard that brings in new users who didn’t want to be locked in for longer periods than the duration of a project.

Penn Virginia Corporation Target Price $ 7.50

PVA : NYSE : US$6.47
Target: US$7.50

Penn Virginia Corporation is an exploration and production company with operations in Texas, the Mid- Continent, Appalachia and Mississippi.
All amounts in US$ unless otherwise noted.

Investment recommendation
PVA has been successfully transitioning to a liquids-focused company while retaining its leverage to an improvement in natural gas prices. PVA has built a sizeable position in the volatile oil window of the Eagle Ford (EF) Shale for a company its size and has generated solid results with the drillbit while bringing costs down at the same time.
Investment highlights
 PVA is executing in the EF with 30-day rates on the past 18 wells averaging 787 Boe/d and costs per frac stage coming down. Pad drilling and zipper fracs are generating increased productivity and further cost reductions.
 The company continues to build its EF position, which at last count was 62.3K net acres and still growing. At the current drill pace (six rig program), PVA has a ~10-year inventory of wells, with downspacing providing future potential for increased locations.
 Given the company’s increased position in the EF and the consistency of its results, we are increasing our price target to $7.50 from $6.50, which represents a narrower 20% discount to our $9.34 NAV vs. the prior discount of 30%.
 As of June 30, PVA had ~$299M in total liquidity. The $350M borrowing base is expected to increase to ~$400M by YE13.
Liquidity is likely to be enhanced further by non-core assets sales. Trading liquidity was improved and an overhang removed by Magnum Hunter’s recent sale of 10M shares of PVA stock