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Strategies & Market Trends : John Pitera's Market Laboratory

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To: macavity who wrote (5427)	2/11/2002 11:05:32 AM
From: John Pitera	Read Replies (1) of 33421

Hi Macavity, no question that a big Part of Enron's expansion strategy was to become a major market maker in bandwidth. The stock traded about 4 times as high as it ever should have due to the allure to investors that "broadband" and "internet" opportunities that were thought to be out there. As you can see in this very good article from the Journal Enron had spreads of 20% on some of it's short term electricity contracts. Those are huge. Beyond that Enron was making markets in bandwidth contracts where the ask was 8 times the bid. All kinds of accounting techniques can be used with such huge disparities in the numbers. ------------ Message 16746011 On most contracts for short-term deliveries of natural gas, bid-ask spreads are fairly small, about 1% or so. But even for some short-term electricity contract prices quoted on Enron's now-shuttered online trading portal, spreads of 20% were common. On contracts for short-term delivery of telecommunications bandwidth, Enron often posted "ask" prices that were as much as eight times the posted "bid" prices. For other long-term derivatives, such as electricity contracts stretching 20 years or longer, market quotes don't exist. In such cases, companies are allowed to base contract valuations on their own undisclosed estimates, covering everything from future commodity prices to credit risks and discount rates. ---------------------- Off Wall Street was opining that Enron's margins were deteriorating and that the company was worth much less in May of Last year. Message 15779874

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