Dollar, Gold And Gasoline: Much Ado About Nothing [View article]
Oddly and due to complex comparative economics, we export about the same amount of finished gasoline products as we import; I'm geussing we get deals on our imports from Europe and a premium on our exports to the East. We are, though, net importers of other distillates.
Dollar, Gold And Gasoline: Much Ado About Nothing [View article]
About one half of the gasoline refining capacity along the East coast has been shuttered due stringent environmental regulations. Elsewhere, much refining capacity has been diverted to ethanol.
Weekly Indicators: Lack Of Confidence, Hurricane Warning Edition [View article]
You must be an ideologue living in a parallel universe; it was a horrible week.
The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July. It was the biggest point drop since October 2008.
Real disposable income decreased 0.1 percent in July, in contrast to an increase of 0.3 percent in June.
Employment ground to a halt, partly because of striking Verizon workers, but largely because of collapsing business confidence. Consumers and employers alike seem almost frozen in place, paralyzed by uncertainty about the future
The Case Schiller report showed home prices declined for a ninth month.
Weekly unemployment claims remain above 400K
And across the pond, concerns about the euro zone’s ability to cohesively respond to its debt crisis resurfaced Friday after talks between Greece and its foreign creditors were interrupted and the head of the European Central Bank warned Italy to stick to its austerity program.
Continuing concerns over the health of the EU banking system is leading to a run of sorts on European banks and transfers of monies to US banks. Fear of crisis supports growth in our money supply.
Economic Soft Patch and Oil Price Band-Aids [View article]
I'll be the first to admit that I have little expertise in oil beyond the ability to follow prices.
Over the past year price had been steadily rising and accelerated during the uprising of the Arab Spring, maybe adding $10/b what the trendline would have reached. Then in early May prices dropped suddenly, falling from $115/b to $95/b.
Prices then meandered up to $100/b and then fell back to $95 which is where they are today after a brief decline following the president's decision. This is hardly surprising as in my readings I routinely see estimates of US oil consumption of being in the 19 to 21 million bbd range which would suggest little price relief from 60 million barrels of oil. In the larger context, it is no big deal.
As others have commented, the move was largely symbolic and may have been done for shallow political purposes. It cannot be viewed as a serious step towards (1) increasing the long term supply of oil (2) reducing our dependence upon foreign oil or (3) improving an economy muddling along just above stall speed as indicated by the spate of recent economic releases.
Written without prejudice and based upon facts, your article is a breath of fresh air.
The Philly Fed ADS business conditions continues to limp along at below average conditions, much like the Chicago Fed national activity index, while the UCLA pulse of commerce index has now declined in four of the first five months of 2011, and in eight of the past twelve months.
It is clear that the economy is idling and growth remains a struggle which is why many market economists have marked down estimates of second quarter to the 2.0% range, well below the 2.5% required to stabilize the unemployment rate.
Over the next twelve months many economists see the economy accelerating modestly but none identify credible catalysts. Gary Schilling thinks we’re approaching a second recession because of low job growth, falling real incomes and the weight of continuing declines in home prices.
From Marketwatch: A further 20% decline in home prices would raise the percentage of homes worth less than the value of their mortgages to a stunning 40%, from the mid-20% range now. Shilling estimated it would also cut homeowners’ equity to a mere 8% of total home values, from 19% now and 50% in the early 1980s. Consumer spending will collapse.
Longer term, there is little reason to be optimistic about our prospects when we face continuing deleveraging, an aging population, an expanding government footprint, a concentration of personal incomes with an eroding middle class, heightened global competition and unsustainable deficits and debt.
These are macro structural constraints on growth; not just headwinds.
Things Will Unravel Faster Than You Think [View article]
While we attend conferences on global warming and impose deep water drilling moratoriums, Bloomberg reports the Chinese are taking a slightly different tack to address the high probability event of peak oil:
Chinese companies spent a record $32 billion last year buying energy and resources assets abroad. Sinopec Group’s investment is the country’s second-largest overseas acquisition and follows the company’s purchase of Addax Petroleum Corp. for C$8.3 billion ($8 billion) last year to gain reserves in Iraq’s Kurdistan and West Africa. Cnooc Ltd. and state-controlled Sinochem Group have paid about $3.1 billion each for stakes in oil producers in Argentina and Brazil.
As with Michael, though, I do not believe peak oil or our inability to craft a coherent and workable energy policy are essential antecedents to our economic demise; that’s already underway. Rising energy prices will simply further dampen already tepid growth stemming from the structural costs of excessive debt. And our yawning trade deficit will simply widen as we continue to import ever more expensive oil, further constraining economic growth.
The pathetic priests of Keynesian thinking cling desperately to the hope that we will be able to “grow” our way out of debt as we did after the war. With the US, Eurozone and Japan growing 1.7%, 1.0% and .4% respectively and mired in destructive spending and debt patterns, the prospects for growing our way out of debt seem remote at best. And at the end of the war we were in a different stage of economic development and did not have the headwinds of unfavorable demographics and intractable entitlement spending.
The ugly and inconvenient truth is that we are in a box from which we will never escape. It’s fairly clear that once a country’s debt/gdp breaches 90% or so its structural growth potential is reduced a percentage point or two as resources are diverted to growing debt servicing costs while crowding out the private sector. We have broken that barrier and will soon breach the next barrier when 20% of our tax receipts are used to fund interest expense.
History suggests that once you are spending as much as a fifth of your revenues on debt service, you have a problem. It's all too easy to find yourself in a vicious circle of diminishing credibility. The investors don't believe you can afford your debts, so they charge higher interest, which makes your position even worse.
The US will not go out of business but it must deal with its structural defict and debt problems; the longer these remain unaddressed, the greater the cost the US will pay in interest rates, currency devaluation and dimished power and prestige. Empires behave like all complex adaptive systems; they function in apparent equilibrium for some unknowable period. And then, quite abruptly, they collapse.
Top IEA Economist: Peak Oil by 2020 [View article]
I'm not convinced of the usefulness of peak oil as oil production is a "dynamic" subject to political influences, cartel interests, pricing, discovery and technology.
While not disagreeing with anything said, what I have observed is broad, alternating themes of (1) reflation which is accompanied by strength in commodities and equities and (2) deflation which is accompanied by strength in the dollar and US Treasuries.
Is the Fed Losing Control of Rates and Inflation? [View article]
With respect to longer dated maturities, you cannot have an economic recovery amidst QE and a rapidly expanding money supply without bond prices falling and yields rising.
The steepening yield curve would not be a problem were it not for the fact that it is happening too soon; inflationary pressures are building in advance of a solid economic recovery.
The Market Needs Strong Economic Data; China's Got Some [View article]
In my view China's growth story is noy fully understood.
In a report published on Monday by the China Banking Regulatory Commission offers one reason for pessimism. According to the CBRC "the country's economy faces growing downward pressure as the global financial crisis has yet to run its course." The regulator added that "the banking industry faces 'serious' credit and market risks as the domestic economy encounters its 'most difficult year in the new century.'"
Exports are still down, electrical power generation is down around 4% YOY and commodity price surges are attributable, in part, to stockpiling.
A provocative article and many thoughtful comments.
On this one I will join forces with George Soros and others who believe the recent bounce in oil prices is a result of speculators anticipating an economic recovery nothwithstanding the falling dollar, reduced oil shipments and stockpiling by China.
Within the US, we are at a 25-year high in petroleum storage and have 139M barrels more in storage than last year - an average increase of nearly 3M barrels a week despite OPEC’s 29Mb/week production cut. And the same is true in Rotterdam, where oil storage is reaching record levels, and in England where tankers brimming with oil float off the south shore.
Even Iraqi Oil Minister said last week: "We don’t think it’s a wise economic decision to produce oil from secure underground fields and then pay to store it in floating tankers. Future generations can benefit from it better than we can, if we don’t need it."
To the extent that speculators are betting upon an economic recovery and attending increases in energy prices, it's somewhat ironical that the recent runup of over 50% could easily choke-off the very recovery they are betting on.
It's China's World; The Rest of Us Just Live in It [View article]
Coreopsis wrote "Somehow this writer thinks that only China 'acts in its own interests', implying other countries act otherwise. This is disingenuous at best, and fallacious and dangerous polemic at worst." ______________________...
You have an uncanny ability to jump to conclusions and the wrong ones at that; I simply offered a perspective on Chinese policy, without making judgements or drawing comparisons. That said, I tend to agree with your broad statements about recent US failings.
It's China's World; The Rest of Us Just Live in It [View article]
China looks at the worls through the lens of a mercantilist with very deep pockets. Their global mission is to pursue policies that protect their treasury and domestic interets.
One of China's key industrial strategies is to import commodities and export finished goods..........thereby capturing the value added that comes with manufacturing. Accentuating this is a shortage of key commodities within the country.
To ensure adequate long-term supplies in recent months they have gone on a global shopping spree, picking up oil interests in Brazil, Russia and Venuezuela. And in March, China’s biggest aluminum producer also agreed to invest $19.5 billion in Rio Tinto, an Australian mining company that is one of the world’s biggest. China Minmetals bid $1.7 billion to acquire OZ Minerals, also of Australia, a huge zinc mining company.
Not long ago observers suggested that these investments, while motivated by self interests, would expand supply of constrained commodities. Possibly, but these remarks were made prior to the stockpiling.
As we discussed earlier today, China State reserves Board has announced their intentions to make greater investments in copper and other commodities, signaling a desire to diversify away from dollar denominated assets and possibly wishing to hoard scarce resources on their own soil. This is a different twist.
In parallel with this, the Chinese going about to streamline production of copper, steel and other industrial material to maximize the yield from the basic commodities being held in warehouses. Eventually, ten firms will account for the preponderance of basic material production.
The long-term implication of this policy are pretty clear.........though the depths of the implications are less clear. We don't know how far they will take this initiative and how much they will continue to invest in basic commodities.
For the time being, though, China needs the rest of the world as it is export driven nothwithstanding the stimulus package, expanded lending and state directed investments.
Dollar, Gold And Gasoline: Much Ado About Nothing [View article]
Dollar, Gold And Gasoline: Much Ado About Nothing [View article]
Weekly Indicators: Lack Of Confidence, Hurricane Warning Edition [View article]
The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July. It was the biggest point drop since October 2008.
Real disposable income decreased 0.1 percent in July, in contrast to an increase of 0.3 percent in June.
Employment ground to a halt, partly because of striking Verizon workers, but largely because of collapsing business confidence. Consumers and employers alike seem almost frozen in place, paralyzed by uncertainty about the future
The Case Schiller report showed home prices declined for a ninth month.
Weekly unemployment claims remain above 400K
And across the pond, concerns about the euro zone’s ability to cohesively respond to its debt crisis resurfaced Friday after talks between Greece and its foreign creditors were interrupted and the head of the European Central Bank warned Italy to stick to its austerity program.
Continuing concerns over the health of the EU banking system is leading to a run of sorts on European banks and transfers of monies to US banks. Fear of crisis supports growth in our money supply.
Economic Soft Patch and Oil Price Band-Aids [View article]
Over the past year price had been steadily rising and accelerated during the uprising of the Arab Spring, maybe adding $10/b what the trendline would have reached. Then in early May prices dropped suddenly, falling from $115/b to $95/b.
Prices then meandered up to $100/b and then fell back to $95 which is where they are today after a brief decline following the president's decision. This is hardly surprising as in my readings I routinely see estimates of US oil consumption of being in the 19 to 21 million bbd range which would suggest little price relief from 60 million barrels of oil. In the larger context, it is no big deal.
As others have commented, the move was largely symbolic and may have been done for shallow political purposes. It cannot be viewed as a serious step towards (1) increasing the long term supply of oil (2) reducing our dependence upon foreign oil or (3) improving an economy muddling along just above stall speed as indicated by the spate of recent economic releases.
Economy in Danger of Full Stall [View article]
The Philly Fed ADS business conditions continues to limp along at below average conditions, much like the Chicago Fed national activity index, while the UCLA pulse of commerce index has now declined in four of the first five months of 2011, and in eight of the past twelve months.
It is clear that the economy is idling and growth remains a struggle which is why many market economists have marked down estimates of second quarter to the 2.0% range, well below the 2.5% required to stabilize the unemployment rate.
Over the next twelve months many economists see the economy accelerating modestly but none identify credible catalysts. Gary Schilling thinks we’re approaching a second recession because of low job growth, falling real incomes and the weight of continuing declines in home prices.
From Marketwatch: A further 20% decline in home prices would raise the percentage of homes worth less than the value of their mortgages to a stunning 40%, from the mid-20% range now. Shilling estimated it would also cut homeowners’ equity to a mere 8% of total home values, from 19% now and 50% in the early 1980s. Consumer spending will collapse.
Longer term, there is little reason to be optimistic about our prospects when we face continuing deleveraging, an aging population, an expanding government footprint, a concentration of personal incomes with an eroding middle class, heightened global competition and unsustainable deficits and debt.
These are macro structural constraints on growth; not just headwinds.
Things Will Unravel Faster Than You Think [View article]
Chinese companies spent a record $32 billion last year buying energy and resources assets abroad. Sinopec Group’s investment is the country’s second-largest overseas acquisition and follows the company’s purchase of Addax Petroleum Corp. for C$8.3 billion ($8 billion) last year to gain reserves in Iraq’s Kurdistan and West Africa. Cnooc Ltd. and state-controlled Sinochem Group have paid about $3.1 billion each for stakes in oil producers in Argentina and Brazil.
As with Michael, though, I do not believe peak oil or our inability to craft a coherent and workable energy policy are essential antecedents to our economic demise; that’s already underway. Rising energy prices will simply further dampen already tepid growth stemming from the structural costs of excessive debt. And our yawning trade deficit will simply widen as we continue to import ever more expensive oil, further constraining economic growth.
The pathetic priests of Keynesian thinking cling desperately to the hope that we will be able to “grow” our way out of debt as we did after the war. With the US, Eurozone and Japan growing 1.7%, 1.0% and .4% respectively and mired in destructive spending and debt patterns, the prospects for growing our way out of debt seem remote at best. And at the end of the war we were in a different stage of economic development and did not have the headwinds of unfavorable demographics and intractable entitlement spending.
The ugly and inconvenient truth is that we are in a box from which we will never escape. It’s fairly clear that once a country’s debt/gdp breaches 90% or so its structural growth potential is reduced a percentage point or two as resources are diverted to growing debt servicing costs while crowding out the private sector. We have broken that barrier and will soon breach the next barrier when 20% of our tax receipts are used to fund interest expense.
History suggests that once you are spending as much as a fifth of your revenues on debt service, you have a problem. It's all too easy to find yourself in a vicious circle of diminishing credibility. The investors don't believe you can afford your debts, so they charge higher interest, which makes your position even worse.
The US will not go out of business but it must deal with its structural defict and debt problems; the longer these remain unaddressed, the greater the cost the US will pay in interest rates, currency devaluation and dimished power and prestige. Empires behave like all complex adaptive systems; they function in apparent equilibrium for some unknowable period. And then, quite abruptly, they collapse.
Top IEA Economist: Peak Oil by 2020 [View article]
Key Factors Driving the Market [View article]
These relationships can be see here:
stockcharts.com/charts...
Is the Fed Losing Control of Rates and Inflation? [View article]
The steepening yield curve would not be a problem were it not for the fact that it is happening too soon; inflationary pressures are building in advance of a solid economic recovery.
The Market Needs Strong Economic Data; China's Got Some [View article]
In a report published on Monday by the China Banking Regulatory Commission offers one reason for pessimism. According to the CBRC "the country's economy faces growing downward pressure as the global financial crisis has yet to run its course." The regulator added that "the banking industry faces 'serious' credit and market risks as the domestic economy encounters its 'most difficult year in the new century.'"
Exports are still down, electrical power generation is down around 4% YOY and commodity price surges are attributable, in part, to stockpiling.
Why Is Oil Creeping Back Up? [View article]
On this one I will join forces with George Soros and others who believe the recent bounce in oil prices is a result of speculators anticipating an economic recovery nothwithstanding the falling dollar, reduced oil shipments and stockpiling by China.
Within the US, we are at a 25-year high in petroleum storage and have 139M barrels more in storage than last year - an average increase of nearly 3M barrels a week despite OPEC’s 29Mb/week production cut. And the same is true in Rotterdam, where oil storage is reaching record levels, and in England where tankers brimming with oil float off the south shore.
Even Iraqi Oil Minister said last week: "We don’t think it’s a wise economic decision to produce oil from secure underground fields and then pay to store it in floating tankers. Future generations can benefit from it better than we can, if we don’t need it."
To the extent that speculators are betting upon an economic recovery and attending increases in energy prices, it's somewhat ironical that the recent runup of over 50% could easily choke-off the very recovery they are betting on.
It's China's World; The Rest of Us Just Live in It [View article]
______________________...
You have an uncanny ability to jump to conclusions and the wrong ones at that; I simply offered a perspective on Chinese policy, without making judgements or drawing comparisons. That said, I tend to agree with your broad statements about recent US failings.
It's China's World; The Rest of Us Just Live in It [View article]
One of China's key industrial strategies is to import commodities and export finished goods..........thereby capturing the value added that comes with manufacturing. Accentuating this is a shortage of key commodities within the country.
To ensure adequate long-term supplies in recent months they have gone on a global shopping spree, picking up oil interests in Brazil, Russia and Venuezuela. And in March, China’s biggest aluminum producer also agreed to invest $19.5 billion in Rio Tinto, an Australian mining company that is one of the world’s biggest. China Minmetals bid $1.7 billion to acquire OZ Minerals, also of Australia, a huge zinc mining company.
Not long ago observers suggested that these investments, while motivated by self interests, would expand supply of constrained commodities. Possibly, but these remarks were made prior to the stockpiling.
As we discussed earlier today, China State reserves Board has announced their intentions to make greater investments in copper and other commodities, signaling a desire to diversify away from dollar denominated assets and possibly wishing to hoard scarce resources on their own soil. This is a different twist.
In parallel with this, the Chinese going about to streamline production of copper, steel and other industrial material to maximize the yield from the basic commodities being held in warehouses. Eventually, ten firms will account for the preponderance of basic material production.
The long-term implication of this policy are pretty clear.........though the depths of the implications are less clear. We don't know how far they will take this initiative and how much they will continue to invest in basic commodities.
For the time being, though, China needs the rest of the world as it is export driven nothwithstanding the stimulus package, expanded lending and state directed investments.