Category: Energy

Economics Update

No Comments

Scare Pic of the Day, Courtesy of The Big Picture

So, Timothy “Eddie Haskell” Genthner spoke before Congress, and said that most banks are adequately capitalized.

I guess that all depends on the definition of “banks”, “most”, and “adequately capitalized.”

At the same time, the inspector general charged with investigating the TARP says that there is a lack of transparency and safeguards in the program.

Once again, it looks like the only folks who are doing their job for the tax payers are the FDIC who are in discussions with Citi about firing CEO Vikram Pandit.

In energy, oil is up, but we are dealing with the switch over to June delivery contracts, and the dollar was mixed on unexpectedly high business sentiment in Germany.

On a note unrelated to economics, but related to the the article on Geithner, there was following picture, where you see the Code Pink protesters in the background.

These people piss me off. They seem to be dedicated to nothing more than mutual intellectual masturbation as guerrilla theater, and they do nothing but to convince decision makers that anyone who has less Wall Street friendly ideas is a DFH who does not deserve to be listened to.

These folks are playing to lose, but we all lose when they do so.

Economics Update

No Comments

Well, let’s start with the good news, that the Conference Board’s consumer confidence index has risen to a 7 month high, I think largely on Obama being president more than anything else, seeing as how the manufacturing reports from the
New York and Philadelphia Federal Reserve Banks, continue to show contraction, though the press is still crowing about how these reports show that the rate of contraction is easing, despite the fact that manufacturing fell in March by the largest amount since VE day, almost 64 years ago.

Taking the rate of change month to month is stupid, it’s the noisiest way to measure things, but there is real pressure to report prosperity “just around the corner,” because the alternative is to make real systemic changes that would have to be to the disadvantage of people like bank and brokerage presidents.

The fact that housing starts fell again, (top pic) and the weekly jobless numbers remained at very high levels, they dropped a bit, but continuing claims (bottom pic) remained at scary numbers. (click pics to be taken to the Calculated Risk posts in question)

CRE is suffering too, with office vacancies rising to a 3 year high.

Citi actually reported better quarterly numbers than expected, losing about 18¢ a share, less than the forecast 32¢.

Part of the problem is that we are still seeing distressed bonds selling for 3.5¢ on the dollar:

Credit-default swaps traders set a value of 3.25 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection.

The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.75 cents on the dollar to settle the contracts. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, bid in the auction, which was administered by Markit Group Ltd. and broker Creditex Group Inc.

Oh…..My…..Ghod!

This might explain why BankUnited has been given 20 days by regulators to find a buyer, or they will be shut down.

Meanwhile, oil rose slightly on the consumer confidence numbers, as did the US dollar and Pound Sterling.

Economics Update

No Comments

We have a bumpy road ahead on the economy, with
retail sales falling 1.1% and the Producer Price Index (PPI) falling 1.2%, both of which indicating that there are still deflationary and recessionary pressures out there.

In regulation, there is finally an Obama choice to run the TARP, Fannie Mae CEO Herb Allison, replacing Bush holdover Neel “Cash and Carry” Kashkari, who along with Hank Paulson, should be in jail for the fraud perpetrated on the US taxpayers.

We also have some news from the moniliner insurers, after a long break, with Moody’s downgrading Ambac to junk status.

Dead man walking.

That being said, there are more signs that credit is thawing, with the LIBOR, the rate big banks charge each other for loans, falling at the fastest rate in 3 months.

In currency, we have news from Asia, where Singapore has devalued its currency by lowering interest rates in an attempt to stem its recession, the idea being that its export based economy would be boosted by a falling currency.

This is a fairly limited option for most nations, as many nations that need the help are debtor nations, while Singapore is a creditor nation.

Meanwhile, the US dollar is up vs. the Euro and down vs the Yen.

Oil fell below $50/bbl today.

Economics Update

No Comments

We have a report that consumer confidence is improving, according to the IBD/TIPP economic optimism index, which rose to 49.1 from 45.3, which is only slightly pessimistic, 50 being neutral.

I have no idea if the folks at at Investors Business Daily/TIPP actually run a good poll, but it does look like consumer confidence is up a bit, though the Federal Reserve’s view of the economy remains gloomy.

Certainly with wholesale inventories falling by 1.5% in February, the largest drop in 17 years, there are some bright spots here, because as inventories fall, orders have to be made to restock.

The same cannot be said for commercial real estate, with
mall vacancies at a 10-Year high, and office t rents falling significantly in San Francisco.(-24% year over year !)

Rents fell for apartments in Southern California and nation wide too, which tends to mitigate the impetus for people to buy homes, so I think that the continued increase in mortgage applications is still largely Refi activity.

The credit markets still suck which is why the Fed is looking at offering longer term loans at a higher interest rate for TALF, even as participation in the program is less than anticipated, indicating that investors are still leery of investing in things like mortgage backed securities.

In international finance, Fitch has followed S&P’s lead, and downgraded Ireland’s sovereign debt.

The Treasury has expanded TARP to cover insurance companies, including some of the very big names, such as Hartford, Prudential, and Met Life.

This Problem is getting smaller, not bigger.

Finally, both oil and the US dollar rose today, on a less then expected inventory for the former, and a flight to safety for the latter.

Economics Update

No Comments

Scary Picture of the Day, Industrial Production, Courtesy of Naked Capitalism

The big news is that there are rumors of GM preparing for bankruptcy, and mark my words, if they do go into bankruptcy, it will be because of the bond holders, not the union, and I do not see it working as a prepackaged filing, so we would see massive disruptions amongst all the auto plants of all brands in the US.

Were it not for the GM rumors, the lede would be the continued implosion of consumer credit, with grim February reports showing that U.S. consumer credit falling by $7.48 billion, an annual rate of 3.5%, and homeowner mortgage default rates have increased to 7%, up more than 50% from a year ago.

That being said, it’s not just consumers and homeowners in trouble, as the default rate of “speculative-grade corporate borrowers” hit the highest rate since the depression in March.

Meanwhile in a harbinger of things to come in commercial real estate, New York City office rents fell 6% in the Q1 of 2009, and the vacancy rate is at 9.6%, up from 6.1% a year ago.

It is therefore unsurprising that the Business Roundtable’s survey of CEOs is showing falling confidence.

In the meantime, uncertainty, particularly the GM rumors have driven both the Yen and the US Dollar up, and has driven oil down.

Economics Update

No Comments
Scare Pic of the day courtesy of Calculated Risk

Today’s lede has to be the unemployment numbers with non farm payrolls dropping 663,000 in March and unemployment (U-3) hitting 8.5%.

It should be noted that if you use the broader U-6 metric, then unemployment is 15.6% up 6.3% from last March’s 9.3%.

We also have the number of involuntary part-time workers increasing from climbed by 423,000, to 9.0 million, and the contraction of service industries is accelerating.

The best metric of the employment situation may be the employment-population ration, and it fell to 59.9%, the lowest level since 1985.

BTW, remember when I posted about UK house prices going up for the first time since 2007 in March? Not sop much, alternate data shows another fall in prices.

The dollar rose on a flight to safety after the crappy jobs report, and oil fell for the same reason.

Economics Update

No Comments

Well, the job loss report from payroll processor ADP is out, and according to them, there were 742,00 job losses in March, well above the 655K forecast.

Part of this is driven by continued declines in construction spending, as Calculated Risk notes and graphs (see graph pr0n).

As he notes, non-residential construction spending is following residential spending off a cliff.

There was also an increase in the NAR’s pending home sales index, though it remains firmly in the horrible range, at 82.1, up from 80.4, with 100 being the average level of pending home sales in 2001.

Still, mortgage applications are up again, though this is largely still refi activity.

The Institute for Supply Management’s Manufacturing Index mirrors the pending home sales index, in that it is up, to 36.3 from 35.8, but still in a firmly contracting posture, as 50 is neutral.

On the other side of the Pacific, we are seeing Japanese business confidence numbers fall to record lows.

The news in the auto industry, whether foreign or domestic is grim, with sales numbers for GM, Toyota, Ford, Chrysler, Honda, and Nissan all falling significantly.

We also see the Fed printing money to buy $6 billion in Treasuries, so as to keep the interest rates down.

In currency, the dollar is up on risk aversion again. Investors are concerned about the G-20 meeting, though I’m not sure if the concern is about nothing being done, or something being done….Maybe it’s a bit of both.

In energy, oil fell on strong inventory reports.

Economics Update

No Comments

Note: Red denotes contraction, and yes, this is scary.

I guess that the lede is that the consumer confidence numbers are out, and that they remain near record lows, at 26, just one point above the all time low reported in February.

If that were not enough, we now have a survey indicating that consumer spending may fall by $1 trillion after the recession is over (by way of perspective, the US total GDP is about $14 trillion) according to the AlixPartners Long-Range Economic Outlook Survey.

That’s a 7% haircut on GDP, exclusive of the secondary effects, closed stores, warehouses, etc., once the economy recovers…..Great googly moogly!

In the meantime, I don’t think that a whole bunch of people will be tapping their home equity, as the Case-Shiller home price indices show a 19% drop in home prices, though it appears that defaults are abating, as private mortgage insurers saw defaults, and claims, fall in February, the first decrease since June, 2008.

Additionally, 2nd home sales fell in 2008, down to 30% of total home sales, from 40% in 2005, and more of these buyers are paying cash, which implies that a lot of the contraction in this market is an inability to find mortgages.

In terms of the general state of the economy, the Restaurant Peformance Index is showing the 16th straight month of contraction (h/t Calculated Risk), and the Philadelphia Fed State Coincident indices have shown a decline in all 50 states (pdf), for both the past month and the past three months (again h/t Calculated Risk).

Meanwhile, we have an indication that the Bank of England is looking at significant inflation, they have adjusted their pension investments to account for it, so I think that they expect the £ Sterling to fall, and inflation to increase in the UK.

In any case, we now have the chief economist for the OECD suggesting that the Federal Reserve would take aggressive action against a precipitous fall in the dollar, and work to maintain its position as a reserve currency.

I think that this is more an attempt to talk up the dollar than anything else, because protecting the dollar would, over the long term at least, require higher interest rates, which would have the economy collapsing like overcooked broccoli.

In any case, the dollar was down today, largely because the flight to safety yesterday following Obama’s announcement that GM and Chrysler were on notice is now over.

Oil was up too, though it’s still a bit under $50/bbl.

Economics Update

No Comments

I’ll be going into the automotive news elsewhere, so this is pretty short.

First the Celtic Tiger Kitten has been taken to the vets to be neutered, as S&P lowers Ireland’s rating from AAA to AA+.

Ireland played the “cheap labor with good access to markets” game, and lost to former eastern bloc nations, and played the real estate and building game, which everyone lost.

In the housing market, we have defaults on FHA insured mortgages rising with 7.46% of the loans being 90+ days overdue, in foreclosure, or bankruptcy, up from 6.16% at this time last year.

This means that there is still a lot of inventory out there that has yet to hit the market.

In energy, the concerns over the US auto manufacturers has driven oil below $50/bbl, because nothing says short oil supply like house sized SUV, and the same concerns about the economy have driven the dollar up as traders head for safety.

Economics Update

No Comments

So, we have some mixed news on the state of consumers, consumer sentiment improved slightly, though it is still near historic lows, and incomes have fallen.

Since consumers are generally deleveraging, I would place more importance on the latter, case in point, is February automobile sales continuing to drop, with the replacement for the US auto fleet, fleet size divided by monthly sales, hitting 27 years.

Obviously, this is not a sustainable number, and I would expect car sales to improve at some point, though whether this in time for the Big 3 (Big 2½) is anyone’s guess.

In any case, it apperas that Japan is heading back toward a deflationary situation, with their January CPI figures showing no change.

In energy and currency, the dollar is up and oil and other commodities are down.

Economics Update

No Comments

So, the US economy contracted at a revised 6.3% annual rate in the 4th quarter of 2008 and initial jobless claims rose to 652,000 from 640,000 last week, with continuing claims jumped to 5.56 million, another record.

Additionally, we saw New York City’s jobless rate jump by 1.2% in February, from 6.9% to 8.1%.

On the other hand, truck tonnage rose in February, which implies that the requirements for goods and services increased, and the 30 year fixed mortgage rates dropped again.

Meanwhile, in energy, retail gasoline broke $2/gal for the first time this year, and oil hit a 4 month high of $54.34/bbl.

In currency, the dollar rose today.

Economics Update

No Comments

Well, we have some good news today, with both durable goods orders and new home sales up in February on a monthly basis, though on a year over year basis, durable goods are still down 22%, and home sales are still down 41% year over year, so it may mean nothing, or it may be, to quote paraphrase Churchill, the end of the beginning as opposed to the beginning of the end.

The spike in mortgage applications may reinforce this news, or it may just be a lot of people refinancing their mortgages.

Certainly with California home prices down 41% year over year, this end game is likely to to be ugly anyway.

In the mean time, in the world of government finance, the Fed has started buying US treasuries to further push down interest rates, and across the pond, a U.K. bond auction has failed for the first time in 7 years.

There were not enough buyers there.

In energy, oil was down slightly, and in currency, the dollar was mixed against other major currencies.

Economics Update

No Comments

Since we’ve already covered the Geithner political suicide pact economic plan, let’s lead off with housing.

Happy, happy, joy, joy, home sales rose 5.1% in February relative to January, seasonally adjusted, though people not so closely attached to the realty industry have noted that it’s
really a pretty modest rise, or note that home sales have fallen year over year, and that about 45% of these sales are distressed in some manner.

I would say that year over year is the only metric to apply, because the so called “seasonal adjustment” if it ever were valid, has become meaningless in the current collapsing market.

Internationally, we have another member of the 0% benchmark club, as the Bank of Israel has cut its benchmark rate to 0.50%.

In currency and commodities, the dollar is down, because people are less concerned about safe havens, so there is less dollar flight to safety, and copper and oil rose.

It appears that these markets like Geithner’s plans, because, they are over paid and over bonused trader types, I guess.

Economics Update

No Comments

So, the commodities markets surged as a result of the Fed’s quantitative easing, which means that they are expecting inflation there, which has, among other things, put oil at a 4-month high,

The fact that the 2009 US budget deficit has just been revised higher may also be contributing to traders’ positions.

Of course, Bernanke is primarily interested in preventing deflation, so this is a good thing, though I wonder how effective he will be.

Case in point: investors requested only $4.7 billion out of $200 billion available for the Fed small business and consumer lending program, the TALF.

It’s a confidence problem, and I really think that the first step to restoring confidence needs to be removing the malefactors in finance who screwed this up in the first place.

The dollar rose today, largely on the belief that yesterday’s drop indicated a time for profit taking.

Economics Update

No Comments

So, we saw a
0.4% increase in the consumer price index in February, which is the highest rate since July, even if that is just a 5% rate.

Truth be told, I’m not sure if this is good news, reduced possibility of inflation, or a sign that the dollars that are flooding our economy are creating an inflation spiral.

In either case, we have another indicator that the real estate market is no where near a turn around, the bump in February building permits not withstandint: the Architecture Billings Index remains near a record low, and this is a leading indicator.

The spike in jump in mortgage applications does not really mean much, as it is primarily refi activity driven by low mortgage rates.

Internationally, we have a number of developments:

In energy, oil fell on the pessimistic report from the Federal reserve despite assurances of the House of Saud that OPEC will really follow the quota this time….really…for sure. (I don’t believe it either)

Finally, the news that the Fed is printing about a trillion more dollars pushed the dollar down.

Economics Update

No Comments

Your Scary Pic of the Day, Courtesy of Calculated Risk

So, today is the day for new jobless claims, and U.S. jobless claims rose by 9000 to 654,000, which is not a new record, though the continuing claims number of 5.317 million, which was a new record.

Well, we are seeing more in the way of rate cuts world wide, with the European Central Bank approaching 0% interest rates by stealth, using their deposit rate now at ½%, as opposed to their benchmark rate, now at 1½%, by lending like a madman, and the the Swiss central bank cut its benchmark rate to ¼% in an effort to keep the Franc from appreciating against other currencies, so the zero interest rate contagion is spreading.

And the consumer is still on vacation with retail sales falling by 0.1% in February, and it’s seen as a sign of progress, because the experts were expecting a fall of 0.5%.

It’s no wonder that retail sales are falling, as U.S. household net worth fell at a record pace in 4Q 2008, $5.1 trillion for the quarter and $11.2 trillion for the year, and this was accompanied by the first drop, at a 2% annual rate, in household debt ever.

These numbers are not surprising. With house prices down, and a foreclosures rising 30% year over year, and 6% month to month in February, it just makes sense to economize.

Interestingly enough, even though foreclosures continue to increase, mortgage rates fell this week, largely on the expectation of little in the way of inflationary pressures because of the weak economy.

We also have two bits of WTF today, with yet another bank, this time Bank of America saying that it made a profit in the first two months of the year, while not counting its losses in the big sh&^pile.

Additionally, S&P has downgraded General Electric from AAA to AA+, which, until the last year or so, I always thought was a sign of the economic apocalypse.

In energy, oil is up. largely on the retail sales report.

In currency, the dollar is up, largely on the aforementioned Swiss rate cuts.

Economics Update

No Comments

Calculated Risk’s semi regular review of credit conditions is showing a bit of a tightening. Nothing major, but when you start with awful, it’s worse.

That being said, it sucks to be Japan, as they just swung to their first trade deficit in a decade, and it’s a record too.

Meanwhile, the impending wave of impending loan defaults on commercial real estate appears to be starting in Cleveland and Detroit.

It is also looking like treasury bonds are falling, which means that yields are rising, implying that the markets are expecting interest rates to climb.

In energy, it appears that OPEC is looking at cutting production again, and it’s member states are not cheating on production quotas, or at least cheating on them less than is expected, so oil is up today.

In addition, the upward trend in gasoline prices over the past few months continues unabated.

In currency, we continue to see a flight to safety, which is driving the dollar up, and the Canadian dollar hit a 4½ year low against the USD.

Economics Update

No Comments

Scary Pix Courtesy of Barron’s Econoday

So the unemployment rate jumped ½% in February, from 7.6% to 8.1%. and 651,000 jobs were lost.

Additionally, U6, the broadest measure of un and under employment is at 14.8%, and note that U6 is the statistic closest to the 20+% unemployment rates recorded in the great depression.
….
Delightful.

If that weren’t bad enough, 20% of all mortgaged properties are under water, and something around 1 in 9 mortgages are either in foreclosure or delinquent, so any turn around in residential real estate is are greatly exaggerated.

It also looks like the FDIC is asking Congress to lend it $500 billion, because its insurance fund is depleted.

We do have Baltic Dry Index, a measure of the demand for cargo shipping, one piece of good news, in that the just hit its highest level this year, which indicates more international trade.

Meanwhile, the jump in unemployment has driven the dollar down, and oil up.

Economics Update

No Comments

Busy day, so let’s start with the central banks: The Bank of England cuts rates by 50 basis points (½%), and is engaging in quantitative easing (printing money) in the form of buying £75 billion ($US 106 B), and the European cut its benchmark rate by 50 basis points to 1.5%, and is also looking at “further non-standard measures” (see quantitative easing).

Considering that the ECB has no charge except to manage inflation, this is extraordinary.

Unsurprisingly, the rates cuts have driven the dollar up.

As Brad Delong Notes, “It is overwhelmingly likely that the current downturn-in-progress will then surpass the united 1979-1982 downturn as the worst downturn since the Great Depression itself.“

In employment, first time jobless claims fell to 639,000, but the less volatile 4 week moving average rose to 641,750, the “highest since October 1982,” and productivity dropped 0.4% in Q4 of 2008.

Bumpy ride, folks.

On the brighter side Bonddad’s credit indicators show a thaw in lending over the past few months, and February retail sales beat expectations, though the numbers are still pretty bad.

In autos, GM is saying that there is “substantial doubt” about whether it can survive in an SEC filing, not a surprise, and implies Chapter 11, which further implies liquidation for Chrysler.

Mortgage rates rose last week.

Oil, meanwhile fell in response to the generally anemic economic news.