Category: Energy

Economics Update

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Well, the Institute for Supply Management, released its manufacturing index: 32.4 in December, a 18 year low. Europe , Russia, China, and Australia had similar declines in similar indices.

In currencies, the dollar strengthened against both the Euro and Yen, while the Pound continued its slide.

Meanwhile, in energy, oil is above $46/bbl, and retail gasoline prices rose for the 3rd straight day.

An interesting side note to this is that they are adding 12 million to the strategic petroleum reserve, which implies to me that someone there thinks that we are near bottom, and that it is a good time to buy.

So My Prediction on the Ukraine and the Crimea…..

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So, I make a prediction that Russia will use the Ukrainian gas debt to get the Crimea, and it looks like I’ve been proved wrong in less than a week…..Narf!

It appears that Ukraine has agreed to pay their old gas bill, and a new deal for 2009 is ready….Only both sides are disputing whether Ukraine has actually paid the debt:

Russia has said it will turn off the taps to Ukraine if it
does not receive $2 billion in arrears and conclude a new supply
deal, a threat that has alarmed European states which receive
their Russian gas via pipelines passing through Ukraine.

OK, maybe I haven’t been proved wrong yet…..Narf!

Gazprom is threatening to cut off gas to the Ukraine, it appears that the dispute is now their late fees, and not the actual gas themselves.

I’m wondering when Russia will construct a pipeline through Belarus.

Economics Update

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It’s the last day of the year, and we are finally getting a picture of how retail did during the holiday season, and it is not pretty.

ShopperTrak is revising its original holiday sales figures downward, from a sales increase of 0.1% and a traffic drop of 9.9%. which was already pretty grim, to a sales decrease of 2.3% with a 16% drop in traffic.

The estimates now are that 2009 is not going to be good either and that over ¼ of all retailers are at significant risk for bankruptcy (see graph pr0n above), which will hose suppliers too.

The unemployment claims numbers from last week were better than recent reports, 492,000 new applications, down 94,000 from the last week’s 586,000, and the 4 week moving average fell by about 1%.

I would note, however, that there are two things that make this news less good than it sounds, first, we are talking about the week of Christmas which means that everything was shut down on last Thursday, and, perhaps more significantly, continuing jobless claims continued to rise, hitting a 26 year high of 4.5 million.

Real estate still appears grim, with Manhattan office rents down about 25% (h/t Calculated Risk), though mortgage application activity remains at a 5 year high.

My real question though would be as to the number of mortgages granted, not the number of applications, which are likely multiple refi applications driven by even lower mortgage rates.

Additionally, the Federal reserve is to start buying mortgage backed securities, so they are going even deeper into the sh&%pile.

In currency, the dollar is up, and infact it’s up against the Euro this year, the first time 2005 that this has happened.

I guess that investors still think of the US Dollar as a safe haven, though the same cannot be said about the Ruble, which is down again.

In the stock market the VIX, the Chicago Board Options Exchange Volatility Index, fell below 40 for the first time since October 2, to 39.9, which indicates that traders are a bit less twitchy.

But that’s only a bit, because before the Lehman collapse, it was around 25, and a year and a half ago, it hung around 10-15.

In energy, oil rose about 5½ bucks/bbl, to settle at $44.60/bbl.

Will Russia Buy the Crimea from Ukraine?

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This is all pure speculation on my part, and my record on predictions is only marginally better than that of the Detroit Lions with regards to football, but I think that there is a distinct possibility that this might happen.

We have a number of developments going on simultaneously, with Medvedev and Gazprom playing hardball on a $2.1 billion debt and warning of a cutoff of gas if there is no resolution.

Then we have Edward Hugh’s amusingly named essay, “As The Politicians Battle It Out Ukraine’s Economy Tunnels South In Search Of Australia,” (H/T, Paul Krugman Blog for the link) which provides us with the included chart pr0n.*

You see industrial production falling by nearly 25%, and inflation and the central banks both topping 20%.

Simply put, this is an economic meltdown that starts looking like something out of Mad Max.

When you juxtapose this with reports that Russian PM Vladimir Putin Ukrainian PM Yulia Timoshenko are holding talks to resolve the issue, it appears to me that the Ukrainians have very little leverage.

About the only thing that I think that the Ukrainians can offer Russia is the Crimea, which is already primarily a Russian speaking province, and had been a part Russia until Khrushchev gifted it to Ukraine in 1954.

I’m not sure whether a “sale” of the Crimea to Russia would involve an actual negotiated transfer of territory. We could see extensions regarding treaty rights for the Russian naval base at Sevastopol, increased autonomy for the region, and perhaps agreements to protect the “heritage” of the province, which would mean that the Russian speaking nature of the the Crimea would be preserved.

In the long run though, a full separation of the Crimea from the Ukraine might be beneficial for both sides. For the Russians, the benefits are obvious, the protection of ethnic Russians and national pride, and for the Ukrainians, it creates a less ethnically diverse state, which means that you will likely have real issues of governance, as opposed to the current paralysis which is driven by the Russian minority being largely disengaged.

*I tend to disagree with Hugh’s thesis that demographic issues are at the root of much of this problem. While the Ukrainian population has fallen by a remarkable 11% since 1992, and with the death rate exceeding the birth rate by over 50%, I do not believe that a growing population is necessary for economic well-being.†
†Case in point what happened in Europe following the Black Death, which had a with a mortality rate of around 50%. There was a marked increase in social mobility and wages for the average worker, largely at the expense of the landholders and other members of the economic elite, despite largely ineffective anti-labor laws that were instituted. The lesson here is that if population falls, the total GDP may fall, it certainly did during the black death, but per capita GDP went up, and if you can pry this out of the hands of the economic elites, life can be better for everyone.

Economics Update

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Ouch. Initial jobless claims for last week hit 586,000, the highest number since Nov. 27, 1982. The 4 week rolling average, which is a better metric, rose as well, to 558,000, though continuing claims declined to 4.370 million.

Even if you do have a job, it’s likely that you are seeing wages and or hour cut….And that 401(k) match, fuggedaboudit.

It’s no wonder that consumer spending fell in November, though it was less than expected, and when adjusted for inflation….OK, adjusted for deflation….It was actually up.

As Calculated Risk notes even as record low mortgage rates are boosting demand, a lot of that ReFi, the spread between “conforming” and “jumbo” 30 year fixed mortgages remain at an all time high of about 2%, which means that in expensive areas, the cheap mortgages are simply not available.

CRE is tumbling too, as we can see from the fact that Manhattan office vacancies hit a two-year high.

In currency, the dollar was down again today, and the Russian central bank devalued the Ruble…again.

I still think that a run on the dollar is a possibility when traders start to realize that the Treasury and Fed are printing money and dropping it from the proverbial helicopter.

In energy, increases in inventory, drove oil to $35.35/bbl.

Economics Update

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Will the last home builder please turn off the lights?

Because existing home sales fell 8.6% from October, new home sales fell 2.9%, home prices fell by 13.2%, and foreclosures and short sales were 45% of all sales.

Consumer sentiment improved more than forecast last month though, driven largely by the expectation of lower prices.

In currency, the dollar was largely mixed, though both the Yen and Pound were down.

It should be noted that the Yen is off a historic high, and the pound is near a historic low, it’s about to reach parity with the Euro, so the dynamics are different.

As to why the Pound is falling, it might be that the U.K. economy is shrinking at a pace not seen in 17 years, 0.6%, which is worse than
the US figure of -0.5% for the quarter.

EVen more than the US, the UK bought into the idea of the finance industry as an engine for the economy, and they are reaping the whirlwind.

Oil is down again.

Also, here is a story that I think we will see more of in the next few months,* there has been a default by Global Investment House (GIH) in Kuwait on a $200 million loan, one of the larger investment houses in the Arab world.

They aren’t going under just yet, but I think that this is the first crack in the armor of the petro-Arab investment houses.

*Because I am just so good at making predictions.†
†Considering my record, this may actually be a sign to go the other way….Or not.‡
‡Disclaimer: Matthew G. Saroff disclaims any responsibility for any actions taken as a result of the information displayed on any pages of this website.

Economics Update

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Well, most of the credit crunch indicators seem to be better today, or at least not as bad as expected.

First, we have the TED spread, the difference between the rates on interbank overnight loans and short term T-bills falling below 150 basis points (1½%) to 148 basis points, for the first time since Lehman collapsed.

Of course historically, the TED spread has been about 38 basis points.

Additionally, U.S. 2-Year T-Notes were auctioned off at a higher interest rate than predicted, 0.922%, which was better than the predictions of 0.912%, though the former is still near a record low, and still reflects a flight to safety at the expense of anything resembling returns.

You get the same picture from Calculated Risk’s Credit Crisis Indicators where things appear to be really bad, but better than they have been.

In terms of the real economy, things are still tough though with temp agency Manpower, Inc. withdrawing its forecast on weak demand, and temp employment is a bellwether, and we also are seeing the first decline in online holiday sales ever, according to a report from ComScore.

Considering the fact that online sales are still growing as a proportion of overall sales, the rest of retail is doing worse.

In energy, oil is down again, largely on reports of diminished Chinese demands.

In currency, the Dollar is up on the expectation that central banks will act to support it.

Economics Update

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The big news, the bail out, I’ve already discussed, though the fact that S&P has cut the ratings on 12 banks, Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland, UBS, and Wells Fargo, is not what I would call small news.

In any case, it appears that oil is down to $33.87/bbl, and the dollar is up.

I think that the announcement of the auto bailout strengthened the dollar, and as to oil, the world economy is still seizing up.

Retail gas was up above$1.67/gal today, so I think that we have hit bottom there.

Economics Update

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It’s Monday, so let’s start with real estate.

The first is this story on San Francisco real estate. It’s falling like a poleaxed steer, so both of the most desirable locations on both coasts are hit by the slump, which should come as no surprise.

Additionally, we have the NAHB reporting that builder confidence is staying at a record this month, which makes sense: If builders are not near suicidally depressed they are crazier than Rod Blagojevich.

Of course, it appears that Fitch ratings is actually crazier than Blago, or perhaps just dumber, because only now have they adjusted their ratings of Alt-A mortgage backed securities, which have been collapsing for at least 6 months.

In the rest of the economy, we have New York Federal Reserve’s Empire State Manufacturing Survey deteriorating significantly, which, considering the capital intensive nature of manufacturing, is probably why business bankruptcies are jumping, with 58,000 through the end of November, as compared with 43,000 for all of 2007.

Quick math says that we are looking about 61K for the year, or about a 40% increase.

Under these conditions, its inevitable that a flight to safety would drive 30-year US bonds to record low yields, below 3%.

In currencies, we have another devaluation of the ruble, and the dollar is at a 2 month low on the expectation of a Fed rate cut.

In energy, retail gasoline was down again, after yesterday’s bump that followed 86 days of decline, while oil fell about 2%, though it was above $50/bbl earlier today, and OPEC is saying that they are really serious about cutting production this time….Yeah sure.

Weekend Economics Update

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Just because it’s the end of a very long streak, I have to note that retail gasoline prices rose Sunday from $1.66/gal to $1.663/gal following 86 straight days of declines.

In currency, the dollar dropped, largely on the entire auto industry bailout clusterf%$# that the Republicans made, and the Pound fell below the Euro for the first time ever.

I think that the Pound breaking 1€ is actually the most significant thing here.

While “The Street” in London is smaller than Wall Street in New York, it is a much larger portion of the UK economy, and so the damage is relatively larger.

People no longer have faith in the international institutions that are the exemplars of what is called “Anglo-Saxon Capitalism”, nor the governments that are shoveling increasingly large amounts of (soon to be debased?) currency in their direction.

Defense May Boost Orbital Power Generation

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It looks like the military is seriously looking into developing orbital power stations in order to reduce the logistical tail for remote bases. (paid subscription required)

The theory here is that if a relatively cost effective power station can be developed, then things like remote forward bases in Afghanistan would not require regular resupply of fuel for generators, which are both expensive and vulnerable.

They are in the very early stages, but the notational concept appears to be a 5-10 MW pilot power plant in about 10 years.

If they can manage that, we might start seeing commercial applications in the decade following that.

Economics Update

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Well, retail sales numbers for November are grim, down 7.4% from November 2007, and that’s with an adjustment for a late Thanksgiving that is probably excessive, so it is likely worse.

Consumer sentiment rose, but is still at a pretty awful number.

We also saw wholesale prices fall, which can be either good news, moderating inflation, or bad news, deflation.

Overseas, we have the EU found agreement on an economic stimulus pack, with even Angela Merkel backing off Hoovernomics by a half step.

In Japan, a new economic stimulus package has been announced.

Russia, however, is being hammered by low oil prices, and senior officials are now saying that the nation is in recession.

As to currencies, the dollar was mixed, up versus the Pound, down a smidge versus the Euro, and at a 13 year low versus the Yen.

I’m not sure how much of this is all just a reaction to the Senate auto bailout follies, and the the same goes for the price of oil, which was down, but was likely driven by yesterday’s filibuster.

Additionally, retail gasoline is now below $2 a gallon in the lower 48, with New York State crossing that line today.

Economics Update

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Woah, new claims for jobless benefits just jumped by 58,000, to 573,000, a 26 year high.

Continuing claims, which is a far less noisy metric, also jumped to a 26 year high, 4.43 million, up from 4.09 million.

In real estate, the average rate for a 30-year fixed mortgage hit 5.47%, a 4½ year low, and forclosures fell in November, but this appears to be as a result of new state laws requiring more time for the process and/or temporary moratoriums, so there will likely be a significant spike in the next few months.

In the more general economy, we have a first, or at least a first since the Federal Reserve began collecting the data in 1951, the level of consumer debt held in the US has fallen, by 0.8%.

Of course, consumer net worth fell by 4.7%, so it’s a net loss.

In international finance, the Swiss Central Bank cut its interest rate by 50 basis point, and China’s exports fell 2.2% year over year, the steepest drop in nearly a decade.

In currency, the dollar weakened significantly, by about 4¢.

My guess is that it was some combination of extremely low interest rates in the US, or the demonstration of batsh%$ insanity by the Republican senators on the auto bailout vote.

In energy, oil is back above $45/bbl on strong calls by OPEC for production cuts, and retail gasoline prices continued their slide.

Economics Update

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First, Calculated Risk’s Credit Crisis Indicators are either flat or down, and the 3 month treasure note is still at 0.005%, which means that people basically put their cash in a mattress, so that is how freaked investors are, and how much they look for a safe haven.

Of course, what with the Bank of England cutting its rate by 100 basis points to 2%, it’s not like there is a whole bunch out there that is going to generate decent return anyway.

The weekly jobless claims posted a surprise drop, but continuing claims rose to a 26 year high.

Additionally, we have factory orders falling by the most in 8 years, which is completely unsurprising, as factories do not order much if consumers are not buying, and we are seeing double digit drops in buying this holiday season.

Considering that demand for commodities is falling with the economy, it’s not a surprise that oil has fallen to less than $44/bbl, and retail gasoline price has falls below $1.80/gallon.

Economics Update

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First, we have some developments on the other side of the pond, with the Australian Central Bank lowering its rates by 100 basis points (1%), the most since 1991, and a major Russian investment bank is calling for a 20% depreciation of the Ruble, to boost exports.

It might be a good idea, depending on how export dependent the Russian economy is. It would boost local and export oriented industries.

On more general metrics of the credit crunch, Calculated Risk’s credit crisis indicators show little progress, and the fact that the rates on Treasuries have fallen off a cliff, with people getting virtually nothing (0.05%) for 3 months T-Bills, 2.68% on 10 year notes (a near record), and 3.17% for a 30 year note (a record).

Basically, this means that investors are paying the government to hold their money safe for them.

For what it’s worth, people are not trusting anything, including much in the way of US and European sovereign debt, with the cost of swaps to insure that debt skyrocketing.

In energy, we have OPEC deferring a production cut, and so oil is now firmly below $50/bbl, and retail gasoline falling to $1.812/gal, a price I never thought that I would see again, and the 76th straight daily drop.

Meanwhile, the the dollar has weakened though there is downward pressure on the Yuan from rumors that the Chinese will actively move to push the value down to boost their economy.

Economics Update

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Well, it looks like today was the day for all the stuff you wanted to dump before a 4 day weekend.

First, consumer spending fell 1%, well beyond the prediction of 0.7%.

Remember that these days, the Christmas season starts in October for a lot of people.

This is a crushing figure, and it’s not just due to falling energy prices, because people are paying down debt too.

The consumer confidence numbers reinforce this. The index is at 55.3, the lowest number since 1980, though still above the record of 51.7 in May, 1980.

Confidence not any better on the business side of things, with
durable goods orders falling 6.2% in October, and no, that’s not an annual rate, that is the shrinkage for the month.

The unemployment stats say that weekly jobless claims fell last week, but I’m taking that with a grain of salt for the following reasons:

  • Initial claims for state unemployment insurance benefits were a seasonally adjusted 529,000 in the week ended November 22 from an upwardly revised 543,000 the previous week…..Meaning that you compare lower initial numbers versus the later ones from the previous week, and it’s a “drop”….yeah right.
  • The 4 week moving average, which smooths out the noise, hit a 25 year high. (click for full size pic)

Just in case you are wondering how bad this will get, note that Fitch just cut its ratings on Toyota’s bonds to AA from AAA.

Seriously this is a Stay-Puft Marshmallow Man news.

The credit markets are freezing up, though applications for mortgages are up, largely on insanely low interest….I wonder how many applications are rejected though.

I would also note that new home sales declined to the lowest level since 1982, so its not like there are a sh^%load of buyers out there.

As a result of all this, we are seeing a number of rescue packages world wide, with the European Commission announcing a €200 stimulus plan, ]China’s central bank cutting rates.

These are probably what drove the dollar up today, and it also drove oil up

That being said, I think that the most troubling indicator is the fact that the 10-year Treasury yield fell below 3%, a new record, and this indicates that the flight to the relative safety of US Treasuries is continuing unabated.

Economics Update

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Gee, the updated numbers for US GDP are in, and they have gotten worse, going from an annual rate of contraction of -0.3% to -0.5%.

In an effort to staunch the bleeding, the Federal Reserve has announced a new sh#@pile buy:

The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)–Fannie Mae, Freddie Mac, and the Federal Home Loan Banks–and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

They are also opening up a facility for
consumer and small business loans.

This took down 30 year mortgage rates to a record low, down 1-1/8 percentage point to 4-7/8.

Of course, right now, the banks are so skittish that they are unlikely to do a mortgage unless the property is sold at a seriously depressed price anyway.

This is actually good sense, as the Case-Schiller home price index fell 17.4% year over year.

That’s probably why the Libor is trending up again. Too much uncertainty, so banks want more for their overnight loans.

Then again with the number of banks characterized as “troubled” by the FDIC jumped from 117 in the 2nd quarter to 171 in the 3rd quarter, the highest number in 13 years.

It’s no wonder that some of the technical wonks who watch the stock market are noting that this is the most volatile market ever, with average daily swings over the last 50 trading days of 3.82%.

By way of comparison, this number was 0.33% in February.

Oil fell a bit to day, to $50.77/bbl, and I think that the markets are starting to wonder about just how much money that the Federal Reserve will print, so the dollar fell on the news of the new Fed lending facilities.

Economics Update

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I think that we have to start with the fact that U.S. Treasury Credit Default Swaps risk premiums just hit record levels.

If that sounds arcane and obscure, that’s because it is, because the brokers like it that way, but here is a slightly clearer statement, returns on insurance against a defaults on US Treasuries hit a new high….Meaning that investors are pricing in the possibility of a US government default.

This means that a Lot of people are betting that the full faith and credit of the United States of America means nothing.

The US defaulting is the Stay-Puft Marshmallow man moment of US society, and an increasingly large segment of the investing world is betting on it.

At its core, the problem is that this bubble is something that people cannot walk away from, housing and shelter, and the realtor-pimps are now saying that existing home sales are softening, though the staid New York Times is saying that home prices are plunging.

Existing home sales down over 3.1%, and prices down 11.3% year over year.

In the mean time, the Citi bailout is pushing on both currency and energy, with
the dollar falling, because people realize that the printing presses are running non-stop.

That being said, the falling dollar is not helping the ruble, where the Russian central bank has reduced support for the currency for the 2nd time in as many weeks.

It also drove oil up about a fin spot, though retail gasoline prices fell for 68th straight day.

It’s not going to get better any time soon, because MasterCard is reporting falling retail sales.

Meanwhile, Calculated Risk’s Credit Crisis Indicators are slightly worse today.

Economics Update

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Well, let’s start with where I got it really wrong, energy, where oil closed below $50/bbl, and retail gasoline prices fall below $2.00/gallon.

I was completely wrong on both counts about my predictions.

In the meantime, the credit crunch is savaging an industry highly dependent on venture capital, biotech.

In the long run, that may be a good thing, because when they aren’t making money, they aren’t lobbying Congress, which makes health care reform, at least for prescription drugs, that much easier.

In terms of the overall credit crisis, things still stink, though Calculated Risk’s Credit Crisis Indicators are neutral in terms of spreads, there has been an incredible flight to US Treasuries, driving rates down to record lows.

Of course, we could be in Europe, where both manufacturing and services are dropping like a stone, and the Euro bank Prez is telegraphing another rate cut