Category: Energy

Economics Update

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Well, the obvious lede is the unemployment numbers, with the weekly new unemployment claims, which are a very noisy metric, and continuing claims, which are not, beinb positively ghastly.

Weekly numbers rose to 542,000, whichn is the highest since mid 1992, and well above the estimate of 502,000 and continuing unemployment claims hit 4,012,000, up 109,000, the highest level since 1982.

Therefore, it is no surprise that the index of leading economic indicators fell in October, as die the Philadelphia Federal Reserve’s business activity index, to an 18 year low, and the Architecture Billings Index, an indicator of future construction activity, fell to an all time low.

Meanwhile in the bond market, so many people are fleeing to US treasuries that rates have been driven to historic, and near historic lows, while the costs of insuring private bonds has returned to the stratosphere.

For what it’s worth, we have some good news for a bond insurer, specifically Ambac, which has managed to negotiate a cancellation of $3.5 billion in insurance contracts, which is obviously a serious reduction in liabilities.

In energy, oil briefly fell under $50/bbl, and retail gasoline prices seem to be heading below $2/gallon.

In currency, the dollar is mixed.

Economics Update

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Well, I’ll be referencing some mora alarming economic data in another post, but let’s have at the routine stuff, shall we?

First, the U.S. Producer Prices Index fell by 2.8%, the most on record. Note: this is not a, “low inflation, hurray,” thing. This is a, “prices are falling off a cliff like they were in 1932,” thing.

Part of this, of course is falling oil prices, so it’s no surprise that oil hit 21-month low today.

Not unsurprisingly, we also see the home builders’ sentiment index falling to a 9 month low.

Honestly, if I were surveying home builder sentiment, my worry would be them tossing themselves out of windows.

Out of force of habit, because the fundamentals of the U.S. economy do not merit it any more, people continue to flee to the dollar in times of uncertainty, so the dollar strengthened today.

Oh, and if you follow stock prices, Fannie Mae is facing delisting from the New York Stock Exchange.

Economics Update

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Well, in a case of stating the blatantly obvious, the Philadelphia Fed;s Survey of Professional Forecasters says that we are in a recession, and have been since Spring, though the Conference Board has not yet chimed in on this, so it’s not yet “official”.

In any case, Japan is officially in recession. I guess that they have better record keeping than we do.

In the mean time Calculated Risk’s Credit Crisis Indicator interest rate metrics are basically unchanged.

We also have some mixed numbers in industry, with post hurricane industrial production, but the New York Fed’s Empire State index of hitting its lowest level ever.

In the UK, they are seeing an explosion in jingle mail, where mortgage holders mail their keys back to the bank, either figuratively or literally.

In the US, pending sales are down from September to October, but up against last October, which Barry Ritholtz catches, it’s really a net up, who wants to buy a house in October, but the National Association of Realtors does not get.

In currency, then dollar is down on recession worries, though my guess is also that the G20 meeting being hosted by a drooling idiot did not help.

In energy, oil is at a 21-month low, and retail gasoline prices fell for 61st straight day, which does not surprise me, as I filled up for $1.979/gallon yesterday.

Economics Update

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Retail sales are imploding Down 2.8% from September, and down 4.1% year over year,

Here is a historical data, courtesy of Calculated Risk, just so you know how bad these numbers look.

Of course, the financial press always has to find a silver lining, so they make note of the fact that consumer confidence rose from to 57.9 from 57.6, the article attributes this to falling gas prices, but I ascribe it to three words, “Buh Bye Bush.” With the election, they realize that Bush will soon be gone, and so the number goes, though the number still reflects major suckage.

In the overseas economy, yesterday, it was Germany, well today, it’s been confirmed that it’s actually the whole Euro Zone that is in recession.

Also, we have automotive news from that side of the pond, with the three major credit insurers in Europe pulling insurance coverage to suppliers of Ford and GM. Basically this means that if either of the auto makers default, the suppliers are on their own.

They have basically decided that the risk of a default is too much for them to cover.

And in domestic bad news cast as good news, we make note of the fact that banks and bank like institutions borrowed less from the Fed this week. Only an average daily borrowing rate of 95.4 billion, down from $110 billion.

Down to an average of 95.4 average daily borrowing list week. Let’s run the numbers 95.4 billion/business days * 250 days a year = 28.85 trillion…$23,850,000,000,000.00…By comparison, the US GDP in 2006 was 13.6 trillion.

We also have Freddie Mac tapping a $100 billion bailout fund that was not counted in the above.

As Calculated Risk notes, “Remember Fannie and Freddie have much lower default rates than the loans packaged by Wall Street. If conditions worsened dramatically for Freddie and Fannie, imagine how bad it is for Wall Street MBS and loans held by lenders like Wachovia (Wells Fargo) and WaMu (JPMorgan Chase).”

As to energy, oil is down on demand concerns, and and retail gasoline is down almost $2/gallon from peak.

There is a part of me that wonders if the swing in oil/gas was some sort of electioneering, but it clearly did not work.
In currency, the dollar rose, because when people are frightened, they still flee to the dollar for safety…for a while at least.

Why Cap and Trade Sucks

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Because at the end of the day, it’s a tax, and it’s not just a tax, it’s a hard to regulate and administrate one, which means that folks like Goldman Sachs are going to look for ways to game the market to line their own pockets, and the money that they make will come out of taxpayer’s, or consumer’s pockets.

Case in point, Goldman Sachs, “Recently bought pieces of two carbon-offset companies, in the latest sign of investment banks’ interest in the area.”

The idea that somehow or other allowing mini-Wall Streets will create innovation and make things better is simply wrong. Look at what they did to home mortgages.

What this is really about is Ivy League alumni politicians and bureaucrats deciding on policies based on the best interests of their Ivy League alumni friends on Wall Street.

It is senseless and destructive tribalism, and no different than Sunni-Shia in Iraq, or Hutu-Tutsi in Rwanda.

Economics Update

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Let’s start with retail, where the inestimable Barry Ritholtz points us to a pretty picture on the retail collapse from the NY Times (click on image for the NY times article):

I would note that the 4 weeks before November 1 are now firmly part of the Christmas season, and the Christmas season is typically 40% of revenue, and 80% of profits.

In related news Circuit City files chapter 11, this should come as no surprise for the people who have followed this sad tale, as was predicted when they laid off senior sales staff and replaced them with clueless low wage drones while issuing large executive bonuses: (Story dated December 22, 2007)

Circuit City laid off 3,400 workers in March to replace them with lower-paid new hires. This week, it announced the approval of millions of dollars in cash incentives to retain its top talent after the departure of several key executives over the past year. Executive vice presidents could claim retention awards of $1 million each, and senior vice presidents could get $600,000, provided they stay with the company until 2011, according to a filing with the Securities and Exchange Commission.

If you don’t have competent sales staff, then why won’t your customers go to the Amazon and Walmart?

Karma, Neh?

In the world of mortgages, we have Fannie Mae Posting a ecord $29 billion loss for the quarter, which is actually worse than it seems, since the last quarter’s profits were largely from banking losses as tax breaks.

It will likely never see those tax breaks, because a profitable year is so far off.

Yesterday, it was monoliner Ambac, today, Moody’s cuts MBIA. No surprise….dead insurers walking.

Meanwhile, in energy, it appears that the House of Saud is actually adhering to the OPEC oil production cuts, which along with China’s announcement of a $586 billion stimulus package should drive commodities up.

The Russians are hoping that it will work, as falling oil prices seems to indicate a devaluation in the Ruble.

So far, it appears to be working, oil finished the day up $4.52/bbl….Good for them, bad for us.

In any case the Chinese stimulus package has had the effect of driving the dollar down, though I’m not sure why…I just don’t know the underlying theory.

Carnegie Taken Over by Swedish Government, to Be Sold

Finally, we have a report from Calculated Risk on credit crisis indicators:

  • Libor down (good)
  • 3 month treasury yields down (bad)
  • TED spread up a smidgen (a smidgen bad)

They also have a nice scare picture of the Federal reserve balance sheet here:

Basically, it’s how much of the sh%$pile that the Fed owns, and this is fracking terrifying.

Spencer Ackerman Misses the Big Picture

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quotes the following from the Heritage Foundation:

October 30, 2008
The New Cold War: Reviving the U.S. Presence in the Arctic
by Ariel Cohen, Ph.D., Lajos F. Szaszdi, Ph.D., and Jim Dolbow
Backgrounder #2202

The Arctic is quickly reemerging as a strategic area where vital U.S. interests are at stake. The geo­political and geo-economic importance of the Arctic region is rising rapidly, and its mineral wealth will likely transform the region into a booming eco­nomic frontier in the 21st century. The coasts and continental shelf of the Arctic Ocean are estimated to hold large deposits of oil, natural gas, and meth­ane hydrate (natural gas) clusters along with large quantities of valuable minerals.

He seems to think that, “important corners of the Republican Party remain frothing, bloodshot-eyeball insane.”

He’s wrong. These folks are completely sane. The Republican party, of which the Heritage foundation is an integral part, needs to have a big scary enemy to further their partisan electoral goals.

Additionally, it furthers their policy goals, because the money going into the military makes it difficult to find resources for social programs.

This is not insanity, this is a complete lack of conscience. War is just a way to win elections.

Economics Update

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Well, it looks like the credit crunch is thawing a bit, as the dollar LIBOR and the TED Spread have both dropped over the past few days.

Of course, banks are still not lending to anyone other than each other, though.

Yesterday, I mentioned the ISM’s manufacturing index falling. Well today, it’s the full report from the Commerce Department, with factory orders falling 2.5%, seasonally adjusted, which was more than 3 times the predicted number.

In the mean time, the dollar fell the most against the euro since 1999, 2.7%, which is kind of odd, since the stock market was up strongly, in what I call the “No More Bush Rally”.

I think that this is all election arbitrage, kind of a financial rain dance, as is today’s bump in oil prices.

In any case, I would expect that the ECB will be cutting rates soon, which should further buttress the dollar, as their producer price inflation numbers came in below expectations.

Still, we are not out of the woods, as evidenced by soaring bankruptcies in October.

Economics Update

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Well, the idea the economies have decoupled is once more giving the lie by the India central bank cutting its interest rate by 50 basis points, the Australia central bank cut its benchmark interest rate by 75 basis points, and South Korea announcing an $11 billion stimulus package.

Of course, those are just the official actions, on the level of the financial markets, we have a number of German property funds freezing redemptions, and because they are heavily into UK real estate, “German funds have been among the most active in snapping up City of London and West End properties this year,” this does not bode well for either the UK or German financial systems.

When we finally get to the United states, we have Institute for Supply Management’s its manufacturing index falling to 38.9 in from 43.5 last month, the lowest reading since . It was the lowest reading since September 1982.

Additionally, construction spending in September fell 0.3%, which is better than the 0.8% expected, but Lehman’s collapse probably came late enough not to move that number much.

The October construction number will be positively grim, because it runs on credit, which is still nearly non-existent.

Speaking of credit, it appears that the LIBOR and other interest rates are down, indicating some loosening of credit. (see also here)

On the other hand it appears that while banks are slightly less reticent to lend to each other, they are still tightening lending to everyone else, according to a Fed survey of lending practices.

I don’t blame them, after all Iceland Bank Swaps are losing 97¢ on the dollar.

All this news has pushed oil prices lower, which is no surprise.

Economics Update

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First news is a question, can we please admit that we are in a recession? Please?

The economy contracted at an 0.3% annual rate last quarter, with a a 6.4% rate decline on purchases of non-durable goods, and a 3.1% rate decline on consumer spending.

This is not just a “recession”. This is a big MoFo.

There are predictions of a rate approaching 5% in the 4th quarter.

In any case, credit remains tight, though there appears to be some loosening, see here and here.

We are also seeing the first growth in commercial paper since the collapse of Lehman.

However, we also just saw 30 year mortgage rates spiked by 40 basis points, even though the Fed cut rates.

This ain’t over, and the Japanese have released details on a ¥ 5 trillion stimulus package, and the Germans have done so with a €30 billion stimulus package.

Still, the sounds of an oncoming train continue to drive oil prices down.

The dollar and Yen are both lower too.

Why Oil Prices are Collapsing

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Well, here’s another insight that I picked up at the by invitation only Stellar Parthenon BBS.

Triutumi pointed me to James Howard Kuntsler, and his explanation makes a lot of sense.

Basically, people who would ordinarily hold oil futures contract are selling them, because they have to answer margin calls on their other investments:

This means especially oil. I hope you’re enjoying the temporarily cheap prices at the gas pumps, because this is purely a function of the compressive deleveraging that is going on right now, as contracts and positions held in energy markets are being dumped by everybody and his uncle to raise cash to meet margin calls.

I’m still digesting his web site, but he is a savagely impressive writer.

Economics Update

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OK, the markets went wild on the expectation that the Fed will cut rates tomorrow….I’m not impressed, truth be told….As I’ve said before, I think that the Fed is pushing on a string with interest rates.

What is or more interest is the fact that the Federal Reserve’s intervention in the commercial paper market has appeared to raise rates, rather than lower them. From Bloomberg:

Yields on commercial paper rose as the Federal Reserve began buying the debt directly from companies, showing the central bank’s efforts to unfreeze short- term credit markets have yet to take hold.

I think that the Fed is looking at a monetary solutiuon, when the solution is government legislation and government spending.

Still, this has not stopped GMAC from going in with the Fed’s commercial paper facility.

BTW, the Fed is doing something else, currency swaps with other central banks, most recently the Central Bank of New Zealand, though it has set up similar arrangements with Australia, Canada, and Japan too.

It’s supposed to help maintain liquidity, but I have no clue how this works. Anyone want to explain this to me?

What I do understand is the Federal Reserve going into the commercial paper market in the US. Ge just borrowed $5 billion from the fed.

Of course, even there, there is stuff that I don’t get, like why is the Federal Reserve starting to buy foreign commercial paper?

In any related news, the Treasury is looking at extending the bailout to privately held banks, though one wonders how they get a meaningful equity stake, as Bush Paulson and His Evil Minions™ had promised for any direct aid.

I’m not sure if this is working, as is noted at Calculated Risk:

  • 3 month treasuries are essentially unchanged.
  • TED spread is marginally better.
  • The two year swap spread is a bit worse.

Of course, that is just the world of banking. In the real world, the perceptions are actually worse, with the Conference Board’s measure of Consumer Confidence hitting the lowest reading ever recorded, dropping to 38 from September’s 61.4

This graph (click for full size), courtesy of Calculated Risk, of the Case Shiller numbers and makes a good counterpoint to the most recent housing data, also from Calculated Risk, and it is rather grim.

Short form, house prices are retrenching in a major way, and I would expect significant overshoot on the way down:

  • The Composite 20 index is off 20.3% from the peak.
  • The Composite 10 is off 17.7% over the last year.
  • The Composite 20 is off 16.6% over the last year.

In energy, oil has continued to fall rapidly, and I think that I have finally come across a good reason for this, which I will cover in a separate post.

Economics Update

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While it’s generally known that the Fed will cut rates, it is news when European Central Bank President Jean-Claude Trichet says that it’s likely that they will do the same, it is a bit of a surprise.

In terms of interest rate spreads, it’s not looking good, with the spreads for Fannie Mae and Freddie Mac hitting the highest level since March.

In real estate we have Journalistic bullsh%$ good news, with reports that new home sales increased in September, but as Barry Ritholtz of the The Big Picture notes, these are bad numbers:

One other thing to note: Note the monthly 2.7% increase was based in part on last month’s being revised downwards, making the differential look bigger (this month is also likely to be revised downwards). Annualized sales for the month was 464k; Actual unadjusted monthly new home sales are about 35-45k, down from 100-120k (before they get annualized).

Year over year, house sales fell by 33%, and prices fell by 9%.

Meanwhile, it looks like the tax payers have already sent a significant chunk of change to the banks $63 billion to 15 banks:

  • PNC Financial Services ($7.7 billion)
  • Capital One Financial ($3.55 billion)
  • Regions Financial ($3.5 billion)
  • SunTrust Banks ($3.5 billion)
  • KeyCorp ($2.5 billion)
  • Comerica ($2.25 billion)
  • State Street ($2 billion)
  • Northern Trust ($1.5 billion)
  • Huntington Bancshares ($1.4 billion)
  • First Horizon National ($866 million)
  • City National ($395 million)
  • Valley National Bancorp ($330 million)
  • UCBH Holdings ($298 million)
  • Washington Federal ($200 million)

Oh…me bad…I forgot that BB&T is in for $3.1 billion too.

Well, at least gas prices and oil prices are continuing to fall.

In currency, we have
the dollar and yen pounding the Euro and Pound to the degree that the bank of Japan is considering an intervention to keep the Yen form spiking too high.

It also looks like the Australian dollar is at serious risk of falling off a cliff, see here and here.

Economics Update

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In war, it is said that amateurs talk tactics, while professionals talk logistics.

It may be the case with financial crises too, which makes the
FDIC decision to sign a lease for a lot of office space in Southern California very interesting.

Of course, the tactical developments, like investors taking losses in excess of 90% on complex financial instruments attached to Lehman and Iceland is still interesting, even if just a tactical development.

In currency, the dollar has hit a 2 year high on concerns of a coming recession.

I think that this is temporary. People are fleeing to the dollar in times of trouble out of habit which is not justified by the reality.

In any case, recession fears pushed oil to a 16 month low.

BTW, here is a very nice primer on the financial crisis:

Economics Update

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Not a great day.

Consumer confidence had the largest plunge ever, from 70.3 to 57.5, and home construction fell to a 17½ year low.

There are some indications that the credit freeze is relaxing, at least temporarily, the short term spread between LIBOR and Treasuries has dropped a bit.

I’m not sure that there is a real thaw, as evidenced by the fact that hedge funds are hemorrhaging money and investors.

The dollar, meanwhile was largely static today.

In energy, oil is back above $70/bbl, but that is likely the result of OPEC holding an emergency meeting to cut production.

Economics Update

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We are all, as Bender is wont to say, “totally boned”, and you need to look no further than the fact that :NASCAR is experiencing cash flow problems because financially strapped sponsors are bailing.

About the only good news is that collapsing demand appears to be keeping inflation in check.

BTW, the crisis just hit Phil Gramm’s bosses, as the Swiss government was just forced to bail out UBS.

Don’t expect a turn around in the real estate martket, because mortgage rates just posted their largest increase since 1987.

This might explain why the National Association of Home Builders/Wells Fargo housing market index has fallen to an all time low, 14, where a neutral reading is 50.

In the real world of manufacturing, industrial production and the Fed Bank of Philadelphia’s general economic index both plummeted to levels not seen in over a decade.

With a very strong indicatrions of a recession, commodities, in particular oil ($69/84/bbl!!!) and gasoline, continued their falls.

What takes this from an economic down turn to an apocalypse are signs of the apocalypse, and one of the is when Americans consumers save, rather than spend their money.

If you want another sign of the apocalypse, how about banks cutting back on issuing credit cards, because they need to hold additional reserves against defaults.

When banks cut back on what is probably their most profitable business, you know something is up.

Jobless claims for the week aredown, but week to numbers are noisy, and the it’s an artifact of the fact that we’ve had a hurricane free few days.

The dollar strengthened a little. I think that there are two competing pulls here: the concern that the US is no longer the financial colossus striding the world, and the habit of going into the dollar when times are uncertain.

Economics Update

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Well, we are seeing the 9th straight drop in monthly non-farm employment rolls (click on graphs for pretty pictures).

I find The U6 graph that I swiped from Paul Krugman to be particularly interesting.

Let’s just call it; we are in a recession.

I would also note that the credit flows have nearly shut down worldwide, which is why the Federal Reserve lending window is seeing record use from banks.

BTW, it ain’t just the Fed which is throwing money, particularly US Dollars, out the windows, it’s all of the central banks.

The obvious big news is the House passing the Wall Street bail-out, and I’m as yet unsure how the markets are reacting to this.

Oil is down down, which could either imply confidence in the US economy, or the belief that a recession is inevitable, and the dollar is mixed.