Because OPEC is talking about output cuts to stabilize the price.
I don’t think that they will allow it to break $100/bbl.
Category: Energy
Economics Update
You know that the economy is bad when you go broke filling people’s Jones for chocolate chip cookies, but Mrs. Fields cookies is filing for reorg under chapter 11.
The dollar is down a bit, because there is concern that the Fed won’t raise interest rates soon.
Honestly, they won’t raise rates before the election, because that is what the Fed does.
Oil is up a bit, on concerns of the effects of tropical storm Fay on rigs in the Caribbean.
Economics Update
Today has actually been a good news day, with US industrial production increasing by 0.2% in July, though one should remember that inflation is 0.8%, the the consumer sentiment index rose in Augst, though July was a 28 year low, and the New York Fed Manufacturing Index rose. (no qualifiers on this one, it really appears to be good news)
Good news on all my standard metrics too, oil down, gas down, and dollar up.
Inflation is the fly in the ointment, as Dean Baker notes, because the increased inflation means that the 3rd quarter will almost certainly be a contraction.
I would, however be remiss if I did not note that commodity prices are falling very sharply, which may bring moderation in inflation in the coming months.
In the economic scandals section, we have Wachovia joining the parade of banks and investment houses settling on auction rate securities, to the tune of $5.5 billion.
In the “It should be a scandal,” category, we have S&P deciding not to downgrade MBIA and Ambac, even though anyone with two brain cells to rub together knows that the monoliner insurers are junk
I would also note that I’m wondering if we will see a Peso rally, because Mexico’s central bank just increased rates for the 3rd straight month.
And The Onion is a national treasure:
Economics Update
Weekly initial jobless claims came in higher than expected, at 450K as opposed 432K, and the 4 week moving average is 440.5K, the highest number since 2002.
At the same time, the CPI numbers are grim, with prices up 0.8% in July, and 5.6% year over year.
The Europeans are not doing much better, with GDP declining 0.2% in the 2nd quarter.
The European weakness, meant a Euro weakness, with the dollar gaining against the Euro.
These indications of a global slowdown have pushed oil prices lower, and Gasoline is down too.
Don’t expect a real estate recovery to save the economy though, foreclosures are up 8% for the month, and 55% year over year, and home prices have fallen 7.6% year over year.
Economics Update
Let’s start with the really scary numbers that you need to know:
- Retail sales were down in July.
- 25% of current home sales are at a loss, which means that the current crappy home sales numbers are actually about ¼ lower than reported, which might explain why Mortgage application volume continues to fall.
Meanwhile in Japan, their economy contracted at a 2.4% annual rate, once again showing that decoupling from the US economy is a failed theory.
Still, the president of the ECB, Jean- Claude Trichet is sending out signals that imply that there will be no Euro zone rate cuts, which would imply that the dollar may not have much strengthening left in it.
I would note that businesses don’t put much stock in the economy right now. Inventories increased, but at a less than ½ the rate than the rebate juiced spending by consumers in June, implying that they are expecting a major slowdown.
The saying that, “When the US economy gets the sniffles, the rest of the world gets a cold,” still applies, and so we are still seeing capital flight into the US dollar, which is why it strengthened today.
In energy, oil rose on thighter than expected inventory reports, and retail gasoline has continued its unbroken downward streak.
And Sometimes Thomas “The Mustache of Pablum” Friedman is Right
Such as when he criticizes McCain for not even bothering to show up for votes on energy policy, he has missed all 8 votes this year, while demagoguing the drilling issue for Bikers taking a break from a topless beauty contest:
Everything else is just bogus rhetoric designed by cynical candidates who think Americans are so stupid — so bloody stupid — that if you just show them wind turbines in your Olympics ad they’ll actually think you showed up and voted for such renewable power — when you didn’t.
Even a stopped clock is right twice a day, I guess.
Economics Update
Well, the jobless numbers came out, and they suck. The weekly numbers rose by 7,000 to 455,000, a 6 year high, when predictions were for a drop to 433K, and the 4 week moving average, which is less noisy, rose to 419,500, a 5 year high.
At least our misery has company, with the ECB holding rates steady, saying that “risks to economic growth were starting to materialize”, which is a signal that Euro zone rates will remain steady.
Of course, our relentlessly optimistic financial press has to try to make s%$# into Shinola in housing, where they are touting a 5.3% month to month gain, which as Barry Ritholtz so eloquently notes, this is unmitigated crap, and driven by seasonal differences more than anything else, and the numbers are down year over year.
Additionally, we do not know how many of these are short sales in lieu of foreclosure.
We also have retail experiencing major suckitude now that the rebate checks have run out. To the degree that people are spending any more, it’s on necessities, and they are running up their credit cards to do this, because the banks are cutting back on HELOCs.
Meanwhile, oil rose on supply concerns after Kurdish rebels blew up a Turkish pipeline, though gasoline is down for the 21st straight day.
In the world of insurance, the largest US insurer, American International Group wrote down more than $11 billion in holdings, and is making noises about selling more shares to raise capital.
T. Boone Pickens and Windmills
Endorsing wind sounds nice, but why is he saying, “use wind for electricity, and use natural gas for cars”?
It’s pretty simple. Mr. “I funded the swift boaters in 2004” has extensive holding in natural gas, including, “Clean Energy Fuels Corp., a natural gas fueling station company”.
Additionally, if he gets to put up his wind farm, he will undoubtedly get lent to send the power to the Dallas-Fort Worth area, and he can also run a water pipeline, using the water rights that he purchased.
Getting eminent domain for water is tough. Getting for clean, safe, renewable wind power? Not so hard.
To paraphrase Abe Vigoda, “It was just business.”
Oil Companies May `Panic’ on Tanker-Rate Outlook: Chart of Day
It appears that oil tanker companies may direct their captains to slow down to save fuel, which would cause a shortage in the supply of tankers, and higher rental rates.
They are looking at a slowdown to 12 knots from 15 knots, which would save about 20 grand a day in fuel costs.
I would imagine that we would see a similar process unfolding with container ships, and this may contribute to increased costs for non-petroleum imports too.
Economics Update
Well, the Fed held rates steady, and it appears from their statement that they will hold rates steady.
Honestly, I don’t expect any rate change now before the election. Changing the rates in September or October would lead to complaints of a political agenda.
The Index of Supply Management’s index of non- manufacturing businesses showed continuing contraction in July.
It was up to 49.5, which was above forecast, but anything under 50 is contraction.
For what it’s worth, it looks like Noriel Roubin’s prediction that hundreds of banks will fail as a result of the credit crunch is finally getting some ink at a major news service (Reuters).
I would suggest his blog to get more detail, particularly on his estimate that the Taxpayer will be on the hook for $1-$2 trillion for all this.
Both he, and I, think that the credit crunch will get a lot worse, and stories like former Merrill Lynch superstar Dow Kim shutting down his hedge fund before it started, because investors got skittish and pulled out, would seem to confirm this.
I would also note that delinquent loans are rising for commercial real estate, which indicates that the commercial real estate market is following the residential market down the drain.
In the normal indices, we see the dollar up a bit, and oil and gasoline down for another day.
Thursday, when the Euro Central Bank sets its rates, should be interesting.
All I Can Say is, When You Pry My Cats from My Cold Dead Fingers
It appears that one Dr. Christian Koch claims to have invented a thermal reactor that turns biomass directly into diesel.
He says that it can use, old tires, weeds, and animal cadavers, and that, “the cadaver of a fully grown cat can produce 2.5 litres of fuel”.
We are not amused.
Pandering, but Politically Useful, I Guess
Obama is calling for releasing oil from the strategic petroleum reserve to push prices down.
I think that it’s a potent club to use against the offshore drilling advocates, it would push oil prices down immediately, but the fact is that oil prices are going to continue higher, and the strategic reserve will not solve that problem.
Economics Update
Challenger, Gray & Christmas is reporting that planned job cuts were up 26% in July, and the Conference Board’s Employment Trends Index fell to 112.1 in July, leading the board to predict that unemployment could pass 6% in 2009.
Additionally, the board noted that U6 has now topped 10%, which is probably the best metric, and closer to the one used in EU nations, for the first time in 5 years. Quoth the Wiki:
- U1: Percentage of labor force unemployed 15 weeks or longer.
- U2: Percentage of labor force who lost jobs or completed temporary work.
- U3: Official unemployment rate per ILO definition.
- U4: U3 + “discouraged workers”, or those who have stopped looking for work because current economic conditions makes them believe that no work is available for them.
- U5: U4 + other “marginally attached workers”, or those who “would like” and are able to work, but have not looked for work recently.
- U6: U5 + Part time workers who want to work full time, but can not due to economic reasons.
In an article with a typically bad headline, we see that personal spending and income fell in July, the headline leads with non-inflation adjusted spending, and we also see that inflation has eaten up most of the tax rebate stimulus package.
So what the taxman giveth, the House of Saud taketh away.
Commodities are showing some moderation now, with copper and aluminum falling because of the economic slowdown, though there is a consensus that latter will rebound.
Energy is down too, both oil and retail gasoline, much for the same reasons.
The dollar is down slightly, but is likely to be a holding pattern until tommorow, when the Fed makes its decision on interest rates, and may not move much until Thursday, when the ECB does the same.
In banking, Citi is now losing money on credit card securitizations, where they take credit card debt and package it into securities (similar to mortgage backed securities).
When you lose money on this, the economy is not in good shape, or you are completely incompetent. In the case of Citi, probably both.
Finally, the finance unit of Chrysler was able to finance only $24 billion of the $30 billion it sought to renew, and it was at a higher cost than anticipated, which will likely make auto loans more expensive.
And in the Department of the Blatantly Obvious
The New York Times is noting that increases in shipping costs are pushing against globalization.
This really is no surprise. You saw a decrease in overseas trade between the US and Europe in the 1920s because production costs fell, but transportation costs remained relatively static. Krugman notes this here.
Bloody Fool
Obama Opens the Door to Offshore Drilling
You and your campaign just allowed yourself to be bitch slapped, again.
Let remind my readers of the “Bitch Slap Theory of Republican Politics“:
One way — perhaps the best way — to demonstrate someone’s lack of toughness or strength is to attack them and show they are either unwilling or unable to defend themselves — thus the rough slang I used above. And that I think is a big part of what is happening here. Someone who can’t or won’t defend themselves certainly isn’t someone you can depend upon to defend you.
You just caved to a tremendously stupid idea.
It does not make you strong, it makes you look weak.
You and the Democrats lose, and McCain and the Republicans win. It’s that simple.
Economics Update
Well, the official unemployment rate climbed to a 4 year high, 5.5%, and total number of jobs fell by 51K, the 7th straight monthly drop in a row, in July.
We’re in a recession. Get over it.
Manufacturing actually did a bit better than expected in July, it was flat, though much of that was military and exports driven by a weak dollar, but I’ll take what I can get.
In the monoliner insurance follies, we have good news for AMBAC, they paid Citigroup $850 million to get out of a $1.4 billion guarantee on some collateralized debt obligations (CDO).
It’s being reported as good news for AMBAC, which says something about the qualities of said CDOs.
As bad as the job news was, it was better than expected, so the dollar strengthened in international trading.
In energy, the employment report drove oil up too, though retail gasoline is back below $3.90/gallon. Woo hoo!!
Bush Tantrum May Force Government Shutdown
That’s what Bush and His Evil Minions™ are threatening over offshore drilling, that they will either filibuster or veto the spending bills unless they get their favor for their buddies in big oil.
Economics Update
Well, we have a big bit of information to lead with today, it turns out that the revised GDP numbers for the 4th quarter of 2007 show a contraction of 0.2% in the economy, which means that as numbers come in, that might very well be the start of the economy, particularly given the fact that the inflation numbers used to generate “real” GDP growth are bogus.
According to the most recent figures, the US economy grew in the 2nd quarter of 2008, but it grew less than forecast, 1.9% as versus 2.3%, but given what happens in revisions, I expect the number to get worse over time.
Employment is grim too, with weekly jobless claims up 44,000 to 448,000, though part of this is the effect of people going back on unemployment because of the 13 week extension.
While the weekly number is noisy, the trend has been toward increasing unemployment, and I agree with Calculated Risk, “Labor related gauges are at best coincident indicators, and this indicator suggests the economy is in recession.”
That’s not to say that there is no data pointing in the other direction, as the Chicago Purchasing Managers’ Index Increased to 50.8, and any number above 50 points toward expansion.
That being said, the currency market saw the clouds, not the silver lining, with the dollar falling, though the fact that Euro zone inflation hit an all time high of 4.1%, which points toward rate increases by the ECB, could be a factor in there too.
In real estate, mortgage rates fell this week, which is probably an artifact of the reduced inflation fears from moderating oil prices.
The bit I found interesting though is that Freddie Mac is doubling the payments it makes to loan servicers for foreclosure prevention activities, which strikes me as a sort of a “hail Mary” play to keep more of their mortgage backed paper from going bad.
And our old friend, “The trouble with the monoliner insurers,” is back, with Financial Guaranty Insurance Co. (FGIC) being cut to junk bond status by Fitch.
In energy, both oil and gasoline are down.
Finally, a reason, as if you needed one, not to watch the Fox Business Chennel:
This just buggers the mind.
Mexican Oil Industry Legislation Update
I think that it’s fairly clear that the right wing PAN is attempting a back door privatization of Pemex, the state own oil producer, while the PRD sees any change as an theft from the Mexican people, and the PRI falls somewhere in between.
The problem is that Pemex has not been run well, and it is lacking resources as a result, so some sort of reform is necessary.
I still believe that purchasing the necessary expertise, as opposed to “risk sharing partnerships” that are a back door way of privatizing the system, are the way to go.
Russia Gains Control of Turkomen Gas Exports
This development cements Gazprom’s position as the 800 lb gorilla in the world natural gas market.
It looks like they will sign similar projects with Kazakhstan and Uzbekistan.
An interesting note is that the deals appear not to be particularly good for Gazprom, it’s unlikely that they will make much money out of them, but what it does do is likely kill a gas pipeline on a southern route through Turkey, which the US had been pushing to minimize Russian influence in Europe.