Oil is up again today, to $131.03/bbl, even though demand is falling, and retail gas prices hit a record for 21st straight day, $3.944/gallon.
I think the only question is whether it will break $4/gal before June.
Paradoxically enough, the dollar strengthened, despite the higher oil prices.
Finally, we’re seeing a drop in mortgage applications, because rates are rising.
Rates will go up eventually, and when they do, the housing market will get even more ugly.
It appears that the UN’s clean development mechanism is being gamed by energy companies top the tune of billions of pounds.
Leading academics and watchdog groups allege that the UN’s main offset fund is being routinely abused by chemical, wind, gas and hydro companies who are claiming emission reduction credits for projects that should not qualify. The result is that no genuine pollution cuts are being made, undermining assurances by the UK government and others that carbon markets are dramatically reducing greenhouse gases, the researchers say.
The criticism centres on the UN’s clean development mechanism (CDM), an international system established by the Kyoto process that allows rich countries to meet emissions targets by funding clean energy projects in developing nations.
People love market based solutions on emissions because they claim that it forces money back into more energy saving technology.
It doesn’t. It pushes the actors toward cheating and market manipulation, both of which are cheaper. Taxes are easier to administer, and harder to cheat on.
The real reason that all these people favor carbon trading is because they people who drew up the regulations went to Harvard or Oxford or some other elite school, and a trading scheme allows people like them, who went to the same schools, to make money.
Really and truly, when you look at these schools, it raises a question, which is how much are they about education, and how much are they, as Maynard Handley says, “That the primary value of a Harvard undergrad education is perceived by most of the people involved to be networking — it’s how you get to meet the future great and good, and thus substantially increase your chances of being hired by Bill Gates when he starts his new company, or by some future president.”
It’s all about insiders dealing to insiders.
Well, the Oracle of Omaha very bearish on the economy. Warren Buffett is predicting a long and deep recessions.
This is not all that surprising a conclusion seeing as how consumer confidence index fell to 57.2, well below the prediction of 60, and the lowest number since October 1992.
On the brighter side, the dollar has strengthened a bit, and crude prices have fallen, though Gas prices hit a new all time high for the 20th time in 20 days.
Even if oil prices moderate, the bond prices are falling because of inflation fears.
Basically, if you expect inflation, you don’t want to hold a bond with a fixed interest rate, and so if you want to sell your bond, the buyer wants a bigger discount.
In real estate, we have home prices falling an eye popping 14.1% year over year:
The S&P/Case Shiller composite index of 20 metropolitan areas fell 2.2 percent in March from February and plummeted a record 14.4 percent from March 2007.
Economists expected prices for the 20-city index to fall 2.0 percent on month and 14.0 percent from a year earlier, according to the median forecast in a Reuters survey.
This is ugly for anyone who wants to buy a home, and the fact that we are seeing skyrocketing property tax delinquencies means that people who want to stay in their houses may find that municipal services are shrinking.
In banking, we have UBS saying that the mortgage bloodletting is not over, and US savings & loans setting aside $7.6 billion against potential losses in the home market, so if anyone is telling you that this has bottomed out, don’t believe them.
I point you to some good work by Barry Ritholtz, who notes:
For example, crude energy materials “only” advanced 4.1% in April, with crude petroleum gaining 4.5 % and natural gas prices rising 4.3%. After the seasonal adjustments, these prices appeared rather odd: They showed energy prices falling by 0.2%, while gasoline costs dropping 4.6%.
It turns out that this all goes back into the numbers in July.
According to this article, if prices were flat, we would still see a 16.3% increase in July….Not pretty.
The employment data is done for the week, so we have energy news, where Oil, after breaking $135/bbl then settling around #131, is now back above $132/bbl, and gas prices are trending up again, though some of the latter is no doubt due to the upcoming 3 day weekend.
The dollar is trending down against all major currencies, hitting $1.5755:€1.0000, a bit below the $1.60 record, but not by much.
In real estate, we have existing home sales falling 1% in April, no signs of the foreclosure rate abating, and inventories soaring.
Is it any wonder that mortgage lenders are tightening standards to where they were a few deccades back?
This credit tightening is going to take an economy already in recession*, and throw it down a well.
On the brighter side, it appears that the municipal bond market has finally shaken itself out a bit, recovering from the auction rate security implosion of a few months back.
*Yes, I know that it’s not official yet, but we know the reality when it bites us on the ass.
Obviously the economic news of the day, hell the news of the day period, was oil surging to above $135/bbl, though they settled about $4 lower.
Retail gasoline hit a new record, the 15th straight, $3.831/gallon.
Dollar has taken a hit too, which is common when oil surges.
In employment news, US initial jobless claims fell, though the number of people collecting benefits remains at a 4 year high, so it appears that the unemployed are not finding new jobs.
In real estate, the OFHEO reports that house prices fell 1.7% in Q1 of 2008, (PDF) the sharpest decline in since records began to be kept in 1991.
Federal Reserve Vice Chairman Donald Kohn is now giving some pretty strong signals that there will be no further rate cuts, which indicates that the Fed might be a bit concerned about inflation now.
The currency markets are most definitely concerned about inflation (which is another word for currency devaluation), and so the dollar has dropped. It’s near a month low.
Oil just smashed the $130 barrier, settling at $133.17/bbl, and retail gasoline hit another record.
Real estate continues to face downward pressures, with Mortgage applications falling 7.8%last week. So even though we are in buying season, people are not looking to buy.
Finally, we have what appears to be the collapse of a monoliner insurer with CIFG Guaranty having its rating cut to junk status. They were downgraded from AAA in March, and Moodys just downgraded them further from A1 to Ba2, 7 levels at one swoop.
The business for monoliners is dependent on having an AAA rating. Put a fork in them, they are done.
In inflation, it appears that producer prices may be a problem (also here), with the overall rate going up by .2%, and the core rate going up by 0.4%.
Of interest is that the first link, from Bloomberg, basically casts it as a “low inflation” story, and the second link casts it as a “high inflation” story. I’ll explain why the latter is wrong in a bit.
In any case, the market saw the rate as low, which drove the dollar down in expectation of further rate cuts in the US, and the expectation of rate hikes in the Euro zone.
In energy, we have crude hitting another record, above $129/bbl, and gas prices at the pump hitting a new record for the 13th straight day.
He makes a very good point, that getting people to buy cars that get better gas mileage is the easy part of this.
The hard part is getting people to drive less too, since we have engaged in policies that have subsidized choices that require driving over the past 50 + years.
In many places, with far spread suburbs, public transport is far less efficient than it is in denser areas, and there are a lot of people living in suburbs, particularly in far suburbs, who are going to experience a very bad time as a wrenching change to lifestyle is made.
As for me, I’m about 5¼ Miles from the terminus of the Baltimore Subway, so I’ll do OK, I can bicycle to it.
I guess for those of us in the US, the big 3 are employment, energy prices, and real estate. So, going in that order, we have:
nitial jobless claims rising to 371,000 last week, though as I always state, this is a noisy number, and you need a few weeks, or better yet months to extract real meaning, but, quoting the article, “The trend in claims is still upwards and we expect new highs over the next few months.”
Matt Trivisonno has the withholding tax numbers, you know the social security taxes that employers take out of wages below about $104K, and they are way down too.
Here are the pretty pictures:
And on a quarterly basis
And on a yearly basis.
As to why these numbers fell? Because no one is making anything in the US in April. Industrial production fell -0.7% in the US. The consensus estimate was -0.3% down, and March output was ajusted to +0.2%, down from +0.3%. Not good.
In energy, Crude fell below $122/bbl, which is good, but Gas hit a new record, $3.776 a gallon, the 8th record in 8 days.
In real estate, we have the inevitable article calling the light at the end of the tunnel, when it is more likely an oncoming train, in Orlando, Florids, one of the worst hit areas. Inventory fell slightly, and sales are up a bit (0.2%), and the rate of decline of existing home sales is a bit better.
Me, I’ll go with National Association of Home Builders/Wells Fargo monthly index, which fell again. The home builders are in the business.
I would also note that even with the Fed rate cuts, mortgage rates fall seem to be pretty stubborn about staying above the 6.0% line, so there won’t be any help for the market there.
Europe, on the other hand, appears to be doing fairly well, with GDP increasing 0.7% across the Euro Zone in the first quarter, led by a sizzling, for the developed world anyway, 1.5% increase for Germany.
This makes it far less likely that the ECB will cut rates. Actually it makes it more likely that the ECB will raise rates, and as a result, the US dollar is down today.
Well, the financial news is reporting that consumer spending are up, but as Barry Ritholtz notes, “Retail Sales were rather unimpressive: Gasoline, Groceries, Food & Beverage were up, while pretty much everything else was flat to down. (see picture)
Also note that the real numbers are actually a reduction when adjusted for inflation.
In the “same as it ever was” department, we have crude oil and gasoline hitting a new record again, $126.98/bbl.
In real estate, The median single-family home price dropped 7.7% Q1, annualized, that is around a 30% drop, but you will see articles calling a bottom soon.
In banking, we have Bank of America saying that credit costs are up.
Translated from bank-speak, it means that they are having more late payments, defaults, and foreclosures.
On the good news side, Ben Bernanke is promising more free money through the Federal Reserve’s “sh%$pile for dollars” auctions.
In energy, oil is down a bit, but gasoline has hit a new high again.
Additionally, we have monoliner insurance giant MBIA posting a $2.4 billion loss, tied, once again to the obscure financial instruments CDOs and CDSs.
Pretty slow news day otherwise.
There has been a surge of people moving to mass transit driven by higher gas prices, though I have to say that after 60 years of direct and indirect subsidies to the “own a car” lifestyle, this will either be a short term change, or a part of a slow change.
That being said, the City of San Francisco has come up with an interesting idea, congestion pricing on parking meters, the theory being that if you price the meters high enough that there are always a few open, you eliminate the people driving around and around looking for parking, and reduce congestion, in addition to reducing the total number of drivers.
We have another sign of recession, imports falling sharply in March, which indicates a decrease in consumer demand.
It also appears that the decisions by the Bank of England and ECB to target inflation may be putting an end to the brief dollar rally.
In energy, we have Oil settings new record, $126.20/bbl, and gas hitting a new record, $3.671/gal.
It should be noted that much of our trade deficit is oil, but the number dropped even with increasing oil prices. Things are slowing down a lot.
I would note that there are signs that the credit crunch is no spreading to insurance, with AIG posting a 1st quarter loss of $7.8 billion, and making plans to issue more stock to raise needed capital.
If the insurance industry goes balls up in any significant way, it’s going to be effecting a lot more people.
Finally, we have housing inventories continuing to rise, 3.5% in April, and 6% year over year.
Tanta of Calculated risk notes that continuing unemployment claims are now above 3 million. Note that, unlike the weekly new claim figures, this one tends to show trends much better.
You may recall that recently the weekly data is showing a decline, the fact that the numbers are still rising means that people are spending more time on unemployment.
Because of inflation concerns, both the Bank of England and ECB leave rates steady have decided not to follow the Fed’s example and cut rates. Which has left the ECB rate at a 6 year high.
Normally, this would suggest a weaker dollar, but the dollar is doing pretty well against the Euro. No clue as to what is going on here.
Finally, another day, another record high in oil, $123.53/bbl at closing.
The numbers are out for March pending home sales, and they are very grim, with the pending home sales index falling to it’s lowest level since its founding in 2001, a 1% one month and 20% year over year drop. Of course the NAR is seeing a turnaround in the next few months, like they always do.
We are also seeing increasing signs of inflation, with Federal Reserve Bank of Kansas City President Thomas Hoenig suggesting that inflation pressures may lead to rate hikes soon, and Toyota to raising prices on their cars, largely as a result of the falling dollar.
On the plus side, however, productivity increased by 2.2% in the first quarter, more than the 1.5% predicted, which should moderate inflation some.
On a more general, “we in a recession” note, retail imports fell 4.8% in March, yet another indicator of a slowdown, that the retailers are cutting back.
Oil hit another record today too.
People are now shocked that Fannie Mae has posted a $2.51 billion loss and cut its dividend. Do I need to quote Claude Raines in Casablanca?
Oil set another new record, $122.73, before settling at $121.84. Any bets on when we hit $130 for the first time?
Finally, we have this tidbit from the Wall Street Journal
And in a more-worrisome trend, borrowing from these retirement plans is surging. At the end of last year, 18% of workers had loans outstanding from their plans, up from 11% in 2006, according to a survey of 2,011 full-time employees released in February by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV’s Transamerica Life Insurance Co. With home prices falling nationwide, the loans may be a sign that cash-strapped consumers are raiding their nest eggs to stay afloat, no longer able to tap their houses for cash and up against their credit-card limits.
This is a foreseeable consequence of defined contribution plans, and notwithstanding the Randroid utopian claims, it has always been the problem with having people make a bet in which, if they die young, they win.
It’s the YOYO (You’re On You’re Own) society.
Gee, Alan “bubbles” Greenspan is now saying that we are having an, “awfully pale recession.” Well, I guess he can still afford to eat at the Four Seasons, so it’s someone else’s problem…Neh?
Actually, I’m surprised that he did not use the unexpected growth in the service sector, with the ISM numbers rising to 52 from 49.6 (50 indicates growth).
His goal has always been more to prevent government intervention than giving an accurate assessment anyway, because he believes that preventing government action is the only thing that he can do of value.
Of course, the fact that oil busted the $120 barrier, hitting $120.21/bbl doesn’t bode well for the economy anyway.
Oil is up on supply fears from potential attacks in Nigeria and Kurdistan, along with the dollar weakening because of the Fed rate cuts.
Interest rates in the private sector, however, appear to be on the way up, with 30-year mortgages rates rising despite the Fed rate cuts. Additionally, the Fed is reporting that banks are tightening up on their lending at a historically high rate.
The fact that consumer bankruptcies are up almost 48% year over year in April might have something to do with this, or perhaps the other way around. It’s a chicken egg thing to me.
However, the fact that S&P has decided to stop rating bonds backed up by second mortgages seems to indicate that this still has a way to go on the way down.
The fact that companies cannot refi right now may very well take down ResCap, the 8th largest mortgage lender wing of GMAC:
ResCap, the eighth-largest U.S. residential lender in 2007, today began offering as little as 80 cents on the dollar to exchange or buy back $14 billion of bonds to extend maturities and stave off bankruptcy. To finance the debt restructuring, ResCap is seeking a new $3.5 billion credit line from its parent GMAC, which is owned by General Motors Corp. and an investor group led by Cerberus Capital Management LP.
“There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008,” Minneapolis-based ResCap said in a filing to the Securities and Exchange Commission today.
With all this going on, it’s not surprising that UBS is looking at cutting 8000 jobs.
According to a CNN/Opinion Research:
I would note that we are already seeing 4 buck a gallon dino juice in Hawaii and California.
Well, we just got a jobs report that shows just how screwed up our statistics have gotten, with non farm jobs falling by 20,000 but the unemployment rate went down, which just does not work.
Additionally, the so called birgh death corrections are completely bogus:
+45k construction jobs v 37k April 2007
+8k jobs were added in financial activities versus 1k last April.
+72k in professional/business services versus 48k last April.
+83k in leisure/hospitality (95k last April).
The idea that construction and financial added 53,000 jobs in April comes from somewhere west of the planet Skaro.
The financial press is uncritically applauding, of course.
In energy, oil is upto over $116 for the first time in a few days, but gasoline is down, not hitting a new record for the first time in 17 days.
Meanwhile, the Fed and other central banks are pouring yet more money into the frozen financial system. The Fed is allowing more types of bonds in its trash for cash auctions, but it does not appear to help. The LIBOR, from which much of the adjustable rate loan rates are derived has been largely unmoved.
It’s pushing on a string, as I’ve said before, because it’s a solvency crisis, not a liquidity crisis, as I’ve also said before.
The is still strengthening a bit, but I’m a bear long term, but I’m a bear on everything.
In more pushing on a string news, the US treasury is offering 0% on its inflation protected savings bonds.
A small distinction, mypost of 4 March had was about TIPS, not inflation protected savings bonds, just in case you are wondering if I’m repeating stuff.
Finally, in real estate, 63% of home sales in San Diego are short sales and REOs, which means that either the owner has sold for less than they owe, or it’s been foreclosed on.