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Thursday, July 31, 2008

Commodities Feel The Heat

CRB Index Drops Most in 28 Years as Nickel, Natural Gas Tumble on Dollar Tumbling prices for natural gas, nickel and corn are turning July into the worst month in 28 years for the Reuters/Jefferies CRB Commodity Index.

U.S. Recession May Have Begun in Last Quarter of 2007.

The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated.

``We're in a recession,'' Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. ``It's going to widen, it's going to deepen.''

Crude Oil Declines More Than $2 as Fuel Demand Drops to a Three-Year Low Crude oil fell more than $2 a barrel, capping the biggest one-month decline since December 2004, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years.

Gold Jumps as Dollar Drop Boosts Investor Demand for an Alternative Asset Gold gained the most in three weeks after a report showed weaker-than-expected U.S. growth during the second quarter, sending the dollar tumbling and boosting the appeal of the metal as an alternative investment. Silver rose.

XX Sean's note -- silver did more than rise. It's leading the way ...

And the rally in gold and silver is taking place despite bullish action in the US dollar ...

Electricity Storage Discovery May Be Boon for Solar Power, MIT Study Says A new, cheaper way to store electricity to run air conditioners or vehicles promises to make solar power competitive with traditional generation, Massachusetts Institute of Technology researchers said.

Money for crop research just a drop in the bucket

WASHINGTON — A deadly wheat fungus known as stem rust is shriveling crops from Africa to the Middle East, threatening the breadbasket of Pakistan and India, and could eventually reach the United States.

The potential threat to food supplies and the economy is enormous, yet Congress and the White House during the past several years did not react to urgent pleas from U.S. scientists for millions of dollars to develop wheat varieties resistant to stem rust. Instead, the main federal lab working on the disease fought budget cuts.

Arctic ice bigger than 2007, but thawing long-term

OSLO (Reuters) - Arctic sea ice is unlikely to shrink below a 2007 record low this year in a reprieve from the worst predictions of climate change even though new evidence confirms a long-term thaw is under way, experts said.

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Wednesday, July 30, 2008

My latest Interview and Column

My latest Interview (from yesterday) is up. You can listen to it by clicking HERE.

Also, I have a new column today ...

Get Ready for the Next Leg Up in Oil
by Sean Brodrick Wednesday, July 30, 2008 7:30 AMOil has pulled back from its highs, and now analysts are lining up to say the top is in. I've been saying all along that volatility is the name of the game in oil this year. Let me tell you now ... [More...]

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US Dollar & Gold Chart & News You Can Use

News You Can Use ...

There Will Be Water
T. Boone Pickens thinks water is the new oil—and he's betting $100 million that he's right.
In the coming decades, as growing numbers of people live in urban areas and climate change makes some regions much more prone to drought, water—or what many are calling "blue gold"—will become an increasingly scarce resource. By 2030 nearly half of the world's population will inhabit areas with severe water stress, according to the Organization for Economic Cooperation & Development.

S&P Earnings So Far Falling Short Of Q2 Projections
With 249 of the S&P 500 companies reporting results, second-quarter profits are on track to decline 17.9% vs. a year earlier, according to Thomson Reuters.

XX Sean's note -- But guess what sector is leading when it comes to earnings? Energy, which is seeing second quarter profits up 25% year over year. What sector is doing the worst? Financials, with profits down 85% year over year.

XX The analysts on CNBC will tell you now is a perfect time to buy Financials, because this is as bad as things can get – the bad news is priced in. In fact, one of them said just that this morning. Well, we’ll have to see about that. I think there are many other shoes to drop.

Nigeria’s Oil Production Drops Below 1mbpd
There are strong indications that Nigeria, the sixth biggest oil producer in the world and Africa’s biggest oil producer, can no longer meet the Organisation of Petroleum Exporting Countries (OPEC) production quota.
The country’s current production level has dropped below 1 million barrels per day (mbpd) owing to frequent shut-ins due to renewed attacks on oil facilities in the Niger Delta region.Prior to the escalation of violent attacks on oil installations, Nigeria produced between 2.5 and 2.6 million barrels of crude oil per day

How low can gasoline go? US gasoline prices drop 10 cents a gallon in the latest measure. The bad news is gasoline is up $1.07 year over year. As oil nears 20 percent "bear" market, bulls unfazed
As the rout in oil prices nears the 20 percent mark that for stocks would signal a bear market, many analysts offer a word of caution -- don't mistake a healthy correction for the end of a multi-year bull trend.
Those who might have mistaken oil's last deep fall -- a near 21% decline over four weeks to mid-January 2007 -- for a sustained pull-back paid dearly. Prices hit a low of $49.90 a barrel before nearly tripling over the next 18 months.

Hump Day video: The Japanese combine practical jokes, TV, and the behavior of crowds, and it’s quite funny.

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Tuesday, July 29, 2008

More Shoes Drop in Financials

Merrill Lynch Announces Substantial Sale of U.S. ABS CDOs, Exposure Reduction of $11.1 Billion
As a result of the transactions announced today, the company expects to record a pre-tax write-down in the third quarter of 2008 of approximately $5.7 billion. This write-down is comprised of a $4.4 billion loss associated with the sale of CDOs, a $0.5 billion net loss on the termination of hedges with XL Capital Assurance and an approximately $0.8 billion maximum loss related to the potential settlement of other CDO hedges with certain monoline counterparties.

XX Sean's note -- you've got to be fracking kidding me. Merrill just reported earnings on the 17th, but at that time, did not disclose this $5.7 billion write-down. How is that possibly legal? Anyway, it's another shoe dropping in financials. Maybe we should ask the gang on CNBC if financials are a good buy now.

What's next? Well ...

Goldman Sachs cuts estimate on Washington Mutual
A Goldman Sachs Group Inc. analyst cut his full-year estimate on Washington Mutual Inc. on Monday, citing the thrift's "severe" credit challenges and expectations that the bank will remain unprofitable through 2009.

... Or ...

Wachovia Falls on Downgrade, CFO Exit
Wachovia dropped nearly 10% Friday after an analyst downgrade and news its CFO was leaving. Robert Patten of Morgan Keegan slapped a sell rating on the Charlotte, N.C.-based bank following its miserable second-quarter earnings results and concern that the company might have to raise more capital.

... Or ...

Fannie and Freddie: It's Worse Than You Think
Forget everything you've read about how woefully undercapitalized Fannie Mae and Freddie Mac are. The situation is much worse. Unlike other companies, the two government-chartered mortgage financiers publish quarterly fair-value balance sheets showing what the real-world values of their assets and liabilities supposedly are. By this measure, both companies' net- asset values are much lower than what the government lets them show as capital, or what the accounting rules let them report as shareholder equity.


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Monday, July 28, 2008

Charts and News for Monday

Sorry this is late today, but it's a crazy day.

To expand on my comments from Friday a bit, the pullback in commodities continued last week. While we could see a rally this week, we have now seen both oil and the CCI Index break important support. I expect oil will pull back to test 121, maybe 110 and if we’re really lucky, 100 – that would be an incredible buying opportunity. Why? Because the long-term supply demand picture is tightening, and this pullback will give us a base for a potential explosive move higher.

Gold is holding up better than most commodities – I think that’s fear working into the market place, as fears of a global banking crisis mount and investors look for alternatives to paper currency.


By clustering solar cells around the edges of the specially prepared sheets of glass, the new method provides a unique alternative to expensive rooftop solar cells. They are also much more efficient than their rooftop brethren. The special glass panels concentrate light 40 times standard sunlight before delivery directly to the cell. Further different designs to absorb different wavelengths are available, so by using windows with several stacked glass panes, absorption can be optimized across the entire visible wavelength.

Oil Rebounds From a Seven-Week Low as Nigerian Militants Attack Pipeline Crude oil rose, rebounding from a seven-week low in New York, after a Royal Dutch Shell Plc pipeline in Nigeria was attacked by militants.

U.A.E. Will Cut Oil Production From October for Field Work, Officials Say The United Arab Emirates, the third- largest oil producer in the Middle East, plans to reduce its oil production by at least 100,000 barrels a day for up to 40 days from Oct. 23, officials at the Abu Dhabi National Oil Co. said.

German Consumer Confidence Drops to Five-Year Low as Spending Power Wanes Consumer confidence in Germany, Europe's biggest economy, dropped to the lowest in more than five years as soaring energy prices sapped purchasing power and the economic outlook deteriorated.

Funds for Highways Plummet As Drivers Cut Gasoline Use
A report to be released Monday by the Transportation Department shows that over the past seven months, Americans have reduced their driving by more than 40 billion miles. Because of high gasoline prices, they drove 3.7% fewer miles in May than they did a year earlier, the report says, more than double the 1.8% drop-off seen in April.

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Friday, July 25, 2008

How Low Can Commodities Go?

Commodities are in retreat (short-term anyway). The longer-term trends are still way up, but the next month or two could see a sizeable pullback if the charts today are any guide.

The problem is charts lie all the time. All it takes is one hot missile in the Middle East to change the whole ballgame. And longer-term, the global commodity supercycle is intact. Heck, the price of iron ore recently went up 97% year over year.

But I thought I'd share three charts with you to show you what I'm looking at. First, weekly oil ...

Now the CCI, a broad index of commodities ...

Bottom line: A pullback is a normal and necessary part of a bull market. And it could hand us the buying opportunity of the next 10 years. A year from now, I expect prices to be higher than they are now, and potentially much higher.


Here's an interesting take on the energy crisis ...

Americans must diet to save their economy

Want to save the US economy? Go on a diet.

That's the message ecologists are trying to get across this week. They say the apparently looming energy crisis could be averted if US residents cut their calorie intake.

The average American consumes about 3747 kilocalories (kcal) per day compared to the 2000 to 2500 kcal per day recommended by the US Food and Drug Administration.

The 3747 kcal per day figure does not include any junk food consumed.

Producing those daily calories uses the equivalent to 2000 litres of oil per person each year. That accounts for about 19% of US total energy use.


Foreclosures Double in Second Quarter as U.S. Home Prices Fall

U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth. One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement.

National Australia Bank Writes Off 90% of Its Investments in U.S. residential mortgages

National Australia Bank Ltd. (NAB) said it has made an additional provision of A$830 million ($802 million) to its portfolio of collateralised debt obligations (CDO) of asset-backed securities. NAB said it now has provisions for nearly 90 percent of its total CDO portfolio.National Australia Bank makes A$830 mln provision to CDO portfolio.

XX Sean’s note – 90% of its CDO portfolio – which is the bad mortgage debt sold by American banks – is worthless? If NAB is right, we have a way to go in the U.S. mortgage crisis.

Middle class: 'On the edge'

Adjusted for inflation, median household income dropped by $1,175 between 2000 and 2007, said Elizabeth Warren, professor at Harvard Law School, in written testimony before the Joint Economic Committee.

At the same time, the average family is spending $4,655 more on basic expenses, such as gas, housing, food and health insurance. Gas alone costs $2,195 more for a family making the same commute in May 2008 as it did eight years earlier.

Durable-Goods Orders Rise

Orders for durable goods unexpectedly rose in June, while a barometer of capital spending by businesses increased, a sign of strength for the struggling manufacturing sector.

Billions needed to shore up nation's bridges

It would cost $9.4 billion a year for 20 years to eliminate all bridge deficiencies in the USA, according to the latest estimate, made in 2005, by the American Society of Civil Engineers.

Xx Sean’s note – click through on the link for an incredible map showing unsafe bridges around the country.


As oil price rose, exporters cut shipments

The world's top oil producers are currently proving unable to generate more barrels on demanding world markets, despite surging prices — a shift that defies traditional market logic and looks set to continue.

Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world's top oil exporters fell 2.5 percent in 2007, despite a 57 percent increase in prices, a trend that appears to hold true this year as well.

There are several reasons behind the net-export decline.

Small Car Sales Surge

Ford to retool 3 truck plants for small cars starting in December

Starting in December of this year, three truck plants will be retooled so that they can build cars instead. In addition six new models will be coming over from the European lineup and Mercury will live on. Like other automakers Ford will be consolidating production of large trucks into fewer plants..... The Michigan plant will retool to build to build a vehicle based on the European Focus platform. As previously announced the Cuautitlan Assembly Plant in Mexico will shift from building F-series pickups to the new Fiesta at the end of next year. A second plant in Louisville that currently builds Explorers will switch over to building Focus based vehicles as well.

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Wednesday, July 23, 2008

Charts on Gold, the Dollar, Oil -- and News You Can Use

I"m traveling today, but I'll be back in the office tomorrow. In the meantime, here is some news you might find interesting ...


SemGroup Loses Bets on Oil

The collapse this week of SemGroup LP, a little known private oil-marketing firm, may have played a role in crude oil's 14% drop over the past 10 days. The Tulsa, Okla., company filed for Chapter 11 bankruptcy protection Tuesday, citing among other financial woes a loss of at least $2.4 billion in crude-oil futures. Changes in its hedging strategies coincided with big moves in oil recently.

US utilities say grid will be able to handle rechargeable cars

Automakers, such as General Motors Corp. and Toyota Motor Corp., are planning to bring rechargeable vehicles to the market as early as 2010. But speakers at the Plug-In 2008 conference say it will take much longer for them to arrive in mass numbers, due in part to a current lack of large-battery manufacturing capacity. Auto and battery companies still are working on the lithium-ion battery technology needed for the cars, and on how to link the battery packs to the vehicles.

A Difficult Road Awaits For Energy Conservation

Conserving our way out of this crunch won't be so easy. Here are five key reasons why.

The Coming Plunge to $80 Oil

XX Sean’s note – I don’t agree with this guy -- his view is that oil is a bubble -- but it’s good to read different points of view. The author makes a case using very select facts. If he was to include total worldwide demand forecasts and supply forcasts including the cost of extraction, he might come to a different conclusion. For starters, here are three points to keep in mind …

  1. The US used to be in the driver’s seat when it came to demand growth. Now, China, India and other emerging markets are driving demand growth.
  1. New, big oil fields are tough to find and expensive to pump.
  1. Global depletion rate of between 4% to 6% (and that’s best-case scenario) per year on current wells. We have to find massive reserves continually just to keep up.

I believe we could see a sharp correction in oil, but it will be short-term only. By the way, have you seen the latest on Mexico? …

Pemex Oil Production Falls 11% in June on Aging Field

Petroleos Mexicanos, the state-owned energy company, said oil output fell 11 percent in June from a year earlier as new wells failed to keep pace with a four-year decline in the aging Cantarell field, the nation's largest.

Production dropped to 2.839 million barrels a day in June from 3.206 million a year earlier, the Mexico City-based company, known as Pemex, said today on its Web site.

At Cantarell, where a drop in pressure is making it more difficult and costly to extract oil, the company pumped 1.017 million barrels a day, down 35 percent from a year earlier and the fastest rate of decline in 12 years, Pemex said. The company is pumping 33 percent more from the Ku-Maloob-Zaap field to make up for the decline at Cantarell.

Arctic Region May Hold 90 Billion Barrels of Oil, Geological Survey Says

The Arctic may hold 90 billion barrels of oil, more than all the known reserves of Nigeria, Kazakhstan and Mexico combined, and enough to supply U.S. demand for 12 years, the U.S. Geological Survey said.


Fannie Mae Unsold $5 Billion Homes Shows Why Shares Bring Investing Peril Fannie Mae, the largest U.S. mortgage finance company, couldn't find a buyer who would pay $6,900 for the three-bedroom house at 1916 Prospect St. in Flint, Michigan. So broker Raymond Megie, who is handling the foreclosure sale, advised cutting the price to $5,000.

XX Sean’s note – read this Fannie Mae story and tell me the housing crisis is anywhere near over.


Gold Falls in N.Y. as Dropping Energy Costs Reduce Inflation-Hedge Demand

Gold fell the most in six weeks as slumping energy costs and a stronger dollar cut demand for the metal as a hedge against inflation. Silver also declined.


When Jellyfish Attack

The bad news, according to experts, is that there's more of that gummy pain on the way. Overfishing and other destructive human activity have prompted the prolific multiplication of jellyfish by decimating their natural predators: tuna, sharks and turtles. That, and the fact that global warming has raised the water temperature of the Mediterranean by a degree, have produced an explosion of the jellyfish population and a prolonged presence of the creatures in waters where humans like to flounder.

Researcher says Gulf dead zone bigger than ever

"It's definitely the worst we've seen in the last five years," said Steve DiMarco, a Texas A&M University professor of oceanography who for 16 years has studied the Gulf of Mexico dead zone, so named because the oxygen-depleted water can kill marine life.

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Dollar Up and Gold Down

Yesterday, the U.S. dollar rallied hard and gold tumbled. That fall in the yellow metal looks to continue today. Clearly, my short-term outlook for gold –which had been bullish -- is subject to change.

Looking at the charts, you can see that the dollar is now back ABOVE former overhead resistance …

While gold appears to be breaking down, and is testing its recent uptrend right now.

When these things happen a trader has to ask himself where he went wrong. Clearly, I was placing too much emphasis on the problems facing the U.S. dollar – problems that were reemphasized last night with terrible earnings from Washington Mutual. WaMu reported a $3.3 billion quarterly loss Tuesday -- far worse than Wall Street was anticipating -- as it set aside more money for bad loans. And earlier on Tuesday, Wachovia delivered terrible earnings news. My fears about the banking system seem to be playing out. So why isn’t the U.S. dollar going down?

The reason for that lies overseas – in Europe. As my friend and crackerjack currency analyst Boris Schlossberg wrote this morning:

“the latest EZ economic data has been horrid with Industrial Orders dropping a whopping –3.5% versus –1.5% forecast. Demand has clearly fallen off the cliff for the region’s producers and unless it rebounds quickly is likely to translate into weaker labor market data in the near term. Under such conditions that chances of another ECB rate hike this year is practically nil, as the monetary authorities in Frankfurt will come under enormous political pressure to remain stationary and perhaps even entertain a rate cut.”

At the same time, Treasury Secretary Hank Paulson spent Tuesday voicing support for a “strong dollar” while Federal Reserve Bank of Philadelphia president Charles Plosser said that that the U.S. central bank should raise interest rates ``sooner rather than later.''

So, the economic news on Europe weighed on the euro at the same time that Paulson and Plosser whipped up support for the greenback. This was enough to shift the tides on the charts. With the dollar up over overhead resistance, technical analysts rushed to buy the dollar and sell gold.

And THAT’S pretty much why gold swooned yesterday.

You can’t fight Mr. Market (or you’ll become poorer if you do), but I'll point out a few things …

1) Secretary Paulson has been voicing a "strong dollar policy since he was appointed in 2006, and his predecessor John Snow said he backed a strong dollar since George W. Bush's first term. What has happened to the U.S. dollar since then?

Indeed, Secretary Paulson’s support for the strong dollar has become the oft-repeated “check is in the mail” lie of the U.S. financial system.

2) Whatever the problems are in Europe, did the European governments just increase their national debt by 50%? That is in essence what the U.S. government did when Paulson said the “implicit” Federal guarantee of Fannie Mae and Freddie Mac has become an “explicit” guarantee. The two companies own or guarantee $5 trillion in home mortgages. That's just under half of the $12 trillion U.S. mortgage market. In comparison, the total U.S. government public debt totals $9.5 trillion. (In addition, Fannie Mae and Freddie Mac have $831 billion and $644 billion. respectively, in bonds outstanding.)

3) Why anyone is listening to Plosser now is beyond me. He argued against cuts in two Fed decisions this year, and no one listened to him then. And if anything, the U.S. economy is weaker now than it was then.

Nonetheless, while I consider the bullish dollar case weak, obviously Mr. Market has other ideas. Now, looking forward, what could weaken the dollar and strengthen gold?

Well, the U.S. Beige Book comes out at 2 pm today. This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. If the Beige Book shows recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity.

The extent of the US slowdown will be reported in today’s Beige Book due out at 1600 GMT. Traders will be watching for any reports of particular weakness from the Fed districts across the US and the greenback may come under pressure later in the day should the news prove overly bearish. In the meantime the market remains very constructive for dollar longs as the unwind of the oil trade causes further euro selling. If today’s oil inventories figure pushes crude below 125/bbl then EURUSD could tumble below 1.5700 in sympathy.

I’m going to go out on a limb here and say the Beige Book will show both recessionary AND inflationary conditions. That puts the Fed in a pickle. But with sentiment on the dollar now bullish, bearish news on the economy could put the greenback under pressure.

On the other hand, if today’s oil inventory numbers (out at 10:30 am) push the price of oil down, the greenback could get another boost from that.

Does this short-term strength in the dollar and weakness in gold change my long-term outlook? Not a bit. Paulson may talk a good game, but the U.S. financial system and the U.S. dollar are in serious trouble. This pains me, because I love my country and like anyone with dollars in his wallet, I get hurt along with everyone else when the dollar goes down. But I think it’s prudent to use short-term pullbacks in gold to take longer-term bullish positions in gold AND silver. They will pay off down the road when the chickens come home to roost for the greenback. My intermediate term target on gold remains $1,210 an ounce.

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Tuesday, July 22, 2008

Great News for Red-Hot Global Stocks

Check out the news on Kingsgate and Sino Gold, two recent additions (albeit repeat buys) to the Red-Hot Global Small-Caps portfolio …

Kingsgate Jumps Most in 10 Years After Winning Approval for Thailand Mine Kingsgate Consolidated Ltd., owner of Thailand's biggest gold mine, rose by the most in a decade in Sydney trading after receiving final ministerial approval for the Chatree North mining lease next to its existing operation.

Sino Gold 2nd-Quarter Output From Jinfeng Mine Rises More Than Threefold Sino Gold Mining Ltd., owner of China's second-largest gold mine, said second-quarter output at the Jinfeng operation rose more than threefold as a greater volume of ore was mined.

And here's my latest interview with Phil at ...

In Other News …

Just how much money does China have? How fast are China’s foreign assets growing? And how much is hot money?

XX Sean’s note – this post at Brad Setzer’s blog is well worth reading. The numbers on China may shock you. And the charts, well …


The global economy is at the point of maximum danger

It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.

The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a "chance of a global recession". Plainly, the IMF cannot or will not offer any useful insights.

Its "mean-reversion" model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True "mean-reversion" would imply debt deflation on such a scale that would, if abrupt, threaten democracy.


Pimco's Gross Says Fannie, Freddie Need Treasury

Bill Gross, who manages the world's biggest bond fund, said it's not possible for government sponsored mortgage-finance companies Fannie Mae and Freddie Mac to raise capital without the Treasury Department's support.

``Let's be blunt: to the extent the Treasury suggests they'll never have to use their authority, that's a sham,'' said Gross of Pacific Investment Management Co. ``It's fallacious to suggest that the agencies could issue capital, preferred stock, without the co-participation of the Treasury. I don't think that's possible.''

Fannie, Freddie May Record More Losses on Subprime, Alt-A Debt, Ofheo Says Fannie Mae and Freddie Mac may need to record more writedowns after they expanded their purchases of non-guaranteed subprime and Alt-A mortgage securities just as other investors fled to safer investments, their regulator said

Measures to avoid the worst recession in 30 years

Ben Bernanke, Federal Reserve chairman, this week alluded to an economy facing “numerous difficulties”. In fact there are only two, but each alone is cause for genuine concern over the US economy’s prospects: first, an implosion of the financial system triggered by the teetering housing market; and, second, record prices for oil and other commodities that are largely driven by events abroad. … It is time to devise a programme to promote overall economic recovery by fighting for the economy’s future on both fronts simultaneously.


Goldman Sachs Group Says Energy Stocks Are a `Buy' After Shares Retreated Investors should buy energy stocks, which fell the most last week in six months, as oil prices will rebound, Goldman Sachs Group Inc. said.

OPEC Must Increase Oil Output to Lower Prices, Promote Growth, CGES Says OPEC needs to raise oil production to reduce crude prices and help global economic growth, the Centre for Global Energy Studies said.

IEA warns non-Opec oil could peak in two years

Oil production in non-Opec countries is set to peak within the next two years, leaving the world increasingly dependent on supplies from the cartel of exporting nations, according to one of the world's leading energy experts.

Fatih Birol, chief economist of the International Energy Agency (IEA), said that falling production from key regions such as the North Sea and the Gulf of Mexico would leave international oil companies such as Shell and BP increasingly sidelined at the expense of national oil companies, such as Saudi Aramco.


Kazakhstan Wants to Be World's Biggerst Uranium Miner in 2009, Top Canada Kazakhstan, the world's third- biggest uranium miner, plans to overtake Canada and Australia next year by producing 12,826 metric tons of the radioactive metal.

Xx Sean’s note – sure beats the other leading occupation in Kazakhstan … turd farming.

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Monday, July 21, 2008

Charts and News for Monday -- Stormy Weather Edition

Oil Rises From a Six-Week Low on Tropical Storm, Iran's Nuclear Standoff Crude oil rose from a six-week low as a tropical storm headed toward the Gulf of Mexico and Iran, the world's fourth-biggest producer, resisted demands to suspend nuclear research.

Trouble at Fannie Mae and Freddie Mac Stirs Concern Abroad

About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States.

Now that the two companies are at risk, how their rescue is handled will ultimately test the world’s faith in American markets. It could also influence the level of interest rates and weigh on the strength of the dollar for years to come, analysts say.

“No less than the international perception of the credit quality of the U.S. government is at stake,” said Richard Hofmann, an analyst with CreditSights, an independent research house with offices in London and New York."

Also at stake is Americans’ future ability to gain access to credit. If foreign companies and governments abandon United States investments, home, auto and credit card loans will be much more difficult to come by.

Never Have So Many Short Sellers Made So Much Money With Stocks Worldwide Investors worldwide are betting more than $1 trillion on a collapse in stock prices.

Economist’s View on Why The Economy Is as GOOD as It Is (and not worse … yet)

Perhaps most importantly, however, is the massive liquidity injections from the rest of the world, or what Brad Setser calls “the quiet bailout.” In the first half of this, global central banks accumulated $283.5 billion of Treasuries and Agencies, something around $1,000 per capita. This is real money – I outlined the likely implications in January. Foreign CBs are happily financing the first US stimulus package; will they be happy to finance a second? Do they have a choice? Their accumulation of Agency debt is also keeping the US mortgage market afloat. Do not underestimate the impact of these foreign capital inflows. If the rest of the world treated the US like we treated emerging Asia in 1997-1998, the US economy would experience a slowdown commensurate with the magnitude of the financial market crisis. The accumulation of US assets is also forcing an expansion of foreign CB’s balance sheets, creating global monetary stimulus that allows the rest of the world to decouple from the US economy, supporting continued US export growth

Commercial bankruptcies soar, reflecting widening economic woes.

Commercial filings for the first half of 2008 are up 45 percent from last year, as the national climate for commerce continues to deteriorate amid rising energy and food costs, mounting job losses, tighter credit and a reticence among consumers to part with discretionary income.

From April through June, 15,471 U.S. businesses called it quits, according to data from Automated Access to Court Electronic Records, an Oklahoma City bankruptcy management and data company.

The Coming Systemic Bust of the U.S. Banking System: “Dead Stocks Rallying”

This past week started with concerns about another systemic meltdown of the U.S. financial system as the insolvency of Fannie and Freddie was revealed and as IndyMac went bust (this third largest bank collapse in U.S. history). But the week ended with a remarkable rally of financial stocks as better than expected results from Wells Fargo, JP Morgan and Citi soothed the fears that major financial institutions were in even more distress than already predicted by market analysts.

Unfortunately, this massive rally of financial stocks in the latter part of the week is just another temporary bear market rally that will fizzle away once the onslaught of bad financial and macro news builds up again.

Paulson braces public for months of tough times

Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound, while also bracing people for more troubled times ahead.

The 2008 oil shock

This calculation assumes that the oil exporters will export about 45 million barrels a day of oil.
Each $5 increase in the average price of oil increases the oil exporters’ revenues by about $80 billion, so if oil ends up averaging $125 a barrel this year rather than $120 a barrel, the increase in the oil exporters revenues would be close to a trillion dollars.

Beijing orders half its cars off roads to clear air for Olympics

Authorities forecast that the sweeping traffic restrictions, and measures to shut down polluting factories, would help clear smog over Beijing in time for the Games, which begin Aug. 8.

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Sunday, July 20, 2008

Links for Sunday Reading - Hell in a Handbasket Edition

John Stewart explains it all ...

And Now for Frank Rich's take ...

It’s the Economic Stupidity, Stupid

THE best thing to happen to John McCain was for the three network anchors to leave him in the dust this week while they chase Barack Obama on his global Lollapalooza tour. Were voters forced to actually focus on Mr. McCain’s response to our spiraling economic crisis at home, the prospect of his ascension to the Oval Office could set off a panic that would make the IndyMac Bank bust in Pasadena look as merry as the Rose Bowl.

Uncomfortable Answers to Questions on the Economy

Something has clearly gone wrong with the economy. But how bad are things, really? And how bad might they get before better days return? Even to many economists who recently thought the gloom was overblown, the situation looks grim. The economy is in the midst of a very rough patch. The worst is probably still ahead.

Sen. Levin: Shut Down Giant Swiss Bank UBS

Federal regulators should consider revoking the US banking license of the giant Swiss Bank UBS because of its role in helping wealthy Americans evade billions of dollars in taxes, Sen. Carl Levin (D-MI) told ABC News today.

XX Sean’s note – sure seems like the folks in Washington don’t want us to have a way to get our money out of the US and into a safe haven like Switzerland, do they?

Fed's Stern Says Interest-Rate Rise `Can't Wait' Until Markets Stabilize

The bank president compared the credit crunch to the one in the early 1990s, which restrained economic growth for almost three years. That's a more sanguine assessment than others have. The International Monetary Fund has said it's the worst financial shock since the Great Depression. Former Fed Chairman Alan Greenspan said it's the most intense in more than half a century.

Debt Rattle, July 19 2008: Less corn and more hell

I would not at all be surprised if by Christmas Britain will be declared an economic disaster area, and emergency legislation be adopted.

How China's taking over Africa, and why the West should be VERY worried

Reminiscent of the West's imperial push in the 18th and 19th centuries - but on a much more dramatic, determined scale - China's rulers believe Africa can become a 'satellite' state, solving its own problems of over-population and shortage of natural resources at a stroke. With little fanfare, a staggering 750,000 Chinese have settled in Africa over the past decade. More are on the way. The strategy has been carefully devised by officials in Beijing, where one expert has estimated that China will eventually need to send 300 million people to Africa to solve the problems of over-population and pollution.

India: Energy scenario bleak as country faces sharp decline in power generation

NEW DELHI: The lesser inflow of water into rivers and the declining levels in dams and reservoirs across the southern, western and north-eastern regions of the country have led to a sharp decline in power generation, particularly hydro-power. The gas-based stations have also been under-performing due to shortage of fuel, leading to outages, power cuts and blackouts in many parts of the country.

Pakistan: Agri sector faces acute shortage of water

ISLAMABAD: Rising petroleum prices would affect the agriculture sector of the country as farmers are dependent on fuel to operate their tube-wells for getting water, which is the basic need for irrigation and growth of crops.

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Friday, July 18, 2008

Friday Charts and News

The short-term trend in oil is now down.

This is probably due to the fact that the US has decided to make peaceful overtures to Iran and the fact that we are seeing demand destruction here in the U.S. and in other Western nations. However ...

* So far, demand destruction is NOT accelerating. Mastercard says U.S. retail gasoline demand plummeted more than 5 percent last week compared to the same week last year. But Mastercard's April 8th figures showed a 6.8% decline from the same point last year. So, according to Mastercard's measure, demand destruction slowed down from April to June.

Keep in mind that Mastercard only tracks credit card sales at the gas pump. Some retailers are now demanding payment in cash or offering discounts for cash payments. So Mastercard is probably undermeasuring gasoline sales. Still, this shows the inelasticity of demand comes in to play and mitigates demand destruction, even as prices go higher.

* Global demand is still rising. If US demand destruction continues at 5% or even 10% per year, but global demand continues to grow, we're in trouble. IRecent figures are cause for alarm: China June auto sales up 15% year on year, India May sales up 14% year on year.

* Global exports are flat to trending down. Take a look at this chart ...


This is because oil producers are using more and more of their own product. Combine this with my first two points, and the longer-term trend for oil is much higher, even though the short-term trend is down.

In Other News

Gold slips on steady dollar, softer oil
Gold eased on Friday as the market responded to this week's big fall in oil prices and a rise in the dollar against the euro, denting bullion's appeal as a currency hedge. However, gold recovered from lows as weakness on the equity markets burnished its appeal as a haven from risk.

Get ready for the last oil war

The now accelerating countdown to Peak Oil marking the ultimate peak of world production – with a faster fall-off in net export supplies than total production under several logical scenarios - can only aggravate existing global and regional tensions, especially in the Mid East. Any decline in global export supply (currently running at about 51 million barrels/day (Mbd)) will be catastrophic for attempts at maintaining flagging credibility in ‘market supply/demand balance’ and open market price setting. The date at which this will happen, without war accelerating the process through destroying oil infrastructures is of course disputed. Several studies indicate likely date could be 2012-2013.

Pakistani investors attack bourses after share collapse

Investors ransacked stock exchanges in Karachi, Lahore and Islamabad yesterday, reacting to a share-price rout that has devastated the life savings of many Pakistanis.

Police and paramilitary officers were drafted in to protect the Karachi Stock Exchange after a mob stoned the building and smashed windows. In Lahore, investors burnt tyres and blockaded the local bourse.

The violence came after a 35 per cent fall in the Karachi index in the past three months on concerns over the stability of Pakistan's fragile coalition Government, soaring inflation, and the weakness of the rupee.

A generational challenge to repower America
by Al Gore
Xx Sean's note -- the man couldn't get to his point quickly if it was at the end of a pencil, but it's worth reading.

Wall Street's Great Deflation
Phil Gramm, the senator-banker who until recently
advised John McCain's campaign, did get it right about a "nation of whiners," but he misidentified the faint-hearted. It's not the people or even the politicians. It is Wall Street--the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events. These folks are in full-flight panic and screaming for mercy from Washington, Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.

When the monied interests whined, they made themselves heard by dumping the stocks of these two quasi-public private corporations, threatening to collapse the two financial firms like the investor "run" that wiped out Bear Stearns in March. The real distress of the banks and brokerages and major investors is that they cannot unload the rotten mortgage securities packaged by Fannie Mae and banks sold worldwide. Wall Street's preferred solution: dump the bad paper on the rest of us, the unwitting American taxpayers.

Xx Sean's note -- read the whole thing.

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Thursday, July 17, 2008

The Government Changes The Rules in The Middle of The Game

This is why I hate government most of the time.

According to Reuters, The U.S. Securities and Exchange Commission issued an emergency order on Tuesday placing restrictions on the short selling of shares of certain major financial firms.

Here are 19 stocks where no naked short selling is allowed from July 21 through July 29 (though they may extend it to 30 days):

* BNP Paribas Securities Corp
* Bank of America Corp
* Barclays PLC
* Citigroup Inc
* Credit Suisse Group
* Daiwa Securities Group Inc
* Deutsche Bank Group AG
* Allianz SE
* Goldman Sachs Group Inc
* Royal Bank ADS
* HSBC Holdings Plc ADS
* JPMorgan Chase & Co
* Lehman Brothers Holdings Inc
* Merrill Lynch & Co Inc
* Mizuho Financial Group Inc
* Morgan Stanley
* Freddie Mac
* Fannie Mae

Gee, I thought JP Morgan had blow-out earnings today … but apparently they’re so weak you can’t short-sell them. And yet Washington Mutual, which is swirling in a sea of failure rumors, is not on the list. I have no position on whether those rumors are true or false – it’s just that that if any stock is going to need protection from speculators, it’s WM. So is the government protecting weak stocks … or is it something else?

Have you ever seen anything so cockamamie? Either allow short-selling for all stocks or don’t, but picking out 19 stocks for special treatment is ludicrous. And while I appreciate they are trying to give the market time to find its footing, changing the rules like this could backfire and just put off the day of reckoning, making it worse. Let’s see what happens after July 29 (or after August 20 if they extend it)

As has been pointed out elsewhere, China had short sale restrictions on and it did not stop the Shanghai index from falling over 50%. Insolvency cannot be cured by short sale restrictions and some or even many of those companies may be insolvent.

The SEC’s list of 19, of course, is heroin for conspiracy junkies. But what if the conspiracy theorists are right? Check out this comment I picked up from Mish Shedlock’s blog, where savvyinvestor writes…

I would like you all to consider a market manipulation scenario which is becoming increasingly credible when you consider the moves in equities and commodities over the past 2-3 days. Let us suppose that Paulson went to his buddies at Goldman Sachs and worked out a deal: "We will give you the regulatory framework you need to make a killing; in turn, you bail out the financials."

So here's how it works. "Naked short selling" will not be allowed starting monday - why not today? Because they need several days to get the mother of all pump-n-dumps in place. To raise money, GS first dumps all its commodities longs. It dives into the targeted financials and begins accumulating massive numbers of shares.

Come Monday, you can short the stocks if you like - but you have to borrow the share first. And where are you going to borrow the share if Goldman Sachs' hedge funds have a lion’s share of the float? With no possibility of short selling, and a huge number of shares tied up so that buyers are competing for a much smaller share pool, the financials' shares skyrocket, getting back the last years' losses in a couple of weeks. Then GS dumps its shares, for profits in the hundreds of billions, Fannie raises its capital, and the crisis has been averted without spending a single taxpayer dime - but at the cost of swindling millions of investors who don't have the inside knowledge of how this scam is being worked or what the timing is.

XX Sean’s note -- That theory may not be correct, but it sure is interesting. Meanwhile …

As faith in bank bailouts dims, losses set to deepen

The nightmare scenario for U.S. economic authorities is here: confidence in their ability to rescue the country from a housing-led financial panic is now at its lowest level since the crisis began.

XX Sean’s note – and what about the U.S. dollar? Well, there are some pretty interesting developments there, too. The Financial Times reports that …

Sovereign funds cut exposure to weak dollar

Some of the world’s largest sovereign wealth funds are seeking to scale back their exposure to the US dollar in a sign of global concern about the currency.

One big sovereign fund in the Gulf has cut its dollar-denominated holdings from more than 80 per cent a year ago to less than 60 per cent, while China’s State Administration of Foreign Exchange (SAFE) has been looking to strike deals with private equity firms in Europe as a part of a strategy to reduce its dollar holdings.

In Other News


Oil Falls for Third Day as Slower Global Economic Growth Curbs Fuel Demand Crude oil fell for third day, the longest losing streak for a month, on speculation slower global economic growth is curbing fuel consumption.

Xx Sean’s note – still, the support I talked about yesterday seems to be holding, so far anyway.

Summary of Weekly Petroleum Data for the Week Ending July 11, 2008

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.0 million barrels from the previous week. At 296.9 million barrels, U.S. crude oil inventories are near the lower boundary of the average range for this time of year. Total motor gasoline inventories increased by 2.4 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and gasoline blending components inventories increased last week. Distillate fuel inventories increased by 3.2 million barrels, and are in the upper half of the average range for this time of year. Propane/propylene inventories increased by 1.0 million barrels last week but remain below the lower limit of the average range. Total commercial petroleum inventories increased by 7.5 million barrels last week, and are near the bottom of the average range for this time of year.

XX Sean’s note – so, higher prices at the pump are definitely having a deeper effect on consumption. Top of Form

And here's what they were expecting: Analysts surveyed by Platts expect that U.S. crude stockpiles decreased by 3 million barrels last week. They also expect a decline of 1.1 million barrels in gasoline inventories and a buildup of 1.7 million barrels in distillates.

Crude Awakening

If this document is accurate, it means that Simmons was right on the money. What's worse, the details are even more discouraging: as the chart on the right shows, what little production increase the Saudis can sustain is all in medium and heavy crudes. Production of light crude, preferred by most refineries, actually decreases by 200,000 barrels per day between now and 2013.


Ice shelf near collapse

Scientists are warning that an Antarctic ice shelf the size of Northern Ireland is on the verge of disintegration, even though it is the middle of winter. The shelf, near the base of the Antarctic Peninsula, had not been expected to collapse until the early 2020s.

Xx -- Sean's note: In other news, the outlook for storms in the tropics (hurricane weather) is weakening. It looks like we can rest a little for the next few days after an extremely active July 16th......the Florida disturbance dissipated, 94L's window of opportunity may have closed, and the SW Caribbean area will go inland. Hooray for us!


China's Economic Growth Cools to 10.1%, Adding Pressure to Slow Yuan Gains

China's economy grew at the slowest pace since 2005 in the second quarter, prompting speculation the government will slow the yuan's gains to protect export jobs.

China's First-Half Vehicle Sales Growth Slows to 19%

XX Sean’s note – US car makers would kill for 19% growth. And this is an interesting line in the news item: “vehicles are becoming affordable to more people in China because of the country's 10 percent economic growth rate and price cuts triggered by rising competition. The proportion of people owning vehicles in China is also only equal to that seen in the U.S. in 1925 and in the U.K. in 1950.”

Private cars to be on Beijing streets on alternate days

Car owners in Beijing will have to remember the last digit of their licence plates and the day of the week before taking their vehicles out on the streets from Sunday as traffic management gets into top gear for the Olympics next month. According to an odd-even number traffic control plan devised by the local authorities, private vehicles will be allowed on the streets on alternate days. If a car with an odd numbered licence plate is allowed to ply Sunday, those with even numbers will get the opportunity the next day.

XX Sean’s note – this may weigh on global oil demand and prices going forward. I thought Beijing would wait until the games started to begin their “license plate bingo” but apparently they’re starting early. They’ve closed down over 100 polluting factories, too.


May Factory Sales Gain More Than Five Times Forecast on Energy, Metals Canadian factory shipments rose 2.7 percent in May, the biggest one-month gain since March 2007 and more than five times as much as anticipated, as sales of petroleum and coal products surged.


U.S. Consumer Prices Climb Most Since 1991; Homebuilder Confidence Slumps

U.S. consumer prices surged 5 percent in the past year, the biggest jump since 1991, just as households struggled with falling home values and the credit crunch. Spiraling expenses for food and fuel spurred the increase in June, the Labor Department said today in Washington. The cost of living rose 1.1 percent from May, more than forecast and the second-largest rise since 1982.

`Misery Index' in U.S. Advances to 15-Year High as Inflation Accelerates

Misery hasn't had this much company in more than 15 years. The jump in consumer prices reported today by the Labor Department means the so-called Misery Index, the sum of the unemployment and inflation rates, is the highest since President Bill Clinton took office in January 1993. The measure, created by Arthur Okun, an economics adviser to President Lyndon Johnson, rose to 10.5 in June from 9.7 in the prior month.

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