Friday, August 21, 2009

U.S. stocks and crude in synch; both rise to 2009 highs

As crude oil on Friday finished at its highest level for the year near $74 a barrel, energy shares rallied, fueling the broader U.S. stock market to cross the finish line with similar gains. But if oil does a replay of its performance last summer, what's been viewed as a bullish signal could turn bearish for U.S. equity investors.

"If it jumps back up to $140 (a barrel,) for the U.S. economy that is broadly negative. If it drops back to $40, it's a positive in the short term, since it's a tax break for consumers and businesses. The opposite is true when prices are going up," said Ryan Brecht, senior economist North America, Action Economics.

Asked at what price level the stock market would no longer be applauding crude's rise, Dan Greenhaus, chief economic strategist, Miller Tabak & Co. replied: "Well, last year we found out that around $100, the market took notice." (more)

The End of Cheap Water?

The price of water is starting to rise in a big way, at least in China. I’ve expected this for a few years.

To set the table, water rates in China have been so far below the global average it’s ridiculous. Especially when you consider the severe water problems in China. The graphic below is from The Wall Street Journal (“China Cities Raise Water Price in Bid to Conserve” by Andrew Batson):

The Chinese are water-poor. They are sucking their aquifers dry. It is particularly bad in the north of China. The groundwater under the North China Plains is draining away quickly. By some estimates, China will exhaust this water supply in the next ten years. (more)


Nickel May Gain as Stockpiles Fail to Deter Funds: Chart of Day

Nickel, which surged 17 percent the past month, may advance further as “price momentum” and inflation expectations lure fund managers even as stockpiles of the metal approach a 14-year high, according to Commerzbank AG.

The CHART OF THE DAY shows the price of nickel and open interest on the London Metal Exchange. The lower panel tracks inventories in metric tons. The price jumped to its highest level for a year on Aug. 13 and open interest was a record 147,117 contracts on Aug. 14, according to LME data. Stockpiles of the material used to protect steel from corrosion are close to the highest since 1995 amid weak demand in the construction and transportation industries.

“I find the one-way, very dramatic price rise in all metals anomalous given the shaky fundamental basis and rising LME inventories,” Eugen Weinberg, a commodity analyst with Commerzbank in Frankfurt, said in an interview Aug 18. “The price momentum behind metals is so strong that the market is attracting external players.” (more)

The History of the "Money Changers"

Economists continually try and sell the public the idea that recessions or depressions are a natural part of what they call the "business cycle".
This timeline below will prove that is simply not the case. Recessions and depressions only occur because the Central Bankers manipulate the money supply, to ensure more and more is in their hands and less and less is in the hands of the people.
Central Bankers developed out of money changers and it is with these people we pick the story up in 48 B.C. below. (more)

4 million home loans are delinquent

The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.

That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.

What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago. (more)

Expect Many More Bank Failures Ahead

The number of banks that had non-performing assets equal to at least 5 percent or more of their assets — considered a critical threshold - more than doubled in the year through June, according to data compiled by Bloomberg.

Altogether, the 150 banks hold assets of $193 billion, 15 times the FDIC's entire insurance fund.

“These numbers are off the charts,” says Blake Howells, an analyst at Becker Capital Management, referring to the nonperforming loan levels at companies he follows.

Banks are losing the “ability to try and earn their way through the cycle.”

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., Bloomberg reports. (more)

PIMCO: Dollar Supremacy Is Coming To An End

PIMCO portfolio manager Curtis Mewbourne is getting a lot of attention for a new report predicting the long-term demise of the dollar, or at least its end as the undisputed reserve currency.

This kind of stuff is great for sensational headlines, though Mewbourne's own argument isn't particularly sensational or novel.

It basically comes down to: The emerging economies, notably China, are coming on fast, and China is starting to do more trade directly with other countries without the need for dollars.

China for example has entered currency swap arrangements with a number of countries so that trade financing can be negotiated in renminbi as opposed to dollar terms. In addition, several countries have signed up to replace part of their foreign currency reserves with new bonds issued by the IMF and denominated in SDRs (Special Drawing Rights), a basket of currencies. (more)

The New American Dream: Renting

'A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on." America's lesser bards sang of "my old Kentucky Home" and "Home Sweet Home," leading no less than that great critic Herbert Hoover to declaim that their ballads "were not written about tenements or apartments…they never sing about a pile of rent receipts." To own a home is to be American. To rent is to be something less.

Every generation has offered its own version of the claim that owner-occupied homes are the nation's saving grace. During the Cold War, home ownership was moral armor, protecting America from dangerous outside influences. "No man who owns his own house and lot can be a Communist," proclaimed builder William Levitt. With no more reds hiding under the beds, Bill Clinton launched National Homeownership Day in 1995, offering a new rationale about personal responsibility. "You want to reinforce family values in America, encourage two-parent households, get people to stay home?" he said. George W. Bush similarly pledged his commitment to "an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, 'welcome to my house, welcome to my piece of property.'" (more)