The rising oil choke collar

Oil prices are on the upper end of the post 2008 financial crisis range. So far each time prices rose to the 110+ region they have backed down again.

Gasoline and Oil prices - source: Federal Reserve

While Syria has been getting all the news, Libya's declining oil production may be another reason for firm oil prices. A recent WSJ article (September 10, 2013) highlights the situation.   Considering the vast majority of Libya's GDP is derived from the energy sector (CIA Factbook) this does not bode well for the new post Gaddafi Libya.

I suggest keeping an eye on the price of oil. If it gets much higher it may temper the recent positive economic news.

Additional reading:
http://en.wikipedia.org/wiki/Economy_of_Libya
http://en.wikipedia.org/wiki/Libyan_civil_war

Disclosure: Own oil service, energy, and pipeline stocks

Divergence in employment growth numbers

A few months ago I highlighted how looking at the employment data on a year over year basis provides a different perspective on the numbers.  Today I'd like to bring up a divergence between the private and public data.

yoy employment data and divergence them

source: Federal Reserve

The green and blue lines are the ADP and government year over year employment growth data, left scale and the red jagged line is the difference between their growth rates, right scale.  What's noticeable is the divergence between them.  While it would be better to show just the absolute difference between them regardless of sign, I'm not enough of a FRED graph Meister to figure that out right now.   Right now the >0.35% difference between them is the largest on record for this data series.

Is this divergence truly exceptional? It may have been greater in the past and only later revisions tightened up the spread.

I'm not making a prediction as to which is wrong, merely it's likely the spread will narrow in the future.

Hugh Hendry watch - Turning Japanese

I'm a bit late in this, but here's the most recent report from Hugh Hendry's Eclectica fund.

It's a quick read so I won't excerpt from it except for one trading tidbit:  In 2008 he purchased a 10 year one touch call on the Nikkei with a 40,000 strike price !!!

Q1 Review 2013 Hendry by ValueWalk.com

ht: Mark H @fundmyfund

Addition by subtraction -- Not all dividends are created equal

The current low bond yield, low growth environment has fostered a growing interest in high dividend yield paying stock. I myself have a separate account offering focused on this very area of the equity markets.  A number of ETF's have popped up as well over the last few years to accommodate this demand.

Some of these ETF's may not be the best designed and can show the downside of simplistic indexing. An excellent example of this is Pitney Bowes' recent dividend slashing.

For those of you unfamiliar with the company, they derive a vast majority of their revenue from helping companies snail mail packages and letters.  (Pitney Bowes presentation dated 02/12/13, page 6)  Since you are reading this post online I don't think much discussion is needed to expound upon the disruptive capabilities of the internet. The revenue chart below shows how they have fared.  I do imply anything nefarious with the company mind you, just they are stuck in a market segment that will most likely continue to experience challenges in the future.

They recently cut their dividend after several years of consistent dividend increases. The stock has not done well in the past few years.

When this company popped up on my screens for possible purchase it didn't take long for me to reject it.

As you can see from this chart from ycharts.com, revenue growth has been declining for years, even though dividends have been rising.

Pitney Bowes data - source: ycharts.com

Unfortunately there were a few dividend focused etf's which were sucked into buying the very high yield provided by the stock. Thanks to the site xtf.com we can see which etf's hold the stock

Etf's holding PBI - source xtf.com

Note: 20% of the free float of PBI is held in ETF's and the vast majority of the top ten etf holders were dividend focused.

Pitney Bowes shows just because a company has a high yield and a growing dividend you shouldn't just blindly purchase it.  Always do you homework and look at their long term history and prospects. A very high yield can be a sign of distress instead of opportunity.

Disclosure: Do not and never have held Pitney Bowes stock in my dividend focused separate accounts  or anywhere else.

Copper inventories swelling

I have discussed copper before and something recently caught my eye which deserves a followup post.  Copper inventories are rising rather dramatically.

Worldwide copper inventories and yearly change

As you can see from the chart above copper inventories are now at highs not seen since nearly 10 years ago.  More importantly the year over year change is quite positive as well.  The above graph is a month old but as we can see from a higher frequency chart total inventories may break 900 thousand tons soon.

Glocal Copper stocks - Source: Reuters

Copper pricing has been week recently as well and sits on a rough trendline going back to mid 2010.

Copper prices week - Source: Finviz.com

Why inventories are rising so quickly could be due to several forces, some of the top of my head are:

Rising production -- New mines coming online.

Declining demand -- A sluggish Europe could be assisting in keeping demand down.

Hidden inventory being brought back onto the markets -- If this is a case of Dark Copper coming back into the official warehouses it would validate some theories regarding base metals being used as financing source in China.  FT.com posts dated March 31, 2011  and April, 26 2012 provide good roundups of the possibility and mechanics.

Of course only hindsight knows why copper stocks are building right now. We have to wait to find out why.

Disclosure: Short Base Metals

Jim Chanos is still short China - video

The video I previously posted has incited a new round of Chinese Empty City Watching.  Jim Chanos, the famous short seller, was recently on CNBC explaining his rationale and hinting at his short positions.



Link to video

How many more times China can continue down this path is unknown.

60 Minutes discovers the Chinese Housing Bubble

Last night 60 Minutes ran a piece on the housing bubble of China:



Link to video
I have written about the Chinese Housing Bubble at length and it is nice to see the popular media pick up on it as well.  I wonder how much longer this can go on.