Monday, November 23, 2009
Contrary Copper talk part 2
Thursday, November 19, 2009
Home loan foreclosures keep rising
Wednesday, November 18, 2009
Inflation update
Thursday, November 12, 2009
Hey buddy, can you spare a city?
I spent some time on Google maps and found satellite photos of empty Ordos. Wow. Scroll around and you will see just how big the place really is. Notice the new construction with no cars on the road or parked at the homes. From the shadows it appears around noon time so you'd think there would be some activity, right?
I think there is a little bit of malinvestment going on in China. When the populous does not have valid and efficient uses for their capital they end up buying apartments in empty cities. Makes the chinese pig farmer hoarding copper look entirely rational, eh? Like America property prices only go up in China, right?
Here's an article by the westerner interviewed in the video.
If this isn't a blatant example of a bubble, I do not know what is. When this bubble finally bursts the world wide ramifications will be tremendous.
ht: zerohedge
Inflation expectations in the bond market
Wednesday, November 11, 2009
US Inventories
Monday, November 9, 2009
Consumer credit continues falling
The chart is only of recent history but the US has not experienced this since WW II. Unfortunately the rate of decline continues to accelerate.
I would personally feel more confident in this recovery if consumer debt at least stopped cliff diving. Whether credit is falling due to less demand or bank restrictions doesn't matter at this point. Until the consumer starts borrowing any recovery will be very tepid and most likely artificial.
Thursday, November 5, 2009
Total consumer debt outstanding falling, not just revolving credit
Tuesday, November 3, 2009
Don't bother shopping at drugstore.com
After a few minutes on the phone today with our bank and then finally Complete Savings the charges will supposedly be reversed and our 'account' with Complete Savings closed. I found it ironic how quickly and easily they removed the service. There was even an option on the primary phone menu to remove yourself. I surmise they get a LOT of requests for removal. I suggest you not do business with either completesavings.com or drugstore.com.
Some of you may say I should just read the terms of service and be more careful when shopping online, but I'm calling bullsh*t on that. One should not have to be concerned with accidentally being charged for extraneous external services. If your company chooses not to act in a respectful manner, so be it, but don't complain when I tell others not to shop at your company. I only want to watch Ferengi on TV, not interact with them in real life.
If you google 'complete savings scam' you will see other companies have been caught in this scam of tricking their own customers in a desperate attempt for more revenue.
Some contrary copper talk
Monday, November 2, 2009
Housing starts -- looking through the noise
Monday, October 26, 2009
Currency and stock market gyrations
Today the market was up nearly 1+% and then down nearly 1+% within an hour and in the currency markets the dollar is stronger against most major currencies. Here's some pretty pictures to show what I mean. For the Canadian dollar and Yen, up is a stronger dollar. For the Euro and Australian Dollar, down is a stronger dollar. (Look at the fraction symbol and you'll figure it out)
These are all hourly charts from freestockcharts.com
Australian dollar is has punched through all 3 moving averages: The 20, 50, and 200
Friday, October 23, 2009
Fuel Substitution between energy types
Fuel switching is actually quite common at power plants, the biggest users of natural gas. Many modern power plants can switch between gas and fuel oil, and many can switch to coal as well.I perused the Energy Information Adminstrations web site and found some confirmational data.
In fact cheap natural gas has created an oversupply of coal as well.
EIA: A generating unit capable of burning more than one fossil fuel is referred to as a dual-fired unit. Some dual-fired units can only burn one fuel at a time (that is, the fuels are fired sequentially), while others can burn more than one fuel simultaneously (concurrent firing of different fuels). A sequentially fired unit generally uses one fossil fuel as its primary energy source, but can switch to a second fossil fuel as an alternate energy source.
Here's the year to date (through July 2009) energy production from various sources
Coal -13.1%
Natural Gas +1.7%
Petroleum Liquids -8.6%
It is apparent natural gas production has been favored in the US over coal and petroleum based products this year due to the low price of natural gas. Considering the continued drop of natural gas prices I would conclude the share of production from natural gas will increase for the year.
This is where the mindset of contstant growth can trip you up. Total electricity production in the US is down so far for 2009. In that situation, the first power plants to be shut down would be the most expensive, the oil based power systems.
When electricity demand returns and the less expensive natural gas and coal based power generators are running at full capacity, only then will more expensive additional oil generators will be turned on.
Sources:
http://www.eia.doe.gov/cneaf/electricity/epm/table1_1.html
http://www.eia.doe.gov/cneaf/electricity/epm/epm_sum.html
Monday, October 19, 2009
Who is buying all the Treasury debt? a.k.a how bankers are bad traders
Friday, October 16, 2009
Hugh Hendry on Chinese Yuan, gold, stocks, potash, and agriculture
Hugh Hendry on Chinese Yuan (CNBC, 2009 October 16) - China doesn't and or can't free the yuan from the dollar and how this creates stress on Europe and Japan. Lower dollar values are improving China's trade position.
Hugh Hendry on Agriculture and Potash (CNBC, 2009 October 16)
Hugh Hendry on Gold and Stocks (CNBC, 2009 October 16) -- Hugh states stocks and gold are very crowded trades.
Some very different perspectives.
Thursday, October 15, 2009
Inflation update
Harley Davidson (HOG) strangeness
The headline numbers were predictable, 3rd quarter sales down 21.3% year over year, earnings down due to numerous write offs. Stock opens lower. So far so good for my short position.
As I look through the quarterly report and listened to their conference call two items caught my attention.
Source: Harley Davidson press release 2009 October 15
Harley Davidson shipments data
From their press release:
Guidance
The Company is narrowing its guidance for full-year 2009 shipments, and now expects to ship 222,000 to 227,000 Harley-Davidson motorcycles to dealers, including 35,000 to 40,000 during the fourth quarter. The Company continues to expect full-year gross margins to be between 30.5 percent and 31.5 percent.
So lets split the difference and say they are going to ship 37,500 motorcycles in the 4th quarter 2009. In 4th quarter 2008 they shipped 80,476 units. Harley Davidson is telling us right now shipments (and thus motorcycle revenue) will be more than 50% lower for the fourth quarter.
I'm not disparaging the brand or the company. They are in a tough business right now; selling a 20,000 dollar completely discretionary product. Harley Davidson was very clear about their plans to reduce production in the 4th quarter and how their credit write offs continue to increase. I have to give the company credit for their presentations, but the data does not look good.
The stock closed 5+% higher for the day?
Wednesday, October 14, 2009
Subprime housing mess 2.6
As I have previously posted, the FHA (Federal Housing Administration) is making loans that are rapidly going bad.
Here are some more details and snarky commentary from my favorite bunny cannon shooting blogger, Fund my Mutual Fund: 10/14/09 NYT: FHA Problems Raising Concern of Policy Makers
TraderMark provides some additional detail and of course colorful description of the current political and economic situation regading falling home prices and the government's attempt to prop them up.
Let's stop right there. 1 in 5 loans made in 2008 via FHA are ALREADY IN TROUBLE. 1 in 4 loans made in 2007 via FHA are ALREADY IN TROUBLE. We are not even 3 years into these mortgages. This is EXACTLY the same data we were presenting in 2007 about subprime loans! And Alt A's! And Option ARMs!
The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.
It's some good stuff...
Thursday, October 8, 2009
China Watch -- Iron ore imports
Since China imports quite a bit of iron ore, observing their monthly trade flows on this important basic commodity can provide a peek into what is going on in the Middle Kingdom.
Bloomberg - Chinese ore imports shows their importation of iron ore. You can see the large recent spike in imports. The increase is above trendline over the past several years.
h/t to MacroMan
Wednesday, October 7, 2009
Consumer credit continues free fall
Friday, October 2, 2009
Oil inventory levels
Thursday, October 1, 2009
Mortgage delinquencies continue to rise
Unfortunately the data it describes is millions of people losing their homes and it is getting worse. It can be hard to remain analytical when you think about that. Maybe that is another reason to call economics the dismal science?
Wednesday, September 30, 2009
Refining margins are really low
"Verleger points to a weakening 3:2:1 crack spread on the NYMEX, which settled at $2.28/b on September 25, the 69th smallest of 1,239 observations dating back to January 1986. "[I]t is in the fifth percentile...This is bad, very bad," he said.
Verleger cites not only poor product demand but mounting global inventories of distillate and gasoline."
If the refiners cannot make any money refining, who will buy all the oil?
You can play with the data shown above at Bloomberg
Tuesday, September 29, 2009
Subprime Housing Mess 2.5
The Buyer is the same as before, but instead of exceedlingly loose credit standards, the consumer is helped along by an $8,000 first time home buyer tax credit.
The Provider of the loans is not Wall Street this time, but good old Uncle Sam. From WSJ Opinion (2009 September 29)
The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA's insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA's worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.
All of this means the FHA is making a trillion-dollar housing gamble with taxpayer money as the table stakes. If housing values recover (fingers crossed), default rates will fall and the agency could even make money on its aggressive underwriting. But if housing prices continue their slide in states like Arizona, California, Florida and Nevada—where many FHA borrowers already have negative equity in their homes—taxpayers could face losses of $100 billion or more
So who is buying the mortgages? The very banks in trouble, with a little 'encouragement' from the FDIC. (WSJ, September 10,2009)
Holding Ginnie bonds help banks look better because federal bank-capital guidelines give the Ginnie securities a "risk weighting" of 0%. That means banks don't have to hold any cash in reserve to protect against losses. By contrast, securities backed by Fannie Mae and Freddie Mac, the two mortgage giants seized by the government, carry a 20% risk weighting, meaning some cash needs to be set aside to hold them, even though most banks and investors think there is scant risk of Fannie or Freddie securities defaulting. Privately issued mortgage-backed securities can receive risk weightings of 50%, while many other types of debt carry 100%.
Because of the different risk weightings, bankers say they are selling relatively safe assets like Fannie securities and replacing them with Ginnie securities. The move doesn't shrink banks' balance sheets or remove their troubled assets. But it reduces their total assets on a risk-weighted basis. That is important because risk-weighted assets are the denominator in some key ratios of bank capital.
"With the pressure for capital, that's really made the Ginnie Maes more attractive," said John C. Clark, chief executive of First State Bank in Union City, Tenn. The bank's holdings of Ginnie securities jumped to $66 million at June 30 from less than $4 million a year earlier.
Like some peers, First State bankrolled those purchases partly with taxpayer dollars that were intended to stabilize the banking industry and jump-start lending. The 32-branch bank used a "significant portion" of the $20 million it received through TARP to buy Ginnie securities, Mr. Clark said. Mr. Clark credits the strategy with helping First State preserve its capital ratios even as loan defaults swelled to $9.5 million on June 30 from $1.6 million a year earlier. During the same period, its total risk-based capital ratio climbed to 11.3% from 10.7%. That gave First State some breathing room above the 10% ratio regulators require for banks to be deemed "well capitalized."So my friend, whom I'll call Mr. Green and is a banker: I have my eyes on some nice short term GNMA mbs paper. (Fortunately your last name makes Mr. Green easier, otherwise I'd use a different color) Let us load you up on the GNMA's and forget commercial lending. Good rates, no 'risk' and you can be out to the links even earlier! As a nice bonus your risk based capital ratios will improve as well. I can even provide some additonal low cost margin leverage on my end as well. The banking regulators and your boss will love you! </end sarcasm>
Unfortunately this party will end like the last one, but we all will be paying the bill again and it will be much larger. Too late, the bills are already coming due: Calculated Risk (September 18,2009) -- FHA Cash Reserves will drop below requirement
Ironically, the Federal Reserves focus on purchasing mortgage backed securities from GNMA, Fannie Mae, and Freddie Mac compresses the spread between mortgages and treasury rates. An artifcially compressed spread crowds out any private market competition, forcing more loans into the gentle loving arms of Uncle Sam.
If I sound a bit annoyed in this post, you are correct. Collectively we are not learning from our very recent mistakes.
Monday, September 28, 2009
Long Term Interest Rates at juncture
As you can see from these charts by Freestockcharts.com it is approaching a long term overhead resistance as shown by the white line. Each time TLT has reached this area it has eventually gone lower. Will it do so again?
Friday, September 25, 2009
Finding and managing your credit score
For a good primer on your credit score I suggest you read this article by the Wall Street Journal (September 9, 2009)
Recently several paid services have popped up which will provide your credit score as well as report on any discrepancies in your credit. Why pay for it when you can get it all for free?
A few years ago congress mandated all three credit reporting agencies provide you one free credit report a year. You can get this free annual credit report at annualcreditreport.com All three credit reporting agencies make you go through several hoops in order to get the free report, and don't be suckered into paying for your credit score or a credit analysis. (Transunion requires you set up an account with them. It's free but annoying.) Eventually you'll get a copy of your credit report. I run mine every couple of years just to make sure everything is correct and have discovered discrepancies once or twice that I was able to resolve without too much pain or suffering.
Finding your credit score is a bit easier. Go to creditkarma.com and sign up. Creditkarma intends to make money pitching you various credit card and loan offers based upon your credit information. Creditkarma provides a very readable estimate of your credit score and breaks down how your credit behaviour affects your score. The credit score provided by Creditkarma is from just one of the 3 credit reporting agencies so it is not perfect, but it will be close.
In a later blog entry I'll go through each credit factor and how you can over time improve your score.
Wednesday, September 23, 2009
So far, no hurricanes this year
As I have mentioned previously (Aug 13, 2009) a significant percentage of the pumping and refining capacity for America is in the Gulf of Mexico. Not having a hurricane stomping around will keep the oil and natural gas flowing.
Let's see if we can make it through the entire hurricane season without any damage. Look for solid bids on reinsurance stocks and debt if this happens.
Thursday, September 10, 2009
Verleger on oil
Philip Verleger, February 19,2009 at UCSD 59min 25sec
While it is an hour long presentation I strongly suggest watching it if you are interested in the energy markets.
The gist of his talk is how environmental regulation changes regarding low sulpher diesel excacerbated energy prices in 2008. The upcoming cleaner requirements for low sulpher shipping fuel may possibly create a simliar situation by 2020.
Wednesday, September 9, 2009
Consumer credit continuing to fall
Tuesday, September 8, 2009
Oil as a financial or physical asset?
Here's an interesting article from Philip Verleger in late 2007 on the interplay of oil as both a physical asset used and consumed by the entire world as well as a financial asset. His prediction of $90 oil by 2010 was not extreme enough price or time wise!
Hugh Hendry and Eclectica fund August 2009 commentary
The Great Debate right now is inflation versus deflation and Mr. Hendry falls in the deflation camp.
Here's the August 2009 Eclectica commentary which he manages.
Hugh Hendry is also very bearish on China.
Mr. Hendry's positions are quite contrary. How many of his predictions come true will be interesting to observe.
Tuesday, September 1, 2009
Looking for that inventory bounce
From the freeway spur you can see acres and acres of cars, waiting for distribution to local and regional suppliers. During the panic you could see the inventory stacking up in all sorts of locations not usually used for storing cars. Parking lots for businesses, spare lots, etc. were full of row after row of brand new cars right off the boat.
Some of that excess inventory appears to have been worked off as the fields of cars are only located in their 'normal' staging areas.
Except this spot. This is a brand new warehouse just completed . Google maps' satellite photos don't even show the building yet. It does not contain a business but is completely full, and surrounded by new car inventory.
Driving around the building you can peer inside some of the garage doors and see the entire inside of the warehouse is full of cars as well. This is a 500,000 sq foot warehouse which is absolutely HUGE. Take the time to examine some of the photos below and look at the how many garage doors are along the long side of the building.
At least one real estate management firm is getting inventive on how to lease space.
(Photos were taken August 19th, 2009)
If you are looking for a brand new 500,00 sq foot warehouse right next to a rail hub in Tacoma, you might want to give them a ring.
Home foreclosures and delinquencies accelerating
In my previous postings I may have appeared a bit negative on future home prices and suspicious of the optimistic feelings exuded in the popular media regarding the housing market. Here's some reasons why.
Both graphs show functionally the same data but from different sources and slightly different methodologies. The coming flood of home foreclosures will further erode consumer wealth, bank balance sheets, home prices and consumer confidence. That's just some of the primary effects.
Graph #1 is from Paper Economy blog and shows loans on Fannie Mae's books that are seriously delinquent.
Graph #2 from Calculated Risk blog provides a slightly more granular look at similiar data from a different source, showing both mortgages delinquent and in foreclosure. I recommend you check both blog entries.
Look at the graphs and you will see the foreclosure crisis is getting worse, not better.
Friday, August 14, 2009
First time home buyers skewing sales data
Calculated Risk blog is all over this.
Remember this in December if home sales fall more than expected.
Home price seasonality
Thursday, August 13, 2009
Inflation - Numbers to live by
Will we have consistent deflation for a long period of time? I don't know but lets examine some of the factors that go into inflation.
I am focusing on 3 charts; all show data on a year over year basis to remove seasonal fluctuations.
While headline inflation is decidedly negative right now, the 'core' inflation rate is still positive. 'Core inflation' excludes energy and food prices from the calculations. Some may argue one still needs to eat and drive your car to work so why look at a number that excludes these important parts of daily life? Since energy and food prices are highly volatile the theory is they will balance out over time and policy decisions (like raising short term interest rates) should not be based upon such volatile factors.
As you can see we still have inflation within the 'core' but the rate is sloping downwards. If / when this drops below zero and we have 'core' deflation it will hopefully make the news! Core inflation has not dropped below zero in the entire time it has been sampled. (since 1957)
Housing costs are also part of the inflation figure and as you can guess it is also trending downwards and may also start going negative in the near future. Housing inflation has not been negative in the entire data set as well. (since 1967)
Most Americans alive today have not had to deal with chronic deflation and I believe we are culturally programmed to only think in inflationairy terms. Life may get very interesting if the US consumer changes their mindset to one of chronic deflation instead of inflation.
Additional Reading:
WSJ: Worldwide deflation
Bloomberg: High real interest rates attracting interest
Source: Federal Reserve
Weather and Oil
It is fascinating how the financial markets and real world are so intertwined. Take for example, the weather. Recently reading about the hurricane season I realized I had not added that as a factor for oil prices. Duh!
The chart you see here shows the frequency of hurricanes throughout the year. A nice FAQ from NOAA explains the various colors. The majority of severe hurricanes occur in August and September.
By mid August we should be well into the hurricane season and yet we have not had any major storms in the Atlantic. The National Hurricane Center shows in real time any storms and their predicted tracks. As of today there are no major storms threatening the Gulf of Mexico. Storms travelling up the East Coast will not have the same influence on the energy markets as one that enters the Gulf of Mexico. The Gulf is home to a large number of oil and natural gas pumping operations as well as a large portion of the refining capacity of the United States. Not only did Hurricane Katrina (which made landfall on August 29, 2005) devastate New Orleans, it severely hampered the energy capabilities of the U.S. for several months.
Keep an eye on the National Hurricane Center web site. If you see a storm forming with a high probability of entering the Gulf, you'll see oil prices perk up.
Monday, August 3, 2009
Oil Inventory Followup -- Offshore storage
Wednesday, July 29, 2009
New Home Sales Followup
The WSJ came out with an article the next day with a fuller explanation of the good and bad news regarding Monday's new home sales 'rise'.
Compared to the blogosphere the WSJ was 24 hours too late. I bring this up because 24 hours to the markets is a looong time. Calculated Risk immediately presented the complete picture, good and bad news alike and continues to be an excellent source for the housing market.
While some blogs are complete drivel others are faster and superior to the popular media. Those superior blogs are one reason for the slow decline in the print and television media.
Monday, July 27, 2009
New Home Sales - Statistics Never Lie!
New home sales were up 11% or down 21.3% Excuse me? Is that really good news or really bad news?
Yahoo News had this to say:
New home sales in June posted the fastest increase in more than eight years as buyers took advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners
What was omitted by Yahoo: The home sales increase was on a month to month basis, and NOT on a year over year basis as it should be presented. Month to month (May 2009 versus June 2009) sales were up 11%. Year over year (June 2008 versus June 2009) sales were down 21.3% Like many other economic events, home sales show a strong seasonal tendency and to only tout monthly changes without showing year over year data does not provide a complete picture to the reader.
Calculated Risk provides an excellent blog entry and graph showing the sales during each month as well as year to year.
Fundmymutualfund has a slightly snarkier commentary:
I'm feeling faint.... the news is so overwhelmingly good. Even though sales surge EVERY year in the spring let me shoot this bunny out of a cannon in celebration because....
Sales have risen for three straight months. Now keep in mind this is with taxpayer handouts of $8000 to first time homebuyers, along with unnatural mortgage rates created at the expense of savers in this country via Uncle Ben's actions. More on this later. So the important question in a SEASONAL number is the year over year % change. Sales of new homes were down 21% versus June 2008.
At least the Wall Street Journal had the sense to put in the year over year numbers, but in the body of the article and not in the title?
The Big Picture is also all over this:
More Nar Nonsense
Commercial vs Residential Real Estate
What is going to happen to all the good news reporting in the fall when it is very likely new home sales will fall on a month to month as well as yearly basis?
Disclosure: Short some housing stocks in personal and aggressive client accounts
Friday, July 24, 2009
Oil in storage -- Someone else is noticing
The Organization of Petroleum Exporting Countries is bracing for a sharp drop inConsidering the current high correlation between oil and stock prices it will be curious to see if/when oil prices drop how much of an affect it will have on stock prices.
crude prices in coming weeks, as huge reserves of oil-based fuels continue to
pile up and the space to store them runs out.