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U.S. wholesale prices drop in December

by on January 19, 2012

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(MENAFN – Kuwait News Agency (KUNA)) The U.S. Producer Price Index for finished goods declined 0.1 percent in December, due to the decline in the cost of energy and food, official data showed here …

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U.S. wholesale prices drop in December

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U.S. Dollar Recoups Losses Ahead of Employment Report, Japanese Yen Cross To Face Range-Bound Price Action

by on June 2, 2011

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U.S. Dollar Recoups Losses Ahead of Employment Report, Japanese Yen Cross To Face Range-Bound Price Action

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U.S. Dollar Recoups Losses Ahead of Employment Report, Japanese Yen Cross To Face Range-Bound Price Action

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Few failed banks 'watch' nonperforming CRE loans roar into March …

May 31, 2011

Citation Details Title: Few failed banks 'watch' nonperforming CRE loans roar into March.(Commercial) Author: Michael Murray Pub. List Price: $ 9.95 Price: $ 9.95. Find More Bad Credit Loans Bank Products …

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GRAPHIC PHOTOS: ‘I Still Feel That Little Finger’: Table Saw Victims Speak Out

May 25, 2011

WASHINGTON — A consumers’ advocacy group and a panel of table-saw victims called on government regulators and the power-tool industry Wednesday to enact new safeguards against saw-related mutilation and amputation. The number of table-saw injuries has risen to 40,000 annually, an increase of 10,000 a year in the last decade, National Consumers League Executive Director Sally Greenberg told reporters at the National Press Club. About 4,000, or 10 percent, of the table-saw accidents each year result in finger amputation, according to statistics compiled by the NCL. The nonprofit group’s leader called for the Consumer Product Safety Commission , the federal agency tasked with protecting Americans from dangerous products, push through a table-saw safety standard that was first proposed in 2003 but has since languished. She also asked the tool industry to drop its opposition to the regulations and pass along any new costs to customers if need be. “The vast majority of table-saw manufacturers haven’t changed their technology in 50 years,” Greenberg said. “This is a major public health and safety issue that cries out for a public policy response.” Long used by carpenters, construction workers and woodworking hobbyists, table saws typically come with little more than plastic guards to prevent fingers and hands from coming into contact with the blade. These guards are often removed by the saws’ operators to make the work easier. The consumers’ league would like to see manufacturers forced to adopt a technology developed by a company called SawStop , which brings the blade to a standstill when it senses the electrical impulse emanating from human flesh. (A demo of the SawStop technology can be viewed here.) Greenberg said the NCL has no affiliation with SawStop and receives no funding from the company. The safety measure would add about $100 to the price of a saw, she added. NCL officials and table-saw victims have been meeting with lawmakers this week to make their case. The Power Tool Institute , a trade group representing table-saw manufacturers including Black & Decker and Bosch, said in a statement that the price of table saws would “increase dramatically” if companies had to use the SawStop technology. “The lower-priced consumer bench-top saws will disappear from the market,” the group warned. It also said SawStop would enjoy an unfair market advantage. Four victims of table-saw accidents spoke out in favor of new standards Wednesday, including Adam Thull of Crosslake, Minn. Thull owns his own woodworking business, and a year ago this month most of his right arm went through a table saw as he was cutting a wood panel. The blade sliced clean through the bone and nerve in his forearm. Thull’s been told it may take five years for him to recover, if he’s lucky. “My two small children and my wife suffer along with me,” the Minnesotan said. Considering Thull didn’t have health insurance, the accident has devastated him financially in two ways: With five surgeries down and six to go, he’s run up a medical tab that he can’t even fathom; and at the same time, he’s also lost his ability to earn money. He can only work for five or ten minutes at a time before the pain in his arm becomes unbearable. “I’ve been able to find ways to do it, but there’s no feasible way to turn a profit,” Thull said. “It takes me ten times longer to accomplish anything.” In his ten years in woodworking, the 30-year-old had made a decent living doing what he loved to do. But now his family is on food stamps and receiving aid from the Lutheran Social Service of Minnesota. He doesn’t know how he’ll earn money in the future. “The business is more or less done. There’s no way to pay the insurance costs,” he said. “The physical suffering is on me, but my six-year-old knows. He says, ‘I wish daddy was like before the accident.’” Although there are no hard statistics, Greenberg said that about 20 percent of table-saw accidents seem to be work-related, with the rest happening to hobbyists. Like Thull, many table-saw victims are injured in the course of self-employed work. Curtis Harper, a firefighter from Provo, Utah, said he lost his pinky and suffered severe nerve and ligament damage while he was notching a corner of a wooden board in 2007. Harper owns a small mantel-making business, Masterpiece Cabinet and Mill. Looking at his mutilated hand after it ran through the saw, his first thought was that he’d lose his primary job, as a firefighter. He’s since gone back to work at the firehouse, but he’s lost much of the strength in his hand. And the accident isn’t easy to forget. “Phantom pain is real,” Harper said. “I still feel that little finger.” WARNING: Some of the photos below are gruesome.

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British Pound To Face Range-Bound Price Action On Mixed Data

May 20, 2011

British Pound To Face Range-Bound Price Action On Mixed Data

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Sen. Ron Wyden: Fact-Checking the Oil Companies’ Defense of Taxpayer Subsidies

May 19, 2011

Just one week ago the American people heard executives from the top five oil companies stand-up and explain why — despite record profits — they need the federal government to give them a break on their taxes. We’re talking about the billions of dollars in tax incentives and assistance that oil companies get for drilling in the United States. These incentives were put in place long ago when the oil industry was just getting started. Today, these major oil companies are among the largest corporations in the entire world. That hasn’t been the case for awhile. In fact, in 2005, representatives of the country’s major oil companies told me that they no longer needed tax incentives to keep drilling in the U.S. because oil was selling for $55 a barrel and that price gave them more than enough financial incentive to keep drilling. Well, if the oil companies thought that $55 a barrel oil was enough to keep them drilling in 2005, it would seem safe to assume that with oil hovering around $100 a barrel today, they would no longer be asking for their tax incentives to keep drilling. That wasn’t the case at last week’s hearing. So what’s changed since 2005? Why are some of the largest and most profitable companies in the world still telling Congress that they still need government assistance? Let’s break it down. Claim #1: Oil is getting harder and harder to find. The truth about oil supplies: If anything, U.S. oil supplies and prices are less tied to the global market now, and new oil supplies are easier to find, than they were in 2005. The location and technology for getting oil and gas, especially from on-shore shale formations, have not only dramatically increased U.S. oil and gas reserves, but the technology is now so well established that U.S. oil and gas production is rising rapidly as a result. According to a recent analysis by the U.S. Energy Information Administration, oil production from the Barnett shale formation in Texas — literally in the backyards of the headquarters of these same companies — has tripled since 2005. In fact, total U.S. oil production has increased over 10% since hitting its low point in 2008 and EIA projects that because of increased production in oil shale and in the Gulf of Mexico and other sources that it will continue to grow. On top of that, the CEO of ExxonMobil said on CNBC in March 2011, “I am not aware of anyone who is having difficulty securing supplies of oil…there is no shortage of supply in the market.” Claim #2: Oil companies face global competition. The truth about global competition: U.S. oil prices are also less tied to global markets and competition now than they were in 2005, because of increased U.S. production and increased Canadian tar sands production flooding into the U.S. market. This should be of no surprise to the five major oil companies who testified last week, because every single one of them has made major investments in Canadian tar sands projects. Claim #3: The loss of tax breaks will drive up the price at the pump. The truth about the price at the pump: Recalling that hearing in 2005, I also asked the CEOs about ending these tax breaks on their companies and several of them said it wouldn’t affect them or would only minimally affect them. ExxonMobil CEO Lee Raymond said “As for my company, it doesn’t make any difference.” Chevron CEO James O’Reilly said ending these tax breaks would have “minimal impact on our company.” And, BP’s US CEO Ross Pillari agreed, saying “it’s a minimal impact on us.” So if taking away the tax breaks won’t have much of an impact on the oil companies, why would it have much of an impact on price? The American people should not be held hostage to the false claims that without the billions in taxpayer subsidies they currently receive, these companies will produce less oil and that will raise the price at the pump. It’s time for the oil companies to own up to what they said in 2005: they did not need taxpayer subsidies then, and they do not need subsidies now.

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The Worst Of Consumer Inflation May Be Over

May 14, 2011

WASHINGTON — After weeks of pain at the gas pump and the grocery store, the worst appears to be over. Oil prices have fallen, with gas soon to follow. Demand for farm commodities, like the corn used in everything from cereal to soda, has dropped. And businesses remain slow to pass along higher costs because customers aren’t getting raises and might walk away. Inflation may be approaching its peak. “I think the bulk of the big price increases are over,” said Gus Faucher, an economist at Moody’s Analytics. Lower prices – or at least a break in their steady rise – will come as a big relief. Consumer prices rose 3.2 percent for the year ending in April, the most since October 2008. Higher food and gas prices drove the gains. Excluding those two categories, prices rose 0.2 percent in April. They rose 1.3 percent over the past year, below what the Federal Reserve considers healthy. Economists study this figure, known as core inflation, because food and energy prices are volatile. Some inflation can be healthy for the economy because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire people. Inflation was a much bigger concern in March. Oil prices were rising steadily because of the unrest in the Middle East. Some feared gas could reach $5 a gallon, leaving Americans much less money to spend on cars, appliances and vacations. That kind of drop in spending would squeeze corporate profits, delay hiring – maybe even tip the economy back into recession. But last week, oil prices sank by the most in two and half years. Americans drive less when gas prices get high enough, and concerns about slowing energy demand sent oil prices tumbling – from $114 at the start of May to about $97 on Friday. Now the nationwide average for gas has leveled off. On Friday it was just under $4 a gallon, where it’s been for the past week. Many analysts say it could drop to $3.50 as soon as next month. The prices of milk, bread and chicken won’t fall as fast – it could take six months or longer, analysts say – but they could decline by the end of the year. That’s because the price of corn and other grains have fallen. Overseas ranchers are using less corn for feed, and U.S. farmers have planted more. Food prices had risen in March at the fastest rate in three years. Changes in grain and corn prices take longer to filter down to grocery stores than changes in oil prices do to the gas pump. That’s because grains and other commodities represent a smaller fraction of food costs in the U.S than in other countries. By contrast, oil prices are the biggest factor in the cost of gas. There was evidence in Friday’s government report on consumer prices that food inflation will slow by year’s end. Gas prices rose 3.3 percent in April, a steep rise but the smallest since November. Food costs rose 0.4 percent, half as fast as in March. Gas accounted for about half of overall inflation in April. So a decline in the price of oil should hold down the increase in consumer prices for May. Slower inflation would leave Americans with more money to spend to stimulate the economy, including keeping more of a cut in Social Security taxes that took effect in January. Economists expect the increased spending to raise overall economic growth to an annual rate of 3 percent in the second half of this year. In the first three months of this year, it was 1.8 percent. The oil price drop should bring prices down for a range of products, including chemicals, plastics, even roofing materials. Higher diesel fuels had contributed, for example, to a sharp increase in commodity costs for Procter & Gamble. In response, the company raised prices for Gillette razors, Duracell batteries and Bounty paper towels. Falling corn prices should also help. Corn is widely used as an animal feed, so when it became more expensive, meat and dairy prices went up, too. Corn is also used in sweeteners for soft drinks and snacks, so those could become less expensive. Prices of corn, wheat and other grains jumped last summer after bad weather damaged harvests in countries from Russia to Australia to Brazil. Demand for corn from producers of ethanol, a corn-based fuel, also rose. The price of a bushel of corn reached a record high of $7.76 on April 11. But supply worries have since eased. An Agriculture Department report this week predicted that U.S. corn supplies will rise later this year, based on the drop in demand overseas and the larger crop expected next year. They had earlier been forecast to fall. Demand from fast-growing developing countries such as China and India may also slow as their central banks raise interest rates to try to slow inflation. That should also slow their growth and, in turn, may cool their demand for commodities. It takes about six months for changes in commodity prices to affect consumers. Consumer food prices didn’t start to increase until January, well after commodity costs began rising last summer. Analysts also say many companies were slow to pass along those increases for fear of spooking price-sensitive shoppers. Wage growth has been weak. Average hourly pay rose an anemic 1.9 percent in the last 12 months, less than the rate of inflation. Some companies probably won’t lower prices much, if at all. Airlines, for example, lost money because of the steady rise in the price of oil. If you bought a plane ticket three months ahead of time, your flight was much more expensive for the airline when you flew than when you bought. “They will resist any pressures to reduce fares or fuel surcharges,” says independent airline analyst Robert Mann. The average price of a round-trip ticket during the first three months of this year was $341 before taxes. That was up 10 percent from the same period last year. Airlines paid 27 percent more for fuel from January through March than they did a year earlier. But there will be relief in the prices of other things. The cost of new and used cars rose in April, but some of those increases were related to temporary parts shortages caused by the earthquake and nuclear disaster in Japan. Inflation will remain a risk. Commodity prices are volatile and subject to global turmoil. As recently as last winter, economists were worried that inflation was too low. In October, the core price index had risen only 0.6 percent in a year, and the Fed expressed concern about the risk of falling prices. ___ AP Business Writers Sarah Skidmore in Portland, Ore., and Scott Mayerowitz in New York contributed to this report.

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WATCH: Exxon CEO Blames Wall Street For High Gas Prices

May 12, 2011

WASHINGTON — Exxon Mobil Chairman and CEO Rex Tillerson said Thursday that heavy Wall Street trading has driven up the price of oil well beyond the level that normal supply and demand forces would suggest. Under questioning from Sen. Maria Cantwell (D-Wash.) during a Senate Finance Committee hearing, the Exxon chief said that if oil prices were being dictated by normal economic forces, it would cost between $60 and $70 a barrel. Oil is currently trading just below $100 a barrel and has fallen sharply in recent weeks after soaring for most of the year. “If you were to use a pure economic approach . . . It’s pretty hard to judge, but it would be, when we look at it, it’s gonna be somewhere in the $60 to $70 range,” Tillerson said. Several economists have expressed concerns that speculation may be driving up the prices of oil and food. The Commodity Futures Trading Commission, which regulates such activity, says that the number of speculative bets on oil is at an all-time high . During last year’s Wall Street reform bill debate, Cantwell was the top Congressional proponent of reining in the $600 trillion derivatives market, which currently allows traders to place bets on everything from subprime mortgages to the price of corn without either regulatory oversight or market scrutiny. Last year’s legislation required the CFTC to write new rules cracking down on excessive speculation in the oil and food markets, but the regulator has been slow to act, despite Commissioner Bart Chilton’s urging. On Wednesday, Cantwell joined 14 Senate Democrats and Sens. Olympia Snowe (R-Maine) and Bernie Sanders (I-Vt.) in signing a letter asking the agency to curb excessive speculation as soon as possible. House Republicans, meanwhile, are pushing legislation that would bar the CFTC from implementing any new derivatives rules before the end of 2012. Watch Cantwell’s exchange with Tillerson below:

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Dems Blast ‘Wall Street Crude Oil Casino’

May 11, 2011

WASHINGTON — A cadre of top Democrats said Wednesday that heavy Wall Street speculation was driving up gas prices and blasted Republicans for pushing a new bill to delay any crackdown on such speculation until the end of 2012. “What we have now on Wall Street is a crude oil casino, and it has been opened and is now being protected by the Republicans,” said Rep. Ed Markey (D-Mass.) at a press conference that included Reps. Barney Frank (D-Mass.), Maxine Waters (D-Calif.), Joe Courtney (D-Conn.), Peter Welch (D-Vt.), Collin Peterson (D-N.D.) and Carolyn Maloney (D-N.Y.). According to the Commodity Futures Trading Commission, the regulator which oversees speculation in the oil and food markets, the number of of speculative bets on oil is currently at an all-time high , above even the extreme levels associated with the 2008 run-up in oil prices, when oil hit its highest price ever. All of that speculation has driven up the price of oil, according to many economists and an analyst at Goldman Sachs. Sean Cota of the Petroleum Marketers Association said at today’s press conference that a “bubble is underway” in the oil markets and that excessive speculation costs consumers and retailers $400 billion a year. Oil prices have risen sharply this year but have been increasingly volatile of late, plunging a full ten percent during a single trading session last week. “There used to be a debate about whether or not speculation contributed to the price of oil,” Frank said. “Now there’s a consensus.” “We know this is having an impact,” Peterson added, arguing Republicans “didn’t learn a darn thing from the financial collapse.” Last year’s financial reform bill requires the CFTC to impose new rules limiting excessive speculation in the oil and food markets, but the agency has been slow to act, and House Republicans are now pushing a new bill to delay those rules until the end of 2012. Sen. Bernie Sanders (I-Vt.) sent a letter to President Barack Obama in April, urging him to demand action from the CFTC. Obama has formed an Oil and Gas Fraud Working Group to scrutinize fraudulent behavior that may be driving up prices at the pump, but has not spoken out about regulating speculative bets that are currently legal. In addition to delaying rules on oil and gas trading, the House GOP bill would push back all of the derivatives reforms required by last year’s Wall Street overhaul and repeal some aspects of a 1999 law requiring traders to register with the CFTC and the SEC. Experts say heavy speculation becomes particularly dangerous when combined with “high-frequency trading,” automated processes that execute thousands of trades in less than a second. “It’s like the movie ‘Wall Street’ combined with ‘The Terminator,’ except it’s a horror movie for the American consumer,” Markey said, echoing concerns from CFTC Commissioner Bart Chilton. During a May 4 House Agriculture Committee Hearing, Rep. Mike Conaway (R-Texas) said there was no evidence that speculation affects commodity prices. Rep. Frank Lucas (R-Okla.), author of the new GOP bill, was not immediately available for comment. While Democrats target commodities speculation, Republicans blame pain at the pump on limited offshore drilling for oil and gas in the U.S. However, many experts claim expanded drilling operations simply will not lower gas prices . Rep. Maxine Waters (D-Calif.) also criticized Republicans during Wednesday’s press conference for attempting to repeal consumer protections included in last year’s Wall Street overhaul, part of separate legislation aimed at watering down the powers of the new Consumer Financial Protection Bureau. Some Democrats, including Frank, have backed an effort to delay another part of the Wall Street reform bill targeting the swipe fees that banks charge retailers for processing debit cards. UPDATE (2:19 p.m. EST) : As lawmakers were holding their press conference, the Chicago Mercantile Exchange, one of two major exchanges trading crude oil futures, halted trading in crude, gasoline and heating oil contracts after gasoline futures plummeted by 25 cents per gallon, CME spokesman Chris Grams told HuffPost.

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Import Price Index may have plunged slightly in April…

May 10, 2011

Import Price Index may have plunged slightly in April…

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Daniel Dicker: Big Silver and Oil Moves End All Speculation About Speculators

May 5, 2011

If anyone ever needed a proof of the power of speculative bets in commodity markets, the last three days of silver’s price action should settle all doubts. Silver’s almost $12 dollar drop, a massive 25% correction in less than 72 hours (!) is a direct result of chasing the weakest retail customers and traders of this “poor man’s gold.” The avalanche of unwinding positions was initiated by the increased margins assigned to silver futures by the Chicago Mercantile Exchange in the last week. But now we’ve got to ask the question: What could measures to chase that kind of speculative money out of oil futures do for all of us regular Joes paying through the nose at the gas pumps? The answer is — probably as much as a dollar a gallon, although it won’t be quite as easy as raising margins in futures — speculative oil money isn’t as easily attacked as the bets being placed on silver. Let’s imagine that the price of silver, or oil for that matter, is represented in layers of money. There is hedging money from producers and commercial end-users, representing the “real” fundamental participants who have set prices for commodities since futures markets were created. On top of that, we have a layer of speculative interest from bigger institutional investors and traders, from pension plans and university endowments and dedicated commodity hedge funds. Add to that a layer from smaller trade groups and funds that only dabble in commodities — a smaller amount of interest individually, but collectively their force can be as great. Finally, let’s add that last layer of purely speculative interest, from day traders and other retail investors working through commodity ETF’s. What you have, if I can push this analogy, is a seven layer cake of capital, all voting on the price of the underlying commodity. Sometimes, it may be tough to see just how thick each layer in the cake is, but there is no question that increased money in any layer will lead to a thicker cake and a higher price. When the Chicago Merc raised silver margins four times in the last week, raising them almost 85% in total, they took aim at the most capital sensitive layer of our cake — the day traders and small retail investors. In addition, silver ETF’s which use futures like the Powershares DB Silver (DBS) were forced into liquidating as well. A market that has moved parabolically as silver had in the past several months was particularly vulnerable to a sell-off, and all that was required was a tipping point — which these margin increases provided. Going back to our cake, much of the top layer in silver has been sliced away — and that 25% selloff indicates just how thick that layer of money was. And what about oil? If margin increases could be a tipping lever for a big sell-off in silver, could we do the same to crude oil and slice the costs that people are paying at the pumps? Increasing margins would be an excellent start, and one of the arguments that the CFTC is waging among itself as part of their rule writing mandate from the Dodd-Frank bill. But that big top layer of retail speculation fueling silver is a relatively much, much smaller layer in oil’s “cake” and slicing the thicker layers of investment interest in crude will require a much, much bigger knife. An enormous amount of capital, perhaps as much as $300 billion, is engaged in energy through index investment, the speculative proxy of institutional and private wealth investors. Getting at that layer of speculation will require restricted access to the commodity markets from these instruments, owned and run by powerhouse funds like Pimco, Oppenheimer, Blackrock and Goldman Sachs. Being able to remove that capital from the oil market might drop the price that consumers pay for gas as much as a dollar a gallon as quickly as money has fled from silver. It would, however, require a more concerted effort from Congress and the SEC, as well as from the overseeing exchanges. Still the silver move provides the lesson of just how much speculative money has been fueling the price rises we’ve seen in all commodities in the past year — and just how quickly prices can come down if some available tools are used to chase some of that money out.

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Michael Martin: The Inconvenient Truth of Vermont’s Oil Speculation

May 3, 2011

Sen. Bernie Sanders wrote an open letter to the President about high oil prices, according to a Huffington Post article ” Bernie Sanders Demands Action From Obama on Wall St. Oil ‘Gambling’” written by Zach Carter. “Sen. Bernie Sanders (I-Vt.) demanded on Thursday that regulators impose limits on oil speculation to help lower the price of gas in a letter sent to President Obama. ‘There is mounting evidence that the skyrocketing price of gas and oil has nothing to do with the fundamentals of supply and demand, and has everything to do with Wall Street firms that are artificially jacking up the price of oil in the energy futures markets,’” Mr. Carter reported. In the current regulatory environment, the Green Mountain State is included in those who are defined a speculators. They provide the corpus — the money — as investments in hedge funds and commodity indices. In effect, Sen. Sanders is mad with the labor unions and civil service employee retirement plans — the largest investors in the asset class known as Managed Futures — what some like to call speculators. I said as much during a television interview on Good Friday: Watch the latest video at video.foxbusiness.com With a little digging (on Google), I found documents that show that the $2.5 billion Vermont Pension fund has a 2 percent allocation to commodities . Vermont’s Pension Investment Committee approved the allocation circa October 2009. Vermont’s initial allocation to commodities at 2 percent, top bar on the far right. Vermont’s positions as of Year-End 2010 hit 2.3 percent, middle bar, far right. Vermont’s commodity investment is through the DJ-UBS Commodity Index , which has a whopping 34 percent allocation to energy futures, with 24 percent of it in crude oil, heating oil, and gasoline. The crude oil allocation is 16 percent alone. The Index holds a 29 percent long allocation in agriculture futures. Vermont has ridden crude oil all the way up from about $66 to its current level of $112 per barrel … a 100 percent increase. A 2 percent allocation might not seem like a lot, but that means that Vermont’s pension controls upwards of 78,000 barrels of crude oil, just like the speculators that the Senator admonishes in his ranting letter to the President. When you add in the collective activity of other state pensions, the situation seems much more grave. Since Vermont’s investment is long-only, they do nothing but buy crude oil and, if you believe what you’ve read, drive up the prices on the citizens of Vermont where, in Sen. Sanders own words “It is not uncommon for people to commute 100 miles to work and back five days a week, the increased price of gas is taking a serious bite out of the paychecks of middle class families.” I don’t believe that buying commodity futures changes the price of the physical product. (Only OPEC can redirect America’s xenophobia and turn it into a backlash onto itself.) Furthermore, their investment index never sells. They keep buying and the more dollars that make their way into Vermont’s pension system, the more crude oil and energy futures they will buy. If Vermont’s pension grows, so will their allocation to crude oil and to commodity futures. The Role of the Commodity Markets The commodity markets are insurance markets where buyer and seller trade price risk. In order to get paid for taking the risk, there needs to be a premium paid — just like in life insurance. Risk transference and price discovery are the two functions of global auction process in the commodity markets. It goes without saying that the price of crude oil futures trade at a premium to what the forces of supply and demand would dictate solely. In the last week alone, the energy market have had to interpret: Protests in Saudi Arabia against the crackdown in Bahrain. A Unity Deal in Palestine. A horrible U.S. Energy Policy , where the new drilling permits are really the old permits that were put on hold by President Obama in light of the Gulf oil disaster. The effect of the Environmental/Green Movement in getting new oil drilling blocked. (Per the video, I’m for higher gas prices if it benefits the environment.) A Department of Energy (DOE) that will burn through 30 billion this year alone. A DOE that since 1977 has not discovered a single drop of oil, nor that has helped us stave off peak oil. The death of OBL . Responsibility The Senator continued: “We have a responsibility to do everything we can to lower gas prices so that they reflect the fundamentals of supply and demand and bring needed relief to the American people at the gas pump are driving.” I couldn’t agree more with Sen. Sanders. That’s why I’m calling on Vermont’s pension and all pensions across the country to divest of their entire commodity allocations and to stop driving up the prices of energy on the citizens of Vermont and the U.S. at large … and then blaming themselves. It’s not logical for sitting Senators to do that. I’d also encourage them to take a class on financial literacy. Their understanding of commodity markets and of their own investments is lacking. I hope you all understand that I’m being entirely facetious, and that Vermont is no more a speculator than the little old lady from Pasadena who wants protection from the bumper crop of dollars the Federal Government has printed. The “hedge funds” as they’re referred to, cater to labor unions, civil service pensions, municipalities, and university endowments, primarily because they can meet the $10 – $25 million account minimum investment that go along with these large hedge funds (they are called Commodity Pools specifically). It’s safe to say that the majority of the beneficiaries of these entities are not known for being Republican… The Managed Futures asset class is invaluable to these institutional investors as it lowers the overall risk to their combined portfolios and enhances their returns. This is before the pensions and civil service benefit plans address what is known as Longevity Risk — the risk that comes with beneficiaries living much longer than the actuarial tables calculated for. Although it’s not the thrust of this article, it’s a giant risk to them and to the beneficiaries who are counting on those monthly checks. Where the Real Risks Are Besides terrorism, one of the real risks to the overall markets are the high-frequency traders who caused the Flash Crash. Based on Barron’s columnist Jim McTague’s new book Crapshoot Investing , neither Chairman Mary Shapiro and the SEC, nor Chairman Gary Gensler and the CFTC have any literal understanding of what is going on in the markets each day. The SEC and the CFTC rely on the exchanges for direction, but the exchanges are in bed with the HFT traders who pay enormous fees (sometimes as much as $50,000/month) for privileged data and speed. I think this issue is much more an immediate concern than trying to decide if we should limit Vermont or other municipalities individual or collective positions sizes in crude oil. But then again, we are into election season … Trade-offs Under the current understanding of asset allocation and investment finance, it is possible that we will pay more at the pump for gasoline and more at the grocery store for food due to global risks as perceived by commodity indexers and other commodity investors. I do not begrudge a labor union, a civil service/state retirement plan, nor a college/university endowment the opportunity to get better returns and lower risk for their beneficiaries by having investments in managed futures (even if it means I have to pay higher prices). I commend Vermont’s Investment Committee for making such an investment. They are forward thinkers. I’ll be Tweeting from the Milken Global Conference this week with the hashtag #GC2011. Michael Martin’s book The Inner Voice of Trading will be out in October.

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Georges Ugeux: Has Wall Street Lost It’s Way?

April 26, 2011

“Markets are always right.” This assertion loved by market analysts is increasingly losing its relevance. In recent years, we have seen that Wall Street was able to be heavily mistaken. The Dow Jones gained 30% since the lowest level of last year, July 6th. What concerns me most is the evolution since the beginning of this year. The Dow Jones has risen approximately 9%. On an annual basis, this would be somewhere above 30%. However, since the beginning of the year, we had a string of bad news. • Popular uprisings across the Middle East • A tsunami followed by a nuclear crisis that seriously weakens the Japanese economy • A rise of 40% of the yield 10-year US Treasury bonds, from 2.5% to 3.5%, over the last six months • A doubling of the yields of the obligations of countries in difficulty – with Greece’s 2-year bonds yielding almost 24% • A negative outlook on the United States AAA rating by Standard & Poor’s • Mediocre corporate results for the first quarter of 2011 in the USA • A 20% increase in food prices worldwide • A nearly 20% increase in the price of gasoline worldwide • A weakening US dollar against all key currencies Inflation is at our doors, we are going through democratic crises, Europe and the United States have become vulnerable, and interest rates are rising. Each of these factors alone would negatively influence the investment climate and lead Wall Street to decline. All of them combined have the potential to provoke a market collapse. This collective denial, which is reminiscent of 2007, gives the distinct impression that stock markets have lost all reason. Time has come to protect capital. We know what kind of crises Wall Street denials can provoke. Large financial institutions are now in a position to send a signal to sell shares, without being accused of lack of civic-mindedness, sense of responsibility, or both. This is the extent of the independence of financial advice that they publish. Today Equilar , a compensation analyst, reported that the S&P American CEO’s bonus increased 43% between 2009 and 2010, and that their average salary ($ 9 million) increased by 28%. The first press conference on Wednesday, of the President of the Federal Reserve, will most likely tell us nothing more than what we already know. It is good news for the “core inflation” level, namely the Consumer Price Index, without taking into account the price of energy or food ! This betrays the actual purchasing power of the consumers. Bernanke’s optimism will not reassure us: he has a track record for not seeing a crisis coming even if it’s the size of an iceberg. The current euphoria on Wall Street is definitely one of the most compelling signs of a selling opportunity in a long time.

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Obama’s Oil Market Fraud Squad May Miss Wall Street Abuses

April 22, 2011

WASHINGTON — On Thursday, President Obama unveiled a new working group to combat any fraud or manipulation in the oil and energy markets that may be contributing to near-record gas prices. But some economists and market experts worry that by focusing on criminal activity, Obama is shrugging off a much bigger problem: rampant Wall Street speculation in commodities markets that has helped drive up food and energy prices in the past. “If prices start moving quickly up, you can get a side effect … that people might try to play [fraudulent] games of one sort or another,” said Massachusetts Institute of Technology economist John Parsons. “But it wouldn’t be central to the price movement” currently being seen in the market, he said. Gas prices are approaching record levels set in 2008, when prices at the pump eclipsed $5 a gallon. While unrest in the Middle East is almost certainly playing a major role in boosting current prices, increased speculation in commodities markets is likely contributing to the near record prices. The number of speculative bets being placed on oil and gas now far exceeds that of the 2008 price swing , which many economists believe was driven by excess speculation. Moreover, on March 21, Goldman Sachs analyst David Greely advanced the argument that Wall Street speculation was helping drive up oil prices in a memo sent to the bank’s clients. But, if speculative excess is contributing to current sky-high gas prices, such activity may not be illegal, in part because the Commodities Futures Trading Commission has not yet issued key regulations intended to rein in Wall Street gambling on food and energy prices. Congress ordered the agency to crack down on excessive speculation with last year’s financial reform bill, but the CFTC has been slow to implement new rules in the face of intense lobbying from Wall Street bankers. Financiers are quick to note that commodities markets need speculation — a raw bet that the price of oil or food will move up or down — in order to function. But economists say that too much speculation can distort the market, leading to wild price swings. Even if so-called “fundamental” factors are driving prices, heavy speculation can cause prices to swing further than normal supply and demand forces would dictate. In January, the CFTC announced it would push back implementing ‘position limits’, a key regulatory tool that restricts the size of the bets investors can make on commodities, in order to collect more data. But many reform advocates and CFTC Commissioner Bart Chilton say that there is plenty of data available to implement new rules now. “What the administration and others should do, which they have the power to do quickly, is impose position limits, which would stop excessive speculation now,” said Dennis Kelleher, a former securities lawyer with Skadden, Arps, Slate, Meagher & Flom who now heads the financial reform advocacy group Better Markets. “An investigation into criminal acts is not likely to lead to much.” Attorney General Eric Holder, who is in charge of the new inter-agency taskforce, specifically instructed members of the new taskforce in a Thursday memo to look into “the role of speculators and index traders in oil futures markets” — something the CFTC is already required to do. Officials from the CFTC, the Federal Reserve, the Federal Trade Commission, the Department of Agriculture, the Deparment of Energy and state attorneys general will be part of the group. But Chilton, the CFTC’s strongest proponent of reining in commodity speculation, says that the task force may well do some good. “Seventy-five percent of the cases we send to the Justice Department for criminal prosecution are rejected,” Chilton told The Huffington Post. “But if we can work more closely with the DOJ folks, we may be able to put more people in jail.” Nevertheless, Chilton said the CFTC should be taking steps independent of the task force: “That doesn’t mean that the working group is a panacea for actions that can be taken by regulators right now. The position limits are something we can do right now. I don’t need a task force to tell me to do that.” Unlike the stock market and other capital markets, commodities markets are not designed to function as a forum for investment vehicles. Instead, commodity markets are supposed to allow farmers, manufacturers and other producers to hedge the risks of doing business. By taking out a futures contract, or similar bet in the derivatives markets, farmers can lock in a price for their crops, protecting themselves from price changes. Producers need someone to take the other side of their price bets, whether it be another producer or, as it more frequently is, a Wall Street trader. Commodities markets work well when around 30 percent of the market is dedicated to speculation, According to Kelleher. But since the mid-2000s, the share of speculators in commodity market activity has increased to about 70 percent, Kelleher says, in part driven by new commodities “index funds,” which allow investors to bet on the price of several commodities at once.The size of those funds expanded from about $15 billion in 2003 to $200 billion in 2008 , and are currently valued at over $400 billion , according to Barclays Capital. The explosion in the over-the-counter derivatives market has also contributed significantly to oil price increases, according to Kelleher, by allowing investors to place huge bets on commodities without either regulatory oversight or market scrutiny. The derivatives market for commodities grew from about $674 billion in 2001 to $13.2 trillion by June 2008 , according to the Bank for International Settlements. Last year’s financial overhaul gave the CFTC authority over that entire derivatives market — one vastly larger than the $5 trillion futures market that the agency had previously policed in isolation. Whatever new rules the CFTC writes, they will need funding additional funding to enforce them. “The CFTC’s current funding is far less than what is required to properly fulfill our significantly expanded mission,” CFTC Chairman Gary Gensler warned in April 12 testimony before the Senate Banking Committee . But Obama was willing to negotiate away additional funding for the agency during negotiations over the budget for the rest of 2011. Under the budget deal Obama struck with congressional Republicans earlier this month, the CFTC will receive a $34 million boost in funding for the remainder of the year. But, even with that additional cash, the agency will receive about $60 million less this year than the amount Obama requested for the agency under his 2011 budget. Calls to the White House were not returned. The Department of Justice declined to comment. Elise Foley contributed to this report.

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FOREX: Aussie and Yen Sold Overnight, Knee-Jerk Price Action Likely Ahead

April 22, 2011

FOREX: Aussie and Yen Sold Overnight, Knee-Jerk Price Action Likely Ahead

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Video: Price Says Amazon Cloud Users Should Have Backup Plan

April 21, 2011

April 21 (Bloomberg) — Will Price, chief executive officer of Flite, discusses Amazon.com Inc.’s Internet-based computing services and outages today that affected a portion of Amazon’s business customers who run their Web pages and store data on the company’s cloud. He talks with Emily Chang and Cory Johnson on Bloomberg Television’s “Bloomberg West.” (Source: Bloomberg)

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Kit Yarrow, Ph.D.: Soaring Prices No Match for Empowered Consumers

April 19, 2011

Americans are paying more for just about everything these days. The double whammy of higher oil prices and poor weather conditions have resulted in rising manufacturing costs, which are passed along to consumers in the form of price jumps (often Olympic-sized). As the U.S. economy strengthens, many fear these price increases will snuff out the fragile flame of consumer optimism and spending. However, in my research I’ve found the recession has created a more resilient and rational consumer — one that is still wary but much more empowered and informed than before the Great Recession. Weather Woes Volatile weather wreaked havoc on harvests, which in turn has affected the price of fruits, vegetables, wheat, grains and cotton — otherwise known as groceries and clothing. It’s also resulted in higher insurance premiums for consumers. Fruits and vegetables cost about 23% more today than they did three months ago. And that means everything from juice to ketchup will cost more too. Higher grain prices make it more expensive to feed a cow, so beef and fast food are pricier too. Clothing manufacturers are trying things like sewing cotton garments with synthetic thread to keep prices down. Still, consumers can expect a 10% increase in apparel prices this spring. The price of cotton has doubled in the past year because of poor weather conditions in China and restrictions on exports from India. Oil Increased international demand and political unrest in the Mideast have increased the price of oil, which means transportation and anything that requires shipping costs more. The average American drives 13,476 miles a year in a vehicle that gets 24 miles per gallon. The average cost of gas a year ago this week was $2.86 — today it’s $3.81. That means the average car owner is paying about $45 a month more for gas today than they were a year ago. Pricier gas is also partly responsible for a 22% increase in airfare and public transportation fares in the past six months. The Big Question The big question, of course, is whether these inflationary trends will drive down consumer spending. Since the economic health of the country is so firmly tied to consumer spending, it’s a serious question. I believe, the the answer is a qualified “no.” While many will certainly cut back on discretionary spending to compensate for higher priced basics there will not be an irrational “freak out.” Why? American consumers have been through a huge learning curve over the past several years while the recession rolled through the economy. Rather than be felled by the recession, the American consumer has emerged empowered. They have new ways of shopping and more resilience than ever. They’re more conscious of how they spend, more resourceful, and more demanding of retailers. In interview after interview consumers told me that they felt better about their spending habits following the recession. “Control” was the theme I heard more often than any other. “I feel more in control of my finances and so my future,” and “I’m never going to let my credit card debt get out of control again.” New Tricks Consumers shop differently now than they did before the recession. What might have started as a desperate hunt to get more for less turned into greater mastery of the marketplace. Aided by technology, consumers learned new research, bargaining and bartering skills. For example, many bid adieu to familiar retailers in favor of small online merchants they found on eBay and Etsy. Others explored things like online coupons and mobile price comparison shopping. And they’ve come to rely on each other more than the assumed expertise of businesses. Consumer reviews, blogs and ratings sites have skyrocketed in popularity. Which is why despite higher prices for groceries and apparel, retail sales increased last month for the ninth month in a row. Historically, gas prices are linked to consumer confidence. But not this time around. Consumer confidence actually rose this month despite a 5.6% increase in gas prices. This time around our newly empowered consumers have decreased their gas consumption 3.6%. It took consumers nearly a year to adjust their driving habits the last time we had a spike in prices. When consumers drive more slowly, keep their tires inflated and think twice about when they use their cars, they gain some control over what they pay at the pump. Mastery = Control = Confidence = Less Reactivity It’s time to reconsider the economists’ view of the American consumer as fragile, irrational and fickle. It’s going to take more than price increases to fell the American consumer. There are plenty of things that will, like unemployment. But that’s hardly irrational. Bonus Stat: With all these price increases is anything that’s less expensive? Computers and hotel stays.

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Karen Dionne: Why 99-Cent e-Books Are a Bad Deal — For Authors

April 18, 2011
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Retail Sales Rise at a Slower Rate in March as Price Pressures Increased

April 13, 2011

Retail Sales Rise at a Slower Rate in March as Price Pressures Increased

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Amazon Will Release Cheaper Kindle With On-Screen Ads

April 12, 2011

SAN FRANCISCO — Amazon.com Inc. is dropping the price on its Kindle e-reader, but the change comes with a trade-off: On-screen ads. The online retailer was set to announce Tuesday that the new Kindle with Special Offers will cost $114 – $25 less than the currently lowest-priced Kindle – and include advertisements on the bottom of the device’s home page and on its screen savers. Seattle-based Amazon will start shipping the newest Kindle on May 3, and it will also be sold in Target and Best Buy stores on that date. Amazon has consistently lowered the price of the Kindle since it released the first version of the device at $399 in 2007, though this is the first time it is doing so while including ads on the e-reader. Kindle director Jay Marine said in an interview Tuesday that the release of a cheaper, ad-studded Kindle is Amazon’s way of getting the device into the hands of more people. But it also shows Amazon is getting more aggressive in its efforts to lure consumers tempted by competing e-readers and bombarded by ads for Apple Inc.’s latest iPad and a growing number of competing tablet computers. Some potential buyers may be turned off by the idea of having ads on an e-reader, but Marine thinks that serving up a number of money-saving offers will be appealing. “We think customers are going to love it,” he said. The advertisers sponsoring screen savers at launch will be General Motors Co.’s Buick car brand, Procter & Gamble Co.’s Olay cosmetics brand and payments processor Visa Inc. JPMorgan Chase & Co. will advertise the Amazon.com Reward Visa Card. And other than the addition of ads, the latest Kindle is identical to the current one that uses Wi-Fi to wirelessly download books (a more expensive model uses 3G for wireless content delivery). It has a grayscale “electronic ink” screen that measures 6 inches at the diagonal, a battery that lasts for three weeks with Wi-Fi on, and enough space to store 3,500 books. In a demo of the device, a screen saver showed a deal where customers would pay $10 for a $20 gift card to Amazon. If a user is interested in that deal, they can click to have details of the offer e-mailed to them. A much smaller ad shown across the bottom of the Kindle’s home screen – the screen that shows you the content stored on the e-reader – was less obtrusive, but still clearly an advertisement. The ads will change frequently, Marine said, and there will not be any ads in Kindle books. “It was very important that we didn’t interfere with the reading experience,” he said. Users will be able to log on to their Kindle account on Amazon.com and adjust preferences about the types of screen savers they’d like to see. Amazon has never revealed how many Kindles it has sold.

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Japanese Yen Crosses To Face Range-Bound Price Action, New Zealand Dollar Eyes November Highs

April 12, 2011

Japanese Yen Crosses To Face Range-Bound Price Action, New Zealand Dollar Eyes November Highs

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Guest Commentary: Oil Price Outlook – 04.12.2011

April 12, 2011

Guest Commentary: Oil Price Outlook – 04.12.2011

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Omer Rosen: How to Deceive a Client Without Really Trying

April 11, 2011

In my first article, ” Legerdemath: Tricks of the Banking Trade ,” I made brief mention of Treasury-rate locks: “Most brazenly, we taught clients phony math that involved settling Treasury-rate locks by referencing Treasury yields rather than prices.” A number of readers expressed doubt that using a settlement method based on Treasury prices was appropriate. What follows is an abridged explanation of a Treasury-rate lock deception. I offer it not in the misguided hope of stamping out abuses in Treasury-rate lock transactions. Rather, I seek to give a detailed example of a certain type of behavior — hoping it carries more weight coming from an ex-insider speaking onymously. There are two basic ways to describe the value of a Treasury bond, either by price or by yield. Price answers a simple question: How much would it cost you to purchase a bond? This price will change over time, in much the same way that the price of a stock changes over time. Playing counterpart, yield expresses the return that will be earned by purchasing this bond at a certain price. It is similar to how one can describe the speed of a car either by the average number of miles per hour it is traveling at or by the time it takes it to travel one mile — if you know one you can solve for the other, and if one goes up the other comes down. To belabor the point, either “1 mph” or “a 60-minute mile” provides you access to the same knowledge about the speed of a car. And, just as traveling at 1 mph allows you to complete a mile in 60 minutes, purchasing a bond at a certain price “allows” you to earn a certain return (i.e. a certain yield) on your investment. Now back to Treasury-rate locks. When a company puts on a Treasury-rate lock, it is putting on a bet that will pay off for the company if Treasury prices go down and go against them if prices go up. I ask that you accept on faith that sometimes this bet, rather than being a gamble, reduces risk and uncertainty for a company. When the time comes to settle this bet, the change in value of the bond must be calculated. This should be a simple matter of subtracting the bond price at the time of settlement from the price agreed to when the rate lock was put on. However, when it comes to bonds, corporate clients do not think in terms of price; they think in terms of yield because yield is expressed in the language of interest rates, the same language companies are familiar with from business concepts such as rates of return and borrowing costs. And so the client is conveniently never shown how to settle based on prices. Instead they are taught a nonsensical and more complicated method called yield settlement. The sole purpose of this settlement method is to trick the client into allowing the bank extra profit. Unaware that they should even take a second look at what they assume is procedural, the client does not question. Whereas price settlement asks, “By how much did Treasury prices change?” yield settlement asks, “By how much did Treasury yields change?” But how does one convert a change in yield (i.e. a change in an interest rate) into a dollar value that can be paid out? The short answer is that one cannot. But why not? If price and yield are both valid ways of expressing the value of a bond, shouldn’t you be able to measure the change in value of a bond by looking at either the change in its price or the change in its yield? Resorting to hyperbole, teaching a client yield-based settlement is akin to selling them on skipping through time. Return to our car analogy. In this analogy, “mph” will play the role of “yield” and “travel time” will play the role of “price.” And, rather than calculating the difference between two bond values, we will calculate the difference in travel time between each of two laps by our car around a 1-mile track: If lap 1 is completed at a speed of 120 mph and lap 2 at a speed of 1 mph, how would you calculate the difference in travel time between the two laps? If you were using yield-settlement logic, you would first imagine a car that speeds up from 1 to 2 mph. The time required to travel a mile would decrease from 60 to 30 minutes — a 30-minute change. Then you would assume that for all 1-mph changes in speed, travel time per mile would also change by 30 minutes. This logic implies that lap 2 would take 3,570 minutes longer to complete than lap 1 ((120 – 1) x 30). Short of a DeLorean and some lightning, this is not possible. For makes and models without a flux capacitor, correctly calculating the decrease in travel time means converting each speed from mph to travel time per mile, then taking the difference between the two travel times. As a 120-mph lap takes 30 seconds to complete and a 1-mph lap takes 60 minutes to complete, the difference in travel time between the two laps would be 59.5 minutes. Similarly, for rate-lock settlements, yields must be converted to prices, with the correct settlement value being the difference between those prices. Yet we at Citigroup, and in my experience our peers at other banks, almost always instructed clients to use the yield-based settlement method. And so a product that is meant to return the difference between two Treasury prices, a matter of elementary subtraction, is perverted for profit. If yields change by very little, this profit does not amount to much. Fortunately, depending on one’s point of view, banks have other tricks for profiting from rate locks and do not rely solely on yield-based settlement. In fact, miseducating clients with yield-based settlement is almost an afterthought, just a bonus that pays off with large movements in yield. And, in behavior that might be considered yet more sinister, sometimes banks had to agree with one another to miseducate clients with yield settlement. This transpired if a client decided to divvy up a single rate-lock transaction, with each bank getting a piece of the deal and each bank knowing that settlement of the rate lock would have to be a coordinated affair. All this mathiness is hidden in plain sight. Some examples of yield settlement can be found online. Or you can just ask a company that put on a rate lock to dig up some trade confirmations and see what settlement methodology was used. There are hundreds, if not thousands, such documents in corporate offices around the country, each one part of an unwarranted transfer of millions of dollars from clients to banks. For a more in-depth treatment of the above song and dance, with explications of the bond math and client interactions, please click here

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Video: Seetharaman Says Recovery ‘At Stake’ on Rising Oil Price

April 8, 2011

April 8 (Bloomberg) — Raghavan Seetharaman, chief executive officer of Doha Bank QSC, talks about civil unrest in the Middle East and the impact on the price of oil. He speaks with Mark Barton on Bloomberg Television’s “On The Move.”

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Creative Realities Growth Sparks New Hires

April 7, 2011

NEW YORK, NY–(Marketwire – April 7, 2011) – Creative Realities CEO Paul Price announced today the arrival of several new hires to help service its growing client base.

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British Pound To Face Range-Bound Price Action, Japanese Yen Correction On Tap

April 7, 2011

British Pound To Face Range-Bound Price Action, Japanese Yen Correction On Tap

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Raymond J. Learsy: Obama Echoes The American Petroleum Institute Mantra

March 31, 2011

Yes, we need to significantly diminish our consumption of oil imported or otherwise for reasons of global warming, self reliance, security and economic rationality. Important points all touched upon in the president’s energy address, together with a vision to steer the economy away from fossil fuels to alternatives ranging from biomass, electric cars and safe nuclear power. Well and good, combined with the recognition this will all take time. 2025 was set as the goal toward reducing the nation’s imports of oil by one third from the 11 million barrels a day at the beginning of the Obama presidency. However, we are living in the here and now, dealing with $105 barrel oil for West Texas Intermediate Crude (WTI), the benchmark grade traded on the New York Mercantile Exchange. At $105/bbl the price is near three times the $33/bbl in February 2009, one month into the Obama presidency. Explaining this enormous differential is where President Obama went seriously off track repeating the rote oil patch argumentation that it is all about supply and demand, as though with oil inventories touching all time highs and filled to overflowing a differential of more than $70/bbl between February 2008 and March 2011 is a rational divergence that can be explained citing the oil industry drivel of ‘it’s the market.’ Yes, as President Obama explained when more oil is consumed the price goes up. But not to this extent and not to the extent of the explosion in oil prices over the past ten years whereby it has increased by a factor of more than seven. Clearly something else is afoot. What is afoot is the manipulation of supply and prices by the Organization of Petroleum Exporting Countries (OPEC). When the president says oil can not be pumped fast enough to keep up with demand and that is why so many American families are suffering when paying for high gas prices, no mention is made that the OPEC cartel producers are willfully holding back some 6 million barrels of production a day, of which Saudi Arabia alone has shut in 4.5 million barrels. Not enough oil to meet demand? Hardly. Certainly not if your interest is curtailing needed supply, in order to hype prices. The cartel’s function is to assure that the market has no bearing to supply and demand by artificially creating a shortage of available crude. One need only sight yesterday’s Financial Times’ front page headline which speaks volumes, ” Opec Set For Export Revenue of $1000 bn .” That the President of the United States doesn’t know better is sad indeed. The perverseness of the OPEC cartel’s manipulated oil market is accentuated by the lax oversight of our regulatory agencies, such as the Commodity Futures Trading Commission, who have done little or less to rein in the rampant speculation by the Hedge Funds, the Wall Street Bank Holding Companies such as J.P. Morgan Chase, Morgan Stanley, Goldman Sachs,and for all we know by the oil producers themselves. Remember in determining the price of oil through the exchanges the market is not dealing with real (wet) barrels of oil, but rather with virtual barrels. (please see ” The Trade That Brought Us $100 Barrel Oil Teaches Us To Be Afraid, Very Afraid “) What is to keep the oil producers, or OPEC members themselves for that matter, given the enormous cash reserves held in their sovereign wealth funds, from manipulatively trading oil on the exchanges in order to push prices ever higher. As has been observed by Sen. Levin (D-Mich) when it comes to oil trading, “Right now there is no U.S. cop on the beat overseeing energy trades on over-the-counter, electronic exchanges or foreign exchanges” (please see ” The Enron Loophole Helps OPEC Serve Up a Hefty Helping of Oil Price Baloney “). That was nearly five years ago and nothing has substantively changed since. After making reference to the significant potential of domestic shale gas reserves the president then indulges us with one of the oil industry’s’ favorite rationalizations for extortionately high prices now, and higher prices to come. He regales us with one of the oil patch’s favorite axioms, the ‘peak oil’ anthem — we are running out of oil, higher prices are needed to find more oil. He thereby inadvertently is giving the likes of the American Petroleum Institute and their allies in the oil game the cover they need to lull us into being acquiescent marks whose pockets are being fleeced. This while a hapless government and Department of Energy seems unaware of the game that is being played. The president’s lament is an embarrassment in the face of the recent huge new oil discoveries offshore Brazil and West Africa and the new drilling techniques permitting potential cost effective access to the vast shale oil reserves in the United States such as the Bakken Formation extending from North Dakota, parts of South Dakota, and Montana which combined with the Green River Basin Formation has the potential of shale oil reserves of 1.5 trillion barrels — more than five times the ‘stated’ reserves of Saudi Arabia. Shale oil has already begun to flow from the Bakken field in North Dakota. And that is only the beginning. In the meanwhile the transfer of billions upon billions from American and world consumers to oil interests both domestic and foreign continues on and will continue in spite of the programs enunciated by the president if we heedlessly permit OPEC to continue controlling supply and continue to let the speculators and manipulators to turn the commodity exchanges into Frankenstein casinos.

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Fears Of Weakening Economy, Global Unrest Threaten U.S. Recovery

March 25, 2011

NEW YORK — Just a couple of months ago, it seemed the slow economic recovery was starting to gather momentum. But that was before a series of violent protests in the Middle East pushed energy prices to their highest level since 2008. A devastating earthquake struck Japan, threatening global supply chains and raising fresh fears about nuclear radiation. Last weekend, international conflict began in Libya, as a U.S.-led coalition pummeled the country with missiles. Americans appear to be growing nervous, and that unease could take an economic toll. Consumer sentiment fell in March to its lowest level since November 2009, according to the Reuters/University of Michigan index, released Friday. With oil prices rising, Americans’ confidence in the economic recovery has taken a sudden plunge. Amid new anxieties, people are becoming less inclined to spend money. And consumer spending makes up two-thirds of U.S. economic activity. So as Americans worry about unrest abroad and a still-weak domestic economy, the recovery faces another strain. “There’s a negative psychological blow when the economy starts to deteriorate,” said Bernard Baumohl, chief global economist for the Economic Outlook Group. “We can see consumers begin to worry enough to cut back on spending and preserve their savings.” In a sobering new report, Baumohl argues that a combination of recent economic strains has caused crucial engines of economic growth to cool. Consumers are cutting back. Businesses are likely delaying new investments. Growth in U.S. economic output this year, originally predicted to be 3.5 percent, is now expected to be 2.8 percent, the report says. The reversal in consumer sentiment has been dramatic. Late last year, holiday sales were stronger than expected. In February, a month when the unemployment rate finally dipped below 9 percent, consumer confidence reached a three-year high. But that confidence appears to be eroding. Gas prices are still rising. The value of Brent crude, an industry benchmark, has risen more than 20 percent since the beginning of the year, reaching nearly $116 a barrel on Thursday. Each $10 rise in the price of a barrel of oil translates into a 25-cent increase in gas prices, which tears more than $25 billion from the U.S. economy yearly, economists say. If energy prices continue a sustained rise, that would constitute the “primary threat” to the U.S. economic recovery, said Gus Faucher, director of macroeconomics at Moody’s Analytics. High pump prices strain consumers’ wallets, and can force businesses to pass high transportation costs on to customers. But expensive fuel also has another effect: It makes people nervous. Combined, the financial and psychological strains appear to be encouraging Americans to cut back. Already, one in three consumers has cut spending due to rising gas prices, according to the RBC Consumer Outlook Index, released in early March. “These are not quiet economic times. We see a lot of shakeups, we see a lot of displacements,” said Michael Czinkota, a professor of marketing and international business at Georgetown University. “Does that contribute to uncertainty by customers? Absolutely, yes.” That situation isn’t likely to improve soon. Gas prices, for one, will likely stay elevated as long as investors remain nervous that the world’s oil supply could be disrupted. Already, Libya’s oil output has been reduced by three-fourths. It could fall to zero, the chairman of Libya’s National Oil Corporation said in a televised media conference last week. Investors, whose contracts help boost the price of oil, seem concerned that supply disruptions could strike the region’s major producers. Tensions between Saudi Arabia and Iran, which together provide more than 17 percent of the world’s oil, appear to be mounting. If that supply were compromised, prices would likely skyrocket. “The ‘fear premium’ built into these prices will likely remain,” Baumohl said. “No one has a clue how all these disruptions — the friction in Saudi Arabia, in Lybia and Bahrain — how all this will play out.” Still, the decline in consumer confidence may be temporary. Such measures are sensitive to news and are liable to change, said Tim Quinlan, an economist at Wells Fargo. “These sorts of measures tend to get big movements off of either job market moves or gasoline prices,” Quinlan said. “You add to that news stories of political instability all over the Middle East and the earthquake in Japan, and fears about radiation in water in Tokyo — you tend to rattle cages with consumers all over the world.”

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Dean Baker: The Imaginary World in Which Washington Lives

March 23, 2011

It is a beautiful spring day in Washington. This is a nice respite from the horrors taking place in Japan and the ever-growing nuttiness of D.C. politics. Enjoying the weather provides a nice alternative to listening to the news or reading the newspaper. The flood of nonsense in the traditional news outlets just continues to grow. At the top of the list is the steady stream of senators or members of Congress whose response to higher gas prices is to insist on drilling in every square inch of environmentally sensitive territory in the country. This is supposed to reduce our dependence on imported oil and lower the price of gas. Both sides of this assertion are absurd. According to the Energy Information Agency, the United States has proven reserves of 22.3 billion barrels of oil . Given our current rate of consumption of 6.9 billion barrels a year , U.S. reserves could meet our demand for oil for less than 3.5 years. That means if we could somehow drill here, now, and everywhere, we could be energy independent until the middle of 2014 and then we would be 100 percent dependent on imported oil. Of course, we cannot suddenly suck all the oil out of the ground at once, it takes time to explore and drill wells and then the oil must be drilled out over time. If we decided that we want to destroy every last national park and coastal region, we may be able to increase production by 1.0-1.5 million barrels a day in 5-10 years. At the high end, this would be a bit less than 2 percent of world supply. Given normal assumptions about how demand responds to price, we would be very lucky to see a 6 percent decline in the price of oil. This means that in the most optimistic “drill everywhere” scenario we would save less than 20 cents from our $4 a gallon gas. More likely the savings would be less than half this size. In other words, when a politician says that they want to end environmental restrictions on drilling in order to end U.S. dependence on foreign oil or bring the price of gas down, they are speaking utter nonsense. The correct response of a reporter to such assertions would be to say something like: “Senator, you know that the United States does not have nearly enough oil to be energy independent or to substantially reduce the price of gas.” However, you won’t hear this response from outlets like National Public Radio or the Washington Post . Instead, they will just allow politicians to make absurd statements about energy independence and lower prices and treat them as though they are reasonable positions in the public debate. They will often add their own framing comments explaining to their audience that the issue is one between concerns over energy independence and concerns over the environment. When major news outlets make wrong and damaging statements about a company like General Electric or Microsoft, they can count on angry and threatening phone calls from company lawyers. Unfortunately, there is no one in Washington with a comparable interest in protecting the environment, so these absurd statements get passed along in major news outlets unchallenged. Politicians routinely make similarly absurd statements about Social Security, implying that the program and the country are about to go broke. Of course both claims are obviously untrue. According to the Social Security trustees, the program can pay all scheduled benefits for the next 26 years with no changes whatsoever and even after that date can always pay close to 80 percent of scheduled benefits . Instead of our children being broke, average wages are projected to be more than 40 percent higher in 2040 than they are today. This means that when a politician whines about Social Security or the country going broke, the correct response from a reporter should be “Congressman, you know that the program is fine for more than a quarter century into the future,” or “Congressman, you know that our children and grandchildren will on average be far richer than we are today.” Unfortunately, you won’t hear reporters making these corrections either. Fortunately, there are groups like the Social Security Works , the Campaign for America’s Future , and the Institute for Women’s Policy Research that do correct bad reporting on Social Security, so there is at least some limit to how bad it can get. However, the country is unlikely to see competent reporting on these and other topics that are central to national political debates until new media outlets, like Truthout, The Huffington Post and ProPublica, mature further and displace the traditional outlets. The latter still play far too large a role in setting the bounds for acceptable political discourse. The sooner we see the transformation of the media the better. Until then, maybe we can at least enjoy the weather.

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Senate Dems: GOP Cuts Would Cause Surge In Gas Prices

March 22, 2011

WASHINGTON — With gas prices soaring, 45 Senate Democrats signed a letter on Tuesday urging GOP leaders to abandon their proposed cuts to the budget for a key regulator that oversees the food and energy markets, part of a broader effort to reduce government spending. The letter, sent to Senate Minority Leader Mitch McConnell (R-Ky.) and House Speaker John Boehner (R-Ohio) on Tuesday, argued that Republicans should protect funding for the Commodity Futures Trading Commission, which would be cut by one-third under a defeated House GOP plan. “The CFTC serves as an important ‘cop on the beat,’ working to protect American consumers by cracking down on manipulation and other market abuses that can drive up oil prices,” the letter reads. “At a time where gas prices are rising and squeezing American families, we have a responsibility to provide our watchdogs the resources they need to fulfill their important oversight and regulatory responsibilities.” For their part, Republican leaders say the responsibility for rising gas prices rests with the Obama administration, which put a freeze on some offshore wells last year following the disastrous oil spill in the Gulf of Mexico. Boehner spokesman Michael Steel dismissed the letter from Senate Democrats as an attempt to divert the blame for the price of oil. “This is just another attempt to distract from Washington Democrats’ irresponsible opposition to increased American energy production, which would lower gas prices, reduce our dependence on foreign energy, and create American jobs,” Steel told HuffPost. “American families know talk is cheap but gas is not — and the Democrats who run Washington have no plan to help.” House and Senate leaders have struggled to reach an agreement on government funding for the remainder of the fiscal year, partly because of riders lumped in with the funding bill that would block money for Planned Parenthood, last year’s health care law, the Environmental Protection Agency and consumer financial protection. The two chambers must compromise before a current stopgap measure expires on April 8. The House Republican bill, which the Senate voted down on March 9 , would require the CFTC to lay off about a third of its staff. Some economists and consumer advocates are concerned that aggressive Wall Street speculation in energy markets is helping to drive up the price of food and gas around the world. “So long as you have money available to banks at zero cost, no long-term productive outlets for investment, and the capacity to make money by manipulating commodity pools, the situation is ripe for speculative excess,” University of Texas economist James Galbraith told HuffPost last month. Oil prices have been soaring in recent months , eclipsing $100 a barrel, which has sent the price of gas to over $3.50 a gallon and nearly $4 in California. A report prepared for the April meeting of the Group of 20 leading world economies by the Organization of Economic Cooperation and Development attributes rising prices primarily to increases in real demand, rather than financial speculation. Yet the increase in prices has also tracked speculation’s rise, prompting the U.N.’s Food and Agriculture Organization to cite “growing linkage with outside markets, in particular the impact of ‘financialization’ on futures markets” as a “root cause” of food price volatility in a September meeting. According to CFTC Commissioner Bart Chilton, the number of Wall Street bets on energy prices has increased by 64 percent since June of 2008, when heavy speculation helped push oil prices near $150 a barrel, driving gas near $5 a gallon. The CFTC has long overseen a small part of these markets, with roughly $5 trillion a year in trading. But under the Dodd-Frank financial reform bill signed into law by President Barack Obama, the agency is now responsible for policing a $500 trillion industry. CFTC Chairman Gary Gensler has said regulators will be unable to implement reforms without a significant increase in funding. The Obama administration has proposed boosting the CFTC’s annual budget by 77 percent, from $168.8 million to $298.8 million. That number is small relative to other major regulators — The Securities and Exchange Commission, another key monitor of Wall Street trading, received $1.12 billion last year. In February, Sen. John Boozman (R-Ark.) told HuffPost that speculation in commodities markets was a “legitimate concern,” arguing that it not only affected energy prices, but food prices as well. “The reality is, as commodity prices go up, there’s only a finite amount for food aid and things. People really are going to start dying,” Boozman said. As for Obama’s drilling policies, the president defended his record on drilling earlier this month, stating during a press conference that domestic oil production is at a seven-year high and the administration is willing to dip into oil reserves if necessary. Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources committee, likewise defended Obama during a floor speech last week. He said energy experts have dismissed claims that the administration’s drilling policies led to higher gas prices, arguing uncertainty in the Middle East is a more likely culprit. “First, we need to enable further expansion of our renewable fuel industry, which is currently facing infrastructure and financing constraints,” Bingaman said. “Second, we need to move forward the timeline for market penetration of electric vehicles. Finally, we need to make sure we use natural gas vehicles in as many applications as make sense based on that technology.” Democrats have made oil prices a key talking point during negotiations over the budget, arguing that Republican measures weaken efforts to expand alternative fuel sources. The House GOP budget cut funding for energy efficiency and renewable energy by $786 million from current levels and reduced the Department of Energy’s loan guarantee budget by $250 million. “We find it equally troubling that your preferred budget would cut billions of dollars in investments in critical programs focused on developing new alternative fuels and clean energy technologies, undermining our competitiveness and increasing our trade deficit with oil producing nations,” Democrats wrote in the letter. “We urge you to reverse these policies that will only set our nation backward, and put America’s independence from foreign oil even further out of reach.”

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Rising Oil Prices Seen As ‘Primary Threat’ To U.S. Economy As Libyan Violence Mounts

March 21, 2011

NEW YORK — As international military forces strike Libya, oil prices are again rising, reviving concerns that expensive energy could impede economic recovery in the United States. U.S. consumers and businesses got a brief reprieve this month as oil prices eased off two-and-a-half-year highs. But escalating violence in Libya and rising tensions among the Middle East’s oil-producing powers have raised fresh fears of a supply disruption. With investors nervous, benchmark crude prices are again rising, threatening a broader recovery that had barely begun to gather momentum. “A spike in energy prices to $125 or $150 a barrel is the primary threat to the recovery at this point, now that it appears the situation in Japan has settled down somewhat,” said Gus Faucher, director of macroeconomics at Moody’s Analytics. “This could play out over a period of weeks and months.” Those prices continue to roil in the wake of Mideast unrest, including the Western intervention in Libya that began this weekend on behalf of rebels opposing longtime head of state Muammar Gaddafi. In Yemen, meanwhile, scores of demonstrators were killed on Friday, prompting the country’s U.N. ambassador to resign. And tension between two of the region’s major powers, Iran and Saudi Arabia, appears to be mounting in Bahrain. Already, Libya’s crude oil output has fallen to a quarter of its pre-crisis level, as multinational oil producers have been taking workers out of the country. That output, which makes up 2 percent of the world’s oil, could fall to zero, said Shokri Ghanem , chairman of Libya’s National Oil Corporation, during a televised media conference last week. These are among the key developments that have sent oil skyward. Since last Tuesday, when prices hit their recent bottom, the price of Brent crude , an industry benchmark, has climbed nearly 7 percent. Since the beginning of this year, Brent has climbed more than 20 percent. The price fell after an earthquake struck Japan’s northeast coast earlier this month, but it has since rebounded, clearing $116 a barrel on Friday. Oil has hit a level not seen since 2008, when high energy prices helped drag the U.S. economy deeper into recession. And now the price is again on the rise. “If prices come back down after a short while, the impact on the U.S. economy is relatively limited,” said Gregory Daco, a senior economist in the U.S. macroeconomics group at IHS Global Insight, an economic and financial analysis firm. “However, if prices do stay at a higher level for six months to a year, the impact on growth can be relatively important.” High energy prices have forced businesses to delay hiring plans and to consider passing fees onto customers. Rising prices at the pump have sapped spending power from consumers, crippling a major source of U.S. economic growth. Expensive oil even threatens the housing market’s recovery, as the prospect of a costly commute makes moving to the suburbs less attractive. Each $10 rise in the price of a barrel of oil translates into a 25-cent increase in gas prices, which tears more than $25 billion from the U.S. economy yearly, economists say. The economic risk posed to the United States by rising oil prices eclipses the effects of the disaster in Japan, experts say. The 9.0-magnitude earthquake that stuck Japan this month, which could plunge that country into recession , won’t pose a major risk to the U.S. economy, economists say, as companies will find ways to work around supply disruptions. But high energy prices drain resources from consumers and businesses, crippling the nation’s economic foundations. “Oil prices are even more of a concern to the U.S. outlook than what’s going on in Japan right now,” said Scott Anderson, a senior economist at Wells Fargo. “The consumer is still working to recover form the excesses of the financial crisis.” The oil supply disruption that’s already occurred is relatively minor, and the Organization of Petroleum Exporting Countries has pledged to correct any shortage with its oil reserves. But the price of a barrel of oil reflects the perception of a mounting crisis. Even without a significant shortage, that perception is helping to cause real economic damage. As fighting continues in the Middle East, investors fear the damage to the global oil trade could worsen. Experts are keeping a close eye on Saudi Arabia, which has sent to troops to Bahrain to help quell anti-government actions. Tensions between Saudi Arabia and Iran, which each support rival groups in Bahrain, could turn into outright conflict, experts fear. Combined, Saudi Arabia and Iran produce more than 17 percent of the world’s oil. An oil supply disruption in Saudi Arabia could inflict widespread economic strain. “Whats starting to bubble up to the surface here is this major clash between Saudi Arabia and Iran,” said Bernard Baumohl, the chief global economist at the Economic Outlook Group. “That can have much more dire consequences for the global economy.”

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Razor Thin Price Action Devastates Short-Term Positions; Back to Square (Minus) One

March 17, 2011

Razor Thin Price Action Devastates Short-Term Positions; Back to Square (Minus) One

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USD/CAD: Trading the Canada Consumer Price Report

March 17, 2011

USD/CAD: Trading the Canada Consumer Price Report

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Chamber Of Commerce President Mocks Demonstrators For Their Insufficient Knowledge Of Complicated Financial Instruments

March 15, 2011

Over at ThinkProgess, Lee Fang relates the reaction U.S. Chamber of Commerce President Tom Donohue gave at being told about a small demonstration that had formed outside a St. Louis event where he was speaking. As you might expect, he didn’t think much of the protesters! Nor did he have many kind words for the similar crowds that have sprung up in Wisconsin, as he criticized public sector workers for their “out of control” pensions and “over bloated” compensation. But this, to me, is the best part. Per CBS’ St. Louis affiliate : While Donohue was inside calling for more deregulation, demonstrator Johnathan McFarland was outside calling for more regulations on business and banking, “We came to where we are at right now, because of the lack of government regulation and we need to put safeguards on things like derivatives.” When a reporter informed U.S. Chamber of Commerce President and CEO Tom Donohue that protestors were planning to demonstrate against his visit to St. Louis, he questioned their intelligence. “Do you think they even know what a derivative is?” Donohue said. Oh, my. Well, I’ll be honest with you, derivatives are a complicated thing to understand. And it’s been made more complicated with the rise of ornate, synthetic derivatives that have taken the derivatives market well beyond old-school agricultural futures. Synthetic derivatives, credit-default swaps, collateralized debt obligations…these are things that happened to the lives of ordinary people while they were putting out fires and running the Department of Motor Vehicles and teaching children about fractions. I can imagine most ordinary people do not have an understanding about these instruments. (Previously, with the help of Julie Satow, I took a stab at explaining part of this complicated puzzle .) But the difference between Tom Donohue and myself is that I do not have contempt for people who lack an understanding of this material. What makes his line hysterical to me, of course, is that there’s ample evidence — you know, in the form of a massive financial crisis — that the people tasked with understanding derivatives didn’t know much about them, either. If you’ve got the desire to learn more, I recommend purchasing John Lanchester’s book I.O.U.: Why Everyone Owes Everyone And No One Can Pay , one of the best books about the financial crisis because it’s written for ordinary people, for whom Lanchester also has no contempt. Here is a relevant selection: In an ideal world, one populated by vegetarians, Esperanto speakers, and fluffy bunny wabbits, derivatives would be used for one thing only: to reduce risk. Because they are bought “on margin” — that is, not for the full cost of the underlying asset but for the advance premium…they offer a cheap and flexible form of insurance against things going wrong. Imagine, for instance, that you are convinced that the stock market will go up by 50 percent in the next year. You know it in your waters — so much so that you borrow $100,000 and use it to buy shares. If the market goes up, you’ll be pleased with yourself; but if you’re wrong and the market plunges, you’ll be badly out of pocket — unless you take out some insurance. So you buy a $10,000 option to sell shares at a lower price than you paid for them. That money is wasted if your shares go up — but you wont’ care much because your main position is in serious profit. But if shares go down, you have some insurance — you can cash in the option to sell shares at the lower price and eliminate most of your losses. This is called “hedging”: you have used an option to hedge your main risk. Alas, we don’t live in that kinder, gentler world. In reality, the power of derivatives has a way of proving irresistible for those people who aren’t just sure that the market is going up, but who are beyond sure, are supersure, are possessed of absolute knowledge. Financial experts are often possessed of this kind of certainty. In that event, it is very tempting indeed to buy an option that increases your level of risk, in the certainty that this will increase your level of reward. In the above example, instead of hedging the position with an option to sell, you could magnify it with options to buy, which will be worth a lot if you’re right – sorry, when you’re right. When you’re right and the market goes up by half, your $10,000 option will be worth $50,000 (that’s the $50,000 by which the shares have gone up). In fact, instead of buying $100,000 of shares and a $10,000 option to buy, why not instead buy $100,000 worth of options? This is called leverage: you have leveraged your $100,000 to buy $1,000,000 worth of exposure to the market. That way, when you get your price rise, you have just made $500,000, and all with borrowed money. In fact, why not skip the option and instead buy some futures, which are cheaper (because riskier) – let’s say half the price? These futures, at $5,000 each, oblige you to buy 20 lots of the shares for $100,000 each in a year’s time. Hooray! You’re rich! Unless the market, instead of doubling, halves, and you are saddled with an obligation to buy $2 million worth of shares that are now worth only $1 million. You’ve just borrowed $100,000 and through the power of modern financial instruments used it to lose $1 million. Whoops. It might seem unlikely that anyone would do anything that stupid, but in practice it happens all the time. And, circa fall of 2008, this stupidity occurred on a massive scale, and if you might recall, you folks paid a pretty penny to put things right. So, yeah, y’all might be too stupid, in Tom Donohue’s estimation, to understand the complexities of the financial markets, but when the sage geniuses who supposedly do nearly destroy the economy and send a pile of untold wealth straight to money heaven, paying to patch over the collossal cock-up becomes your responsibility. Were you thanked for this, by the way? I guess the “thanks” comes when the remaining holes in the economy are filled by your pensions! By the way, there’s this woman named Elizabeth Warren who is putting together something called the Consumer Financial Protection Board. Her modest goals and desires include changing the way banks do business so that credit card agreements aren’t filled with ” tricks and traps ” that come buried in obtuse language designed to confuse people. Naturally, she’s been opposed at every turn by — guess who? — the U.S. Chamber of Commerce. So, it’s important to remember the ignorance of ordinary people who Tom Donohue mocks is precisely the state in which he hopes ordinary people persist. [Would you like to follow me on Twitter ? Because why not? Also, please send tips to tv@huffingtonpost.com -- learn more about our media monitoring project here .]

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Michael Russnow: Citigroup Continues its Dance With Reverse Splits: The Question Is Why?

March 14, 2011

Citigroup just sent me its annual statement and ballot to vote on suggestions from its Board of Directors, which, among other things, extends its flirtation with a reverse split that began two years ago. For those unaware, a reverse split is the opposite of a split, which is when stock prices get too high and the price might be split in half with each stockholder getting a doubling of shares. When this happens it’s a sign the company is doing well, but because the share price might be too high for a lot of action, halving the price makes it more affordable and shareholders get a chance at continued upward movement with more stock. With a reverse split, a company is in trouble and stockholders lose their shares proportionately to effect a rise in the cost of the stock. So, if you had 1,000 shares of AIG when it split 1:20 in 2009, you wound up with fifty shares, but the price went from $1.15 to $23. Here’s the rub. Everyone knows the new price is artificial and they’re not fooling anyone. It’s a sign of desperation, which in AIG’s case was calculated to prevent the stock from tumbling below a dollar and getting delisted from the New York Stock Exchange. Citi itself was in that ballpark two years ago for a short period. However, the stock moved up remarkably since then and hasn’t sold below three dollars in quite awhile. It’s been over four dollars mostly and occasionally has gone over five. So, since it’s in no danger of delisting, why even talk about giving the company a bad mark? The Directors’ statement insists they merely want to “extend their right” to do a reverse split in seven possible combinations: 1:2, 1:5, 1:10, 1:15,1:20, 1:25 and 1:30, but may well not as they haven’t since they received shareholder authorization to do so in 2009. They explain the upside is that by decreasing the number of shares it would reduce fees on the NYSE. They also warn that in the unlikely development the reverse split vote fails they will still have the right to do so for two months under the approval attained in last year’s shareholder vote. And of course they remind us the inflated share prices might not stay anywhere near the new level, and that’s what worries me. When AIG did its split, it was $23 for a day or so, and went down to $18 and in short order sold at $9, or the equivalent of 45 cents before the reverse split happened. This was due to short trading, when people bet against a stock’s value and borrow “x” number of shares that they sell at the higher price, hoping it falls markedly so they can buy it low and return the shares they borrowed at a profit. That’s what happened with AIG, and what makes the geniuses at Citi think it won’t happen with their stock? Another reason Citi says reverse splitting might be good is because many institutions forbid purchasing stock below $5, and a higher price would stimulate buying and presumably cause the stock price to move upward. Except Citi is already a favorite of hedge funds and usually trades in large volumes. But even more significant is that Citi’s relative stagnant movement has been matched by most of the other financial institutions, which sell at prices significantly higher than $5. Bank of America, which hovers between $10 and $18, goes up and down at the same level as Citi. So does Wells Fargo, trading between the high twenties and low thirties. Also, Goldman Sachs, back and forth between $140 and $180. Mostly, when they go up Citi goes up and when they go down Citi drops, so why would the Board believe its price fluctuation percentages would be better if it sold at a higher price? More likely there’d be an immediate stigma against Citi, with a drastically lower price effected after a reverse split as AIG suffered. And even if it eventually came back, as AIG did after a year or so, rising to $62 a few months ago, you have to realize that in pre-reverse split figures (1:20) it really only “recovered” to a price of a little more than $3 after having tumbled to 38 cents from a pre-reverse split high of $70 a few years ago. And where is AIG today? It sold for $37.35 on Friday ($1.87 in pre-reverse split numbers), partially due to issuing warrants in early January that lowered its price over $8 in one day to cover the company’s granting shareholders .53 of a warrant per number of shares owned. Each warrant had an opening value of approximately fifteen dollars and permitted holders to buy a share for $45 over a ten year period. Just before warrants were issued AIG was $54, but it quickly fell below $45. For the moment the warrants aren’t such a great deal vis-à-vis the share price plummeting to the mid-thirty range, and while the quote may eventually go up I’m glad I got out at $52.75, a profit of 126%. So, I don’t know why Citi, with no danger of delisting and with its price ups and downs approximating the percentages of other major banks which sell well above five dollars, wants to mess with its public image and risk luring the short-players to wreak havoc on the stock’s price? Why not be patient and do a good job and instill confidence in the company, moving past five dollars and upward the old fashioned way by just earning it? That’s what I’d suggest, and I don’t pretend I’m any sort of expert, but I can read and I see what the other financial stocks are doing, and what “success” AIG had with its reverse-split. Leave it alone, Citi, please. Michael Russnow’s website is ramproductionsinternational.com

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Dead Wrong With Timing And Paid the Price; Apologies to All; Still Short Cad

March 14, 2011

Dead Wrong With Timing And Paid the Price; Apologies to All; Still Short Cad

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Dead Wrong With Timing And Paid the Price; Apologies to All

March 14, 2011

Dead Wrong With Timing And Paid the Price; Apologies to All

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Ian Fletcher: Currency Revaluation Won’t Fix America’s Trade Mess

March 4, 2011

It is sometimes suggested that our trade problems (job losses, international indebtedness) will go away on their own once currency values adjust. Bottom line? A declining dollar will eventually solve everything . In the short and medium term, of course, foreign currency manipulation will prevent currency values from adjusting. But even if we assume currencies will eventually adjust, there are still serious problems with just letting the dollar slide until our trade balances . For one thing, our trade might balance only after the dollar has declined so much that America’s per capita GDP is lower, at prevailing exchange rates, than Portugal’s. A 50 percent decline in the dollar from early-2011 levels would bring us to this level. And how big a decline would be needed to balance our trade nobody really knows, especially as we cannot predict how aggressively our trading partners will try to employ subsidies, tariffs, and nontariff barriers to protect their trade surpluses. Dollar decline will write down the value of wealth that Americans have toiled for decades to acquire. Ordinary Americans may not care about the internationally denominated value of their money per se, but they will experience dollar decline as a wave of inflation in the price of imported goods. Everything from blue jeans to home heating oil will go up, with a ripple effect on the prices of domestically produced goods. A declining dollar may even worsen our trade deficit in the short run, as it will increase the dollar price of many articles we no longer have any choice but to import, foreign competition having wiped out all domestic suppliers of items as prosaic as fabric suitcases and as sophisticated as the epoxy cresol novolac resins used in computer chips. (Of the billion or so cellular phones made worldwide in 2008, not one was made in the U.S.) Ominously, the specialized skills base in the U.S. has been so depleted in some industries that even when corporations do want to move production back, they cannot do so at feasible cost. Another problem with relying on dollar decline to square our books is that this won’t just make American exports more attractive. It will also make foreign purchases of American assets–everything from Miami apartments to corporate takeovers–more attractive, too. As a result, it may just stimulate asset purchases if not combined with policies designed to promote the export of actual goods. A spate of corporate acquisitions by Japanese companies was, in fact, one of the major unintended consequences of a previous currency-rebalancing effort: the 1985 Plaza Accord to increase the value of the Japanese Yen, which carries important lessons for today. Combined with some stimulation of Japan’s then-recessionary economy, it was supposed to produce a surge in Japanese demand for American exports and rectify our deficit with Japan, then the crux of our trade problems. For a few years, it appeared to work: the dollar fell by half against the yen by 1988 and after a lag, our deficit with Japan fell by roughly half, too, bottoming out in the recession year of 1991. This was enough for political agitation against Japan to go off the boil, and Congress and the public seemed to lose interest in the Japanese threat. But only a few years later, things returned to business as usual, and Japan’s trade surpluses reattained their former size. Japan’s surplus against the U.S. in 1985 was $46.2 billion, but by 1993 it had reached $59.4 billion. (It was $74.1 billion in 2008 before dipping with recession.) Relying on currency revaluation to rebalance our trade also assumes that the economies of foreign nations are not rigged to reject our exports regardless of their price in local currency. Many nations play this game to some extent: the most sophisticated player is probably still Japan, about which the distinguished former trade diplomat Clyde Prestowitz has written: If the administration listed the structural barriers of Japan–such as keiretsu [conglomerates], tied distribution, relationship-based business dealings, and industrial policy–it had described in its earlier report, it would, in effect, be taking on the essence of Japanese economic organization. We cannot expect foreign nations to redesign their entire economies just to pull in more imports from the U.S. In any case, the killer argument against balancing our trade by just letting the dollar fall comes down to a single word: oil. If the dollar has to fall by half to do this, this means that the price of oil must double in dollar terms. Even if oil remains denominated in dollars (it is already de facto partly priced in euros) a declining dollar will drive its price up. The U.S., with its entrenched suburban land use patterns and two generations of underinvestment in mass transit, is exceptionally ill-equipped to adapt, compared to our competitors. Fundamentally, allowing the dollar to crumble is a way of restoring our trade balance and international competitiveness by becoming poorer. That’s not what Americans want, or should want. A tariff is a much better solution.

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U.S. Approves First Deepwater Drilling Permit In Gulf Since BP Spill

March 1, 2011

NEW YORK — The U.S. has approved the first deepwater drilling permit in the Gulf of Mexico since BP’s massive oil spill. The Bureau of Ocean Energy Management, Regulation and Enforcement announced Monday that it issued a permit to Noble Energy Inc. to continue work on its Santiago well about 70 miles southeast of Venice, La. Drilling will resume nearly one year after BP’s blowout created the worst offshore spill in U.S. history. Noble started drilling the well four days before the Deepwater Horizon oil rig exploded on April 20. The project was put on hold on June 12 after the U.S. placed a moratorium on exploration in waters deeper than 500 feet. No new deepwater permits had been issued since the moratorium was lifted in October. Regulators have been under pressure from the oil industry and some lawmakers to get drilling projects started again in the Gulf while ensuring that new safeguards are in place. That pressure increased last week as the price of oil spiked above $100 per barrel and the price of gasoline hit its highest level in two and a half years. Environmental groups want the government to hold off on permits and force oil companies to further study the effects of drilling on fragile marine habitats. At 6,500 feet below the surface, Noble’s well is deeper than BP’s blown out Macondo well. In a worst-case scenario, the company told regulators its well could spill nearly 3 million gallons of oil per day into the Gulf. At its peak, the BP well spilled 2.6 million gallons per day. Noble had drilled to a depth of 13,585 feet before the moratorium and has about 5,400 feet to go. The permit is for a “bypass” well, which allows the driller to take a slightly different path than previously expected. Drilling is expected to recommence in April. Director Michael Bromwich said that Noble demonstrated it is capable of containing a well blowout, a key requirement for permit approval. Noble contracted with the Helix Well Containment Group to use its emergency capping stack to stop the flow of oil in case it loses control of the well. Another emergency containment solution, offered by a consortium led by Exxon Mobil Corp., was announced earlier this month. “We expect further deepwater permits to be approved in coming weeks and months based on the same process that led to the approval of this permit,” Bromwich said. The U.S. has approved other permits for new wells, including 37 in shallow water, since the moratorium was lifted. It also has approved 22 other applications for activity on deepwater wells that were not suspended by the moratorium. The approval comes as Interior Secretary Ken Salazar heads to the Capitol this week to defend his agency’s budget request. He is expected to be pressed by lawmakers concerned with rising gasoline prices about how slowly new permits have been issued. Sen. David Vitter, R-La., a vocal critic of the slowdown in offshore drilling permits, said Monday that “while one deepwater permit is a start, it is by no means reason to celebrate.” Vitter wants 15 deepwater permits issued before he releases a hold on the nomination of President Obama’s pick to head the Fish and Wildlife Service. House Natural Resources Committee Chairman Doc Hastings, R-Wash., urged regulators to push other applications through quickly. Noble’s project alone “will not ease the economic pain being inflicted on Gulf families.” Bromwich denied that politics played a role in the timing of the announcement. He said there are eight applications currently pending for deepwater wells. The Obama administration is seeking a $12 million increase in the former Minerals Management Service budget to hire hundreds of new oil and gas inspectors, engineers, scientists to oversee industry operations; conduct detailed engineering reviews; and more closely review oil spill response plans. Much of the money would come from higher fees and royalty rates on oil and gas companies. ___ Associated Press Writer Dina Cappiello contributed to this story from Washington D.C.

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Australian Dollar Direction Unclear Between Price Pressures, RBA’s Tone

February 19, 2011

Australian Dollar Direction Unclear Between Price Pressures, RBA’s Tone

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New Zealand Dollar Finds Support, Range-Bound Price Action Ahead

February 19, 2011

New Zealand Dollar Finds Support, Range-Bound Price Action Ahead

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Irene Aldridge: Who Benefits From Rising Inflation?

February 18, 2011

On Thursday, February 17, 2011, the U.S. Bureau of Labor released the latest inflation figures. Inflation, measured as a change in the Consumer Price Index (CPI), registered a slight decline at 0.4% this past month (as compared to 0.5% realized in the previous month), and just 0.2% when food and energy are excluded from the calculation. However small these numbers may seem, the figures sounded plenty of alarms in the last couple of weeks. Some commentators declared this inflation to be unhedgeable (due to traditional inflation hedges such as gold being overpriced), and, therefore, unmanageable. Numbers, however, tell a different story, and as this article shows, inflation has some lucrative and natural hedges in today’s markets. Results of a basic event study on the impact of CPI changes on equities produce clear and stunning evidence that inflation is indeed healthy for many stocks and their investors. Among all equities susceptible to rising CPI, those most affected are shown in Table 1 along with their quantitative price responses to every 1% in monthly inflation figures. With probabilities of the response hitting 99.9%, the numbers speak loud and clear that inflation is great for at least two large sectors of the U.S. economy: financial services companies and commodity companies. Table 1. Quant response of prices of selected firms to a +1 change in CPI. (Probabilities of the response are reported in parentheses). Symbol Expected Response on Day 0: the day of the CPI announcement Expected Response on Day 1: the day after the CPI announcement Expected Response on Day 5: one week after the CPI announcement Expected Response on Day 10: two weeks after the CPI announcement Expected Response on Day 21: one month after the CPI announcement APC +4.7% (99.9%) +7.5% (100.0%) +6.1% (99.6%) +6.1% (92.0%) +17.1% (95.6%) ANR +1.2% (87.8%) +10.5% (99.9%) +10.6% (96.9%) +4.1% (74.1%) +18.2% (82.8%) ACI +2.2% (98.1%) +7.9% (99.8%) +5.4% (95.4%) +6.8% (90.6%) +22.2% (99.3%) CCJ +1.7% (99.6%) +3.9% (99.4%) +7.1% (99.7%) +7.0% (88.4%) +13.9% (87.6%) BK +4.8% (99.3%) +8.3% (100.0%) +1.9% (84.3%) -5.1% (71.1%) +10.6% (95.8%) AXP +5.2% (99.6%) +6.5% (99.6%) +8.7% (99.9%) -0.8% (50.6%) +33.5% (99.5%) First, about commodity companies. True, prices of many commodities like gold and cotton are at their near-record levels and can be hardly helpful for inflation hedging. Other commodities, however, are still fair game, as the numbers show. In particular, petroleum companies (i.e. Anadarko Petroleum: APC), coal producers (i.e. Alpha Natural Resources: ANR, Arch Coal: ACI), aluminum handlers (i.e. Alcoa: AA), and even uranium suppliers (i.e. Cameco: CCJ) persistently rise following increases in inflation. Increasing the concentration of these and similar stocks in one’s portfolio is likely to provide a hedge against inflation. Then, there are the financial services companies like the Bank of New York Mellon Corp. (BK) and American Express (AXP) that statistically benefit from rising inflation. How so? The simplest explanation can be found in the lending rates of these firms: with higher inflation, the banks tend to charge higher nominal rates from their customers, capturing a larger spread between the rates at which they lend and the rates at which they borrow. Popular banking products with variable interest rates such as credit cards, are subject to a rate hike, generating a fair premium for banks. Whether one likes it or not, banks are in a lucrative position as far as inflation is concerned. How good of a hedge can financial services or commodity companies provide? As Table 1 shows, both sets of firms take well to inflation. For example, in response to a 1% monthly increase in the CPI, the price of the Bank of New York Mellon (BK) on average rises by nearly 5% on the day of the CPI announcement and by over 10% in one month following the announcement, with over 95% statistical confidence. Allocating just a fraction of your portfolio to the inflation-driven stocks may be sufficient to immunize your entire portfolio. While fretting about the onset of inflation and speculating about its ramifications in the fundamental space, why not hedge it based on quant analysis?

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Robert Teitelman: Don’t Overuse the Word "Revolution"

February 18, 2011

When was the last time you strolled into your local tavern and someone yelled, “Yo, bub, doesn’t that turmoil in the Middle East remind you of 1848?” Mostly, we recall the usual televised revolutions: the Soviet bloc, 1989 (the Wall); Tiananmen Square, 1989 (the tank); Iran, 1979 (hostages); the ’60s (hair). If you’re Glenn Beck, you’re fixated on the Russky Revolution, 1917 (George Soros as Vladimir Lenin). Then come the standbys: The American and French revolutions (wigs, Chryslers, guillotines). Textbook stuff. That about empties the revolution database. But in its day, revolutionary fever swept through Europe like a forest fire, an infection, a financial crisis, metaphors we have recently learned to toss about like beach balls. The conflagration of 1848, in retrospect, was foreshadowed by minor disturbances, pressures, forebodings; but when it came, it exploded spontaneously, like Tunisia, fed by a thousand grievances. A few nations resisted it — Britain, the Netherlands, Switzerland, Russia (too far, too autocratic) — as it hopscotched through pre-unified Italy, from Milan to Sicily, leapt to France, where the first blood ran, then through the German states, including Prussia, then the Hapsburg Empire, then back to France, Europe’s Egypt. The middle classes and nobility poured into the streets; the poor joined in. Absolutism quaked. Protests led to riots, barricades, tossed paving stones, deaths. And then, as the calendar flipped to 1849, the reactionaries took back the streets. The revolutions “failed,” raising the technical question of whether you can have a “revolution” that fails. The Springtime of Peoples ended. The crowds often lacked leadership and pursued divergent goals. Mostly, they were just tired of the same old lantern-jawed despots in charge. Expectations had been rising. Technology was on the march, and a popular press had emerged. Globalization stirred. But there had been famine across Europe — the potato blight wasn’t just Irish — and a trade slump. New ideas percolated: socialism, nationalism, liberalism, romanticism; 1848 was a boost to Karl Marx’s career. And yet, in the longer view, 1848 proved to be a beginning, not an end. The old men in charge, the Hosni Mubaraks, were shaken. The folks in the street had both demography and age on their side. After 1848, Germany and Italy unified; liberal institutions took root and pursued reforms, and Europe mostly drifted on a tide of bourgeois prosperity until World War I blew everything up. “Revolution” may be one of the most overused words in the vocabulary of modernity. There is a torrid romance about the concept, particularly when it’s occurring in far-off lands, or a past when soldiers rode horses and wore feathers. What is it we’re seeing in Egypt and beyond? Alas, the greater the distance, the stranger the milieu, the looser grasp we have on events. Revolutionary moments worship a glowing, if hypothetical, future. But even from the inside, they are chaos. Revolutions are profoundly unpredictable, not only in their direction but in their result: democracy, autocracy, kleptocracy, theocracy. They are a moral arbitrage between means and ends. Like a bubble, it’s hard to discern a true revolution as it’s unfolding; the test comes after, usually when the revolutionaries are old men themselves. True revolutions release energy, unmoor populations. The notion that any group or individual can control these forces — Mubarak, Obama, the Saudis, Google — is farcical, despite the “success” of the Chinese in Tiananmen, the Bolshevikis in St. Petersburg. “Winning” is subjective, a dice roll, not a Beckian dream of infiltration and mind control. A coup requires a cabal and a plot; a revolution dispatches bodies into heated Brownian motion. The term “revolution,” of course, has long been absorbed into our world of hype, self-promotion and status seeking. Jefferson nudged this along when he suggested a revolution every generation or so, just to clear the sinuses. Revolution is a key element of what used to be called radical chic and it attaches itself to technology like a leech. NPR recently asked people to write in about their experiences in revolutions. This is a weird form of political tourism, like saying, “Tell us your experiences in your last nuclear attack. Was it fun? Informative? Exciting?” This inflationary tendency is well known and not worth pursuing, except to note another similarity of revolutions to the notion of financial bubbles. Bubbles represent the separation of value from price; there’s no anchor tethering the price of tulips, mortgages or stocks to earth. They are unhinged, floating freely, creatures of their own gassy momentum. When we attach the word “revolutionary” to every new development, from the Tea Party to the iPad to political victories (Reagan, Gingrich, Obama), we debase its meaning and lose any sense of its seriousness — the blood, toil, destruction. We become a little stupid, a little blind and more than a little superficial — not to say a little more prone to the true revolution we never saw coming.

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Video: Holland Says Gold Prices More Likely to Rise Than Fall

February 18, 2011

Feb. 18 (Bloomberg) — Nick Holland, chief executive officer of Gold Fields Ltd., talks about the outlook for the price of gold. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

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Video: Sfakianakis Says Saudi Stability Should Avert Oil Rise

February 18, 2011

Feb. 18 (Bloomberg) — John Sfakianakis, chief economist at Banque Saudi Fransi, discusses the impact of civil unrest in parts of the Middle East on the price of oil. He speaks from Riyadh with Linzie Janis on Bloomberg Television’s “Global Connection.”

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USD/CAD: Trading the Canadian Consumer Price Report

February 17, 2011

USD/CAD: Trading the Canadian Consumer Price Report

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Nicholas Carroll: The Broken Covenant Between Rich and Middle Class

February 15, 2011

Henry Ford did not invent the middle class; it had been around a long time in the form of artisans and shop-keepers. Nor did Ford single-handedly drive the expansion of the American middle class; the Industrial Revolution was already doing that. What Ford did accomplish on January 5th, 1914 — when he unilaterally raised workers’ salaries from a minimum of $2.34 a day to $5 a day — was to hugely undermine the tradition of industrial worker exploitation embraced by the robber barons of the late 1800s. He had several reasons, reducing employee turnover being one of them, but the Earth-shaker was, “So they can afford to buy my cars.” Ford wanted more customers, and to get them he needed a bigger pool of Americans with discretionary income: that group called “the middle class.” To get that — in a leap of thought — he was willing to reduce worker exploitation to sell more cars. Coming from a noted union-hater, Ford’s action and reasoning crystallized a new concept in the distribution of wealth, a concept that would have lacked the same credibility coming from workers or unions. In fact it was so radical that one commentator observed even the Wobblies were momentarily stunned into silence. It wouldn’t last long. In 1929, the combination of financial fraud and folly knocked the workers back into the mud, putting a temporary end to the growth of the middle class. Whether Federal intervention or World War II (or neither) ended the Great Depression is a moot point; what WWII did do, we are assured by people who lived through it, was “pull the country together” in a way that had not been seen before or since. Out of that heady atmosphere of cooperation and technical advance came streamlined cars, air conditioning, television, a housing boom, and the GI Bill sending blue-collar workers off to college in unprecedented numbers. By the mid-1950s, Ford’s personal dream was realized, because there were a hell of a lot of Americans who could afford to buy a car. The radical idea Ford articulated had become a covenant — and there was so much new wealth that the rich hardly seemed to object that much of it was going to the growing middle class. Where the slide started is arguable. If it didn’t start with the war in Vietnam, it unquestionably did by the early 1980s, when big business received both tacit and blatant messages from Washington that they could flout Federal regulations with relative impunity. At the same time there were increases in manufacturing and wholesaling efficiency, more outsourcing of work offshore (now called “globalization”), and the probably-unexpected bonus that women entering the workforce would allow businesses to pay everyone less. The covenant was eroding, and by the mid-1980s the middle class was beginning to need two incomes per family to stay middle class. So one could point the finger at the manufacturing sector for beginning to chew away at the gains of the middle class. But it would be Big Finance that was destined to bring us to the Great Recession, leading off with the 1980s Wall Street “bonfire of the vanities,” hitting the news with the fall of Drexel Burnham , and creating the first widespread bank crisis since the Great Depression in the form of the late 1980s savings and loan crisis. With too few executives going to jail in the S&L crisis, the financial sector retained its chutzpah, and opened the road to ruin in 1999 by lobbying through the gutting of the 1933 Glass-Steagall Act — a law that among other things limited the relationship between Big Finance and local banking. It is worth a brief detour here to consider the fundamental difference between producers and financial people. Producers need customers who buy goods and services. Financial people don’t, exactly; they live on taking a slice of transactions between producers and customers. One might call a mortgage a real product, but it’s not — it’s an enabler to the real transaction, the real transaction being where the producer (home builder) sells a home to the customer. Psychologically this means there is a huge gulf between producer and financier. The first produces or delivers a more-or-less real thing for real people. The latter takes a slice of the financial pie as it flies by; the psychology is all “take” and no “make.” (And local banking stands somewhere in between — not exactly producing, but providing some services of actual value such as checking accounts.) This is not to suggest that producers are without sin. A day never passes without news of tainted food, poisoned water, phony shortages, exploding cars, or carcinogenic drugs. Likewise there is no hard-and-fast line between business models. Automakers have become hugely dependent on financing. Major telephone companies and cable networks seem to focus more on selling contracts than providing service. But at the end of the day, good or bad product, sterling or shoddy service, the producer has to sell their product or service, or they go bankrupt. Further, they have a limited market to sell it to. Shoe companies with $100 sports shoes cannot sell them in the Third World; they need customers with $100 in discretionary income. Producers are also more accountable. Ford Motor Co. is by most reckoning on track towards a level of reliability that rivals Honda — but they have to sell those cars to an audience where some are old enough to remember Ford Pintos exploding into flames when rear-ended. Telcos stand tall in their arrogance towards customers, yet AT&T has become known for inferior cellular connections, and they are paying the price as customers ranging from individual consumers to Apple Computer vote with their feet. Big Finance is more fluid than producers in its “product packaging,” as Wall Street demonstrated by selling the worthless dregs of subprime mortgages (ersatz goods) not only to Deutsche Bank, but to the investment funds of small Norwegian towns. Big Finance is also more nimble. While Wall Street financiers don’t have the physical mobility of boiler-room online fraud operations, they don’t have factories tying them down either. The executive who can no longer find buyers for CDOs can freely move into selling bison ranching shares or tulip bulb futures to buyers from Kansas to Kenya. The bottom line is that by any sane person’s reckoning, the question “Who caused the Great Recession?” leads to the financial sector — and the certainty that, left to themselves, the financial sector will “do it again” — and again and again, leaving nothing of the covenant that “the rich shall allow the middle class a passably decent lifestyle.” So regardless of their individual politics, middle class Americans who want to remain middle class should make note of the fundamental difference between producers and big finance, and accept — or insist — that Big Finance once again be closely regulated at the Federal level. Because no matter how it is packaged, the combination of deregulation and lax regulation means “no rules” for Big Finance — and that doesn’t bode well for the remnants of the middle class.

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Chris Weigant: Budget Season Overview

February 15, 2011

It’s “Budget Season” once again in Washington, and since it’s going to be a particularly contentious and complex one this year, it’s worth taking a moment at the beginning to provide an overview of the entire process which is about to play out over the next two or three months. There are, at this point, three main budget battles to be fought. One of these isn’t strictly a budget battle, but will likely devolve into one, hence its inclusion in the list. Two of these have hard and fast calendar deadlines. All three of them are going to be major political battles, and it’s unclear what the outcome of any of them is going to be at this point. Let’s look at these three items, in the order they’re going to be fought on Capitol Hill, and then we’ll take a look at some of the political constraints on each side of this fight.

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Yvette Kantrow: Access Davos

February 13, 2011

Filled with self-styled straight shooters who claim to be beholden to no one, the blogosphere has long positioned itself as an antidote to the so-called access journalism racking the mainstream media, most infamously during the run-up to the Iraq War and, more recently, in the run-up to the financial crisis. Because they rely heavily on high-level, establishment sources for their stories, the argument goes, mainstream journos — think Judith Miller — must censor their own reporting or risk losing access to the machers in the corridors of power. The blogosphere, with its emphasis on commentary, analysis and citizen journalism, claims to be unfettered by such restraints. After all, people don’t visit blogs to read worked-over quotes by a CEO or a government official. Against that backdrop, it’s pretty weird to witness the growing army of bloggers who now flock to the World Economic Forum in Davos, the ne plus ultra of access journalism. Bloggy new-media types like Arianna Huffington and Jeff Jarvis have been schlepping to Switzerland for years, and they have more recently been joined by financial bloggers, including Business Insider’s Henry Blodget and Reuters’ Felix Salmon. Then there are the big media outlets including The New York Times , Time Inc. and CNBC, which conduct interviews with bigwig attendees from the mountaintop. Indeed, Davos seems tailor-made for access-obsessed CNBC, which specializes in providing a friendly forum for CEOs and other muckety-mucks to talk directly to viewers. But what of Salmon, Blodget and their ilk? What do they get from a conference where most of the “real” action takes place behind closed doors while reporters lurk in hallways or at parties hoping to nab a few moments with a Big Name attendee? Faced with this reality, bloggers employed a different strategy in Switzerland this year: They went to Davos not to cover it, but to mock it. Blodget, who vowed to give his readers ” The Truth About Davos ,” judged it to be “just like high school.” Salmon declared: “Just about everything in Davos is ridiculous in its own way. It’s like Disneyland.” And Harvard Business Review’s Justin Fox, in his ” Obligatory Pre-Davos Post! ,” admitted that when he was blogging for Time.com “traffic fell off markedly as soon as I started posting from the Swiss Alps… There’s seldom much in the way of news generated at Davos, and most people aren’t itching to hear a soundbite from CEO or government official rushing between meetings.” That message wasn’t lost on Timesman Andrew Ross Sorkin, who in a conference missive outed the high cost of being a Davos Man (as much as $622,000, depending on the size of your entourage). Sorkin’s piece was hailed as a standout by the New Yorker’s John Cassidy, who was not at Davos, while Blodget told readers that everyone at the event was talking about it. That’s nice, but the story seemed a tad hypocritical, given the Times ‘ symbiotic relationship with Davos. Arthur Sulzberger Jr. was at the confab, as were Thomas Friedman and Nicholas Kristof — Davos Men of the highest order — plus Sorkin and other Times scribes who were covering it. How much the cash-strapped New York Times Co. spends to have them there Sorkin’s piece did not say. Perhaps that’s because Sorkin is on his way to becoming a Davos Man himself — Blodget blogged that Sorkin is “a god” around Davos “and quite possibly the first one invited to every party.” And why would a god want to anger his people? But Sorkin’s piece was indicative of the type of snark that the media, particularly the new media, brought with it to Davos this year: sharp-tongued enough to protect itself against charges of being too cozy with the global elite, but soft enough to ensure that its authors will get invited back. Despite all the negative coverage, few journos, including bloggers, seem able to resist the invitation and the proximity to power. Indeed, after spending a few days at the conference, Blodget gave its corporate attendees a big wet kiss, concluding that for executives, the business meetings they conduct at Davos “can end up being vastly more valuable than the price of admission.” OK, fine, but if Davos is nothing more than a big networking event, doesn’t that make all the Big Thoughts a farce? In the blogosphere, only Salmon seems to have stuck to his guns and left the confab as disgusted by it as when he arrived. Moving from snark to satire, he lauded Davos for “deftly leveraging the talk around its chosen theme — ‘shared norms for the new reality’ — into an effective and timely intervention in Egypt.” Well done. But whether that conclusion required a trip to Switzerland is another question.

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