The Economy Guy » Oil

Oil

cuible — Wed, 30 Mar 2011 20:54:58 +0000

Here are the closing statistics for our key indicators:

DJ30 – 12,349   +70
US Treasury 10 Year Bond – 3.44%    no change
USDEUR - 1.4129 - a weaker Dollar
Gold – $1422     +$6
Oil – $104.25    -$0.54
Gasoline $3.06   +$0.01

Oil ……

Let’s talk about oil today. The price remains stubbornly high in spite of the “good” news that Libya is now selling oil to the free world by the “rebels.” But the breaking news is that the rebels have pulled out of that town as Ghaddafi’s troops started an offensive. The price of oil remains stubbornly high as the US and NATO make life miserable for Ghaddafi. The reason? Well, there is a lot of chaos in the Middle East right now, and all chaos leads to uncertainty – especially in the oil market. And, this is in the face of rising oil stocks in the US.

Did you see that headline that says the Middle East will be selling $1TRILLION worth of oil this year? Wow – now we are measuring oil costs in trillions, and not billions. How the world changes.

Let’s drill down a little and see how the various chaotic actions in the Middle East and North Africa affect oil.

Tunisia – no big effect on oil prices as their markets are “normal” and natural gas is their big export.

Libya – chaos with supplies shut off, but they export less than 1 million barrels per day, and the Saudi’s have picked up their exports to compensate.

Egypt – minimal exports as the Egyptian reserves have been depleted, and there is relative calm – even with the Muslim Brotherhood making gains on the political side of Egypt.

Jordan – not an oil exporter, but contributing to the chaos as riots continue.

Bahrain – stable with the help of Saudi military. The riots and killings make chaos just more prevalent in the area.

Syria – not an oil exporter, but chaos reins here too.

Yemen – a smaller exporter of oil at about 300,000 barrels per day. Yemen is on the verge of being the next country to fall to the “populace uprising.”

Oman – oil exporting of about 800,000 barrels per day. Oman has been a staunch supporter of the West for longer than most countries in the Middle East, but that doesn’t stop the populace from rioting in the streets.

Saudi – is the “elephant in the room” with over 8 million barrels per day of production. Riots have not emerged in Saudi, and if they have, the kingdom wouldn’t let the press talk about it, as they would be repressed violently. If Saudi ever falls, you better hope that we have an alternate source of energy in the US – or else. In any case, I would predict that the world would enter a massive depression if Saudi were overthrown.

Iran – is no friend of ours, and is pushing for war with Israel – the ultimate in chaos. Iran produces about 4 million barrels per day.

So, I would conclude that we are lucky that oil is only just above $104/barrel today with all that chaos in world, and its potential to cause economic and personal chaos in the US and Europe. If anything, I would say the risk premium on the oil price is understated today.

And, just for laughs, ask yourself what the US is doing regarding production of oil. The answer is well known. The current administration is violently against drilling – and certainly against new drilling. Only 25% of the US oil wells in the gulf are producing today, and only 60% of the land wells.

Obama approved a $2B guarantee for drilling off the coast of Brazil with a promise to buy their new production. While this decision has been received with derision by the right, I personally agree with the decision, as more oil production is needed, and the US is the country that needs it. Why not let Brazil jeopardize their own ecology with oil drilling? While I would get drilling in the gulf going too, I would encourage all our neighbors (think Mexico) to start more drilling, and guarantee its purchase by the US.

For those of you who are conspiracy theorists, the higher the price of oil goes, the more attractive alternative energy sources appear. Is this why our world is in chaos? However, solar isn’t the answer, as technology isn’t making the efficiency gains that are needed to make it pay off. Wind is now being challenged by environmentalists as being “ugly” and killing birds, etc. Nuclear just got a big black eye in Japan. Geothermal could do the job, but no one is making it work. Wave energy is just a joke. So, the old standby’s remain – oil, natural gas, and coal.

First Quarter GDP = 3.2%

Let’s drill down and find out what is making our GDP growth so robust.

Is it consumer spending? Well, the contribution of consumer spending in the first quarter to the GDP gain was +0.3%. Now, in my way of thinking, this means the consumer is pulling back a little, and not carrying the water to get our economy going. If you remember, consumer spending is about 70% of the total GDP calculation – so if consumer spending was only up 0.3%, then something else was up some massive amount – right? As an aside, the FED will be disappointed with this un-robust consumer spending performance – so some in the FED (like Bernanke) will want to continue quantitative easing in spite of the words coming from other FED members saying it will stop. (I personally think it will stop – but continue under a different guise.)

Digging deeper, analysts note that non-durables spending was the big supporter of GDP (+3.9%), while durable spending fell (-1.4%), and remains entrenched in a downward trend. This is in contrast to the service sector spending, which rose 1.3%, driven mostly by price effects – things are beginning to cost more. The big gains were in business investment and software which was up 13.4% and exports were up 5.8%.

Because non-inflation-adjusted spending grew faster than incomes, the saving rate moderated to +5.8% from 6.1%. This means we are saving less – generally not a good thing to get us out of our debt problems. Real personal income was up 0.4%, while real personal disposable income was DOWN 0.1% (first decline in seven months). This means more people are working or they are making slightly more money, but it isn’t going as far, so disposable income is negative.

Inflation remains subdued as the effect of higher commodity and food prices filter into the system, but haven’t really shown up yet in the CPI number. This is a classic situation known as deflation as inflation remains very low, high unemployment, a falling housing stock (reduced value) and a stagnant stock market. No one seems to be calling our economy what it really is – “stagflation” – a combination of inflation and deflation.

So, what does all this GDP talk mean? It means that the economy is growing in the industrial sector, and not growing in the consumer sector (or growing very little). It means GDP is vulnerable to another downturn which could easily come from rising interest rates, or rising oil prices, or another wild card event.

Markets Recap

cuible — Mon, 24 Jan 2011 19:08:07 +0000

The Markets Today…..

It has been awhile since I talked about how the various markets are doing in the US, so now is a good time to look at these markets and explain a little of what is actually happening.

Gold – as this is my recommendation for all readers to consider for inclusion in their personal investments – has been falling from its 2010 year end high of $1420, and hit $1340 the end of last week. There are many reasons for this fall off in price, but here are the main ones that I believe are in play:

People are taking profits from the 29% increase of last year – and there are lots of profits to take.
The Euro was used last year as play against gold – sell the Euro and buy gold with the money. This is being unwound right now as the Euro is gaining while gold is falling – normally they go in the same direction.
China is raising interest rates to cool off their massive growth in GDP – it is growing too fast for comfort of the Chinese leaders, and could lead to a fast growth in Chinese inflation – something that could cause unrest in the country, and something the Chinese leadership would avoid at all costs.

However, having said all that, I believe that the selling in gold is approaching its finish, and will resume its uptrend to new highs in the near future. The fundamentals for gold have not changed one iota. It has been a long time that I have given a “buy signal” for gold, but if the price goes below $1330/ounce where there happens to be some good support, then a purchase of gold would be called for. (On the Silver front, I have stayed away from Silver for the main reason that I don’t follow it too closely. However, Silver is also much more volatile than gold – down 10% versus 5% for gold’s decline – so that’s another reason I don’t recommend it. However, if you believe it is a great investment, I would say go for it if you have done all your due dilligence homework.)

Stocks – have been going up when measured by the DJ30 or the S&P indices. This is being caused by the Quantitative Easing 2 money being poured into our economy by the FED finding a home in stocks (plus other places too). However, there is an underlying trend that you should not miss. The small cap stocks are underperforming the rest of the stock market. In other words, money is coming out of small cap stocks and going into large cap stocks (like the DJ30) stocks) – go and check out what is happening to those small caps, and you will be happy if you are not invested in them.

Bonds – are falling in value as interest rates trend upward. This is the unexplained phenomenon as the FED is trying to reduce interest rates, but the market is defeating that goal, by raising interest rates. Also, I have been reporting on the beginning of the end of the Muni Bond market which will also have a negative affect on bond values sometime later this year.

Dollar – started the year going upwards, but has fallen off sharply during the past week. The Euro is now standing at 1.36 Dollars/Euro. We will have to wait a little longer to see if the Dollar confirms its downward trend against all currencies.

Oil – started the year going upward, and went as high as about $92/barrel. It is now standing around $88/barrel, as the OPEC have “hinted” they may increase the supply of oil. You can ignore just about anything the OPEC nations ever say, and history shows they don’t follow up with their promises too well. Oil wil probably hit $100/barrel by the first half of 2011.

Other News……

The Irish Government fell last week, and they called a general election on March 11th. The ruling party will be wiped out in the next election as just about everyone in the country sees how incompetent they truly are. They have earned their fate. However, the much more interesting thing to follow is whether of not the next government to come into office will “repudiate” the deals made with the EU and IMF. If they repudiate them, it will cause a shock waive heard around the world, and Greece will probably line up to do the same thing.

Spain is planning a restructuring of its banking system. Effectively, I believe there will be a Spanish bailout of its banks as part of the restructure plan. This sounds way too similar to what the Irish Government did before it found out how bad the banks really were. There is a natural tendence for any bank to hide its real problems – assuming it has some bad problems. Spain is no different. People in Spain are demonstrating with “Donde Esta Mi Donera?” signs. Spain is just further behind the power curve than Ireland. Watch out for Portugal and Italy too.

Dubai built those beautiful islands off its shore so massive resorts and hotels and residences could be built on them. I find it amusing that those islands are being reclaimed by the sea (sinking in effect), as the waves and tides due their endless work. I wouldn’t have wanted to be one of the millionaires who bought one of those lots and built a mansion on it.

Financial Regulation

cuible — Fri, 11 Dec 2009 23:22:38 +0000

Stocks went up a little today on the retail sales news. Bond interest rates increased at the same time – continuing their sideways trough move.

The Dollar strengthened another cent against the Euro. This had the effect of reducing the price of gold, and reducing the price of oil/gasoline.

Gold is now approaching my first buy position of $1100/ounce. However, I am hoping it continues its fall much further and faster.

Oil has fallen below $70/barrel in spite of the growth engine happening in China, and is looking like it could help support the grow of the US economy as gasoline might just fall in price.

In the news today……

Retail Sales – rose 1.3% in November, and up from the 1.1% in October. This is great news for the economy, as these sales will push through the entire economy and help wholesale sales, and manufacturing. Some day it might even cause more jobs to be created.

Auto Sales – did you know that the number of cars sold in China is GREATER than the number of cars sold in the US? That says a lot about the economy of China, as their economy is way smaller than our economy. The standard of living is increasing by leaps and bounds in China. It must be like living in the US in the 50’s and 60’s. I wonder when there will be a Chinese rock and roll.

Tonight’s Dinner Conversation…..

The House passed legislation to regulate the financial industry. The Senate will consider this subject some time next year. I don’t know the details; do you? I doubt that many people really know the details. In fact, I doubt the legislators (scumbags) even read the regulations.

The one thing I do know is that whatever is in this bill, it isn’t for my good, or your good. Why do I believe that? Because Congress works with special interests to draft these new laws, and someone (we’ll find out later) will be benefiting from these new laws. There appears to always be a payoff to someone. Also, I strongly suspect that some freedoms will be lost – certainly by the financial industry, but also by yourselves – somewhere hidden in the details. Look for it.

I can give you one example that came from my banker who went to DC to lobby against this legislation. The US Treasury weenies were acting like this legislation was already law, and were demanding certain actions from the banks. Oh, by the way, it means all banks – big and small. Don’t think this is aimed at just the Wall St giants who are too big to fail. No, it also will hit your corner bank. Back to the example, When you want a HELOC loan, your local bank will not only be presenting its normal HELOC loan package, it will also be presenting the US Government HELOC loan package. It is presumed that eventually, the local bank’s package will be eased out by the government – and you will only be able to consider a Federal Government package.

What do you think about that?

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,472 (up 66 points)
10 Year Treasury Bond – 3.54% (up 0.06%)
Euro – $1.4622
Gold – $1116 (down $16)
Oil – $69.73 (down $0.81)
Gasoline – $1.84 (up $0.01)

Big Oil Find

cuible — Wed, 02 Sep 2009 20:14:30 +0000

Stocks went sideways today with a downward bias. Bonds continued to increase in value (lower interest rates) and this is great news for all interest rates, but particularly mortgage rates sometime in the next couple of weeks.

The Dollar went sideways, as did Oil and Gasoline.

Gold was the big mover today, and ended up $22 today, breaking out of its trading range on the upside – this is spectacular news for gold buffs.

In the news today……

Productivity – rose 6.6% annualized during the 2nd Q 2009. This is a massive increase caused by companies slashing spending during the current recession. One of the major cost savings has been “labor costs”. Let’s look at productivity, and ask the obvious questions. What is productivity? It’s the change in cost to produce things. An increase in productivity means that the companies can produce 6.6% more goods for the same money. Who gets the money? The company – and in the past, companies used it to pay employees more money while increasing their earnings. Now, companies are keeping the whole thing to bolster their earnings. Things have changed.

Job Losses – are still increasing, but at a slower rate according to ADP – who puts out jobless rates earlier than the government, and does it for the private sector. The government will state this is good news. I say BS. The economy is still losing jobs, and as long as we are losing jobs, our economy is just getting worse. It’s as simple as that.

BP finds oil – in the Gulf of Mexico and in US waters. It’s estimated to be 3 billion barrels. BP is the biggest driller in that area, and this is great news. It’s a very deep (7 miles down) oil find, and it must be studied further, but it means the US will have more oil, longer that anyone thought before. It will drive the greens nuts because they would like to see the wheels come off of cars before seeing more oil pumped. It will drive the global warming crowd nuts because they would rather see the earth go into another ice age than have oil pumped – oh, by the way, did you know that “animals” cause more CO2 than our trucks and cars? That tells me that the global warming crowd should become vegan before they ever protest our transportation again.

Here are the last numbers for today:
Dow Jones 30 Industrial – 9281 (down 30 points)
10 Year Treasury Bond – 3.30% (down 0.08%)
Euro – $1.4271
Gold – $979 (up $22)
Oil – $68.05 (no change)
Gasoline – $1.81 (up $0.03)

Bond Supplies

admin — Tue, 06 Jan 2009 01:01:17 +0000

Stocks fell slightly today.

Bonds had plenty of action with interest rates shooting upward – see article below.

The Dollar strengthened as oil is thinking that the US economy will be coming back fast – kind of illogical, but that’s the market.

Gold lost some of its luster, falling $22.

Oil and gasoline powered ahead as the Russia/Ukraine gas situation, and Israeli/Gaza incursion is causing oil to command higher prices. Gasoline is now at a level where pump prices should start to go UP!!!!!! This is bad news for all the optimists in America who were enjoying the cheep gasoline. Let’s hope oil prices fall soon.

In the news today….

Bonds were acting quite normally, and I want to take this opportunity to show you one way that interest rates can go UP. This is happening right now. Why?? There is a big supply of bonds coming on the market right now. Why??? Because the US Government has been spending so much money (and doesn’t have the money) that it must finance its spending by writing bonds, and selling them to whoever will purchase them. The supply is truly astounding with new terms (like 3 year bonds) and rumors of 40 year bonds. This level of supply is spooking bond traders, and interest rates are rising accordingly.

Consider the idea of a 40 year bond. Why would the US Government want to sell 40 year bonds? Simple in my mind. Interest rates are at historic lows. If they can get someone to buy these bonds – knowing fully that interest rates will be rising in the future – they will sell them at low interest rates now, and be able to pay those low interest rates for the next 40 years. A neat trick if there are buyers – and there are buyers.

International Trouble???

The Italian Government is (rumored) to be considering suing JP Morgan, Deutsche Bank and UBS for $47.5B of bad swaps they sold the Italians in the 90’s. When things get bad, the people who lost their money go hunting for the guilty. This unraveling of the financial problems will continue, and will continue to have downward pressure on the financial institutions and banks. The size of this particular problem got my attention.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8953 (down 82 points)
10 Year Treasury Bond – 2.49% (up 0.07%)
Euro – $1.3617
Gold – $858 (down $22)
Oil – $48.81 (up $2.47)
Gasoline – $1.18 (up $0.07)

Merry Christmas

admin — Mon, 22 Dec 2008 21:30:00 +0000

Merry Christmas to all the EconomyGuy readers. Enjoy this season with your loved ones.
There won’t be an economyguy tomorrow, as I will be traveling and the market trading is very light.

All markets went sideways today, and will probably continue for the rest of the week during those days when the markets are open.

Gasoline fell below $0.90/gallon today; it’s lowest in a very long time. Expect lower gasoline prices.

In the news today….

Christine and the first trading days of the new year are the best predictors of the next year’s stock market growth. These are historically the most positive market days all year. This year the markets look downright dreary, and if the proves true during the next 2 weeks, 2009 will be another bad year for stocks – statistically speaking.

Commercial developers will need to roll over $160B (that’s billion) in debt in 2009. As you know credit is tight, and banks are not lending as easily as they did before. If these developers don’t get their money there will be a lot of commercial properties – complexes, hotels, shopping centers – that will be going into default. This will continue to depress commercial real estate in 2009.

Protect Yourself if you’re buying insurance….

If you are planning on buying some life insurance or an annuity, you MUST check out the strength of the company you are purchasing it from. Go to website AMBest.com and make sure the company is rated AA+ at a minimum. This is no different from pulling a “carfax” on a car you’re thinking about purchasing. Protect yourself. In these unsafe times, you must take these extra steps.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8515 (down 65 points)
10 Year Treasury Bond – 2.14% (up 0.01%)
Euro – $1.3944
Gold – $847 (up $10)
Oil – $39.91 (down $2.45)
Gasoline – $0.89 (up $0.08)

FED To Buy Treasury Bonds

admin — Thu, 18 Dec 2008 00:50:26 +0000

Stocks fell 100 points today after the market decided that the FED move yesterday wasn’t all that great.

Bonds continued their massive drive upward in value (decrease in interest rates), and the 10 Year Treasury is now exploring whether it might break through 2%.

The Dollar continued its massive fall in value, falling another 3 to 4 cents today – that’s about 14 cents in 3 days – a massive route of the Dollar.

Gold continued climbing upward and ended today at $869. Do you remember when it was about $700 just a very short time ago. What a massive rally has taken place. I hope the readers got their fair share of gold.

Oil fell and is threatening to breach $40/barrel on the downside. Gasoline is acting contrary to oil right now. Gasoline has stayed in the range of $1.00 to $1.10 while oil is blowing from $40 to $50 – a much bigger percentage swing. Something is going on in the gasoline market – and I wonder if it’s speculation?? The oil and gasoline market are important to watch now as they strongly influence the US economy as a whole, and hit our individual pocketbook directly at the pump.

In the news today…..

More on the FED’s plan to do whatever’s necessary for the economy. The FED plans to knock down longer term interest rates by purchasing Treasury Bonds. Why??? Longer term interest rates influence other interest rates, especially home mortgages and auto loans. If the interest rates for homes and autos can be brought down, then some of the fundamental problems in the economy will be being tackled. Lower home interest rates will encourage more home buying. Lower auto loans will encourage more car buying. These will help, but not necessarily solve, the financial problems we are seeing today.

OPEC has announced that they will cut production by 2,200,000 barrels per day. The reaction of the oil market was irrational in my opinion. The price of oil fell. The reason given was that oil market players were disappointed that the cuts were not greater. A rational response would have included an estimate showing how much less demand exists, or will exist, in the world given the economic slowdown. But, I’m not surprised because markets are irrational (just like people.)

Here are Today’s numbers:
Dow Jones 30 Industrial – 8824 (down 100 points)
10 Year Treasury Bond – 2.19% (down 0.17%)
Euro – $$1.4410
Gold – $869 (up $26)
Oil – $40.06 (down $3.54)
Gasoline – $1.01 (down $0.03)

Oil Drops $100 In 4 Months

admin — Tue, 02 Dec 2008 22:57:33 +0000

Stocks gained some of yesterday’s losses – ending up 270 points. Just trading moving the market today.

Bonds continued their record breaking increase in value – but only a little gain today.

The Dollar fell a little today, and gold gained back some of yesterday’s loss – based on the stock market movement.

Oil and gasoline were the BIG MOVERS today with oil dropping below $47/barrel. This is over $100 drop in price of oil in the last 4 months. Would you have bet on this big a move?

In the news today….

No news today except the Big 3 Auto Manufacturers begging for money. Congress seemed like they support the idea, and stated they didn’t want the auto industry to go into bankruptcy. My interpretation of this stance is that Congress doesn’t want the unions to have to take a big hit in the auto industry, and is protecting them somewhat. I believe this is short sighted because it doesn’t address the imbalance of wages between the Big 3 and all other auto manufacturers in the US (mostly in the South).

If my analysis is correct, the Congressional decision might just delay the inevitable – and this is common for Congress to make a trade-off that delays the pain. They can get more votes, but at what cost? Remember that you pay ALL the bills in Congress. Are they representing your interests the way you want them to? If so, tell them so. If not, them them so. Become engaged citizens and make your voices heard on all key issues facing the US right now. You can easily send messages to Congress via their website.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8419 (up 270 points)
10 Year Treasury Bond – 2.69% (down 0.03%)
Euro – $1.2720
Gold – $783 (up $7)
Oil – $46.96 (down $2.32)
Gasoline – $1.06 (down $0.05)

Government To The Rescue?

admin — Tue, 11 Nov 2008 22:46:50 +0000

Stocks were scared about the bad earnings and financial meltdown continuing – worry about the government bailout working or not working. Shares ended down 177 points today. Bonds went sideways today.

The Dollar strengthened, and gold fell.

Oil and gasoline fell to new recent lows, and this means cheaper gasoline coming down the pike to us all.

In the news today…..

AMEX is now a commercial bank – no longer just a credit card company. AMEX did this so it could take deposits and government loans. This is a very bad sign for AMEX. Their credit card risk must be hitting home right now as the economy tanks and people can’t pay their AMEX bills. This is also a bad sign for the implosion of the credit card bubble. We really don’t have a measure on how bad this bubble really is, but it could take down the major credit card companies – providing the government doesn’t bail them out too.

The Post Office has plans to lay off 40,000 employees. This will be the first layoff in the post office EVER. I wonder if this is politically correct and whether or not they will be allowed to lay people off under the new administration.

Oil hit a new low today – lower than $60 per barrel. This means lower gasoline prices for you – Hurrah!!!!! More importantly, it means that Russia is now producing oil for a greater price (over $60/barrel) than it sells it for. If this brings economic hardship to Russia, that’s just not good for world stability. Watch for greater turmoil within Russia.

The Housing Market – the Government to the Rescue????

The Government is coming out with a plan to save the housing market. Since the government now owns Fannie and Freddie, and those institutions control over 50% of the mortgages in the US, the US is now setting up guidelines for re-negotiating some bad mortgages, and keeping the home owners in their house. Here are some details:

• The home owner must be 3 months behind in his/her payments
• The home owner’s mortgage must be greater than 90% of today’s home value.
• The interest rate can be reduced so the monthly payment is 38% of the household income.
• Or, the mortgage can be extended from 30 years to 40 years.
• Or, some principal amount can be “deferred.” (I wonder what deferred means.)

4 million mortgages, or 9% of all borrowers, are are behind in their payments or in foreclosure. 2 million of these mortgages are controlled by Fannie/Freddie.

There is no bottom in sight for housing prices as of today.

Tonight’s Dinner Conversation……

Will the government’s plan to save the housing market work? And why?

Here are Yesterday’s numbers:
Dow Jones 30 Industrial – 8694 (down 177 points)
10 Year Treasury Bond – 3.76% (down 0.01%)
Euro – $1.2529
Gold – $733 (down $13)
Oil – $59.33 (down $3.08)
Gasoline – $1.31 (down $0.06)

The Market Speaks

admin — Thu, 16 Oct 2008 00:14:35 +0000

The stock market has spoken. Everyone was so happy last Monday when stocks surged – so fast, and so far – a record amount. In the last two days, the stock market has lost over 800 points. This is tragic news for people who are depending on increasing stock prices to maintain their retirement, or provide enough to retire. However, my point here is that the market has spoken – the US economy ig going into the toilet – and stocks (as a future projection of value – sometimes) is saying that stock prices must go down to reflect that future value.

Bonds barely moved today – and that’s great news. In fact, the 10 Year Treasury Note fell 0.01% in its interest rate – and that very slight reversal in course is nice to see – as a top in interest rates of the 10 year duration could be near.

The Dollar and Gold both moved sideways in a well worn track.

Gasoline and Oil fell again, and this time to near term lows. The Oil price is saying that a recession is going to happen, and it will hit not only the US, but the entire world – therefore demand will drop significantly, and the price is anticipating that right now. Naturally, this price action is fairly irrational, but it is nice to see at the same time. As humans we like seeing prices decline when they help us, and hate seeing prices go up when they hurt us. That’s our feeling about Oil and Gasoline right now.

In the news today….

The wholesale price index – the PPI, or Producer Price Index – dropped 0.4% in September. Great news. It’s caused by declining energy prices, and declining commodity prices. The core PPI (the one without energy and food) actually increased 0.4%. The Core year over year increase is 4%, and the total PPI year over year is 8.7% – the highest since 1991. That is a sign of coming inflation – and the bond market is reacting accordingly.

JP Morgan wrote off $3.6B in bad loans – mortgage loans, credit card loans, and all other types of loans – across the board. This tells me two things: (1) that the drip, drip, drip of bad news will continue – as JP Morgan is one of the strongest banks in the US (what about those other banks??), and (2) we are beginning to see reasons other than real estate mortgage losses creating losses in banks.

Retail sales were down 1.2%, and this is the third monthly fall in retail sales. Three months in a row is enough for me to declare that the general public is voting with their pocket book. This is a sure sign that a recession is here – as consumer spending is about 3/4 of the GDP calculation.

Oil fell below $75/barrel today, and that’s about half of its peak. Isn’t that amazing? Do you think this is “negative irrational exuberance?” Or, do you think this is just what it’s worth in today’s environment?

Tonight’s Dinner Conversation….

The housing market is the primary cause of the illiquidity, banking sector meltdown and bailout actions. So, what’s the housing market doing? Where is the bottom of this market? When will prices stop dropping? One key measure in this complex equation is the number of people buying houses. Here is a graph of the number of mortgages and refi’s that happened historically to date:

Look at the RED line going down strongly for the last year. It is currently still falling, and that’s not a good sign. This means there are fewer and fewer people willing to purchase a home in the US. REFI’s, on the other hand, are increasing slightly, and I believe this is because some people are getting some tremendous real estate buys (buying for little money, or for cash), and are putting mortgages on these properties after they buy them.

Here is your question for tonight. How low will the number of purchase mortgages go before the market turns around? I know, this is a tough question, but some of you are very close to this situation, and probably have an answer.

Here are Today’s numbers:
Dow Jones 30 Industrial – 8578 (down 733 points)
10 Year Treasury Bond – 4.01% (down 0.01%)
Euro – $1.3500
Gold – $839 (down $1)
Oil – $74.54 (down $4.09)
Gasoline – $1.78 (down $0.10) – another major drop in wholesale gasoline price.