EconMatters

By Econ Matters The Fed Minutes are from the July 31-August 1 meeting, this was before they latest run-up in asset prices. For example, WTI was $88 dollars a barrel then, now it is $98 and with the new asset prices any QE3 thoughts have now been priced out of the market. In short, the Fed minutes from three weeks ago are outdated. There is no way with eight dollar corn prices and 4 dollar gas that the Fed does any major QE3, just forget that notion Chart Source: US EIA, August 22, 2012 The very run-up in asset prices has in essence precluded the Fed from being able to act, prices and inflation are too damn high to do any material actions now. So the bulls can start re-pricing this fact out of the market or they are going to be severely surprised when no major QE3 initiative comes down the pike. Talk about putting the cart ahead of the horse. The bulls have taken and ran with a far- fetched notion that has a very low percentage of occurring right now. The old trade of buying the rumor and selling the news is actually backfiring this time because
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By EconMatters The big buzz about the debt-embattled Euro Zone on an otherwise quiet Sunday came from German news magazine Der Spiegel that ECB is considering measures to cap the borrowing costs of the crisis-central PIIGS countries.  According to Bloomberg, The European Central Bank is considering setting limits on yields of euro area sovereign debt by pledging unlimited bond purchases, Germany’s Spiegel magazine reported without saying where it obtained the information. The policy will be decided at the September meeting of the ECB’s governing council, Spiegel said. Earlier this month, U.S. Treasury Secretary Geithner has already put on the pressure saying “the eurozone must take steps including bringing down interest rates in the countries that are reforming.” With the PIIGS sovereign bond yields rising to unsustainable levels (See Chart Below), it is understandable why ECB resorts to this “big bazooka” plan partly making good on ECB President Draghi’s bold promise to do “whatever it takes” to save euro.  However, it also demonstrates how the Euro Zone seems to be at its wit’s end to effectively restore market confidence. Instead of simply a problem of higher bond yield, central to this crisis is PIIGS nations have had years of excessive spending relative to revenues,  If these
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By EconMatters, Aug. 18, 2012 After reporting an uptick of national unemployment rate of 8.3%, it is of little surprise that the Labor Dept. said on Friday that jobless rates rose in 44 U.S. states in July, with many states showing a monthly increase in more than three years.     Chart Source: Calculated Risk, August 17, 2012 Unemployment Rate To Remain Sticky   On the surface, the U.S. national unemployment rate has seemingly dropped almost a full percentage point from the high of 2011.  Nevertheless, the record rate of people dropping out of labor force, and long term unemployment has become a bigger problem than ever before, suggest the real labor market is worse than the headline unemployment rate entails.  Remember, people in the “Not in Labor Force” bracket (e.g., going back to school, discourage job finders quit looking, etc.) are not counted as “unemployed.” Monthly job gains have averaged 150,000 this year, close to the 150,000 to 200,000 a month of new jobs Fed Chairman Bernanke said needed to reduce the unemployment.  But eventually, a significant number of people will come back in the labor force to find jobs again, coupled with the increasing  difficulty for the long-term unemployed to land a job,
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By EconMatters Cisco Well, miracles do still happen, that dog of a stock for the last (too long to count) actually beat for the quarter, yes I am talking about Cisco Systems, Inc. (NASDAQ:CSCO). Cisco Systems, Inc. (NASDAQ:CSCO) quarterly reports often send the market down 200 points; they have woefully underperformed the market by a large margin. Not only did Cisco have a good quarter in this environment, but they raised their dividend by 75%. Can you say short squeeze tomorrow? If all goes well in the conference call with reasonable guidance, and given the preview on CNBC, expect a big Risk On day tomorrow for equities.                                                                         Chart Source: Yahoo Finance, Aug. 15, 2012 In fact, because we are right up against resistance in several markets such as Oil, Bonds and the S&P, the volume should finally pick up and some key resistance levels could get blown through on Thursday. Cisco is one of those bellwether stocks that either lifts or plunges the rest of the market; expect
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EconMatters had the pleasure of speaking at the 2012 Ontario Advocis School for the Financial Advisors Association of Canada on August 14, 2012.  Chairman Mr. Dennis Yanke was kind enough to leave the topic at our complete discretion.  We finally decided on the topic of energy, since oil and gas not only touches people’s lives everyday whenever you flip on the light or gas up at the gas station, but it is also something we frequently discuss here. In this presentation, we give a high level comprehensive look at the unconventional energy in the U.S. and Canada, the impact from the shale drilling boom, constraints and challenges of the oil industry, and the near term outlook of the oil and gas market.  Hope our readers will find the presentation at least interesting as well as informational. By Econ Matters 'Get ValueWalk's Daily Edition By Email and Never Miss Our Top Stories'
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By EconMatters Crude Oil prices for WTI were just $78 dollars in July, a month later they are $93.40 with supplies well above their five year average range, China decelerating at a rate not seen since the financial crisis, and US gasoline demand down 4.2 percent year-on-year and distillates down 2.8 percent. So what the heck is going on in the Oil Markets? Well, just look at the S&P for your answer: Capital has flowed into assets based upon the expectation that Bernanke and his cohorts at the Federal Reserve will print some more money out of thin air in the form of some monetary easing initiative falling under the heading of QE3. (See Chart Below) Will the Fed ever learn that they cause more harm than good in the Global and Domestic economy with these QE initiatives that are the proverbial sugar rush to asset classes on one hand, but cause far more structural damage to the economic recovery by adding a huge federal tax premium to gasoline prices in the process. This just is the same old cycle over and over: QE Program Gasoline prices explode upward with the rise in Oil Consumers pull back discretionary spending Economic growth slows down
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  By EconMatters The Energy Department reported that natural gas in storage grew by 26 billion cubic feet to 3.189 trillion cubic feet for the week ended July 20. The inventory level was 15.8% above the five-year average of 2.754 trillion cubic feet, and 18% above last year’s level. Low natural gas prices in the U.S. this year has not only tanked the stocks of many gas-weighted producers, but also dragged down profits of U.S-based oilfield services companies as a result of reduced gas drilling activity (See Chart Below).  However, since hitting a 10-year low of below $2/mmbtu in April, Henry Hub benchmark prices has surged 69% hitting $3.214/mmbtu on Monday, July 30, the high of the year. Source: EIA, July 18, 2012 The latest bullish sentiment is fueled mostly by forecasts for more unusual heat this summer to increase air conditioning use.  In addition, there’s also an increase in usage/demand as lower natural gas prices have also attracted many utilities to switch from coal to natural gas for power generation.  According to the EIA, electricity generated using natural gas was roughly even with coal for the first time ever in April.  Historically, natural gas typically supplied just over 20% of the domestic electricity
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    By EconMatters Since the Global Community all the sudden seems to be preoccupied with Market manipulation even though the authorities knew it was a problem for over 5 years with Libor Rate Fixing. It is high time authorities look at the Crude Oil market which has been manipulated for the last decade and all the sophisticated participants know it is rigged or artificially higher than the fundamentals of the economy dictate.Consumers are paying an easy $35 dollars per barrel over what they would otherwise doll out for a barrel of oil if fund managers didn`t use the benchmark futures contracts as their own personal ATMs. Just a month ago Crude Oil WTI was $78 a barrel and today it is $93. Do you think the fundamentals changed one bit to merit this price swing? Nope! Supply levels are all at record highs around the world. Is it Iran? Please!! It is all about the money flows, nobody takes delivery anymore. Assets have become one big correlated risk trade. Risk On, Risk Off. If the Dow is up a hundred, you can bet crude is up at least a dollar! It has nothing to do with fundamentals, inventory levels, supply disruptions, etc. It is
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  The wild ride of Netflix, Inc. (NASDAQ:NFLX) shares continues. After plummeting from above $300 a share to around $60 all within the past year mostly due to poor management decision. Netflix shares spiked more than 21% in one week to close at $81.89, the highest level in two months, on Friday July 6. Chart Source: Yahoo Finance, July 6, 2012 Netflix is not scheduled to report its full earnings for Q2 until after the market close on July 24. Rather, this latest renewed enthusiasm came primarily from an upbeat Facebook update by CEO Reed Hastings: “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When House of Cards and Arrested Development debut, we’ll blow these records away.” The stock also got a bump after Citigroup reiterated a ‘buy’ rating on Netflix shares, calling the price “highly reasonable” with a target of $130 a share, about 56% from the current level. Judging from the price movement, the unexpected buying action most likely also resulted a massive short squeeze. (Hastings’ Facebook page has almost 206,000 subscribers.) Nevertheless, Netflix shares are still down 26% in the last three months and off 72% in the past year. Netflix has been beefing up its program offerings
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June employment report from the BLS said the economy added 80,000 jobs (+84,000 in private sectors, -4,000 in government jobs) in June.  The unemployment rate is unchanged at 8.2% from May, while the U-6 under-employment rate rose 0.1% from May to 14.9% (in 2007, the rate was 8%).  The jobless rate has stuck above 8% for over three years since February 2009, the longest such stretch on record since 1948. Even though the total employed jumped by 128,000, the jobless rate remained the same, primarily because the labor force increased by a larger 189,000.   That is not a good sign when the labor force is growing faster than job growth, as it suggests the unemployment rate could hit higher if the trend continues.  Out of the total unemployed, 41.9% or 5.4 million is trapped in the long-term unemployed category (jobless for 27 weeks and over), while growth in private payrolls was the weakest in 10 months. New Jobs in the USA (Sept. 2008 to June 2012) Chart Source: Flaglerlive.com The better news is that the jobless picture, while still gloomy, at least seems holding steady and not deteriorating.  The bad new is that don’t expect we can dig out of this unemployment
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The EUR/USD index edged up to 1.2533 on Wednesday, U.S. 4th of July holiday Wednesday in subdued markets ahead of the ECB rate decision to be announced on Thursday.  It is widely expected that ECB officials meeting in Frankfurt will cut benchmark interest rate by between 25bps to 50 bps to a record low of below 1% for the first time, and deposit rate to zero, according to Bloomberg News surveys. Chart Source: Yahoo Finance, July 4, 2012 Call for ECB to reduce interest reate has increased with a deteriorating Euro economy in recent months. Uunemployment rate rose to a record high of 11.1% in May.  Confidence level also dropped to the lowest in more than two and half years in June, while services and manufacturing contracted for a fifth month.  The European Commission now expects the euro economy will shrink 0.3% this year. Some believe rate cuts may lower money-market rates and encourage banks to lend, instead of hoarding cash,  Bloomberg reported that almost 800 billion euros is currently being deposited with the ECB each day. The ECB actually has lent banks over 1 trillion euros ($1.26 trillion) through its LTRO (Longer Term Refinancing Operations) program earlier this year–basically banks get a free ride on ultra cheap cash for three
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