Investment

» BoltonCT - The commodities bubbles

You heard it here first. This is what is happening not just to the oil industry but to all industries that process commodities that are subjected to inflation between when the commodity enters and exits the process.

As the price of oil rises rapidly in a volume industry with very narrow profit margins... the price of the oil coming out of the pipe is higher than the price going in. The increase in price becomes an incentive to buy and hold just as it was with the housing bubble. So inventories increase because the refineries slow down their process and create a supply shortage that causes the price at the pump to rise as fast (percent wise) as the price of oil rises. That would not happen if the oil refiners were not taking more profit margin by slowing down the refining process.

This slow down helps the bottom line of every industry seeing significant inflation. And it feeds on itself because the processing or manufacturing slowdown keeps production below what would be the normal drop in demand as prices rise. So the prices continue to rise not because Americans continue to demand the gasoline. Americans are reducing consumption but refiners are keeping their inventories high by slowing down processing with plant closings. The Arabs then are seeing the stable prices at the pump and are slowing their processes as well. Of course we are kept in the dark and the Arabs and oil companies can do this indefinitely and keep prices going up while demand is falling because the FED is being so good to the oil industry by creating this inflation.

So what will eventually break the camels back? When the inflation is stopped the oil industry will try to empty the pipeline as fast as possible because any price decline will destroy their profit margin. Prices will then tumble because the Arab oil producers will see their cash drying up fast and will raise production. This bubble will burst when the FED stops devaluing the dollar and inflation comes under control again.

-- posted by BoltonCT

» Normxxx - The commodities bubbles

In response to The commodities bubbles posted by BoltonCT:

So inventories increase because the refineries slow down their process and create a supply shortage that causes the price at the pump to rise as fast (percent wise) as the price of oil rises. That would not happen if the oil refiners were not taking more profit margin by slowing down the refining process.

They don't have to slow; don't you remember all those attempts by refineries to increase their plant, which was kiboshed in most US places by NIMBY? Now, we have a genuine shortage of refinery plant in the US, and foreign refineries have their own 'preferred' customers.

Ironically, NIMBY pretty much put paid to many of those Natural Gas Processing plants for Imported NatGas; so I hope you have a wood or coal burning fireplace.

Trust us Americans to cripple all attempts at energy sufficiency and then blame it on "those other people." Funny, France has NO oil and little NatGas but is doing quite well in the energy area- she never stopped building Nuclear Power Plants. I believe she is the only one (or one of a very few) to be using fast breeder reactors, so will not have to worry about a shortage of uranium. No doubt she will sell excess electricity to Germany.

-- posted by Normxxx

» BoltonCT - The commodities bubbles

In response to The commodities bubbles posted by Normxxx:
"Ironically, NIMBY pretty much put paid to many of those Natural Gas Processing plants for Imported NatGas; so I hope you have a wood or coal burning fireplace."

These NIMBY folk are actually environmental groups like the Sierra Club. They also fought against off-shore wind power because birds might fly into the wind mills.

Inventories have long been recognized as inefficient and destabilizing because recessions usually last until inventories fall and production resumes. Inflation encourages inventories because inventories appreciate in value. That makes the bubble bursting longer in duration and more damaging.

-- posted by BoltonCT

» BoltonCT - Market is overbought, risk of free-fall

European stocks fell for a third day, reversing morning gains, as Royal Bank of Scotland Group Plc and UBS AG fell. European bank stocks are taking 4% to 5% hits today.

Three hours before the start of trading, Nasdaq and S&P futures were little changed, while shares in Asia advanced. China was up over 4% but still in a steep monthly decline. Most of the rest of Asia was flat or fractionally changed with Japan up .23%

Intentionally Avoiding the "Risk Trade"
John P. Hussman, Ph.D. see: http://www.hussman.net/wmc/wmc080421.htm

Last week largely represented an unwinding of the "defensive trade" as investors embraced the "risk trade" instead - Treasury bond prices dropped sharply, and consumer staples and a number of other defensive sectors were down or relatively unchanged, even as financials and materials gained strength.

We are intentionally avoiding such risk sectors on the expectation of further financial sector weakness, and because materials and cyclical stocks currently rely on sustained commodity price strength and "decoupling" between the U.S. and foreign countries. I continue to view commodities as cyclical, and decoupling as implausible - indeed, my impression is that the commodity surge will likely be turned on its head within a few months, about the point where 10-year Treasury yields move above the year-over-year CPI inflation rate. Spike tops, spike bottoms, and steep reversals are common. Investors overly tied to the commodity boom and "global demand" as drivers of investment positions would do well to examine that behavior. It is often initially painful, but ultimately worthwhile to remember that it's best to panic before everyone else does.

The market is again overbought in a still-unfavorable Market Climate, so I don't expect perceptions about economic, financial and earnings risk to remain suppressed for long. Given the affection of investors for risk last week, it is natural to ask why we don't take that at face value and immediately accept a speculative exposure to market risk. The reason is that the recent shift toward greater speculation continues to appear very fragile.

Indeed, to the extent that we can take any information signal from developing market action, it is that we should revise our expectations to allow for a much more significant slowdown in consumer spending than we have anticipated thus far. If anything, the evidence suggests revising our expectations about consumer spending and economic prospects downward. Bill Hester's latest research piece (Consumer Spending Break-Down - additional link below) details some of these concerns.

Divergent internals have historically been unfavorable for the overall market - sustained advances typically feature broad uniformity across industry groups and security types and price/volume behavior indicative of strong demand and conviction - not simply a "backing off" of sellers in the face of short-covering.

Given that the market is once again overbought in an unfavorable Market Climate, my impression is that the risk of a free-fall is significant. Aside from short-term speculative pressures (largely driven by relief about Bear Stearns), nothing in recent data suggests a material abatement of recession risk, mortgage risk, profit margin risk, or dollar risk.

As of last week, the Market Climate in stocks remained characterized by unfavorable valuations and unfavorable market action. Several of the unfavorable features of market action are discussed above. With regard to near-term market action, we currently observe an overbought condition in an unfavorable Market Climate - a condition which is generally (but not always) followed by abrupt market losses. It is certainly possible that we could recruit enough strength in market internals to shift to a more favorable Market Climate (though with a continued drag from overvaluation).

Frankly, it's difficult to believe that we've observed the market's final low. Bear markets associated with recessions tend to be deeper and longer in duration than average, particularly in periods of "secular" revaluation (which I believe we've been in since 2000).

In bonds, the Market Climate last week was characterized by moderately unfavorable yield levels and unfavorable market action. The compression we observed in Treasury yields in recent months was suddenly relieved last week, as yields surged and prices dropped sharply. Though I still do not view current bond yields as offering much investment merit, they are more consistent with the combination of economic weakness and still persistent inflation that we observe. Most likely, we'll see further abrupt demand for Treasuries as "safe-havens" in the months ahead, but taking an investment position on that basis remains purely speculative.

-- posted by BoltonCT

» Normxxx - The commodities bubbles

In response to The commodities bubbles posted by BoltonCT:

Inventories have long been recognized as inefficient and destabilizing because recessions usually last until inventories fall and production resumes.

But, it's hard to "stock up" in a JIT world; so signs of building inventories are TWICE as ominous, whatever the reason, as in the past.

-- posted by Normxxx

» Normxxx - Market is overbought, risk of free-fall

In response to Market is overbought, risk of free-fall posted by BoltonCT:

Indeed, to the extent that we can take any information signal from developing market action, it is that we should revise our expectations to allow for a much more significant slowdown in consumer spending than we have anticipated thus far. If anything, the evidence suggests revising our expectations about consumer spending and economic prospects downward.

But expect high inflation, as well! BB is well aware that the US was close to revolution in the early '30s because of the wage cuts that went along with the price cuts. In the '70s, with almost as bad a recession (but no one to screw up the banking system) we got through with hardly much grumbling- though wages were cut (largely through inflation)- about as much as in the '30s.

-- posted by Normxxx

» BoltonCT - "We need nuclear energy stupid!

The Shanghai Composite was up 9.29% no doubt for the good of the totalitarian masses. It was set that way and held that way trough the night. Clearly such action would have caused the volume of shares exchanged by external buyers to drop considerably. Totalitarian systems can do those sorts of things and if people wanted to sell out at the higher price they just would not have much of a market. But as you can see China felt it had to stop the fall of share prices as it was becoming a free-fall. In six months their market has as we predicted fallen almost 50%.
http://finance.yahoo.com/q/ta?s=000001.S...
The rest of Asia was mixed. We expect a slight recession in America because we have outsourced our marginal employment to India and China. So there are very few marginal workers and marginal factories left in America and the American cutbacks will affect Asia the most.
European stocks fell faster for a fourth day with Britain down 1.93% now half way through their day.
http://finance.yahoo.com/q/ta?s=%5EFTSE&...
France is currently down 1.64% and Germany is down 0.83% and all are declining at the present moment.
Three hours before the start of trading the Dow, NASDAQ and S&P futures are declining. The bloom is off at Bloomberg. For instance:
Dow Chemical Co., the largest U.S. chemical producer reported that first-quarter profit dropped 3.3 percent as the company sold less plastic in North America and costs for petroleum-based ingredients rose. Now that is much worse than it seems because we showed that inflation lets companies buy their ingredients low and to sell when the ingredients have appreciated in value. This implies that orders are declining precipitously and that the market is far more elastic that is the relatively inelastic market for gasoline.
America is a victim and is being held hostage by empty headed liberals who claim we have global warming and then force America to burn oil and to emit more CO2 by voting against nuclear energy substitution. The Europeans have already done about 80% nuclear substitution. With the French breeder reactors they actually produce nuclear fuel as a by-product from low-grade fuel and do not have to depend on African and American mines for high-grade ore. The only way to reduce our carbon footprint and continue to grow in a sustainable way is to go to clean nuclear power. But we have morons and certified lunatic politicians posing as scientists and environmentalists running around the country and two of the three possible new presidents are absolutely clueless. This year it is not, "the economy stupid!" This year for the entire world the slogan is. "Its nuclear energy stupid!"
During the industrial revolution of the 1800s the crisis was when the world had to switch from waterpower, wood, and coal to oil as the energy source. Now we have a world crisis where we have to take Al Gore and his lunatic supporters aside and tell them "we need nuclear energy stupid! That gets the world CO2 footprint down without a world wide financial depression. We need to make that an election issue this year before it is too late!
You have heard it here before and you heard it hear first. Now tell the rest of America. The answer to this worldwide crisis is nuclear energy.

-- posted by BoltonCT

» BoltonCT - Al Gore knows what to do

A rice shortage exists at San Francisco's Asian restaurants and stores. A group came into Farmer Joe's Marketplace in Oakland one morning this week and bought all the 50-pound bags of rice. A few miles away at Berkeley Bowl Marketplace, long-grain rice is sold out. With the dollar declining the hungry world is now taking the food off our tables. We are importing everything now so why not import hunger as well. The FED loose policy and fiscal irresponsibility are the reason. And with the election choices this year it will either stay the same or get even worse. When will the city rioting begin? This could be a long hot summer.

Stocks are set to start higher today.

Asian markets were mixed today with Japan up 2.38% and China down 0.71%.

European markets are up about 1% at the moment and are still gradually rising.

Today American markets will be testing the upside trading range again.

Clean cheap nuclear generated electricity would finally make mass transit affordable. First it would get America off an oil dependent economy. Then electricity would replace the need for fuel tanks and the trains would be economical as they are already in all of Europe. Our carbon footprint would drop faster than in Europe because we have so much further to go. With mass transit the need for cars would drop and cities heated and cooled by electricity would be rejuvenated. America would be advancing again as fast as in the early 1900's. And of course Al Gore would no longer have to worry about polar bears going extinct or the ice cap melting. This potential solution probably has already been invented by Al Gore and he is waiting for the right moment to announce it. After already inventing the Internet and getting a Nobel Prize it is time for him to announce he invented nuclear energy to save the planet.

Of course there could be no market then for trading carbon footprint derivative financial instruments and ripping off the world.

-- posted by BoltonCT

» Normxxx - Al Gore knows what to do

In response to Al Gore knows what to do posted by BoltonCT:

Just shows how close to the margin we ride, even when there are no real food or other critical shortages- just a panicky rumor is enough to just about close down the rice markets...

Now if we suddenly developed a pretty general grass disease (all of our food grains- rice, barley, wheat, ... are converted grasses)...

-- posted by Normxxx

» Normxxx - Al Gore knows what to do

In response to Al Gore knows what to do posted by BoltonCT:

Speaking of Al Gore, are you aware that the earth's temperature has NOT risen in the last 10 years and the UN meteorologist predicts a 1.5% DROP in temperature (based on the solar cycle) over the NEXT 10 years!?!

-- posted by Normxxx