Saturday, December 30, 2006

The Dry Bulk Market

12/31/06 The Dry Bulk Market

Marsoft: "Although dry bulk freight rates for 2006 as a whole have been down somewhat relative to their average 2005 levels, the rally which began in the middle of this year has gained further momentum over the past month. By early December, the Baltic Dry Index had climbed above 4,400 for the first time since April 2005.
All segments of the dry bulk market have seen moderate gains over the past month. The Baltic Cape TC Index rose from $63,000 per day in mid-November to $66,000 per day by mid-December. On our benchmark Tubarao/Rotterdam iron ore route, Cape rates rosefrom $17 per tonne, or $60,000 per day, in mid-November to $18.5 per tonne, or $67,000 per day, by mid-December...Although dry bulk fleet growth has accelerated in recent months, due to a surge of deliveries, this has not been enough to keep pace with demand. However, ordering activity has also accelerated during the past couple of months, with the orderbook now representing 22% of the existing fleet. This is not likely to pose much of a problem in the near-term, as most of the recently placed orders are not due for delivery until 2009 or 2010."

The Independent: "A vast ice shelf in the Canadian Arctic has broken up, a further sign of the astonishing rate at which polar ice is now melting because of global warming.
The Ayles ice shelf, more than 40 square miles in extent - over five times the size of central London - has broken clear from the coast of Ellesmere Island, about 500 miles south of the North Pole in the Canadian Arctic, it emerged yesterday.
The broken shelf has formed an ice island, in what a leading scientist described as a "dramatic and disturbing event", citing climate change as the cause."

Bloomberg reported India's foreign-exchange reserves rose by $32.18 billion over the past year.

For the year, the dollar index dropped 8.3%. That makes the stock market gains in the U.S. a good deal less appealing for many foreign investors. By comparison, the Australian dollar rose 8% to a 20-month high.

Doug Noland:"The bottom line is that the largest economy in the world – custodian of the global system’s “reserve currency” – has reached the point where only enormous Credit growth and financial sector leveraging are capable of maintaining inflated asset markets and sustaining sufficiently moderate economic expansion. This historic predicament is fomenting Escalating Global Monetary Disorder. Disregard all the “soft-landing” talk as nonsense. While housing and auto sectors were in downturn, the expansive “services”/finance dominated U.S. economy remained firmly entrenched in Bubble Dynamics... Instead of beginning to brace for the inevitable downside of the Credit Cycle, ultra-loose “money” enticed the system into embarking on the greatest expansion of risky Credits and the most outrageous speculation in Credit-related instruments/derivatives the world has ever known. At what cost? Well, a nearly $900 billion Current Account Deficit along with unprecedented speculative flows (to play global markets) literally inundated the world with liquidity...The year comes to a close with a troubling dichotomy: On the one hand, there are today’s fervently bullish perceptions with regard to the underlying soundness and resiliency of the U.S. economy and prospects of another banner year for U.S stocks in 2007. On the other hand, there is ominous dollar weakness, with the worn greenback exhibiting the erosion from yet another year of Bubble-induced non-productive debt expansion."

On Friday, the temperature range in Tucson was a high of 49 and a low of 40. Who says the cold weather is behind us?

On Saturday, a winter storm was expected to produce blizzard conditions and could dump up to 16 inches of snow across eastern Colorado, Kansas and New Mexico as far south as Albuquerque, forecasters said.
Interstate 70 and several other major east-west highways were closed Saturday from the Rockies east into Kansas. Interstate 25 heading south into New Mexico was closed at the border.

Friday, December 29, 2006


12/30/06 Liquidity

The European Central Bank announced an M3 money supply growth rate of 9.3 pct year-on-year, up from October's 8.5 pct and well ahead of economists' forecasts for 8.7 pct. Loans to the private sector grew 11.2 pct year-on-year in November, unchanged from October. What do you think of the chances of the ECB raising interest rates in February? Will increased rates accelerate the shift from dollars to euros?

Online retailers rang up $23.11 billion in holiday sales so far this year, a 26percent increase over 2005, according to data released Thursday by comScore Networks.
U.S. Web spending during the work week before Christmas grew 38 percent to $2.25 billion from last year.

The volume of help-wanted advertising in major U.S. newspapers was unchanged in November, the Conference Board said Friday. The research group's help-wanted index remained at 30 in November. A year ago, it was 38. Total online job ads declined by 119,800 or 3 percent to 3,711,300 in November, according to The Conference Board Help-Wanted OnLine Data Series(TM). There were 2.4 advertised vacancies online for every 100 persons in the labor force in November.

China's population of Internet users has risen by 30 percent over the past year to 132 million, a state news agency said Friday.
The figure was up from 123 million at the end of June, the Xinhua News Agency said, citing the government's China Internet Network Information Center.

The kidnappings and armed attacks plaguing oil companies operating in Nigeria's oil-rich Niger Delta are among the top security challenges U.S. businesses are likely to face in 2007, a State Department official said Thursday.

US oil demand in October was a whopping 560,000 barrels per day lower than initially thought, data from the Energy Information Administration (EIA) shows, with all key fuels coming in below earlier weekly estimates. Hence, the cutback in February scheduled by OPEC.

Natural gas bills in January are expected to drop 10.0% from last year. PG&E's residential customers can expect to pay $12.37 less for natural gas in January of 2007, compared to January of 2006.

France's unemployment rate fell to 8.7 per cent in November, the lowest level since July 2001.

The Financial Times: "The dollar interest rate swap market, which you probably do not spend much time thinking about, had, as of June, about $65,000bn in notional outstanding value, or something like five times the US gross domestic product. It is big, invisible plumbing and, like water mains, it is of little interest most of the time. Until, of course, there is a gurgling and nothing comes out of the pipe. To use analogies from the more visible markets, a five standard deviation move in the Dow Jones Industrial Average would be a decline of 350 basis points, or a 40-point drop in the S&P?500. That would have got your attention...“The key question,” says a banker, “is at what price the residual risk is held on the dealers’ books. The 5 per cent residual piece of a sub-prime mortgage securitisation might be written down to zero. That would be the conservative approach.”
However, the income from that written down asset is still counted when rating agencies, and swaps market counterparties, assess the creditworthiness of a bank or dealer. In other words, it may have disappeared from the asset side of the balance sheet but it remains on the profit and loss statement."

For the year, the Dow was up 16%, the S&P 500 14%, and the Nasdaq 10%. Gold finished at $638, crude at $61.05.

The Energy Department said Friday that supplies of natural gas held in storage in underground facilities fell by 46 billion cubic feet in the week ended Dec. 22. The draw was smaller than the 70 billion-cubic-feet decline analysts were expecting, according to Fimat USA. Stocks are now 458 billion cubic feet higher than they were a year ago and are 355 billion cubic feet above the 5-year average.

Thursday, December 28, 2006

Data Points

12/29/06 Data Points

The chief executive of Iceland's FL Group, which on Wednesday disclosed it has a 6% stake in American Airlines parent AMR Corp. (AMR), told The Times (of London) newspaper in an interview that he's seeking a meeting with the carrier's board to discuss his views that the company must be a part of airline consolidation. "I think enough has changed in the industry since then that American should be seen as a candidate," Hannes Smarason told the newspaper. "For the most part, as any big investor, we would like to sit down and have a chat." FL Group is AMR's third-largest shareholder.

Sales of U.S. existing homes rose 0.6% in November, to a seasonally adjusted annual rate of 6.28 million, the National Association of Realtors said. Inventories of unsold homes fell 1%, to 3.82 million, representing a 7.3-month supply. The national median existing-home price (2) for all housing types was $218,000 in November, which is 3.1 percent lower than November 2005 when the median price was $225,000.

The Conference Board said U.S. consumer confidence index climbed to 109.0 in December from a revised 105.3 in November. Economists were expecting a decline to about 101.9 from the previously reported 102.9. The Present Situation Index increased to 129.9 from 125.4. The Expectations Index improved to 95.1 from 91.9 last month.

The Chicago PMI rose to 52.4 in December from 49.9 in November. Within the index, the new orders subindex rose to 57.8 from 52 in November. The prices paid index was flat at 60.2.

Crude inventories fell by 8.1 million barrels in the latest week, the Department of Energy said Thursday. Gasoline inventories rose by 3 million barrels, and distillates supplies, which include heating oil and jet fuel, rose by 500,000 barrels.

Iron ore prices are set to increase by 9.5% in 2007. This will impact the price for steel products and ultimately the cost of construction.

"Yields leapt higher after the trifecta of firm data, which all came in higher than expected," wrote analysts at research firm Action Economics. "The gains in existing home sales and Chicago-PMI (after rumors of a sub-50 print) were especially unfriendly to bonds." In intraday trading, the 10-year yield touched 4.709%, the highest level since Nov. 6.

Doug Noland: "Financial historians will reflect back on this period’s prevailing complacency, especially with respect to the massive U.S. Trade and Current Account Deficits, with astonishment and disbelief. Yet for now years of Credit and asset inflation – parceling out unimaginable financial rewards along the way - have Wall Street reassured that There’s Simply Not an Imbalance Not to Love. The Street now appreciates that massive and intractable Trade Deficits provide the fountainhead of global liquidity overabundance. Moreover, the markets keenly recognize that the Bernanke Fed (like Greenspan’s) is content to acquiesce to deficit and liquidity excesses. There is today no constituency for reining in the Bubble(s).
This week’s release of a record quarterly Current Account Deficit ($225.6bn in Q3) garnered little attention from the media and even less in the markets. This despite the Deficit having now reached $900 billion annualized, or 6.8% of GDP. For perspective, the deficit for all of 1998 was $229 billion. At $877 billion, the Current Account Deficit over the previous four quarters compares to 2005’s $812 billion, 2004’s $664 billion, 2003’s $537 billion, and 2002’s $506 billion. And it is worth noting that the third quarter’s deficit was up 36% from Q2 2004’s $166 billion, back when the Fed commenced its fateful “tightening” cycle."

Ronald R. Cooke: "The Algerian Parliament has decided to increase Algeria’s share of oil production revenues by placing an “excess” profits tax on oil shipments whenever oil prices exceed $30.00 per barrel. Algeria, one of Africa’s largest oil and natural gas exporters, will levy the new tax starting in 2007. Depending on total output, the excess profits tax will range from 5% to 50% on the Algerian profits of foreign companies, including Shell, BP, Anadarko Petroleum and Hess Corporation.
The Parliament also signed into law a provision that the country’s oil monopoly, Sonatrach, must take a 51 percent controlling interest in all future production and refining contracts. This, despite the fact that most of the financing and technical expertise for oil and natural gas exploration, production and refining has been furnished by foreign corporations and financial institutions."

Ford Motor Co. likely will see a large sales drop in December, while Toyota Motor Corp. could gain enough to take over Ford's traditional role as the No. 2 auto company in the U.S. for the month, according to some industry analysts.

Tuesday, December 26, 2006

Insider Buying

12/28/06 Insider Buying

John Hussman: "Meanwhile, the "smart money" shows a distinctly different pattern. The latest figures from Vickers show heavy insider selling at 8.4 shares sold for every 1 share purchased. The 8-week average is running at a ratio of 6.9 to 1. As Paul Macrae Montgomery asks, " We keep reading about how the share buy-backs, cash takeovers, and leveraged buyouts are proof positive that stock prices are a great 'value'. Well if stock prices are such great values, why is it that all this buying is being down with 'other peoples money,' and why are the savvy insiders simultaneously selling their own stock?"

Thomson Financial's stats for the first two weeks of December reveals a ratio of 55.5 to 1. That's 55 times as many shares sold as buys!

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ended December 22 decreased 14.2 percent to 555.8, its lowest level since early August. The index stood at 647.6 in the previous week.

According to Bloomberg, The United Arab Emirates will convert 8 percent of its foreign-exchange reserves to euros from dollars before September after the U.S. currency slumped this year, the country's central bank governor said.
The U.A.E. has started ``in a limited way'' to sell part of its dollar reserves, Sultan Bin Nasser al-Suwaidi said in an interview in Abu Dhabi on Dec. 24. ``We will accumulate euros each time the market appears to dip,'' as part of a plan to expand the country's holding of euros to 10 percent of the total from 2 percent today, he said. The total value of the U.A.E.'s current reserves is $24.9 billion, 98 percent in dollars and 2 percent in euros, al-Suwaidi said.

Sales of new homes rose 3.5% in November to a seasonally adjusted annual rate of 1.047 million, the Commerce Department reported Wednesday. Sales are now down 15.3% in the past year. October's sales pace was revised to 1.013 million, from an earlier-estimated 1.004 million. The median sales price of a new home rose to $251,700 from $243,800.

India's Essar group has made an offer to buy Hutchison Whampoa's 67 percent stake in mobile phone operator Hutchison Essar at an estimated enterprise value of $17-$18 billion, the Economic Times said.

Richard Daughty: "The government budgeted $2.6 trillion, and they spent another $600 billion on top of that, to the tune of $3.2 trillion in cash outlays last year! The GDP of the United States is only $13 trillion, for crying out loud! And the actual, real-life deficit last fiscal year, as reported by the Treasury itself, was $4.6 trillion! 35% of GDP! In one year!...the President estimates that 2006 government income (taxes, fees, tariffs, etc) to be about $2.3 trillion. In 2011, four years from now, he is projecting government income to rise steadily, linearly, to over $3 trillion!...A 30% increase in government income in four years? My God!"...we go over and try to Google up a single time in history, anybody's history, ever, where taxes going up 30% in four years is associated with a healthy, growing economy. No hits so far! Now we try to Google up a period in time where taxes increasing by 30% in four years is associated with recessions, depressions, doom, destruction, bankruptcy, misery, suffering and the stench of "hell on earth" permeating almost everything. We get so many hits that a small curl of blue smoke rises from the back of the computer."

An afternoon auction of $20 billion in 2-year Treasury notes met with weak demand. The 10-year note ended down 14/32 at 99 24/32, yielding 4.657%, up from 4.603% late Tuesday.

Irene Haas, an analyst with Canaccord Adams in Houston: "No one has really slowed down drilling in the U.S."

Sanctions Don't Work

12/27/06 Sanctions Don't Work

Gholanhossein Nozari, the managing director of National Iranian Oil Company, said that 57 per cent of Iran’s income from oil exports was now received in euros.
"If necessary, Iran will use any weapon to defend itself," Oil Minister Kazem Vaziri-Hamaneh was quoted as saying by the semi-official Fars news agency on Tuesday.

Omar Bongo: "Economic sanctions rarely achieve the desired results."

Brett Steenbarger: "As long as we expand fresh 20-day lows and see new price lows day over day, the short-term trend will remain down."

"We knew spending would be slower than last year,” said Wayne Best, senior vice president of economic analysis at Visa USA. “But it seems to be even slower than we predicted."

John Hussman: "The Russell Investment Group just published their quarterly money managers poll, which shows a fairly stunning 85% of advisors bullish for the coming year. Another roughly 4% expect a flat market, about 9% expect a decline of less than 10%, and just 2% expect a decline of 10% or more. That's amazing given that this is already the second-longest span on record for which the market has not experienced even a 10% correction."

According to new numbers from the Leading Indicator of National Employment [LINE(TM)]
report, there will be more job growth in January 2007 than in January 2006,
and employers from both the manufacturing and the service sectors revealed
no evidence of increasing wage inflation. The findings are reported in the
January report of the LINE(TM) index, a collaborative effort between the
Society for Human Resource Management (SHRM) and the Rutgers University
School of Management and Labor Relations.
Despite the major decline in overall job vacancies, firms continue to
face considerable difficulty in finding highly qualified applicants to fill
key positions. Within both the manufacturing and service sectors,
recruiting difficulty continues to be a major concern, due to a drop in the
large pool of qualified job seekers eager to take open positions. The
recruiting difficulty indexes for the manufacturing and service sectors
remain at nearly the same level (19.5 percent and 22.3 percent). The LINE
"net increasing index" is calculated by taking the percentage increasing
minus the percentage decreasing. "For the first time since mid-August, the Nasdaq has violated its five-month uptrend."

U.S. antitrust authorities said on Tuesday they have approved Freeport McMoRan Copper & Gold Inc.'s bid to buy Phelps Dodge Corp.

"Based on our channel checks, shoppers were out and they were buying, but not at the level we had expected, especially at many of the apparel driven retailers," Roth Capital Partners analyst Elizabeth Pierce wrote in a note to clients.
"Although results were softer than we expected over the weekend, we believe it is premature to 'call' the holiday season given the increasing popularity of gift cards," she added.

Abu Dhabi's state oil firm, the main producer in the United Arab Emirates, said it would cut exports of nearly half its crude grades by 3-5 percent in February.

Caspar Weinberger: "Sanctions and negotiations can be very ineffective, and indeed foolish, unless the people you are talking with and negotiating with and trying to reach agreements with are people who can be trusted to keep their word."

Crude for February delivery fell $1.31 to $61.10 a barrel. Natural gas prices dropped 7.9% to $6.11 per million British thermal units on forecasts for continuing mild weather throughout much of the nation.

Gold for February delivery closed up $4.60 at $626.90 an ounce. Silver futures added 9 cents to $12.725 an ounce, platinum rose $1.50 to $1,123 an ounce and palladium rose $3 to $329.20 an ounce. Copper futures rose 2.4 cents to $2.878 a pound.

TransCanada and its TC Pipelines affiliate have agreed to buy US gas pipeline and storage assets from El Paso in a move that will greatly extend the Canadian company's reach into US markets. The deal is valued at more than $4 billion, including assumed debt.

The 2006 holiday season was Inc.'s "best ever," peaking with more than 4 million orders placed on Dec. 11, the Web retailer said Tuesday.

The S&P/Case-Shiller composite index showed a 2.4 percent year-over-year increase in the price of a single-family home based on prices of existing homes tracked over time in 10 metropolitan markets. For its 20-city composite index, prices grew 2.9 percent, the slowest rate ever for that data, according to the S&P index committee chairman, David Blitzer.
"Home price gains are continuing their steep deceleration," said Chief Economist Robert Shiller of MacroMarkets LLC. "We can clearly see that the monthly price declines are wide spread nationally."
The growth rate of the 10-city composite index is sharply below the 3.7 percent rise posted in September and the slowest since a 2 percent growth rate in February 1997, according to S&P.

Ludwig von Mises: "There can be neither effective political cooperation nor solidarity and collective security among nations fighting each other in the economic sphere."

Sharing The Wealth

12/26/07 Sharing The Wealth

"We've had nine years of great productivity growth, and most workers see no gain for it," said Dean Baker, co-director of the liberal Center for Economic and Policy Research.

The Houston Chronicle points out corporate earnings generated in the U.S. totaled $1.42 trillion at an annualized rate in the third quarter, or 10.7 percent of the economy's gross domestic income, government data show. That was the highest share of income that companies claimed since the 1960s and was up from 6.2 percent in 2000.
By contrast, total labor compensation accounted for 56.4 percent of gross domestic income in the period. That percentage has fallen from 58.4 percent in the fourth quarter of 2000 and has been in general decline since the early 1980s.

Singapore's manufacturing output for November jumped 14.7% year-on-year, to reach a five-month high.

Best Buy is opening its first outlet in China.

The Nikkei hit a 7-month high.

Forty Percent of Employers to Add Jobs in 2007, Survey Finds.
The question remains at what pay and at what benefits?

Anadarko Petroleum Corp. agreed to sell its Vernon and Ansley fields to Exco Resources Inc. for $1.6 billion. Both fields are located in in Jackson Parish, La.

Sunday, December 24, 2006

Happy Holidays

12/25/06 Happy Holidays

Mike Burk: " Next year is the 3rd year in the 4 year Presidential Cycle and, on average, the strongest by a wide margin.
Since 1963 the OTC has been up every 3rd year except 1987. The average gain for the 3rd year has been 36.5%, nearly 3 times the average gain of all years combined.
Since 1928 the SPX has been up every 3rd year except 1931 and 1939. The average gain has been 15.5%, a little over double its average gain of all years combined."

Tim Wood: "Things are not as rosy as they appear. All the while the public is numb.Personally, I have my doubts about the "powers that be" being able to pump the economy enough to save it again. After all, we are still seeing the deflating of the bubbles in housing and commodities from the last, or really the ongoing, reinflation effort. All the while, stock market is still hanging on from these reinflation efforts but is increasingly moving onto thinner and thinner ice. I believe that the housing and commodity markets were the first dominos to topple and that the stock market will likely be the next. We are certainly seeing indications of this anyway. Also, the sentiment data tells me that the public is fearlessly complacent and obliviously numb to the real danger here. So, in light of these warnings and in spite of the fact that the stock market is at all time highs I don't like what I see and the overall picture here makes me nervous."

Motley Fool: "In the world of energy, expectations of a status quo in demand and production still provide lots of work for service companies such as Schlumberger (NYSE: SLB), Baker Hughes (NYSE: BHI), and BJ Services (NYSE: BJS), along with exploration and production companies ExxonMobil, ConocoPhillips (NYSE: COP), and others. That's simply because both oil and gas wells lose pressure over time and the ability to produce at prior levels, which necessitates remedial steps to revitalize production, along with the drilling of additional wells to compensate for the declines."

Rigzone reported State-run Petroleos de Venezuela S.A. is teaming up with an Iranian shipbuilding firm to make offshore platforms, said PdVSA on Friday. PdVSA
signed the initial paperwork to form a jointly-owned company with Sadra America Latina, a division of Sadra, an Iranian marine construction firm that has been expanding into the offshore oil and natural gas business. PdVSA said the new venture, Venezirian Oil Company, will give Venezuela access to new offshore technology.

Vodafone and a consortium of private equity funds led by the Texas Pacific Group have forged ahead in talks for acquiring Hutchison Telecom International Ltd’s 67% stake in India’s fourth largest mobile operator.

Bloomberg reported Japan's consumer price gains probably accelerated in November, giving the central bank room to increase the lowest interest rates among major economies.

Marcel Pagnol: "The reason people find it so hard to be happy is that they always see the past better than it was, the present worse than it is, and the future less resolved than it will be."