Tuesday, June 25, 2013 - On Energy

On Energy

by Sinclair Noe

DOW + 100 = 14.760
SPX + 14 = 1588
NAS + 27 = 3347
10 YR YLD + .04 = 2.59%
OIL + .07 = 95.25
GOLD – 5.00 = 1278.60
SILV - .05 = 19.74

A few economic reports to start.

The S&P/Case-Shiller Home Price Index for April showed average home prices increased 12.1% compared to April one year ago. All 20 cities in the index showed positive year over year returns and this marked the highest monthly gains in the history of the Indices. San Francisco showed the largest year-over-year growth at 23.9%, followed by Las Vegas at 22.3%, Phoenix at 21.5%, and Atlanta at 20.8%. New York saw the lowest levels of growth at 3.2%.

Meanwhile, the Commerce Department reports sales of new homes rose in May to the highest rate since mid-2008. Sales increased 2.1% last month to an annual rate of 476,000. The median price of new homes, meanwhile, dropped 3.2% to $263,900 last month from a record high of $272,600 in April. 

Business orders for durable goods, the big ticket items, rose 3.6% to a seasonally adjusted $231 billion. Business investment excluding defense and aircraft was up 1.1%, marking a third straight gain. A big factor was a 51% increase in orders for new passenger planes. In the first five months of 2013, business orders have risen 2.1% in compared to the same period last year.

The Conference Board’s consumer confidence index jumped to 81.4 in June, the best reading since January 2008 and up from 74.3 in May. Consumers had better views both of current conditions and the future.

The Commodity Futures Trading Commission is expected to approve a civil lawsuit this week against Jon Corzine, the former CEO of MF Global. You'll recall that MF Global went bankrupt after losing $1 billion in customer money; and by losing, I don't mean they made bad trades and lost money on the trades; they lost the money; it just disappeared. Nobody has figured out where it went. Poof! Vanished. In a rare move against a Wall Street executive, the agency has informed Mr. Corzine’s lawyers that it aims to file the civil case without offering him the opportunity to settle. The lawsuit is not expected to link Corzine directly to the disappearance of the customers' money, but the regulator will probably blame Corzine for failing to prevent the breach at a lower rung of the firm. Also, by going after a civil lawsuit, this probably means that regulators are not going after criminal charges. In a way, this is very helpful; it sets a bit of a precedent or at least establishes a quantifiable bar; if you steal more than $1 billion dollars, it's just a civil matter; if you steal less than $1 billion, it's a criminal case.

Meanwhile, the Supreme Court has issued an opinion that effectively strikes down the Voting Rights Act of 1965. On a 5-4 vote, the Supremes ruled  that Congress had not provided adequate justification for subjecting nine states, mostly in the South, to federal oversight. In 1965, the states could be divided into two groups: those with a recent history of voting tests and low voter registration and turnout, and those without those characteristics," Chief Justice John G. Roberts Jr. wrote for the majority. "Congress based its coverage formula on that distinction. Today the nation is no longer divided along those lines, yet the Voting Rights Act continues to treat it as if it were."

Chief Justice Roberts said that Congress remained free to try to impose federal oversight on states where voting rights were at risk, but must do so based on contemporary data. When the law was last renewed, in 2006, Congress relied on data from decades before. The chances that the current Congress could reach agreement on where federal oversight is required are small, especially when you consider that Congress can't seem to agree on anything.

Case in point.

President Obama deliver his plans to tackle pollution and global warming. Obama declared the debate over climate change and its causes was obsolete and he announced he was directing his administration to launch the first-ever federal regulations on heat-trapping gases emitted by new and existing power plants — “to put an end to the limitless dumping of carbon pollution.” Other aspects of the plan will boost renewable energy production on federal lands, increase efficiency standards and prepare communities to deal with higher temperatures.

This is really the first time we've seen policy action aimed at global warming. "The question is not whether we need to act," Obama said. "The question is whether we will have the courage to act before it's too late." Obama also made a point to dismiss those who don't acknowledge the science behind man-made global warming, saying: “We don't have time for a meeting of the Flat Earth Society."

In the speech Obama asked the State Department not to approve the construction of the Keystone XL pipeline unless it can first determine that the pipeline will not lead to a net increase in greenhouse gas emissions.

"Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation's interest," the president said. "And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution. The net effects of the pipeline's impact on our climate will be absolutely critical to determining whether this project is allowed to go forward."

The speech covered more than the pipeline. Obama's strategy in the second-term rests on three pillars: cutting carbon pollution in America, preparing the U.S. for the impacts of climate change, and leading international efforts to cut global emissions. Among the top-billed items are imposing the first carbon limits on existing power plants and requiring all federal projects to be able to withstand the heightened storms and sea level rise associated with climate change.

Using his executive powers, Obama articulated a broad array of regulations his administration would enact that affect both government and the business sector, with many of the details still to come. Of particular note is the president's directive to the Environmental Protection Agency to move forward with climate change regulations to limit carbon emissions from existing coal and gas-fired utilities by no later than June 2014. Less settled is exactly how the agency will accomplish that and at what cost to industry.

Some of the president's policies are new, but many build upon existing initiatives, such as a program to improve fuel-economy standards for heavy-duty trucks beyond model year 2018. And new energy efficiency standards for federal buildings and appliances have already been established in an effort to reduce carbon pollution by at least 3 billion metric tons cumulatively by 2030, in combination with existing measures. The president has also called for the expansion of his so-called Better Building Challenge, which focuses on helping commercial, industrial and multi-family buildings cut waste and become at least 20 percent more energy efficient by 2020.

New clean energy initiatives include the president's goal for the Interior Department to issue permits for 10 gigawatts of renewables on public lands by the end of the year, and for the U.S. to work with trading partners to launch negotiations at the World Trade Organization aimed at creating global free trade in clean energy technologies such as solar, wind and geothermal.

There will be opposition to the plans. The other side of the aisle is already calling this a jobs killer. The week after he won the 2008 presidential election, Barack Obama addressed a group of governors and officials in Los Angeles, assuring them that global warming would be a top priority for his presidency. “Now is the time to confront this challenge once and for all,” he said. “Delay is not an option.”

Now he wants to upend the existing energy system and put the world on a path toward avoiding severe climate change, with an 80% cut in emissions by 2050 and investment of about $150 billion, and most of it on the president's own authority. Since 2008, a cap and trade bill died in the Senate; global climate talks have gone nowhere; and emphasis has come back to domestic oil and gas exploration and the mantra of drill, baby drill. There’s no longer a grand strategy to solve climate change once and for all. And it’s unlikely that Obama will attain any of the sweeping goals he laid out in 2008 — that would require cooperation from Congress. Instead, the White House will try to use whatever executive power it has to chip away at the problem.

Thanks to a 2007 Supreme Court decision, the EPA is required under the Clean Air Act to regulate carbon dioxide if it poses a threat to public health and welfare. (Which, most scientists agree, it does.)

So far, the EPA has used that authority to propose carbon standards for future coal- and gas-fired plants that have yet to be built. Yet green groups have long urged the agency to turn its attention to existing power plants, which are responsible for 40 percent of the nation’s carbon-dioxide output. The White House is asking the EPA to propose rules for those existing plants by the summer of 2014 and finish them by 2015. Pretty much everything the EPA could do on carbon would be under parts of the Clean Air Act that haven’t really been tested, and the devil will be in the details.

Part of the future will be in technology. I talked recently with a friend who is a scientist and is working on new sustainable energy. He told me that if you hold your arms open there is more energy in the air between your hands than is consumed in the entire world. There is a path of energy from the sun to every part of the universe, and we are just starting to understand. I am quite certain that the push for green energy is not a job killer but a job creator. The combination of technology and innovation and the need for clean energy solutions will be a vital part of the economy over the next few years. Get ready to be amazed.