Friday, August 08, 2014 - Rocky Relations

DOW + 185 = 16,553
SPX + 22 = 1931
NAS+ 35 = 4370
10 YR YLD - .01 = 2.41%
OIL + .01 = 97.35
GOLD – 3.90 = 1310.10
SILV - .03 = 20.02

The S&P and Dow both posted their best day since March. For the week, the Dow rose 0.4%, the S&P 500 gained 0.3%, and the Nasdaq rose 0.4%.

The Pentagon says US warplanes have dropped bombs on an ISIS artillery positon in northern Iraq, near Erbil, the Kurdish regional capital. US military planes have also carried out air drops of food and water to displaced refugees. Last night, President Obama announced the plan for assisting Iraqi religious refugees stranded on a hilltop in northern Iraq, and also authorizing limited airstrikes to protect US personnel in Erbil. The air strike is the first time the US has been directly involved in a military operation in Iraq since American troops withdrew in late 2011. No time limit has been set for air strikes.

In very short order, the Islamic State of Iraq and Syria, ISIS, captured one-third of Syria and about one-quarter of Iraq, and they continue to expand their frontiers. Just to put it in perspective, they now control a land mass larger than Great Britain, with a population bigger than Denmark. In northern Syria some 5,000 ISIS fighters are using tanks and artillery captured from the Iraqi army in Mosul to besiege half a million Kurds on the Turkish border. ISIS has also built a huge war chest by looting Iraqi banks of perhaps half a billion dollars, making ISIS the world's richest terrorist organization, by some estimates. And they have been gathering weapons, US weapons left behind by the Iraq army.

ISIS now controls most of Syria’s oil and gas production. In northern Iraq, ISIS now controls a 750 megawatt dam near the city of Mosul. The Mosul Dam is considered one of the most dangerous dams in the world; it was poorly constructed, leaks constantly, and requires near constant maintenance to avoid collapse. In addition to controlling the electric output of the dam, the militant group now has a real weapon of mass destruction, capable of extreme destruction along the Tigris River, including possibly flooding Baghdad under 15 feet of water.

The Iraq army shows no signs of recovering from its earlier defeats and has failed to launch a single successful counter-attack. The only large-scale counter-attack launched by the regular army and the newly raised Shia militia was a disastrous foray into Tikrit on 15 July that was ambushed and defeated with heavy losses. There is no sign that the dysfunctional nature of the Iraqi army has changed. Iraqi politicians have gone on playing political games as they move, ever-so-slowly, towards replacing the discredited prime minister, Nouri al-Maliki.

Iraq’s Shia majority seems to believe the present situation is not as dangerous as it looks. They argue that Iraq’s Sunnis have risen in revolt and ISIS fighters are only the shock troops of an uprising provoked by the anti-Sunni policies and actions of Maliki. Once he is replaced, as is almost certain, Baghdad will offer the Sunnis a new power-sharing agreement with regional autonomy similar to that enjoyed by the Kurds. Despite all signs to the contrary, Shia at all levels are putting faith in this myth.

The foster parents of ISIS and the other Sunni jihadi movements in Iraq and Syria are Saudi Arabia, the Gulf monarchies and Turkey. The rise of ISIS was crucially supported by outside Sunni powers. It’s unlikely the Sunni community as a whole in Iraq would have lined up behind Isis without the support Saudi Arabia gave directly or indirectly to many Sunni movements. The same is true of Syria. The Saudis now seem fearful of the monster they helped create, and they have pulled support from the jihadi opposition, but it may be too late. For the US, Britain and the Western powers, it makes for rocky relations with major oil suppliers. And then, to complicate matters further, Israel and Gaza resumed throwing bombs at each other after a nearly 3-day ceasefire.

You may remember that oil prices had spiked to $108 a barrel in June, but then ISIS failed to attack Baghdad, and ISIS did little that threatened oil infrastructure affecting deliveries outside Iraq, and oil prices slipped. The price at the pump is down 15 cents a gallon since July 4^th; down 35 cents per gallon since mid-June. And now that the US has re-entered the battle, it is widely anticipated that the craziness in Iraq will be defeated and oil prices will stabilize, but it would be foolish not to expect ISIS to retaliate against US aerial attacks.

In economic news today:
Wholesale inventories grew by 0.3% in June, while sales increased 0.2%.

Productivity in the second quarter increased 2.5%, compared with a revised 4.5% drop in the first quarter. Cold weather in the first quarter hurt output, but workers produced more in the spring, proving that 90% of the difference is just showing up. Unit-labor costs increased 0.6% in the second quarter, and inflation adjusted hourly wages were up just 0.1%.

White House economic officials say the labor market is about 80% back to the level before the financial crisis, an indication the economy is steadily healing. It just doesn’t feel that way for many Americans. As the US economy recovers, hirings increase and people are encouraged to look for jobs again; at least that’s how things are supposed to work.  Instead, the ratio of the adult population with jobs, or looking for one; what’s called the labor force participation rate, has been falling, standing at 62.9% in July 2014. This represents a 3 percentage point decline since the financial crisis and the lowest rate since 1978. Gains in participation rates between 1960 and 2000 were largely driven by sweeping social changes such as the post-war baby boom and the entry of women into the work force, but in the past 7 years half of those gains have been reversed; the equivalent of 7.5 million workers have been lost from the US labor force.

The shrinking pool of workers in the job market is due in part to demographic shifts as the boomer generation moves into retirement, but today the International Monetary Fund, the IMF said more needs to be done to strengthen the labor market, raise wages, and bring people back into the labor force. The IMF says up to one third of the post-2007 decline in participation rates is reversible and we need to look at economic policies to turn things around. Suggestions include better job training, employment search assistance programs, affordable child care, and immigration reform.

The Federal Reserve has released a nationwide survey, the first of its kind, designed to get a better understanding of how households view their own financial situation and economic well-being. The short answer is “not so good”. Just 30% of survey respondents described themselves as better off than they were in 2008, with 34% saying they were doing about the same and 34% saying they were worse off. Some 77% of respondents said they either didn't expect a raise in the next 12 months or expected their income to decline. About 30% of Americans said their household income for 2012 was lower than what they'd expect in a normal year.

About 40 million Americans have student loan debt totaling more than $1.3 trillion, and only 40% of them think the education was worth the cost. Some 35% of survey respondents who are paying back student loans said they had to cut spending by "a little" over the past year to keep up with their student debt payments, and another 11% said they had to cut back their spending by "a lot." One finding of the survey is that debt can affect your health. Some 44% of Americans with student debt said they avoided medical treatment because they couldn't afford it, while only 30% of Americans without student loans said the same thing.

Almost half the participants said they were not saving any portion of their income, and roughly one-fifth said they're spending more money than they are currently taking in. Only 39% of people reported having a rainy-day savings fund that would cover at least three months of expenses. A combined 25% of households who told the Fed they'd had savings prior to 2008 reported having used up "all" or "nearly all" of their savings as a result of the recession. And just 48% of people said they would be able to completely cover a $400 hypothetical emergency expense without selling something or borrowing money. Just under a third of non-retired households reported having no retirement savings or pension, including just under 20% of households aged 55 to 64. A quarter of the respondents said they had done no retirement planning at all.  Of those who have given some thought to retirement planning and plan to retire at some point, 25% didn’t know how they will pay their expenses in retirement.

Next week’s economic calendar includes a look at July retail sales on Wednesday. The recent drop in gas prices may actually dampen the real outlook for retail sales. On Tuesday we’ll get a look at the strength of the labor market in the JOLT report, the Job Openings and Labor Turnover survey measures workers who are quitting their jobs; the thinking is that when workers are confident about their job prospects they’re more willing to jump ship. The quit rate has edged up in the past couple of years but is still well below the rates posted in the last expansion. Another measure of strength in the labor market is hiring activity among small businesses. On Tuesday, we’ll get the Small Business Optimism survey. In June, 26% of small businesses surveyed said they had at least one job opening they could not fill.  On Thursday, the New York Fed will release its second-quarter Household Debt and Credit Report. The New York Fed reported that in the first quarter, households increased their total borrowings (including mortgages, credit cards, student loans and auto loans) for the third quarter in a row, led by gains in mortgages and student loan debt.

Tuesday, June 24, 2014 - A Funny Thing Happened

A Funny Thing Happened
by Sinclair Noe

DOW – 119 – 16,818
SPX – 12 = 1949
NAS – 18 = 4350
10 YR YLD - .04 = 2.58%
OIL + .81 = 106. 84
GOLD + .70 = 1320.00
SILV + .03 = 21.03

Let’s start with a couple of reports on housing; the Commerce Department says new home sales increased 18.6% to a seasonally adjusted annual rate of 504,000 units, the highest level since May 2008. The increase in sales was the biggest since January 1992. Compared to May of last year, sales were up 16.9%.

Meanwhile, the S&P/Case-Shiller index of existing home prices rose 0.2% in April; the smallest gain since March of last year, with the year-on-year increase slowing to 10.8%.

Today’s reports seem to indicate a strong new home market and a weak existing home market, but that’s probably not quite accurate. Homebuilders are working through inventory, while existing home inventories are low and starting to rise; for existing homes that means we’ve mainly worked through most of the distressed sales that were out there. The housing market is moving forward modestly, but also in fits and starts.

The Conference Board said its index of consumer confidence rose to 85.2 from 82.2 in May, with optimism about the labor market. June's reading was the highest since January 2008. Consumers think jobs are more widely available. The survey found 14.7% of consumers think jobs are “plentiful,” the best reading since May 2008, while the share characterizing jobs as “hard to get” fell to a three-month low of 31.8%.

While government data showed confidence at January 08 highs, Gallup's latest survey shows, only one in five Americans (22%) say the economy is excellent or good, while 34% say it is poor; and worse still, Americans continue to be less optimistic about the economy's future:  38% say the economy is getting better, while 58% say it is getting worse; the worst differential since 2013. Gallup's US Economic Confidence Index lost another point last week, the third week in a row, dropping to its lowest in over 2 months.

Not much confidence in the equity markets today. I haven’t seen anything earth shattering that would explain why stocks moved from positive to negative territory, and even with the rollover, the major indices still didn’t drop a full percentage point; 119 points ain’t what it used to be. The S&P 500 closed down more than half a percent for its sharpest loss since June 12, after setting a fourth record high in five sessions. Maybe its concern about Iraq, maybe the high frequency traders ran out of shorts to squeeze.

A funny thing happened in Russia today; President Putin appeared to back away from the fight with Ukraine; Putin asked Russia’s upper house to revoke the right it had granted him to order military intervention in Ukraine. At the same time, pro-Russian insurgents in eastern Ukraine shot down a Ukrainian helicopter killing 9 servicemen.

There is no backing off the fighting in Iraq, where a dire situation has gone from bad dream to nightmare in two weeks of fighting that have seen Sunni Muslim gunmen assert control over a growing area, including at least two towns that lie on a crucial supply route linking Baghdad, the capital, with the mostly Shiite Muslim south.

Secretary of State John Kerry urged Kurdish leaders to remain part of Iraq, as fighters from local Sunni tribes wrested control of at least part of Iraq’s largest oil refinery after battling for days with government troops over the key facility. Armed tribal factions from the Baiji area breached the refinery complex 140 miles northwest of Baghdad.  Kerry flew to the Kurdish region on a trip through the Middle East to rescue Iraq following a lightning advance by the Sunni fighters led by jihadis of the Islamic State in Iraq and the Levant. U.S. officials believe that persuading the Kurds to stick with the political process in Baghdad is vital to keep Iraq from splitting apart. Washington has placed its hopes in forming a new, more inclusive government in Baghdad that would undermine the insurgency. Kerry aims to convince Kurdish leaders to join it. Something will likely tip one way or the other in the next week or two.

The spike in instability in several oil producing regions around the world is threatening to knock some production offline, but it is also boosting profits for drillers operating in trouble-free zones. Oil prices have hit their highest levels in almost 9 months as places like Iraq, Syria, Ukraine and Libya continue to experience violence and political upheaval. For companies with heavy investments in these regions, the situation is perilous, but for oil companies elsewhere, the higher price is good news.

Oil markets could be looking at an extended period of elevated prices, which is bad news for companies with billions invested in Iraq. ExxonMobil and BP already started evacuating some of their workers from southern Iraq, despite the fact that militants remain north of Baghdad. But for companies drilling far from the violence – in Texas for example – a $5 per barrel increase in prices can be the difference between whether or not an oil project is economically viable. Oil companies are using the opportunity to step up drilling. The Eagle Ford shale in southern Texas, for example, saw four more oil rigs and one gas rig come into operation over the past week. Across the U.S., the number of oil rigs in use reached 1,545 -- the highest level since record keeping began in 1987.

The Supreme Court has ruled on the case of Halliburton v. Erica P. John Fund. Halliburton is trying to block a class-action lawsuit claiming the company inflated its stock price. A group of investors claims they lost money when Halliburton's stock price dropped after revelations the company misrepresented revenues, understated its liability in asbestos litigation and overstated the benefits of a merger.

Writing for the court, Chief Justice John Roberts said companies should have a chance in the early stages of a lawsuit to show that any alleged fraud was not responsible for a drop in the company's stock price. The Supremes did not overturn a precedent setting case that might have ended class action suits completely. The old case is Basic v.  Levinson, and it established the theory of “fraud on the market”, or the idea that shareholders who claim fraud don’t need to show they relied on specific false statements. The theory presumes a company’s false statements inflated its stock price. This seems to make sense; if a company lies about its revenue, lies about its liabilities, lies about the benefits of a merger that will inflate the stock price; but I suppose you could also argue the stock price might be inflated because the economy improves or because algorithmic traders inflated the price or maybe the moon and stars were aligned in a particular way.

The truth is that it is nearly impossible to pinpoint exactly why stock prices go up; but it is possible to identify when a corporation lies about revenues, liabilities, and benefits. The Supreme Court seems to be saying that it’s O.K. for corporations to lie, so long as nobody can prove a direct link between the lies and the share price.

The case now goes back to the lower courts, where Halliburton will have another chance to block the investors from joining together as a class.

Just a reminder, the Sabanes Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act, was supposed set a new standard for all public companies, and top management to certify the accuracy of financial information or face possible punishment of up to 20 years in prison. When President Bush signed it into law he said: “The era of low standards and false profits is over; no boardroom in America above or beyond the law.”

A funny thing happened over the past 14 years: nobody has been convicted of criminal wrongdoing under Sarbanes Oxley, at least as best we can tell. There may have been some civil charges, but the “Justice Department doesn’t directly track Sarbanes-Oxley prosecutions, so there may be another case here or there. Even four or five SOX criminal cases in 10 years, though, makes them as rare as a blue moon.” (see Reuters)

There’s a new report on climate change predicting serious consequences, especially for American businesses. The funny thing about this report is that it comes from a panel chaired by former New York City Mayor Michael Bloomberg, former Treasury Secretary Hank Paulson and hedge fund manager turned climate activist Tom Steyer. It includes devastating forecasts for American companies, including dramatic declines in agricultural yields, loss of productivity due to intense heat and up to $35 billion spent dealing with coastal storms.

Bloomberg said “Climate change is costing governments and businesses billions of dollars,” and he hopes it "will mobilize the business community and forge a consensus for leadership across the aisle." Paulson says he now believes that “climate change is the existential issue of our age." Paulson also penned an op-ed in the New York Times last weekend warning of a "climate bubble" that poses risks to the economy just like the credit bubble did in 2008.

Steyer, a billionaire who has pledged to spend millions electing pro-climate-action politicians, said he hopes that the report will help "change the spreadsheet for American business" as companies calculate risks and opportunities. The business community, he said, should "get to a point where calculation of the value of a company includes how they are responding to this problem."

Monday, November 25, 2013 - A Record High, Barely

A Record High, Barely

by Sinclair Noe

DOW + 7 = 16,072
SPX – 2 = 1802
NAS + 2 = 3994
10 YR YLD - .01 = 2.73%
OIL - .75 = 94.09
GOLD + 7.90 = 1252.60
SILV + .38 = 20.31

The Dow and the S&P 500 indices have posted 7 weeks of gains. Today was flat, with the Dow up a few points and the S&P down a little. We'll have a holiday shortened week, with the market closed on Thursday (something retailers should consider).

Over the weekend, the big news was a nuclear agreement, of sorts between the US and Iran. The basic idea of the agreement is that we would lift some sanctions against Iran and they would not expand their nuclear program. The deal frees up some Iranian oil revenue that had been frozen in foreign banks. It's unlikely Iran will add much in oil exports in the six months covered by the agreement. Iran has been exporting oil to China, India, South Korea, and Japan; those countries were granted waivers on sanctions because they really wanted the oil.

The main benefit of the weekend’s deal with Iran may be the psychological impact on the market, which has long been propped up by fears of a supply disruption resulting from the standoff between Iran and the United States and its allies. Also, Iran may benefit from access to investment in oil infrastructure and equipment; but again, this is a 6 month deal for now. Many Middle Eastern countries have invested in infrastructure and need prices not to drop. Don't forget, a cartel controls a fair amount of the international pricing of oil. As sanctions kept Iranian oil out of the market, (kind of, sort of) many OPEC countries ramped up production and exports; they could easily cut exports if the price drops.

The US has been aggressively pursuing domestic oil and gas development, and there is currently a bit of a glut of production in the US. Don't expect a change in the price at the pump. The national average for gasoline is $3.26 a gallon compared with $3.43 a gallon a year earlier; and down about 60 cents just since early September. We may see a further decline, but very little that could be attributed to the deal with Iran at this time.

Meanwhile, a funny thing has happened as the price at the pump dropped, the wholesale price that refiners, banks, and traders pay before the gas reaches the consumer have jumped almost 20 percent over the last couple of weeks. While we've seen a boom in domestic production, we've also seen a boom in US exports of refined products; exports have more than tripled from about 1 million barrels a day to more than 3 million barrels a day. Yes, we have plenty of oil, a little less in refined petroleum products.

Also, this deal is still largely dependent on the cooperation of Congress, and Congress has been less than cooperative on almost everything, and especially anything to do with Iran. The White House has some discretion to rescind the Iran sanctions without Congress’s approval. The method for removing any given set of sanctions depends on how those sanctions were passed in the first place. If they’re the product of an executive order, as many of the existing sanctions against Iran are, removing them requires only that the White House decide to stop enforcing them. Removing sanctions that have been passed into law by Congress, however, is a much more difficult challenge.

Former Treasury Secretary Tim Geithner has a new job. He passed up a chance to work at megafund manager BlackRock. Geithner, who has landed a plum private-equity gig with Warburg Pincus, opted against joining CEO Fink’s BlackRock — with $4 trillion in assets under management — because he wanted to have a more involved role with any company he ended up joining.

Swiss voters overwhelmingly rejected an initiative that would have restricted executive salaries to 12 times that of the lowest-paid employee. Roughly 65% of Swiss voters Sunday opposed the 1:12 Initiative for Fair Pay.

How much should you pay to deposit money in a savings account at a bank? Not how much should you be paid, how much should you pay. Retail banks have warned they might need to start charging customers and companies for deposits if the US Federal Reserve cuts interest it pays on bank reserves. Not only has the Fed maintained a zero interest rate policy, but they have been paying banks to hold excess funds on deposit with the Fed. There is talk of the Fed not paying the banks; just talk at this point. The idea being that banks would be more inclined to put money to work with lending and other stuff that helps the economy. So, the banks are just talking about how they might have to charge you to make a deposit. The banks say that, without that interest payment, they might also be pushed to take ever-crazier risks with money that was once safely parked at the Fed.

Signed contracts for existing homes fell nationwide in October for the fifth straight month, further evidence the housing market has slowed after a frenzied rebound earlier this year.

The National Assn. of Realtors said its pending sales index, adjusted for seasonal swings, dropped 0.6% from September and was down 1.6% from its October 2012 level. The trade group said the government shutdown in early October, declining affordability and limited inventory curbed sales.  The index, which reflects signed contracts whose sales haven't yet closed, is at its lowest level since December of last year.

The world's biggest retailer, Walmart, announced that it is to replace its president and chief executive, Mike Duke, who is stepping aside after a year in which the company has struggled with sluggish sales and labour disputes.

Doug McMillon, currently CEO of Walmart's international division, will replace Duke as president and CEO of Walmart Stores on 31 January. Duke relinquishes the reins five years in charge, although he will stay on as chairman of the company's executive committee. Maybe a sign that Walmart will concentrate more on the international side of their business.

H&M the second largest clothing retailer, based out of Sweden has promised to pay workers In Bangladesh and Cambodia, a living wage. The pledge covers 850,000 workers. H&M said that because conditions varied between countries and factories, it would support textile workers in negotiating a living wage – a salary that enables a decent standard of living – instead of imposing a figure. It said paying more to factories that adopt a living wage would not push up the price of its goods.

The stock market will be closed Thursday, and a half day on Friday. Or, I should say Black Friday. Don't fall for it. Bargain hunters can — and, in some cases, should — avoid the Black Friday weekend crush. The shopping bonanza is mainly an expertly marketed ploy to capitalize on shoppers' fear of missing out. By dangling a small batch of irresistible savings, stores land hordes of hopeful shoppers all scheming to score the retail version of the golden ticket. Yet only a tiny percentage of customers end up with the most desirable deals. The rest, unwilling to leave empty-handed, walk away with lesser bargains arranged appealingly nearby.

The weekend is crowded with misleading promotions, including deceptive discounts off misstated "original" prices and deals that could have been had a year earlier. More than 90% of Black Friday ads this year feature items being sold at exactly the same price as they were last Black Friday. Retailers have been in a promotional mood for months as they try to attract wary shoppers. They're trying to make up for sales that have been weak through much of the year, damaged by volatile weather, shaky consumer confidence, the government debt stalemate and a payroll tax increase.

Forecasts for the Thanksgiving-to-Christmas period — which can sometimes account for 40% of a retailer's annual sales — are dour. Morgan Stanley predicted the worst holiday sales since 2008. Worried retailers may continue discounting well past Black Friday in an attempt to suck in last-minute stragglers

Monday, September 09, 2013 - The Problem Is We Do Get It

The Problem Is We Do Get It

by Sinclair Noe

DOW + 140 = 15,063
SPX + 16 = 1671
NAS + 46 = 3706
10 YR YLD - .04 = 2.90%
OIL – 1.56 = 108.97
GOLD – 2.30 = 1387.50
SILV - .13 = 23.82

The war hasn't started..., yet.

A funny thing happened today; for a few moments the constant drumbeats for war were quieted, and there was talk of a diplomatic solution; fleeting, nothing concrete, hypothetical, could disintegrate in the flicker of a butterfly's wing.

Russia jumped on a remark by Secretary of State John Kerry, who said Syria should save itself by handing over its chemical weapons. Kerry was quick to dismiss as hypothetical his own comment that Syrian President Bashar al-Assad could avert U.S. strikes by surrendering his chemical arsenal to international control. But Assad's ally Russia quickly turned it into a firm proposal that was "welcomed" by Damascus and echoed by the UN chief Ban Ki-moon. The White House said it was "seriously skeptical" but would take a "hard look" at the proposal.

Russia's foreign minister said he would push Assad to place Syria’s stockpile of nerve gases, blister agents and other chemical agents under UN supervision for eventual destruction. He said Russia also would push Syria to sign the Chemical Weapons Convention, the international treaty that prohibits use of poison gas. The Syrian government quickly put out a statement saying it would cooperate.

Can you trust Russia to broker a peace deal? Hell no. Over the last weeks, since the inception of the demonstrations in Egypt for president Morsi's ouster, to the sarin gassing of innocents in Syria these past days, the price of oil has skyrocketed more than 15 percent for WTI crude from near $95/bbl in June to over $110/bbl and Brent crude closing this past week at over $116/bbl.

After Saudi Arabia, the most immediate beneficiary of this spiking of oil prices is Russia -- now, together with the Saudis, the world's largest oil producer, with 7 million barrels/day being shipped into the export market. In no other big economy do oil and gas play such a vital role as in Russia. They account for two-thirds of its exports, half its budget revenue and nearly one-third of economic output. In a real sense, the history of Russia's oil industry since the collapse of communism is the history of the country itself. Clearly the higher the price of oil, the greater the benefit to Russia and the largesse of the Putin government, whose domestic economic policies and well being are principally funded by oil revenues.

To keep the pot boiling in the Middle East, the Russians have been the long-standing and grievously irresponsible defenders of Iran and its nuclear program, while freely arming Syria's Assad government with a full array of weaponry including highly advanced anti-aircraft weapons system. This while forever rendering meaningful UN action moot through threat of a Security Council veto. Clearly the price of oil has become a strategic imperative of Russian foreign policy. But it's also important to know when to ease off the gas and tap the brakes; like maybe right before you go flying off a cliff.

The fast-moving events presented at least the possibility of a diplomatic and political solution, even if everybody seems to have just stumbled on the idea. And the whole idea of a peaceful resolution could fall apart very quickly. We'll find out more over the next two evenings as President Obama hits the airwaves; tonight he'll speak with six major American news networks as part of his sales pitch to build support and he'll go directly to the people Tuesday.

In the background, his aides have been heavily lobbying Congress while seeking support from other nations; so far, some countries , such as Germany, have said they support the idea of military action, but they want no part of it.  Senate Democratic Leader Harry Reid set a test vote for later this week, but it was unclear whether the measure would attract enough backing to clear anticipated procedural roadblocks. Most counts show that the Congress is reluctant to back force, and constituents have been vocal in opposition. In town hall meetings during the congressional recess and in polls, most Americans don’t accept that the humanitarian argument is sufficient to justify a military strike.

According to a CNN poll, nearly 6 in 10 Americans think Congress should not authorize limited military action in Syria, with roughly 7 in 10 saying that airstrikes against Syria would not achieve any significant goals for the United States and that the US does not have any national interest in Syria.

Obama’s upcoming media blitz, to include interviews on six television networks and a primetime Oval Office address, is not going to rally the public to support military action. The president faces strong competition for the public’s attention, and most people are not attentive to him. Barely a tenth of the population watched Obama’s 2013 State of the Union address. Moreover, many people who do pay attention miss the president’s points, and the less people know, the more confidence they have in their pre-existing beliefs and resist factual information.

So, should you bother paying any attention to the media blitz? In decisions of war, bravery is needed in knowing when to be humble, in listening for one’s biases and evaluating new evidence. Or as Winston Churchill once said: “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen.”

Most people distrust government, especially on issues of war, especially when they are complex and their consequences are uncertain; and this certain qualifies as uncertain. But it's not that this situation is too complex for simple-minded voters to grasp the significance. The population is not stupid. We get it. We understand that the complexity is often just a cloak against honesty. We understand that the path to peace can be more than bombing people. The problem isn't that we don't get it. The problem is that we do get it.

More than four years after the recession officially ended, 11.5 million Americans are unemployed, many of them for years. Nearly 4 million have given up looking for work altogether. If they were actively looking, today's unemployment rate would be 9.5 percentinstead of 7.3 percent. The participation rate is at the lowest level in 35 years. It's now pretty well understood that of the two ways you can reduce unemployment, we got the bad one Friday. That is, the jobless rate can fall because more jobseekers land jobs -- good; or because they give up looking -- bad. Some of that decline is demographic -- our workforce is comprised of a growing share of workers on the cusp of retirement. But most of it -- I'd say about two-thirds based on the analysis I've seen -- is due to weak labor demand. People have given up and dropped out of the labor pool.

The median wage keeps dropping, adjusted for inflation, and incomes for all but the top 1 percent are below where they were at the start of the economic recovery in 2009.

Deficit hawks in both parties don't want you to know this but the federal deficit as a proportion of the total economy is shrinking fast: It's on track to be only 4 percent by the end of September, when the fiscal year ends. The non-partisan Congressional Budget Office predicts it will be only 3.4 percent in the fiscal year starting October 1. To put this into perspective, consider that the average ratio of the deficit to the GDP over the past 30 years has been 3.3 percent. So the deficit is barely a problem at all. Still, it's amazing how politicians can justify spending billions of dollars to drop bombs, but we can't afford to spend money to build a bridge, or make sure a hungry kid, right here in America, has food for the school day. A decent society would put people to work, even if this required more government spending on roads, bridges, ports, pipelines, parks and schools. War, however is not the answer.

Thursday, September 05, 2013 - Mustering Support

Mustering Support

by Sinclair Noe

DOW + 6 = 14,937
SPX + 2 = 1655
NAS + 9 = 3658
10 YR YLD + .08 = 2.98%
OIL + 1.23 = 108.46
GOLD – 23.90 = 1368.70
SILV - .25 = 23.31

The war hasn't started, yet.

President Obama is in St. Petersburg Russia for the G-20 summit, he received a cordial but cool greeting from Russian President Vlad Putin, however Putin had harsh words for Secretary of State John Kerry, calling him flat out a “liar”, referring to his testimony regarding Syria, a close ally of Russia.The United States has given up trying to work with the U.N. Security Council on Syria, accusing Russia of holding the council hostage. Russia, backed by China, has used its veto power three times to block council resolutions condemning Assad's government and threatening it with sanctions. 

Yesterday, a Senate panel authorized military action in a “limited and specified manner”. A full vote is expected next week. Syria is dominating a summit with an official agenda focused on economic growth, monetary policy and global banking and tax rules. Obama began meeting with other leaders of the Group of 20 nations, trying to persuade allies to give the US a measure of political cover even if they withhold military support. Obama has already met with Shinzo Abe of Japan, Francois Hollande of France – who may be the only US ally taking part in a strike against Syria, and also a meeting with Dilma Rousseff of Brazil.

Brazil won't be part of any military action, and Rousseff might even cancel a planned trip to the White House in October 23^rd; the reason has nothing to do with Syria. Rather the Brazilian President is a bit ticked off about information leaked by Edward Snowden that shows the US spied on communications between Rousseff and her top aides. Brazil’s Senate is creating a committee to probe the spying allegations and seek federal police protection for Glenn Greenwald, the journalist who revealed the documents from Snowden. Brazil's foreign minister said: “This represents an inadmissible and unacceptable violation of Brazilian sovereignty. This kind of practice doesn’t live up to the type of trust needed to have a strategic partnership.”

Indeed, the pressure for military action in Syria will find reluctance from several countries as it follows in the footsteps of the Snowden allegations. And if Obama can't muster international support for military intervention in Syria, it will make the job of Congressional support more difficult. Various handicappers believe the resolution would go down to defeat if the vote were held today. So far, the Administration has been unable to make much of a case, beyond moral outrage. In a post Iraq world, people are actually asking pertinent questions like: how long will it last? What is the objective? How much will it cost? So far these are unanswered or inadequately answered questions. It's interesting that they can always find money for military action isn't it?

It is entirely possible that we could soon witness the amazing spectacle of Congress defeating a war resolution backed by the president and every top elected leader.

Of course, a resolution can be defeated and not killed outright. Remember TARP? The first vote for TARP was defeated and it took a market swan dive, a second TARP vote, and the addition of lots of pork to reverse the initial vote. But also bear in mind that the reason TARP was initially voted down was the barrage of voter phone calls and e-mails against it, reportedly 99% opposed until financial services firms started getting employees to call in favor of the bill, which shifted the tally to a mere 80% or so of callers opposed.

Even if the President musters enough votes to strike Syria, at what political cost? Any president has a limited amount of political capital to mobilize support for his agenda, in Congress and, more fundamentally, with the American people. Time and again we have seen domestic agendas succumb to military adventures abroad — both because the military-industrial-congressional complex drains money that might otherwise be used for domestic goals, and because the public’s attention is diverted from urgent problems at home to exigencies elsewhere around the globe.

We've mentioned before that Syria is a minor player in the oil markets, but geographically any action there would have an affect on oil prices. The rarely noticed reason is that Syria is closely allied with Iran, and indeed this whole Syria thing may have more to do with Iran than Syria. Anyway, if something happens, we'll likely see a spike in oil prices. We've been seeing oil over $100 a barrel and gasoline above $3.40 a gallon for much of the last 3 years. Those prices would have shocked many Americans a few years ago, but have now become the new normal.

What changed? Well, Americans are breaking their addiction to driving, at least a little. We own fewer cars per household than just a few years ago. Unfortunately, some of the reduction in motor gasoline consumption directly relates to massive under-employment, especially among those under 25, as well as lower wages among the employed. And the cars we own are more fuel efficient. The average fuel efficiency for new cars sold in the US just six years ago was only 20.8 miles per gallon; today it's 24.8 MPG. That may not sound like much, but it's about a 20% improvement.

Higher domestic production and lower American consumption have meant declining imports of crude oil and petroleum products-- a reversal of another once seemingly inexorable trend. The economic burden of imported oil is represented not by the number of barrels, but instead by the real value of the resources we must surrender in order to obtain the oil. The dollar value of petroleum imports as a share of GDP has come down a little as a result of recent gains in production and conservation, but still remains significantly elevated relative to the levels of a decade ago.

Let's get back to economic news.

Tomorrow we'll see the monthly jobs report for August. We got some clues today. Jobless claims declined by 9,000 to 323,000 in the week ended Aug. 3. Employers seem to be holding the line on dismissals. Meanwhile, ADP, the private payroll processing firm issued their monthly report which showed companies increasing employment by 176,000 workers in August. The ADP report does not always match with the government report, but folks like to use it for guesstimates anyway. It's widely expected the economy added 175,000 to 180,000 jobs last month, up from July's gain of just 162,000. Anything over 200,000 would tilt the odds heavily in favor of the Fed beginning to taper QE security purchases at the FOMC meeting in two weeks.

 

Bill Gross, the head of PIMCO, in his September letter to investors says that central banks' easy money policies have become less effective in generating economic stability, and that zero-bound interest rates have threatened finance and investment in the "real economy."

Gross writes: "Why invest in financial or real assets if bond prices could only go down, and/or stock prices could no longer be pumped up via the artificial steroids of QE?"

Gross added that liquidity will be "challenged" when policymakers start to tighten easy money policies and stocks may also be "at risk" when the Fed ends its bond-buying program. In other words, the Fed's exit from QE might not be baked into the cake just yet.

If you've been listening to the Financial Review for more than a day or two, you know that I think the banking system poses a systemic threat to the economy. A few years ago I wrote a book called “Eat theBankers”, and you can follow these daily broadcasts at the website EattheBankers.com. So, it is reassuring for me when I hear others jumping on the bandwagon. I'm not going to go into detail, but Simon Johnson, the former chief economist for the International Monetary Fund, recently wrote an article for Bloomberg, and I'm posting the link: The title is: Bank Leverage is the DefiningDebate of Our Time.

The basic idea of the article is that excessive leverage could bring down the world economy again. And the next financial collapse could be even worse than what we experienced in the fall of 2008. The debate is between the Too Big to Fail Banks that want to take more risks precisely because they can draw on implicit or explicit government guarantees, and on the other side are sane people who realize that the banks could destroy the economy.

The banks don't want to set aside safe, reserves, they'd rather take that money and gamble. Letting banks calculate their own risk weights or develop their own methodologies makes no sense -- conflicts of interest predominate when you are too big to fail. But asking rating companies or government officials to come up with meaningful risk weights also is doomed to fail. They lack the information, motivation and compensation incentives to do this right.

We've had this debate before; at the beginning of the 20^th century Teddy Roosevelt brought a case against JPMorgan's Northern Securities Company as part of the anti-trust movement. The case was ultimately decided by the Supreme Court in the government's favor. Had the monopolists won, instead of enjoying a vibrant competitive economy and a century of unprecedented growth that made the U.S. the world’s greatest power, we would have likely ended up like other unfortunate countries where a few oligarchs rule to the disservice of the broader public and the greater good of the economy. 

Wednesday, August 28, 2013 - What Could Go Wrong?

What Could Go Wrong?

by Sinclair Noe

DOW + 48 = 14,824

SPX + 4 = 1634
NAS + 14 = 3593
10 YR YLD + .05 = 2.76%
OIL + 1.09 = 110.10
GOLD + 1.80 = 1418.80
SILV - .13 = 24.49

It is now almost certain that the United States, and an as yet unspecified number of its allies, will launch an airstrike against Syria and the forces of Bashar al-Assad. Let's look at how this might happen. We know that it is highly unlikely that US troops will be on the ground in Syria; that would be highly risky, very expensive, and extremely unpopular. The White House has said there will not be boots on the ground.

While the US is trying to cobble together a coalition of the willing to give some legal cover for attacking Syria, American military planners are fine-tuning a playbook that will likely focus on missile attacks and possibly bombing runs. Right now, there are four Navy destroyers waiting in the eastern Mediterranean Sea. It is expected they will lob cruise missiles toward Syrian targets; likely starting the missile barrage at night in order to limit civilian casualties. In the light of day they will assess damage and start the next round of attacks; if they need to hit harder, they'll call in the big bombers, the B-2s, which are capable of flying round trip from their base in Missouri.

The idea is to attack the command posts, communication nodes, troop and delivery systems, things like missile launchers; the command and control centers or the basic infrastructure the Assad regime uses to fight the rebels. The plan is not to bomb the suspected stocks of chemical weapons; there are two reasons why they are not being targeted: first, is because of the potential for collateral damage and second, the specific stockpiles are difficult to track and therefore difficult to declare “mission accomplished”. Also, the plan does not involve dropping bombs on al-Assad, but rather forcing him into submission; even if he is not forced from power.

The idea is that it would be limited and surgical military action. It might also be just weak enough to not change the military situation in Syria yet just enough to get the US deeply involved in a quagmire. And even if the military intervention is quick and effective, there's no idea what comes next for Syria, already torn apart by a 30 month civil war that has killed more than 100,000 and displaced millions more.

The next step is to cobble together a coalition, which would likely include the British, the French, and as many Arab countries as they can manage. The Arab League supports intervention, with the exception of Iran and Lebanon; and yes that means Hezbollah could be a big problem. The UK parliament is convening tomorrow, which means that even though military strikes could begin as soon as tomorrow, it might be a few days yet.

An American president says a Middle Eastern country has weapons of mass destruction. He builds a “coalition of the willing” for a military strike against said country. Sound familiar?

Well, it is different than 2003. This is planned to go more like Libya or Operation Desert Fox; that was the limited military intervention against Iraq in 1998. And like Libya, it would not technically require Congressional approval. And given the hyperpartisanship in Congress these days, I'm not sure what would come out of Capitol Hill. Still, if you look beyond the procedural politeness of involving the rest of government in authorizing military intervention, there is compelling political interest in spreading the responsibility for the decision.

Even if it is going to happen, and even if things go as planned, in war things don't always go as planned; things go wrong in the fog of war. Remember the 1999 bombing campaign in Serbia? Remember the bombing of the Chinese Embassy in Belgrade? Oops.

The unpleasant reality in Syria is that there are no good choices, for the US or much of anyone else. No one knows who the "rebels" are with any certainty, except that we know they are anything but a united, coherent force. We don't even know if any of them have goals worthy of support. There are many rebel groups with as many interests, most of them lethal – to each other, to their neighbors, to everyone. Getting rid of Assad might be a good thing, even if that is not the stated goal. Still, the assumption we can control reality and determine outcomes, is a hallmark of hubris.

Unquestionably we can intervene in any horrific way we choose, and no one can stop us. The US military is incredibly powerful and they will almost certainly put that power on display, but that's where our control of events ends, and the benefits of any intervention are hard to identify because there may not be any actual benefits of intervention. Of course an attack might briefly satisfy the mindless impulse to "do something," even if all we accomplished was showing that we were tough. The problem with being a tough guy is that someone will always take that challenge. Just as Assad has crossed that line in the sand, there will be some other punk that will try to do it. So taking the case to Congress, to let them share in the responsibility, that would be smart.

It looks like this whole situation has passed the point of no return, and there will likely be air strikes within the next few days.

It's been a rough month for the markets, but we can't blame it all on Syria, there were significant technical breakdowns before Syria reared its head. Still, whenever anything happens in the Middle East, the talk turns to oil. On Monday, the markets reacted badly to the growing eventuality of military action in Syria with at least one analyst saying oil prices could surge toward $150 on fears the conflict could affect oil supplies in the Middle East. We're on our way; oil topped $110 per barrel today; the highest level in 2 years. Yes it could drop just as fast, or maybe we could see $150. The global economy has enough problems without having to worry about expensive gasoline, too.

Meanwhile, the Fed's taper talk has hammered stocks and currencies in emerging markets. Traders had taken cheap money from the Fed and pumped it into developing economies that promised high returns. Some of these countries, such as India, had big current-account deficits with the rest of the world and really needed that hot foreign money. Once the Fed started talking about making money a little less easy, the emerging market trade got less profitable, and traders started collecting their winnings.

In some cases, the selling has calmed down recently. Brazil's Bovespa stock index has rebounded by about 10 percent, following a 20 percent collapse between late May and early July. Other countries haven't been so lucky -- particularly India, where the rupee is still under steady attack, falling to new lows against the dollar just about daily.

The problems with emerging markets also pose the risk of a negative feedback loop. The idea is that global capital flows are responding to the Fed's taper talk and emerging economies are slowing their pace of bond buys. As investors bring their emerging market investment back to the US, the bonds and currencies of those countries are weakening, which forces their central banks to intervene, which then accelerates the pace of US Treasury sales. So far the foreign selling of Treasuries has mainly been from private investors, but if or when emerging countries central banks jump on the sales, the result could be a feedback loop.

Here's how it plays out. As yields on US Treasuries push higher, investors pull money from emerging markets currencies and bonds in a hunt for yield subsidies; countries where investors fear ability to finance current-account deficit feel the brunt of the sell-off; and as emerging markets currencies weaken, their central banks intervene, drawing down reserves; followed by foreign central banks accelerating selling of US Treasuries as reserves decline and they sell to position against higher rates; and yields on US Treasuries push higher. Boom, loop complete.

Peace out.

Tuesday, July 16, 2013 - No Inflation Except if You Drive

No Inflation Except if You Drive

by Sinclair Noe

DOW - 32 = 15,451
SPX - 6 = 1676
NAS – 8 = 3598
10 YR YLD - .02 = 2.53%
OIL - .55 = 105.77
GOLD + 8.30 = 1292.50
SILV + .08 = 21.11

Start with the big economic report of the day; the Consumer Price Index, or CPI, which measures inflation at the retail level, increased 0.5% in June. A 6.3 percent surge in gasoline prices accounted for about two thirds of the increase. In the 12 months through June, the CPI advanced 1.8 percent. Stripping out energy and food, consumer prices increased 0.2 percent for a second straight month. That took the increase over the past 12 months to 1.6 percent, the smallest rise since June 2011. No real inflation except for energy prices.

A separate report from the Fed showed output at the nation's factories, mines and utilities rose 0.3 percent in June after a flat reading in May.

Another report showed confidence among single-family home builders at a 7-1/2 year high in July, with expectations of stronger sales and buyer traffic.

In earnings news, Coca Cola reported earnings of $2.6 billion, down from $2.7 billion a year ago. They tried to blame the shortfall on bad weather but I think people are cutting back on drinking soda.

Goldman Sachs posted second quarter net income of $1.9 billion compared with $962 million, in the period a year earlier. So, profits are up 100 percent. How is that possible, especially considering the new capital requirements and all those terrible regulations being forced on the big banks? And it's not just Goldman. Just the other day, JPMorgan reported a 33% increase in profits and Wells Fargo reported a 19% jump, and Citigroup's profits are up 42%. Banks are smashing their old profit records in a sluggish economy, with moderate M&A activity, and all sorts of regulations that were supposed to keep the banks from becoming unmanageable behemoths.

Actually, most of the regulations aren't really in place, only about 40% of the rules are affecting the banks, and they are still fighting the rest of the regulations; so maybe they don't really want to talk too loudly about record profits in a harsher regulatory environment. It's like the kid who's forced to take medicine, and his health improves, but he still cries about having to take the medicine.

Tomorrow morning, Fed Chairman Bernanke will appear before the House Financial Services Committee as part of his 2 day testimony before Congress on the economy and monetary policy. He'll deliver prepared remarks and then there will be a question and answer session, which generally provides the Congressmen a chance to demonstrate their economic incompetence and for Bernanke to speak without saying anything. Sometimes Bernanke slips and there is a nugget of information. He might just give a hint about when the Fed will exit QE, or what might serve as a trigger for taper; but mainly he'll repeat the mantra that monetary policy will remain accommodative from here to eternity. Expect a boring recitation of what Bernanke has been trying to repeat and repeat again and again; that essentially QE continues. Of course, you never know. Bernanke is going to leave his role at the Fed, so maybe he could just break out and speak truth.

That might be fun. Can you imagine if Bernanke, or even Greenspan before him, had decided to cut through the Fedspeak and tell the blunt, plain truth to the politicians? Maybe Bernanke could talk about how the Fed really made the crisis of 2008 much worse than it should have been; maybe he could talk about how the Fed has failed in its role as a regulator of the big banks, and now they represent an even bigger risk than in 2008; maybe he could tell the politicians how the sequester and austerity moves are hurting the economy, and the fiscal policy is akin to bleeding a patient to restore health.

Maybe Bernanke could tell Washington that the last four years have offered the federal government a borrowing and investment opportunity that's unprecedented in modern history; and that window of opportunity won't last forever. Interest rates have been at World War II-era levels, thanks to ZIRP, while investor confidence in Uncle Sam (and fears about other investments) created a situation where they were effectively paying the government to borrow money.

We could borrow the money, invest it in job creation, and be rewarded with an expanding economy that pays us back for our investment in both human and financial terms. And it's not like we'd be creating make-work. America's falling down. Our highways and bridges are crumbling; our electric grid is vulnerable; our water systems are antiquated; our public transportation is a joke, only surpassed by the cellular network; and that's just for starters. Maybe Bernanke could tell the politicians that we are on the verge of missing a once in a lifetime opportunity to really make a difference.

Yea, that's not going to happen.

But then who would have thought the politicians would agree on anything; turns out they can, and did. The Senate has voted to confirm Richard Cordray as director of the Consumer Financial Protection Bureau, as senators approved the first of a batch of President Barack Obama's nominations freed for votes by a bipartisan agreement.

The vote came hours after Senate leaders worked out a deal freeing up seven stalled appointments for the consumer bureau and other agencies for simple majority votes by the chamber. In exchange, Democrats agreed to abandon for now an effort to change Senate rules to weaken the minority party's ability to block nominations with filibusters, and Obama agreed to submit two different nominees for two labor posts.

Obama had used a recess appointment to put Cordray in charge of the agency, an appointment that expires in January. Republicans had solidly opposed Cordray's nomination, demanding that Obama first agree to change the agency's financing and structure.

So, this proves that politicians can come together, and all it took was the threat of the “nuclear option” on filibusters. Simple.

You Will Be Paying Higher Gasoline Prices. It Is Essential You Begin to Understand Why!

In the face of escalating gas prices, the oil patch, their allies and Wall Street are counting on your ignorance permitting them to pick your pockets, spoon-feeding you nonsense while they cash in massively. Oil prices recently touched $107, a level during the current run-up not reached since May of last year. This while inventories in the U.S. are near all-time record levels, U.S. production is accelerating, the world is awash in oil, and natural gas in the U.S. is selling at an equivalent BTU content to that of oil costing $24 a barrel or less.

It just doesn't make sense, and it is not explained away by the usual industry placebos: "The driving season is upon us", "production difficulties in Libya, Nigeria or you name it," "Iran is becoming recalcitrant," "Egypt is falling apart," "the dollar is weakening," "Chinese consumption is impacting markets," and so forth. Lots of hot air without real substance nor actual impact on the price of oil at Cushing, Texas, the delivery point for WTI crude. Misinformation propagated often enough both by the industry and a somnolent press to make an otherwise bilked public (paying extortionate levels for gas and petroleum products) blindly accept the oil industry's palaver. This combined with massive industry lobbying resulting in a total lack of effectual oversight of oil industry pricing and Commodity Exchange excess and the gross distortions resulting from the financialization of energy markets.

My saying so doesn't necessarily make it so. But consider the following- only yesterday Mr. Joe Petrowski, the CEO of Gulf Oil, posited on CNBC that the price of oil should be half of yesterday's $105/bbl exchange-quoted price or closer to $50 a barrel. He cited that record amounts of oil are being produced in the United States and Canada, and that OPEC supplies are higher.

Add to this the comments of Rex Tillerson, Chairman and CEO of ExxonMobil. In case you missed it, only last week, Exxon's 2012 earnings were cited as the second most profitable corporate earnings in the world, ever.

Yet some two years ago, before a Senate Committee, the same Rex Tillerson testified that the price of crude oil was $30 to $40 higher (at that time quoted at $100/bbl on the exchanges) than it should have been were it not for the "financialization" of energy futures and options on the Commodity Exchanges. With this coming from a man of Tillerson's stature and expertise on the issue, one would have expected that someone in government would have acted to protect the public's interest, but clearly the 'oiligopoly' and the commodity exchanges have a higher priority in Washington and the Beltway.

As an example of the excesses of the financialization of oil and energy derivatives trading and how they have lost all bearing to 'supply and demand' of physical product, let me cite but one example. On Feb 8, 2012 the Chicago Mercantile Exchange Group (CME), the world's leading derivatives marketplace, announced it set a new record for trading volumes of its energy products on February 7, 2012. Their trading volume for energy futures and options contracts totaled 3,489,302 contracts higher than the previous record of 3,098,129 contracts on 02.22.10 The CME group controls more than 90 percent of listed U.S Futures Trading including the New York Mercantile Exchange (NYMERC) and according to theWall Street Journal has outspent rivals on lobbying in Washington to ensure its views are heard.

Consider trading 3,489,302 energy or crude oil equivalent contracts in one day represents 3.48 billion barrels of oil (each oil futures or option contract is for 1,000 barrels). With world consumption some 85 million barrels a day, this would mean that in one day's trading on the New York Merc, the equivalent of 41 days of the total WORLD'S consumption will have been traded. And then we are told, of course, that it's all about supply and demand.

Remember, your silence is letting the oil boys and the oil desks of the bank-holding companies and the myriad speculators take you to the cleaners.