Snooze Button Dreams
Snooze Button Dreams
Snooze Button Dreams
September 09, 2008
Trees, Forest; For The
(Category: shankonomics )

Some interesting things have happened in the economy; macro and micro, in the recent past.

Oil continues its bearish trend on demand concerns and the strengthening dollar. As far as the dollar is concerned, I think we're seeing a confluence of factors. Firstly, the Euro-zone may have started to get a little worried about the power of the Euro. If it got too high, it would have exacerbated some growth concerns by hindering exports. Their central banks may be intervening a little to help weaken their currency to a preferred range. Secondly, I think many international investors look to the US for financial stability; for better or for worse. Our economy does seem to be more resilient on its face than many others; so some folks might be tentatively getting back in the water.

The government effectively nationalized Fannie Mae and Freddy Mac on Monday. Personally, I was suprised by all the enthusiasm (on Wall Street and in international markets) for this move; apparently they all read it as a stabilizing gesture. A very interesting turn of events, but not exactly a surprise; as those two organizations essentially have a promise from the Federal Reserve that they will exist into perpetuity. What happens from here is anyone's and everyone's guess. Literally; everyone is guessing. Hopefully we'll see some kind of hybrid setup where some mortgages are auctioned off and privatized while others remain on the federal balance sheet. At least that way the tax payers don't end up footing the bill. God and anyone who has ever heard of the budget deficit knows we've already been handed a pretty hefty tab. Thank you, government. Sigh.

Also- something interesting for you conspiracy theorists. Yesterday morning, someone mistakenly(?) re-released an article from '02 or '03 about the bankruptcy of United Airlines. This news hit the trading floor, and United's stock went from $11/share to about 99 cents per share in mere minutes. With about 126 million shares outstanding, this represented a loss of roughly $1 billion. Trading on the floor was halted at this level. Once people started to see that the media release was in error, trading was reopened and by early afternoon the stock value was back up in the $10-$11 range. Everything's hunky dory right? I mean, if I held my shares yesterday, it was just an average trading day? Well, yes and no.

The sleight of hand here is in the shares that were traded. Let's say you've got 1000 shares ($11000) at 8am. The market opens, you're at work, things go down the shitter and your sell limit kicks in at $6. You've just lost $5000, and you won't know it until you get home that evening; or possibly later. Now, say a day trader or hedge fund sees this going on as it's happenening, and decides to take a gamble at 99 cents per share, and buys up everything possible before trading is shut down. Let's just guess that they were able to invest $5000 (approx 5000 shares) before the door was slammed shut. Over the next few hours, the truth comes out, and trading resumes. The trader sells these shares in the afternoon for maybe $10 each, turning five grand into $50,000. Nice.

This situation, as you might imagine, has many people demanding the SEC look into who found and released this article, and what their connection is to the investment community. Did United push this out there through a company shill in an effort to drive the price down, so it could snap up shares and sell them later; generating a vast amount of cash for itself? Or was it one of the many powerful but teetering investment banks that did it, to help shore up losses in their real estate portfolios? Or, was it just a giant fuck up? Only time will tell, if ever. The facts as they stand now are that someone was buying at 99 cents; and whoever it was, they're probably feeling pretty good today.

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August 18, 2008
Do You Remember The Time...
(Category: shankonomics )

...When a mere tropical depression sent the price of oil through the roof? Oh golly gee, it looks like the fundamentals are taking over in the oil market! Oh Noes!

Let's see, decreasing demand in America, the end of fuel subsidies in China, and rapid global deflation* equals what? A decrease in the price of oil in the face of a Gulf Coast hurricane. I claim victory and my righteous place as economics seer of the year.

Unfortunately, such pronouncements not only have the contrarian effect of dooming me to any forseeable future success in these markets; but they also actually ruin any chances I ever had of claiming some sort of social life.

The upside is that I shorted a market that was at $145, and it ended at $112 today. Too bad the money I made will never be enough to fill the void that keeping up with this ridiculously volatile market left in my already depreciated character. Good Lord, I am such a loser.

Continue reading "Do You Remember The Time..."
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July 23, 2008
Oil, Oil, Everywhere. UPDATED: With Link Love
(Category: shankonomics )

Oh dear Lord, how I do love being right; even if it's only so often or for so long.

What you see in this chart, is a drop in oil price from it's high around $146, to today's close at $124. I know it's a little geeky looking, but basically each vertical bar represents the trading range for a given day; with the left pointing hashes representing opening prices, the right pointing ones the close. The columns across the bottom show trading volume.

oil.bmp

This represents roughly a 13% loss from its high - on July 11th. Some of the more optimistic folks are calling this the ol' bubble popping.

I call it a response to the changing regulatory environment , obvious demand destruction, the long term possibility of the expansion of drilling operations in the U.S.; AND the bubble popping. The latest inventory report showed 2.9 million barrels of gasoline inventories; when only 500,000 were expected. Guess it got a little to expensive and people quit buying it, hm? Maybe? Yeah?

Yee haw.

"Why is cheap oil so important, when there are so many other financial problems?" you might ask. Well, as the price of oil decreases, it does two things that make you and I (as people with dollars in our wallets) richer. Firstly, it tends to shore up strength in our currency, since oil is bought and sold in dollars. Although it's not neccesarily a two-way street, there's a bit of cyclical action that ties them very closely. That action is the second thing that cheap oil does - it puts spending money in our pockets. Not just in the form of cheaper oil or gas; but in the trickle down effects of cheaper petroleum products in general, fertilizers, plastics, and every item that is brought to your home by anything (a plane, a train, a truck) that runs on petroleum based products. As Americans find they've got more spending money, they can pay back debts, make new purchases, and maintain a healthy economy. Healthy economy = strong dollar.

In all honesty, I'd be surprised if it continued to drop so precipitously. I'm still expecting it to drop in value, but there's a lot of dust left to settle; so I think it'll take some time. It'll be interesting to see how things take shape in the coming weeks.

Linkish Update: Ed Morrissey puts together a nice little aggregation of the facts on what increased production could do to global supply and, more importantly, U.S. dependance on unstable and unfriendly regimes.

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July 16, 2008
Ubercontrary (Super Rare DOUBLE) UPDATED
(Category: shankonomics )

Yes, I'm still ruminating on a long term deflation of oil prices. I know, it seems a ridiculous perspective on the issue at this point, but I find it entertaining.

Yesterday, while The Dub was speakalating from his podiator oil tanked. Ended the day with the biggest drop in 17 years, to be exact. Of course, if you're a dark pool kind of person, this drop in price could be due to large investment banks selling off to cover losses in other sectors, or Fed manipulation through something akin to their oft rumored Plunge Protection Team. YMMV.

But anyways, back to my theory here. I always assumed it would be baby steps over the course of a few years that would get us to a drop in oil prices, but Kudlow caught something I hadn't been anticipating:

A new report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratorium were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. Theyre talking about 10 billion barrels worth off the coast of California.

Yowza. Domestic demand is decreasing, and we could be on the verge of increasing domestic supply. Of course, we still have a few kinks in the supply chain to unwind; and those will take time too.

But let's do some imaginatin' here. If talk of ramping up production in the US was responsible for even half of yesterday's decrease in the price of oil; what do we think actual increase of production will do?

Update:
Related? Mini nuclear reactors.

Updated Again:
Crude, Gas, Distillate inventories show unexpeceted increases, oil prices drop another $6 in trading. Invisbile hand, consumer response to (possibly manipulated) high prices both unavailable for comment. It'll be interesting to see how the crude price ends today. Most times, these initial reactions backpedal over the course of the day.