Archive for the ‘Oil’ Category
When is a crime not a crime?
Enron Corp.’s 2001 collapse revealed the extent of its manipulation of spot gas prices. Twelve years later, European Union regulators may discover energy traders never learned the lessons of the scandal.
BP Plc (BP/), Royal Dutch Shell Plc (RDSA) and Platts were visited by EU inspectors last week over allegations they “colluded in reporting distorted prices” to manipulate the published prices of oil and biofuel products, the European Commission in Brussels said after the raids.
While ENRON was a scandal due to manipulation it was the accounting — which was fictitious — that brought the company down.
Of course when you’ll lie and cheat about one thing you’ll do the same with something else; right? We’ve already established what you are; now we’re simply arguing over how big of a liar, cheat and fraud you might happen to be.
But look at what an “energy consultant” has to say:
“We’re making exactly the same mistakes we did with Enron, just with a different commodity,” Robert McCullough, an energy consultant, said by telephone from Portland, Oregon. “The same manipulation we saw in electricity and gas pricing is what we’re seeing in oil.”
They’re not crimes, they’re not felonies, they’re not things that should land you in prison for bilking people, they’re “mistakes.”
We will NEVER solve any of these problems — not in the energy markets, not in the land title business, not in the lending business generally, not in student loans, not in colleges, not in board rooms, not on Wall Street generally — until we call things what they are.
A shark is a shark. A rattlesnake is a rattlesnake. An alligator is an alligator.
And a violation of black-letter law, whether in land titles, front-running, intentional misrepresentation by a company or anything else is a crime, not a mistake.
You want to know what drives me to want to say “screw this!”, turn off the computer and decide to raise a few goats and chickens instead of innovating, building and employing, and which has destroyed my interest in the latter over the last decade and a half?
THAT is what has done so and will continue to do so — and until it stops my position, and that of many other entrepreneurs, on this point will not change.
The stock market is not crashing yet, but there are lots of other market crashes happening in the financial world right now. Just like we saw back in 2008, it is taking stocks a little bit of extra time to catch up with economic reality. But almost everywhere else you look, there are signs that a financial avalanche has begun. Bitcoins are crashing, gold and silver are plunging, the price of oil and the overall demand for energy continue to decline, markets all over Europe are collapsing and consumer confidence in the United States just had the biggest miss relative to expectations that has ever been recorded. In many ways, all of this is extremely reminiscent of 2008. Other than the Bitcoin collapse, almost everything else that is happening now also happened back then. So does that mean that a horrible stock market crash is coming as well? Without a doubt, one is coming at some point. The only question is whether it will be sooner or later. Meanwhile, there are a whole lot of other economic crashes that deserve out attention at the moment.
The following are 11 economic crashes that are happening RIGHT NOW…
As I write this, the price of Bitcoins has fallen more than 70 percentfrom where it was on Wednesday. This is one of the reasons why I have never recommended Bitcoins to anyone. Yes, alternative currencies are a good thing, but there are a lot of big problems with Bitcoins. Why would anyone want to invest in a currency that could lose 70 percent of its purchasing power in just two days? Why would anyone want to invest in a currency where a single person can arbitrarily decide to suspend trading in that currency at any time?
An article by Mike Adams of Natural News described some of the things that we have learned about Bitcoins this week…
#1) The bitcoin infrastructure cannot handle a selloff. Once the rush for the exits gains momentum, you will not be able to get out. Only those who sell early will be able to exit the market.
#2) The bitcoin infrastructure is subject to the whims of just one person running MTGox who can arbitrarily decide to shut it down whenever he thinks the market needs a “cooling period.” This is nearly equivalent to afinancial dictatorship where one person calls the shots.
#3) Every piece of bad news will be “spun” by exchanges like MTGox into good-sounding news. As bitcoin was crashing yesterday by 60% in value in mere hours, MTGox announced it was a “victim of our own success!” So while bitcoin holders watched $1 billion in market valuation evaporate, MTGox called it a success. Gee, then what would you call it when bitcoin loses 99%? A “raging” success?
The price of gold was down by about 4 percent on Friday. Gold has now fallen below $1500 an ounce for the first time since July 2011. Overall, the price of gold has fallen by about 10 percent since the beginning of the year, and it is about 22 percent below the record high set back in September 2011.
Yes, the price of gold is likely being pushed down by the banksters. And yes, gold is a fantastic investment for the long-term. But there will be times when the price of gold does fall dramatically just like we saw back in 2008.
The price of silver fell by about 5 percent on Friday. If it falls much more it is going to be at a level that presents a historically good buying opportunity.
Just like gold, there will be times when the price of silver swings dramatically. But the truth is that silver is probably an even better long-term investment than gold is.
The price of oil declined by about 3 percent on Friday. Many will consider this a positive thing, but just remember what happened back in 2008. Back then, the price of oil dropped like a rock. If the price of oil gets below $80, that could very well be a clear signal that a major economic crisis is about to happen.
#5 Consumer Confidence
As I mentioned above, consumer confidence in the U.S. just had its biggest miss relative to expectations that has ever been recorded. The following is from an article posted on Zero Hedge on Friday…
Well if this doesn’t send the market into all-time record high territory, nothing ever will: seconds ago the UMich Consumer Confidence plummeted from 78.6 to 72.3, on expectations of an unchanged 78.6 print. This was not only a 9 month low in the index, but more importantly the biggest miss to expectations in recorded history!
#6 Retirement Accounts
According to Wells Fargo, the number of Americans taking loans from their 401(k) accounts has risen by 28 percent over the past year…
Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 – a 7% increase from $6,662.
Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.
“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement.
#7 Casino Spending
Casino spending is declining again. Many people (including myself) would consider this to be a good thing, but casino spending is also one of the most reliable indicators about the overall health of the economy. Remember, casino spending crashed during the last financial crisis as well. That is why it is so alarming that casino spending is now back to levels that we have not seen since the last recession.
#8 Employment In Greece
Over in Europe, things just continue to get worse. According to numbers that were just released, the unemployment rate in Greece has soared to27.2 percent, which was up from 25.7 percent the previous month. That means that the unemployment rate in Greece rose by 1.5 percent in just a single month. That is not just a crash – that is an avalanche of unemployment.
#9 European Financial Stocks
European financial stocks have been hit particularly hard lately. And for good reason actually – most of the major banks in Europe are essentially insolvent at this point. This week, European financial stocks fell to seven month lows, and this is probably only just the beginning.
#10 Spanish Bankruptcies
According to Reuters, the number of Spanish companies going bankrupt has risen by 45 percent over the past year…
A record number of Spanish companies went bust in the first quarter of 2013 as companies remained under intense pressure from tight credit conditions and meager demand, a study showed on Monday.
The 2,564 firms filing for insolvency proceedings in first three months of the year was a 10 percent rise from the previous quarter and a 45 percent increase on the same period in 2012, the survey by credit rating agency Axesor said.
#11 Demand For Energy
Just like we saw back in 2008, the overall demand for energy in the United States is falling rapidly. There are some shocking charts that prove this that were recently posted on Zero Hedge that you can find right here.
Yes, it is good for people to use a bit less energy, but it is also a clear indication that economic activity is really starting to slow down.
But despite everything that you have just read, the Dow and the S&P 500 have been setting new record highs.
Fortunately, there are a few voices of reason out there. For example, just check out what Marc Faber recently told CNBC…
In the near-term, the U.S. stock market is overbought and adding that any more near-term gains portend big trouble for the market, “The Gloom, Boom & Doom Report” publisher Marc Faber told CNBC on Monday.
“If we continue to move up, the probability of a crash becomes higher,” Faber predicted in a “Squawk Box” interview, saying it could happen “sometime in the second half of this year.”
As I have written about previously, a bubble is always the biggest right before it bursts. I hope that we still have at least a little bit more time before it happens, but I wouldn’t count on it.
The economic fundamentals tell us that the stock market should be plunging, not rising. At some point the boys over on Wall Street will get the message and the market will catch up to reality very, very rapidly.
But for the moment, the American people are feeling really good. According to CNN, Americans are now more optimistic than they have been in six years…
As the stock market continues to show record highs, the number of Americans who say things are going well in the country has reached 50% for the first time in more than six years, according to a new national survey.
So what do you think will happen for the rest of the year?
Do you think that the good times will continue to roll, or do you believe that the bubble is about to burst?
It’s no secret (at least it shouldn’t be) that gasoline sales have plunged. Here is a chart from my April 6 post Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage for Jan, Feb, March 2012
Jan-Feb-March 2012 petroleum and gasoline usage vs. the same three months in prior years.
Every month for quite some time, the rolling average of petroleum and gasoline usage has been trending down. The question is “Why?”
Some pin this on car mileage improvements but that answer is easy to discredit. Fuel efficiency has been rising for more than a decade, but the plunge did not start until the Great Recession in 2007.
However, the Great Recession is over, yet gasoline sales have not rebounded. Is this an indication another recession is on the horizon? That the recession never ended? Something else?
Transportation and the New Generation
Inquiring minds are reading a Frontier Group study Transportation and the New Generation: Why Young People Are Driving Less
From World War II until just a few years ago, the number of miles driven annually on America’s roads steadily increased. Then, at the turn of the century, something changed: Americans began driving less. By 2011, the average American was driving 6 percent fewer miles per year than in 2004.
The trend away from driving has been led by young people. From 2001 and 2009, the average annual number of vehicle-miles traveled by young people (16 to 34-year-olds) decreased from 10,300 miles to 7,900 miles per capita – a drop of 23 percent. The trend away from steady growth in driving is likely to be long-lasting – even once the economy recovers. Young people are driving less for a host of reasons – higher gas prices, new licensing laws, improvements in technology that support alternative transportation, and changes in Generation Y’s values and preferences – all factors that are likely to have an impact for years to come.
America’s young people are decreasing the amount they drive and increasing their use of transportation alternatives.
- According to the National Household Travel Survey, from 2001 to 2009, the annual number of vehicle-miles traveled by young people (16 to 34-year-olds) decreased from 10,300 miles to 7,900 miles per capita – a drop of 23 percent.
- In 2009, 16 to 34-year-olds as a whole took 24 percent more bike trips than they took in 2001, despite the age group actually shrinking in size by 2 percent.
- In 2009, 16 to 34-year-olds walked to destinations 16 percent more frequently than did 16 to 34-year-olds living in 2001.
- From 2001 to 2009, the number of passenger-miles traveled by 16 to 34-year-olds on public transit increased by 40 percent.
- According to Federal Highway Administration, from 2000 to 2010, the share of 14 to 34-year-olds without a driver’s license increased from 21 percent to 26 percent.
Young people’s transportation priorities and preferences differ from those of older generations.
- Many young people choose to replace driving with alternative transportation. According to a recent survey by KRC Research and Zipcar, 45 percent of young people (18-34 years old) polled said they have consciously made an effort to replace driving with transportation alternatives – this is compared with approximately 32 percent of all older populations.
- Many of America’s youth prefer to live places where they can easily walk, bike, and take public transportation. According to a recent study by the National Association for Realtors, young people are the generation most likely to prefer to live in an area characterized by nearby shopping, restaurants, schools, and public transportation as opposed to sprawl.
- Some young people purposely reduce their driving in an effort to curb their environmental impact. In the KRC Zipcar survey, 16 percent of 18 to 34-year-olds polled said they strongly agreed with the statement, “I want to protect the environment, so I drive less.” This is compared to approximately 9 percent of older generations.
The trend toward reduced driving has occurred even among young people who are employed and/or are doing well financially.
- The average young person (age 16-34) with a job drove 10,700 miles in 2009, compared with 12,800 miles in 2001.
- From 2001 to 2009, young people (16-34 years old) who lived in households with annual incomes of over $70,000 increased their use of public transit by 100 percent, biking by 122 percent, and walking by 37 percent.
Generation Y is not the only reason behind the plunge. Please consider Mean Duration Long-Term-Unemployment.
From 1980-2010 the average length of unemployment is between 15 and 20 weeks. Now it is 40. The unemployed are not driving to jobs they do not have.
Labor Force vs. Those Not in Labor Force
Labor Force Analysis
- Between 1980 and 1990 those not in the labor force was relatively constant while the labor force grew at a steady rate.
- Between 1990 and 2007 the labor force grew faster than those not in the labor force.
- Since 2008 those not in the labor force is in a strong uptrend while the labor force has been flat.
Nearly 9 million have dropped out of the labor force since November 2007 while the labor force itself is flat. It is safe to assume that group of dropouts is driving far fewer miles on average than they were before.
The mass retirement of boomers, much of it forced retirement is also in play. By forced retirement I mean those who exhausted unemployment benefits and retired to collect social security benefits even though they really want a job.
Timing is such that we can safely rule out cash-for-clunkers as a significant reason behind the plunge. Likewise, improvements in fuel mileage have continuous over decades and cannot account for a sudden plunge.
Reasons for Plunge in Gasoline Sales in Order of Importance
- Huge rise in those “not in labor force”
- Boomer demographics and retirement (much of it forced)
- Chronic long-term unemployment
- Changing social trends in younger generations, no doubt accelerated by the recession and student debt
- Declining real wages leave consumers with less discretionary spending cash (think shorter vacations closer to home)
- High price of gasoline
- Increase in online shopping means fewer trips
- Improved fuel rates and cash-for-clunkers
What About Car Sales?
Points two and three are a subset of those “not in labor force”. Looking ahead, points 1 through 4 (especially points 2 and 4) will help put a cap on car sales.
Thus, those looking for auto sales’ reversion-to-the-mean plus an overshoot, may have seen the overshoot already.
Mike “Mish” Shedlock
No really? I needed a laugh this morning….
The indexes for food, energy, and all items less food and energy all increased in March. The gasoline index continued to rise, more than offsetting a decline in the household energy index and leading to a 0.9 percent increase in the energy index. The food index rose 0.2 percent as the index for meats, poultry, fish, and eggs increased notably.
We’ll get to that household energy thing in a minute….
But from the standpoint of the leading presentation, all I can say is “duh.”
Incidentally, the unadjusted price change in all items last month was 0.8%. That, my friends, is a shocker. Leading the charge was meats, poultry, fish and eggs (animal products) which anyone with a brain has seen in the supermarket.
Energy commodities, again unadjusted, were up 7.6% this last month. Motor fuel was the screaming leader with an 8% increase, while piped gas was down 0.9%.
Other screamers in the number were appliances (up 0.7% last month, 9% annually) with laundry leading with 1.1% and 11.5%, respectively. Apparel was up big as well, although that move looks to be all “right here and now” rather than trend, so whether it’s a one-off remains to be determined. And for those who claim that health insurance costs are leveling off and won’t play hell with the United States, well, the numbers say otherwise — 1.3% last month and 11.3% annual, which is above the 9.3% that we’ve historically recorded over the last 30 years.
Mr. Obama yesterday blamed rising demand from the likes of Brazil and China, and there is something to that as well. But this energy demand is also not new, and if anything Chinese and Brazilian economic growth has been slowing in recent months.
Another suspect—one Mr. Obama doesn’t like to mention—is U.S. monetary policy. Oil is traded in dollars, and its price therefore rises when the value of the dollar falls, all else being equal. The Federal Reserve throughout Mr. Obama’s term has pursued the easiest monetary policy in modern times, expressly to revive the housing market. It has done so with the private support and urging of the White House and through Mr. Obama’s appointees who are now a majority on the Fed’s Board of Governors.
Yep. And it hasn’t worked — because it can’t work.
“Reviving” the housing market presumes there’s something to revive. That is, the presumption is that the “slump” in home prices and demand is something that is unnatural and can thus be reverted to a “mean” that is actually positive.
That’s a fantasy — what was false was the price signaling in the housing market during the 2000s. From 2003 to 2007 house prices went on a tear that had nothing to do with intrinsic value, and indeed that problem had been brewing since the 1980s! What we saw in the 2000s was the final, end-stage parabolic blow-off top that always happens when a geometric series gets out of hand — unless, of course, it’s short-circuited first.
All the arm-waving that has gone on since is an attempt to do nothing more than re-inflate fraudulent prices that were generated through fraudulent lending practices.
It won’t work because it can’t work.
Look folks, I know that people don’t want to hear it, but the fact is that real purchasing power of the American worker has been in decline for more than a decade. Nominal wages have declined since 2000 and with inflation purchasing power has been in the toilet. The so-called “2% inflation target” is a rude scam over decade-long periods (not to mention longer periods of time) and must be eliminated in favor of actual stable prices.
Greenspan, Bush and The Fed generally all tried to evade recognition of the Internet Bubble’s “valuation blow-off” with more cheap credit, which fueled the housing bubble and led to a consumption blow-off with borrowed home equity “money.”
But that value never existed although the debt created sure did, and as a result we dug an even-bigger and deeper hole.
It is time to “eat our peas”, despite the fact that we won’t like it. The reason to do it now is the same as it was in 2007 when started I writing on this — the longer we wait the more damage we must accept, as geometric functions never get “better” in their impact the longer you wait to deal with them.
Does it cost you hundreds of dollars just to get to work each month? If it does, you are certainly not alone. There are millions of other Americans in the exact same boat. In recent years, the price of gas in the United States has gotten so outrageous that it has played a major factor in where millions of American families have decided to live and in what kind of vehicles they have decided to purchase. Many Americans that have very long commutes to work end up spending thousands of dollars on gas a year. So when the price of gas starts going up to record levels, people like that really start to feel it. But the price of gas doesn’t just affect those that drive a lot. The truth is that the price of gas impacts each and every one of us. Almost everything that we buy has to be transported, and when the price of gasoline goes up the cost of shipping goods also rises. The U.S. economy has been structured around cheap oil. It was assumed that we would always be able to transport massive quantities of goods over vast distances very inexpensively. Once that paradigm totally breaks down, we are going to be in a huge amount of trouble. For the moment, the big concern is the stress that higher gas prices are going to put on the budgets of ordinary American families. Unfortunately, almost everyone agrees that in the short-term the price of gas is going to go even higher.
When you are on a really tight budget and you are already spending several hundred dollars on gas each month, you certainly do not want to hear that gas prices are going to increase even more.
A lot of Americans are moving or are getting different vehicles just because of these outrageous gas prices. The following comes from a recent Mercury News article….
Katherine Zak, of South San Jose, is searching for an apartment near her new job at Facebook in Palo Alto, partly to cut down the cost of driving. Jeff Benson, of Raymond in the Sierra foothills, typically drives 60,000 to 70,000 miles a year and has traded in his 19 mpg Ford Taurus for a Fusion that gets 33 mpg. And David Thomas says his commute from San Jose to San Francisco is getting so expensive that he and his fiancee are hunting for a house near a BART station in the San Mateo-San Bruno area to shorten his commute and lower his $400-a-month gas bill.
The price of gas is going even higher even though energy consumption is sharply declining in the United States. Just check out the charts in this article by Charles Hugh Smith. Americans are using less gasoline and less energy and yet the price of gas continues to go up.
That is not a good sign.
Certainly any decrease that we are seeing in the U.S. is being more than offset by rising demand in places such as China and India. As emerging economies all over the globe continue to develop this is going to continue to put pressure on gas prices.
So just how bad are gas prices in the U.S. right now?
Just consider the following facts….
-The average price of a gallon of gasoline in the United States is now $3.53.
-The average price of a gallon of gasoline is already higher than $3.70 in Connecticut, Washington D.C. and New York.
-In mid-January 2009, the average price of a gallon of gasoline in the United States was just $1.85.
-The average price of a gallon of gasoline in the United States has risen 25 cents since the beginning of 2012.
-Never before in U.S. history has the price of gasoline been this high so early in the year.
-The Oil Price Information Service is projecting that the price of gas could reach an average of $4.25 a gallon by the end of April.
-The price of oil just keeps going up. The price for West Texas Intermediate is about 19 percent higher than it was one year ago.
-The price of gasoline is also reaching record highs in many areas of Europe as well. For example, the price of diesel fuel in the UK recently set a brand new record.
-In 2011, U.S. households spent a whopping 8.4% of their incomes on gasoline. That percentage has approximately doubled over the past ten years.
But the price of gas is not the only thing making driving much more expensive these days.
All over the country, our politicians have been putting up toll booths. Most of the time these toll booths are going up on roads that have already been paid for.
After paying an outrageous amount for gas and after paying the outrageous tolls on many of these toll roads, many Americans wonder if it is even worth it to get up in the morning and go to work.
Unfortunately, a couple of new bills in Congress right now would reportedly allow even more highways to be made into toll roads.
It is almost as if they want to force us all to stop driving our cars.
America used to be the land of the open road, but that era is rapidly coming to an end.
Another thing that could put upward pressure on the price of gas is the situation in the Middle East.
Iran has already stopped selling oil to companies in the UK and France, and there is the potential that war could erupt in the Middle East at any time.
If war does erupt, or if commercial traffic through the Strait of Hormuz was interrupted for even a brief time, that would send the global price of oil through the roof.
Approximately 20 percent of all oil sold in the world passes through the Strait of Hormuz. If the flow of oil was halted, that would change the global economy almost overnight.
So is there any good news?
Well, there is one thing that would likely bring down the price of gas substantially.
A global recession.
Remember what happened back in 2008.
Just like we are seeing right now, the price of gas really spiked early in that year.
Eventually, the price of oil hit an all-time record of $147 a barrel in mid-2008.
But then the financial crisis struck and the price of oil fell like a rock as you can see from the chart below….
So could that happen again?
There are a ton of other parallels between 2008 and 2012.
In both years, we saw global shipping start to slow down dramatically.
In both years, the U.S. was getting ready to hold a presidential election.
In both years, many economists were warning that a great financial crisis was about to strike.
Back in 2008, the epicenter of the financial crisis was on Wall Street.
This time, the epicenter of the financial crisis will probably be in Europe.
Keep your eye on Europe. A disorderly default by Greece (and potentially even an exit from the eurozone) is looking increasingly likely.
But the problems in Europe are not going to end with Greece. The entire eurozone is going to be greatly shaken by the time this thing is over.
So yes, if we see another major global recession that will be great news for the price of gas, but it will be really bad news for the millions of people that lose their jobs and their homes.
Unfortunately, we live at a time when the world is becoming extremely unstable. The great era of peace and prosperity that we have been enjoying is coming to an end. The global financial system is going to experience a tremendous amount of chaos in the years ahead and that is something we will all need to prepare for.
For now, the price of gas is a major concern for millions upon millions of American families.
Someday, however, we will wish desperately that we could go back to these days.