Social security is zero issue -- that money does not exist today, except as a past tax that has been reapportioned already. It is a purported obligation of the gov't, and gov't money backs it up. Really the only issue there is the size versus GDP. Now, 401Ks would be a bit of an issue, but mostly because of inflated equity markets more than personal debt. National debt is a problem more as an ROI on spending and whatever interest gets paid than the size per se, but all of that is obfuscated by the funky and unnecessary Fed and fractional reserve banking. Treasury could do what is needed alone.
The tricky part of bank debt is there is no real line between individual assets and banking assets and individual debt and bank debt, as it's all "private debt", though the private banks are acting like part of the public money creation by issuing loans........and also investing on their own behalf.
Most basically, though, from what I've gathered is that when rate of return on capital exceeds rate of wage growth, wealth aggregates toward the wealthy. The last bust just vacuumed up real property to institutions and investors. The next bust will finish off corporate ownership, as it washes out individuals and their 401Ks.
This whole notion of capitalism focused on modest inflation and 2% raises and 4-6% unemployment but a 6% stock market skews toward the wealthy. Really, a democracy should lean toward work for all, welfare for few, more production and less service fraction, and wage growth eating most of the benefits of production. Of course that goes against globalism, but that is dying anyway, as the currency race to the bottom continues -- everybody wants to be an exporter, and yet all they'll likely export is deflation.
All 4% inflation guarantees is that people fight for jobs instead of wages fighting for workers. I fully admit there are crappy workers, but good ones should be in demand, and the best should get better raises than the investors who own their company's stock.
I read that prisons cost the US 240B yearly. Nowhere near as much as healthcare, but a LOT. Yet another "service industry" on both sides of the bars that produces nothing to improve quality of life or national wealth. Except for dangerous criminals, we need to get people out of prison and making stuff. Since we're paying $30K or more for each already, any sort of marginal return would be a big improvement.
The service economy in general is a misnomer too, except for where a modest level of service support adds efficiency to the productive workers. No way a "mostly service" economy can be wealthy in the long term, as to do that requires producing more goods to share around. If we're producing more than we need (food, houses, whatever), then there shouldn't be worries about retirement or welfare, as what remains is a distribution problem.
Sunday, February 15, 2015
Friday, February 13, 2015
Interesting Graph
A graph of stock valuation versus tangible capital is high, but apparently peaking. Are we heading into a steep fall, or just an aberrant jog down before newly inflated highs? Courtesy of NY Times via Zerohedge.
Sunday, February 8, 2015
China slowing
Found this little news snippet on China's January numbers:
With imports down way more than exports, China Posted a Record Trade Surplus of $60 billion, in this case, not a sign of strength.
Year-Over-Year Data Points
Read more at http://globaleconomicanalysis.blogspot.com/#GVbfyMXmPZZxODi6.99
With imports down way more than exports, China Posted a Record Trade Surplus of $60 billion, in this case, not a sign of strength.
Year-Over-Year Data Points
- Imports plunged 19.9% year-over-year vs. economist expectations of a 3.2% drop.
- Exports fell 3.3% vs. economist expectations of 5.9% gain.
- Crude oil imports fell 41.8%
- Iron ore imports fell 50.3%
- Coal imports fell 61.8%
Read more at http://globaleconomicanalysis.blogspot.com/#GVbfyMXmPZZxODi6.99
As you all know, I've said that China was slowing, based on shipping rate info (a leading indicator), and the known drop in crude and iron prices. This says the rest of the world is slowing too, as nobody is buying (even the US, with our strong dollar).
We are knocking on the door of deflation. If the bottom falls out of crude, and the Greek situation worsens, we could find ourselves in a deflationary dip. A spiral down that path is a dangerous one for a heavily indebted world (and for indebted individuals). We haven't had deflation since the 30's, and we've said we'll never permit THAT again, which is why we have so much debt -- lenders who should be worried, aren't.
We are knocking on the door of deflation. If the bottom falls out of crude, and the Greek situation worsens, we could find ourselves in a deflationary dip. A spiral down that path is a dangerous one for a heavily indebted world (and for indebted individuals). We haven't had deflation since the 30's, and we've said we'll never permit THAT again, which is why we have so much debt -- lenders who should be worried, aren't.
Financial returns and growth have far outweighted labor gains and productivity gains for many years. That's probably about to change...either wages go up, and the "real" GDP gains, or financing comes down. Or both......
Saturday, February 7, 2015
Crude in storage growing
Oil in storage keeps growing and growing.
http://www.eia.gov/petroleum/weekly/images/crstusm.gif
Storage capacity grew since the recession-driven glut of 2009 through the pipeline-restriction WTI glut in Cushing of 2013. Now all the storage is filling at once, at a rate of about a million barrels per day.
Why? Production, for one -- even at today's lower prices most (almost all) wells are economic to produce, so producers work harder to sell more quantity to compensate for lower margins so they can cover costs. Some will succeed, while some won't. For storage, it's a no-brainer for investers, as the contango of the futures chain says they can buy low now and sell high next spring with virtually no risk.
Rigs are dropping, and have been for six months, but production flattened for the first time this week. Investors bid up oil prices on this news, and the continuing rig count drops, and some unrest in the Mid-East, but I think they are overly optimistic. Unless consumption rapidly picks up, and with China slow, the EU in a morass, and Russia in a pinch, covering the 2mpd+ production glut will not come quickly.
Besides the 1mbpd going into storage in the US crude stocks, refined products are up a bit as well. More importantly, floating storage filled, and so did China's SPR. I see this week that the bump in prices has halted the growth of floating storage, so the delivery pipeline (firgurative - as in market, not necessary a physical one!) is going to congest a bit. Currently, there is about 440mbbl of official storage capacity in the US. From the graph above, we're at about 410. In another few weeks, we'll be bumping at the top.
Even if we assume there is some unofficial storage that will fill (tank cars, barges, refineries, etc.), that will go fast. Unless production drops before the tanks fill up, WTI will take a hard hit, and fast. If floating storage fills up (which would take longer), then worldwide prices will drop. Worst case, they'll drop to the marginal cost of existing production, which would be $33 or lower, versus the nebulous space they are now between marginal cost of existing production and cost of new production. Once China's SPR fills (nobody knows for sure quite when, but it will be soon), another 1mbpd of excess production will be on the market, and those tankers will idle, and they will quickly fill with oil, too.
We have less than sixty days for production to drop significantly, else prices will collapse. As for the bump this week, either the market is more confident than I that production will drop quickly, or it believes economies will expand faster, or it is overconfident. The remaining option, as always, is for war to break out in a producing nation.
http://www.eia.gov/petroleum/weekly/images/crstusm.gif
Storage capacity grew since the recession-driven glut of 2009 through the pipeline-restriction WTI glut in Cushing of 2013. Now all the storage is filling at once, at a rate of about a million barrels per day.
Why? Production, for one -- even at today's lower prices most (almost all) wells are economic to produce, so producers work harder to sell more quantity to compensate for lower margins so they can cover costs. Some will succeed, while some won't. For storage, it's a no-brainer for investers, as the contango of the futures chain says they can buy low now and sell high next spring with virtually no risk.
Rigs are dropping, and have been for six months, but production flattened for the first time this week. Investors bid up oil prices on this news, and the continuing rig count drops, and some unrest in the Mid-East, but I think they are overly optimistic. Unless consumption rapidly picks up, and with China slow, the EU in a morass, and Russia in a pinch, covering the 2mpd+ production glut will not come quickly.
Besides the 1mbpd going into storage in the US crude stocks, refined products are up a bit as well. More importantly, floating storage filled, and so did China's SPR. I see this week that the bump in prices has halted the growth of floating storage, so the delivery pipeline (firgurative - as in market, not necessary a physical one!) is going to congest a bit. Currently, there is about 440mbbl of official storage capacity in the US. From the graph above, we're at about 410. In another few weeks, we'll be bumping at the top.
Even if we assume there is some unofficial storage that will fill (tank cars, barges, refineries, etc.), that will go fast. Unless production drops before the tanks fill up, WTI will take a hard hit, and fast. If floating storage fills up (which would take longer), then worldwide prices will drop. Worst case, they'll drop to the marginal cost of existing production, which would be $33 or lower, versus the nebulous space they are now between marginal cost of existing production and cost of new production. Once China's SPR fills (nobody knows for sure quite when, but it will be soon), another 1mbpd of excess production will be on the market, and those tankers will idle, and they will quickly fill with oil, too.
We have less than sixty days for production to drop significantly, else prices will collapse. As for the bump this week, either the market is more confident than I that production will drop quickly, or it believes economies will expand faster, or it is overconfident. The remaining option, as always, is for war to break out in a producing nation.
Wednesday, February 4, 2015
Has oil found a bottom?
After two days of rising, and breathless pundits extolling "the largest rise since 2009", headlines pondered whether we'd found the bottom of oil prices.
I would say, in short, "No".
Why? Well, for one thing, the rise started on month's end, when shorts were covering after a not-as-bad-as-might-have-been earnings. The next day had a mixed report from Exxon, along with some stress in the Mid-East, and a softening of Syriza's tone in the EU. No solid reasons at all, really.
Second, storage reports weren't out then, but they are now, and stocks are higher than "anytime in the past 80 years", and still going up. China is easing money supply to keep their economy growing (again, how can EVERYBODY hope to shore up their exports?).
Third, everybody is still hopeful that things won't get all that bad. Usually, with big market shift, tops are found right after everybody becomes an optimist, and bottom occur after the last bull capitulates. We aren't there, yet.
There are positive signs, like the majors cutting investment quickly, and the fact that US production was flat this week (actually down just a tad), but one week does not a trend make. We need to see the four-week average to tail off significantly, and the world production to follow. We need stocks to flatten and start to drop. We need the futures chain to flatten and move from contango. We need floating storage to stop growing.
Rig counts are way down, and that's a good sign -- the faster we cut, the faster the recovery. If they are committed to protecting their market, KSA should want to see a financial rout, not just a drilling rout, else the rigs will stand up again quickly. They should want to see bankruptcies and financial blood flowing in the streets.
Of course, instability in the Mid-East or a larger war with Russia could tip things sooner, but that is unlikely to happen. The best case is for the north sea to cut way back, and deepwater in general, and the higher-price shale plays to drop. Most likely we will see several mid-size and many small companies fold entirely, and the healthier companies pick up some fire-sale assets.
Me, I'm still thinking we have 3-6 more months of volatility before the bottom proves out.
I would say, in short, "No".
Why? Well, for one thing, the rise started on month's end, when shorts were covering after a not-as-bad-as-might-have-been earnings. The next day had a mixed report from Exxon, along with some stress in the Mid-East, and a softening of Syriza's tone in the EU. No solid reasons at all, really.
Second, storage reports weren't out then, but they are now, and stocks are higher than "anytime in the past 80 years", and still going up. China is easing money supply to keep their economy growing (again, how can EVERYBODY hope to shore up their exports?).
Third, everybody is still hopeful that things won't get all that bad. Usually, with big market shift, tops are found right after everybody becomes an optimist, and bottom occur after the last bull capitulates. We aren't there, yet.
There are positive signs, like the majors cutting investment quickly, and the fact that US production was flat this week (actually down just a tad), but one week does not a trend make. We need to see the four-week average to tail off significantly, and the world production to follow. We need stocks to flatten and start to drop. We need the futures chain to flatten and move from contango. We need floating storage to stop growing.
Rig counts are way down, and that's a good sign -- the faster we cut, the faster the recovery. If they are committed to protecting their market, KSA should want to see a financial rout, not just a drilling rout, else the rigs will stand up again quickly. They should want to see bankruptcies and financial blood flowing in the streets.
Of course, instability in the Mid-East or a larger war with Russia could tip things sooner, but that is unlikely to happen. The best case is for the north sea to cut way back, and deepwater in general, and the higher-price shale plays to drop. Most likely we will see several mid-size and many small companies fold entirely, and the healthier companies pick up some fire-sale assets.
Me, I'm still thinking we have 3-6 more months of volatility before the bottom proves out.
Sunday, February 1, 2015
Energy prices, relatively speaking
It's instructive every once in while to review various energy prices, to see what "cheap" really means.
Oil is WAY down, at $45 per barrel. How does this compare to other forms?
Coal is about $45 per ton, for thermal coal. But that's about 5 barrel's worth of oil energy. So it's a dirtier, less transportable (but easily stored) energy form, at about $9 per barrel (and it's down more than oil, in the past few years).
Natural gas is less than $3Mbtu today. That's equivalent to about $18 per barrel oil.
What about solar? That's harder, as solar panels aren't a store of energy (like oil, or for the mistaken greenies, hydrogen), but a converter of solar energy to electrical energy.
Well, installed solar is about $5 per watt, more or less. The panels alone are less than $1 per watt. Still, at $5 per watt, and about five hours of generating time per day, and a life of at least 20 years, you get:
1 watt * 5 hrs/day * 365 days/year * 20 years = 36500 watt-hrs for $5, at 3.4btu per watt-hru = 125Kbtu.
That's 1/8MMbtu, or less than 50 cents worth of gas. So, installed solar is still considerably more expensive, but if you go just on panel cost then it's a lot closer (and with subsidies, cheaper still). Utility scale is about half the price (8c/KWH, versus about 16 above), especially when you include the generation cost for gas.
Really, energy is terribly cheap. Solar is cheap. Gasoline is cheap. Oil is cheap. Natural gas is cheaper still. The trick is to use the form that fits the need best. Use liquids for transportation, solar PV for electricity, and NG or coal for heating. Note that today coal is so cheap that even if you sequestered it, it would still be cheap (assuming 2x the cost). Inject it in depleting gas or oil fields and it would probably help pay for itself.
Oil is WAY down, at $45 per barrel. How does this compare to other forms?
Coal is about $45 per ton, for thermal coal. But that's about 5 barrel's worth of oil energy. So it's a dirtier, less transportable (but easily stored) energy form, at about $9 per barrel (and it's down more than oil, in the past few years).
Natural gas is less than $3Mbtu today. That's equivalent to about $18 per barrel oil.
What about solar? That's harder, as solar panels aren't a store of energy (like oil, or for the mistaken greenies, hydrogen), but a converter of solar energy to electrical energy.
Well, installed solar is about $5 per watt, more or less. The panels alone are less than $1 per watt. Still, at $5 per watt, and about five hours of generating time per day, and a life of at least 20 years, you get:
1 watt * 5 hrs/day * 365 days/year * 20 years = 36500 watt-hrs for $5, at 3.4btu per watt-hru = 125Kbtu.
That's 1/8MMbtu, or less than 50 cents worth of gas. So, installed solar is still considerably more expensive, but if you go just on panel cost then it's a lot closer (and with subsidies, cheaper still). Utility scale is about half the price (8c/KWH, versus about 16 above), especially when you include the generation cost for gas.
Really, energy is terribly cheap. Solar is cheap. Gasoline is cheap. Oil is cheap. Natural gas is cheaper still. The trick is to use the form that fits the need best. Use liquids for transportation, solar PV for electricity, and NG or coal for heating. Note that today coal is so cheap that even if you sequestered it, it would still be cheap (assuming 2x the cost). Inject it in depleting gas or oil fields and it would probably help pay for itself.
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