I have never had much use for peak oil believers. Their arguments are generally not worth the time it takes to read them. But my arrogant dismissal of peak oil has been shaken by Stuart Staniford. Unlike most peak oilers, Mr. Staniford really gives you something to think about.
While I was reading Mr. Staniford’s Click Here to continue reading.
China has been letting its currency appreciate a little bit lately. This from Brad Setser’s blog…
In his most recent post, Mr. Pettis notes that the RMB’s pace of appreciation picked up last week. That’s true, but the rapid appreciation last week came after an extended period when the RMB was stuck at 7.5 even as the dollar was falling.
China basically sat out the dollar’s fall in September and October — or rather, it opted to follow the dollar down v. host of currencies. A bit of appreciation against the dollar just undoes some of the RMB’s recent depreciation against the euro.
More importantly, as Mr. Pettis notes, expectations of RMB appreciation have picked up. If the market is right and the RMB appreciates by 7% over the next year, simple Chinese bank deposits look mighty attractive.
This is something to watch. China may decided that faster appreciation may be just the ticket to deal with its fuel problems. After all, if the RMB can buy more dollars it can also buy more oil. I don’t think 7% is enough to greatly help though. But if oil prices keep going up in dollar terms, it may encourage them to increase the pace of appreciation.
This would increase the pressure on the dollar (because China would not be supporting it as heavily) and would raise the price of US imports. This would increase US inflation.
In other news, Citi bank has confessed that they have lost between $8 billion to $11 billion more than originally confessed to. They also got rid of their CEO. Calculated Risk had this to say about the Citi press release…
The press release is stunning – this could just be the beginning of the write downs! They claim they will be able to maintain their dividend – I doubt it.
These losses are very dependent on house prices – “fair value of these super senior exposures is based on estimates about, among other things, future housing prices” – I’d love to see their estimate of future price declines (they are probably too optimistic.)
What happens if one of those many Citi pier loans goes bad? Ouch.
If the markets share Calculated Risk’s reaction, this could be an interesting week on Wall Street. One thing that ought to worry anyone with enough sense to keep their heart beating is the fact that Citi still seems to have no clue of what their losses are going be. Either that or they are lying through their teeth. I suspect that it is some of both.
And while all this is all very interesting, the world does not solely revolve around American and its economic issues. Things like politics and religion come into play as well. That is why it is worth keeping your eye on Pakistan. Musharraf has just declared emergency rule. As the Christian Science Monitor says…
In a dramatic move that made explicit his desperation to preserve near-absolute power, Pakistani President Pervez Musharraf declared a state of emergency Saturday, effectively eliminating the opposition that has built against him in recent months.
In doing so, Mr. Musharraf introduced a new “provisional constitutional order” – a move many say looks more like martial law. Despite his assertions to the contrary, his decision has little to do with terrorism, analysts say, adding that his was a political calculation. With the Supreme Court threatening to declare his presidency illegal in a ruling this week, Musharraf struck preemptively against his foes.
Under the emergency order, he has sacked more than half of the Supreme Court, jailed up to 500 opposition party leaders, and shut down the independent media – assuming that the US has invested too much in him and the war on terror to withdraw its patronage. The order may also delay parliamentary elections, which had been scheduled to take place before Jan. 15.
This is a pattern that has been repeated many times in Pakistan’s history. Typical, the army eventually gets tired of backing an unpopular ruler and they kick him out. But is there really anyone out there that the Pakistani Army can stomach? Maybe if Musharraf becomes too much of a liability they will just replace one general with another.
China raised gasoline and diesel prices Thursday by about 10 percent to curb demand amid shortages that have caused long lines at filling stations and disrupted trucking in key export areas.
Oil companies have blamed the shortages, which began last week, on a lack of refining capacity. Government controls have forced refiners to pay the difference between soaring market prices for crude and lower retail prices at the pump. Some refiners responded by cutting output.
10 percent is not enough of an increase if China wants to keep the Yuan pegged to the dollar.
Forgive the title. I know I shouldn’t be making easy, thoughtless puns on crass holidays, but judge for yourself when you have read.
At the end of every month we are substantially shy of our shipping quota, and at the end of every month the shipping manager asks for any available help from the rest of Click Here to continue reading.
Tyler Cowen says…
The housing sector is down twenty percent and the price of oil is flirting with $90 a barrel, maybe $100 to come. Yet the quarterly growth rate was just reported at 3.9%, led by surges in consumer spending and exports. It is wrong to think we have turned the corner, but Click Here to continue reading.
I had wondered why, given the swift and brutal contraction of the commercial paper market in August and September, that there weren’t more apparent signs of distress. Outstandings fell an eyepopping $368 billion.
Commercial paper is short-term borrowings, maximum 270 days, but typically much shorter. If a borrower can’t roll his commercial paper but still needs the dough, he has to either find other sources of funding pronto or sell other assets. And given that the contraction was almost entirely in the asset backed commercial paper market, meaning CP supported by mortgages, car loans, credit card receivables, one would have expected to see a change in borrowing terms in those markets.
This Bloomberg article lays out the answer….
Banks shut out of the market for short-term loans are finding salvation in a government lending program set up to revive housing during the Great Depression.
Countrywide Financial Corp., Washington Mutual Inc., Hudson City Bancorp Inc. and hundreds of other lenders borrowed a record $163 billion from the 12 Federal Home Loan Banks in August and September as interest rates on asset-backed commercial paper rose as high as 5.6 percent. The government-sponsored companies were able to make loans at about 4.9 percent, saving the private banks about $1 billion in annual interest.
To meet the sudden demand, the institutions sold $143 billion of short-term debt in August and September, according to the FHLBs’ Office of Finance. The sales pushed outstanding debt up 21 percent to a record $1.15 trillion, an amount that may become a burden to U.S. taxpayers because almost half comes due before 2009.
There is no way to put a happy spin on this one. I agree with Naked Capitalism’s comment section on this one. Except I think that the American people as whole must share some of the blame.
This article starts off scarily enough….
(Fortune Magazine) — This past summer’s subprime meltdown involved about $900 billion in now-suspect securitized debt, reckless lending, and consumers who buckled under the weight of loans they couldn’t afford. Now another link in the consumer debt chain – credit cards – is starting to show signs of strain. And the fear that the $915 billion in U.S. credit card debt (an uncannily similar figure) may blow up has major financial institutions like Citigroup, American Express, and Bank of America strapping on their Kevlar vests.
But like any good ghost story, it saves the punch line for last….
It’s a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. That’s suicidal, of course, given that credit card interest rates are more than double even the heftiest mortgage. Keep your fingers crossed that it’s not a trend that crosses the Atlantic.
Man, I have read a lot of scary things over the last couple of months. But that has got to be the scariest. 6% of all households pay their mortgages with credit card debt? If this figure was true, it would mean the end of the British financial system. In the first place, it would guarantee that at least 6% of all houses in Britain would have to go into foreclosure. In the second place, it would mean that banks would lose all of the money loaned to those people through unsecured loans (credit cards). In the third place, the banks would not be able to recover very much money from house sales because so many other people would be in the same boat. Bank reserves are not all that high, and I don’t think they could take that kind of loss.
The good news is that it is not really as bad as all that. I did some digging; the survey is counting all the people who had to use their credit cards once or more in the last 12 months to make one mortgage payment. So it’s not like 6% of British homeowners have been depending on their credit cards to keep a roof over their heads month after month.
The bad news is that the fact that 6% of British homeowners have had to make recourse to credit cards to make a mortgage payment is still not good news. Especially if you consider that fact in the light of this graph here and this report here.
There was a riot in Berlin between the Turks and Kurds on sunday…
For most Germans, the conflict between Turkey and the Kurdish separatist group PKK on the country’s border with Iraq seems, no doubt, far away. But Berliners on Sunday got a taste of the tiff up close and personal.
An anti-PKK demonstration in Berlin’s Kreuzberg district degenerated into violence between young Turks and Kurds on Sunday afternoon. By evening, a threatening mass of nationalist Turks had gathered around a Kurdish cultural center.
Poor Kurds. No matter where they go they can’t get away from the Turks.
Russia imposed price controls on food….
Russia is introducing Soviet-style price controls on some basic foods in an effort to prevent spiralling prices from denting the Putin administration’s popularity ahead of parliamentary polls in December.
The country’s biggest food retailers and producers have reached an agreement, expected to be signed with the Russian government on Wednesday, to freeze prices at October 15 levels on selected types of bread, cheese, milk, eggs and vegetable oil until the end of the year.
Russia’s move is the latest sign of surging agricultural prices becoming an international political issue. Big retailers will limit their mark-up on those goods to 10 per cent.
China has also agreed to food price controls; Egypt, Jordan, Bangladesh and Morocco are increasing subsidies or cutting import tariffs to lower domestic prices. Rich countries are not immune: Italian consumer groups organised a pasta boycott last month in a protest over prices.
The Russian economy ministry is also examining whether to increase a 10 per cent export tariff on wheat planned for November to 30 per cent to keep its domestic market well supplied. That prospect has pushed wheat prices up 6 per cent in Chicago in the past week, giving Moscow’s fight against rising food prices an effect beyond its borders.
Similar price controls are why it is hard to buy fuel in China.
Egypt is going to build nuclear power plants legitimately….
Egyptian President Hosni Mubarak on Monday announced plans to build several nuclear power plants, joining several Middle East Arab countries that recently have said they are kick starting their nuclear energy ambitions.
Mubarak said in a speech broadcast live on national television that the decision to build the nuclear power stations was to diversify Egypt’s energy resources and preserve the country’s oil and gas reserves for coming generations.
“I announce before you Egypt’s position to prepare the program for building several nuclear power stations. We believe that energy security is a major part of building the future for this country and an integral part of Egypt’s national security system,” Mubarak said at a ceremony inaugurating the second phase of construction of an electrical power plant north of Cairo.
I wonder why it has taken them so long. First, they need to power. And second, it gives them cover should they ever want to build the bomb.
Hamas is trying to one up Hezbollah…
Hamas is trying to establish a bunker system as well as fortified rocket-launching and surveillance positions along the security fence with the Gaza Strip, Brig.-Gen. Moshe (Chico) Tamir, head of the Gaza Division, said Monday.
Tamir said that Hamas was “building an army” in the Gaza Strip and had obtained unprecedented capabilities through smuggling tunnels between Gaza and Egypt. On Monday, head of the Shin Bet (Israel Security Agency) Yuval Diskin said that since Israel’s withdrawal from Gaza in 2005, the Palestinians have smuggled over 112 tons of explosives into the Strip.
“They are trying to dig tunnels, build surveillance positions and mortar-fire stations along the fence,” Tamir told reporters during a briefing concerning the death of IDF reservist Ehud Efrati during clashes with Hamas gunmen early Monday morning. “They are trying to build this up and we are trying to stop them.”
Oil prices hit another record high…
SAN FRANCISCO (MarketWatch) — Crude-oil futures rose past $93 a barrel for the first time on Monday, after bad weather forced a halt to production in Mexico and the dollar touched the lowest level against the euro in more than eight years.
Crude futures for December delivery rose for a fourth day and closed at a new record high of $93.53 a barrel on New York Mercantile Exchange. Earlier it reached an intraday high of $93.8 a barrel.
Mexico’s state-owned Petroleos Mexicanos, one of the largest crude suppliers to the U.S., halted production of 600,000 barrels a day due to inclement weather on Sunday. Petroleos Mexicanos, also known as Pemex, said it hopes to resume production in days.
And this I intend to write more on sometime…
Federal Reserve policymakers meet Wednesday to decide what action, if any, to take on interest rates. Speculation has centered on whether the Fed will keep rates steady, cut a quarter-percentage point or trim a half-percentage point. The consensus is looking for a quarter-point cut, but a few experts expect the Fed may leave rates unchanged at 4.75%.
It is probably just my sick sense of humor, but I loved this rant “thanking” the Social Security Administration for ripping off seniors with the latest cost of living increase.
According to Shanghai’s Xinmin Evening News Sunday, numerous petrol stations along the major Shanghai-Hangzhou highway were jammed with vehicles after they had run out of supplies of diesel.
The report also said people hoping to depart the city for weekend outings had difficulty finding petrol stations selling supplies Sunday morning.
In some parts of the country, commuters were being limited to purchases of only 100 yuan (13 dollars) of petrol, or were forced to buy premium fuel due to shortages of low-octane petrol, various reports said.
Truckers were also finding it difficult to tank up with diesel at a time when seasonal demand was expected to rise due to the ongoing harvest season.