Jun 02th

Visualizing the Costs of the BP Oil Spill

Author: Kenn Lamson

Comments: 0

Only a few days old and already in need of updating:

  • Oil’s trading about $73, having fallen about $10/bbl since early May
  • The volume of the oil leak estimate has been revised up 500%, to 25K bbl/day from 5K, so the spill’s costing ~$1.8MM/day
  • BP’s stock has collapsed about 38% since April 20th, cutting the company’s market capitalization from about $180B to $117B
  • I haven’t heard any new estimates regarding the expected costs to plug the leak and clean up the mess, but given the number of attempts that’ve been made to date it’s a reasonable guess that the figure’s considerably higher than indicated on this graph.

Courtesy of VisualEconomics.com

UPDATE 06/02/10 1:30PM: Blog TheDisciplinedInvestor.com posted this table today, showing $200B market cap having been lost by a goup of oil and related firms since the spill.

UPDATE 06/14/10 3:00PM: The Economist posted this visual analysis of the size of the Deepwater Horizon spill, which (of course) continues to grow.

Jun 02th

“State of the Euro”

Author: Kenn Lamson

Comments: 0

For those keeping score, the Euro is down about -15% versus the US$ year-to-date through June 1st. 

Courtesy of VisualEconomics.com

Jun 01th

“Soft Patch”

Author: Kenn Lamson

Comments: 0

Who’d have thought that, until recently, anyone other than economists at the European Union, International Monetary Fund, European Central Bank would care a whit about the fiscal status of Greece, Italy, Ireland, Portugal, Spain and other small European countries?  US investors have learned more about those nations than they perhaps ever cared to, especially the ability of small nations to unwittingly create dramatic turmoil in the financial markets.  Since we at Harmonic have been focused, like most others, on the explosion onto the world stage of sovereign risk among Euro-zone countries, the never-ending flow of US economic data has been pushed to the back burner. It appears upon examining recently released data, however, that the US economy may have slipped into what research firm International Strategy & Investment (ISI) refers to as a “soft patch.”

The strength of the economic rebound from the painful 2008-2009 recession was surprising to many observers (yours truly included) ; whether that rebound is sustainable remains a legitimate subject for debate. The manufacturing-led and stimulus-fueled rebound appears to have stalled recently:

  • the weekly unemployment figures are remaining stubbornly high
  • consumer spending data released May 28 showed a slowdown
  • ISM’s manufacturing PMI released June 1 remained in growth territory but softened
  • the Economic Cycle Research Institute’s Weekly Leading Indicator,  a composite of several indicators, has slowed markedly of late (chart below)

The downturn of the growth rate and level of the WLI are of particular concern to me; I’ve noted in earlier posts that the WLI has historically been a solid predictor of US economic activity.

Those concerns noted, the balance of economic data released in the past couple of weeks has been positive. Of particular interest were:

  • strength in housing sales (although these were undoubtedly boosted by homebuyers hurrying to capture government tax credits by signing contracts before their April 30 expiration)
  • consumer sentiment was reported rising and higher than expected
  • a very broad coincident indicator, the Chicago Fed National Activity Indicator, has continued to rise and is now in “normal” territory.

The so-called “soft patch” is a reminder that the US and world economies are far from out of the woods; while such pauses in economic recovery are probably to be expected, the exceptionally high unemployment rate, skyrocketing fiscal deficits, number and magnitude of economic problems confronting the US and other world economies continues to suggest a longer and rockier road to stability than in other post-war recoveries.

May 10th

“Greece, Indexed”

Author: Kenn Lamson

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SOURCE: http://thisisindexed.com/

May 07th

Weekly Economic Insight, 3 May – 7 May 2010

Author: Kenn Lamson

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The week ending 7 May 2010 saw indicators that were, on balance, positive for the US economy.  Consumer spending grew handily (albeit at the expense of the savings rate) and consumer-level inflation remained tame. Manufacturing continued to be the US’s dominant economic driver, even signaling improving employment within the sector. The bottom line for the ISM Manufacturing Index was that production hasn’t kept pace with demand and manufacturers are ramping up employment. The much larger service sector, however, grew at a much slower pace.  With a few caveats, the monthly unemployment figures also appeared stronger than expected, with the Household Survey confirming the headline Establishment Survey’s report of job gains; especially important to see were gains in the work week, hourly earnings and temporary jobs.  Tempering the positive news was that the percentage of “long-term unemployed” hit almost 46% and that the most comprehensive measure of under- and unemployment rose to 17.1%. Consumer credit rose marginally, following the pattern of past months in which credit card-type credit declined but non-revolving, such as auto loans, rose.

A couple of other data points rose to the surface this week that bear mentioning. 

  • Weak loan demand and poor credit availability have hamstrung large segments of the US economy, particularly impeding the ability of small businesses and households to rebound from the recession. The recently released Federal Reserve’s survey of senior loan officers showed little change in credit conditions during 1Q10:
    • Most banks kept their lending standards unchanged but a small and shrinking net fraction tightened standards.
    • Like 4Q09, banks reporting having eased standards in 1Q10 were large banks, and they apparently lent predominantly to large- and middle-market firms; small banks on balance tightened standards and lending to small businesses remained very weak.
    • Similarly, large banks reported better availability of mortgage and non-revolving credit to households but tighter standards for credit cards; small banks tightened standards across the board.
    • Loan demand in 1Q10 was reported to have generally weakened.
  • The EU/IMF bailout of Greece generated urgent headlines, with national leaders, economists and citizens in a seeming shoving match while “Athens burns.” While it’s been clear for months that Greece was in serious financial trouble, Standard & Poor’s downgrade of Greek debt on Tuesday 27 April seemed to catch the financial markets off guard and put a match to the fuse the resulted in a stomach-churning week in the markets.  We believe investors should pay close attention to the bailout – or not – of Greece because of:
    • its likely depressive effect on the European countries providing the bailout funds, many of which are major US trading partners
    • the potential contagion effect of similarly weak countries requiring or demanding a bailout
    • the fact that US taxpayer funds are contributed to the IMF.

Whether the abuser is an individual, family, a company, a municipality or nation, fiscal irresponsibility — especially the overuse of debt – usually ends poorly. Greece is the most recent and largest example, but we fear it will not be the last.

RELEASE (leading, coincident or lagging indicator) PERIOD ACTUAL EXPECTED (consensus) LAST HIA COMMENT
Consumer Spending (leading) March (MoM) +0.6% +0.6% +0.3% Personal spending in March rose at twice the pace of personal income while inflation, as measured by the PCE deflator, remained a non-issue.
ISM Manufacturing Index (leading) April 60.4 61.0 59.6 In April the manufacturing sector expanded for the eighth consecutive month to its highest level since July 2004, although the Index failed to meet consensus expectations.
ISM Services Index (leading)  April 55.4 56.4 55.4 The ISM services index remained in growth territory. The important new orders component gave up some of March’s jump.
Unemployment Rate (lagging) April 9.9% 9.6% 9.7% Unemployment rate rose as the number of Americans in the workforce rose more than the number of new hires. The Household Survey showed a employment +550K gain.
Nonfarm Payrolls (lagging) April +290K +200K +162K Less the Birth/Death adjustment and the new Census workers, payrolls rose about +40K. The average work week rose by +0.1 hours and average hourly earnings rose by +$0.01.
Consumer Credit (lagging) March +$2.0B -$3.0B -$11.5 B Incentive-driven car sales apparently accounted for March’s increase in outstanding consumer credit.

                                                                                                                                            

CONSUMER SPENDING

 

Personal Income (red) and Personal Consumption Expenditures (yellow), $MM; Personal Savings (white), % of Disposable Personal Income

GRAPH: Bloomberg

ISM MANUFACTURING INDEX

 

GRAPH: ISM

ISM SERVICES INDEX

 

GRAPH: ISM

EMPLOYMENT SITUATION

 

UNEMPLOYMENT RATE

GRAPH: Bloomberg

 

MONTH-OVER-MONTH CHANGE IN NONFARM PAYROLLS

GRAPH: Bloomberg

CONSUMER CREDIT

 

CONSUMER CREDIT, $B (white), 3mo moving avg (red); 4/30/07 – 3/31/10

GRAPH: Bloomberg

 

May 07th

Kenn Lamson interviewed by Nishi Gupta’s KTVB Channel 7

Author: Chris

Comments: 0

See Kenn’s short interview concerning the economic turmoil in Greece.

May 06th

A Look at the Web of PIIGs Debt

Author: Kenn Lamson

Comments: 0

From the NYT, hat tip to Ritholtz.com:

Apr 01th

“Smoot-Hawley, Part 2″

Author: Kenn Lamson

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This post is an editorial comment offered in response to Paul Krugman’s NYT op-ed of 15 March 2010 suggesting that the US assess a 25% tariff on all Chinese goods in order to begin remedying its trade imbalance and to punish China for not allowing the renminbi to rise. Far be it from me to disagree with a guy who was awarded the Nobel for his work in international trade theory, but this idea strikes me as ill-considered to put it mildly.

We would do well to remember that trade sanctions –specifically the Smoot Hawley tariffs – were a key reason the Great Depression was as deep and extended as it was.  I’m not a pure free marketer than thinks tariffs have no place, but like capital punishment, if you’re going to use them you’d better be damned sure you have all the facts right and understand the consequences.

The Chinese appear to me to have “played the game” to the degree possible. Back in 2005 the US administration was screaming for a 30% renminbi revaluation; the Chinese currency rose about 22% over the subsequent 3 years. Reticence to widen the exchange rate band and “unpeg” seem to be the appropriate thing to do when the “host” currency, the US$, is in danger of sliding off a cliff because of a home-grown financial crisis.

If the US did slap Krugman-esque tariffs on Chinese goods, two immediate impacts are certain: First, lower income Americans, whom I suspect buy the majority of goods manufactured or processed in China, would see a sharp increase in their personal inflation rate (which would of course in short order be translated into the national statistics). This is not the kind of event that an economy with nearly 10% headline unemployment (and 20% underemployment) will readily withstand. Second, where possible consumers will simply substitute goods from other low-cost manufacturing regions like emerging Asia or Eastern Europe. Clearly, such a shift does little to improve our trade deficit.

Further, we must consider where the trend stops. Do we slap tariffs on the EU if the Euro reaches parity? On the UK, a great military and economic partner who’s in worse economic shape than we’re in?  On Japan, which is, as one commentator noted, “a bug in search of a windshield”?  By definition not every nation can run a surplus. The relative size of our economy almost guarantees that we’ll run a deficit, at least until the US shifts its economic base towards exporting. That transition’s years away.

I suggest these solutions:

  • Since a significant minority of the trade deficit is due to importation of foreign oil, push an energy policy that reduces its use – alternative energy (hello, nuclear!), natural gas, far offshore drilling all seem reasonable to consider.
  • Open trade agreements with as many foreign nations as possible would create competition among the providers of those goods and give the US export sector, which I suspect will be (must be!) the engine of economic growth for the next 25-50 years, greater opportunity.
  • Very importantly, insist on continuing to open the Chinese market to US goods and services. Encourage the growth and success of the Chinese consumer class.

Macroeconomically speaking, the trade deficit is caused by Americans choosing to use their “savings” to purchase goods made overseas. No one’s forcing us to buy those goods, and no one’s forced us not to save. “Beggar-thy-neighbor” is a game that no one wins.

Mar 26th

Office Rents

Author: Chris

Comments: 0

Office rents

Mar 25th 2010 | From The Economist print edition

London is the world’s most expensive city in which to rent and operate office space, according to CB Richard Ellis, a property consultancy. “West End” rents have increased by 11% in dollar terms over the past 12 months, although that increase is mainly down to the appreciation of sterling against the dollar. Office rents in São Paulo have increased by 61%, partly due to newly built office space coming to market, but for the most part caused by the depreciation of the dollar against the real by 35%. In Tokyo, the most expensive city twelve months ago, rents have fallen by nearly 30%. They have also fallen by more than a quarter in Dubai, which three months ago opened the world’s tallest building, the Burj Khalifa.

Feb 20th

“Finding the Bottom”

Author: Kenn Lamson

Comments: 0

Another interesting graphic by VisualEconomics.com using data from Economist Intelligence Unit.  According to this data, most countries (at least those for which there’s sufficient information)  will see positive GDP growth in 2010.  However, as the inset graphic at bottom indicates, unemployment rates remain stubbornly and worryingly high across much of the globe.

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