by ilene - November 24th, 2014 2:33 pm
Courtesy of The Automatic Earth
This is an article by our good friend Euan Mearns at the University of Aberdeen. It was originally published here .
- In February 2009 Phil Hart published on The Oil Drum a simple supply demand model that explained then the action in the oil price. In this post I update Phil’s model to July 2014 using monthly oil supply (crude+condensate) and price data from the Energy Information Agency (EIA).
- This model explains how a drop in demand for oil of only 1 million barrels per day can account for the fall in price from $110 to below $80 per barrel.
- The future price will be determined by demand, production capacity and OPEC production constraint. A further fall in demand of the order 1 Mbpd may see the price fall below $60. Conversely, at current demand, an OPEC production cut of the order 1 Mbpd may send the oil price back up towards $100. It seems that volatility has returned to the oil market.
Figure 1 An adaptation of Phil Hart’s oil supply demand model. The blue supply line is constrained by data (see Figure 4). The red demand lines are conceptual. Prior to 2004, oil supply was fairly elastic to changes in price, i.e. a small rise in price led to a large rise in production. This is explained by OPEC opening and closing the taps. Post 2004, oil supply became inelastic to price, i.e. a large change in price led to marginal increase in supply. This is explained by the world pumping flat out. Demand tends to be fairly inelastic and inversely correlated with price in that high price suppresses demand a little. Supply and price at any point in time is defined by the intersection of the supply and demand curves. 72 Mbpd and $40 / bbl in 2004 became 76 Mbpd and $120 / bbl in 2008 as demand for oil soared against inelastic supply.
by Zero Hedge - November 24th, 2014 2:31 pm
Submitted by Tyler Durden.
Submitted by James H Kunstler via Kunstler.com,
Wall Street is only one of several financial roach motels in what has become a giant slum of a global economy. Notional “money” scuttles in for safety and nourishment, but may never get out alive. Tom Friedman of The New York Times really put one over on the soft-headed American public when he declared in a string of books that the global economy was a permanent installation in the human condition. What we’re seeing “out there” these days is the basic operating system of that economy trying to shake itself to pieces.
The reason it has to try so hard is that the various players in the global economy game have constructed an armature of falsehood to hold it in place — for instance the pipeline of central bank “liquidity” creation that pretends to be capital propping up markets. It would be most accurate to call it fake wealth. It is not liquid at all but rather gaseous, and that is why it tends to blow “bubbles” in the places to which it flows. When the bubbles pop, the gas will tend to escape quickly and dramatically, and the ground will be littered with the pathetic broken balloons of so many hopes and dreams.
All of this mighty, tragic effort to prop up a matrix of lies might have gone into a set of activities aimed at preserving the project of remaining civilized. But that would have required the dismantling of rackets such as agri-business, big-box commerce, the medical-hostage game, the Happy Motoring channel-stuffing scam, the suburban sprawl “industry,” and the higher ed loan swindle. All of these evil systems have to go and must be replaced by more straightforward and honest endeavors aimed at growing food, doing trade, healing people, traveling, building places worth living in, and learning useful things.
All of those endeavors have to become smaller, less complex, more local, and reality-based — rather than based, as now, on overgrown and sinister intermediaries creaming off layers of value, leaving nothing behind but a thin entropic gruel of waste. All of this inescapable reform is being held up by the intransigence of a banking system that can’t admit that it has entered the stage of criticality. It sustains itself on its sheer faith in perpetual…
by Zero Hedge - November 24th, 2014 2:31 pm
Submitted by Tyler Durden.
Auto loan delinquency rates jumped nearly 13% in the last year, according to a new report by Transunion, with young (under-30) Americans seeing a 17.8% surge in 60+ day delinquency rates, as auto loan debt rose for the 14th straight quarter to $17,352. While these are notable rises, the overall levels remain low for now, but subprime-loan-delinquencies rose notably to 5.31%. However, in a somewhat stunningly blinkered conclusion, Transunion’s Peter Terek notes “the uptick in delinquency reflects a healthy and thriving auto finance industry where credit is more broadly available to all consumers.” So delinquencies are great news…
Auto loan delinquency rates jumped nearly 13% in the last year to close Q3 2014 at 1.16%. At the same time, auto loan debt rose for the 14th straight quarter to $17,352. The latest TransUnion auto loan report also found that delinquency rates increased most for the youngest population subset with those under the age of 30 seeing a nearly 18% rise.
Auto loan debt per borrower rose 3.9% from $16,694 in Q3 2013 to $17,352 in Q3 2014. On a quarterly basis, auto loan debt increased 1.4% from $17,108 in Q2 2014. Auto loan balances rose in every state between Q3 2013 and Q3 2014. Among the largest U.S. cities, Phoenix, Atlanta and Chicago saw the largest yearly auto loan debt rises of approximately 5%.
TransUnion recorded 64.2 million auto loan accounts as of Q3 2014, up from 59.4 million in Q3 2013.
The subprime delinquency rate (those consumers with a VantageScore® 3.0 credit score lower than 601) increased from 4.50% in Q3 2013 to 5.31% in Q3 2014. The share of non-prime, higher risk loan originations (with a VantageScore® 3.0 credit score lower than 661) grew by 14 basis points (from 36.39% in Q2 2013 to 36.53% in Q2 2014). This percentage is higher than what was observed five years ago near the end of the recession (31.67% in Q2 2009).
* * *
We leave it to Mr. Turek to conclude:
“The uptick in delinquency reflects a healthy and thriving auto finance
industry where credit is more broadly available to all consumers.”
by Sabrient - November 24th, 2014 2:16 pm
Courtesy of Sabrient Systems and Gradient Analytics
With warmer weather arriving to melt the early snowfall across much of the country, investors seem to be catching a severe case of holiday fever and positioning themselves for the seasonally bullish time of the year. And to give an added boost, both Europe and Asia provided more fuel for the bull’s fire last week with stimulus announcements, particularly China’s interest rate cut. Yes, all systems are go for U.S. equities as there really is no other game in town. But nothing goes up in a straight line, not even during the holidays, so a near-term market pullback would be a healthy way to prevent a steeper correction in January.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Last Friday brought a very nice opening pop to U.S. markets when China decided to cut its lending rate, making U.S. assets more attractive to global investors. Moreover, the ECB indicated its willingness to implement greater stimulus measures, including government bond purchases. Japan has slipped into recession with GDP decreasing by -1.6% in Q3 versus expectations of +2.2%. And Germany only expanded by a paltry +0.1%. The euro fell to near 2-year lows versus the U.S. dollar, while the yen fell to new 7-year lows against the dollar.
The combination of economic weakness in these major global economies and increasing U.S. oil production continues to push down the price of oil, and the resulting wealth effect of rising equity prices and low gasoline prices is expected to create a boon for retailers this holiday season. Adding to the seasonal strength for stocks is that corporations tend to do much of their buybacks this time of the year. Also, elevated short interest can provide yet another short-term catalyst.
M&A activity is another catalyst, and last week Allergan (AGN) and Actavis plc (ACT) both rose when ACT agreed to pay about $66 billion for AGN. Also, Halliburton (HAL) announced its acquisition of Baker Hughes (BHI). All four of these companies have been Sabrient favorites and…
by Zero Hedge - November 24th, 2014 1:41 pm
Submitted by Tyler Durden.
Once again it appears France is speaking from both sides of its mouth. As Hollande openly stands behind moar sanctions against Russia and ‘talks’ about withholding delivery of the first Mistral-class helicopter carriers to Russia, ITAR-TASS reports the construction of the second ship – ironically named Sevastopol, after the capital of Crimea – has been carried out according to schedule. Furthermore, judging by the rhetoric of foreign affairs minister d’Artagnan that “France’s obligations to Russia under the contract on the helicopter carrier must be fulfilled,” it appears Putin will get his way soon.
Russian troops are boarding the disputed first Mistral-class ship…
And the second Mistral-class ship is ready and remains in dry-dock in Saint-Nazaire…
The construction of the Sevastopol Mistral ship is carried out according to schedule, a source in the United Shipbuilding Corporation told TASS. The source confirmed that the dry dock in Saint-Nazaire where the ship is docked was filled up with water on the 20th of November.
According to the agency’s source, the second helicopter carrier construction is being carried out in accordance with the terms of the deal and the ship has been launched.
Currently, Russia is waiting for France to decide on the delivery of the first helicopter carrier, the Vladivostok. Its delivery was due earlier this month, however, Paris has not yet decided on the date, because of the crisis in Ukraine.
French Vice-President of the commission on foreign affairs, defense and armament Aymeri de Montesquiou d’Artagnan said in the interview with TASS, he believes that Paris will meet its commitments.
“Historically, Russia plays an important role in the world; it helped France in the First World War, the French politician noted. This summer I travelled to Moscow to attend the opening of the monument to the Russian soldier, who played a prominent role and changed the entire course of the great war”.
D’Artagnan pointed to the importance of the dialogue between Paris and Moscow. “We need to hear each other, to strengthen confidence, he said. – I agree with those who believe that France’s obligations to Russia under the contract on the helicopter carrier must be fulfilled”.
* * *
by Zero Hedge - November 24th, 2014 1:33 pm
Submitted by Tyler Durden.
If the sellside community was expected to side with the Fed and sell Treasury paper, especially near maturities, then today’s 2 Year auction, which just priced at a hot 0.542%, or 1.1 bps through the 0.553% When Issued, indicating more than ample demand for Treasury paper. Further confirming the demand was the surging Bid to Cover, which at 3.714 was the highest of 2014, and the most since December’s 3.767.The internals too showed demand across all buyer classes, with Directs taking down 16.2%, Indirects getting 35.83% of the auction and Dealers left with 48%, or just a fraction below the 12 month average.
Altogether, a solid auction, which saw the entire treasury curve jerk 2 bps tighter once the results were announced.
by Zero Hedge - November 24th, 2014 12:54 pm
Submitted by Tyler Durden.
Submitted by mickeyman via World Complex blog,
Last month we saw this chart--in which the swings in the GoldxUSDX index had formed a triangle going back over a year. At that time we were quite close to the apex.
The last few weeks have been eventful. We saw a clear break below the lower trendline, followed by a bounce up above the upper trendline. It appears a decision has been made.
Barring further smashdowns, it seems we are moving out of the triangle and into a climb. Supporting this is the action of the last few weeks in the chart of USDX vs gold price.
In the last two weeks, we are seeing the impossible--a rise in the gold price and the US dollar.
This isn't as impossible as it seems--we've seen this before, from late 2009 to about mid-2010. It was a good time to be invested in gold equities.
Our current position on the chart is given by the yellow arrow. We are virtually in the same position as we were in late May of 2010. The yellow ellipse covers the area of the move of the last three months. Now is the time to be long gold and gold miners.
Notice that during the impossible trend in the past, gold and USDX never rose together for more than two consecutive weeks. The move was seemed to be a series of cycles and countercycles, over which both parameters increased.
As I've argued previously, rising gold and US dollar is the most economically favourable environment for gold equities--particularly those with production. If the number of dollars you receive per unit of gold increases, and at the same time the value of those dollars increases, your revenue increase will reflect both inputs.
by Zero Hedge - November 24th, 2014 12:51 pm
Submitted by Tyler Durden.
A week after stunned Tribeca woke up to news of a grizzly death in which a Citigroup managing director living on Greenwich Street was found dead in his bathtub with a slashed throat and the lack of a suicide weapon on the scene suggesting there was foul play involved, another banking executive was killed over the weekend, when 54-year-old Melissa Millian, a senior vice president at MassMutual, was found lying in a road in Simsbury, Connecticut, having been stabbed in the chest.
As CBS reports, initially there was speculation Millian may have been in a bicycle accident, or may have been the victim of a hit-and-run. However on Saturday, the office of the Chief State Medical examiner said the cause of her death was a stab wound to the chest, and the manner was homicide.
According to WCVB, Millan, a mother of two, was a senior vice president at MassMutual in Springfield. A spokesman for the company said she was a tremendous leader and deeply caring and that she would be missed.
Passing motorists found Millan lying on the ground Thursday at 8:04 p.m., according to Simsbury police.
Police said she could have been out jogging but that they did not yet know what happened and are investigating. Millan was taken to St. Francis Hospital where she died, according to police.
Police announced Saturday they were investigating the incident as a homicide.
As Breaking911 further adds, MassMutual was shocked by the news, with a company spokesperson saying that “Melissa’s tremendous leadership qualities, business acumen and deeply caring nature will be missed by those who had the opportunity to work with her.”
Friends, who gathered to pay their respects, said Millan was a dedicated athlete and an incredible mother.
“Devastated…shocked and angry. That a woman, such a woman’s life, could have been ended so senselessly and so cruelly,” said friend Lynne Tapper.
According to MassLive, people using the popular bike path that runs through the town said they were shocked to hear someone as stabbed to death along the trail which they consider safe.
The path is connected to a series of linked bikeways that start in Westfield and head south,
by Chart School - November 24th, 2014 12:44 pm
Courtesy of Doug Short.
The Department of Energy’s Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-September, are now available. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.
Because the sales data are highly volatile with some obvious seasonality, I’ve added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.9% below the all-time high set in August 2005, fractionally off (by 0.03%) the interim low set the previous month.
The next chart includes an overlay of real monthly retail gasoline prices, all grades and formulations, adjusted for inflation using the Consumer Price Index (the red line). I’ve shortened the timeline to start with EIA price series, which dates from August 1990. The retail prices are updated weekly, so the price series is the more current of the two.
As we would expect, the rapid rise in gasoline prices in 2008 was accompanied by a significant drop in sales volume. With the official end of the recession in June 2009, sales reversed direction … slightly. The 12-month MA hit an interim high in November 2010, and then resumed contraction. The moving average for the latest month is 8.6% below the pre-recession level and 5.5% off the November 2010 interim high. For some historical context, the latest data point is a level first achieved in February 1998.
Some of the shrinkage in sales can be attributed to more fuel-efficient cars. But that presumably would be relatively small over shorter time frames and would be offset to some extent by population growth. For some specifics on fuel efficiency, see the Eco-Driving Index for new vehicles developed by the University of Michigan Transportation Research Institute. However, if we look at Edmunds.com for data on the top 10 best-selling vehicles, energy…
by ilene - November 24th, 2014 12:19 pm
Courtesy of Mish.
Last week France asked for a "New Deal" with "Real Money" not fake EU promises.
France was a bit wary (and rightly so) over sleight of hand math from Jean-Claude Juncker, the new head of the European Commission.
Today we have the facts.
Juncker's €315bn EU Slush Fund looks like this.
95% Leveraged Magic, 5% Fund
- €16bn from the EU budget
- €5bn in guarantees from the European Investment Bank (EIB)
- €299bn is magic.
Supposedly, private money will come up with €299bn based on €5bn in guarantees.
Of course someone has to administer this action plan. So Juncker unveiled a new “investment advisory hub” run by "financial professionals" with direction from the European Commission and EIB.
After padding their own pockets, the group will decide which projects to undertake, no doubt based on kickbacks, bribes, and political favoritism to friends.
To make the deal even sweeter for their political cronies, the EU will offer a “first-loss” guarantee, where the EU money would absorb any initial investment losses in an effort to “crowd in” private investors looking for more secure upside.
Given that it's all funny money anyway, I have a question: Why not provide €50bn in guarantees raising €2.99 trillion in the process?
Mike "Mish" Shedlock