No wrap-up yesterday, we did the LTP review and it turns out I'm still bullish.
Last week I decided we were at a bottom and I haven't really seen anything in this awful week to change my mind. We pretty much held my levels yesterday and if we hold them through the Fed on Tuesday, I think the market will be set up for a nice move, regardless of what Bernanke actually says.
Of course it all depends on oil but how long can they keep this charade going when the headline in the USA today is "Drivers Cut Back by 30 Billion Miles in Six Months." That's right, between November and April of this year, drivers drove 30Bn fewer miles than the year before. This is the biggest drop since the last time oil spiked to an inflation-adjusted $100 (Iran hostage crisis 1979) and that led to a decade of demand destruction that dropped the price of oil 80%. Even if you assume that every car got 30 mpg, that's still 1Bn gallons or about 24M barrels of oil, roughly 1Mb a week less over the period measured.
Evidence of demand destruction is everywhere and even the EIA is confused as to how refinery utilization can be running 10% below average (86.1 vs. 94.1), indicating very low demand, while product prices remain so high. In fact, refiners have been selling gasoline at a loss at several points this quarter as the actual demand for gasoline is far below the rise in crude prices that the refiners have to pay. Crude oil imports are down 500,000 barrels a day from this time last year – that's a 3.5Mb draw that is being "spotted" on the inventory report EVERY SINGLE WEEK and still they have builds!
Gasoline imports are also off over 100,000 barrels a day, another 700,000 barrels that are spotted on the inventory report. Despite this tremendous shortfall in imports, our total petroleum stocks in the US stand at 1,674Mb, down just 48Mb from last year, when oil was $65 a barrel. So they shipped us 600,000 barrels a day less for a year – that's 219Mb yet our stocks dropped just 48Mb.
That means we must be using (and I'll do this math step by step so CNBC announcers can understand it) 171 Million barrels less fuel than last year. That's 3.3M barrels a week less consumption or 5% demand destruction in just one year! Imagine what will happen when we get an adminstration that actually promotes conservation….
Could it be possible that paying an extra $40Bn a month for less oil than we consumed last year is somewhat damaging the economy? Why do so few people talk about this? We get NOTHING for our $40Bn and those dollars (about $500Bn a year) get shipped right out of the country, flooding the world with dollars and debasing our currency. This is a national emergency that will not be solved by "drilling more oil."
I'm trying not to be too political during the week but when one candidate is offering solutions to the problem and the other candidate IS TOTALLY WRONG, it's hard to stay objective…
Asia decided yesterday's rally was totally wrong and completely reversed it this morning with 2.25% drops on both the Hang Seng and the Nikkei who followed the Shanghai off their 7.3% cliff. When your index is at 315 and falls 23 points in one day – that is generally cause for concern (kind of like the SOX!). China's inflation forecast was bumped up to 7% from 4.6%, prompting fears that the BOC will tighten again.
Several airlines and brokerages hit the limit-down 10% mark during trading so a poor showing in the US with oil remaining over $132.50 means there is very likely more to come in tomorrow's trading. Over on the Hang Seng, only 1 of 43 components of the index closed positive. In Japan, TM and SNE both took hits as the dollar weakened once again.
Europe is holding flat ahead of our open despite UK retail sales coming in much better than expected. Could it be possible that the consumer is "not dead yet"? If so, that will be quite a shocker to the bears. Unfortunately the commodity sector is holding up the markets this morning as a Nigerian rebel attack (it must be the day before contract expiration then) shut down an RDSA facility which is 75 miles offshore and could spot a ship coming to attack them from about 5 miles away even if they didn't bother to install about $1,000 worth of radar equipment which would let them see craft from about 20 miles from which a $20/hr security guard with the most rudimentary of weapons could have sunk the boat before it attacked the Billion dollar platform and shut down $20M a day of production… WHAT A FARCE!
Speaking of farces, Hank Paulson, the fox that guards the hen house, is calling for greater oversight of the financial markets by giving more power to the Fed (because they've been doing such a good job I guess). Jobless claims were down but it didn't seem to do anything for our markets so we'll have to continue to watch and wait once again and see how the market holds up for the day.
Be careful out there.
