Posts Tagged ‘supply and demand’

Red Flags for the Economy

Red Flags for the Economy

By MIKE WHITNEY writing at CounterPunch

Bonds are signaling that the recovery is in trouble. The yield on the 10-year Treasury (2.97 percent) has fallen to levels not seen since the peak of the crisis while the yield on the two-year note has dropped to historic lows. This is a sign of extreme pessimism. Investors are scared and moving into liquid assets. Their confidence has begun to wane. Economist John Maynard Keynes examined the issue of confidence in his masterpiece "The General Theory of Employment, Interest and Money". He says:

"The state of long-term expectation, upon which our decisions are based, does not solely depend, therefore, on the most probable forecast we can make. It also depends on the confidence with which we make this forecast — on how highly we rate the likelihood of our best forecast turning out quite wrong….The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention."

Volatility, high unemployment, and a collapsing housing market are eroding investor confidence and adding to the gloominess. Economists who make their projections on the data alone, should revisit Keynes. Confidence matters. Businesses and households have started to hoard and the cycle of deleveraging is still in its early stages. Obama’s fiscal stimulus will run out just months after the Fed has ended its bond purchasing program. That’s bound to shrink the money supply and lead to tighter credit. Soon, wages will contract and the CPI will turn from disinflation to outright deflation. Aggregate demand will weaken as households and consumers are forced to increase personal savings. Here’s how Paul Krugman sums it up:

"We are now, I fear, in the early stages of a third depression….And this third depression will be primarily a failure of policy. Around the world … governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. … After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

"I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between


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SUPPLY CRUNCH RECEDES

Here’s a couple articles on the demand for oil.  The first is by JD at Peak Oil Debunked.

SUPPLY CRUNCH RECEDES 

Fawley_Oil_RefineryFor the last few months the peak oilers have been terrorizing the newbies with the "looming supply crunch" due to lack of investment. Much of this was based on comments earlier this year by the IEA:

"Currently the demand is very low due to the very bad economic situation," [Nobuo Tanaka, the IEA's executive director] said. "But when the economy starts growing and recovery comes again in 2010 and onward, we may have another serious supply crunch if capital investment is not coming."

However, this one has now bitten the bag like so many other peak oil scares over the years:

IEA sees global oil supply crunch risk recede
Jun 29 2009

The world may escape an oil supply crisis for the next five years because a slow recovery from the economic downturn would hold down growth of demand, the International Energy Agency (IEA) said on Monday.

Yet another case where the peak oilers relentlessly hype an anticipated threat, and provide no reporting at all when the threat evaporates.

And in related news, the IEA just cut 3 million barrels per day for demand for the next four years: So Much for Chinese Demand (hat tip to Eric J. Fox)

And next, here’s Eric’s article in full. 

So Much For Chinese Demand

Courtesy of Eric J. Fox, Stock Market Prognosticator

"The International Energy Agency cut its oil demand estimates for every year through 2013 by about 3 million barrels a day, it said in its Medium- Term Oil Market Report today. Consumption will average 86.76 million barrels a day in 2012, the first year it will rise above 2008’s level of 85.76 million barrels a day, according to the Paris-based agency."

Well so much for demand for Energy from China. This demand growth has always been hyped by Energy bulls, but as I and many others have stated previously, what really matters is demand growth from the the U.S. and other industrialized nations.

Here is how the math works:

Oil demand in 2009 for the OECD countries is 45.2 million barrels per day, down 2.3 million barrels per day from 2008.

China oil demand is 7.9 million barrels per day. Let’s assume that it grows


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WILL COMMODITIES KILL THE STOCK RALLY?

WILL COMMODITIES KILL THE STOCK RALLY?

WILL COMMODITIES KILL THE STOCK RALLY?

Courtesy of The Pragmatic Capitalist

Energy & materials stocks make up 25% of the S&P 500.  Without their participation it’s nearly impossible for a sustainable rally.  One of the key contributors to the “sell in May and go away” data is the seasonal trends in commodity related stocks.   Over the last 10 years materials and oil related stocks have averaged 17% gains from October to May.  That seasonal strength adds tremendously to the overall indices.  As I often mention here, much of this is attributable to the strong seasonal demand trends in the oil markets.  Oil demand tends to dip during the fall and early winter before spiking in February and continuing into the July 4th holiday when the summer driving season officially ends.  This trend has clearly continued again this year as oil and gasoline have rallied over 95% since the March bottom:

oilandgas

The strong seasonal trend says you should be selling commodities now, but this isn’t the only evidence that makes me cautious heading into late summer.  David Rosenberg, of Gluskin-Sheff notes some important drivers of the recent commodity rally:

With the U.S. still in recession, what has been fueling the commodity markets have been the revival signs in China, and here, the news has become mixed from a commodity standpoint. We learned that Chinese imports of refined copper hit a record high in May for the fourth month in a row; but domestic supplies were actually put to work in terms of consumption at a much slower rate. In fact, the FT estimates that Chinese copper usage actually fell 3.5% in May even as imports surged 6% MoM (and 25.8% from a year ago). The same holds true for aluminum where consumption fell 1% in May.

Without question, the largest contributor to the recent run-up in commodity prices was China’s stimulus plan.  The IEA data has been unquestionably mixed in recent months (including yesterday’s downgrade of world oil demand) and hasn’t warranted the incredible price moves.   It’s not a stretch to say that China, along with regular seasonal speculation have been the primary drivers of the commodity price climbs.   And we’re now getting signs from China that they have stopped the stockpiling and expect lower prices going forward.  The Sydney Morning Herald notes:

“We


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The Phantom Commodity Bull Market and the Consequences

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Excellent article by Ben, the Financial Ninja, explaining the relationships between commodity prices, particularly oil, the dollar, "green shoots" and China’s quest for acquiring hard assets. - Ilene

The Phantom Commodity Bull Market and the Consequences

FN: Everybody is talking about commodities and a "new commodity Bull market". The general consensus is that the "China growth story" is responsible for this. Well, yes and no. Chinese demand has indeed picked up, but not because of growth. They’re hoarding.

Macro Man explains the Chinese "growth" miracle in The China Syndrome:

"Drilling down beneath the surface, however, we see a picture that is much less unequivocally bullish for commodities. While overall imports have barely started to recover in value terms, many commodity imports have absolutely skyrockjeted in volume terms. And at the end of the day, the inputs to China’s industrial and investment complex are based on volume, not value.

Macro Man ran a study looking at the import volume of four different industrial commodities, comparing it with the trend of 2003 through mid-2008, a period in which Chinese growth averaged 11%. (Data for coal imports only begins in December 2004.) The results were remarkable."

(The charts over at Macro Man are mind boggling in their implications. You need to see them for the rest of this post to be in context.)

FN: There is something else to consider as well. PRICES. In a free market economy prices are a signal relied upon by both producers and consumers to adjust their behavior on the margin. This is how both supply and demand constantly adjust in a relentless search for equilibrium. When demand exceeds supply the price adjusts higher. The signal to producers is to increase production and to consumers to reduce consumption. Rising prices therefore NORMALLY signal an expanding economy… in other words GROWTH.

Currently, demand has continued to plummet or stagnate for commodities. However, prices have rallied, with oil hitting $71 a barrel. This price is actually incredibly high if taken in a broader historic context… and even more absurd during times of economic crisis.

The question is, if not demand, what then has driven a bid into commodities?

The economic crisis, while clearly global, has severely stressed the


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Zero Hedge

These Are The Most (And Least) Generous Countries In The World

Courtesy of ZeroHedge View original post here.

The Charities Aid Foundation has released the 2019 edition of the World Giving Index which surveyed 1.3 million people in 128 countries to determine generosity levels.

Unfortunately, as Statista...



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Phil's Favorites

How Asia transformed from the poorest continent in the world into a global economic powerhouse

 

How Asia transformed from the poorest continent in the world into a global economic powerhouse

By sladkozaponi/Shutterstock

Courtesy Deepak Nayyar, University of Oxford

In 1820, Asia accounted for two-thirds of the world’s population and more than one-half of global income. The subsequent decline of Asia was attributed to its integration with a world economy shaped by colonialism and driven by imperialism.

By the late 1960s, Asia was the ...



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Digital Currencies

Five hurdles blockchain faces to revolutionise banking

 

Five hurdles blockchain faces to revolutionise banking

Shutterstock

Courtesy of Markos Zachariadis, Warwick Business School, University of Warwick

Blockchain is touted as the next step in the digital revolution, a technology that will change every industry from music to wast...



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Chart School

Gold Stocks Review

Courtesy of Read the Ticker

Gold stocks are swinging back forth between the range, and a break out swing higher is due. Gold stocks are holding a near perfect Wyckoff accumulation pattern. All should get ready to play this sector. Yet we must recognize that gold stocks are a one of the most crazy rides at the stock market fair, so play very carefully.

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Important channels around the HUI.
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The Technical Traders

Treasuries Pause Near Resistance Before The Next Rally

Courtesy of Technical Traders

Our research team believes the US Treasuries and the US Dollar will continue to strengthen over the next 2 to 6+ weeks as foreign market and emerging market credit and debt concerns outweigh any concerns originating from the US economy or political theater.  Overall, the major global economies will likely continue to see strength related to their currencies and debt instruments simply because the foreign market and emerging markets are dramatically more fragile than the more mature major global economies.

We believe the US Treasuries may surprise investors by rallying from current levels, near price resistance, to levels above $151 on the TLT chart. 

Our belief ...



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Insider Scoop

48 Biggest Movers From Yesterday

Courtesy of Benzinga

Gainers
  • Hepion Pharmaceuticals, Inc. (NASDAQ: HEPA) shares climbed 43.2% to close at $3.58 on Thursday after the company announced the publication of a research article, "A Pan-Cyclophilin Inhibitor, CRV431, Decreases Fibrosis and Tumor Development in Chronic Liver Disease Models," in the peer-reviewed Journal of Pharmacology and Experimental Therapeutics.
  • Synthesis Energy Systems, Inc. (NASDAQ: SES) rose 26.9% to close at $9.20 after surging 12.24% on Wednesday.
  • Assembly Biosciences, Inc...


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Kimble Charting Solutions

Bank Index Breakout? Stock Market Bulls Sure Hope So

Courtesy of Chris Kimble

One of the most important sectors of the stock market is the banking industry and bank stocks.

When the banks are healthy, the economy is likely doing well. And when bank stocks are participating in a market rally, then it bodes well for the broader stock market.

In today’s chart, we look at the Bank Index (BKX).

As you can see, the banks have been in a falling channel for the past 20 months. As well, the banks have been lagging the broader market during this time as well – see the Ratio in the bottom half of the chart above.

That said, th...



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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...



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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

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Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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