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Monthly Archives: August 2011

Crude oil, gasoline stockpiles drop

NEW YORK (AP) — The nation’s crude oil and gasoline supplies shrank last week, the government said Wednesday.

Crude supplies dropped by 5.2 million barrels, or 1.5 percent, to 349.8 million barrels, which is 1.5 percent below year-ago levels, the Energy Department’s Energy Information Administration said in its weekly report.

Analysts expected an increase of 1.8 million barrels for the week ended Aug. 5, according to Platts, the energy information arm of McGraw-Hill Cos.

Gasoline supplies fell by 1.6 million barrels, or 0.7 percent, to 213.6 million barrels. That was a bigger drop than analysts expected and 4.4 percent below year-ago levels.

Demand for gasoline over the four weeks ended Aug. 5 was 3.4 percent lower than a year earlier, averaging 9.1 million barrels a day.

U.S. refineries ran at 90 percent of total capacity on average, up 0.7 percentage point from the prior week. Analysts expected capacity to slip to 88.5 percent.

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Tough decisions on taxes, SS loom

From CCN Money:

Washington has a compromise problem. And now, lawmakers face a seemingly impossible task — find a way to institute reforms that have eluded policymakers, all while markets and rating agencies watch with rapt attention.

After risking default, the nation’s lawmakers agreed last week on a plan to raise the debt ceiling.

The deal slashed spending. But it included no tax hikes and no entitlement reforms — items that virtually every budget expert says are needed.

Those tough choices were kicked down to a 12-member bipartisan super committee tasked with finding another $1.5 trillion in budget savings.

“What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare,” President Obama said this week.

That sounds easy enough — but it will actually require mountains of political will and lawmakers who are willing to risk their jobs.

“There is no question about the political backlash they will face,” said Julian Zelizer, a professor of history and public affairs at Princeton University. “There are a lot of reasons to be skeptical.”

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Bond market sees recession and QE 2.5

Read here:

“We don’t have clarity,” says Chicago-based bond trader Jeff Kilburg, the Sr. Development Director of Treasurycurve.com. “The market wants clarity and they want it now.”

On the one hand, Kilburg says we have been given an unprecedented degree of clarity from the Fed in terms of its new low rate forecast for the next two years, but on the other hand is the harsh economic reality that outlook portends, as well as the Fed’s inability to do anything about it. “It’s not 2008. Ben Bernanke is not rolling down the street in that tactical hummer with every weapon in his aresenal. He’s more or less rolling in a mini van right now,” Kilburg quips.

With nearly 15 years of experience trading Treasuries, Kilburg is now more than ever looking to the bond market for leadership and to relinquish all notions on falling yields. “We had this exact conversation when the 10-year treasury came down to 3%. Now we just went down to 2%. Rewind back to April and the 10-year was at 3.75%,” he points out.

So are Treasuries are telling us we’re in a recession?

“I think we are, no doubt about it,” says this former Notre Dame football player. “You can call it whatever you want… but I think we are actually bottoming out in the Treasury market…but I think we are going to see continued chaos…and I’m just hoping we get through this quickly.”

Instead of another full blow round of QE3, Kilburg says we will likely get “QE 2-and-a-half” which would see the Fed holding on to its recently acquired $1.5 trillion of Treasuries a lot longer then anticipated.

“Yesterday, the bulls put the flag on the front lawn and claimed victory. I don’t know if it’s as much of a bull victory as much as it is a technical bounce.”

Will forecasts for recession here and growing problems in Europe continue to fuel the flight to safety? Will you buy Treasuries with even lower yields? Let us know your thoughts below.

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Asia’s ability to stimulate strained by inflation

SINGAPORE (AP) — Asia batted away the global recession sparked by the 2008 financial crisis. Fending off the latest wave of market turmoil may prove tougher.

World stocks were pummeled this week by the first-ever downgrade of the U.S. credit rating and evidence of stalling recoveries in the U.S. and Europe that could weaken demand for Asia’s exports of cars, gadgets, clothing and other goods.

Normally that would have Asian governments turning to interest rate cuts and extra spending but their options are constrained by inflation that has remained stubbornly high despite efforts to tame it.

The dilemma: Give economies too much of a boost and the high inflation that is undermining gains in living standards will become even more troublesome. Press ahead with the yearlong campaign to bring inflation down and risk a sharp decline in economic growth just as the U.S., the world’s biggest economy, teeters on the edge of another recession.

Singapore, heavily reliant on the spending power of U.S. consumers, was Wednesday among the first to acknowledge the increased risks, lowering its economic growth forecast for this year.

“It’s a tough balance, but inflation in Asia is going to keep the pressure on policymakers,” said Neeraj Seth, an executive at BlackRock, which manages $3.7 trillion of assets.

China, Asia’s largest economy, may have to sacrifice some of the breakneck growth it’s enjoyed over the last decade to get inflation under control. Consumer prices jumped 6.5 percent in July, a three-year high, while the economy expanded a roaring 9.5 percent in the second quarter.

China has raised interest rates five times since October and curbed lending and investment, but the government admits it probably won’t be enough to slow inflation to its 2011 target of 4 percent.

“The problem is still that growth is too fast and inflation is too high and going up,” said David Carbon, head of Asia research at DBS, Southeast Asia’s largest bank.

Quickening inflation threatens to swell the ranks of people in countries such as China, India and Vietnam already living below the poverty line. Vietnam has the region’s highest annual inflation rate at 21 percent while India’s is 8.6 percent. Rapid rises in prices, especially for food, are a threat to social stability, which in the past decade has been underpinned by the rising living standards that Asia’s robust economic growth has delivered.

The Asian Development Bank estimates that a 10 percent increase in food prices drags another 64 million people below the $1.25 a day poverty line. A 20 percent increase in prices pushes up the number in poverty by 129 million.

“Everything is getting much more expensive, but I’m not getting an increase in my salary. I have to dig into my savings,” said high school teacher Nguyen Bich Lien, 53, as she bought vegetables at a market in Vietnam’s capital Hanoi.

“It costs me 400,000 dong to 500,000 dong ($19 to $24) for one day of shopping, I feel like my money was stolen.”

“When my savings are all spent, then I will have to eat less meat and more vegetables,” she said, adding she earns 8 million dong a month as the breadwinner of her family because her husband is too sick to work.

“I can imagine how much harder low-income workers and farmers have to struggle to make ends meet,” she said.

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Cramer: Surveying the damage

Despite my temporary need to murder Jim Cramer yesterday, because of his opinion of oil markets, it needs to be said; Jim Cramer has been nailing it with his commentary recently. The man is on fire, and I applaud him for it.

How much damage was done by the budget disaster in our country? How much damage could a collapse of the euro and the banks in the euro states do to the world’s economies?

Those two albatrosses could reverse any rally, stop any bull in its tracks. We are all trying to figure out how much impact these have had and could have. Does an ineffectual president and a fractious congress equal a 1% decline in GDP from levels that were low already? If Italy goes bust, does that mean we go into a second recession?

You have to visualize these crimes against the economy on a calm day, because on a down day they both seem unfathomable and on an up day they can seem trivial.

I think the dysfunction in the U.S. was a huge wake-up call to the world that, right now, we are politically bankrupt. The Standard & Poor’s downgrade crystallized what most are unwilling to say, which is that until our president loses in the election, which I don’t think he will, or the Tea Party obstructionist anarchists fall by the wayside, we can’t really have an economic recovery of any sort in this country.

That’s what so much of the earlier part of the decline was about. We won’t take the tough measures and our president is anti-capital and pro-labor. That others won’t say this is really a function of cowardice, because it’s all anybody talks about when you get off the desk or you turn the microphones off. The duplicity of so much of the media is frightening, because I don’t know a Republican or a Democrat who supports this president when it comes to economic issues. The leadership vacuum is palpable to all, but those in front of cameras fear retribution. I don’t blame them. The lash awaits.

Europe? More difficult. Of late, there’s a new school developing that is trying to put the 2008 moment for Europe in perspective. The prevailing wisdom is that the destruction of a currency plus several major bond markets plus many major banks just equals another Great Depression, maybe worse than what happened here.

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