The IEA Puts Out a Glowing Report of North America’s Energy Boom

“The boom in North American energy (primarily related to shale in the US and oil sands in Canada) is one of the biggest stories in the global economy.

A new report from The International Energy Agency (IEA) agency discusses the consequences of the boom in dramatic fashion, arguing that it’s as big of a deal for the world oil market as the rise of China was over the last 15 years.

The report describes the US supply “shock” as that is sending “ripples” throughout the world, affecting every aspect of the market.

This chart from the report drives home how significant the expansion of North American supply (dark green bar) will be relative to the growth expected from the rest of the world in the next few years.

IEA

Here’s the key part from the press release announcing the report:

The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15, the International Energy Agency (IEA) said in its annual Medium-Term Oil Market Report (MTOMR) released today. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined….”

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“David Tepper is on CNBC arguing that stocks are still a buy.

During his appearance, he held up a chart from the blog Liberty Street Economics, which is a blog hosted by the New York Fed.

The chart he shows shows the Equity Risk Premium, which is the gap between expected return on stocks vs. bonds.

Based on traditional measures of the Equity Risk Premium (ERP) stocks are about as cheap as they’ve been in 50 years, a function somewhat of ultra-low bond yields.

From the Liberty Street Economics blog, here’s an explanation of the ERP and the chart which shows that stocks are really cheap.

We surveyed banks, we combed the academic literature, we asked economists at central banks. It turns out that most of their models predict that we will enjoy historically high excess returns for the S&P 500 for the next five years. But how do they reach this conclusion? Why is it that the equity premium is so high? And more importantly: Can we trust their models?

The equity risk premium is the expected future return of stocks minus the risk-free rate over some investment horizon. Because we don’t directly observe market expectations of future returns, we need a way to figure them out indirectly. That’s where the models come in. In this post, we analyze twenty-nine of the most popular and widely used models to compute the equity risk premium over the last fifty years. They include surveys, dividend-discount models, cross-sectional regressions, and time-series regressions, which together use more than thirty different variables as predictors, ranging from price-dividend ratios to inflation. Our calculations rely on real-time information to avoid any look-ahead bias. So, to compute the equity risk premium in, say, January 1970, we only use data that was available in December 1969…..”

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“More than 10,000 private messages sent between users of Bloomberg’s financial terminals have leaked online, undermining the company’s attempts to restore faith in its ability to keep client data confidential as it scrambles to allay clients’ privacy concerns.

Two long lists showing confidential Bloomberg messages between traders at dozens of the world’s largest banks and their clients have been online for several years, the Financial Times has learned.

The documents from one particular day in 2009 and also from 2010 contain messages sent in by clients so Bloomberg could extract price data for their use on bonds, credit default swaps and other financial products from traders’ messages….”

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“WASHINGTON (Reuters) – A gauge of confidence for small businesses rose in April to its highest in six months, a sign of resilience in an economy beset by Washington’s austerity drive.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index rose 2.6 points to 92.1, the highest reading since October.

About half the gain was because businesses expect better business conditions over the next six months. Firms also were more optimistic about creating jobs and about sales….”

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“Verizon Wireless, the mobile-phone joint venture of Verizon Communications Inc. (VZ) andVodafone Group Plc (VOD), plans to pay a $7 billion dividend to its co-owners, defusing a source of tension between the two companies.

Verizon, which owns 55 percent of the business, will receive $3.85 billion, while Vodafone, owner of the rest, will get $3.15 billion, according to a filing yesterday. The dividend will be paid on June 25….”

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“West Texas Intermediate traded near the lowest level in more than a week on forecasts that U.S. supplies climbed to the highest since at least 1931 amid production the IEA said is “transformative” for world markets.

Futures fell for a fourth day in New York on speculation that rising supplies will counter signs of an economic recovery. Crude inventories probably increased 450,000 barrels to 396 million in the week ended May 10, according to a Bloomberg News survey before Energy Department data tomorrow. Growth in North American production will be as significant for markets asChina’s economic boom, the International Energy Agency said.

“Supply-demand is skewed to the oversupply side,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark. “There is currently a lot of spare capacity and global crude overproduction. The multi-decade high in U.S. supply will keep weighing on WTI.”

WTI for June delivery was at $94.53 a barrel, down 64 cents, or 0.7 percent, in electronic trading on the New York Mercantile Exchange at 12:21 p.m. London time. The volume of all contracts traded was 5 percent above the 100-day average. Prices fell 87 cents to $95.17 yesterday, the lowest close since May 2.

Brent for June settlement on the London-based ICE Futures Europe exchange lost 74 cents and was at $102.08 a barrel. The European benchmark grade was at a premium of $7.40 to WTI futures. The spread was $7.65 yesterday, the narrowest based on closing prices since January 2011.

Cushing Supplies…”

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“The European Central Bank set up a clash with Germany as Executive Board member Joerg Asmussen pushed back against the country’s incremental approach to building a banking union.

Asmussen called today for the European Union to create a central agency and a common backstop for handling failing banks by “the summer of next year.” This is in marked contrast to warnings from German Finance Minister Wolfgang Schaeuble that the bloc cannot venture into such territory without changing its current treaties, and should instead target a less ambitious, networked approach.

“We want a single European resolution regime together with a single resolution agency and a single resolution fund that is financed by a levy on the banking industry,” Asmussen told reporters in Brussels before a meeting of EU finance chiefs. This should happen in parallel with the ECB’s planned assumption of bank oversight powers next year, he said.

EU leaders began work on a banking union last year to break the cycle of contagion between nations and their banks that has plagued the euro area since the region’s financial crisis emerged in Greece in 2009. They started by giving the ECB oversight powers, and committed to accompany this with a single “mechanism” for bank failures.

Single Pool…”

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“Copper fell the most in almost two weeks in London amid signs growth is slowing in China, the world’s biggest consumer of the metal, as inventories swell.

China’s economy will expand 7.6 percent this year, JPMorgan Chase & Co. said today, cutting its estimate from 7.8 percent a day after a report showed industrial production in the nation expanded less than predicted by economists. Copper stockpiles monitored by the London Metal Exchange increased the most in four weeks, according to daily figures.

“The market is well supplied, and China is not growing as fast as everyone was hoping,” David Wilson, an analyst at Citigroup Inc. in London, said by phone.

Copper for delivery in three months slid 2.3 percent to $7,241 a metric ton by 11:32 a.m. on the LME. Prices dropped as much as 2.4 percent, the most since May 1. Copper for delivery in July fell 2.2 percent to $3.287 a pound on the Comex.

The metal also retreated as European Union statistics showed industrial production in the euro area dropped 1.7 percent on the year in March, the 17th decline in a row….”

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“Emerging-market stocks advanced for the first time in four days as a stronger yen boosted exporters, offsetting the biggest drop in Chinese shares in three weeks and a slide in Russian commodity producers.

LG Electronics Inc. (066570), which got 22 percent of its 2012 revenue from North America, rose the most in a month in Seoul. Hyundai Motor Co. (005380) added 2.7 percent as an appreciating yen eased concerns about a loss of competitiveness to Japanese rivals. Emaar Properties PJSC surged 3.1 percent, helping lift Dubai’s benchmark index to the highest since October 2009 as the real estate market outlook improved. OAO Severstal, a Russian steelmaker, fell for a third day as industrial metals declined on concern Chinese demand may weaken.

The MSCI Emerging Markets Index rose 0.1 percent to 1,043.23 as of 12:50 p.m. in London. The yen strengthened from the lowest level in more than four years against the dollar, benefiting companies that compete with Japanese exporters. JPMorgan Chase & Co. cut its growth outlook for the Chinese economy following data yesterday that showed industrial production missed estimates and fixed-asset investment unexpectedly slowed last month.

“Asian exporters are doing well because there is a view the yen weakening is done in the short-term,” Michael Wang, an emerging-market strategist at Amiya Capital LLP in London, said by e-mail. Concerning China, “there are worries about data still being weak — bad for Russia and Brazil,” he said….”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

“Last week was unusually quiet for the economy, even as the stock market rallied to an all-time high.

This week’s schedule, however, is loaded with April and May economic data. By Friday, we should have a pretty good sense of whether or not the economy decelerated going into the second quarter.

For the most part, economists are expecting a month-over-month slowdown.

Top Stories…”

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“May 11 (Reuters) – JPMorgan Chase & Co Chairman and CEO Jamie Dimon said he may consider leaving the bank where he has held the top post since 2005, if shareholders vote to split his duties, the Wall Street Journal reported on Saturday.

Shareholders will vote later this month at an annual meeting in Tampa, Florida, on a non-binding proposal to separate the chairman and chief executive roles after a more than $6 billion trading loss last year raised questions about risk oversight.

At first, Dimon said he would not comment publicly on what he would do if the vote went against him, but when pressed he added that the worst-case scenario would be to leave the bank, the newspaper said, citing sources that attended a private meeting at the company’s New York headquarters.

Results of the vote will be announced on May 21, but it remains unclear what the board will do if the proposal passes….”

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“LAKEPORT, Calif. (AP) — Scott and Robin Spivey had a sinking feeling that something was wrong with their home when cracks began snaking across their walls in March.

The cracks soon turned into gaping fractures, and within two weeks their 600-square-foot garage broke from the house and the entire property — manicured lawn and all — dropped 10 feet below the street.

It wasn’t long before the houses on both sides collapsed as the ground gave way in the Spivey’s neighborhood in Lake County, about 100 miles north of San Francisco.

“We want to know what is going on here,” said Scott Spivey, a former city building inspector who lived in his four-bedroom, Tudor-style dream home for 11 years.

Eight homes are now abandoned and 10 more are under notice of imminent evacuation as a hilltop with sweeping vistas of Clear Lake and the Mount Konocti volcano swallows the subdivision built 30 years ago.

The situation has become so bad that mail delivery was ended to keep carriers out of danger.

“It’s a slow-motion disaster,” said Randall Fitzgerald, a writer who bought his home in the Lakeside Heights project a year ago.

Unlike sinkholes of Florida that can gobble homes in an instant, this collapse in hilly volcanic country can move many feet on one day and just a fraction of an inch the next.

Officials believe water that has bubbled to the surface is playing a role in the destruction. But nobody can explain why suddenly there is plentiful water atop the hill in a county with groundwater shortages.

“That’s the big question,” said Scott De Leon, county public works director. “We have a dormant volcano, and I’m certain a lot of things that happen here (in Lake County) are a result of that, but we don’t know about this.”

Other development on similar soil in the county is stable, county officials said….”

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Economists in a Reuters survey expect a 0.3 percent decrease compared with a 0.4 percent decrease in March. Excluding automobiles, sales are expected to fall 0.1 percent versus a 0.4 percent drop in March.”

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“European policy makers expressed a willingness to consider new ways to revive their ailing economy as they confronted fresh U.S. pressure to take action.

The bloc’s finance ministers and central bankers left weekend talks of the Group of Seven signaling that they’re poised to scale back austerity, are open to increased monetary aid and looking to unfreeze bank lending. European officials will meet in Brussels today to discuss the economy and review aid payments for crisis-struck nations from Greece to Spain.

Europe’s governments are in the midst of a policy rethink after three years of slimming budgets as they face up to a deepening recession in the euro area and a record unemployment rate that’s exceeded 12 percent. Still in doubt for economists is what kind of stimulus will actually be delivered and what effect it could have in the crisis-torn 17-member currency bloc.

“The new ‘fiscal realism’ is in evidence,” Mark Wall, co-chief European economist at Deutsche Bank AG in London, said in a report to clients. “Austerity may have reached its political limits and markets are happy to see some rebalancing. The key remains economic growth.”

Yields on sovereign debt that soared during the crisis have eased with the European Central Bank’s pledge to do whatever it takes to defend the euro. The single currency was little changed at $1.2986 as of 9:03 a.m. today.

Record Low…”

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Group of Seven finance chiefs indicated they will tolerate a sliding yen for now as they intensified their focus on Japan’s recovery strategy.

Finance ministers and central bankers reaffirmed their February commitment to “not target exchange rates” at a meeting in Aylesbury, near London, U.K. Chancellor of the Exchequer George Osborne told reporters May 11.

The Bank of Japan “can and should ease again if the current measure does not seem to be working,” Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, said in an e-mailed response to questions.

While signaling acceptance of the yen’s decline through 100 per dollar for the first time since 2009, G-7 policy makers said they examined Japan’s strategy and that they will monitor its impact on currencies. The yen has fallen 15 percent against the dollar this year and 13 percent versus the euro as the Bank of Japan stepped up monetary stimulus.

“Everybody watches exchange rate developments,” German Finance Minister Wolfgang Schaeuble said after the meeting. “We had a very intense discussion about Japan with our Japanese colleagues.”

The yen weakened past 102 per dollar for the first time since October 2008 today. It dropped 0.2 percent to 101.87 a dollar as of 10:12 a.m. in Tokyo after losing 2.6 percent last week, the most in five weeks. It fell to 102.15 earlier.

Uneven Prospects…”

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“Returns from the U.S. equity bull market that started four years ago are matching those from the last half of the 1990s even as valuations are 28 percent lower.

The Standard & Poor’s 500 Index has gained 26.2 percent annually including dividends since March 2009, the same as during the last 50 months of the technology bubble, according to data compiled by Bloomberg. Shares in the index now trade at 18.6 times annual profit, below the average 25.7 multiple in the 1990s rally led by Internet companies.

For bulls, the valuations show stocks will keep rising after the S&P 500 advanced 164 percent as individuals scarred by the worst financial meltdown since the Great Depression return to equities. Bears say the price-earnings ratios mean investors lack confidence in the economy and corporate profit growth. They also note that the last time returns were this high, the bubble popped and more than $5 trillion was erased from the value of U.S. stocks, according to data from the World Bank.

“The size of this rally’s not what keeps me up at night,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees about $170 billion, said in a May 8 phone interview. “That was a tremendous rallythen, too, but I’m not getting all nervous based on the size of the rally this time, because we’re not there yet in terms of valuation.”

2013 Rally…”

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