Friday, May 13, 2011

A shortcut to Communism

Oil is back up today and so is gasoline but gold is down sharply and the USD is stronger than in months making imports cheaper. Silver has been all over the place after leading the drop in commodities since the major trading houses raised the margin requirement from 10% to 12% (that means instead of buying $10 for just a dollar, you need to put up 1.20, doesn‘t sound like much but hedge funds buy in the billions).

Traders in Shanghai are being blamed for the price swings. In case you didn’t know, Shanghai is in Red China and much of what you buy in Walmart comes from there. Retail sales of silver have been booming in China as the government encourages civilians to own gold, silver and copper as part of their savings and the Chinese save a lot. While Americans save in the low single digits from their income and before the crash the rate dipped below zero in the US, the average Chinese saves upwards of 40%.

Rightwing economists have blamed everything on the Chinese saving rate, the trade deficit, loss of American jobs, inflation, deflation and toe fungus gets blamed on the Chinese worker’s habit of saving money (or gold, silver and copper). China mines more of these metals than anybody else including at one of the world’s biggest copper mines in Afghanistan that we guard for them for free. In this kind of blame the worker economic thinking Wall Street is the “free” market and is never the blame for anything, it‘s always the workers fault like the greedy school teachers and nurses, there always somebody to blame.

Rightwing economists or freshwater economists (as they come primarily from Chicago and not the coasts) are of Milton Friedman persuasion. He was famous for the consulting work he did for the Pinochet Regime in 1973 and this is still heralded by the corporatist right as a resounding success. They sight this as the basis for all the “reforms” they wish to impose upon us. The sort of things they are doing in Wisconsin, Michigan, Indiana and coming soon to a poor ghetto (I mean middle class suburb) near you.

General Pinochet was able to grab power after the complete destruction of the economy from the complete embargo of Chile’s trade and banking imposed by the Nixon administration. This came after the election of a socialist government in Chile while at the same time Nixon and Kissinger lavished their military with USDs and weapons.

Of course from the point of view of everyone in Chile, Friedman's “success” was a complete failure. They privatized everything and it all collapsed leading to nationalization of everything including things the socialists would never have considered. In Chile they refer to Friedman’s economic plan as the shortcut to “communism” as everything ended up being owned by the state.

This week, unemployment claims are down and there are indications that jobs are coming back from China. A more expensive Yuan, increasing wages and a change of attitude from Chinese government toward exports to the US are encouraging smaller US companies to move jobs home. All of this represents efforts by the Obama Administration, you know, things the US Chamber of Commerce calls unfriendly to business if not treason.

Crackdowns on product dumping early in Obama’ first year and pressure on the Chinese to revalue the Yuan and increase domestic consumption in China are being to pay off. These things are not very dramatic but they are ongoing and moving us in the right direction. Will it be enough? Not in the long term but it’s a place to start. Will it mean we won’t have another crash? Not likely, the country has been too hollowed out to expect this all to go smoothly even if the Republicans can be held at bay.

Don’t forget Saturday the 14th  to put canned goods out for the letter carrier.

Wednesday, May 11, 2011

Comrades, unite against Wall Street

The oil price run up on Monday and Tuesday didn’t last and the price fell back with West Texas Intermediate trading under $99/barrel. Gasoline futures really took a beating with news that consumption fell sharply on top of already record supplies on hand. Commodities in general are going down with the USD up against the Euro by 8 cents in the past week. This is generally being blamed on Greece where there is a general strike and some minor rioting today.

But Greece is not really a significant part of the Euro zone so other things are going on. Currency traders make money on the way down as well as going up so you have some profit taking, plus the carry trade that has been borrowing at near zero interest in the US and investing overseas to get double digit returns are starting to flee back to the USD.

This movement back to the “green back” is so they don’t get caught in the pinch if the market really does collapse. Some really big hedge funds took a beating last week during the flash crash in oil, losing double digit percentages of their capital. Since they leverage 10 to 1 the market dropping 10% can wipe them out if they can’t make the margin call. When things are really volatile that isn’t as easy to do as it is to say, that’s contrary to what right wing “experts” will say when you suggest there should be regulation and higher margins.

Or better yet we could do as the noted Marxist Charles Thomas Munger said recently and eliminate 80% of what Wall Street does because it harms America (you know, make it illegal again like the old days when that pinko FDR was making the rules). Did I say Comrade Munger was a Marxist? My mistake, he’s really vice-chairman of Berkshire Hathaway Corporation (you may of heard of his partner Warren Buffet). For you right wingers, you can see a short video of his remarks at

Speaking of the lying Right wingers. Speaker Boner went down to Wall Street and gave a speech to fill them in on how the economy works. He said we need to slash government spending because it “is crowding out private investment and threatening the availability of capital” (hic) This statement must have had them rolling in the aisles.

Short term money can be had for nearly free and long term money is extremely cheap. Corporate junk bonds are selling at twice the rate of 2007 (before the crash) with a 170 billion being sold by companies in the first quarter alone and they are paying an average of only 2% interest. These are called junk bonds because nobody really expects the money to be repaid and are normally marketable only because of their high return. Two percent is not a high return, remember when passbook savings accounts paid 4%? (those now pay in the low tenths of a percent) Yeah we really have a shortage of money because of government spending we can tell from the high interest rates and that two plus trillion in cash the major corporations have on their balance sheets.

The Boner also said he’s demanding 4 trillion in spending cuts before he will agree to raising the debt ceiling. The Wall Street people in the audience didn’t tear him to shreds on the spot so they must have assumed he was lying with that statement too. But 80% of what they do on Wall Street is a lie so they are used to it.

Tuesday, May 10, 2011

Can't afford steak? Try Passenger Pigeon

Oil continues to rise again even as gasoline falls although traders are attempting to float the rumor (so far unfounded)that fuel pipelines could be disrupted by the record flooding. This could be the worst flooding since 1926 and that was a bad one, it brought Herbert Hoover to national prominence as head of the Red Cross relief effort. The Federal government took no part in helping the flood victims and this set the tone for the Hoover Presidency even as he spent unprecedented sums to bail out the big banks and the Republican rich after the economy crashed.

China and Russia have quietly ended exports of fuel to combat inflation from the commodity price run up. Fuel joins grain on the list of things becoming difficult to get, not because of big shortfall but from speculators tying up supply. (that supply and demand thing is great if you control the supply, not so good if you can’t afford food)

The US is facing a likely grain shortfall near the point of early harvest sometime this summer. The first stage of the grain harvest begins in the Texas desert, oh wait, Texas isn’t supposed to be a desert, that explains the lack of a harvest of any kind.

At the other end of the harvest season is North Dakota but much of the  farmland there is still under water from the snow melt. All that melted snow is heading south to add to an already flooding Mississippi which is expected to swallow 3 million acres of cropland in the three lower states alone. Some of this land will not be farmed for years if ever. Even on land not flooded planting has been seriously delayed by cold wet weather with high potential losses depending on how erratic this summer’s weather turns out to be.

The good news is that most grain goes to feed livestock, even that used to make ethanol mostly ends up as leftover “mash” which is made into processed cattle feed. It’s also used to make all the things that go into processed human food even vitamins, food supplements. Also flavor enhancers like the notorious MSG (that’s not a rapper, think food allergies) these are now concealed by calling them “modified proteins and such”. Any of that stuff on the label with the long names comes from processed corn or soybeans.

You will eventually see higher prices for meat even though prices for cattle are going down right now. Demand for meat is falling because high gasoline prices are sucking consumers wallets dry. At least that’s the excuse for paying the remaining farmers less, most livestock is owned by big corporations that don’t sell through the “free market”. These are called “vertical monopolies” and are technically illegal. President Obama had made noises about enforcing the Packers and Stockyards Act for the first time in decades but he hasn‘t been heard from lately.

Family farmers that were instrumental in the Progressive movement a hundred years are ago are largely extinct, gone the way of labor unions and the passenger pigeon.

Monday, May 9, 2011

Doing the double tap

Commodities rose 2% today with oil up 5% as money began to flow into the markets again. That trillion in new cash the Fed printed up is having an effect, mostly it’s draining the wallets of the middle class, but hey you have to make money somehow and doing something useful is so 20th century. Where do you think you are, China?

Not everybody on Wall Street is humming a happy tune however, many of the hedge funds that were banking on oil going to $140/barrel were caught flat footed by last week’s flash crash. Many are reported to have taken double digit losses with Clive of London losing $400 million against 5 billion in assets. Rumors are that Goldman Sachs and BoA who dominate the dark pool trading crashed the price to create a buying opportunity.

The USD continues to rise against the Euro even as gold rises (usually the move in opposite directions). This is being driven by traders needing to make margin calls in dollars and at the same time some investors who didn’t go broke from the 15% drop in oil see gold as a hedge against doomsday.

The Obama Adm is talking about ending dark pool trading (these are anonymous back room deals that can be half the market) this has only been legal since 2006 and that by a rule issued the Bush dominated SEC so the SEC could now end it. This has Wall Street insiders spitting nails but Obama has got the upper hand with voters and no amount of money will change that.

Especially if he were to crack down on Wall Street, re-election would be a sure thing. Of course they might try to crash the economy out of spite. There is the law Bush left behind that would make that terrorism at the discretion of the President. Ah yes, time to drift off into a daydream of Seal teams hunting pinstriped terrorists.

Sunday, May 8, 2011

Fun Facts

Oil and gas: we are a major exporter of gasoline and have been right along no matter the price you pay at the pump. Inventory is at an 18 year high, if demand gets any lower the oil companies will start burning it to get rid of it as they can't stop producing gasoline without running short of the other components of oil. They don't "make" gasoline, about 40-45% of a barrel of oil is gasoline and it has to go somewhere. It is possible to make any hydrocarbon into some other carbon based product but it takes expensive infrastructure to do it. Oil companies are run by bankers and not by engineers. If you have that kind of money it is much easier to manipulate the market than to serve it.

Ethanol: (the bio fuel) is produced almost entirely from corn in the US with huge subsidizes for manufacturers (not farmers) High tariffs protect the American market from cheap ethanol from Brazil where it is produced from sugar cane at 1/7 the energy input. Corn is lucky to break even on the oil consumed per gallon of ethanol produced.

US Dollar and corn: as of late we have been exporting ethanol to Brazil. The weak dollar and high sugar prices (they are exporting sugar instead) make US ethanol a bargain by comparison. At the same time this year's corn crop will probably not meet demand. Texas will have no crop due to the extended drought and North Dakota is under water while the Midwest has been too cold and wet to plant on time.

The rise in unemployment to 9%: all government numbers on employment are produced by surveys. The unemployment rate is determined by surveying households. Cell phones and the increasing number of homeless make this number questionable at best. The claim that numbers fluctuate because of people's mood on whether they are "discouraged" and not looking for work are BS. The "jobs created" number is similarly produced by an employer survey and probably isn't even close as they have no idea how to weight the different sectors of employment to get an overall number. Even the weekly claims numbers are produced by surveying the state employment offices and are always wrong during a week with a holiday.

The only number that means anything is the Workforce Participation number and it is the lowest it has been since Reagan started the war on the middle class and two income families became the norm.