Sunday, January 30, 2011

Selected Macroeconomic Highlights from the Week Ending January 29, 2011

  • The Euro rose 2 basis points against the dollar.
  • Crude oil gained 23 cents per barrel.
  • Comex Gold declined by nearly 30 cents per ounce.
  • The Goldman Sachs Commodity Index gained 3.5 points to close at 642.50.
  • The Dow Jones Industrial Index was down 0.41% ending at 11824.
  • The S&P 500 Index fell 0.55% to close at 1276.
  • The NASDAQ lost 0.1% closing at 2687.
  • The S&P cut Japan’s credit rating.
  • Despite record quarterly profits, McDonalds blames a hike in menu prices on sky-high commodities.
  • President Obama calls for this generation of Americans to embrace its "Sputnik Moment" and also called for America to overcome its addiction to foreign oil in his annual State of the Union Address. The President’s speech included calls to reinvest in American infrastructure including roads, bridges, high-speed rail and technology in rural America.
  • The Commerce Department released figures this week showing GDP grew 3.2 percent between October and December. Even though it was the best economic growth in five years, the numbers fell short of expectations.
  • Consumer spending rose at a 4.4% annual rate in the final three months of the year, the fastest pace since the first quarter of 2006.
  • Inventories were a big drag on growth in the fourth quarter but this was largely offset by a positive contribution from net exports.
  • For the year, GDP advanced 2.9%, compared with a 2.6% drop in 2009.
  • Department of Labor figures put the unemployment rate at 9.4 percent for last month -- down from nearly 10 percent a year ago.
  • Orders for durable goods declined, posting a loss of nearly 3 percent in December. Even so, there was an increase of one-half of one percent when transportation items like aircraft are removed from the equation.


An optimist might see the common thread in many of these developments to be the realization across parts of the Arab world of the power of popular will to overthrow dictators, the first step toward democracy and a better life for the people. A pessimist might see in at least some of these situations deliberately orchestrated chaos for purposes of seizing power by a new group of would-be ruthless leaders. A realist might acknowledge the possibility of both factors in play at once, and worry that ideologically motivated uprisings have often turned out to be usurped by groups with their own highly anti-democratic agenda. In the event that some of the transitions of power prove to be more chaotic than peaceful, let me comment on their potential to disrupt world oil markets.
Country Oil production % of world total
Saudi Arabia10,18711.7
The table at the right reports the recent levels of oil production in the countries mentioned above and some of their neighbors. For the most part, the popular uprisings so far have been in the "have-nots" of the Arab world, with modest levels of oil production relative to the members of OPEC. Of the countries facing a likely immediate transition of power, the most important in terms of oil markets is Egypt, with 2/3 mb/d of its own production and another million barrels of oil being transported each day through the Suez Canal plus 1.1 mb/d crossing Egypt via the SUMED pipeline.
---James Hamilton

Ummmm, yeaah, about that new Obama appointment Immelt....

-Martin A. Sullivan. source: NYT from "Winners and Losers Under the U.S. Corporate Tax Code".

“The real lesson of the Pecora hearings is that fundamental reforms to the structure of financial regulation invariably come in the wake of crisis and scandal,” says Mr. Perino.... “That ship has sailed, and we missed it.” In unveiling its 633-page report Thursday — accompanied by a slightly shorter commercial version, on sale for $14.99 — the Financial Crisis Inquiry Commission noted the outsized influence of banking lobbyists and Wall Street campaign contributions. But it did not suggest limiting the size and concentration of banks, as some economists have urged.
---NYT Sewell Chan

(House) Prices in Las Vegas are off 57.8% from the peak, and prices in Dallas only off 8.9% from the peak. Prices are now falling - and falling just about everywhere. As S&P noted "eight markets – Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007". Both composite indices are still slightly above the post-bubble low.
---Calculated Risk

Rapidly rising oil, energy and food prices pose a serious threat to global stability, leading U.S. economist Nouriel Roubini has warned.
---CNN Money

In the continued debate over inflation/deflation, there are some who believe the US will only experience worrisome price inflation if there is corresponding wage inflation where employees ask for raises, companies grant them and continue to raise prices to offset it. With plenty of slack in the labor market, wage inflation is very unlikely but it’s wrong to think that is reason not to worry. Commodity prices are unquestionably going up and the prices we pay for many important items are moving up too, especially food and energy. The worst thing therefore from the perspective of the average person is NOT to have wage inflation to offset the rise in prices. Without it, it’s the ultimate middle class squeeze. Also, WE DO HAVE WAGE INFLATION, imported from China where wages are rising across the board for employees that make many of the things we buy.
---Peter Boockvar

The eight toxic asset funds, run by asset managers such as BlackRock Inc, Invesco Ltd and Marathon Asset Management, are all profitable. Since the funds were established in 2009, they have used about $5.2 billion of Treasury's equity investment to buy toxic assets. As of the end of 2010, the funds have gained $1.1 billion to about $6.3 billion, according to the data. Including some $300 million in equity distributions, the Treasury's investment increased by 27 percent or $1.4 billion, according to the data.

Investment and cash flows to emerging nations will surge to nearly $1 trillion dollars this year, adding pressure to developing economies already overheating, a trade group of the world’s largest banks said Monday. Strong expansion in Asia and Latin America, combined with low interest rates and sluggish growth in advanced economies, are the main factors fueling the capital flows, according to the Institute of International Finance. The group forecasts $960 billion moving from rich to emerging economies in 2011 and topping $1.04 trillion next year.

A growing band of central banks are throwing up obstacles to prevent floods of money from overwhelming their economies. The banks' actions are raising the prospect that a three-decade trend in which capital has become progressively freer to move from country to country could go permanently into reverse. Capital controls, which were blessed by the International Monetary Fund last year as countries like South Korea, Taiwan, Turkey and Brazil moved to stem inflows, were a hot topic at this week's World Economic Forum.

source: Hightower