Thursday, August 31, 2006

Today, Bloomberg. Tomorrow, the world.

Bloomberg with a very long article on the Peak Oil debate that hits all the highlights, and features all our favorite characters: Boone Pickens, Charles Maxwell, Matthew Simmons, Peter Thiel, Canadian Oil Sands, et al.

Bloomberg: Peak Oil Forecasters Win Converts on Wall Street to $200 Crude.

Tuesday, August 29, 2006

To quote Han Solo: "I've got a bad feeling about this."

Bloomberg: U.S., German, Japanese Bonds Rally as Inflation Eases.


The spread was 28 basis points today. U.S. two- year yields exceed 10-year yields by 8 basis points, the most since March, producing an inverted yield curve.

A yield curve is a chart of bonds of the same quality and different maturities. Inverted yield curves have preceded each of the past four U.S. recessions.

Bloomberg: Business Spending May Languish, Raising Risk of U.S. Recession.


``Most of the people forecasting a soft landing are counting on a boost from capital expenditures,'' says Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. in New York. ``I would be careful about that.'' She puts the odds of a recession at more than 50-50, ``and it could happen relatively quickly.''

Ledger Dispatch: One stock market analyst speaks her mind.

Despite the recent rally, some stock market analysts are still concerned about a possible economic slowdown that could lead to a recession. You can count Ms. Liz Ann Sonders, Chief Investment Strategist for Charles Schwab & Co. Inc., in that camp.

In a letter sent to Schwab Institutional clients, she makes several interesting points that might give concern to stock market bulls. She is not impressed that most economists surveyed by the Wall Street Journal are still predicting economic growth between 2.7 and 3 percent for the next three quarters and none of these experts are predicting negative growth for any one of those quarters.

She also points out that in late 2000 the consensus of economists for the first quarter of 2001 was for the GDP (gross domestic product) to grow at a 3.3 percent rate. In fact, that quarter turned out to have a -0.6 percent growth rate. Her point is that recessions usually do not reveal themselves, making them difficult to predict.

She has three major economic concerns that when added together (in her opinion) increase the chances of this country entering a recession in the near future. Her first concern is the inverted yield curve, when the 3-month Treasury bill has a higher yield than the 10-year Treasury bond.

Historically, an inverted yield may be a pre-cursor to a future economic slowdown or in a worse case scenario, a recession. However, Ms. Sonders also points out that when the Fed knowingly inverts the curve like they did in late June, the odds of a recession happening increase dramatically. There have been six such inversions in the last 33 years with five of them resulting in a recession.

Ms. Sonders also points out that the last five recessions have been preceded by spikes in oil prices and the longer we go before oil prices settle down, the harder it will be for the economy to ward off an economic slowdown. The third major concern, in Ms. Sonders' view, is this country's slowing real estate market. For this July, mortgage applications were down by almost 30 percent from a year ago. In the last several years, mortgage equity withdrawals have basically replaced wage gains as the main source of income gains, thereby becoming the main driver of our strong economy. With consumer spending accounting for two thirds of the GDP, any pull back in that area will result in some form of an economic slowdown.

FoxNews: Recap of Cavuto on Business August 26.


Home sales slowing down big time from last year, but so far no noticeable drop in the price of those homes. Is that next?

Sara Nunnally: In certain parts of the country you are going to see price drops. Certainly in those areas where there were sharp run ups like California, New York and Florida, which are already starting to come down. But overall, national median prices are up.

Jim Rogers: Prices in Nevada, California, Arizona, Florida, Massachusetts are going to go down a lot – thirty, forty, fifty percent. But in some parts of the country prices are going to go up. When these bubbles break, prices go down a lot. In California fifteen years ago people were mailing their keys back to their bankers because they couldn't pay the mortgage. That's going to happen again. But in other parts of the country, prices are going to be going up. If you are in a place that's got a good economy – in agriculture or mining – your house is going to go up.


Jim Rogers: America's in recession, and the recession is going to get worse.

The New York Sun: Dorfman: Housing Bust Could Leave Market In State Of Agony.


Addressing himself to the latest delirium - the biggest real estate bubble in history - the chief investment strategist of Raymond James Financial, Jeffrey Saut, is warning clients that the ongoing collapse of residential real estate has far-reaching implications for both the economy and the stock market.
As evident, though, by last week's rosy showing in which some stock indices rose 3% to 6% and turned more positive on the year, the market is essentially saying it doesn't give a hoot.
But Saut certainly does, noting that real estate has been chiefly responsible for much of the nation's economic and job growth.


The associate editor of Safe Money Report, a monthly investment letter in Jupiter, Fla., Michael Larson, tells me the market is on the verge of realizing the third phase of the housing bust, which he believes has very negative implications for stock prices.The first two were the stiff declines in homebuilders and suppliers of home products. Next on the list, Larson says, are the financial institutions, notably those banks and sub-prime lenders that provided the financing for super high loans on inflated properties.
Such lending practices, he believes, will invariably lead to a rash of failures among these companies and the stock market will soon begin reflecting this risk. "We could be in for a rough few months ahead," he says.


That's also the view of former money manager, now private investor, Neil Weisman, who thinks it will take the housing industry at least five to seven years to work off its excess inventories, rather than the one to two years many Wall Streeters are projecting.

Whiskey & Gunpowder: Increased Recession Risks!


In June, Red Lobster's same-store sales were down 5%, Ruby Tuesday (RI) was down 2.3%, and P.F. Chang's (PFCB) was down 1.1%. In May, the last month reported, Applebee's same-store sales were down 1.9%, and Outback was down 2.6%. High-flying and fast-growing P.F. Chang's, whose stock had risen more than six-fold from 2000 until last summer, has now tumbled by over 50% (see Figure 4). At the same time, Cheesecake Factory reported a 1.3% same-store sales decline in the first quarter and has warned that the second quarter will be flat to slightly negative. According to Cheesecake's chief financial officer, the chain has never had two negative quarters in a row. USA Today also reported that, according to Lynne Collier, restaurant analyst at Stephens Inc., in the 12 years she has covered this industry she has never seen a "downturn of this magnitude". Nine out of the ten casual restaurant chains she follows have seen traffic decline in the past three months.

San Francisco Chronicle: Williams-Sonoma cuts outlook for year.


Williams-Sonoma Chief Executive Officer Howard Lester said he is pleased with the company's second-quarter performance but concerned about economic issues that could put a damper on future earnings. Pottery Barn, which caters to middle- and upper-income households, has already seen a drop in demand and is particularly vulnerable.

"When we last updated our guidance in mid-July, we believed that the softness we were seeing was specific to the execution of our Pottery Barn summer merchandising strategy," Lester said in a statement. "Today, however, after five weeks in home with our new Pottery Barn fall catalog, we believe there is a greater macro-economic issue also affecting this business. To date, the consumer response in Pottery Barn is continuing to trend well below our expectations, causing us to approach the third and fourth quarters with an extremely cautious outlook."

Monday, August 28, 2006

1500 days to peak oil, give or take.

Mr. Skrebowski collects a wide variety of data on large projects to come up with his estimate. It's interesting to contrast his 2010 date, calculated from basically a ground up view, with the more bird's eye calculation of Kenneth Deffeyes which suggests 2006. Four years is a small difference, not enough to quibble over.

Adelaide Now: Oil crisis by 2010.


Visiting Adelaide, Chris Skrebowski, a trustee of the Oil Depletion Analysis Centre and editor of the Energy Institute's Petroleum Review in Britain, said "peak oil" was real and imminent.

"Peak oil is when flows can't meet the required demand," he said. "This will cause an economic tsunami." Mr Skrebowski, addressing a Committee for Economic Development of Australia gathering, said that of the world's 18 largest oil fields, 12 were in production decline.

Few large discoveries were being made, with the prediction of even less new oil in coming years.

"Oil supply will peak in 2010-11 at around 92 to 94 million barrels a day," he said. "We have just 1500 days to peak. Collectively, we are still in denial."

Tuesday, August 22, 2006

The Tipping Point..... tipped.

Ford recently announced that in July SUV and light truck sales were down 44.1% versus the prior month. GM, which fared the best of the Big Three, had a 19% decline.

Now a Consumer Reports poll indicates that the top factor in new vehicle purchases is gas mileage, which, until now, was a factor that had ranked something like 7th. One auto analyst is quoted in the story as downplaying this result, as consumers often say one thing then do something quite different. I happen to think she's wrong.

AP: Poll: Fuel Economy Big Car-Buying Factor.

And while we're focusing on cars:

NY Times: A Car-Sales Indicator Suggests a Recession Is Near or Already Here.

One indicator is not enough to go by, but the tottering housing market, high energy prices, this...

Friday, August 18, 2006

One small step for GM..

I was pretty harsh on GM last year ('Dead Man Walking'), but I am very gratified to see they have redesigned their smallest offering, the Chevy Aveo, to make it more competitive and improve the gas mileage. The older model, which only lasted 2.5 years here, was tiny in size but got rather blah gas mileage and was not competitive with the Toyota Yaris or Honda Fit. GM still has a lot of work to do, and they won't make much money off these, but I'll take this as a sign that they are waking up.

I'm still not a fan of the stock, though I do like their CFO, Frederick Henderson. Maybe if they let that guy run the show..

USA Today: GM improves fuel efficiency with new Aveo.

Saturday, August 12, 2006

The Case for Natural Gas.

This clip is supposed to be about natural gas, but for whatever reason, Ian McDonald of the WSJ has chosen to highlight 3 Canadian stocks which are both natural gas plays as well as Canadian oil sands plays. Hey, I won't argue, I rather like the way he's thinking.

Maybe he's been reading a bit of Henry Groppe, who loves Canadian energy producers, or Matthew Simmons, who lauds natural gas as "the single best energy source we've ever had", or even Boone Pickens, who believes natural gas will be used as a transportation fuel as the oil gets tight. (He most certainly hasn't been reading me, but my contribution is here.)

The interview highlights stocks Encana (ECA), Canadian Natural Resources (CNQ), and Nexen (NXY).

CNBC: The Case for Natural Gas.

Tuesday, August 08, 2006

Stephen Leeb of "The Coming Economic Collapse" interviewed.

Dr. Stephen Leeb, author of "The Coming Economic Collapse, How You Can Thrive When Oil Costs $200 a Barrel" was interviewed by on the topic of his book.

His view is that unless we start getting very serious, very quickly on alternative energy, we are in for disaster as oil demand growth will outpace supply growth, particularly from China and India, and as a result, oil prices will skyrocket. He also thinks that oil is "the exact opposite of the Internet" (bubble) and there is "no end in sight" to the rise in energy companies. He's also a fan of precious metals.

StreetWatch Video: Stephen Leeb interviewed.

Sunday, August 06, 2006

Help Jane, Stop This Crazy Thing!

One of the analogies that Boone Pickens likes to make relates back to when he worked in the oil industry: As an oil field got a little long in the tooth, you ended up on a treadmill of working harder and harder to try to keep production flat. Mr. Pickens believes that global oil production is now on exactly such a treadmill at around 85 million barrels a day.

Whether that ultimately proves to be to highest production figure, only the future will tell for sure, but the oil industry is certainly having a heck of a time these days, and looks an awful lot like George Jetson in the opening sequence of The Jetsons.

The latest:

Reuters: Dubai to take control of offshore oil resources.

Financial Times: BP shuts down Alaska oil field.