Tuesday, August 31, 2004

Yet more technocratic new middle class elitism from the "liberal" blogosphere.
The reality, of course, is that any major party presidential candidate attracts the votes of millions and millions of people. The overwhelming majority of these people have no idea what they're talking about. Public ignorance in the United States is massive -- and exists on both sides. Ideology aside, the base of either party would be an absolute disaster if put in charge of the country -- they wouldn't have the foggiest idea what to do. That's why the government is run by professional politicians, professional political operatives, and professional policy analysts, not by random members of the public. It's like how movies are made by professional filmakers, not by movie fans.
Brad DeLong takes young Matt to task, but only because the august economist can't find a single "professonal policy analyst" in the Bush administration. But technocracy? That's fine.

Can't wait for them to begin singing the praises of Taylorism and Robert McNamara . . .

Oil keeps dropping.
Crude oil futures dropped nearly $1 a barrel yesterday despite pipeline sabotage in Iraq that has delayed exports from a southern port, reinforcing the view among traders that prices rose too quickly this summer.

There were also signs yesterday that a peace deal reached in Najaf, Iraq, last week could spread to other parts of the country, raising hopes that saboteurs might stop attacking oil pipelines.
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Light sweet crude for October delivery dropped by 90 cents, to settle at $42.28, on the New York Mercantile Exchange. Crude futures are at their lowest level since July 27 and roughly 14 percent below the record settlement high of $48.70 on Aug. 19. When adjusted for inflation, oil prices are about half the level reached in 1981 after the revolution in Iran.
It was pretty clear a few weeks ago that the August spike was driven mostly by speculation. That being said, August was simply a more dramatic version of what has been happening to world oil prices since October 2003.



In fact, if one follow the trend line since that time, oil prices at the end of Summer 2004 should be in the low $40s/barrel, and lo and behold! That's exactly where they are now.

Look for OPEC to dramatically raise its price band next month, as well as entertain demands from countries like Iran to start respecting the quotas once again. That's not to say that the Saudis are ready just yet to give the West the finger. It is to say, however, that the Iranian oil minister was right when he said there was oil oversupply, not undersupply, this summer.

Monday, August 30, 2004

Yet more evidence (as if we needed it) that the Democratic Party is increasingly the party of the new middle class, not the working class.
Political scientists say polls correlating religious behavior or belief with party alignment indicate the "God gap" is more significant than most factors, including the gender gap.

Similarly, scholars' surveys of delegates to the parties' 2000 conventions found contrasts on weekly worship attendance (59 percent for Republican delegates, 35 percent for Democrats) and conservative beliefs about the Bible (54 percent for Republicans, 26 percent for Democrats).

Bolce says some voters aren't just non-religious but anti-religious. Surveys have shown hostility toward evangelicals and fundamentalists among a segment of Democrats, including more than half of 1992 convention delegates. Unlike anti-Catholic bias through the 1920s, "it's more a prejudice of the educated classes," he says.
Kerry can say as he did in his acceptance speech at the Democratic National Convention last month "we welcome people of faith." But the evidence is overwhelming that religious people don't feel welcome, and the leaders of the Democratic Party don't feel comfortable with them. The only kind of "people of faith" they want in the Party are members of the religious left who consistently vote Democratic anyway.

Maybe Kerry and Edwards are sincere. However, the message hasn't reached the level of Party delegates, opinion shapers and other illuminaries. Try being even moderately pro-life (e.g. support partial-birth abortion ban) and watch the onslaughts from Planned Parenthood and NARAL who have the full support of the Presidential ticket. Don't even think about dissenting on embryonic stem cells after Kerry urged us to "believe in science, so we can unleash the wonders of discovery like stem cell research" (notably, the only objects of "belief" or "faith" Kerry mentioned in Boston were [1] "science" and [2] the cognates "the American people"/"our country"/"ourselves"/"shared values"; never "God").

And if you want evidence on how the new middle class constantly condescends to those "people of faith" which Kerry claims to want to reach, read Brad DeLong for a week and you'll understand.

Kerry is trailing badly in Missouri. He's running even in Ohio and leading but slipping in Pennsylvania. These are three states chock full of religious swing-voters and Kerry needs two of them. Are Democrats serious about winning, or do they prefer ideological purity to victory?

An interesting observation from an Agence France Presse report over the weekend:
David Rosenberg, chief North American economist at Merrill Lynch . . . said that a big chunk of [US] economic growth is going into inventories, because sales are soft, making the outlook even gloomier. Rosenberg sees the sluggish trend continuing.

"We stick to our three percent real GDP growth call for the third quarter -- the consensus is still very close to four percent -- as the inventory-sales mix in the second quarter was not the sort of configuration that typically leads to a meaningful acceleration in the pace of economic activity," he said.
As the General stated two weeks ago, it is still a bit early to be down on the US economy due to the growth in inventories. Total business inventories (SA) growth did outpace total business sales (SA) growth in two of the last three months (April and June 2004), and both by quite hefty margins (+0.76% in April; +0.86% in June), but this is a relatively recent phenomenon. If production keeps exceeding consumption for the fall as well, then start to worry.

The July numbers should be particularly enlightening. All evidence suggests sales rebounded ably in July (thanks in part to a low bar from June), but if inventories outpaced sales in even this robust a month, Rosenberg has ample cause for concern. The July numbers come out on September 15. Stay tuned.

Japan is now slowing noticeably, and it is clear for all to see that external demand is still the country's lifeblood. How much debt are the Japanese willing to let the US accumulate? Or more importantly, when will transnational financial capital decide it is ready to bet against the Bank of Japan and start attacking the US dollar?
Japan's unemployment rate jumped unexpectedly in July while prices and consumer spending continued to decline, raising a note of doubt on the strength of the economic recovery here.

Japan's unemployment rate rose for the first time this year, jumping to 4.9 percent for July from 4.6 percent for June. Economists had expected the rate to remain unchanged. Spending by households of salaried workers fell 2.5 percent in July from a month earlier, the third consecutive monthly decline.

"These numbers were generally on the weak side of expectations, so it does raise the question of whether economic growth was as strong as the market would portray," said Ryo Hino, an economist for J. P. Morgan in Tokyo.

A report earlier this month showed that Japan's economy grew at an unexpectedly weak annual rate of 1.7 percent in the second quarter, sharply slowing from 6.6 percent in the first quarter and 7.4 percent in the last quarter of 2003.

Still, Mr. Hino and other economists cautioned against reading too much into Friday's figures because other recent data, in particular strong exports and corporate profits, suggest Japan's recovery remains intact even if growth has backed off the torrid pace seen earlier this year.
This last paragraph makes me laugh. Sure exports are strong, but only because consumption in the US and China is still (relatively) robust. And sure corporate profits are strong, for exactly the same reason. The fact is that Japan is still utterly dependent on the production and consumption engines of the global economy with barely a whit of interal self-sustaining oomph to drive it.

Stephen Roach covers these highlights in his commentary today. He notes that
our Japan team now believes that real GDP growth is tracking at about a 2% annual rate in the current quarter -- consistent with sluggish gains in the spring period but far from the imminent rebound widely expected and quite consistent with our below-consensus 1.3% GDP forecast for 2005.
The global recovery has come and gone, kids. Back to more of 2002 and early 2003 where you can't tell the difference between recession and recovery.

So, how about the downward revision to second quarter GDP?

With the terrible June consumption numbers on top of the enormous June trade deficit, this was a no-brainer. What is notable, however, is that GDP for the first half of 2004 is growing at a modest 3.6% pace. You still have the rah-rah crowd telling us all is for the best in this best of all possible worlds, but don't you believe it. Overall GDP growth for 2004 is going to be a lot closer to 3% than to 5%. Big consumption numbers like those we saw today might push it up into the respectable 3s for 2004:III, but this is a house built on sand (aka the lowest possible savings rates).

The current account balance for 2004:II promises to be pressing on -5.6% of GDP. That is enormous and has to prompt the East Asians who are financing our economy to begin planning their exit strategies.

Tanned, rested, and ready to blog!

The General is back from an almost-week-long vacation in which he soaked up a goodly amount of US history, saw some strange jelly-fish and a 68-year-old sea turtle, and slept five people in one hotel room. I'm working on a made for TV movie deal as we speak.

So much to talk about this morning! Rather than begin by covering ground I missed from last week, let's start with the just-released BEA numbers on personal income from July. The summary captures the bad news-bad news quality of the release pretty well.
Personal income increased $11.0 billion, or 0.1 percent, and disposable personal income (DPI) increased $7.9 billion, or 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $65.6 billion, or 0.8 percent.
Of course, the media is trying to spin this as a basically good report, what with consumption rising at its fastest clip of the year. Yet when consumption gains outpace income gains by 800%, one should at least pause for breath.

While consumption of nondurables and services did their share, the real cause of the big jump was a stunning 7.6% turnaround in the consumption of durable goods (-3.1% in June; +4.5% in July). This splurge was shoved along by some strong deflationary winds. The chain-type price index for personal consumption expenditures of durable goods changed -0.4% in July, its second monthly decrease in a row and the biggest price drop of the year, while the year-over-year price index has been falling every month this year.

All this spending over and above income has sent the savings rate plummeting again. In July, personal saving as a percentage of disposable personal income was a barely visible 0.6%. In real terms it was the lowest monthly total and the lowest savings rate since December 2002 and the third lowest under the Bush administration. One might assume that all the money we saved up in June (producing a whopping 1.3% savings rate) simply went out the door in July. That would be an incorrect assumption, however. The amount of real savings in June and July together is the lowest two-month total since March/April 2003, more the sign of desperate times than robust recovery.

One final bit of interesting news from the BEA report today: real personal current taxes have been creeping upward over the last year and in July were at their highest point since the big child tax rebate of summer 2003. Real contributions to government social insurance are at their highest point ever during the Bush administration. Both of these have taken significant bites out of personal income gains. Real wages and salaries had their biggest monthly gain of the entire year, +0.45%, but real disposable income ticked up just +0.1%.

Any attempt to balance the budget in this economic climate is sure to kill off domestic demand in a hurry. Of course, thanks to four years of Bush profligacy, there may be no alternative.

Monday, August 23, 2004

The General and Mrs. Glut are taking all the little PFCs and heading off for a short family vacation, so the Globblog will be quiet from now until Monday the 30th. Whet your whistle on these blogs while I'm gone.

The Capital Spectator

Globalize This!

Flagrancy to Reason

Venezuelanalysis.com

More on the hedge funds driving oil toward $50/barrel, from today's WSJ (sub. only).
Enron alumnus John Arnold now runs a $600 million Houston-based hedge fund, Centaurus Energy LP, which has racked up more than $200 million of profits in the past year alone thanks to big bets on oil and natural gas, according to investors. Oil-industry veteran Boone Pickens runs two hedge funds that are among the biggest players in oil and natural gas, and have scored gains of more than $550 million in the past two years. Giant hedge funds, including Paul Tudor Jones's $9 billion Tudor Investment Corp and D.E. Shaw & Co., an $8 billion firm, also have scored big gains. . . .

The investors have been betting on higher prices. As of last week, noncommercial investors, which include hedge funds and similar investment entities, made about 28% of all futures bets on higher crude-oil prices at the New York Mercantile Exchange, up from less than 13% of all such "long" positions at the beginning of 2002. Their bets on falling prices have declined to 21% of all such wagers, compared with 28% of these "short" positions three years ago. . . .

The impact of financial investors probably will grow, because a slew of major investment companies have shifted into energy trading recently. Rubicon Fund Management LLP, a $3 billion London-based hedge fund, recently hired William Callanan, a former Soros Fund trader, to lead its effort. Other major hedge funds, including Citadel Investment Group of Chicago, New York's Vega Asset Management, and Ritchie Capital Management LLC of Geneva, Ill., also are scouring the market for veteran energy and electricity traders.

On Friday, Morgan Stanley announced that it will spend $775 million to buy the rights to 24 million barrels of oil to be produced over the next four years from Anadarko Petroleum Corp. A year ago, the big Wall Street firm bought oil and gas reserves in the Gulf of Mexico for about $300 million from another oil producer, Apache Corp. The deals are part of an effort by Morgan Stanley to expand into outright ownership of energy assets, rather than simply trading for customers and for Morgan Stanley's own account. Such ownership gives the company a more-direct way to play the oil market.

Many European banks also are stepping up their involvement in energy trading. For example, Benoit de Vitry, head of commodities trading at Barclays Capital PLC in London, says he has hired 26 former Enron energy traders, mostly in London. . . .

Hedge funds, CTAs and pension plans control about 15% of the $200 billion or so tradable energy market, according to analysts and traders, including oil futures. They also trade various related positions, such as energy stocks. While they are a relatively small part of the market, some of these investors have an outsize impact because they trade more actively than other participants in the market, like oil companies and airlines, analysts say.
Ah, yes, the magic of the market -- again. Who can stand in the way when there's a dollar to be made? Indeed oil is a real commodity, not Polanyi's fictitious ones. That being said, offering up the lifeblood of industrial civilization to the whims of finance capital which cares not a damn for real production and wealth but only the electronic blips representing pieces of paper representing purchasing power is a recipe for disaster.

Perhaps Iran is right after all? In case you missed it, last weekend Iran's OPEC governor Hossein Kazempour Ardebili said there was a global oversupply of 2.8 mbd in 2004:III. The upshot is, of course, that when the speculative fever abates (whenever that might be), prices could fall sharply. No wonder the US is pressing the Saudis hard to throw caution to the wind and pump up to maximum capacity!

Yet how far is "far"? Once again one finds an analyst to disagree with the claim of World Bank chief economist Francois Bourguignon that the "real" price of oil (NYMEX) is around $30/barrel.
Jeff Curry, head of commodities research at Goldman Sachs, estimates that crude-oil prices would be in the low $40s a barrel were it not for these speculators.
OPEC meets again in September and reports say the group is likely to formally re-calibrate its price band. Might $30 become the new floor? Any wagers for even higher?

Shh! Don't tell the "liberal" bloggers (Yglesias, Drum, etc.).
An emotional battle is brewing in the Latino community over whether a proposed free trade agreement with five Central American nations and the Dominican Republic will bring greater prosperity or despair to the immigrants who have settled in the U.S. and the relatives they've left behind. . . .

. . . many prominent Latino organizations � including the League of United Latin American Citizens; the Salvadoran American National Network, and the Central American Resource Center � oppose CAFTA. They have argued that it would hasten the outsourcing of U.S. jobs and encourage the exploitation of poor Central American workers and the environment.
The great red herring of CAFTA, the AGOA and similar deals is always textiles. The right-wing conventional wisdom is that such free trade pacts will allow small underdeveloped parts of the world such as Central America and sub-Saharan Africa to move up the ladder of development by sewing our clothes for us. Note that these regions won't be growing the raw materials or processing them into fabric (at any significant level) or shipping them or branding them or retailing them. They will simply be sewing them. This isn't the red herring, however.

The real red herring is the claim that free trade in textiles will help pull the poorest of the poor out of poverty. As Robert Wade suggests in the June issue of New Political Economy, China has already captured most of the gains to be had for the South from the global diffusion of low-tech manufacturing processes. CAFTA will simply move what is left of the US textile industry to Central America where many Central American immigrants already work. Public Citizen estimates half of the jobs lost due to NAFTA from only the most narrow method of counting -- that done by the US Department of Labor through their Trade Adjustment Assistance program -- were jobs of Latinos.

Gabriel may be a recent immigrant with little formal education, but he knows a lot more about free trade than most Ph.D.s:
Gabriel, who entered the country illegally and asked that his last name not be used, said the real beneficiaries of NAFTA were large Mexican and U.S. companies.

"If it were true that NAFTA was good for Mexico, we wouldn't be here," said the young man, who left his daughter with her grandmother in Cancun. "It just created more for those who already have more."

Yet more evidence that the poor June economic numbers were hardly a temporary "soft patch" in an otherwise robust recovery.
Wal-Mart Stores lowered its August sales forecast on Monday as back-to-school demand failed to meet its expectations and hurricanes in Florida forced it to close 75 stores.

Wal-Mart now expects August sales at U.S. stores open at least a year to be flat to up 2 percent. It had previously forecast a 2 percent to 4 percent increase.
July retail sales were a fair recovery from June's poor numbers, but the bar was set fairly low, after all. If the world's #1 retailer winds up with flat sales for August, we could be looking at a repeat of June and a lot more "soft patch" stories. Surely the rah-rah crowd will try to blame it all on Charley, but the evidence is getting harder to deny.

Slowing . . . slowing . . .

Sunday, August 22, 2004

Stolen!

Saturday, August 21, 2004

Exactly how many of oil's forty-eight-plus dollars today are made of nothing but ephemeral froth and speculation? The World Bank's chief economist Francois Bourguignon thinks more than a third of them.
The chief economist of the World Bank predicted in an interview that oil prices would return in a matter of months to a stable level around 30 dollars a barrel after hitting record highs this week of nearly 50 dollars.

Although prices closed down on Friday, many traders predicted that the volatile hikes would continue, but the World Bank's Francois Bourguignon said that, once current uncertainties have dissipated, "I think we will return to a balanced price in a few months' time."

Bourguignon told the Spanish economic newspaper Cinco Dias that market forces would eventually stabilize the price. For example, producers would exploit wells that are not profitable at 30 dollars a barrel, but might be at a higher price. But then an increase of supplies would have the effect of driving the price down again.

He said there were undoubtedly some objective causes for the price rises, such as China's strong growth and economic recovery in the United States and Japan.

However, he said the price rise was also fuelled by speculation and uncertainties over the fate of the Yukos oil conglomerate in Russia or the referendum in Venezuela. He discounted the crisis in Iraq because it had not been an important oil producer before the US-led occupation last year.
Moving into the northern hemisphere's winter, this is a pretty bold prediction. Political instability in many oil-producing countries, especially Iraq and Nigeria (but don't count out Saudi Arabia and Venezuela), promises to be a long-term phenomenon. Moreover, the good M. Bourguignon has no appreciation for the "animal spirits" of the market which have truly become unleashed.

However, Bourguignon does have several things on his side. The slowing US economy should (I emphasize should) reduce consumption as should the supposedly slowing Chinese economy. OPEC surge capacity can come into production to deliver a temporary downward jolt, as could a big release from the US Strategic Petroleum Reserve.

But let's assume that hedge fund speculation can somehow be magically removed from the market. The Financial Times today suggests that NYMEX prices would come down only to around $40/barrel, not M. Bourguignon's $30.

The big conclusion of course is that even if oil fell to $30/barrel, that would still be above the old OPEC price ceiling by $2 as well as above anything the world has seen for a sustained period since the early 1980s when Ronald Reagan and James Baker defanged OPEC. The Clinton-era boom wasn't just built off of Robert Reich's "symbolic analysts". It was also built off extra-large current account deficits and ultra-low oil prices. The latter are gone for good, and the former is now an albatross around the neck.

Thursday, August 19, 2004

A picture tells a thousand words.

Yet another reason behind the "jobless recovery", or "Why US capital won't hire workers". It's the brilliant job-creating American medical industry, but one wonders what the net effect on employment is.
Government data, industry surveys and interviews with employers big and small indicate that many businesses remain reluctant to hire full-time employees because health insurance, which now costs the nation's employers an average of about $3,000 a year for each worker, has become one of the fastest-growing costs for companies. Health premiums are sapping corporate balance sheets even more than the rising cost of energy.

In the second quarter, the cost of health benefits rose at a 12-month rate of 8.1 percent - more than three times the inflation rate and the rate of increases in wages and salaries.

"Health care is a major reason why employment growth has been so sluggish," said Sung Won Sohn, the chief economist at Wells Fargo.
The BLS's Employment Cost Index data tell an interesting story. Since 2001:I, total employee compensation is up 13.2% in seasonally-adjusted nominal terms. However, wages and salaries are up just 10.0%; benefits are up a much larger 21.1%.

In real terms, the numbers are: total compensation, +5.3%; wages and salary, +2.3%; benefits, +12.6%. For production workers -- those 80% of us outside the tip of the employment pyramid -- the real numbers (NSA) are even more vivid: total compensation, +5.1%, wages and salary, +1.8%. The ECI won't give benefits figures for production workers, but you can see that virtually all the rise in real compensation to them under Dubya has come in the form of rising benefits, clearly much of that eaten up by medical cost inflation. We know it isn't rising employer contributions to pension plans!

Makes me want to buy up a whole bunch of Levitra on covered prescription just to get my money's worth . . .

Back in June the General suggested that the sustained erection-on-demand is taking its place alongside whiter teeth and smooth transparent toenails in the pantheon of advertising banality. Perhaps that was too harsh. Pfizer has decided instead to locate the chemically-induced hard-on just below the 'sinfully rich' chocolate desserts and just above the Rogaine.
In recent months, Pfizer has watched its market share soften. It has responded with a new advertising agency and a new campaign on television and in print media.

Conceived by the advertising giant McCann Erickson Worldwide, the $100m (�55m) campaign goes under the slogan "Get back to mischief". And thatmischief is the devil's business. Hence, the horns, stylised in the form of the V of Viagra, that sprout from the heads of men who appear in the new commercials.

The first in a new series of television advertisements now airing in the US features a husband shopping with his wife, dutifully standing by as she browses the shoe shelves. Up go the horns when they switch their gaze to the lingerie section. "Remember that guy who used to be called Wild Thing?" an announcer asks. "The guy who wanted to spend the entire honeymoon indoors? Remember the one who couldn't resist a little mischief? Yeah, that guy. He's back." It ends with the sober admonition, "Ask your doctor if Viagra is right for you."

Keeping its previous buttoned-down approach became less viable once the maker of Cialis, Lilly Icos, bought premium time in the Super Bowl broadcast last February with an ad featuring a late-middle aged couple in adjoining hot-tubs touching fingers. The announcer asked, "Will you be ready?"
And not to be limited by fuddy-duddy medical criteria, the E.D. Big Three (Pfizer, GlaxoSmithKline, Eli Lilly) are expanding their market into the recreational drug use set.
Recent research has shown a huge rise in consumption of Viagra, especially among men aged from 18 to 45. While the numbers using Viagra for straightforward medical reasons has begun to slide, the research shows a 312 per cent jump in sales to men who are using the pill just for fun.
One wonders when the women in these guys' lives are going to say, "Enough! Get off me!"?

Wednesday, August 18, 2004

Proof positive that reading George Will only once a quarter is enough to pay rich dividends without wasting precious time doing other things -- such as reading blogs.
On Oct. 23, just 10 days before the election, the war in Iraq will have lasted as long as the 584-day U.S. involvement in World War I, from the April 6, 1917, declaration of war to the Nov. 11, 1918, armistice. And probably in late September or early October the number of U.S. military deaths in Iraq will pass 1,000.

The war already has lasted longer than the Spanish-American War (230 days), and on Dec. 9, 42 days before the next president is inaugurated, the war will be longer than was the war with Mexico (630 days).
Longer than US participation in World War One . . . now that's fodder for a banner at the Republican National Convention, don't you think? Or maybe "Iraq: Our eighth seventh sixth longest war . . . ".

NYMEX oil prices hit $47/barrel today. So, what else is new?

Well, I'll tell you. Martin Wolf has an interesting column in today's Financial Times (sub. only) titled "America is now on the comfortable path to ruin". That pretty much tells you what you need to know.

The gist of Wolf's argument is that a combination of "the rest of the world's surplus output and the US goal of full employment" are at the root of the remarkably swelling US fiscal and current account deficits. The emerging Asian countries desperatly want giant CA surpluses so they can sock away reserves against another 1997-esque rainy day. Japan and Germany and running big CA surpluses, too, thanks to weak domestic demand. The US wants to avoid recession at all costs and thus uses fiscal and CA deficits to stave off a nasty fall in domestic demand. The result? A current account deficit of 8% of GDP and a fiscal deficit of 9% of GDP by 2008. Yikes!

I quibble with Wolf over his assumption that US policy-makers give a damn about "full employment". Clearly they care nothing for it. They do want to prop up domestic demand, however, and thus are pressed into tax cuts (Bush) and property bubbles (Greenspan) as substitutes for income growth.

I also quibble with him over his belief that the United States' current path is "likely to generate an unmanageable increase in US protectionism". Yes the amazingly large (but in light of current experience, quaintly manageable) CA deficits under Reagan provoked strong protectionist pressures, leading to Japanese auto factories in Kentucky and the Canada-US Free Trade Agreement among other things. However, productive capital, industrial labor unions and farmers have been so profoundly thrashed over the last 15-20 years that there is hardly anybody left with political clout to really resist. Note how the debates over "free trade" are mostly about things that have nothing to do with trade, e.g. intellectual property rights.

Wolf is right about one thing, though: the US is on the road to ruining the international position of the dollar as well as its own domestic economy, and there is nobody willing to do anything about it. Those that will, can't; those that can, won't.

Tuesday, August 17, 2004

NYMEX oil prices were trending gradually lower today until, around noon EDT today, they began skyrocketing up to $46.95/barrel, a new record, before closing at $46.75 today. Why the sudden spike?
Russian oil company Yukos has lost an appeal for more time to pay a $3.4bn (�1.85bn) tax bill.

The company asked the Moscow Arbitration Court to suspend an order forcing it to pay the back taxes for 2000 by the end of August.

Bailiffs are already taking money from Yukos accounts, raising fears that the company may have to stop pumping oil.

The bailiffs' action makes it unclear how the company can continue to pay its operating costs.
CNN Money helps put prices in a larger context.
In real terms, adjusted for inflation, oil prices are still well below 1980's peak of $80 a barrel, following the Iranian revolution. But average U.S. prices this year so far of $38 are approaching those of 1974, the first oil shock, when crude averaged an inflation-adjusted $43 during the Arab oil embargo.
In June 1974 imported oil into the US averaged $11.45/barrel. In July 2004 dollars that's $44.26. August 2004 should easily crush that marker. The next landmark is October 1990 when prices averaged around $57/barrel. Thankfully we're a long way from $80/barrel, 1980's inflation-adjusted peak. Nevertheless, on the family's summer vacation to Oil Price Spiral National Park, we've passed the largest ball of twine and the jackalope museum long, long ago.

Kash over at Angry Bear has a great graph for you to ponder. Industrial production, core CPI, real retail sales and employment all suggest the "recovery," if that's what you can call the last 15 months, is flagging at best.



Be sure to read the post, too.


Deflation isn't yet back on the national economic radar screen, but it should be.

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in July, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The July level of 189.4 (1982-84=100) was 3.0 percent higher than in July 2003. . . .

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) decreased 0.1 percent in July on a not seasonally adjusted basis. The July level of 110.3 (December 1999=100) was 2.4 percent higher than in July 2003. . . .

On a seasonally adjusted basis, the CPI-U declined 0.1 percent in July, following a 0.3 percent increase in June. Energy costs declined 1.9 percent in July after advancing sharply in the first half of the year. Within energy, the index for motor fuels decreased 4.0 percent, while the index for household fuels rose 0.4 percent. The index for food, which rose 0.2 percent in June, increased 0.3 percent in July. The index for all items less food and energy registered a 0.1 percent increase for the second consecutive month. Declines in the indexes for apparel, for recreation, and for education and communication were largely offset by an increase in the lodging away from home component of shelter.


Annualized core inflation is now at 1.8%, still higher than what we saw in the midst of the 2003 deflation scare, but still below any other inflation rate we've seen since the mid-1960s. The core rate for the first half of the year (1.6%) is actually lower than what is was for the first half of 2003 (1.7%). General inflation (including food and energy) is still quite low at a 3.0% annualized rate, and the overall CPI for the first half of 2004 (2.3%) is also lower than for the first half of 2003 (2.5%).

July 2004 saw the first decline in the seasonally-adjusted CPI since November 2003, during the deflation scare. Seasonally-adjusted core CPI rose by its smallest amount since -- you guessed it -- November 2003, too. Commodities prices (SA) in July changed a stunning -0.5%, a drop not seen since November 2003 (again), and the same story goes for core commodities -- a -0.3% price change in July.

Surprisingly, one of the few sectors holding general prices up in July was food. Even though food commodity and food producer prices have been falling remarkably all summer long, retail food prices are still climbing, +0.3% for the month and a remarkable +5.5% annualized rate over the last three months. Eventually falling prices for food commodities will bump down retail food prices. Maybe then we'll see some attention put back on deflation.

Monday, August 16, 2004

The summit always looks like a plateau until you stare down the other side.
House price inflation froze last month, according to a report published today that provides fresh evidence that the Bank of England has succeeded in applying the brakes to the housing market.

The Royal Institution of Chartered Surveyors (Rics) said house prices stabilised in July for the first time in a year as buyers and sellers expressed an "air of caution", bringing the curtain down on nine months of runaway growth. . . .

The survey adds to the gloom enveloping the housing market. Last week a report by the property website Hometrack warned that house prices had reached a "plateau", and Countrywide, the estate agency group, said its house sales in July were 25 per cent down on the same month last year. Recent data has also showed mortgage approvals have slowed.
Two differences between the UK and the US suggest that perhaps this hiccup in housing prices may indeed be simply a breather in a largely sustainable upward trend. The first is the more robust real income growth in the UK than in the US.

The second are the much higher interest rates in the UK than in the US. Rates are already at 4.75% in Britain and in the view of many at their near-term peak. Thus high(er) mortgage prices are already built into the UK market, there is little chance that rate rises in the near future -- especially among all the holders of variable rate mortgages -- might send millions into foreclosure. With US rates at a mere 1.5%, there is quite a ways to go to reach 'neutrality' if indeed the Fed ever gets there.

According to Hometrack, the UK's leading property analyst,
Pack up your shovels and your prospecting pans: the Great Property Gold Rush (1994-2004) is officially at an end. . . . However, while double-digit inflation is coming to an end, don't expect estate agents to start wearing black armbands just yet. A crash, Wriglesworth argues, is unlikely: "We see no prospect of a sharper crash in prices.

"Interest rates are still low by historic standards and there are no signs that households are finding it difficult to service their debt repayments. Employment and household income are also growing.
Too bad one can't say the same thing for US homeowners.

Capital and the comprador middle class in Venezuela go down swinging against Hugo Chavez on the mound. Strike one was the April 2002 coup which was quickly overturned. Strike two was the oil industry strike of early 2003 in which Chavez outlasted the same cast of coup-plotting characters. Strike three was yesterday's referendum, which Chavez won decisively.
President Hugo Chavez survived a popular referendum to oust him, according to results Monday, while Venezuela's opposition swiftly claimed fraud.

Backers of the leftist populist president set off fireworks and began celebrating in the streets of the capital in the pre-dawn darkness upon hearing the news from Francisco Carrasquero, president of the National Elections Council.

Carrasquero stopped short of declaring Chavez the outright winner. But vote counts he released showed the firebrand former army paratrooper had a virtually insurmountable 58-42 percent lead, with 94 percent of the vote counted.

Carrasquero said 4,991,483 votes had been cast against Chavez's recall, with 3,576,517 in favor.
Of course, the liberal New York Times, running the Reuters wire service story as is, put as much emphasis on accusations of voter fraud as on Chavez's victory. Venezuela watchers know, of course, that the Times has long hated Chavez, as they hate anything outside the liberal new middle class consensus, also known as "liberal Republicanism".

Bob Somerby has already demonstrated what shills work the pages of the national American press, so no need to repeat the case here.

Viva Chavez y Viva la Revolucion Bolivariana.

Sunday, August 15, 2004

Make it two crystal-ball gazers looking at the real possibility a full-blown recession in 2005.
An unbalanced global economy is back on the razor�s edge. High oil prices are taking a toll on the US growth dynamic at precisely the point when a Fed tightening cycle has begun -- a risky combination by any standards. At the same time, a shift to policy austerity in China has led to a modest slowing of that overheated economy, with a good deal more to come. That puts a two-engine world -- driven by the American consumer on the demand side and the Chinese producer on the supply side -- in a zone of heightened vulnerability. As I see it, the risks on the downside outweigh those on the upside by a factor of three to one. I would now assign a 40% probability to a recessionary relapse in the global economy in 2005.
That's Morgan Stanley's Stephen Roach, the perennial doom-and-gloomsayer, who amasses a pretty solid case against the "soft patch" crowd drawn from most of the things General Glut has been telling you about all summer long.
Suddenly, the US economy looks exceedingly vulnerable. An income- and saving-short American consumer, burdened by record debt levels, has been prompt to respond to sharply rising oil prices. Personal consumption expenditures rose at just a 1% annual rate (in real terms) in 2Q03 -- equaling the weakest increase since early 1995. The quick-trigger nature of this response is ample testament, in my view, to the underlying precariousness of consumer fundamentals. While the just-released July retail sales report points to a rebound in the third quarter, further increases in oil prices in the face of anemic job growth should temper any optimism. Moreover, I am starting to get worried about rapid inventory building in the face of this oil shock; in the three months ending June 2004, total stocks of manufacturing and trade establishments have risen at about a 9% average annual rate -- triple the growth rate of business sales over this same period. This borrows a page right out of the script of the summer of 1974, when the first OPEC shock led to an unwanted inventory overhang that blindsided the Fed and set the stage for severe recession in 1974-75. In short, the window has closed quickly on opportunistic normalization -- the growth cushion has all but vanished into thin air.
Certainly the dramatic rise in inventory levels over sales levels in 2004:II bears watching. However, it seems a bit early for real fretting on this measure of economic equilibrium.

The data suggests that the inventory build-up in the second quarter is only part of a broader growth trend trying to catch up to dramatic sales rates in the absence of any inventory growth during the recession.
Total business inventory growth (SA, annualized)
2003:III -- 0.3%
2003:IV -- 4.1%
2004:I -- 6.9%
2004:II -- 9.3%

2003:III to 2004:II -- 5.3%

Total business sales growth (SA, annualized)
2003:III -- 8.9%
2003:IV -- 11.3%
2004:I -- 17.9%
2004:II -- 3.3%

2003:III to 2004:II -- 10.7%
Moreover, the total inventories-to-sales ratio is still extremely low by historical standards, just barely off the all-time floor (since stats have been kept starting 1992). Of course, another quarter or two like 2004:II and we can really worry. Overproduction is the name of the game (and the name of the blog), after all!

Saturday, August 14, 2004

A prediction worth filing away for future reference.
[Oppenheimer senior energy analyst Fadel] Gheit said if oil goes much higher or stays high for much longer, the result could be gasoline prices falling even further due to a wider hit on the economy.

"There is no doubt in my mind that not only the U.S. economy but the world economy is slowing down," he said. "By spring of next year, if (oil) doesn't go below $30 we'll have a recession."
If the oil analysts the General cited the other day are right and $30/barrel is not even a serious point of departure for discussing future oil prices, 2005 is shaping up to be a pretty ugly year.

Friday, August 13, 2004

The deflation monster is back. He's lurking in the shadows still, but you can start to hear him panting again.
The Producer Price Index for Finished Goods rose 0.1 percent in July, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This increase followed a 0.3-percent decline in June and a 0.8-percent jump in May. Prices for finished goods other than foods and energy increased 0.1 percent in July, following a 0.2-percent rise in the previous month. At the earlier stages of processing, prices received by manufacturers of intermediate goods advanced 0.8 percent, compared with a 0.5-percent gain in June, while the crude goods index edged down 0.2 percent, after climbing 1.6 percent in the prior month.
The core PPI increase in July was the lowest since February, and positive at all surely because of the knock-on effects of the huge 2.3% monthly increase in producer energy costs. Wholesale food prices have fallen now two months in a row.

Perhaps most notably, the price of crude goods actually fell in July, the first time since August 2003, again mostly due to a massive fall (-4.8%) in crude food prices. Corn prices and fluid milk prices completely tanked (but do you think you'll see cheaper yogurt at the store? Don't count on it).

The dramatic slackening of food prices will certainly impact the CPI for July. Food and beverages are over 15% of the consumer price index and a big source of inflation over the last year. If it wasn't for skyrocketing oil prices -- NYMEX prices as high as $45.70/barrel today -- we could be looking at another economy-wide deflation scare.

UPDATE: September delivery light sweet crude on the NYMEX went as high as $46.65/barrel on Friday before closing at $46.58. Damn! We're getting into spitting range of mid-October 1990's recent record price -- adjusted for inflation, just over $56/barrel.

Yet more evidence that The Big Slowdown is upon us.
Japanese economic growth fell far short of expectations in the June quarter, casting doubt on the momentum of the country�s recovery and sending the stock market tumbling to a three-month low.

Gross domestic product in the three months to end-June rose 0.4 per cent in real terms from the previous quarter, according to official figures released on Friday. That translated into annualised growth of 1.7 per cent compared with a consensus forecast of 4.1 per cent. Nominal GDP fell 0.3 per cent from the previous quarter, shrinking for the first time in five quarters. . . .

Ryo Hino, economist at JP Morgan Chase, called the numbers a �shocking result�, though most economists said the recovery remained largely on track.

Shuji Shirota, economist at Dresdner Kleinwort Wasserstein in Tokyo, said: �The Japanese economy has settled down to a cruising speed after a very strong rebound in the fourth quarter of last year and the first quarter of 2004.�
Considering the Japanese economy was growing at 6% over 2003:IV-2004:I, I'd say this is less a "cruising speed" and more a "rush hour traffic" speed. After all, the US in particular has been complaining to the Europeans for forever that their growth is always so weak -- in the 1-3% range. How then is 1.7% a comfortable pace?

Note in particular how amazingly wrong economists have been today, both on the Japanese GDP data and the US trade deficit. Economists thought 2004:II Japanese growth was going to come in at 4.1% annualized; 1.7% is an incredibly rude awakening. Economists also thought the June US trade deficit was going to come in at $47bn instead of the whopper $56bn tally.

Looks like our professional crystal ball gazers need to remove their rose-colored glasses -- and fast. And workers? I hope you enjoyed the "robust recovery" of 2003-04, because the joy ride is clearly over now.

Can anybody say that they're really surprised by this revelation?
The U.S. trade deficit widened much more than expected in June, hitting a record $55.8 billion dollars as the biggest drop in exports in nearly three years combined with record imports, the government said on Friday.

Wall Street economists had expected the deficit to widen, but looked for a gap of just $47 billion. In its report, the Commerce Department also revised May's trade shortfall to $46.9 billion from the previously reported $46.0 billion.

The department said exports fell 4.3 percent to $92.8 billion in June, the biggest decline since September 2001 and the weakest performance since February.

At the same time, imports climbed 3.3 percent to an all-time high of $148.6 billion, partly reflecting a run-up in oil prices.
Let's review. The US trade balances for the three months of 2004:II were

April: -$48.1bn (second highest all-time)
May: -$46.9bn (third highest all-time)
June: -$55.8bn (highest all-time)

The grand total for the quarter is -$150.8bn, 10.1% higher than in 2004:I. So far this year the US trade balance is -$278.7bn, outrunning last year's record pace by 16% and surpassing 2002's deficit by 46%! US goods exports tanked in June after posted four consecutive months of robust gains, down 6.5% in a single month. Goods imports, in fact, rose in dollar terms almost exactly as much as goods exports fell, and the US services surplus continues to erode.

Recalling that second quarter GDP growth was down to 3.0% after a year of 5.1% growth, the current account deficit as a percentage of GDP promises to be huge. The current account balance for the quarter won't be released for another month, but the General will try to put together a likely scenario. If unilateral current transfers stay around -$20bn and investment income falls as Morgan Stanley thinks it will -- it was +$16bn in 2003:IV and +$13bn in 2004:I, so let's pick +10.0bn for net investment income just to run the numbers -- the current account balance for 2004:II may come in at -$161bn (for comparison's sake, it was -$145bn in 2004:I).

If so, that would put the 2004:II current account deficit at -5.5% of GDP. Wow.

Thursday, August 12, 2004

Robert Feldman at Morgan Stanley agrees that $30/barrel oil is but a distant memory (even though we had it just nine months ago!).

My conclusion is that there is speculative excess in the oil market, and therefore that some drop of oil prices is likely in the short run. However, geology and statistics of production potential imply that the average real price of oil has risen. The oil market is asking the world to accelerate exploration, substitution, and -- the only long-term solution -- innovation. This is the Crisis phase of an oil CRIC cycle. The future of oil will be determined by how economies react in the Response phase.
Today Feldman is only interested in the science of petroleum exploration and production, and he claims the stars are quite simply aligned against us.
the statistical methods suggest that supply either has become, or is about to become, a more important constraint on the oil market. The reasons are not economic but geological. As Deffeyes says, it is �written in stone�.
This is, of course, only begging one to jump into the whole debate over Hubbert's Peak. Feldman believes it and that is his starting point.

I know nothing about geology; I'm more looking forward to Feldman's economic and political analyses tomorrow.

Crude prices on the NYMEX hit $45.45/barrel today thanks to Moqtada al-Sadr. One wonders if the big push to wipe him out in Najaf is as much about global oil markets as it is about . . . what exactly is the Iraq war about, now?
Most of the oil goes through the British patrolled southern city of Basra, where Sadr's followers have threatened to attack oil facilities unless US forces stop their military action in the Iraqi holy city of Najaf to the north. . . .

The reduced oil output from Iraq could not have come at a worse time for a global oil market where supply is struggling to keep up with strong demand.

Saudi Arabia said on Wednesday that it was ready to pump as many as 1.3 million extra barrels a day of oil to try to cool runaway prices, but this had little effect on oil costs.

"Everything's gone wrong in the oil market recently," said David Thurtell, commodities strategist at Commonwealth Bank of Australia.

"If you wanted to paint the worst scenario picture, you couldn't do much better."
UPDATE: Just before 1pm EDT today NYMEX prices hit $45.55 .

Kevin Drum joins Robert Reich's religious war.
But Saletan goes further than this:
The stem-cell movement has become ideological. One scientist who is organizing his colleagues for Kerry told the Post that stem-cell research has become an "icon" for broader complaints about Bush's policies. He added that his group has adopted "ideology trumps science" as its theme.
What Saletan doesn't get is that this is exactly right. Forget the details about whether stem cell therapy is good for Alzheimers, or whether embryonic stem cells are better or worse than adult stem cells. None of that is what really matters.

What really matters is that all of these details ought to be left up to scientists, not to administration ideologues. Let scientists decide what to investigate and when. If they go down a blind alley, funding will dry up and they'll go somewhere else. That's how science works.
In condemning the kettle's color, Drum fails to see his own blackness. Drum is not interested in science, he is interested in ideology, too. You may recall that in the December 2003 issue of The American Prospect, Robert Reich proclaimed that "abortion and stem-cell research are about religious liberty". Drum suggests that they are instead about "science" and "reason", but this is not the "reason" from your Intro to Philosophy class. It is the god Reason around which the French Jacobins established their own religious cult and which they enthroned in the Notre-Dame-de-Paris as a flame.

It is truly bizarre that Drum thinks those who believe that human life begins at conception are "nihilistic" since it is precisely nihilism that denies the value of what Is. Following his forebears, Drum rejects any material limitations on human freedom, and laments those from which Science and Reason have not yet freed us, such as the unavoidable material foundation of human life.

Thankfully Drum does admit in the end that this debate is fundamentally a philosophical/theological one, not a scientific one. So why the bitching and whining about the 'debasement of science'?

According to Nawaf Obaid, Director of the Center for Saudi Studies, you can kiss $30/barrel oil goodbye.
the grand design for a return to 30 dollars a barrel is hardly taken seriously by specialists . . . For technical reasons, the mobilization of surplus [Saudi] capacity can take up to eighteen months. Furthermore, the additional quantities produced are heavy crude whose strong sulfur content makes them undesirable to American refineries and are subjected to stringent emissions standards. Finally, investors fear new large-scale terrorist attacks in the Saudi "Black Gold Triangle" on the Persian Gulf. The "security" factor has had a direct impact of $4 on the price of a barrel.
Two observations:

First, note that the 'not serious' price of $30/barrel is still well above last year's stated OPEC price band of $22-$28/barrel, a price band which has still not be officially discarded.

Second, I am surprised Obaid puts the "security risk factor" at only $4/barrel. If he is right, then it is really the forces of supply and demand, not terrorism, which are driving oil prices to post-Gulf War I records. Of course, what would "the fundamentals" be without the speculation inherent in a world ruled by finance capital?
"The current period lends itself perfectly to financial adventurism," underlines one trader. After having left the market briefly in the spring due to profit-taking, the speculators are back, taking part in the price inflation. The shortage is lasting, that is their leitmotiv. Indeed, despite the price rise, the oil companies have reduced their budgets for exploration and production. The pressures of institutional investors privileging the creation of shareholder value push the black gold majors to privilege share buy-backs or dividend distribution to the detriment of investment.

Wednesday, August 11, 2004

Highlights from the August Oil Market Report from the International Energy Agency were released today advancing some interesting tidbits.

According to the IEA, world oil supply in July 2004 was 83.5 mbd, up from 82.9 mbd in June (that number an upward revision from last month's estimate of 82.5 mbd). OPEC-10 was pumping 27.1 mbd in July, 97% of the IEA's estimate of its "sustainable production capacity". Adding Iraqi totals gives OPEC a tad more breathing room, dropping OPEC down to pumping at a mere 95% capacity.

While these figures put supply far ahead of 2004:III demand, things still look sticky for 2004:IV and especially 2005:I. The IEA revised global demand for all of 2004 upward by 1% in their latest report; a 1% jump in demand for the fourth quarter would put it at 83.7 mbd, above current levels of production. Producers will have to bring on extra capacity quickly, running faster just to stay in place; tapping into non-sustainable OPEC "surge capacity" may be in store for the winter.

The IEA held out hope in the form of slower growth in China and the US which should slacken the growing pace of demand in 2005. We all know the results from the second quarter GDP report in the US, and a decline in Chinese producer price inflation reported today suggests the Big Slowdown may already be upon us.

The long-term question is, of course, the future of OPEC. After letting every other member produce at 100% capacity for a year or more, can the Saudis resurrect quotas and put all their ducks back in a row in 2005?

Tuesday, August 10, 2004

The carry trade becomes ever so slightly less attractive.
The Federal Reserve raised its target for a key short-term interest rate a quarter-percentage point Tuesday, in a continuing effort to raise lending rates from the lowest levels in more than 40 years.

While acknowledging recent signs of a slowdown in economic growth and the labor market, the central bank repeated the view, stated in recent weeks by its chairman, Alan Greenspan, that the slowdown was temporary.

At the end of a one-day policy meeting, the Fed's policy-makers raised their target for the fed funds rate, an overnight lending rate that influences other rates throughout the economy, to 1.5 percent from 1.25 percent.
Elsewhere in the high-flying Anglosphere, the Bank of England has raised rates 125 basis points since November 2003, which now stand at 4.75%. The Reserve Bank of Australia has raised rates 100 basis points since their most recent low in December 2001; Down Under they stand now at 5.25%. In Canada they're loosening monetary policy (most recently in April) but at 2.0% are still tighter than the Fed.

Those Who Know -- aka OECD economists -- think "neutral" monetary policy for the US is around 4.0%, although with the economy clearly slowing to well below its late 2003 pace, perhaps that estimate will fall. Regardless, the Fed clearly has a long way yet to go. Yet as Peter Hartcher notes in today's Financial Times (sub. only),
The crucial question is whether America's economic recovery can bear the strain of anything even approaching a normal interest rate. . . . America already has pushed all three of its levers of macroeconomic stimulus [ed. -- interest rates, fiscal policy, value of dollar] fairly hard over to the "go" position. Mr Greenspan must be praying that nothing goes awry in the year ahead.

More bad news for Russian oil giant YUKOS.
Trading in Yukos shares on Moscow's ruble-dominated MICEX exchange was halted in the morning after the stock fell 15 percent. On the dollar-dominated RTS exchange, it fell more than 15 percent by late afternoon.

The drop reflected the double blow Yukos suffered late Monday as bailiffs renewed their seizure of assets from its key production unit Yuganskneftegaz and a court rejected its appeal against the seizure of another subsidiary.
According to the Financial Times, the Russian Justice Ministry is seizing shares, not physical capital equipment. The BBC chimes in that
The oil company was dealt another blow on Monday, Russian news agencies reported, when a court upheld the seizure of assets at a separate unit, Tomskneftegaz.
Exports from southern Iraq have dried up thanks to Moqtada al-Sadr, and NYMEX prices hit $44.99/barrel early this morning, Brent was $41.70/barrel on Monday, and Hugo Chavez is subjected to yet another referendum. A nervous August indeed.

UPDATE: Oil prices on the NYMEX hit $45.04 in this morning's trading.

On 11 October 1990, NYMEX prices hit $40.42/barrel. That's over $57 in inflation-adjusted June 2004 dollars; the average NYMEX price for that week was $56.31/barrel in June 2004 dollars. I suppose one should be glad we're still solidly below $50.

Yet more news from the Bureau of Labor Statistics that real wages have at best stagnated.
Hourly compensation in the nonfarm business sector increased 4.9 percent in the second quarter of 2004, up from the 4.0-percent rise one quarter earlier. When the rise in consumer prices is taken into account, real hourly compensation rose 0.1 percent in the second quarter of 2004 and 0.3 percent in the first quarter.
These figures are, of course, annualized. Thus per the Major Sector Productivity and Costs program, real compensation per hour in the second quarter was virtually unchanged from first quarter (+0.025%) and up barely from 2003:IV (+0.075%).

The Employment Cost Index tells a less rosy story, as if that was rosy. Let's tell it without the annualizing obfuscation. Per the ECI, seasonally-adjusted real compensation is changed -0.25% over last 6 months. Since hours are up +0.7% since 2003:IV, the disparity between ECI and Productivity and Costs must be due to differing measurement methods.

Note also that the rise in compensation (if you believe there is one) is all due to rising benefits. Money that workers can actually get their hands on -- real wages and salaries -- is changed -1.1% in just six months!

Although unit labor costs for the quarter rose at an annualized +1.9% clip, the fastest since 2002:II, capital has no cause for complaint. Unit labor costs fell all throughout 2003 and are now only at their average 2002 level. With inflation eating away the real impact of these costs, no worries! And in light of the incredible profits that capital is making (profits for the S&P 500 firms were up some 27% in the second quarter), it is truly obscene when Reuters says
Because labor represents the biggest production expense for businesses, the rise in unit labor costs suggests worker compensation could begin eroding profits, unless firms can raise their selling prices.
O, poor capitalists! We here at the Globblog weep for you.

Monday, August 09, 2004

The socially moderate or even socially liberal monopoly capital Republican set is whining again, this time through the voice of the Dan-Drezner-hero-worshipping [I kid you not] Reihan Salam.
We can beat some sense into the Republican Party now�by hoping Bush loses to the hilariously mediocre John Kerry and getting behind Rudolph Giuliani in manic Deaniac fashion before 2008�or later, when President Patrick Kennedy (heaven forfend) is reelected to his third term in a landslide.

The Third Way is it. Game over. Drowning government in a bathtub simply will not happen. The Republican Party is going to be ripe for takeover, and thoughtful centrists should think about playing pirate.
If this isn't obnoxious enough, we also have Kevin Drum ringing the gong from the Democratic center (mistakenly viewed as the center-left):
Purging the Republican party of its Norquist/Bush/DeLay radical wing is as important today as it was for the Democratic party to purge its Henry Wallace wing in 1948.
And to round out the trilogy, Brad DeLong from ever so slightly left of Kevin Drum:
Reihan has a plan for the grownup Republicans to take back their party . . . I will be eager to join Reihan in his push to accomplish (4) [ed. -- pragmatists conquer ideologues] after the election, but I expect him to do his part to make (1) [ed. -- Bush loses], (2) [ed. -- Bush loses big, discrediting all things Bush], and (3) [ed. -- right-wingers in the House lose] come to pass in the next three months. The stakes are large: whether the Republican Party is to become something no longer shameful, in part.
The Republican "grown-ups", aka "moderates", which all three of these writers long for left their Party a while back and took over the Democratic Party -- which is now the Party of Moderate Republicanism. Compare John Anderson's 1980 platform to the Dems of today and get a micrometer to measure the differences. The Drezner types and their admirers in the Democratic Party are upset because they fit into the Democrats' corporate flank very nicely but feel uncomfortable cozying up to the working class. But they don't like the cultural conservatives in the GOP, either. Poor boys!

Why not start their own party? They could all gather together and call it Sensible Cosmopolitan Elites for a Technocratic Future.

Just what the skittish global oil market wants to hear.
The diplomatic poker game over Iran's nuclear programme is intensifying, with warnings by the Islamic Republic that it would take tough measures in response to any attempt by the US to block its development through the United Nations Security Council.

In interviews in Tehran and New York, Iranian officials reacted defiantly to statements by the Bush administration that it would press the International Atomic Energy Agency next month to refer the issue to the Security Council. The US move is widely seen as a first step towards possible sanctions against what the US suspects is a covert weapons programme.

�You don't expect a country like Iran to be pushed around and take it sitting down,� said Mohammad Javad Zarif, Iran's UN ambassador, who said it was an issue of national dignity. �What is important is that our integrity is not to be bargained or up for sale. We react very strongly when we see people trying to undermine our national integrity.� . . .

A second Iranian official, who asked not to be named, told the Financial Times in Tehran the situation �was on the verge of something drastic�. He said Iranian security planners expected the IAEA would pass a critical resolution in September and that the US might even attack targets in Iran.

�If there is more criticism in September, Iran will remove the [IAEA] cameras [at nuclear sites] and start injecting the gas [the final stage of uranium enrichment],� he said. �Iran notes the example of North Korea, a regime the US is negotiating with�.

The official, a regime insider, said �radicals� were now thinking of �stupid things against the US and even Europe�. He recalled the days when Iran �carried out assassinations� in Europe and recalled that bombings in Madrid this year changed the course of a general election. Europe, he said, had long been aware that Iran sought nuclear weapons and had earlier supplied dual-use technology.
I think the West has much less to fear from Iranian-backed terrorism than from Iranian cutbacks in crude oil exports. With demand slowly outpacing supply and a host of political worries sending the market over $44/barrel, just a hint of a cutback as a response to Western pressure over the nuclear program could send oil into the stratoshpere. Iran is already making money hand over fist off of the current market. A little less production at a lot higher price would be well worth the economic effects -- and worth the political costs as well.

Good stuff from Bob Herbert today. Since I've just begun reading Elizabeth Warren's The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, the issue of middle-class bankruptcy is on my mind.

Indeed it would be nice if Kerry and Edwards would talk more about this. All I could find on their campaign web site is a promise to spend more money on child care, and that mainly through tax-credits. Warren pegs poor public schools as the core issue driving middle-class families into bankruptcy; its unfortunate that so far all I can find is same old same old from John and John.

Wall Street frets that the US may be entering another bear market, less than two years since the end of the last one.
The slump in key stock indexes last week, before and after the shockingly weak July employment report issued Friday morning, deepened this year's decline on Wall Street and raised fears that a new bear market could be underway � less than two years since the last one ended.

The technology-heavy Nasdaq composite index plunged nearly 6% last week and is down 17.5% from its January peak. By one rule of thumb, a decline of 20% or more signifies a bear market.

The losses in other major indexes have been less severe. Still, stocks have reached a "tender point," said Tom McManus, investment strategist at Banc of America Securities in New York. Many investors, he said, are weighing whether this still is a bull market, or whether stock prices are headed for a more serious setback. . . .

The average blue-chip stock is priced at about 15 times estimated 2005 earnings per share, said Kevin Caron, market strategist at Ryan, Beck & Co. in Florham Park, N.J.

The market has been much cheaper than this at various times in the last half-century. Yet with the plunge in Treasury bond yields last week on economic concerns, and the potential for the Federal Reserve (which meets on Tuesday) to slow its pace of boosting short-term interest rates, stock valuations are compelling when viewed alongside the alternatives of bonds and "cash" accounts such as money market funds, Caron said.

"I'm getting itchy to buy stuff here," he said of the stock market.
As of Friday, the Dow is down 8.6% and the S&P 500 is down 8.1% from their February 11 high closes. The volatile NASDAQ is down 17.5% from January 26.

What may keep the stock market from heading into official bearish territory (-20%) is not that there is anything compelling about investing in US stocks, but that every other US investment opportunity is so poor that stocks look good in comparison. That's a recipe for either another stock market bubble, or the more likely path, divestment from US stocks into foreign equities (or at worst, cash holdings in foreign currencies). Foreigners don't buy many US stocks any more (they're pretty much sticking to government bonds nowadays), but even a moderate outflow of capital from the US due to a weak stock market could significantly inflate the US current account deficit even further and finally turn US net investment income negative. That would set us up nicely for a debt trap scenario.

Sure it's several steps away, but exposing the contradictions of capitalism is what the Globblog is all about.

It's not just Iraq where Kerry and Bush see eye to eye. Name just about any foreign policy issue, and it's difficult to tell the difference between these Bobbsey Twins.
There is a widespread public expectation in Europe � despite what U.S. polls show � that Bush will be ousted in November because of the troubled course of the Iraq war, analysts said.

But many European diplomats say they are coming to the conclusion that Bush and Kerry are close on key international issues and that there would be substantial continuity between the administrations.

Kerry, like Bush, insists that U.S. troops should not be tried before the International Criminal Court, the multinational tribunal that has been a contentious subject between Europe and the United States. The U.S. has not ratified creation of the court.

On another issue that divides the United States and Europe, Kerry has signaled that he would track the Bush administration on dealing with the Israeli-Palestinian conflict, although he has said he would more aggressively seek a solution.

One German newspaper, the conservative Frankfurter Allgemeine Sonntagszeitung, suggested Europeans were in for a rude awakening if Kerry becomes president. Under the headline "The Big Kerry Illusion," the newspaper said Kerry would diverge from Bush, but any hope that he would more fully embrace the "global village" was "wishful thinking that will get a cold shower."
If Kerry does win in November, he will ride into office on a razor with his only mandate being to not be George W. Bush (which hundreds of millions of other Americans can also fulfill). Not only will Europe get a rude awakening in January 2005 under this scenario; so, too, will John Kerry!

It's about time the American media began unmasking John Kerry's Iraq pipe dream.

Kerry in recent appearances and interviews has been intensifying his effort to spotlight what he sees as the Bush administration's mistakes in Iraq � especially the failure to broaden international involvement � as a fundamental difference between the two candidates. But Kerry's proposals depend on changing the minds of foreign leaders who do not want to defy their electorates by sending forces into what many consider to be a U.S.-made mess.

"I understand why John Kerry is making proposals of this kind, but there is a lack of realism in them," Menzies Campbell, a British lawmaker who is a spokesman on defense issues for the Liberal Democratic Party, said in a typical comment. . . .

The French and German governments have made clear that sending troops is out of the question. British officials have made no such categorical statement, but they have expressed concern that their troops are overstretched.

Although Japan has supplied a 550-member noncombat force as a symbol of its international commitment, analysts there see little chance the nation would agree to send more.

Russia's ambassador to the United Nations, Andrei Denisov, ruled out a commitment of troops. "We are not going to send anybody there, and that's all there is to say," Denisov said. . . .

Kerry has at times said he would particularly like to bring in troops from Arab countries. But diplomats, including those from Arab nations, say they consider the scenario unlikely. The Iraqi interim government has for months excluded the possibility of any peacekeeping troops coming from immediate neighbors, in part because the Iraqi people would be suspicious of neighbors' intentions.

The recent collapse of a Saudi proposal to bring in peacekeeping troops from other Arab and Muslim countries also indicates the long odds against the idea.
No France, no Germany, no more from Britain, no Japan, no Russia, no Arab countries. Who is left? More East Europeans? Central Americans?

I understand that it is the special job of a politician to speak all day long and never say anything. This 'Iraq plan' (which isn't a plan at all) is merely a place holder inserted into speeches whenever Kerry feels pressed to explain or is asked how his policies will differ from those of Bush; a long stretch of silence is rather uncomfortable and also violates the prime directive of every politician (see first sentence in this paragraph). Still, it is good to see somebody besides General Glut proclaim that re Iraq, this emperor-in-waiting has no clothes.

Friday, August 06, 2004

The Weekly Standard's Terry Eastland actually had something intelligent to say in today's Wall Street Journal.
Of late the Democrats have had problems trying to overcome their image as a secular party. Earlier this year the Kerry campaign hired as its religious outreach director Mara Vanderslice, who had worked in a similar capacity for Howard Dean. Mr. Dean's most striking comment on religion, you'll remember, came when he located Job in the New Testament. When the Catholic League (ever the watchdog) noted Ms. Vanderslice's left-wing activist past and said that she was more suited for a job with Fidel Castro, the campaign quarantined her from the press.

In Boston last week the Democratic National Convention showed some of its religious side by sponsoring a "People of Faith for Kerry" luncheon. (Up front sat both the still-employed Ms. Peterson and the on-ice Ms. Vanderslice.) "This is the first time in the history of the Democratic Party that we've made space and time to come together as people of faith," announced the Rev. Leah Doughtry, who is not only a minister but chief of staff for the DNC. . . .

One of the nation's most progressive political pastors, the Rev. Dr. James Forbes of the Riverside Church in Manhattan, who had spoken to the earlier luncheon, delivered the sermon. The service ended with a "statement of our vision" in which attendees committed themselves to public policies favoring "full employment," "a true livable wage," "universal access to prekindergarten and childcare programs" and a "progressive tax policy." Not exactly the Apostles Creed, but you have to remember that progressive, even prophetic, faith was astir.

Before the service, Mr. Forbes told me that it is necessary for the Kerry campaign to be more explicit about religion if the Democrats' vision for the country is "to be embraced by the electorate."

In his acceptance speech, John Kerry explicitly sounded a religion-friendly theme. "We welcome people of faith," he said. But which people of faith? Those well left of center, theologically and politically, for sure. Beyond that, doubtful.
This gives me the chance to repost one of the General's golden oldies from June 23.

Secular liberal Democrats who don't instinctively hate faith and religion -- Kevin Drum comes immediately to mind -- have been trumpeting the so-called "religious left" as the Democrats answer to Pat Robertson and James Dobson. As someone whose politics resembles that of old-fasioned blue collar Catholics, I've always been skeptical of the credentials as well as the power of such a group. So with the help of adherents.com I did a quick tally of the strength of the religious left and came away duly unimpressed.

Here is my list of the members of the religious left in the United States, together with a rough percentage figure for how many in the denomination can be classified as such, followed by the number of members of the religious left contributed by each denomination.

Reform Judaism -- 100% -- 1.5 million
United Church of Christ -- 100% -- 1.38 million
Unitarian Universalist Association -- 100% -- 0.22 million
Quakers/Friends -- 100% -- 0.1 million
Presbyterian Church USA -- 67% -- 2.4 million
Episcopal Church -- 67% -- 1.6 million
Evangelical Lutheran Church in America -- 50% -- 2.52 million
United Methodist Church -- 33% -- 2.75 million

TOTAL -- 12.47 million

This is an amazingly weak number when you consider there are over 16 million Southern Baptists in the United States. Note also that the core of the "religious left" -- the first four denominations listed -- totals a mere 3.2 million.

In a country as religious as America, you'd better pin your hopes on a lot more than the "religious left" if you want to get elected

Out of the mouths of babes . . .
In his latest gaffe, President George W Bush has appeared to suggest that his administration is forever thinking up ways of harming the US and its people.

"Our enemies are innovative and resourceful - and so are we," the US president told a high-level meeting of Pentagon officials.

"They never stop thinking about new ways to harm our country and our people - and neither do we."
This clip really should become the centerpiece of a new MoveOn.org commercial.

Floyd Norris can see a few trees, but he's still missing the forest.
When the July employment numbers are released today, the Bush administration will hail them as proof that the economy is doing well, and it will have a point [oops! --ed.]. But despite rapid job growth this year, many Americans continue to believe there is a job crisis.

Why is that? Some blame an overly negative press, but the real answer may be found by delving into the statistics. New numbers from the Labor Department show that the job downturn of 2001 and 2002 was surprisingly damaging to experienced workers, particularly older ones.

. . . by early 2004 - after anyone laid off in 2001 or 2002 had had more than a year to find work - many long-tenured workers who lost jobs in the downturn were still suffering. During 2001 and 2002, tenured workers were more likely to lose their jobs than in any downturn since 1981-82, when the unemployment rate hit 10.8 percent. And those who found new jobs took bigger pay cuts - an average of 18.7 percent - than in the past.

It used to be that even among experienced workers, the age group most likely to suffer in a downturn was workers who were 25 to 34 years old. It's never fun to lose a job, but the young are more likely to be resilient and less likely to have family responsibilities. Over all, young workers were still most likely to lose jobs in the last downturn. But among workers with at least three years on the job, the most vulnerable workers were those 55 to 64.

Of those experienced workers who lost their jobs in 2001-2, 36.1 percent stayed out of work so long that they exhausted their unemployment benefits. That number is much higher than in the 1990-91 downturn.

. . . the bad experience helps to explain current perceptions. The Conference Board asks people every month whether jobs are plentiful or hard to get. The jobless rate now is almost exactly where it was in the summer of 1996, when Bill Clinton was cruising to re-election, but the public's view of the job picture today is far more negative.

Those tenured workers who suffered in the downturn - and their friends - still feel the pain.
Yes, "experienced" -- i.e. older -- workers have really taken it on the chin in this recovery/recession; point well taken. Yet recall that since the Jobs Elimination Express came to a halt in August 2003, the US economy has only added 273,000 jobs above what is necessary to simply keep up with population growth. And not only that, all the 'extra' growth came in a short hiring burst over just three months this spring (March-May). When it comes to jobs, this economy sucks. When it comes to good jobs, this economy wicked sucks.

We all know that George W. likes the household survey better than the employer survey when measuring employment, because the former shows many more jobs than the latter. According to the household survey, in fact, there are 1.87 million more jobs now than in January 2001.

Let's look more carefully. This is how the household survey (aka the Current Population Survey) defines "employment".
Persons 16 years and over in the civilian noninstitutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees, worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family, and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs.
Note the fine print. If I have a "home business" grooming dogs for 10 hours a week, I am "employed" as far as the CPS is concerned. If I temped one day last week, I am "employed". If I stuffed envelopes for my father's company for 1 hour last week (my stay-at-home wife has done this a few times and been paid for it), I am "employed".

Glad to see the 'informal economy' is booming under President Bush!

Dude, where are my 5.6 million jobs?

You've already heard the numbers, and they're bleaker than bleak. While analysts were expecting the economy to add anywhere from 215,000 to 247,000 jobs in July, the actual number was a meager 32,000. Revisions to recent monthly data were all reduced as well. Profits up, wages and salaries down. Profits up, wages and salaries down. Say it a thousand times until it sinks in.
U.S. employers added a paltry 32,000 workers to payrolls last month, the government said on Friday in a report that was far weaker than expected and unwelcome news for an election-bound President Bush.

The Labor Department also cut its tally of job growth in May and June by a combined 61,000, adding to the report's weak tenor. . . .

"It's a huge disappointment, a big surprise," said Scott Brown, chief economist at Raymond James in St. Petersburg, Fla. "It implies a very sharp revision to the overall outlook for the economy."
From the recent high of February 2001, the US economy under Bush has lost over 1.8 million private sector jobs. Government employment has shot up by 700,000 jobs, but one assumes Bush isn't about the trumpet that achievement. Paul Krugman says the US needs to add around 110,000 jobs per month simply to keep up with population growth. From the time the jobs destruction trend bottomed out in August 2003, the US needed 1.2 million new jobs just to stay in place; the economy added 1.5 million, just enough to keep one's head above water. Of course, since March 2001 the US economy needed 4.4 million jobs to keep pace with population growth; the economy lost 1.2 million -- a 5.6 million job shortfall.

Thursday, August 05, 2004

Here are two interesting NIMBY stories the General ran across today.

First, in case you live under a rock, NIMBY stands for "not in my backyard". It captures the political attitude that desired yet dangerous or simply unpleasant projects be built (they are desirable, after all), but simply not anywhere near me. Refracted through the lens of globalization, we all want the goodies that global trade can bring to us, but we don't want all that unpleasant infrastructure in our backyard that can interrupt our enjoyment of said goodies.

Cases in point. First, the American Petroleum Institute reported last week that
. . . . more than 90 percent of the gasoline we use is refined in this country. . . . domestic refining capacity utilization is running at record highs -- 97 percent. . . . no new major refinery has been built in the United States since 1976
Looks like the US will be looking to import more gasoline since we can't/won't refine it at home. Best to make somebody else live next to those nasty refineries, anyway -- better yet if they live in some other country and can't bitch and moan to Congress.

Second, Chicago's O'Hare airport is slowing down the entire nation's air traffic system because it is overcrowded.
O'Hare, which handles both cargo and passenger traffic, has more takeoffs and landings each year than any other airport in the world.

On an average weekday this summer, just under 3,000 planes are taking off and landing at O'Hare. During the first six months of this year, there were 490,987 flights arriving and departing the airport.

About two-thirds of arrivals are on-time this year, compared with the 82 percent systemwide goal the FAA sets.

"If it weren't for O'Hare, we'd be making that goal," Blakey said.

Flights departing behind schedule from Chicago will be late everywhere else they fly that day. Seven in 10 passengers flying to O'Hare connect to other flights.
Flying around the country and the world is great -- so long as I don't have to live anywhere near the airport. If those poor bastards who live near O'Hare won't allow the thing to expand, gosh, I just don't know what else to do!

Putin is playing hardball with YUKOS, and there is no reason to believe he will fail to drive the corporation not only into bankruptcy but into liquidation.
Oil reached another record high at midday Thursday as traders priced in potential supply disruptions on news Russian oil giant Yukos can't use its bank accounts to keep production flowing.

U.S. light crude was trading erratically on the New York Mercantile Exchange, hitting $44.50 a barrel before easing back a bit to $44.35, still a gain of $1.52. Brent crude trading in London also hit a record high of $41.15, a rise of $1.45.

The record prices came after Russia's Justice Ministry revoked permission for troubled oil company Yukos to use its bank accounts to finance daily operations and pay transport fees to ensure oil exports.

Russia's Justice Ministry said on Thursday that permission granted by one bailiff, sent to Yukos only on Wednesday and made public by the oil firm, was illegal and therefore withdrawn. The company has been battling bankruptcy, with tax debts of $3.4 billion.

"All financial means entering the company's accounts, now and in future, will be seized by the bailiffs' service and transferred to the budget to pay the tax debt," the ministry said in a statement.
Ultimately, nationalization of YUKOS is probably on the menu. To get there, the company's entire production and transportation apparatus will have to be shut down. Last month the Washington Post reported the following death-rattle scenario for YUKOS:
. . . the first impact would be felt at the end of next week [i.e. August 7], when Yukos will no longer be able to pay for rail shipments of oil to China. With no rail service available, the company will be able to continue pumping here for a maximum of three days, until its storage facilities are full. That would effectively shut down about half of the production by the company's Tomskneft subsidiary here in the western Siberian region of Tomsk and about 25 percent of the company's overall production of 1.7 million barrels a day.

By the end of the second week in August [i.e. August 14], the company would no longer have money to pay for pipeline shipments, either, Theede said. At that point, the rest of production would begin shutting down.
The first step has already taken place; the Russian government has forbidden YUKOS from financing rail shipments out of its bank accounts.

Recall that YUKOS alone produces 2% of global crude oil. Is $50/barrel now imaginable??