Chris Mayer explains the sudden spike of a very important global index
Yet another jobs disappointment… The 5 dives into the dirty details of the latest BLS report
I.O.U.S.A. isn’t alone… China, Canada stung by unemployment today
With layoffs, a sea change: Women now have equal share of U.S. jobs… at least
Byron King explains contango, and what it means for future oil prices
Plus, angry mob in The 5’s inbox… why are we defending Wall Street salaries?
Since we’re in the mood, here’s another little bit of good news. After a horrific crash, the Baltic Dry Index has suddenly perked up :
As the most popular indicator of global shipping activity, the BDI’s sudden surge has some folks thinking perhaps global trade isn’t dead after all.
"I don’t want to make too much of the BDI change," says Chris Mayer who has been tracking the index through thick and thin, "because while it is a sharp move up, it is also over a very short period of time. Could just be that things overshot a bit on the downside during the panic. The BDI has a history of sharp moves and wild swings.
"But there are also other factors at work. I think the bounce is due to steel prices bouncing back a little bit and reported lower stockpiles in China, which means they’ll have to ship more iron ore in. It’s still all about demand in China.”
Mayer suggests the way to play the BDI is to look at shipping companies. "I prefer the tanker companies,” he says, “particularly those with young fleets, good balance sheets and a decent percentage of their ships on long-term charters, which means they’re protecting cash flow." (If you’re interested in learning more, see Capital & Crisis .)
In the mainstream news today, more pouting: This morning, the Bureau of Labor Statistics announced 598,000 lost jobs in January — the biggest monthly decline since 1974. That number ousted November 2008’s losses by 1,000 jobs, give or take a healthy revision or two.
Since the “official” start of this recession in December 2007, the U.S. economy has now lost jobs 13 months in a row, for a whopping loss of 3.6 million jobs. Nearly half of those have come in the last three months.
The government gauge of unemployment is now 7.6% — its highest since 1992. Where to from here?
Well, if we consider yesterday’s jobless claims number, and we can already guess February will be a jobs bummer, too. Total initial claims for unemployment reached their highest since 1982 at 626,000.
Throw in “continuing claims” and unemployment reached the highest since the government started keeping track in 1967. The breadline now exceeds 4.7 million people.
Still, as bad as the employment scene appears, the U.S. has nothin’ on China. Its urban unemployment rate it 9.6%, according to the Chinese Academy of Social Sciences. The nationwide jobless rate is likely around 25%. This week, the unemployment scene will get even worse, as a population of migrant workers exceeding 130 million will return to work after the Chinese New Year holiday. 20 million of them, Beijing officials suggest, won’t have a job waiting for them upon their return.
We wonder how long until the masses of jobless march on Beijing? When will the people demand that the government use those hundreds of billions of dollar’s worth of U.S. Treasuries to help China, instead of to prop up the American economy?
Our friendly neighbors to the north felt the sting of job losses this morning too. The Canadian government reported 129,000 lost jobs in January, the worst monthly number in over 30 years. Unemployment jumped over half a percentage point there, to 7.2%.
Neither are things going all that well in euroland today either. Germany’s biggest lender, Deutsche Bank, announced its first annual loss since the end of World War II. The bank lost about $5 billion for all of 2008.
For the first time ever, women have likely overtaken men as the most employed gender in the U.S. According to The New York Times this morning, men account for a staggering 82% of credit crisis layoffs. As such, the share of the work force in the U.S. is nearing 50/50.
Turns out women favor more stable (dare we say, useful) jobs in more stable sectors, like health care and education. There are all kinds of explanations… some say such jobs are more akin to raising children and domesticity, others say they are the result of decades of sexism in the work force and so on and so forth.
Our takeaway: The free market rules. Just days after Barack Obama signed his first presidential bill — one that forces gender equally in the workplace — the free market already appears to be handling the problem just fine.
But despite the evidence above that the market can care for itself, the rhetoric in Washington has attained a new height.
“The time for talk is over. The time for action is now,” insists President Obama, slamming the table for the stimulus bill to be passed right away.
Unless Congress passes his bill pronto, "This recession might linger for years,” he threatened. “Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."
And Obama uttered this yesterday, before the barrage of bad jobs news this morning. We can only imagine the populist pomp we’re in for today.
“This economy needs support from the government,” adds bond legend Bill Gross, “a check from the government in the trillions. There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.
“Pimco’s advice to policymakers is as follows: You can’t bail out everyone, yet economic recovery is not possible unless certain critical asset sectors are not only reliquefied, but rejuvenated in price. The prior administration’s focus on the banks has been critical, but one-dimensional. The shadow banking system with its leverage and financial innovation powered a nearly 25-year global economic expansion, but it is the delevering of those hidden quasibanks that is now threatening its petrifaction.
“Policymakers should not focus entirely on one-off bailouts of large real estate developers, municipalities or even credit card issuers, as they have with Citi, BofA and AIG. Rather, they should recognize that supporting critical asset prices such as municipal bonds, CMBSes and even investment-grade corporate bonds is a necessary step toward eventual economic revival.”
We hasten to add Gross’ funds would profit enormously from such price “rejuvenation.” The gentleman was merely “talking his book.”
The rhetoric in advance of the jobs number helps explain the market’s bizarre reaction. Within seconds of the BLS release, Dow futures leapt nearly 1%. Washington, at least the traders think, will now be forced to throw the kitchen sink… and the bathtub… into the bailout plan. They also think they’ll be the ones to benefit most.
Commodity traders are singing a similar song. Not long after the jobs number, steel and copper prices popped considerably. More fear will likely push more spending into the stimulus bill. More spending means more infrastructure projects, which means more raw materials… hence, the sudden jump.
Gold might be the only commodity lying low today. An ounce goes for just under $915, right around yesterday’s levels.
But in the oil patch, things are getting… weird.
“The oil market has gone into something called ‘contango,’” explains Byron King. “This is a condition in which the present price of crude is less than contract prices for future delivery of oil. It motivates energy market players to stockpile, which helps explain the 80 million barrels of oil currently just floating around in tankers on the world’s oceans.
“Here’s how it works. Let’s say that someone purchased oil this week at $41 per barrel. But that same barrel could immediately be sold via a forward contract for September delivery at a price of almost $53 per barrel. That’s a gross profit of about $12 per barrel, before storage costs.
“Now let’s say that you have to charter a large tanker to store the oil. That’ll set you back about $75,000 per day for a vessel that holds 2 million barrels. Do some math. $75,000 per day to store 2 million barrels? That’s 3.75 cents per day per barrel to store oil, or about $1 per month per barrel. In other words, you could store oil at sea for six months and still have a profit of about $6 per barrel. No wonder the tankers are parked offshore.
“So when the contango price gap narrows or closes, the profit in storing oil will disappear. That’s why I think we are enjoying relatively low oil prices for now, and why we will see prices drift upward as 2009 wears on.
“Let me caution you, however, that oil pricing will exhibit a vicious cycle for the next several months and probably into the spring and summer. As oil prices rise, operators will release their stored crude into the market. This will drive the price of oil back down again. In the process, these oil price swings are playing havoc with the world energy industry. Prices are too unstable. There’s some long-term development ongoing, but not enough overall. It’s going to come back and bite us in about 18-24 months, at the latest.”
“You guys totally crack me up,” says a reader, facetiously referring to yesterday’s issue , “opining that the ‘top talent’ of the busted mega banks will take their brainpower elsewhere where their paychecks aren’t capped. Now, why would a bank that didn’t need TARP money hire one of those jokers at these absurd levels of compensation? And using the term ‘top talent’ would imply that it takes some special skill to drive a healthy bank in into nothingness. Come on.”
“Will the banks really suffer a ‘brain drain,’” asks another, “due to the limit on executive pay of ‘only’ $500,000 a year? Or will they ‘suffer’ a badly needed greed and recklessness drain, and be forced to settle with hiring dull boring people that don’t try to leverage toxic ‘assets’ at 40-to-1?”
“You seem to be critical of the limits that the administration feels should be put on the TARP funds,” writes a third. “I say, if they don’t like it, let them leave. The companies have let go of tens of thousands of the people who made the systems work, so there are plenty of experienced bodies to replace anyone who feels that they simply can’t stomach working for a mere half million a year — plus stock options.
“I for one think that there should be a bunch of firings and criminal prosecutions. What these investment bankers have done to the U.S. is greater than what external terrorists have done. If there aren’t sufficient laws on the books to prosecute them, let’s Gitmo them — just take them out of play for five or six years, while somebody fixes the mess they created.
“That assumes that somebody can ‘fix’ the mess that has been created. I don’t think that the old guard knows how to fix it. They got us into it, and now are crying (convincingly) to keep their lifestyle. Do they have no shame? I say strip out the perks; limit cash payments severely; let the payments to individuals (both employees and consultants) be based on recovery, and even then limited.
“What is happening is not business, nor capitalism. It smacks of a protection racket… ‘If you (taxpayers) don’t give us (big financial institutions) lots of money, you (taxpayers) might just get hurt.’”
The 5: With all due respect, you’re looking at this so ass-backward you’re only confusing the issues. We weren’t necessarily referring to existing managers leaving their current firms…. although you can bet they’ll try to weasel their way out any way they can. We’re referring to potential new talent coming into the market. Given the choice, smart new prospects aren’t going to be choosing TARP-tainted firms. So… to cut to the chase… why try to keep those firms alive?
If TARP funds hadn’t been distributed to banks, the bad managers wouldn’t be eligible for any bonuses because performance would have driven compensation. The “banks” that were managed by executives who made bad decisions would have been left to die the deaths they deserve. And those managers who screwed up would have to shop their wares at healthy institutions, and would have received compensation packages commensurate with past performance. Not pretty… but fairly efficient.
No better way to punish those guys, if that’s really your goal, than a bankrupt institution and a long and difficult job hunt. (Unless, of course, you really do want to Gitmo their asses!)
Instead, with the bailout — and restrictions — you’re arguing for, they’re virtually guaranteed the $500,000, a year, plus stock options, you’re begrudging them.
The real problem is Obama’s statements are so general — like his campaign promise of “Change” — they merely enflame the passions of the mob. They do little in the way of solving the crisis. And as we were trying to illustrate yesterday, the plan as it’s unfolding will simply prolong the inevitable by keeping bad firms alive with vestigial management structures and punishing those firms that made good decisions by propping up foul competitors. And on top of all that… the plan rewards the very managers you’re mad at with guaranteed jobs and decent, if not lavish, compensation packages.
But hey, at least the former community organizer looks and sounds like he’s “doing something,” right?
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