Enjoy!

Here’s the deal; weakening economic data has been unrelentingly pitched at us this week. Few have hit the mark, while many have dealt body blows. And some have just been a slap to the face. So let’s leave these misses, and hit some snacks:  

–How much oil from the spill is still in the Gulf?

–Natural gas futures premium is at its lowest in seven years. 

–Nasty people have a higher risk of heart attacks and strokes.

–Do cities attract hurricanes?

–Renewables increased 8.3% last year in Europe, coal consumption down 16.3%.

–Flow diagram of US energy use.

–Top ten most tattooed cities in the US.

–Factbox about biofuels in Brazil.

–30 new coal-fired plants have been built in the US since 2008.

–Grannies knit smart car cosy.

–New microbe discovered eating oil spill in Gulf (h/t LB/NG).

–11 Green inventions that go too far.

–Fat-fingered Sumo Wrestlers unable to use cell phones.  

–Europe’s brisk energy transition.

–Great piece from the Economist on the outlooks for China and India.

–Chinese traffic jam has lasted nearly 2 weeks, spans 100km – and spurs price gouging.

The Burrito Deluxe Award of the week goes to the heating oil crack spread. This has rallied to a two-month high at $11.50, as higher future prices and Latin American demand has encouraged US refiners to increase output. (The crack spread = the profitability of turning a barrel of oil into heating oil. Calculation = the price of 42 gallons of heating oil minus the price of one barrel of oil).

The Burnt Burrito Award of the week goes to US natural gas, which has made a prompt month low for the year.

Burrito Headline of the Week: Police catch man in bush with socks on his hands.

I hate to go all naysayer-doomsayer-debbie downer on you, but this cannot be good. The Burrito Worry of the Week goes to the housing market. There is now 12.5 months of supply on the market. Even if  you think the economy is not double-dipping, you have to be delusional to think that the housing market isn’t. There were 11 million properties in negative equity in Q2 this year, not one house sold for above $750k across the entire US last month, and existing home sales hit their lowest level since 1996. All rather foreboding for the economic picture.

And finally! Last week’s caption competition was won by Kevin. A giftcard will be winging its way to you – have a burrito on the burrito!  Thanks to all for playing – Ginny, you are nuts.

Have a grandiose weekend!

No need to blame Canada this time, Mr Cartman.

I have a certain affinity with ‘our friends to the North’. Whether it is because I spent eight years working at a Canadian bank, or because one of my favorite people in the world is Canadian (economist Dave Rosenberg, aka Batman – my favorite superhero), or because they produce such great bands as Arcade Fire. I just think they are kinda cool. But to bring this back to our commodity chopping board, here are three random illustrations of their greatness.      

First up, a litmus test to show how they have fared during the ‘great recession’. As we giddily totter ever closer to the edge of double-dipdom, the Canadian employment situation underlines how stoic they have been in the face of adversity. Since the beginning of 2008, Canada has added 173,000 jobs. This is relevant because the US has lost in excess of 7.5 million over the same period. Obviously, the economies of scale are different, but to show positive job growth through the worst recession in nearly a century is rather impressive to say the least:  

Next, we board the good ship natty, to take a look at how much Canada exports to its friends to the South. As the chart below illustrates, although levels have currently dipped below the five-year range, Canada is still the most significant supplier of natural gas to the US (at approximately 11% of total supply). Canada sends half of its total natural gas production in the direction of the US, and this volume blows total global LNG imports out of the water; they are six times as small, and only expected to add 0.5 Tcf to US supply this year:         

Canadian Imports of Natural Gas (source: Bentek)

And finally, we tip our hats to the consistently largest exporter of crude oil to the US: Saudi Arabia Canada. They also have the second largest oil reserves in the world (178 billion barrels, second only to Saudi Arabia), and ultimately supply one in every six barrels consumed in the US:     

Exporters of Crude Oil to the US - May 2010 (000's barrels) - (source:EIA)

So these three quick examples serve to show the impressiveness, the importance, and the relevance of our Canadian counterparts. And we didn’t even need to mention Keanu Reeves, Jim Carrey, or Pamela Anderson. And it is for the above reasons we should be grateful that our friends to the North are both our friends, and to the North. And for that, I raise my glass of Moose Milk to you….cheers.

However, now that skepticism is growing that we may double dip (go to Google insights here to see its growing popularity), I find the contrarian in me wanting to look out in the great wide open to find some indicators that illustrate a positive picture. And trust me, it’s not that easy to do. However, here is what you can find if you direct your feet…to the sunny side of the street.

First up, a key barometer of economic activity: manufacturing. After a synchronized swan dive by the manufacturing sector across the world in 2008, activity has rebounded just as stomach-wrenchingly swiftly, like a sudden bout of turbulence. The chart below shows Purchasing Managers Indices for the manufacturing sector across time for major economic regions. It illustrates that manufacturing (the lion’s share of industrial production) across the globe has shown expansion for at least ten consecutive months ( a reading above 50 on the PMI indicates expanding economic activity). And although recent months have shown a slowing across the sector, we remain in positive terrain:

This next data point involves Warren Buffett’s favorite indicator - US weekly rail traffic. The Sage of Omaha follows this with fervor, as railcars are considered the lifeblood of the American economy, shipping goods across the country. The data illustrate that although rail traffic may not be showing stellar improvement (while also being well below pre-recessionary levels), it shows a steady pace of improvement year-over-year, a trend that a number of other economic indicators are illustrating:

We go no less random as we head to our final indicator – the US savings rate. The below chart illustrates how savings rates have bottomed out in the US in the last five years, as the over-leveraged US consumer has realized (or been forced to realize through tighter credit constraints) the need to borrow less and save more. But this rise in the savings rate is not necessarily a cause for concern - China’s savings rate of 38% certainly indicates an economy can grow rapidly even while saving significantly. So while a higher savings rate may mean somewhat less consumer spending, it also provides the fuel for investments in new productive assets in our economy, the ultimate long-term source of growth:

So there we have it; some reasons to be cheerful, 1-2-3. Sometimes it is easy to get swept along in a sea change of market sentiment, and it is good to look at the opposing view, regardless of if you buy into it or not. But if this has left you feeling rather fretful, just remember you can always put on some Satchmo, kick back, relax, and be swept away elsewhere.

This phrase has resonated with me recently, as financial markets continue to tread water and trade sideways, as the outlook for the global economy remains somewhat mottled. We have had our recession, and we have experienced some semblance of a recovery. But now we are at a fork in the road; from hereon out we may experience a double-dip in the global economy (top of the pops on google search), we may see economic growth gather pace, or we may see the global economy stall and stumble along a path inbetwixt a recovery and a recession.

So it is no surprise given this backdrop that we see sideways action in our dearly beloved commodities. After crude pre-empted a global recovery last year by more than doubling between January and June, prices have traded within a broad range ever since, as prices await the next signal that global oil demand will continue to increase by virtue of a clearly strengthening global economy – both in developing and developed countries:

US natural gas prompt prices have followed a similar sideways pattern, despite having a different set of influences at work. Being both a domestic market, and a radically-changing one at that, prices have remained subdued yet supported as market participants await further clarity on future supply from game-changing sources (i.e., unconventional supplies) and technology. All the while, prices look for further improvement in future demand by virtue of improving economic growth: 

 So, in this current state of flux, the best thing we can do (as well as being in constant dialogue with an energy consultant, of course) is to keep our heads, and wait for the dust to settle, realizing that commodity prices can turn on their heads at any time. Yet all the while, remembering the mantra…to keep calm and carry on.