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Posts Tagged ‘unemployment’

4 Jan 5 2011 @ 10:50pm by Matt Smith in Capital Markets, Crude Oil, Economy, Natural Gas, risk management

Hare or the Dog? Commodities in the Year of the Rabbit

Happy 2011! I hope this finds you in fine fettle. I would like to kick off 2011 by highlighting some themes (splatter gun style) which I expect to be an undercurrent in this year’s voyage through the rough seas that is commodityworld™. I nearly managed to avoid making any predictions this year (after last year’s farcical forecasts – $100 oil, rising nat gas prices, Susan Boyle dating, etc..) until Tom Fowler from Fuelfix asked me for some (here), so I figured I would expand on a couple of them – not because they are revelationary, but because they are worth keeping an eye on.   » read more

0 Nov 11 2010 @ 10:10am by Matt Smith in Capital Markets, Crude Oil, Economy

Between The Devil And The Deep Blue Sea

Cab Calloway originally recorded the song ‘The Devil and the Deep Blue Sea’, which is an apt analogy to where I feel we are at the moment. The devil – i.e. the exuberant rallies we are seeing – appear a rite of passage, while the monkey on my shoulder is tugging my ear and telling me we should be sinking. So here’s two compelling and contrasting illustrations of both cases, which lead me to conclude little else than Cab Calloway is great. » read more

0 Aug 26 2010 @ 10:24am by Matt Smith in Capital Markets, Crude Oil, Economy, Natural Gas

Canada, go, Canada

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.

1 May 27 2010 @ 9:07am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, risk management

Doorbells and Sleigh Bells and Schnitzel with Noodles

Here are a few of my favorite things. I’m going to go a little left field of nerdy on you here, so I apologize in advance. Here are three pictures that paint three thousand words, which help me keep a grasp on what is going on. Actually, they are just three cool things. So here we go, first up, everything:

I know I always bang the drum about this, but it is essential to keep a handle on what is going on across asset classes, as they can help you to understand short-term movements in your own asset, whatever that may be. Above (courtesy of Econompic) is the performance of a smorgasbord of assets for the month to date (through the medium of ETFs). This illustrates how the best performing asset has been Treasuries (= US government debt = flight to safety), while the worst performer has been our poor old buddy, Texas tea. 

Next up is one of my favorite indicators. And I don’t love this indicator for its accuracy (it has an awful track record of revisions), I just love the pure havoc that it wreaks on the first Friday of every month.  So without further introduction, I present to you Nonfarm Payrolls: 

Don’t get me wrong, US unemployment data is an essential barometer of the economy (…but just viewed over a longer time-frame); it’s the hubris and brouhaha it causes that I love. As for the actual data, the chart above shows how in 2008 and 2009 we saw 8.4 million jobs lost (that’s all the down bars on the right-hand side). Although we are seeing improvement across much of the economic landscape, we need to see sustained and improving job creation (extending from the circled area) to spur on consumer spending to spur on a housing recovery to spur on a sustainable recovery.

Finally, if I was stranded on a desert island and could only access one datapoint which to gauge the US economy by, it would be this (I make that comment knowing full well if I were stranded on a desert island I would be much more interested in hunting for coconuts); the Conference Board Coincident / Lagging Ratio, which measures the strength of the business cycle:

A rising Coincident/Lagging ratio (= indicates improvement as current conditions beat yesterday’s) is an historically proven positive indicator. However, should this indicator wobble and turn lower (…it’s awobbling), that would be bearish indeed.

That’s all folks; thanks for viewing my favorite things – feel free to take them with you as you leave…and remember, they will help if a dog bites or if a bee stings. (err, maybe..).

1 Mar 31 2010 @ 10:50am by Matt Smith in Capital Markets, Crude Oil, Economy, Natural Gas

Revisiting Old Friends.

As we reach the end of an eventful first quarter, it seems an appropriate time to reflect and review some of the charts we have looked at on our journey through energy burritoville since its inception last fall. So let’s jump straight to exhibit one. We looked at the oil/gas ratio back in mid-December, when crude was at $73, natty at $5.50. This put the ratio at around 13, while the near-term mean (= 200-day moving average) was above 15. We highlighted at the time that the ratio should rise, as natural gas was at an eleven-month high, while crude was at a two-month low:

Oil/Gas ratio - 12/16/09

Fast forward three-and-a-half months, and the ratio continues to elude its near-term mean, but this time to the other extreme. As the natural gas prompt month is at a six-month low (<$4), crude is testing near-three-month highs ($83). The ratio has blown out to the upside, and is now above 21 (versus the 200-day moving average of 16). The ratio may narrow over the coming quarter, as crude lets some pressure out of its tires, while natural gas could find some near-term support after a post-winter drubbing (or at least see limited downside):  

Oil/Gas ratio - 3/30/10

The second old buddy is the VIX. Again back in mid-December, we took a look at the VIX index – which was at a depressed level (the VIX measures volatility on options on the S&P500 equity index), indicating a low level of worry for a downside move in equities. What has happened in the last quarter or so? The S&P500 has moved from a fourteen-month high to an eighteen-month high. Risk-taking has continued, while fear has faded like a pair of old Levis. In summary, much of the same. But just like a stopped clock tells the right time twice a day, I still call for a significant correction in equity markets, which will in turn cause volatility to spike once more. These two shall cross swords:

Last, but by no means least, our final familiar friend is the underemployment rate. This measures those people who are unemployed, those who are working in a part-time job (but wish they had a full-time job), and those who are so discouraged that they have stopped looking. When we took a look at this rate last fall, it was at 17.8%, while unemployment was at 9.8%. Currently the underemployment rate has retreated to 16.8%, while unemployment is now back to 9.7%. Friday sees the March nonfarm payrolls released, which should show the first significant increase in jobs in well over two years. That said, this number (and the coming months) will be distorted by temporary Census workers, while February’s inclement weather (which dampened labor growth) will probably skew March’s number higher. The main takeaway here is that although the next few months may paint an improving employment picture, do not be lulled into into a false sense of security; we are not out of the woods yet: