Blog

Week of June 2, 2008

Sunday, June 8, 2008, 6:56 AM
06/02/2008

June 8

The U.S. Has No Remaining Grain Reserves (June 6 - Tri State Observer)

WASHINGTON - Larry Matlack, President of the
American Agriculture Movement (AAM), has raised concerns over the issue
of U.S. grain reserves after it was announced that the sale of 18.37
million bushels of wheat from USDA’s Commodity Credit Corporation (CCC)
Bill Emerson Humanitarian Trust.

“According to the May 1,
2008 CCC inventory report there are o­nly 24.1 million bushels of wheat
in inventory, so after this sale there will be o­nly 2.7 million
bushels of wheat left the entire CCC inventory,” warned Matlack. “Our
concern is not that we are using the remainder of our strategic grain
reserves for humanitarian relief. AAM fully supports the action and all
humanitarian food relief. Our concern is that the U.S. has nothing else
in our emergency food pantry. There is no cheese, no butter, no dry
milk powder, no grains or anything else left in reserve. The o­nly
thing left in the entire CCC inventory will be 2.7 million bushels of
wheat which is about enough wheat to make ½ of a loaf of bread for each
of the 300 million people in America.”

Oil Prices Raise Cost of Making Range of Goods (June 8 - NYT)

Surging oil prices are beginning to cut into the
profits of a wide range of American businesses, pushing many to raise
prices and maneuver aggressively to offset the rising cost of
merchandise made from petroleum.

Airlines, package shippers
and car owners are no longer the only ones being squeezed by the
ever-mounting price of oil, which shot up almost $11 a barrel on Friday
alone, to $138.54, a record.

Companies that make hard goods
using raw materials derived from oil, like tires, toiletries, plastic
packaging and computer screens, are watching their costs skyrocket, and
they find themselves forced into unpleasant choices: Should they raise
prices, shift to less costly procedures, cut workers, or all three?

Diesel thieves wreak havoc on California farmers (June 7 - CNN)

BAKERSFIELD, California (CNN) -- Standing in a
field of organic tomatoes, farmer Pete Belluomini says the
ground-cracking drought and unrelenting insects make it difficult
enough to make a living on the land.

But they are the least of his concern these days as a new menace haunts farmers in Bakersfield, California: diesel thieves.

About 1 in 11 Mortgageholders Face Loan Problems (June 6 - NYT)

About 1 in 11 American mortgages were past due or
in foreclosure at the end of March, according to a report released on
Thursday, a figure that is rising fast as home prices fall and the job
market weakens.

The first three months of 2008 marked the
worst quarter for American homeowners in nearly three decades,
according to the report, issued by the Mortgage Bankers Association.
The rate of new foreclosures and past-due payments surged to their
highest level since 1979, when the group first started collecting the
data.

All told, about 8.8 percent of home loans were past due
or in foreclosure, or about 4.8 million loans. That is up from 7.9
percent at the end of December. (About a third of American homeowners
do not have mortgages.)

Record numbers using food stamps in Ohio, Michigan (June 6 - WSWS.org)

Nationally, the number of people using food stamps
is due to reach 28 million by next year, tying a record for the program
set in 1994. As one might expect, the number of people using food
stamps in economically devastated Michigan and Ohio is particularly
high; more than 1.25 million—a record number—of Michigan residents now
receive food assistance, while the 1.1 million Ohio residents using
food stamps represent a doubling of the number since 2001. The latter
figure does not include the estimated 500,000 people who are eligible
for food stamps but have not signed up.

High cost and demand for fertilizer scares farmers (June 4 - AP)

DAYTON, Ohio (AP) — Corn stalks normally dominate
the fields of farmer Lyle McKanna. But this summer, leafy green soybean
plants will swallow up more acreage than ever.

McKanna, who
farms 800 acres near Lima, has replaced more than one-fourth of his
corn crop with soybeans, which require far less fertilizer.

In part because of a global surge in demand, the price of fertilizer
has skyrocketed 228 percent since 2000, forcing U.S. farmers to switch
crops, cut back on fertilizer or search for manure as a substitute.

Wholesalers and retailers are scrambling to find and buy fertilizer and
juggle what supplies they have to meet customers' needs. Between 2001
and 2006, global demand jumped 14 percent, an amount equivalent to the
entire U.S. market, according to The Fertilizer Institute, a Washington
D.C.-based trade group.

"We're trying to get as much as we
can and get it into storage," said Joe Dillier, plant, food, markets
manager for The GROWMARK System, a farm cooperative based in
Bloomington, Ill. "It's hard to buy as much as you want forward because
everyone sees that this price is going to continue to go up."

The price increase means the cost of fertilizing an acre of average-yield U.S. corn rose from about $30 to $160.


June 7

Oil Prices Take a Nerve-Rattling Jump Past $138 (June 7 – NYT)

The rise in oil prices turned into a stampede on
Friday with futures jumping a staggering $11 a barrel to set a record
above $138 a barrel. The unprecedented surge came as the dollar fell
sharply against the euro and a senior Israeli politician once again
raised the possibility of an attack against Iran.


Job Losses and Surge in Oil Spread Gloom on Economy (June 7 – NYT)

The unemployment rate surged to 5.5 percent in May
from 5 percent — the sharpest monthly spike in 22 years — as the
economy lost 49,000 jobs, registering a fifth consecutive month of
decline, the Labor Department reported Friday.

The weak jobs
report, coupled with a staggering rise in the price of oil — up a
record $10.75 a barrel to more than $138 — unleashed a feverish
sell-off on Wall Street, sending the Dow Jones industrial average down
nearly 400 points. The dollar plunged against several major currencies.


Companies at risk of downgrade hits record: S&P (June 6 – Reuters LONDON)

The number of companies around the world at risk of
getting a credit downgrade climbed to a record in May amid the global
credit squeeze, ratings agency Standard & Poor's said on Friday.

The number of entities at risk of downgrade rose to 738 in May, 25 more than in April, S&P said.

"A
material slowdown in housing and consumer-related activity and
protracted tightening of lending conditions have continued to dampen
credit fundamentals," S&P said.


Banks Say Auction-Rate Investors Can't Have Money (June 6 – Bloomberg)

Franklin Biddar wants his money, and says Bank of America Corp. won't let him have it.

The 65-year-old real estate investor from Toms River, New Jersey, said
he hasn't had access to cash the bank invested for him in auction-rate
preferred shares ever since the market seized up in mid-February. Even
when Biddar agreed to sell $100,000 worth of the securities to
Fieldstone Capital Group, Charlotte, North Carolina-based Bank of
America wouldn't release the bonds, saying the transaction wasn't in
his interest, he said.

"I can't do anything," said Biddar,
who was so eager to unlock his money that he was willing to accept 11
percent less than what he paid for the securities. "Bank of America got
me into these securities that are supposed to be as safe as a money
market, and now they won't get me out."

"By allowing
customers to sell at a discount, the banks allow customers to establish
damages," said Bryan Lantagne, the securities division director for
Massachusetts Secretary of State William Galvin.

Lantagne is
head of a task force for nine states looking at whether brokers
misrepresented the debt as an alternative to money-market investments.


2008 – Post Peak Living

Like all finite resources, oil production will
reach a peak and then decline. Disagreements are primarily about when
the peak will be reached, how severe the decline will be and whether we
can leave oil before it leaves us. Unfortunately, in each case, the
news is not good.


A doomer's garden (June 3 – Energy Bulletin)

Now that oil is up over $130 a barrel and the
subprime debacle is making everyone think that there may just be a Big
Problem in the future, I would like to reopen the discussion on the
menu du jour, post-Peak. Tractor trailers may not be able to bring in
our Krispie Flakes and California oranges, and we may have to "make
other arrangements," as James Howard Kunstler often says, to feed
ourselves. I am worried with the frequency that I see “gardens” as a
solution to a breakdown in the food supply, and I would like to
disabuse the peaknik crowd of this dangerous illusion.

"If
there’s a problem with the food supply, I'll just garden," you say! If
the Peak comes and causes disruptions in the food supply, your Hubbert
Victory garden will see you through the winter months. I’m sure most of
us love to picture ourselves putting up forty quarts of tomatoes and
salting beans for the winter in a large beige crock. With your green
thumb and Mason jars you'll can enough to last until next year’s first
corn comes in.

This is a nice fantasy, but I would ask the
more serious to do a simple survey. Each of us likely has a friend who
has a fairly large garden. Ask him or her what percentage of their
family’s yearly food intake comes from the garden – I would be
astounded if any say more than two percent. Annual gardening, like
agriculture, takes an enormous input of energy for the return you get,
and that is assuming you are good at it.


Really, Really Bad News About Oil (June 3 – Seeking Alpha)

Some years ago I wrote a paper called ‘A ‘New’
World Oil Market’ (2004), which I presented at a conference somewhere.
The intention of that paper was to argue that the world oil market was
in the process of a rapid transition, and the combination of resource
scarcity and accelerating demand (relative to supply) would cause a
fundamental shift in the market.

I said in that paper
essentially what I am going to say here, only at that time I couldn’t
prove a few of the things that needed proving. All that has changed: it
changed when the price of oil reached $100/b and continued to rise,
because with that price and the present movements of global oil supply
and demand, proofs are no longer necessary. This time the wolf is here!


Gearing now for peak oil shock (June 3 - The Dominion Post, NZ)

A movement that 'stops the 'overwhelm'; the feeling 'but what can I do'?

It's
an opportunity for people to come from an individual standpoint and
make a difference." That's how Normandale resident Juanita McKenzie
describes Transition Towns. It's a model in which community-based
initiatives facilitate transition from a globalised, oil-dependent
society to a resilient, re-localised society that can thrive in a world
where there is less abundant cheap oil.


Wednesday

June 4

Newfound savings penchant could retard growth (June 4 – Reuters WASHINGTON)

U.S. consumers are socking more money into savings,
as fears of a weakening economy may be making them reluctant to spend
their tax rebate checks, according to analysts who say that may mean
the economy faces a prolonged period of slower growth.

In
fact, consumers have been slowly rebuilding savings since hitting a low
point in November 2007, when they drew down savings in order to keep
spending. Since November's negative 0.1 percent savings rate, it has
slowly climbed to reach 0.7 percent of disposable income in April.

The headline needs to be tightened up. Savings WILL retard growth.

Of course, you
know I think this is a good thing. It is well past time for us to live
within our collective means, and a climbing savings rate is a piece of
evidence that we might have begun to do just that.
Now, 0.7% is
certainly nothing to write home about, and this data is heavily skewed
by the fact that the income gains are nearly all accumulating to the
very wealthiest of folks who probably couldn’t spend all of their
income if they tried, but this is still a good bit of news that bears
tracking over time.


Derivatives Traders Signal Bank Woes Likely to Worsen (June 4 - Bloomberg)

Interest-rate derivatives traders are betting
banks' difficulties obtaining cash to fund holdings and shore up
balance sheets will worsen.

The difference, or spread, between
the three-month dollar London interbank offered rate and the overnight
index swap rate on contracts beginning in three months and trading now
in the forwards market is greater than spreads on those starting this
month, according to data tracked by Credit Suisse Holdings Inc.

"The
movement in the forward Libor-OIS spreads is telling you that the
market is concerned that things can get even worse before they get
better," said Carl Lantz, an interest-rate strategist in New York at
Credit Suisse, one of the 20 primary dealers of U.S. government
securities that trade with the Federal Reserve. "Until all banks'
balance sheets are cleaned up and they've re-capitalized, there is
going to be funding pressure."

This data goes
along with Professor Sudaca’s article from yesterday. Here we have the
inside money betting that the bottom is still out there in front of us
somewhere.


U.S. MBA's Mortgage Applications Index Fell 15.3% Last Week (June 4 - Bloomberg)

Mortgage applications in the U.S. last week dropped
to the lowest level in six years, reflecting less refinancing as
interest rates jumped.

The Mortgage Bankers Association's
index of applications to purchase a home or refinance a loan fell 15
percent to 502.3, the lowest level since April 2002, from 593.3 the
prior week. The group's purchase index decreased 5.4 percent and its
refinancing gauge dropped 26 percent

The housing market faces
decreasing demand as prospective buyers wait for prices to stop falling
and additional foreclosures force lenders to tighten rules for mortgage
applicants. The real-estate slump will probably weaken the economy for
the rest of 2008.

"We continue to view the residential
real-estate crash as the most important factor underlying current
recessionary conditions in the U.S.," said Maury Harris, chief
economist at UBS Securities LLC in Stamford, Connecticut, in an e-mail
note to clients. "Home prices are falling at a faster rate, a signal of
worsening supply/demand imbalance."

The mortgage
application data just continues to sink into the mire, signaling that
the worst of the housing crisis is not yet past.

As you know, I am
projecting a bottom sometime around 2011 or 2012, unless other factors
combine to drag that out further. The bit that jumped out at me about
this was the massive 26% drop in refinancing applications.

That means the housing
ATM is over, and I honestly don’t know where the several hundred
billion dollars of lost borrowing is going to be made up.


Commercial/Multifamily Originations Fall to Four Year Low (June 3)

The truth about mortgage commercial and multifamily
loan originations came to a crawl during the first quarter of 2008,
falling to their lowest point since 2004, according to the Mortgage
Bankers Association’s (MBA) latest survey of Mortgage Bankers
Originations.

First quarter loan originations were 57 percent
lower than the first quarter of 2007, driven by a decrease in lending
activity among all property types and investor groups.

The
overall decrease included a 75 percent plunge in loans for office
properties, a 60 percent fall in loans for hotel properties, a 53
percent slide in retail property loans, a 37 percent slip in industrial
property loans, and a 27 percent decline in multifamily loans.

Among
investors, conduits for CMBS plummeted 96 percent compared to the same
period a year ago, while loans for commercial bank portfolios fell 28
percent and loans for life insurance companies slipped 25 percent.

And you thought the private residential lending data (above) was bad?

Check out the
utterly staggering drops in commercial lending. This is nothing short
of a disaster for the conduits which took a 96% hit. Wow.


Tuesday

June 3

US staring at double-dip recession as calls for higher interest rates grow (June 2 – UK Telegraph)

By slashing interest rates in the face of rising
price pressures, has the world's most important central bank sowed the
seeds of a new inflationary era? It's an alarming idea, but one gaining
currency all the time.

In real terms, American borrowing costs
are firmly in negative territory. No wonder the markets are wondering
if Ben Bernanke, Fed chairman, has made a grave error.

A
growing band of analysts has been arguing the Fed should have handled
the credit crisis in the same way as the European Central Bank -
injecting liquidity into gummed up money markets, rather than lowering
rates. Last week, such criticism got much louder.

The US is
now suffering from the aftershock of the irresponsible policies of Alan
Greenspan. By keeping rates too low for too long following the
terrorist attacks of 2001 and the dotcom crash, Bernanke's iconic
predecessor may have pleased his political masters, but he also pumped
up America's gigantic real estate bubble.

Again, a very
realistic assessment of the impact of too-low interest rates on asset
bubbles and inflation. Only in America do central bankers and
columnists seem to be baffled by the connection between ‘free lunch
policies’ and downstream ill effects.


Lehman May Need to Raise Capital as Analysts See Loss (June 3 – Bloomberg)

The fourth-biggest U.S. securities firm probably
will post a second-quarter loss of 50 cents to 75 cents a share,
according to analysts at Oppenheimer & Co. and Bank of America
Corp. New York-based Lehman holds ``very large, illiquid'' assets and
``we can't rule out equity issuance'' to replenish the balance sheet,
analysts at Merrill Lynch & Co. said in a report yesterday.

Lehman
may seek as much as $4 billion by selling common stock, the Wall Street
Journal reported today, citing unidentified people with knowledge of
the matter. The company has raised $6 billion since February amid asset
writedowns and losses from the collapse of the U.S. subprime mortgage
market. Lehman dropped 48 percent in New York trading this year, the
worst performance on the 11-company Amex Securities Broker/Dealer
Index.

"This is adding to the perception that there's a need
for more write-offs and capital raisings," said Greg Bundy, executive
chairman of merger advisory firm InterFinancial Ltd. in Sydney and a
former head of Merrill's Australian unit.

Lehman is still right at the top of my “next to go bankrupt” list.


Aluminum Traders Expect Output Costs to Rise Until 2013 on Oil (June 3 - Bloomberg)

Record energy prices and power failures from China
to South Africa are leading to mounting concerns that aluminum supplies
will be curtailed within five years as production costs increase,
futures prices show.

"Higher energy costs will lead to high
prices for aluminum,'' said Eugen Weinberg, a commodity analyst at
Commerzbank AG in Frankfurt. ``Investors will be much better off buying
longer-dated prices."

Energy accounts for about 40 percent of
the cost of aluminum smelting, compared with 30 percent last year,
according to Barclays Capital.

Aluminum demand is expanding 6
percent annually, so delays increase concern about supply through 2010,
Barclays said. Six new smelters need to be built each year to meet
demand, based on the average plant being able to produce 500,000 tons
annually, London-based analyst Gayle Berry said by phone May 30.

Demand for
aluminum is increasing 6% annually? If that pace keeps up for a little
less than 12 years, demand will have doubled. Said another way, over
the next 12 years, projections call for more aluminum to be produced
and consumed than in the entire history of mankind up to this point.

Somehow I
seriously doubt that Peak Oil will accommodate this level of growth in
supply. And the price hikes we are seeing could also be a reflection
that others feel the same way.


Credit Hurricane To Make Landfall (June 2 – Minyanville)

My belief is that at some point in the next six to
twelve months, the financing window will shut, and shut hard. When
these companies can no longer fund themselves, it could be curtains for
many of them, and there will likely be many forced marriages.

When
one thinks about it, the JPM/Bear deal was a shotgun marriage with the
Fed and Treasury Department acting as matchmakers. This is how many of
the brightest folks I know feel the next wave will look like—the Fed
will simply try to retard the speed of the crisis by innovatively
creating new financing facilities and have more "good bank/bad bank"
marriages. In truth, I really don’t know of many banks that are truly
"good" in the pure sense of the word, so you may say they may be
"not-so-great/bad bank" marriages with a shotgun at the altar.

Another great
article by ‘Professor’ Sudaca over at Minyanville. While he happens to
run a sizeable fund with a lot of money in it, and I don’t, we share
the same views on the macro trends that are buffeting our banking
system.

In brief, it ain’t over.


Monday

June 2

Wall Street Decides to Close Its Ears and Hum (June 2 – Hussman Funds)

The implications of this go far beyond whether or
not the prices of financial stocks have "discounted" the lower
potential earnings. See, this isn't just a problem of whether the stock
prices of financial companies are right. The larger issue is what
happens on the real side of the economy, in terms of spending and
lending and economic activity.

It would be naïve to accept
that the amount of writeoffs taken to-date is anything close to what
will be required – they are not even keeping pace with the accelerating
pace of non-current loans. Financial companies should, and most
probably will, get to the task of preserving capital, cutting dividends
further, and raising new funds in the not-distant future. The markets
probably will not like this, because it will be an admission that
credit conditions are still deteriorating.

For anybody
analyzing the current credit crisis, and John Hussman is one of the
very best and brightest, it is a complete mystery how some can hold the
view that the “worst is behind us” or that “it’s over.”

The data clearly
shows that the pace of the write-offs is not even remotely keeping
close with the accelerating pace of non-current loans, let alone a fair
accounting of the actual market value of all the Level 3 assets that
have been quietly secreted away on many a balance sheet. Here’s the
bottom line: It is not over.

Not even close.

We have many rounds of discovery between here and the bottom.

Such is the nature of a bursting global credit bubble.


Monster: Worrisome Falloff In May Job Listings (June 2 – Barrons)

The number of job listings on employment Web site
Monster Worldwide (MNST) fell dramatically in May compared with a year
earlier, according to Deutsche Bank analyst Jeetil Patel. Patel says
that U.S. job postings are down 18% on a year-over-year basis for the
quarter to date, with a 21% drop in May. That’s worse than the 8% slide
in April.

There are two
main sources for job postings. Once upon a time, there were only
newspaper classifieds and these were tracked as a leading indicator of
which way the job market might be headed. If the number of classified
job offer postings went up, that was a sign that the job market was
gaining ground.

Now there are also online postings, and Monster.com is the biggest of them all. The trend there is troubling, to say the least.

An 8% /yr slide in April has morphed into a stunning 21% decline in May.

Unemployment is
a balance between those losing and those gaining jobs. Since there seem
to be fewer jobs to gain, it is easy to predict that unemployment will
tick up from here.


U.S. Economy: Manufacturing Shrank Less Than Forecast in May (June 2 – Bloomberg)

Manufacturing in the U.S. shrank less than forecast
in May, further evidence that international demand for American-made
goods is keeping factories busy amid the domestic economic slump.

The Institute for Supply Management said its factory index rose to 49.6
from 48.6 in April; 50 is the dividing line between contraction and
expansion. Production expanded for the first time in three months while
a measure of prices climbed to the highest level since 2004, the group
also reported.

Here’s a
positive sign. Manufacturing is still contracting, but not by all that
much. The main reason for this is that the weak dollar is providing a
boost to exports. Also, the world economy is still in positive
territory for the year.


Heating oil sticker shock to hit New England (June 1 – AP)

Retail heating oil prices have risen to more than
$4.50 a gallon, nearly double what they were last year at this time.
Some oil dealers have delayed rolling out their payment plans for next
winter as the world oil markets continue their wild ride.

Consumers — already on edge with rising gasoline and food prices — will
probably be outraged when they calculate their oil bills for next
winter, said Jamie Py, president of the Maine Oil Dealers Association.

My house in New
England is heated with oil, so these articles catch my eye. The fact
that oil prices are nearly double what they were last year is going to
create a world of difficulty for the poorer members of our region.

I sincerely hope
that oil prices come down before heating season, but if I were an
elected official I’d be planning for a very difficult heating season.

Perhaps this
year Massachusetts will not be quite so hostile to Venezuela’s offer of
providing low-cost subsistence fuel for low-income families?


Opec piles on the pain (June 2 – Asia Online)

Oil experts say that demand is increasing so fast
in key Asian economies that supply simply can't keep pace. "If China
were to use the same amount of oil per person as Europeans, it would
require an additional 36 million barrels per day, about the same as the
oil production of four Saudi Arabia's," John Westwood, chairman of
energy analyst Douglas-Westwood told delegates recently at the All
Energy Conference in Aberdeen, Scotland.

The "peak oil
scenario" is approaching far more quickly than anybody expected, he
said. And a number of key experts now believe that the world will never
exceed its current level of production as new fields fail to compensate
for declining ones.

"Underlining this view are recently
published statistics that suggest oil production from ten out of the
top 13 international oil companies, including BP, Chevron, Total and
Shell may has already passed its peak," he said. And whereas oil majors
controlled about 80% of the world's oil reserves in 1970, the same
percentage now lies in the hands of national oil companies. "In our
view," Westwood concluded, "conventional energy supplies cannot meet
demand and unless properly managed this could severely impact world
economic growth."

Are you
listening? Now it is even common for Peak Oil to be considered both
real and “approaching far more quickly than anyone expected” at
mainstream energy industry conferences.

If you have been
kinda, sorta, maybe planning on someday making real energy improvement
changes to your house and/or lifestyle, I would kindly suggest that you
take this far more seriously and begin taking steps today.

Once the Peak
Oil concept goes past the tipping point in the public consciousness, I
would predict that the waiting period for certain pieces of
energy-related technology will be measured in years.


Shell CEO, like OPEC, sees no oil shortages now (June 2 – Forbes, KUALA LUMPUR)

Chief Executive Jeroen van der Veer said on Monday
he did not see any shortage of physical oil supplies, echoing the view
of many OPEC ministers who say the world market is well-supplied.

Oil
prices have risen more than fourfold since 2004 and gained about a
third this year, partly on increased fears among investors that
producers will struggle to produce enough oil to meet demand in a
decade's time.

"There are no physical shortages in the world.
We don't have ships waiting in the Middle East, no people queuing up
for gasoline," van der Veer told reporters in the Malaysian capital,
where he was briefing on Shell's Asian business plan.

"From a stocks point of view the whole value chain works well... It (the price) has a lot to do with psychology."

Here I must
chuckle. Yes, it’s true that the energy markets are reasonably well
supplied, but the message given here is the wrong one.

The article
above, like many others, implies that high oil prices are something of
a mystery because “the markets are well-supplied.”

Yes, that’s
exactly the point, but not in the way they mean. Demand is a function
of price. At these prices, there is sufficient supply to meet that
demand. That is, at $120/barrel, the market is well supplied.

If prices went down a lot, then demand would go up and the supplies would no longer be sufficient.
Instead
of being puzzled by the most well-characterized of all possible
relationships (supply-demand-price), we should be taking our clues
directly from the data itself. The data is now saying that demand for
oil is fairly balanced with demand with oil at $120+/barrel.

In turn, this
tells us that if supply fell off from here (which is a distinct
possibility), prices could move higher, maybe a lot higher, until
demand was again in balance with the new supply.

Instead of being
puzzled by the fact that oil prices are where they are, we should be
asking a very different question: “Why has oil supply not flooded into
the market in response to these prices?” To me, the clear answer is,
“because it can’t.”


Food prices are rocketing all over Europe (May 31 – UK Telegraph)

Shoppers in Madrid

AP

Shoppers in Madrid strain for 20,000kg of free fish
distributed by fishermen protesting against rising fuel prices. It's
not just us. All over Europe, the rocketing cost of food and fuel is
straining family budgets, stirring unrest and shaking governments.
David Blair examines the roots and the impact of a widening crisis.

A
study conducted by the French finance ministry has found that
supermarket prices have risen by up to 18 per cent in the past two
months alone. Butter, pasta and milk have all gone up by nine per cent
since last year. If you buy a baguette on the streets of Paris, the
price will have risen by anything from five to eight per cent.

Yikes. Inflation
is now taking off worldwide. These stories from Europe are really
attention-getting. I predict that China will, sooner than later, unpeg
their currency from the dollar in an attempt to avoid “importing our
inflation.”

And if China does this, many others will follow suit.

Under this
scenario, all the inflation experienced by other countries, due to
their ties to a steadily weakening dollar, will create a massive tidal
wave of inflation for the US.

Hey, all that
inflation has to go somewhere, and if the other countries reject it by
rejecting the dollar, that means we’ll get to experience all of it.

I am keeping a
very close eye on interest rates (the coal-mine canaries in this
story), the dollar index, and the price of gold. If/when I see a sudden
break, I will be sending out an alert to my subscribers that will call
for a fairly hefty realignment of dollars into inflation hedges.


Crisis lesson: Communities should unite (June 1 – Juneau Empire)tht

When the avalanches struck, no one knew how long
this crisis was going to last or how painful the economic hit would be.
The prospect of paying extremely high rates for up to three months had
many people and businesses doubting their ability to weather the
crisis.

But rather than panic, our community kept cool and
started to conserve electricity. People began turning to conservation
Web sites and online forums, as well as their neighbors, for tips on
how to cut back on energy use. Armed with this information, people
switched off lights, turned down the heat, lowered the temperature of
water heaters, and dried their clothes on racks and clotheslines.

The result: The community cut its energy consumption by an unprecedented 30 percent.

Now here’s a
heartwarming story. I’ve always advocated that big changes are on the
way,. Some misinterpret this to mean that I think the world is going to
end. Nope, I merely think it will be very different.

And I know that the
sooner one begins to make gradual changes, the easier these future
transitions will be. Can we learn to get by using a lot less energy?

Yes. No doubt about that.

Juneau proved this by
cutting its energy consumption by 30% in response to a major crisis
caused by the loss of a major electrical transmission line to a large
avalanche this past winter. I call this a heartwarming story because it
shows what can be done.

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