from http://www.nytimes.com/
June 25, 2008
Japanese Warship Visits Chinese Port
By HOWARD W. FRENCH
SHANGHAI — In the first such visit since the Second World War, a Japanese naval warship steamed into a Chinese port on Tuesday, docking at a heavily guarded naval base in Guangdong Province for a five-day port of call.
The visit of the 4,650-ton destroyer Sazanami, which was billed as an earthquake relief mission, is being seen by many military and diplomatic analysts as part of a broad and gradual reconciliation between the two countries, the pace of which has quickened since a five-day visit to Japan in May by Chinese President Hu Jintao.
“When a naval vessel visits, it sends a clear signal that the countries have buried the hatchet and are working for peace,” said Gao Hong, director of the political research office of the Chinese Academy of Social Science’s Japanese Research Institute. “This is the clearest sign yet of the improvement in relations between the two countries. It says they no longer harbor animosity toward each other.”
Mr. Hu’s visit was the first by a Chinese head of state in a decade, and was seen by commentators in both countries as having moved Japan and China in the direction of a closer and friendlier working relationship.
Relations between the two neighbors have long been cool, in large part because of China’s lingering resentment of Japan’s conquest and occupation of this country between 1931 and 1945.
Mr. Hu’s visit was followed almost immediately by the devastating earthquake in Sichuan Province on May 12 that killed almost 70,000 people, and Japan earned a measure of goodwill here by being among the first countries to provide relief assistance.
Last week, the two countries also agreed on terms for the joint development of natural gas fields in disputed territorial waters of the East China Sea.
Each step in the reconciliation has brought reminders, however, of the depth of nationalist sentiment in China and of lingering emotions in some quarters against Japan. The warship visit, for example, was originally intended to take place early this month, according to Chinese media reports, but was postponed, ostensibly because of the political sensitivities.
As it is, the port of call is closed to most media, and the ship’s visit will be unusually low-key for a goodwill mission. The conservative Japanese newspaper, Sankei Shimbun, for example, reported that a planned concert performance by a Japanese naval band had been canceled and that access for Japanese media to the port had been restricted.
“We are considering the possible reaction of the Chinese people,” said Takashi Sekine, a Japanese Defense Ministry spokesman, according to Reuters. “We need to consider the situation.”
A Chinese Foreign Ministry spokesman, Liu Jianchao, denied that Chinese public opinion opposed the port call. “Strengthening our exchanges and cooperation in the field of defense will be supported by the people and I don’t think there will be any public anger,” he said in a news conference in Beijing.
The recent agreement over the development of gas fields in the East China Sea, however, illustrated the continued sensitivity of political developments involving Japan. Beijing handled the announcement of the agreement with unusual circumspection, and as word of the agreement spread, it quickly drew expressions of outrage from many Chinese Internet commentators. Chinese censors have busily removed many of the comments since then.
On Tuesday, there was a similar flurry of blogging activity, with one online commentator writing, “as long as Japan hasn’t made a formal apology for the history of invading into China, hasn’t stopped the domestic action of glorifying the invading history, we will oppose any of the Japanese military force coming again into China.”
Another reminder of sensitivities here came shortly after the earthquake, at a time when China was desperate to provide shelter for the affected populations of Sichuan Province. Japan offered to fly in tents and other emergency supplies aboard a military aircraft, but China appeared to change its mind on the airlift idea after considering the likely hostile public reaction to military aircraft from Japan.
An editorial in the state-run China Daily newspaper acknowledged the potential for controversy regarding the naval visit, but said that the Japanese ship visit was part of an effort to “build trust and dispel each other’s doubts.”
Saw the movie Children of Huang Shi last night. Moving picture with the brutal Japanese invasion of China as the background. Recommend watching. I dont think China Japanese relations will ever be anything beyond an uneasy and wary calm.
Tuesday, June 24, 2008
Monday, June 23, 2008
Uranium Baby!
Uranium Soon Fetches $90 as India Reactors Drive Global Demand
By Yuriy Humber
June 23 (Bloomberg) -- The uranium industry's worst year is about to collide with a nuclear construction program in India and China that rivals the ones undertaken during the oil crisis of the 1970s.
The result is likely to be a 58 percent rebound in uranium to $90 a pound from $57 now, according to Goldman Sachs JBWere Pty and Rio Tinto Group, the third-biggest mining company. Uranium plunged 57 percent in the past year as an earthquake damaged a Japanese nuclear plant that's the world's largest and faults shut down reactors in the U.K. and Germany.
Plans for India and China to end electricity shortages will ripple from northwest Canada to the Australian outback and the flatlands of Kazakhstan, the primary sources of uranium. India will start up three reactors this year, with another six due in 2009, in India, China, Russia, Canada and Japan. Uranium demand worldwide will rise as fast as oil this year, or 0.8 percent, Deutsche Bank AG forecasts.
``The first wave of growth is going to come from the emerging economies,'' said John Wong, fund manager with CQS UK LLP in London, which has $10 billion under management including $150 million of uranium investments. ``People are starting to look at coal, at gas, at oil and seeing the energy prices go up, they wonder about uranium.''
The yearlong decline in uranium contrasts with record prices for oil and coal as Asian energy demand expands and concern mounts that emissions will cause global warming to worsen. The world needs to build 32 new nuclear plants each year as part of measures to cut emissions in half by 2050, the Paris-based International Energy Agency says.
2007's Drop
Because malfunctions shut reactors in Japan, the U.K. and Germany, nuclear power production and uranium use dropped 2 percent in 2007, only the third time consumption has fallen since the 1970s, according to data compiled by BP Plc, Europe's second-largest oil company by market value. Prices are so low that some uranium mines are close to being unprofitable, says Merrill Lynch & Co., the third- largest U.S. securities firm.
``If you look at what is necessary to sustain increased production, to make the kind of projects that everyone is talking about fly, prices better not get much lower or those projects are going to fall over,'' says Preston Chiaro, chief executive of Rio Tinto's energy unit. ``I don't think that spot price is indicative of what prices will look like through the course of the year.''
Iran's Reactor
In India, Nuclear Power Corp.'s 220-megawatt Kaiga plant in the southern province of Karnatka and another at Rawatbhata in the northern state of Rajasthan are due to come on line this year. China started two units in 2007 and will bring on three more through 2011, says the World Nuclear Association. Iran plans to begin generation this year at its 950-megawatt Bushehr reactor, which is at the center of the nation's conflict with the West.
``China is just on the verge of a second rapid phase of expansion,'' says Ian Hore-Lacy, director of public communications for the WNA in London. ``Each year China seems to raise their sights further.''
To be sure, safety concerns remain the biggest risk to nuclear construction and uranium's revival. Proposed reactors were canceled in the 1970s because of environmental protests, while accidents at Three Mile Island in Pennsylvania in 1979 and Chernobyl, Ukraine, in 1986 further eroded support. In Japan, new projects face delays as utilities improve earthquake resistance to restore confidence after the closure of Tokyo Electric Power Co.'s Kashiwazaki Kariwa and revelations that companies falsified safety records.
Safety Risks
``It is worth remembering that this is an industry that can be brought to its knees overnight by one major mishap or one well-executed terrorist action,'' Paul Hannon, an analyst at London-based commodities research company VM Group in London, wrote in a report this month.
Uranium demand was 66,500 metric tons last year, according to data from Denver-based consultant TradeTech LLP. Consumption may jump 55 percent to 102,000 tons by 2020, forecasts Macquarie Group Ltd., Australia's biggest securities firm.
Uranium use now is 69 percent greater than the 39,429 tons that was mined in 2006, the most recent data from the WNA show. The balance comes from inventories and decommissioned weapons. A Russian accord to export fuel recovered from warheads to the U.S. expiries in 2013.
Nuclear Converts
``Secondary supplies are finite and rapidly being depleted,'' Deutsche Bank analysts led by Michael Lewis said in a June 20 report. ``Continual supply issues and the likelihood of increased demand from utilities should drive the spot price higher during the third quarter of this year.''
Demand is set to increase as existing reactors are brought back on line, while nuclear energy gains converts.
South Africa, which is struggling to meet electricity demand, plans to award a contract for construction of a 120 billion-rand ($15 billion) nuclear plant. In the U.K., the Labour government wants more atomic capacity to reduce its emissions.
U.S. Republican presidential candidate John McCain said last week he will push to almost double the number of nuclear reactors to lessen the nation's dependence on foreign oil. Barack Obama, the presumptive Democratic nominee, also backs nuclear power. There are 104 reactors operating in the U.S., though the last to come on line was in 1990, according to the Nuclear Energy Institute.
Production Costs
Prices will have to increase if uranium production is to meet the rising demand, said Kevin Smith, head of uranium trading at New York-based commodities brokerage Traxys.
Canada's Cameco Corp., the world's largest uranium producer, reported it spent a total of about C$45 ($44) to produce a pound of uranium in the first quarter, compared with its average realized price of C$40.85 a pound. While Cameco, which also mines gold, still posted a profit for the quarter, lower uranium prices are a problem for other companies developing new mines, according to Smith.
``There are a lot of production projects that are feeling the pain,'' Smith says.
To contact the reporter on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net Last Updated: June 22, 2008 19:01 EDT
By Yuriy Humber
June 23 (Bloomberg) -- The uranium industry's worst year is about to collide with a nuclear construction program in India and China that rivals the ones undertaken during the oil crisis of the 1970s.
The result is likely to be a 58 percent rebound in uranium to $90 a pound from $57 now, according to Goldman Sachs JBWere Pty and Rio Tinto Group, the third-biggest mining company. Uranium plunged 57 percent in the past year as an earthquake damaged a Japanese nuclear plant that's the world's largest and faults shut down reactors in the U.K. and Germany.
Plans for India and China to end electricity shortages will ripple from northwest Canada to the Australian outback and the flatlands of Kazakhstan, the primary sources of uranium. India will start up three reactors this year, with another six due in 2009, in India, China, Russia, Canada and Japan. Uranium demand worldwide will rise as fast as oil this year, or 0.8 percent, Deutsche Bank AG forecasts.
``The first wave of growth is going to come from the emerging economies,'' said John Wong, fund manager with CQS UK LLP in London, which has $10 billion under management including $150 million of uranium investments. ``People are starting to look at coal, at gas, at oil and seeing the energy prices go up, they wonder about uranium.''
The yearlong decline in uranium contrasts with record prices for oil and coal as Asian energy demand expands and concern mounts that emissions will cause global warming to worsen. The world needs to build 32 new nuclear plants each year as part of measures to cut emissions in half by 2050, the Paris-based International Energy Agency says.
2007's Drop
Because malfunctions shut reactors in Japan, the U.K. and Germany, nuclear power production and uranium use dropped 2 percent in 2007, only the third time consumption has fallen since the 1970s, according to data compiled by BP Plc, Europe's second-largest oil company by market value. Prices are so low that some uranium mines are close to being unprofitable, says Merrill Lynch & Co., the third- largest U.S. securities firm.
``If you look at what is necessary to sustain increased production, to make the kind of projects that everyone is talking about fly, prices better not get much lower or those projects are going to fall over,'' says Preston Chiaro, chief executive of Rio Tinto's energy unit. ``I don't think that spot price is indicative of what prices will look like through the course of the year.''
Iran's Reactor
In India, Nuclear Power Corp.'s 220-megawatt Kaiga plant in the southern province of Karnatka and another at Rawatbhata in the northern state of Rajasthan are due to come on line this year. China started two units in 2007 and will bring on three more through 2011, says the World Nuclear Association. Iran plans to begin generation this year at its 950-megawatt Bushehr reactor, which is at the center of the nation's conflict with the West.
``China is just on the verge of a second rapid phase of expansion,'' says Ian Hore-Lacy, director of public communications for the WNA in London. ``Each year China seems to raise their sights further.''
To be sure, safety concerns remain the biggest risk to nuclear construction and uranium's revival. Proposed reactors were canceled in the 1970s because of environmental protests, while accidents at Three Mile Island in Pennsylvania in 1979 and Chernobyl, Ukraine, in 1986 further eroded support. In Japan, new projects face delays as utilities improve earthquake resistance to restore confidence after the closure of Tokyo Electric Power Co.'s Kashiwazaki Kariwa and revelations that companies falsified safety records.
Safety Risks
``It is worth remembering that this is an industry that can be brought to its knees overnight by one major mishap or one well-executed terrorist action,'' Paul Hannon, an analyst at London-based commodities research company VM Group in London, wrote in a report this month.
Uranium demand was 66,500 metric tons last year, according to data from Denver-based consultant TradeTech LLP. Consumption may jump 55 percent to 102,000 tons by 2020, forecasts Macquarie Group Ltd., Australia's biggest securities firm.
Uranium use now is 69 percent greater than the 39,429 tons that was mined in 2006, the most recent data from the WNA show. The balance comes from inventories and decommissioned weapons. A Russian accord to export fuel recovered from warheads to the U.S. expiries in 2013.
Nuclear Converts
``Secondary supplies are finite and rapidly being depleted,'' Deutsche Bank analysts led by Michael Lewis said in a June 20 report. ``Continual supply issues and the likelihood of increased demand from utilities should drive the spot price higher during the third quarter of this year.''
Demand is set to increase as existing reactors are brought back on line, while nuclear energy gains converts.
South Africa, which is struggling to meet electricity demand, plans to award a contract for construction of a 120 billion-rand ($15 billion) nuclear plant. In the U.K., the Labour government wants more atomic capacity to reduce its emissions.
U.S. Republican presidential candidate John McCain said last week he will push to almost double the number of nuclear reactors to lessen the nation's dependence on foreign oil. Barack Obama, the presumptive Democratic nominee, also backs nuclear power. There are 104 reactors operating in the U.S., though the last to come on line was in 1990, according to the Nuclear Energy Institute.
Production Costs
Prices will have to increase if uranium production is to meet the rising demand, said Kevin Smith, head of uranium trading at New York-based commodities brokerage Traxys.
Canada's Cameco Corp., the world's largest uranium producer, reported it spent a total of about C$45 ($44) to produce a pound of uranium in the first quarter, compared with its average realized price of C$40.85 a pound. While Cameco, which also mines gold, still posted a profit for the quarter, lower uranium prices are a problem for other companies developing new mines, according to Smith.
``There are a lot of production projects that are feeling the pain,'' Smith says.
To contact the reporter on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net Last Updated: June 22, 2008 19:01 EDT
It is worth considering adding a Uranium ETF such as NLR in your long term portfolio. This is a good entry point as Uranium prices have fallen recently. This is not a recommendation to buy or sell anything including NLR. Do you own research. This blog is not responsible for any losses.
Sunday, June 22, 2008
Saudi Arabia may increase supply
from www.bloomberg.com
Saudi Arabia Boosts Oil Supply, May Pump More Later
By Ayesha Daya and Glen Carey
June 22 (Bloomberg) -- Saudi Arabia may raise its oil production beyond a planned 200,000 barrel-a-day increase in July if the oil market requires extra supply, Saudi Oil Minister Ali al-Naimi told consumers at a summit in Jeddah.
Saudi Arabia's commitment to government and business leaders to pump 9.7 million barrels a day next month came after crude rose to a record $139.89 in New York on June 16. Saudi King Abdullah said at today's summit that his country, the world's biggest oil exporter, seeks ``reasonable'' prices. OPEC President Chakib Khelil said a Saudi boost is ``illogical'' because refiners don't need more crude.
The International Energy Agency estimates that world oil use this year will climb 800,000 barrels a day, or 1 percent, as demand climbs in emerging markets. Stagnating production from Russia and the North Sea and disruption in Nigeria are also contributing to higher prices, which have touched off strikes, riots and accelerating inflation in nations around the world.
``Saudi Arabia is prepared and willing to produce additional barrels of crude above and beyond the 9.7 million barrels per day, which we plan to produce during the month of July, if demand for such quantities materializes and our customers tell us they are needed,'' Naimi said.
Saudi Arabia's capacity will be 12.5 million barrels a day by the end of 2009 and may rise to 15 million after that if necessary, he said.
Speculators Blamed
The president of the Organization of Petroleum Exporting Countries, Khelil, blamed $135 oil on speculative investors, the subprime credit crisis and geopolitics, rather than a shortage of supply. Khelil, who is also Algeria's oil minister, today dismissed the argument voiced by consuming nations that possible supply shortages are driving up prices.
``The concern over future oil supply is not a new phenomenon,'' he told reporters in Jeddah. Asked if oil prices would fall after the meeting, he replied: ``I don't think so.''
More than 35 countries, seven international organizations and 25 oil companies took part in today's summit in the Saudi Red Sea port, including U.K. Prime Minister Gordon Brown, U.S. Energy Secretary Samuel Bodman and Exxon Mobil Corp. Chief Executive Officer Rex Tillerson.
OPEC Divided
The Saudi King and other producer-nation officials including Kuwaiti oil minister Mohammed al-Olaim also called for greater regulation on oil market investors. The U.S. Commodity Futures Trading Commission is currently investigating the role of index-fund investors in the doubling of oil prices during the past year.
OPEC itself is divided. While Saudi Arabia is boosting output, other OPEC members including Libya, Algeria, Iran, Venezuela and Qatar are opposed to higher production, saying refiners aren't asking for more crude.
Libya's top oil official, Shokri Ghanem, said after the meeting ended that the Saudi output boost wouldn't affect the oil price, and yesterday said his country may have to cut its own production in response to the Saudi move.
Venezuelan Oil Minister Rafael Ramirez, also asked whether the oil price was likely to fall after the Saudi move, said: ``I don't think so because it's not a problem of supply.''
Kuwait, OPEC's fourth largest producer, said it's ready to join neighboring Saudi Arabia and raise output, if needed.
Dollar Hedge
Oil rose to $139.89 a barrel on June 16 as investors bought commodities to hedge against a weakening U.S. dollar and concern mounted that demand is growing faster than supply. Gasoline retail prices over $4 a gallon in the U.S. are raising concern that the economy may slip into recession. Crude oil for July delivery closed June 20 in New York at $134.62 a barrel.
U.S. Energy Secretary Bodman rejected calls to put greater control on markets, and said a shortage of supply was responsible for high prices. He disputed the view that speculators are leading the markets to record levels.
The market needs between 3 million and 4 million barrels a day of spare oil production capacity, compared with the 2 million barrels a day currently available, Bodman said. OPEC says the world's spare capacity is about 3 million barrels a day, with two-thirds of that in Saudi Arabia.
``Market fundamentals show us that production has not kept pace with growing demand for oil resulting in increasing, and increasingly volatile, prices,'' Bodman said in a speech today.
More Supply
Italy's Minister of Industry Claudio Scajola and Brazil's Energy Minister Edison Lobao were among consumer-nation officials attending the Jeddah summit that said more supply was needed to ease prices. ``We expect Saudi Arabia to open the taps,'' Austrian Economy Minister Martin Bartenstein said in an interview two days ago. ``One third of inflation in the euro zone comes from energy and inflation is now of importance.''
Speaking in Jeddah today, the Austrian minister said: ``We would like to see more oil on the market. That is the only action I can think of that can discourage the speculators.''
Adam Sieminski, chief energy economist at Deutsche Bank AG, and other analysts maintain that consumers will need to curtail demand before prices head lower. The biggest drop in prices in 11 weeks came on June 18, after the world's second-biggest oil consumer, China, raised gasoline, diesel and power prices to rein in energy use.
Saudi Arabia will increase production capacity to 12.5 million barrels a day of oil by the end of next year and could add a further 2.5 million barrels a day if needed, from some new giant fields, Naimi said.
Zuluf, Shaybah Fields
``The Saudi announcement of a possible increase in capacity to 15 million barrels a day is a robust statement; it would be a huge increase,'' ENI SpA Chief Executive Officer Paolo Scaroni said in an interview in Jeddah today. ``The world is worried about the shortage in spare capacity and any improvement will change this sentiment.''
The further daily capacity includes 900,000 barrels from the Zuluf field, 700,000 barrels from Safaniyah, 300,000 barrels from Berri, 300,000 barrels from Khurais and 250,000 barrels from Shaybah, Naimi said.
U.K. Prime Minister Brown said in Jeddah today he will open Britain's energy industry to investment from oil producing nations as a way of keeping a lid on crude prices and paying for measures to clean up the environment. Further talks may be held between producers and consumers this year in London, he said.
To contact the reporters on this story: Ayesha Daya in Jeddah adaya1@bloomberg.netGlen Carey in Jeddah gcarey8@bloomberg.net Last Updated: June 22, 2008 12:12 EDT
Saudi Arabia Boosts Oil Supply, May Pump More Later
By Ayesha Daya and Glen Carey
June 22 (Bloomberg) -- Saudi Arabia may raise its oil production beyond a planned 200,000 barrel-a-day increase in July if the oil market requires extra supply, Saudi Oil Minister Ali al-Naimi told consumers at a summit in Jeddah.
Saudi Arabia's commitment to government and business leaders to pump 9.7 million barrels a day next month came after crude rose to a record $139.89 in New York on June 16. Saudi King Abdullah said at today's summit that his country, the world's biggest oil exporter, seeks ``reasonable'' prices. OPEC President Chakib Khelil said a Saudi boost is ``illogical'' because refiners don't need more crude.
The International Energy Agency estimates that world oil use this year will climb 800,000 barrels a day, or 1 percent, as demand climbs in emerging markets. Stagnating production from Russia and the North Sea and disruption in Nigeria are also contributing to higher prices, which have touched off strikes, riots and accelerating inflation in nations around the world.
``Saudi Arabia is prepared and willing to produce additional barrels of crude above and beyond the 9.7 million barrels per day, which we plan to produce during the month of July, if demand for such quantities materializes and our customers tell us they are needed,'' Naimi said.
Saudi Arabia's capacity will be 12.5 million barrels a day by the end of 2009 and may rise to 15 million after that if necessary, he said.
Speculators Blamed
The president of the Organization of Petroleum Exporting Countries, Khelil, blamed $135 oil on speculative investors, the subprime credit crisis and geopolitics, rather than a shortage of supply. Khelil, who is also Algeria's oil minister, today dismissed the argument voiced by consuming nations that possible supply shortages are driving up prices.
``The concern over future oil supply is not a new phenomenon,'' he told reporters in Jeddah. Asked if oil prices would fall after the meeting, he replied: ``I don't think so.''
More than 35 countries, seven international organizations and 25 oil companies took part in today's summit in the Saudi Red Sea port, including U.K. Prime Minister Gordon Brown, U.S. Energy Secretary Samuel Bodman and Exxon Mobil Corp. Chief Executive Officer Rex Tillerson.
OPEC Divided
The Saudi King and other producer-nation officials including Kuwaiti oil minister Mohammed al-Olaim also called for greater regulation on oil market investors. The U.S. Commodity Futures Trading Commission is currently investigating the role of index-fund investors in the doubling of oil prices during the past year.
OPEC itself is divided. While Saudi Arabia is boosting output, other OPEC members including Libya, Algeria, Iran, Venezuela and Qatar are opposed to higher production, saying refiners aren't asking for more crude.
Libya's top oil official, Shokri Ghanem, said after the meeting ended that the Saudi output boost wouldn't affect the oil price, and yesterday said his country may have to cut its own production in response to the Saudi move.
Venezuelan Oil Minister Rafael Ramirez, also asked whether the oil price was likely to fall after the Saudi move, said: ``I don't think so because it's not a problem of supply.''
Kuwait, OPEC's fourth largest producer, said it's ready to join neighboring Saudi Arabia and raise output, if needed.
Dollar Hedge
Oil rose to $139.89 a barrel on June 16 as investors bought commodities to hedge against a weakening U.S. dollar and concern mounted that demand is growing faster than supply. Gasoline retail prices over $4 a gallon in the U.S. are raising concern that the economy may slip into recession. Crude oil for July delivery closed June 20 in New York at $134.62 a barrel.
U.S. Energy Secretary Bodman rejected calls to put greater control on markets, and said a shortage of supply was responsible for high prices. He disputed the view that speculators are leading the markets to record levels.
The market needs between 3 million and 4 million barrels a day of spare oil production capacity, compared with the 2 million barrels a day currently available, Bodman said. OPEC says the world's spare capacity is about 3 million barrels a day, with two-thirds of that in Saudi Arabia.
``Market fundamentals show us that production has not kept pace with growing demand for oil resulting in increasing, and increasingly volatile, prices,'' Bodman said in a speech today.
More Supply
Italy's Minister of Industry Claudio Scajola and Brazil's Energy Minister Edison Lobao were among consumer-nation officials attending the Jeddah summit that said more supply was needed to ease prices. ``We expect Saudi Arabia to open the taps,'' Austrian Economy Minister Martin Bartenstein said in an interview two days ago. ``One third of inflation in the euro zone comes from energy and inflation is now of importance.''
Speaking in Jeddah today, the Austrian minister said: ``We would like to see more oil on the market. That is the only action I can think of that can discourage the speculators.''
Adam Sieminski, chief energy economist at Deutsche Bank AG, and other analysts maintain that consumers will need to curtail demand before prices head lower. The biggest drop in prices in 11 weeks came on June 18, after the world's second-biggest oil consumer, China, raised gasoline, diesel and power prices to rein in energy use.
Saudi Arabia will increase production capacity to 12.5 million barrels a day of oil by the end of next year and could add a further 2.5 million barrels a day if needed, from some new giant fields, Naimi said.
Zuluf, Shaybah Fields
``The Saudi announcement of a possible increase in capacity to 15 million barrels a day is a robust statement; it would be a huge increase,'' ENI SpA Chief Executive Officer Paolo Scaroni said in an interview in Jeddah today. ``The world is worried about the shortage in spare capacity and any improvement will change this sentiment.''
The further daily capacity includes 900,000 barrels from the Zuluf field, 700,000 barrels from Safaniyah, 300,000 barrels from Berri, 300,000 barrels from Khurais and 250,000 barrels from Shaybah, Naimi said.
U.K. Prime Minister Brown said in Jeddah today he will open Britain's energy industry to investment from oil producing nations as a way of keeping a lid on crude prices and paying for measures to clean up the environment. Further talks may be held between producers and consumers this year in London, he said.
To contact the reporters on this story: Ayesha Daya in Jeddah adaya1@bloomberg.netGlen Carey in Jeddah gcarey8@bloomberg.net Last Updated: June 22, 2008 12:12 EDT
Classic Tom!
from www.nytimes.com
June 22, 2008
Op-Ed Columnist
Mr. Bush, Lead or Leave
By THOMAS L. FRIEDMAN
Two years ago, President Bush declared that America was “addicted to oil,” and, by gosh, he was going to do something about it. Well, now he has. Now we have the new Bush energy plan: “Get more addicted to oil.”
Actually, it’s more sophisticated than that: Get Saudi Arabia, our chief oil pusher, to up our dosage for a little while and bring down the oil price just enough so the renewable energy alternatives can’t totally take off. Then try to strong arm Congress into lifting the ban on drilling offshore and in the Arctic National Wildlife Refuge.
It’s as if our addict-in-chief is saying to us: “C’mon guys, you know you want a little more of the good stuff. One more hit, baby. Just one more toke on the ole oil pipe. I promise, next year, we’ll all go straight. I’ll even put a wind turbine on my presidential library. But for now, give me one more pop from that drill, please, baby. Just one more transfusion of that sweet offshore crude.”
It is hard for me to find the words to express what a massive, fraudulent, pathetic excuse for an energy policy this is. But it gets better. The president actually had the gall to set a deadline for this drug deal:
“I know the Democratic leaders have opposed some of these policies in the past,” Mr. Bush said. “Now that their opposition has helped drive gas prices to record levels, I ask them to reconsider their positions. If Congressional leaders leave for the Fourth of July recess without taking action, they will need to explain why $4-a-gallon gasoline is not enough incentive for them to act.”
This from a president who for six years resisted any pressure on Detroit to seriously improve mileage standards on its gas guzzlers; this from a president who’s done nothing to encourage conservation; this from a president who has so neutered the Environmental Protection Agency that the head of the E.P.A. today seems to be in a witness-protection program. I bet there aren’t 12 readers of this newspaper who could tell you his name or identify him in a police lineup.
But, most of all, this deadline is from a president who hasn’t lifted a finger to broker passage of legislation that has been stuck in Congress for a year, which could actually impact America’s energy profile right now — unlike offshore oil that would take years to flow — and create good tech jobs to boot.
That bill is H.R. 6049 — “The Renewable Energy and Job Creation Act of 2008,” which extends for another eight years the investment tax credit for installing solar energy and extends for one year the production tax credit for producing wind power and for three years the credits for geothermal, wave energy and other renewables.
These critical tax credits for renewables are set to expire at the end of this fiscal year and, if they do, it will mean thousands of jobs lost and billions of dollars of investments not made. “Already clean energy projects in the U.S. are being put on hold,” said Rhone Resch, president of the Solar Energy Industries Association.
People forget, wind and solar power are here, they work, they can go on your roof tomorrow. What they need now is a big U.S. market where lots of manufacturers have an incentive to install solar panels and wind turbines — because the more they do, the more these technologies would move down the learning curve, become cheaper and be able to compete directly with coal, oil and nuclear, without subsidies.
That seems to be exactly what the Republican Party is trying to block, since the Senate Republicans — sorry to say, with the help of John McCain — have now managed to defeat the renewal of these tax credits six different times.
Of course, we’re going to need oil for years to come. That being the case, I’d prefer — for geopolitical reasons — that we get as much as possible from domestic wells. But our future is not in oil, and a real president wouldn’t be hectoring Congress about offshore drilling today. He’d be telling the country a much larger truth:
“Oil is poisoning our climate and our geopolitics, and here is how we’re going to break our addiction: We’re going to set a floor price of $4.50 a gallon for gasoline and $100 a barrel for oil. And that floor price is going to trigger massive investments in renewable energy — particularly wind, solar panels and solar thermal. And we’re also going to go on a crash program to dramatically increase energy efficiency, to drive conservation to a whole new level and to build more nuclear power. And I want every Democrat and every Republican to join me in this endeavor.”
That’s what a real president would do. He’d give us a big strategic plan to end our addiction to oil and build a bipartisan coalition to deliver it. He certainly wouldn’t be using his last days in office to threaten Congressional Democrats that if they don’t approve offshore drilling by the Fourth of July recess, they will be blamed for $4-a-gallon gas. That is so lame. That is an energy policy so unworthy of our Independence Day.
Our energy policy is such a joke. It is worth remembering that Increase in Prosperity if directly proportional to increase in energy available and increase in energy efficiency.
Saturday, June 21, 2008
RBS issues Global Stock Alert
from http://www.telegraph.co.uk/
RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:19am BST 19/06/2008
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.
"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.
RBS warning: Be prepared for a 'nasty' period
Such a slide on world bourses would amount to one of the worst bear markets over the last century.
RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.
"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.
"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.
RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.
"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.
US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.
The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.
"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.
Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.
"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.
Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.
Information appearing on telegraph.co.uk is the copyright of Telegraph Media Group Limited and must not be reproduced in any medium without licence. For the full copyright statement see Copyright
I got into TWM (the anti Russell 2000) about 3 weeks ago and have added more shares as decent entry points as the market started to turn down. TWM seems to have clearly bottomed and seems ready to break out. I would not be surprised to see a 40% return on TWM over the next 3 months. This is not a recommendation to buy or sell TWM - please do your own research. This blog does not take responsibility for any losses
courtesy of www.bigcharts.com
RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:19am BST 19/06/2008
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.
"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.
RBS warning: Be prepared for a 'nasty' period
Such a slide on world bourses would amount to one of the worst bear markets over the last century.
RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.
"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.
"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.
RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.
"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.
US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.
The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.
"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.
Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.
"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.
Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.
Information appearing on telegraph.co.uk is the copyright of Telegraph Media Group Limited and must not be reproduced in any medium without licence. For the full copyright statement see Copyright
I got into TWM (the anti Russell 2000) about 3 weeks ago and have added more shares as decent entry points as the market started to turn down. TWM seems to have clearly bottomed and seems ready to break out. I would not be surprised to see a 40% return on TWM over the next 3 months. This is not a recommendation to buy or sell TWM - please do your own research. This blog does not take responsibility for any losses
courtesy of www.bigcharts.com
Renting on the Rise
from www.nytimes.com
June 21, 2008
Rise in Renters Erasing Gains for Ownership
By RACHEL L. SWARNS
WASHINGTON — Driven largely by the surge in foreclosures and an unsettled housing market, Americans are renting apartments and houses at the highest level since President Bush started a campaign to expand homeownership in 2002.
The percentage of households headed by homeowners, which soared to a record 69.1 percent in 2005, fell to 67.8 percent this year, the sharpest decline in 20 years, according to census data through the end of March. By extension, the percentage of households headed by renters increased to 32.2 percent, from 30.9 percent.
The figures, while seemingly modest, reflect a significant shift in national housing trends, housing analysts say, with the notable gains in homeownership achieved under Mr. Bush all but vanishing over the last two years.
Many of the new renters, meanwhile, are struggling to get into decent apartments as vacancies decline, rents rise and other renters increasingly stay put. Some renters who want to buy homes are unable to get mortgages as banks impose stricter standards. Others remain reluctant to buy, anxious that housing prices will continue to fall.
The confluence of factors has largely derailed what Mr. Bush called “the ownership society,” his campaign to give millions of people — particularly minority and lower-income families — a shot at homeownership by encouraging lenders to finance more home purchases.
“We’re not going to see homeownership rates like that for a generation,” said Mark Zandi, the chief economist at Moody’s Economy.com, a research company.
For many minority and lower-income families who viewed homeownership as a stepping stone to building wealth and passing it on to their children, the transition from owning to renting has been the unraveling of a dream. Burdened now by debt and bad credit, some of these families are worse off than they were before they bought.
“The bloom is off of homeownership,” said William C. Apgar, a senior scholar at the Joint Center for Housing Studies at Harvard University who ran the Federal Housing Administration from 1997 to 2001. “We’re seeing more dramatic growth in renters and a decline in the number of owners. People are beginning to understand that homeownership can be a very risky venture.”
Mr. Apgar said the Joint Center had predicted an increase of 1.8 million renters from 2005 to 2015, given expected population trends. Instead, they saw a surge of 1.5 million renters from 2005 to 2007 alone. In the first quarter of this year, 35.7 million people were renting homes or apartments, census data show.
“Even though we’re only looking at a short period, these trends are pretty powerful,” Mr. Apgar said.
Mr. Zandi said he believed that minority and lower-income homeowners had been hardest hit. Nearly three million minority families took out mortgages from 2002 to the first quarter of this year, housing officials say. Since minority families were more likely to receive subprime loans, economists believe these families account for a disproportionate share of foreclosures.
Tony Fratto, a White House spokesman, said that officials had hoped the homeownership gains would stick. “We’re disappointed that conditions in the housing market didn’t allow those gains to be sustained,” he said. “But we’re optimistic that they can return.”
The new renters include people like Tina Williams, a 43-year-old medical assistant who lost her three-bedroom colonial in Cleveland to foreclosure in March after her adjustable rate mortgage spiked and she struggled to find work.
Ms. Williams slept at a homeless shelter and at the homes of friends after five apartment complexes rejected her, citing her bad credit and history of foreclosure.
Finally, someone offered to rent her the third floor of their house. Her new $300-a-month rental has a bedroom, a living room and a bathroom, but no kitchen.
“People say, ‘Tina, how are you living?’ ” said Ms. Williams, who has cobbled together the semblance of a kitchen with a microwave, a minirefrigerator and an electric frying pan.
“I say, ‘I’m living on God’s grace and mercy,’ ” said Ms. Williams, who had dreamed of passing on her first home, bought in 2001, to her two grown daughters.
“My daughter says I’m living in a hole in the wall,” she said. “But I can eat every day. I have a roof over my head. When I found this place, I started shouting for joy.”
Nationally, rents have increased about 11 percent since 2005, when homeownership rates started to decline, though that growth is slowing, according to the Bureau of Labor Statistics. In 2005, vacancy rates for rental properties in Cleveland hovered around 10 percent, according to the Northeast Ohio Apartment Association, which represents landlords in the Cleveland area. Today, the rate stands at 5.2 percent.
Christopher E. Smythe, the association’s president, said the collapse of the housing market had improved the economic climate.
“Our apartment traffic is up, people are renting again and occupancies are up,” he said in a letter to members this year.
In other places, like Los Angeles, the slump in the housing market has begun to push up vacancies as condominiums are converted into rentals, according to Raphael Bostic, the associate director at the Lusk Center for Real Estate at the University of Southern California.
But those new apartments are often out of reach of struggling families. And since many owners of rental properties are also going into default, the foreclosure wave has resulted in fierce competition for affordable apartments in some cities.
In Rhode Island, 41 percent of the state’s foreclosed properties are multifamily dwellings, which would most likely have housed tenants, a recent study by the National Low Income Housing Coalition concluded.
“We’re seeing the displacement of tenants at the same time that we’re seeing former homeowners enter the rental market,” said Raymond Neirinckx, a coordinator at the Rhode Island Housing Resources Commission, which handles housing policy.
Meanwhile, some people who have lost their homes find that landlords view them with suspicion.
Steve Allen, 51, a Vietnam veteran in Seattle, was repeatedly rejected when he and his wife, Lesa, started searching for an apartment this month. Some apartment managers said no because they had lost their home to foreclosure. Others said their credit scores were too low.
Debbie Suber, 46, who lost her home in Cleveland last year, said she and her husband were lucky to find a landlord who was willing to consider their income, not their credit scores. “By the grace of God, that’s why I have a place,” she said.
Times are also tough for renters hoping to buy. Banks have tightened mortgage standards, insisting on good credit scores, proof of income and sizable down payments. Lez Trujillo, the national field director for Acorn Housing, a nonprofit group that helps lower-income families get mortgages, said a third of their applicants ended up with houses just a few years ago. Now, it is one in 10, she said.
Barbara O’Leary-Hatfield-Liberace, a 68-year-old retiree and an Acorn member, encountered such difficulties when she and some friends decided to buy a $340,000 house in Seattle.
The mortgage company they consulted said they needed to clean up their credit and come up with a $45,000 down payment, money they do not have.
So on most nights, when Ms. O’Leary-Hatfield-Liberace thinks about her dream house, she reaches for the rosary that she keeps under her pillow.
“I pray a lot and hope to heck we’ll win the Lotto,” she said.
Good luck with that lotto. During the recent boom in house prices credit standards were dramatically loosened. Mortgages once upon a time were given by neighborhood banks to people living in the neighborhood who were well known to the bankers. Globalization and securitization of credit ended this phenomenon and led to an unbelievable boom in mortgage availability to people with little or no credit history. Mortgages were given to people with no jobs and no source of active or passive income. Pick your monthly mortgage schemes were available to low FICO individuals. Well, the rooster has come home. Home prices are out of tune with historical rents. So either rents have to go up (by increasing demand for rent such as this article) or home prices have to come down (as we're currently witnessing in the Case Schiller index) or a combination of both. Inflation will also help and so will the falling dollar. Rising inflation means that home prices dont have to fall all that much! Ask yourself this question. You think your home price has doubled or tripled in the last 7 years? Is that in dollar terms or gold terms or in Euros? Gold (if you believe this to be the true holder of monetary value has quadrupled during this time). In gold terms, your home price has actually fallen. Expect credit availability to shrink (as bankers relearn the business of mortgages), rents to increase and home prices to fall in the next 3 years. Sometime soon, it will again become cash flow positive to buy a condo with 20% down and rent it out. Till then, the pain continues.
June 21, 2008
Rise in Renters Erasing Gains for Ownership
By RACHEL L. SWARNS
WASHINGTON — Driven largely by the surge in foreclosures and an unsettled housing market, Americans are renting apartments and houses at the highest level since President Bush started a campaign to expand homeownership in 2002.
The percentage of households headed by homeowners, which soared to a record 69.1 percent in 2005, fell to 67.8 percent this year, the sharpest decline in 20 years, according to census data through the end of March. By extension, the percentage of households headed by renters increased to 32.2 percent, from 30.9 percent.
The figures, while seemingly modest, reflect a significant shift in national housing trends, housing analysts say, with the notable gains in homeownership achieved under Mr. Bush all but vanishing over the last two years.
Many of the new renters, meanwhile, are struggling to get into decent apartments as vacancies decline, rents rise and other renters increasingly stay put. Some renters who want to buy homes are unable to get mortgages as banks impose stricter standards. Others remain reluctant to buy, anxious that housing prices will continue to fall.
The confluence of factors has largely derailed what Mr. Bush called “the ownership society,” his campaign to give millions of people — particularly minority and lower-income families — a shot at homeownership by encouraging lenders to finance more home purchases.
“We’re not going to see homeownership rates like that for a generation,” said Mark Zandi, the chief economist at Moody’s Economy.com, a research company.
For many minority and lower-income families who viewed homeownership as a stepping stone to building wealth and passing it on to their children, the transition from owning to renting has been the unraveling of a dream. Burdened now by debt and bad credit, some of these families are worse off than they were before they bought.
“The bloom is off of homeownership,” said William C. Apgar, a senior scholar at the Joint Center for Housing Studies at Harvard University who ran the Federal Housing Administration from 1997 to 2001. “We’re seeing more dramatic growth in renters and a decline in the number of owners. People are beginning to understand that homeownership can be a very risky venture.”
Mr. Apgar said the Joint Center had predicted an increase of 1.8 million renters from 2005 to 2015, given expected population trends. Instead, they saw a surge of 1.5 million renters from 2005 to 2007 alone. In the first quarter of this year, 35.7 million people were renting homes or apartments, census data show.
“Even though we’re only looking at a short period, these trends are pretty powerful,” Mr. Apgar said.
Mr. Zandi said he believed that minority and lower-income homeowners had been hardest hit. Nearly three million minority families took out mortgages from 2002 to the first quarter of this year, housing officials say. Since minority families were more likely to receive subprime loans, economists believe these families account for a disproportionate share of foreclosures.
Tony Fratto, a White House spokesman, said that officials had hoped the homeownership gains would stick. “We’re disappointed that conditions in the housing market didn’t allow those gains to be sustained,” he said. “But we’re optimistic that they can return.”
The new renters include people like Tina Williams, a 43-year-old medical assistant who lost her three-bedroom colonial in Cleveland to foreclosure in March after her adjustable rate mortgage spiked and she struggled to find work.
Ms. Williams slept at a homeless shelter and at the homes of friends after five apartment complexes rejected her, citing her bad credit and history of foreclosure.
Finally, someone offered to rent her the third floor of their house. Her new $300-a-month rental has a bedroom, a living room and a bathroom, but no kitchen.
“People say, ‘Tina, how are you living?’ ” said Ms. Williams, who has cobbled together the semblance of a kitchen with a microwave, a minirefrigerator and an electric frying pan.
“I say, ‘I’m living on God’s grace and mercy,’ ” said Ms. Williams, who had dreamed of passing on her first home, bought in 2001, to her two grown daughters.
“My daughter says I’m living in a hole in the wall,” she said. “But I can eat every day. I have a roof over my head. When I found this place, I started shouting for joy.”
Nationally, rents have increased about 11 percent since 2005, when homeownership rates started to decline, though that growth is slowing, according to the Bureau of Labor Statistics. In 2005, vacancy rates for rental properties in Cleveland hovered around 10 percent, according to the Northeast Ohio Apartment Association, which represents landlords in the Cleveland area. Today, the rate stands at 5.2 percent.
Christopher E. Smythe, the association’s president, said the collapse of the housing market had improved the economic climate.
“Our apartment traffic is up, people are renting again and occupancies are up,” he said in a letter to members this year.
In other places, like Los Angeles, the slump in the housing market has begun to push up vacancies as condominiums are converted into rentals, according to Raphael Bostic, the associate director at the Lusk Center for Real Estate at the University of Southern California.
But those new apartments are often out of reach of struggling families. And since many owners of rental properties are also going into default, the foreclosure wave has resulted in fierce competition for affordable apartments in some cities.
In Rhode Island, 41 percent of the state’s foreclosed properties are multifamily dwellings, which would most likely have housed tenants, a recent study by the National Low Income Housing Coalition concluded.
“We’re seeing the displacement of tenants at the same time that we’re seeing former homeowners enter the rental market,” said Raymond Neirinckx, a coordinator at the Rhode Island Housing Resources Commission, which handles housing policy.
Meanwhile, some people who have lost their homes find that landlords view them with suspicion.
Steve Allen, 51, a Vietnam veteran in Seattle, was repeatedly rejected when he and his wife, Lesa, started searching for an apartment this month. Some apartment managers said no because they had lost their home to foreclosure. Others said their credit scores were too low.
Debbie Suber, 46, who lost her home in Cleveland last year, said she and her husband were lucky to find a landlord who was willing to consider their income, not their credit scores. “By the grace of God, that’s why I have a place,” she said.
Times are also tough for renters hoping to buy. Banks have tightened mortgage standards, insisting on good credit scores, proof of income and sizable down payments. Lez Trujillo, the national field director for Acorn Housing, a nonprofit group that helps lower-income families get mortgages, said a third of their applicants ended up with houses just a few years ago. Now, it is one in 10, she said.
Barbara O’Leary-Hatfield-Liberace, a 68-year-old retiree and an Acorn member, encountered such difficulties when she and some friends decided to buy a $340,000 house in Seattle.
The mortgage company they consulted said they needed to clean up their credit and come up with a $45,000 down payment, money they do not have.
So on most nights, when Ms. O’Leary-Hatfield-Liberace thinks about her dream house, she reaches for the rosary that she keeps under her pillow.
“I pray a lot and hope to heck we’ll win the Lotto,” she said.
Good luck with that lotto. During the recent boom in house prices credit standards were dramatically loosened. Mortgages once upon a time were given by neighborhood banks to people living in the neighborhood who were well known to the bankers. Globalization and securitization of credit ended this phenomenon and led to an unbelievable boom in mortgage availability to people with little or no credit history. Mortgages were given to people with no jobs and no source of active or passive income. Pick your monthly mortgage schemes were available to low FICO individuals. Well, the rooster has come home. Home prices are out of tune with historical rents. So either rents have to go up (by increasing demand for rent such as this article) or home prices have to come down (as we're currently witnessing in the Case Schiller index) or a combination of both. Inflation will also help and so will the falling dollar. Rising inflation means that home prices dont have to fall all that much! Ask yourself this question. You think your home price has doubled or tripled in the last 7 years? Is that in dollar terms or gold terms or in Euros? Gold (if you believe this to be the true holder of monetary value has quadrupled during this time). In gold terms, your home price has actually fallen. Expect credit availability to shrink (as bankers relearn the business of mortgages), rents to increase and home prices to fall in the next 3 years. Sometime soon, it will again become cash flow positive to buy a condo with 20% down and rent it out. Till then, the pain continues.
Friday, June 20, 2008
Credit Card limits get cut
from www.nytimes.com
June 21, 2008
Banks Trimming Limits for Many on Credit Cards
By ERIC DASH
The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up.
After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.
Banks that issue cards like Visa and MasterCard, as well as the American Express Company, are cutting the limits for customers who have run up big debts, live in areas that have been hit hard by the housing crisis or work for themselves in troubled industries.
The reductions come as American consumers, squeezed by a slack economy, a weak housing market and rising unemployment, are falling behind on monthly credit card payments in growing numbers. Credit card lenders are also culling their accounts ahead of new rules that are intended to benefit consumers but could limit the profits on customers deemed bigger risks.
Many Americans have come to rely on credit cards to cover everyday expenses like groceries, gasoline and medical bills, in addition to big-ticket items and luxuries.
While consumer spending, the nation’s economic engine, has been surprisingly resilient of late, a more sweeping reduction in credit card limits could pose serious challenges for hard-pressed consumers and, in turn, the broader economy.
Many are already feeling pinched. Pamela Pfitzer, a family therapist with a stable six-figure income, was stunned when she went to a garden center near her home outside Sacramento in early April and tried buying about $30 worth of flowers with her American Express card. Her transaction was denied, she says, even though she had just made a $1,000 payment and almost never missed one in her life.
It turned out that shortly after falling behind on a mortgage payment and being hit with a tax lien, American Express had lowered her credit limit to $900 from $2,300. The flowers pushed her over the new cap.
Then last month it happened again, she says, when she tried to buy office furniture with her Wells Fargo Visa card. Although she had just made a payment of about $700, Ms. Pfitzer found out that her credit limit had been lowered to $2,000 from $2,800.
“In all the years I have had credit cards, I have never had this happen before,” Ms. Pfitzer said. “Now it has happened twice in the last few months.”
Banks and mortgage companies are required by law to notify customers within three days of changing the limits on a home equity line of credit, and many have been aggressively lowering them. But credit card lenders have 30 days to notify their customers, and often do so only after taking action.
Such moves can cause a consumer’s credit score to drop, forcing the person to pay higher interest rates and making it harder to obtain new loans.
Even so, disclaimers in the fine print of credit card applications typically stipulate that the issuer can cancel or alter credit limits at any time, regardless of customers’ payment or credit history.
Washington Mutual cut back the total credit lines available to its cardholders by nearly 10 percent in the first quarter of the year, according to an analysis of bank regulatory data. HSBC Holdings, Target and Wells Fargo each trimmed their credit card lines by about 3 percent.
Among those four lenders, that amounts to a reduction of about $15 billion in three months. Over all, the amount of available credit for the industry appears to be about flat, with the three biggest issuers — Bank of America, JPMorgan Chase and Citigroup — slightly increasing their overall credit lines. But even they are trying to rein in risky individual accounts.
Big banks face intense pressure on their balance sheets as they bring on billions of dollars worth of complex mortgage-related investments and other loans they are struggling to sell. Meanwhile, they are bracing for a surge in credit card losses as the job market and economy get worse.
Consumers are reaching deeper into their pockets to pay for groceries and gas. Last year, as many as half of all those who took out home equity loans used the money to help pay down their credit card debt, according to J.D. Power research. But home equity is no longer an easy source of financing. And month after month, cardholders keep falling behind on their bills.
“This downturn is the perfect storm where the consumer is getting squeezed from all levels,” said Michael Taiano, a credit card industry analyst at Sandler O’Neill. He projects that credit card loss rates for lenders, now around 5.7 percent, could go as high as 10 percent in next 18 months. That would be higher than the peak levels
reached after the 2001 technology bust.
Since borrowers typically run up their balances before they stop paying, issuers have started cutting lines of credit. Often, lenders will lower customers’ credit limits as they pay down their debt — a technique known in the industry as “chasing the balance.” This way, they are on the hook for less money if borrowers default.
“They are trying to cut their risk exposure,” said Bill Ryan, an analyst at Portales Partners. “The consumer that used to use his house as an A.T.M. is now starting to use their credit card as an A.T.M.”
American Express is reducing credit lines for customers holding subprime mortgages and small business customers in industries tied to the real estate market. And Chase Card Services, the consumer arm of JPMorgan, is taking similar action on distressed borrowers, especially in places like California, Arizona and Florida where home prices have declined sharply. Washington Mutual, HSBC, Target, and Wells Fargo all acknowledged they were pulling in lines of credit as part of broader strategy of reducing risk.
None of the lenders, as a matter of policy, would comment on individual customer accounts.
Cardholders in places like Orange County, Calif.; Las Vegas; and Phoenix have noticed their credit lines shriveling up.
John D. Craig Jr., a college administrator from outside Buffalo, said he had regularly been paying own his balance on a rarely used card when Chase informed him they were reducing his credit limit to $4,000 from $20,000. The news took him by surprise.
“For two or three years, it was, ‘We are going to give you more credit, more credit more credit,’ ” he said. “Now, in the last two or three months, it has been the exact opposite.”
Those who work in real estate-related fields say they are being pinched by the credit card lenders at a time when they most need to have money available. .
In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Visa platinum credit card had been reduced in April to $4,800 from $8,000 even though he says he never missed a payment and had no recent credit blemishes.
Leslie Sherman, the owner of Realty Executives in Las Vegas, said American Express reduced the credit limits on several personal and business cards virtually at the same time.
“It has definitely made me spend less,” she said. But Ms. Sherman said that it had been a blow to her ego, too.
“It made me feel like I wasn’t responsible. I know when to put my reins on and when not to,” she added. “I didn’t appreciate someone thanking me for always paying my bills on time and being a good customer by dinging my credit.”
Meredith Whitney, an Oppenheimer banking analyst, said the impact of the recent regulatory proposals on lender profits could be so severe that she expects the industry to pull back $2 trillion in outstanding credit lines by 2010. That would be a 45 percent reduction in credit currently available to consumers. Risky borrowers would be squeezed the most.
Customers with stronger credit histories have probably noticed few changes. But card issuers are also becoming pickier about whom they approve. In April, nearly 30 percent of senior loan officers said they were tightening their credit card lending standards this winter, according to a Federal Reserve survey. That was about three times as many who said they did so in the fall.
Lenders are also sending fewer offers in the mail. The volume of direct mail promoting credit cards fell nearly 19 percent since last October, to about 900 million pieces, according to Mintel Comperemedia, a marketing research company.
And borrowers already in debt, once courted by card companies, are being shunned.
Zero-balance teaser rate offers have fallen by about 15 percent over the last year, according to Mintel.
Consumer Debt on the lower end of the FICO scores is the next shoe to fall in the world of Wall Street finance. Securitized products of Auto loans, Car loans, HELOCs (your mortgage as your ATM) will all suffer. This will lead to further losses in Financials at a time when home prices are STILL falling. Credit availability will become scarce leading to a significant retrenchment in living standards for significant numbers of Americans. I expect debt collection businesses on the consumer level and corporate bunkruptcy specialists will be very busy in the next 2 years. The collateral damage will ripple through even high end "Nordstrom consumers" as well although I suspect the ultra luxury "Hermes consumers" will do just fine in a rising inflation environment. Somehow those people always seem to make money
June 21, 2008
Banks Trimming Limits for Many on Credit Cards
By ERIC DASH
The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up.
After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.
Banks that issue cards like Visa and MasterCard, as well as the American Express Company, are cutting the limits for customers who have run up big debts, live in areas that have been hit hard by the housing crisis or work for themselves in troubled industries.
The reductions come as American consumers, squeezed by a slack economy, a weak housing market and rising unemployment, are falling behind on monthly credit card payments in growing numbers. Credit card lenders are also culling their accounts ahead of new rules that are intended to benefit consumers but could limit the profits on customers deemed bigger risks.
Many Americans have come to rely on credit cards to cover everyday expenses like groceries, gasoline and medical bills, in addition to big-ticket items and luxuries.
While consumer spending, the nation’s economic engine, has been surprisingly resilient of late, a more sweeping reduction in credit card limits could pose serious challenges for hard-pressed consumers and, in turn, the broader economy.
Many are already feeling pinched. Pamela Pfitzer, a family therapist with a stable six-figure income, was stunned when she went to a garden center near her home outside Sacramento in early April and tried buying about $30 worth of flowers with her American Express card. Her transaction was denied, she says, even though she had just made a $1,000 payment and almost never missed one in her life.
It turned out that shortly after falling behind on a mortgage payment and being hit with a tax lien, American Express had lowered her credit limit to $900 from $2,300. The flowers pushed her over the new cap.
Then last month it happened again, she says, when she tried to buy office furniture with her Wells Fargo Visa card. Although she had just made a payment of about $700, Ms. Pfitzer found out that her credit limit had been lowered to $2,000 from $2,800.
“In all the years I have had credit cards, I have never had this happen before,” Ms. Pfitzer said. “Now it has happened twice in the last few months.”
Banks and mortgage companies are required by law to notify customers within three days of changing the limits on a home equity line of credit, and many have been aggressively lowering them. But credit card lenders have 30 days to notify their customers, and often do so only after taking action.
Such moves can cause a consumer’s credit score to drop, forcing the person to pay higher interest rates and making it harder to obtain new loans.
Even so, disclaimers in the fine print of credit card applications typically stipulate that the issuer can cancel or alter credit limits at any time, regardless of customers’ payment or credit history.
Washington Mutual cut back the total credit lines available to its cardholders by nearly 10 percent in the first quarter of the year, according to an analysis of bank regulatory data. HSBC Holdings, Target and Wells Fargo each trimmed their credit card lines by about 3 percent.
Among those four lenders, that amounts to a reduction of about $15 billion in three months. Over all, the amount of available credit for the industry appears to be about flat, with the three biggest issuers — Bank of America, JPMorgan Chase and Citigroup — slightly increasing their overall credit lines. But even they are trying to rein in risky individual accounts.
Big banks face intense pressure on their balance sheets as they bring on billions of dollars worth of complex mortgage-related investments and other loans they are struggling to sell. Meanwhile, they are bracing for a surge in credit card losses as the job market and economy get worse.
Consumers are reaching deeper into their pockets to pay for groceries and gas. Last year, as many as half of all those who took out home equity loans used the money to help pay down their credit card debt, according to J.D. Power research. But home equity is no longer an easy source of financing. And month after month, cardholders keep falling behind on their bills.
“This downturn is the perfect storm where the consumer is getting squeezed from all levels,” said Michael Taiano, a credit card industry analyst at Sandler O’Neill. He projects that credit card loss rates for lenders, now around 5.7 percent, could go as high as 10 percent in next 18 months. That would be higher than the peak levels
reached after the 2001 technology bust.
Since borrowers typically run up their balances before they stop paying, issuers have started cutting lines of credit. Often, lenders will lower customers’ credit limits as they pay down their debt — a technique known in the industry as “chasing the balance.” This way, they are on the hook for less money if borrowers default.
“They are trying to cut their risk exposure,” said Bill Ryan, an analyst at Portales Partners. “The consumer that used to use his house as an A.T.M. is now starting to use their credit card as an A.T.M.”
American Express is reducing credit lines for customers holding subprime mortgages and small business customers in industries tied to the real estate market. And Chase Card Services, the consumer arm of JPMorgan, is taking similar action on distressed borrowers, especially in places like California, Arizona and Florida where home prices have declined sharply. Washington Mutual, HSBC, Target, and Wells Fargo all acknowledged they were pulling in lines of credit as part of broader strategy of reducing risk.
None of the lenders, as a matter of policy, would comment on individual customer accounts.
Cardholders in places like Orange County, Calif.; Las Vegas; and Phoenix have noticed their credit lines shriveling up.
John D. Craig Jr., a college administrator from outside Buffalo, said he had regularly been paying own his balance on a rarely used card when Chase informed him they were reducing his credit limit to $4,000 from $20,000. The news took him by surprise.
“For two or three years, it was, ‘We are going to give you more credit, more credit more credit,’ ” he said. “Now, in the last two or three months, it has been the exact opposite.”
Those who work in real estate-related fields say they are being pinched by the credit card lenders at a time when they most need to have money available. .
In Seattle, Phillip Rodocker, a sales associate for a large residential real estate firm, said that the credit limit on his Citi Visa platinum credit card had been reduced in April to $4,800 from $8,000 even though he says he never missed a payment and had no recent credit blemishes.
Leslie Sherman, the owner of Realty Executives in Las Vegas, said American Express reduced the credit limits on several personal and business cards virtually at the same time.
“It has definitely made me spend less,” she said. But Ms. Sherman said that it had been a blow to her ego, too.
“It made me feel like I wasn’t responsible. I know when to put my reins on and when not to,” she added. “I didn’t appreciate someone thanking me for always paying my bills on time and being a good customer by dinging my credit.”
Meredith Whitney, an Oppenheimer banking analyst, said the impact of the recent regulatory proposals on lender profits could be so severe that she expects the industry to pull back $2 trillion in outstanding credit lines by 2010. That would be a 45 percent reduction in credit currently available to consumers. Risky borrowers would be squeezed the most.
Customers with stronger credit histories have probably noticed few changes. But card issuers are also becoming pickier about whom they approve. In April, nearly 30 percent of senior loan officers said they were tightening their credit card lending standards this winter, according to a Federal Reserve survey. That was about three times as many who said they did so in the fall.
Lenders are also sending fewer offers in the mail. The volume of direct mail promoting credit cards fell nearly 19 percent since last October, to about 900 million pieces, according to Mintel Comperemedia, a marketing research company.
And borrowers already in debt, once courted by card companies, are being shunned.
Zero-balance teaser rate offers have fallen by about 15 percent over the last year, according to Mintel.
Consumer Debt on the lower end of the FICO scores is the next shoe to fall in the world of Wall Street finance. Securitized products of Auto loans, Car loans, HELOCs (your mortgage as your ATM) will all suffer. This will lead to further losses in Financials at a time when home prices are STILL falling. Credit availability will become scarce leading to a significant retrenchment in living standards for significant numbers of Americans. I expect debt collection businesses on the consumer level and corporate bunkruptcy specialists will be very busy in the next 2 years. The collateral damage will ripple through even high end "Nordstrom consumers" as well although I suspect the ultra luxury "Hermes consumers" will do just fine in a rising inflation environment. Somehow those people always seem to make money
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