Sunday, May 17, 2009

Weekend reading....

Lots of good info out there tonight so let's get right to it......

1. Almost everyone has noticed the recent run-up at the pump. Nationwide gas prices have jumped 25cents in the past three weeks. What's going on? Well, demand for crude remains weak but the US dollar has weakened by about 3% in the past few weeks (remember as our $ weakens, the cost of oil to us increases), traders seem to be positioning for another sell stocks/buy commodities run and global oil buyers seem to be filling up there storage facilities.

"As tank farms on land fill up and ships lie idle as a result of the recession, a growing number of vessels are being pressed into service as "floating storage". Analyst estimates suggest another 100-120 million barrels of crude is being stored on vessels moored in the Persian Gulf, off the coast of Singapore, and at other locations around the world."

Eventually, all of this excess oil will hit the market and it might create a pretty substantial oil glut if it all hits the market at once. The long-term trend is probably still up for oil, but that trend is going to be put to the test by the vast amounts of oil being stored around the world.

There's a pretty good satellite mash-up showing the moored vessels outside of the Port of Singapore online here.

2. There will be more troubled days for Chrysler and GM in the future, but before we go much further I think it's worth looking at the proposed ownership structure of Chrysler post bankruptcy....

55% to the UAW
20% to 35% to Fiat
10% to the government and creditors

Let's consider for a moment that the last two owners of Chrysler - Mercedes and Cerebus (a hedge fund) couldn't make the Chrysler brands profitable, but somehow the UAW, Fiat and the US Government will be able to make it work?

Also consider what is at stake for these players - the UAW has contributed no cash, they get a majority stake in exchange for money they are owed by Chrysler. Fiat is also contributing no cash, just technology. How passionate do you think Fiat's going to be about that investment? If you put up no money, but get 20-35% of a major automaker it seems like a good deal if it works, if not, as they say in Italy, ciao..........

3. Credit card defaults are still spiralling out of control. I don't see this abating any time soon given the weakening employment situation -- yes, it's still weakening even if they tell you it's weakening at a slower pace :)

"U.S. credit card defaults rose in April to record highs, with Citigroup and Wells Fargo posting double digit loss rates, as the recession slashed more than 2 million jobs since the beginning of the year.

But the latest numbers dashed hopes of an early recovery, according to reports on the performance of credit card loans that issuers packaged into bonds and sold to investors.

"April, in our opinion, still bears some beneficial trickle effect of tax refunds received by customers and therefore is seasonally a relatively better month," Scott Valentin, an analyst at FBR, said in a research note, suggesting a grimmer outlook for the industry in coming months."

4. Perhaps the most troubling story of the weekend was in the NY Times on one family's personal credit crisis. It's a disturbing look at how one family was able to fall between the cracks, buy a house they couldn't afford and the strains it puts on a family. If you have 10-15 minutes (when you're not at work of course) check it out here......

Asian markets are off to a really rough start, down 2-3% right now, we'll see if that carries over into Europe and the US markets tomorrow.

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