May 14, 2012

OIl Down, Gas Up? Only in California

Monday May 14, 2012

Today there is a fair amount of movement in the executive suites as JP Morgan (JPM),  Yahoo (YHOO), and Best Buy (BBY) have announced senior level departures.  At JPM, Chief Investment Officer Ina Drew has announced plans to retire after an embarrassing, well publicized trading loss cost the firm $2 billion last quarter.  Ms. Drew’s departure has been termed a “retirement” to spend more time with her family.  At YHOO, CEO Scott Thompson is stepping down after Daniel Loeb of Third Point pushed hard for Thompson’s departure after discovering erroneous biographical references in Thompson’s CV.  Thompson claimed a bachelor’s degree in computer science when actually his degree was in accounting.  Mr. Thompson also announced he has been diagnosed with thyroid cancer.  At BBY, founder Richard Schulze will step down after he failed to notify the audit committee about former CEO Brian Dunn having an inappropriate relationship with an employee. 

After all the tongue in cheek commentary, and some a bit more serious, regarding Greece’s departure from the Euro, it now appears that ECB officials are reviewing contingency plans in case the recently elected leaders can’t meet to form a government.  In such a case a new election will need to be called, which would be expected to enhance the status of those opposing austerity.  If the country were to fall out of the euro, or if they can’t meet the terms to qualify for the tranche of capital being released by the EFSF at the end of June, the country will run out of cash in July. 

Ahh, it’s that time of year in California, when gasoline prices disconnect from reality due to the special blends required in the state and the lack of refining capacity available to make those blend.  Oil has broken down lately on concerns about global growth (see chart below), yet gasoline prices in CA have actually risen.  The average gallon of regular in the Golden State is now priced at $4.44 per gallon, and premium in many stations is once again over $5.00. 

Asian markets were weak last night in spite of a reserve ratio cut in China.  The central bank lowered the reserve requirement by 0.5% to 20%, the third cut since November as the country is combatting slowing economic growth.  The Nikkei was up 0.2%, but the Hang Seng fell 1.2%, the Shanghai Composite was down 0.6%, and the Kospi down 0.2%. 

Commodity prices have been falling steadily since peaking last spring and are well off their all-time highs (as measured by the CRB Index) of 2008.  The longer term chart (below) of the CRB looks like a bearish head and shoulders pattern, and could signal the multi-year bull cycle in commodities is over. 

The Lakers and Clippers both winning playoff series in seven games?  When was the last time that happened?  I’m not sure it ever has as the Clippers just won a playoff series for only the third time in the 41 year history of the franchise.  The Clippers face the top seeded San Antonio Spurs starting Tuesday evening in Texas.  After trying to give the Nuggets the series, the Lakers advanced and will battle the Oklahoma City Thunder beginning tonight. 

Have a great day


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