Fat Tuesday!

February 21, 2012

Happy Fat Tuesday!

The Eurozone has authorized 130 billion Euro ($172 billion) to Greece, avoiding a default at the March 20 deadline. The country has agreed to another round of austerity which will “cut” their debt to GDP to 121% by 2020 from 160% last year. Let’s face it, this is a decision of pouring good money after bad, with the alternative being letting the euro fall apart. Greece hasn’t been in the news this much since Alexander the Great.

Oil has been in the news as it hits a 9-month high of $106 in response to Iran’s announcement they have stopped exporting oil to Britain and France as a retaliation for planned economic sanctions by the EU. Gasoline prices in the US have jumped to the point where consumer spending has been crimped in the past. Interestingly, the last peak in oil (May 2011) coincided with the last peak in the S&P 500 (see chart below).

Now that the EPA has climbed on board the natural gas train, some interesting action is occurring in the domestic energy markets. Nat gas pricing remains weak as supply far outweighs demand, however, domestic consumption is rising as power plants capable of switching from coal to nat gas have been doing so with the EPA’s blessing. Coal pricing is falling as a result, and now there is significant pressure on the rails as they derive a significant portion of their traffic from coal. Nat gas is a local market due to transport issues, which is unfortunate given the enormous consumption coming from Japan in the wake of nuclear shutdowns and the resulting 6x price premium of nat gas in Japan vs. the US.

China’s central bank is lowering its lending reserve ratio in an effort to encourage more short term lending. The reserve requirement will be cut later this week by 50bps to 20.5% for the country’s largest commercial banks. Remember a year ago this rate was raised to offset domestic inflation and an overheating housing market. Now, as speculation mounts that the country’s economy may have slowed too far in response to internal actions to slow inflation and a slowdown in exports to their largest trading partner, Europe, the central bank is taking steps to reignite growth.

Japan, once the world’s leading exporter, just reported a record $19 billion trade gap for January. Weaker demand from its trading partners combined with a stronger Yen have conspired to slow demand for products manufactured in the country. Shipments dropped 9.3% year over year.

I just want to remember you heard this one here first (J). Two weeks ago Ben Bernanke put out a similar warning, now economists and congressional staffers have jumped on the wagon in warning about a long list of tax hikes that kick in at the beginning of 2013. Some old favorites such as the marriage penalty comes back while the child tax credit is cut in half-not very friendly to those middle class working families. The “experts” are saying these tax increases, the expiration of the Bush tax cuts, as well as a slew of taxes hidden inside the Healthcare Affordability Act could drive the country into another recession. I used to write about jobs I could do in my spare time, and Fed Chief, economist, and congressional staffer all fall into that category.

I’ve oft lamented the higher cost of living in California. Check out the picture below.

Facebook has quietly released a new product that is sure to give LinkedIn (LNKD) indigestion. The product, BranchOut, is a Facebook app which links business users. The app was launched last spring. Although LNKD is primarily designed as an online contact organizer, it has great utility for job search, sales, and general networking. BranchOut was originally designed as a networking site to help with the job search, networking, and recruiting aspect of life. While the app has grown quickly (I don’t have user data, yet), it has some limitations. There are many users who attempt to separate their work/home life by maintaining a LNKD profile for the former and a Facebook profile for the latter. Given Facebook’s historical disregard for privacy, consumers will be hesitant to trust the site to keep those profiles separate.

Have a great day

Ned