Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

a few interesting graphs

by Jerome a Paris Tue Jun 24th, 2008 at 09:39:49 AM EST


Oil prices since 1990, and current forward curve for deliveries till 2013

That graph, more than any other I've seen before, shows that the market has absolutely no friggin' clue as to where oil prices will go into the future. Betting that it will remain where it is for the foreseeable future (and futures up to 2016 are the same) is just the "default" position when you don't know better. Or it shows perfect balance between those that think that it will go up, and those that bet it will go down (hardly an argument that speculators are to blame for the current runup in prices...).

Given that until recently, the "default" position was that prices would come back down to 20$/bl, this is actually quite a massive change in expectations, and a sign, in my mind, that the market has actually come round to the idea that prices are going nowhere but up - fighting, along the way, deeply ingrained common wisdom, massive pundit inertia and, more than anything else, profound denial by almost everybody that this may be happening. It's a bubble! It's speculators! It's above ground factors!


The dollar and the euro, in yuan

Not directly to the previous graph, but nevertheless an interesting trend, as it shows the currently exponential reevaluation of the yuan against the dollar - along with its steady devaluation against the euro. whether for political, commercial or other reasons, China is increasingly focusing its trade efforts towards Europe, and indeed its surplus with Europe overtook that with the US last year - not a surprising feat considering that it is devaluing its money despite the record trade imbalances. It's in fact quite amazing that Europeans are squealing so little. Wimps, a preference for imported deflation, or superior economic growth which makes it bearable?



Building permits, and builder's morale

A bonus graph, showing that the expectations of a "V"-shaped recovery in the US housing market are not yet borne out by reality.

Housing Index Show Deeper Slump.

The S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, show price declines continued to get steeper in April, with prices in every region surveyed now showing year-over-year drops.

The goldilocks economy that financiers claimed they had brought us (low inflation, strong growth) is turning into a perfect storm of bad news (inflation, bust, inequality, poverty, etc...)

Addendum: the source for the graph is this note by Crédit Agricole (pdf)

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Sorry, I messed up in posting the story several times to the front page, and deleted one comment by Nomad when deleting one of the imporperly posted versions. Here it is, again:


 I like the first one. It has that sense of realistic guesstimate written all across it.

</sarcasm>

On the other hand, should we note that Bloomberg now sticks to a long-term spot price over $130?




In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jun 24th, 2008 at 09:42:44 AM EST
I'm becoming properly Jeromenised! I can actually spot the ridiculousness in financial graphs before J points it out in the text!

But really, the Bloomberg graph is an instant keeper; I don't think I have ever seen something like that before. In a decade or so, it may well have people rolling on the floor with hysteric laughter at such a brazen display of ideological ineptitude.

by Nomad on Tue Jun 24th, 2008 at 09:57:51 AM EST
[ Parent ]
Yewah, the traders (not Bloomberg) are blind. And hard chance futures will show further sharp rise, telling the demanders of gas tax cuts how shortsighted they are.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 24th, 2008 at 10:15:21 AM EST
[ Parent ]
How is it even possible for the Renminbi to increase against the US$ and decrease against the Euro as a result of differential trade imbalances or policy? Is this because the Chinese currency is not convertible? What is the residual trend after the (presumably independent) decline of the $ against the Euro is accounted for?

Jerôme, these are probably basic questions that you shouldn't waste your time answering in detail, but perhaps if you had any helpful links for the financially illiterate...?

PS. The housing graph: oh dear me!

by PIGL (stevec@boreal.gmail@com) on Tue Jun 24th, 2008 at 10:09:34 AM EST
What is the residual trend after the (presumably independent) decline of the $ against the Euro is accounted for?

Obviously, the other graph. If you peg the value of your virtual dollar to the real Euro, they will move the same.

However, what the smoothness of one curve and the rhapsodic nature of the other tells me is that China closely manages the appreciation of the renminbi relative to the US dollar, and largely but not totally ignores the Euro. I.e. they bend to US demands, but not to an extent that the price advantage against Europe doesn't increase.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Jun 24th, 2008 at 10:20:05 AM EST
[ Parent ]
And the point about managing one relationship (with the US) but not the other (with Europe, with the proviso you note about protecting increasing competitivity) is spot on.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jun 24th, 2008 at 10:28:32 AM EST
[ Parent ]
... a Singapore peg ... a peg to a basket of currencies ... and when they adopted it, in transition for a peg to the US$, the basket was clearly dominated by USD.

The smooth devaluation to the USD and spikiness to the Euro suggests that they are leaving the USD dominant in the peg and shifting the peg, but having the Singapore peg leaves them free to reduce the weight of the USD in their peg at any time.

Since the average valuations are heading in exactly the direction of the opportunity I pointed out earlier this year, allowing the USD rate to rise to lean against imported commodity price inflation, but not so far as to increase the valuation of the Yuan/Renminbi against the Euro, it would seem that the make up of the basket of currencies has a political benefit. If the US complains about the trade deficit, they can say, "but the yuan is revaluating against the dollar", while if Eurozone nations complain about the trade deficit, "but, that's just the float against the dollar ... we are revaluing against the dollar, but we can only go so fast if we are going to avoid economic distress".


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Jun 24th, 2008 at 12:45:34 PM EST
[ Parent ]
The figure says that the Renminbi is dropping vs. the €. But the $ is dropping faster against the € than the Renminbi. Thus, from the point of view of the Renminbi, the € is going up and the $ is going down.

It's like a feather and a rock falling from the top of a tower. From the point of view of the feather, the top of the tower is moving upwards. But since the rock falls faster than the feather, the rock is moving downwards both from the point of view of the feather and the top of the tower. Nothing particularly mysterious about that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 24th, 2008 at 12:02:05 PM EST
[ Parent ]
But what if we regulate air pressure?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Jun 24th, 2008 at 01:04:24 PM EST
[ Parent ]
I don't know. Fluid dynamics was never my thing :-P

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 25th, 2008 at 04:46:32 AM EST
[ Parent ]
There's a street game where the card sharp shuffles 3 cards, first showing that one of them is a queen - the lady.  There are usually 2 or 3 accomplices. Accomplice 1 bets and wins a couple of times. A crowd gathers. Accomplice 2 encourages a mark or sucker in the crowd to bet.

The mark may win. Accomplice 2 also bets and maybe wins. Now several marks may be persuaded to bet. They will lose. The game is fixed.

Accomplice 4 is keeping a sharp lookout for the Bill. If he sees them coming, the table will be turned over, the money grabbed and all 4 will melt into the street.

I have a feeling that Accomplice 4 is about to shout...

You can't be me, I'm taken

by Sven Triloqvist on Tue Jun 24th, 2008 at 10:49:32 AM EST
That oil price increases are just a scam played on poor unsuspecting consumers?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jun 24th, 2008 at 11:04:49 AM EST
[ Parent ]
No, that the table will be overturned by the fixers when the game is threatened.

An attack on Iran would, for example, be case of the table being overturned.

You can't be me, I'm taken

by Sven Triloqvist on Tue Jun 24th, 2008 at 11:11:20 AM EST
[ Parent ]
I am not qualified to discuss at your level of knowledge;-)

 But I am a student of legerdemain, persuasion, camouflage and misdirection.

You can't be me, I'm taken

by Sven Triloqvist on Tue Jun 24th, 2008 at 11:16:13 AM EST
[ Parent ]
as the son of an adman, i never heard a better four word description of that dark art...

sauce bernays!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jun 24th, 2008 at 03:00:48 PM EST
[ Parent ]
Melo: It would be easy to be honest, if there was only Future. Unfortunately there is Past. Past means an enormous accumulated backlog of misinformation and misunderstanding with which new information has to compete. And that backlog is different for almost every person. Including ourselves.

That is why I am drawn to the arts as a means of communication because it allows a dynamic between people that is not based on 'logic', but the interplay of the senses and our individual interpretation of those senses. That is, the arts include and accept misinformation and misunderstanding.

The 'Dark Art' is in limboland - neither honest nor logical. And yet it IS an art, and it can have a certain honesty in that it exposes the frailties of mind. As I have said before: the hardest part of the communication path is the last 5 centimeters ;-)

Your and my life experiences are parallel, I feel, so I guess you'll understand what I am trying to say, even if I am saying it poorly. I am not sure everyone will understand. But I remain a committed ET member because I believe it is imperative to negotiate an exchange between 'facts' and 'feelings' in order to create change. As we did in the Sixties ;-)

You can't be me, I'm taken

by Sven Triloqvist on Tue Jun 24th, 2008 at 03:46:24 PM EST
[ Parent ]
heh, hate the sin, love the sinner!

break the roolz kerrektly, sven, you know you can.

to sup with the devil, better use a long spoon, the wag said.

5 inches should give the sphenoid a good roll...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jun 24th, 2008 at 04:42:59 PM EST
[ Parent ]
I use a veeeery long spoon. My MO is always to do a detailed review of a company and their methods before I take them on. This is why I am poor ;-)

Or as the Finns say ' Väsynyt mutta onnellinen' - tired but happy.

I gave up consumer marketing a long time ago. Ugh! Now I specialize in B2B. Bastard to Bastard.

You can't be me, I'm taken

by Sven Triloqvist on Tue Jun 24th, 2008 at 07:01:00 PM EST
[ Parent ]
The little upward Kink in the forward line,right at the start, is that the speculation that they will draw upon to justify their claims?, draw the graph short enough so only the upwards half of the lump exists?, even though its below the peak of the spot price?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Jun 24th, 2008 at 10:50:05 AM EST
In spite of his being the smartest man in the world (just ask him, and he will tell you), Paul Krugman has apparently taken to reading some of the other blogs and replying to criticisms (indirectly).

This is in contrast to his own blog where he (proudly) says he doesn't have "time" to read the comments and leaves the vetting to some unnamed minion. Anyway from the blog:

I'd qualify that by saying that speculators can create incentives for other people to hold physical product off the market, if they drive the futures price well above the spot price. But that hasn't happened.

How does he know whether product is being held off the market? He doesn't cite any sources, and even if he did could they be trusted?

I think the situation now needs a bit of Occam's razor - the simplest answer is probably the right one: demand is up supply isn't.

In his latest blog entry he mentions the new deal between Australian and China where the price of iron ore has doubled.

There is only one real issue and it's the same one no one (in authority) has been willing face - overpopulation and growing standards of living have led to worldwide resource shortages. What's to be done?

Unfortunately there has never been a time in history where such problems have been handled without much misery and the panicked activities of the world leaders this time doesn't make it seem likely that things will be better this time either.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Tue Jun 24th, 2008 at 10:55:06 AM EST
"'I'd qualify that by saying that speculators can create incentives for other people to hold physical product off the market, if they drive the futures price well above the spot price. But that hasn't happened.'
How does he know whether product is being held off the market? He doesn't cite any sources, and even if he did could they be trusted?"

Oh come on, give him a break! He tells you that what hasn't happened is futures price being driven well above the spot price. And he does cite sources -in fact he provides you with the graph comparing futures and spot over time (another way to look at it would be Jérôme's graph -futures are like spot, only a little bit lower).

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Tue Jun 24th, 2008 at 04:22:28 PM EST
[ Parent ]


Consumer Confidence Tumbles

The Board's index, based on a survey of 5,000 U.S. households, fell to 50.4 in June, from 58.1 in May. This was the fifth lowest reading ever, noted Lynn Franco, director of the Conference Board Consumer Research Center.

She said the increasingly negative views suggest "the economy remains stuck in low gear."

And matters aren't looking any better to consumers in the months ahead. The index measuring consumer expectations fell to a record low of 41.0, from 47.3 in May.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Jun 24th, 2008 at 11:02:52 AM EST

From PIMCO

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jun 24th, 2008 at 02:41:55 PM EST


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