Brennaman’s Four Points for the Week
1.
Ukraine - Putin Rhetoric is intensifying
– I have been writing about the Ukrainian Crisis for months and the mainstream media decides it is front page news. Fighting continues in the eastern provinces of Ukraine as leaders from the
European Union (Germany and France) met separately with Russian President
Vladimir Putin and Ukrainian President Petro Poroshenko during the week.
The talks with Putin on Friday ended with absolutely no progress save the fact
they will meet again this coming week. Missing at these meetings with
Putin was President Poroshenko as well as other leaders of the EU or the United
States. The U.S. Congress and the Administration are beginning debate on
providing military arms and direct logistical support to Ukraine. This
possibility has not resounded well with President Putin as he has repeatedly
said this sort of action by the U.S. would be an escalation to the situation
and a direct threat to the national security of Russia. German President
Merkel is to meet with President Obama on Monday February 9th to
discuss the Ukrainian situation. In the interim, fighting continues in
the Ukraine with the port of Mariupol a key point in the fight. If
Mariupol were to fall into the hands of the Russian Separatists, a land bridge
would exist from Russia to the Crimea (annexed by Russia in March 2014).
The fall of Mariupol would also place extreme pressure on the Kiev government
in trying to maintain (or regain) sovereign control over eastern Ukraine.
Vladimir Putin’s strong rhetoric is aimed in part to keep the U.S. on the
sidelines as the ineffective motions by the EU coniine to allow the crisis in eastern
Ukraine to worsen.
2.
Business – Roadblocks to Forward Progress
– The continued dock workers slowdown in western ports is in its 7th
month with no signs of ending anytime soon. The gridlock at 29 ports is
increasing and total shutdown is possible in the next 5 to 10 days if
operations do not pick up. The slowdown has created the situation where
there is literally no place to put incoming containers as they are
offloaded. Container ships are standing in line, anchored in the harbors
or offshore waiting to berth and offload. A port short down could set
back the economy significantly as up to $1 Trillion worth of goods go through
these ports annually. While there is no strike or port lockout at present
the result is the same as movement of goods from these ports to other parts of
the nation has slowed to a trickle. The immediate effect is trucks and
trains are idled as goods are taking longer to be offloaded and reloaded onto
the next conveyance mode. Time is money and when the goods finally reach
their destinations the cost may well be higher. Local governments are
alarmed but as yet the federal government in the form of the National Labor
Relations Board (NLRB) has taken no direct action to bring a rapid solution to
the situation.
3.
Energy – Tis the Season to See Oil and
Gasoline Price Movements Diverge – Oil imports are at the lowest level
since 1996 (U.S. Census Bureau) at 280 million barrels for the 12 month period
ending December 31, 2014 (peak was 415 Million barrels in 2005). The
price of oil has climbed back into the $50 dollar range making analysts think a
bottom has been has been realized. Oil rig count in the Gulf of Mexico
and inland U.S. has stabilized making one wonder if the glut will continue as
shale production will continue as well as gulf production. The dollar
price of $53 per barrel of crude is above the presumed breakeven of $45-47 per
barrel that the hydrocracking companies need to sustain operations so the rise
is good news however, we will soon see the seasonal switch to summer gasoline
blends temporarily slows gasoline refining so perhaps gasoline prices will
continue to rise as the price of oil remains constant in the upper $40’s to
mid-$50’s. Meanwhile gasoline prices nationwide have climbed
precipitously in the last week to 10 days with the national average standing at
$2.26 (AAA), an increase of $.20 during the period. Still better than the
$3.04 per gallon of a year ago.
4.
The Economy –Will The Federal Reserve Take
Notice? – The Gross Domestic Product for 2014 came in at 2.4% for the year
buoyed by strong consumer spending escalating into the fourth quarter.
The growth was spurred on by lower energy prices and continued strong hiring in
nearly every economic sector (except energy). A problem arose in the 4th
quarter when the strong U.S. dollar dampened the demand for U.S. goods abroad
increasing the trade deficit as imports picked up exponentially as a result of
stronger domestic demand for products manufactured overseas. The strong
U.S. dollar is likely to continue as investment money continues to move into
the U.S. financial markets including real estate in major east and west coast
cities. Unemployment increased fractionally from 5.6 to 5.7% in the month
of January but the results for the month shed encouraging news as the labor
participation rate improved (up.2% to 62.9% from 62.7% in December) as well as
continued progress in hourly wages (hourly wages increased .5%, not robust but
not going backwards). The U.S. economy added jobs in the three months
ending in January at a faster rate than at any time since 1997. Still an
obstacle is the creation of key jobs in manufacturing and production. The
tick up in the unemployment rate is attributed to unemployed workers who had
previously stopped looking returning to the job search fray. But this
factor is difficult to quantify. Nonetheless an improving and robust
employment cycle could prompt the Federal Reserve (FED) to raise short-term
interest rates as soon as June. However, a critical target is the overall
inflation rate which currently stands at 1.6% well below the target of
2%. The 2% number has been the target for the FED since the recovery
began and seems to be an elusive target. Minus food and energy the CPI
stands at .8%. These low numbers represent a challenge to the FED in
considering the level of interest rates. Prematurely raising rates could
threaten price growth and spur deflation. Currently, low prices help
consumers who fuel 66% of GDP (slightly higher in December at 70%).
Deflation could slow consumer spending as buyers would wait for lower prices
leading to lower production and corporate profits and the downward spiral
begins. Not a good recipe for an economic recovery that is still tepid in
its pace.
“There is nothing more difficult to take in hand, more
perilous to conduct, or more uncertain in its success, than to take the lead in
the introduction of a new order of things.” Niccolo Machiavelli, The Prince,
1532.
Have
a good week and be unafraid of trying new ideas.
Steve
Vol2 Issue 5
No comments:
Post a Comment