How Many Subprime Loans Are Out There? — Chart of the Day
Kurt Brouwer August 11th, 2008
Source: Carpe Diem
What this chart tells us is that there were approximately 3 million subprime mortgages in existence as of June 2008. Of those, approximately 17% or 509,000 were in foreclosure or were owned by a bank due to mortgage defaults or forfeitures. It also points out that there are 50 million mortgages that are not subprime and 26 million homes that are fully-paid and have no mortgage.
Subprime loans are a big problem, but let’s always try to keep things in perspective.
Heavy Metal Prices
Kurt Brouwer August 11th, 2008
Metal Goes Soft (WSJ/MarketBeat Blog, August 11, 2008, Tim Annett)
…Futures prices on a range of different metals were flattened like a penny on a train track Monday. Comex gold for August delivery dropped 4.2% to $821.50 a troy ounce, in the biggest one day drop for the shiny stuff since March 19. With Russia and Georgia locked in a worsening armed conflict and concern growing that the global economy is circling the drain, tradition would seem to dictate that investors scamper to safe-haven stores of value to lick their wounds and wait out the shooting. But gold is now enmeshed in its longest losing streak in more than two years, since a seven-day plunge that ended on June 14, 2006.
Other metals are faring no better. Comex silver dropped 4.6% on Monday and has fallen by 18% over the first seven days of August. Copper shed 1.2% Monday to $3.3590 a troy ounce, its lowest settlement since February 6. The metal is down 18% from its early July record.
Market players say there appear to be few investors willing to step out and try to catch the falling knife – no matter what metal the blade is made of. “When [investors] want out, there is nobody to sell to,” Leonard Kaplan, president of Prospector Asset Management, said. “People are getting out of commodities in general. All of the funds are getting out.”
I think we have seen this before. The market action this year, in commodities such as metals or such as oil, illustrates George Soros’ concept of reflexivity almost perfectly. In his book, The Alchemy of Finance (Wiley), Soros wrote that markets are inherently reflexive. That is, buying begets more buying until a peak is reached and then selling begets more selling until a bottom is reached.
I can remember back in the very early 1980s, in a previous oil boom, the news that Chevron or another company had hit a big well would cause a nice pop in the stock price. A few years later when oil prices had tanked and the oil business was a mess, the same company would announce another solid oil well coming on stream — except, the company’s price would fall, not rise. By then, oil stocks had become dogs and nobody wanted to hear them bark.
The war between Russia and Georgia (see Oil Runs Through It — Russia Threatens Major Oil Pipeline) would have probably caused a pop in oil and even gold prices a month or two ago based on uncertainty over supplies and fears of inflation. Now, the same event does not cause prices to rise, rather prices for metals — oil too — just keep getting heavier.
Oil Runs Through It — Russia Threatens Major Oil Pipeline
Kurt Brouwer August 9th, 2008
Does it seem to you that oil supplies always seem to be found in troubled parts of the world? The answer is yes, but it does not have to be that way. North America has a huge, untapped supply of oil, (see 2 Trillion Barrels? — U.S. Oil Shale — Chart of the Day and Big Expansion in Alaskan Oil Exploration), but for many reasons, we have chosen to export oil drilling to exotic and frequently violent parts of the world.
The latest trouble spot is Georgia — the country, not the state that is.
Georgia does not produce any oil, but oil runs through it. There is a major oil conduit — the Baku-Tbilisi-Ceyhan pipeline — that carries oil from the Caspian Sea oil fields through Georgia and Turkey to Ceyhan on the Mediterranean. This oil primarily supplies Europe.
Source: Wikipedia Commons
The reports on the Russian bombing attack are sketchy. This one from Agence France Presse and Yahoo spells out what happened [emphasis added]:
Russia Stages Raid Near Key Oil Pipeline: Georgia (AFP/Yahoo, August 9, 2008)
Russian warplanes on Saturday staged a raid near a major international oil pipeline that runs through Georgia but did not damage it, Georgia’s prime minister said.
The 1,774-kilometre (1,109-mile) Baku-Tbilisi-Ceyhan (BTC) oil pipeline is the world’s second longest and takes oil from Azerbaijan to Western markets.
Prime Minister Lado Gurgenidze told Georgian television: “The area of the Baku-Ceyhan pipeline was bombed by Russian planes. Miraculously, the pipeline was not damaged.”…
I doubt if it was a miracle that the Russian jets did not score a hit on the pipeline. Rather, I suspect they were sending a message to Europe primarily that they could do so any time they want. The Russian military has fallen on hard times over the past 15 years, but how hard is it to hit a very large, undefended, stationary target such as a pipeline?
Not hard at all. In fact, the pipeline is already shut down and will be closed for some time due to sabotage on the pipeline by the Kurdistan Workers Party (PKK), a terrorist group operating in Turkey and Northern Iraq.
If you want to get into the roots of this conflict between Georgia and Russia, go here and here. I suspect it will begin to seem pretty complex, convoluted and conflicted. The gist of the story is that Georgia was once part of the vast Soviet Union. When the U.S.S.R. collapsed, many republics such as Georgia split off and became independent countries. Old Soviet instincts die hard though and Russia under Vladimir Putin is aggressively expanding its influence, power and dominance over former republics such as Georgia. This is but one power play among many undertaken by a resurgent Russia.
Normally, a military attack on a pipeline of this magnitude would have immediate repercussions in the world oil markets — and it may yet do so — but, so far the markets have reacted benignly to the news as this report from the Kuwait Times points out:
Oil fell $4 to below $116 yesterday in line with declines across the commodities complex as weaker demand and a stronger US dollar outweighed concern conflict in Georgia could disrupt Caspian energy supplies. US light crude was down $3.50 at $116.52 a barrel by 1430 GMT, up from an intraday low of $115.75.
London Brent crude fell by $3.52 to $114.34. Oil has lost over $30, or nearly 20 percent, since hitting a record high of $147.27 in mid-July…
One additional reason, the oil markets have not — yet — reacted strongly to the news of the Russian attack is the fact that the pipeline was already out of commission due to the sabotage in Turkey. The fact that the pipeline was closed and would remain closed for several weeks to a few months was already factored in to world oil prices. In other words, the oil markets had already absorbed the loss of oil from this source.
Euro vs. Dollar — Biggest Drop In 8 Years
Kurt Brouwer August 8th, 2008
Source: Wikipedia Commons
Yesterday, the head of the European Central Bank announced that the economy in Europe was softening. As a result, the Euro fell and it has fallen further today because the weakening European economy makes it increasingly unlikely the central bank will raise short-term interest rates. And, as regular readers know, the differential between short-term rates in the U.S. and Europe is the factor that I believe most closely correlates with currency movements (How Far Has the Dollar Fallen? And Why? — What’s Next?).
This piece from Bloomberg points out that the Euro is falling versus the dollar [emphasis added]:
Euro Falls the Most in 8 Years on Reduced Bets for Higher Rate (Bloomberg, August 8, 2008, Ye Xie and Anchalee Worrachate)
The euro fell the most in almost eight years, pushing the currency to a six-month low against the U.S. dollar, as traders pared bets the European Central Bank will raise interest rates as the economy slows.
The euro dropped below $1.50 for the first time since February after ECB President Jean-Claude Trichet yesterday said economic growth will be “particularly weak” through the third quarter. An index that tracks the dollar against the currencies of six U.S. trading partners touched the highest since February.
…”We are now seeing a lot more negative surprises coming out of Europe than from the U.S., more so than any time during this credit shock,” said Jim McCormick, head of currency strategy at Lehman Brothers Holdings Inc. in London. “At the same time, you’ve got some pretty strong capital inflows to the U.S. We kind of have the perfect circle of fundamentals bumping into strong technicals.”
Europe’s shared currency declined 2 percent to $1.5010 at 3:33 p.m. in New York and reached $1.499, the lowest level since Feb. 26, from $1.5325 yesterday. It fell as much as 2.13 percent, the biggest one-day drop since Sept. 6, 2000, the largest decline since the 1999 introduction of the euro.
Against the yen, the European currency traded at 165.46, from 167.70. The dollar rose 0.7 percent to 110.23 yen after touching 110.36, the strongest since Jan. 2.
…The European currency has declined 3.6 percent against the dollar in its fourth weekly decline, the worst losing streak since May 2007. Against the yen, the U.S. currency has advanced 2.3 percent, heading for its biggest weekly gain in almost two months…
For more on this trend, see The U.S. Dollar — Is The Tide Turning? and Gross Likes Dollar vs. Euro For First Time.
Source: Wikipedia Commons
