Wednesday, February 29, 2012

Economy: Weighing Anchor

The recovery of the U.S. economy is painstakingly slow and disappointing. The magazine "the Atlantic" has a plausible explanation for this: “The recovery has been a drag because housing has provided a monstrous anchor, dragging down construction, local tax revenues, service jobs, entrepreneurship, credit availability and overall spending” ( But now it seems that the economy is weighing this anchor.

This morning Toll Brothers, a builder of luxury homes, gave a encouraging statement (cnbc). CEO Douglas Yearly told CNBC he sees "improvement everywhere", adding that his company feels "the best" it has in five years. Yearly also sayed orders were up 43% in the first three weeks of February.
 This fit the recent data from the housing sector (, for instance,  rising existing-home sales (

It looks like that the housing sector is coming back. This could create new jobs in the construction industry and therefore more income. This also could reanimate weak house prices which would revalue the wealth of the home owners. Both could translate in more consumer spending.

These positive effects should at least compensate the negative effect of high gasoline prices, which suck a lot money out of the U.S. economy. The recovery of the housing sector could make the economic upswing, now driven by growing manufacturing thanks to rising exports, more sustainable.

Tuesday, February 28, 2012

Culture: Atlantic City - Stock Market For The Poor

The poor don`t invest in the stock market. They spend their money in the casinos, therefore they stay poor. This claim might be a bit exaggerated, but I got this impression when I visited Atlantic City last weekend. This place, which has a lot of casinos, is just around 3 bus hours away from Manhattan (wikipedia).

Last Friday, my girlfriend and I took the 6.30 pm bus from Manhattan`s Port Authority and arrived there around 10 pm. The next morning at 4.30 am we took the bus back. In the 6 hours between we visited the casinos Golden Nugget (goldennugget), Trump Plaza, Caesar´s and Bally´s while playing a bit at the slots and spotting the other visitors.

It was striking that the usual cool young people, which are usually crowding Manhattan at a friday night, were missing. Instead the people there looked more like lower income groups you can observe in New Yorks boroughs Brooklyn and Queens or in New Jersey.

There were a lot of cheaply dressed elderly people, who seemed to be focused and worked patiently at the slots. I got the impression that these people try to polish up their meager incomes. Other groups, maybe a bit younger, circled the tables where roulette, poker and other games were played. Some of the tables where in the hands of Chinese speaking people. There also were groups of casual dressed young people who seemed to party there. Many of the girls where overweight, the cute very fashion-conscious girls, whom you can see frequently in the streets of Manhattan, were absent (except for my girlfriend).

These observations fit the gambling statistics. "Players with household incomes under $10,000 bet nearly three times as much on lotteries as those with incomes over $50,000" (

The statistics also show that people usually will get poorer while gambling in a casino (wikipedia). The casino industry earns billions of dollar yearly. Casinos are highly profitable because they have a so-called house advantage ( That means that each game you play at a casino has a statistical probability against you winning (wikipedia). Every single time. The worst part are the one-armed bandits, the slots, where the gamblers have a very low chance to win (wikipedia) ( 

Our visit at Atlantic City confirmed the statistics. As expected the slot machines were hungry and ate all the money we fed to them. But we didn`t loose too much. The casino Golden Nugget has a smart marketing strategy to attract people: They refunded our bus tickets (together $72) with vouchers for eating and gambling. We spend part of the credit at the casino`s Chart House restaurant (goldennugget), which had good food and a pleasant view to the Marina and the boardwalk, and we omnly used our casino credit of $50   - plus $5 extra cash - for gambling. We had a lot of fun and enjoyed the show. The visit was worth it`s small investment.

Sunday, February 26, 2012

Movies: The Woman In Black

Imagine you spend a night alone in a big empty house full of old things. Imagine in the middle of the night you are waked by loud noises when it should be quiet. Imagine that suddenly dead things begin to move.

The movie "The Woman In Black" (imdb) makes those imaginations almost real because it immerses the viewer in a creepy but believable atmosphere. Director James Watkins tells the tale of woman who`s ghost, the "black woman", haunts people who can see her.

The flick, which plays in the beginning of the last century, was shot in an old mansion (the Eel Marsh House), located on an island in the marshes in Northern England. The loneliness of this place makes the plot more scary.

The real star of the film is interior of the house: Furniture, music boxes and a lot of mechanical toys which create a creepy atmosphere. IMDB reports that these things were not created for the movie, but were genuine antique toys from the period, loaned to the production by a collector (imdb). Scary noises created by the sound department and the darkly shot pictures by cinematographer Tim Maurice-Jones intensified the goose-bump-effect.

Daniel Radcliffe, the leading human actor, fits well into the scary tale. His character, stricken by the death of his wive, has to stay in the haunted house and gets in the maelstrom of the "Black Woman". This film was his first movie since the end of the "Harry Potter" Series. I reckon that this was a good choice and I would like to see more from Radcliffe.

Friday, February 24, 2012

Oil: Weapon Of Mass Destruction?

Rising oil supply, shrinking gasoline demand? Who cares, the oil price is rising anyway ( Oil consumption in the United States – about two-thirds of which goes toward gasoline – has fallen 9 percent since 2005, but the gasoline price is at the highest point ever for this season of the year  (.businessweek).

There are 2 culprits for that:

1. There is a powerful group who benefits a lot from rising oil prices and manipulates the market. For instance Goldman Sachs is banging the oil price drum for years ( The influential bank continuously predicts higher & rising oil prices, because they earn billions of dollars with commodity trades. In 2008 Goldman Sachs predicted an oil price rise to $200 and many speculators followed, one of the reasons that the oil price climbed to $147 in summer 2008 -even though the recession had already started. Other banks share this game for the same reasons.

The banks have powerful accomplices: Hedge funds, pension funds and other huge speculators who bet billions of dollar on rising commodity prices. They continuously spread rumors about alleged supply disruptions and create a permanent climate of anxiety. The oil speculators get a lot of support from  mainstream media like Bloomberg, who spread these rumors because they earn a lot by catering to banks and funds with news.

Many other (small) speculators follow these "big cats" and also invest money into oil futures, ETFs and other derivates. All these speculative purchases drive the oil price further up. Therefore the predictions and rumors become self-fulfilling prophecies.

 2. The most important part of the speculation and rumors are the continuous claims that conflicts in or with the Middle-Eastern region could lead to severe supply disruptions. For years the perpetual Iran conflict rules the headlines and makes oil more expensive because Teheran could stop its oil deliveries or close the Strait of Hormuz, an important artery for the flow of oil from Middle-East.

The Iran nuke hype reminds me more and more of the "Iraq weapons of mass destruction scare". The winners of this conflict are Goldman Sachs, many hedge funds and - Iran. The rising oil price flushes more money into the cash boxes of Teheran and finances their expensive nuclear program.

"For as long as the oil price continues to rise, Iran is likely to compensate for its reduced sales volume by charging a higher price, and cannot be expected to make any concessions in the nuclear dispute in the near future,” analysts at Commerzbank commented this week.

If the oil price continues its rise it could endanger the global economy. Consumers will have to spend more at the gas pump and might spend less money for other things. Companies will be hampered by rising energy costs. Prof. James Hamilton claims that in 2008 the oil price hike turned the slowdown into a recession (

We can already spot some destruction for demand in the markets for oil. People use cars which are more energy efficient and drive less. The chances are high that the oil price bubble will burst in the coming months. In 2008 the oil price crashed about 70% to around $40.

Thursday, February 23, 2012

Stock Market: Bargains, Bargains, Bargains

These days many shops offer huge discounts because the winter season comes to an end. It looks like the stock market also extends a lot of bargains. You wouldn`t believe it by just looking at the charts. Instead of the recent rally, U.S. stocks are getting cheaper and cheaper.

Bloomberg reported today "that profits in the Standard & Poor’s 500 Index are rising faster than its price, leaving the gauge 9 percent cheaper than it was in April even after American equities climbed within 6 points of last year’s peak" (bloomberg). The S&P`s price-earnings ratio shrunk to 14, well below the five-decade average of 16.4. Earnings in the S&P 500 have more than doubled to $96.58 since 2009, wrote Bloomberg in another report (bloomberg). The earnings yield, or annual profits divided by price, climbed to 7.1%, 5 percentage points more than the rate on 10-year Treasuries.

The shrinking price-earnings ratio is a sign of the rampant pessimism. It seems that many investors don`t trust the steeply rising profit trend and underestimate the capability of  U.S. companies to expand their earnings significantly in the coming years. But the rising profit trend is the proof that successfully managed companies are learning organizations which adapt to their changing environments and are capable of unlocking new profitable markets.

The steeply climbing earnings confirm that the average S&P 500 company is getting more & more efficient and productive. Costs of production are shrinking in relation to revenues. The accelerating technical progress, which is getting more and more important, also reduces costs of production, especially when a huge amount of data has to be processed.

Both developments translate into rapidly rising earnings even in a sluggish economy. Technology companies like Apple and Intel also use innovations to create new markets and attract more customers. And: A lot of S&P companies benefit from China, India and other countries in Asia and Latin America which show a growing appetite for American brands and quality products.

Because these developments are strong and sustainable the rising profit trend should continue for years. The current depressed prices on the stock market could be huge bargains.

Tuesday, February 21, 2012

Economy: In Consumers We Trust 2012

Today was the informal end of the earning report season for Q4 2011. This morning four major retailers reported their quarterly numbers. Walmart, Macy’s, Home Depot and Saks Fifth Avenue all reported sales increases for their fourth quarters ending in January, writes the New York Times ( Walmart, the largest U.S. retailer, reported that January 2012, the last month of the quarter, was the strongest month in terms of sales and traffic.

It seems that consumer spending, the engine of the whole economy, is picking up after a sluggish Holiday season. That is not surprising. The consumers are benefiting from a healing job market (drivebycuriosity). The job gains are generating more spendable income and the falling weekly jobless claims signal that the risk of losing a job is shrinking. Helpful also is the rally on the stock markets because many consumer get wealthier which animates them to spend more (wealth effect). 

But there is a dark cloud on the horizon: The oil price screw is turning higher and higher, thanks to the Iran conflict. Higher prices at the gas pump could pour cold water on fledging consumer expenditures.

Monday, February 20, 2012

Investing: What Goes Up Must Go Down? Really?

While surfing the world wide web you can find a lot of nonsense. For instance this claim: "What goes up must go down", followed by the sentence "Nothing stays up forever", both related to the stock market ( Many people seem to believe this humbug, at least I read it very often.

Holy cow! Did these people ever happen to watch movies like "Star Wars" or "2001: A Space Odyssey"? When you throw a ball in outer space then it could travel a very long time, maybe to infinity. There is not much gravity and an "up" and "down" in the Universe, except close to celestial objects (wikipedia). An apple falls from a tree because it´s attracted to the earth. If you are departing from our planet this attraction will shrink rapidly.

This also is true for the economy and stock market. There is no rule that something must go "down". For instance the Dow Jones Industrial Average, known as the "Dow Jones"  was first published in the late 1890s at a level of 40.94 points (wikipedia). Since then the stock market barometer climbed to 12.949 points, more than 300 times. Most of the many temporary pull backs were wiped out over time.

In the long run stocks are rising because the economy is expanding, at least as a long term trend.  The rise of the western world started around the 14th century, during the Renaissance. Today we are much  wealthier than people in 15th century, the 19th century or even the 60s of the last century.

I reckon that global wealth & stock markets will continue the climbing trend because of  rising global population,  accelerating technical progress, the catching-up process in Emerging Markets and rising money supplies.

Saturday, February 18, 2012

Movies: Miss Bala

Life is dangerous. Especially in Mexico, a country almost devastated by a messy war about drugs. The movie "Miss Bala" (directed and written by
Gerardo Naranjo imdb) gives an impression of how the Mexican population suffers under the extremely bloody battles between the ruthless gangs and similarly aggressive law enforcement. The Flick narrates the story of a girl, who gets between these fronts while she is trying to win a beauty contest. She becomes the property of a drug lord, who uses her just as tool for his strategies.

The plot isn`t for the faint hearted, it´s a tale about brutally, violence and totally disregard of human life. The flick looks almost like a documentary. Don´t expect the usual superb cinematography! The pictures are raw and sometimes overexposed, maybe a result of a very tight budget. Maybe there is no drug money invested there. "Miss Bala" is certainly not an advisement to visit Mexico any time soon.

Oil: The Culture Of Ignorance

The oil price screw is turning higher & higher. Last week WTI, the American type oil, rose to $103, Brent, the European variant, which the U.S. refineries use to produce gasoline, climbed to $119. High oil prices are a phenomena of the moment - instead of the sluggish economy thats been around since the year 2000. While stock prices stagnated in the late 90s, the price of oil quadrupled (wikipedia).

The price of oil doesn`t reflect fundamental factors any more. The market ignores supply and demand, and instead focuses on theories and speculations which are used as  excuses for high and rising oil prices.

There are two leading excuses for making the commodity more expensive: The peak oil theory and speculation about decreased oil supply from the Near East region (Saudi Arabia, Iran, Iraq which is still the leading producer:

1. The peak-oil theory claims that the global production of oil has already reached its peak and that world wide oil production is shrinking. It further claims that we will soon run out of oil.

Some authors call this theory "peak idiocy" (, because it ignores the profit motive, technological progress and the history of mankind, which has been finding methods to deal with rare resources for thousands of years. In recent years a lot of new oil sources have been discovered and explored, especially in Brazil, but also in countries like Ghana or Argentina. Russian crude oil production rose to Post-Soviet High in 2011 (bloomberg) and Canadian oil production is climbing again ( But the most encouraging development happens in the U.S., where oil production is rising significantly thanks to a better use of offshore resources in the Gulf of Mexico and due to advances in fraking, a method to extract oil from shale (bloomberg).

Increasing oil exploration is the natural response to climbing oil prices. The higher the price the more profits to be made by producing oil. Therefore the turning of the oil price screw attracts a lot of fresh capital into the production of oil. Rising oil production also is the result of new technologies which allow drilling deeper in the ground, exploring hidden resources under the surface of the oceans and extracting oil from the giant oil reserves in the shale (

2. Rising oil supply is constantly ignored because the market focuses now on geopolitical speculation. Many speculate that the oil supply from the Near East will be hampered by political factors. The trouble with Iran - the third-largest exporter of crude - is for years the center of this speculation. Since Teheran started it`s program of enriching Uranium, it is accused of building a nuclear weapon. Sanctions against Iran and the fear of a war in the Near East, which could hamper the deliveries from this region are driving the price of oil upwards. The oil price now has a huge Iranian premium ( The latest oil price hike is a reaction to the saber-rattling by Teheran, which threatens to close the Strait of Hormuz and to disconnect an import arterial for the flow of oil.

All these theories and speculation are fueled by a group which has a huge interest in high & rising oil prices: The oil speculators, mainly big hedge funds, who are betting $ billions on rising oil prices, and banks like Goldman Sachs, who earn $ billions by trading commodities.  Goldman Sachs especially is constantly beating the oil drum. The bank was partly responsible that the oil price climbed in 2008 to $147 - even when the recession already has started -, because they predicted then a price of $200 and were followed by many speculators.  Oil speculation gets  a lot of support from the mainstream media like Bloomberg which eagerly transmits any rumor and dismisses news about rising oil production.

How long can this go on? The experience from 2008 shows that a sharp rise of the oil price leads into a severe recession which also reduces drastically the demand for oil. In 2008 the price of oil imploded from $147 to around $40. We have already observed a shrinking demand for gasoline in the U.S., the largest user of oil in the world, because the people already are reacting and driving less while the average car burns less expensive petrol than some years ago.

Friday, February 17, 2012

Economy: U.S. Infrastructure - What A Mess!

The U.S. is home to Apple, Facebook, Twitter and other cutting edge companies. But the U.S. also has an infrastructure which could belong to a Third World country.  Bridges, streets, sewers electrical grids and many other system are often very old and rotten.

You can observe this especially in New York. The city is old and her population suffers often under breakdowns of the ancient infrastructure. When you walk the streets of Manhattan you can spot a lot of construction work any day.

This week the problem surfaced again massively. At the intersection of Bowery and Delancy Street, two arteries in south Manhattan, a water main broke and set the streets under water. The water pipe was already 106 years old reported the blog Bowery Boogie (

I used the occasion to document the mess and the work to repair the damage.

In the coming years New York City and the whole U.S. will have to spend many $ billions to renew the aging infrastructure. This also creates huge perspectives for companies in the infrastructure industry for instance Caterpillar (construction machines or Fluor (engineering

Thursday, February 16, 2012

Economy: More Fuel For The Recovery

This morning we got more encouraging news from the economic front. The weekly jobless claims dropped to 348.000, the lowest level since early 2008 ( The shrinking claims for unemployment fit the job market report from January, which showed a plus of 243.000 new jobs ( These numbers confirm that the job market, which stagnated most of the last year, is gaining traction.

The upswing on the job market should boost consumer expenditures and fuel the economic recovery for 2 reasons:

1. The consumers gain more money for spending.
2. They will spend more because their risk of loosing their job is decreasing as the shrinking jobless claims show.

Investing: Ignore The Noise

Iran conflict, Greece bailout delay, Moody´s warning. It`s noisy again on the markets. All the noise is almost drowning the relevant fundamental signals. The global economy is healing, but you almost miss it, because of all the noise. Forget the noise!

Every day the markets have to work through a deluge of news.  Physicists label this phenomena "white noise" (wikipedia). It`s like the hissing on radio or TV when you don`t get a clear signal. 

Do you remember that S&P downgraded the U.S. debt  in last August? Since then the Dollar rallied, the U.S. stock market gained around 15%, the interest rates dropped and the whole U.S. economy got stronger. Does anybody recall the Dubai crisis in the spring 2009 or the Iceland financial crisis in 2008? All water under the bridge! It was just noise.

Investors who ignored this noise did well, because the stock markets doubled since the end of the recession in spring 2009. The stock markets are following the upswing of the global economy, which will continue in the coming years because of low interest rates, technological innovations ( drivebycuriosity) and the catch-up race of China and other fast emerging markets. I reckon therefore that all the noise today delivers a buying opportunity for long term investors.