Oil: The Greatest Bubble Of Them All

(Drivebycuriosity) - Bubble, bubble, bubble. The media - and the pundits - see bubbles everywhere. But the greatest bubble of them all is overlooked: Oil.

Today oil costs around 4-times of the late 1990! (wikipedia) Since the end of 1999 the price of oil jumped from around $25 to around $100 - plus 300%, while the US stock market (S&P 500) gained anemic 30%. It seems that the oil market ignores the sluggish global economy since the begin of this century. It also ignores the rise of the US as a major oil producer which is lifting the global oil production thanks to new technologies like fracking & deep sea exploration.

The discrepancy between high oil prices and the economy signals that the oil market ignores the economical fundamentals - neither the supply of oil nor the demand for this commodity explain the oil price explosion in this century. Instead the price of oil has been ruled by geopolitics.

Oil is traded on financial markets like stocks and bonds. Many hedge funds and other speculators are buying oil futures, which represent the energy prices. Since the early years of this century they have been pumping many billions of dollars into the oil market in the hope of further price gains. Hence the oil price reflects expectations rather than the real supply and demand.

Today the speculators focus on the Ukraine conflict. Russia is one of the world`s biggest oil producers. Speculation that sanctions against Russia - and the worst case scenario of a war in this region - will interrupt the global supply of oil are keeping the price of oil north of $100. Today the future for Brent Crude - the type of oil which is used globally - costs $108, WTI (West Texas Intermediate), the future for US oil, fluctuates around $100.

The Ukraine conflict is just the newest of the political issues which are keeping oil expensive. Since the year 2004 oil prices have been agitated by continuous speculation about conflicts in the Middle East, the so-called Middle East tensions. Wars and unrest in Iraq, Libya, Syria, Egypt and other countries of this fragile region plus the ongoing conflict with the Iran about its nuclear facilities all induced speculation that the global oil supply could be endangered. Hence the price of oil has a geopolitical risk premium.

The high price of oil is a huge incentive to produce more of this precious commodity as you can see in the US. Other countries like China also are beginning with fracking to reduce the dependence from imported energy. Expensive oil also curbs the demand: People drive less, use fuel-saving cars and other energy-efficient machines (demand destruction). They also switch to alternative energy sources like natural gas, wind & solar energy. Both trends lead to an over supply which you can see in the US where the stockpiles reached a record high.

But the price of oil is still floating around $100.  It seems that the oil market is functioning like a hot air balloon. A steady flow of geopolitical news (Ukraine, Middle East) has been heating the speculation on upcoming supply problems and is keeping the price of oil high like a balloon in the air.

Photography: Office Buildings - The Beauty Of Geometry

 

(Drivebycuriosity) - I enjoy making pictures. Photography opens your eyes for the world around you and sharpens you view for details. As a photographer you notice your surroundings more intense.

One of my discoveries as an amateur photographer is the beauty of office buildings. They are usually functional but many have a certain geometry which gives them beauty.

Here is a collection of the pics I made. Let the pictures speak for themselves. Enjoy.

Movies: The Railway Man

 

(Drivebycuriosity) - "The Bridge on the River Kwai" was a huge blockbuster in the 1950s and belongs to the masterpieces of cinema. The movie, which was set in World War II, tells the story of British & Australian soldiers who as prisoners of war got tortured in a Japanese camp in Thailand. The David Bowie movie "Merry Christmas Mr. Lawrence" also deals with torture in Japanese World War II prison camps. 

The film "The Railway Man", which is now running in US cinemas, takes this topic up and focuses on one unfortunate British prisoner who meets and confronts one of his tantalizers decades after the war (imdb).

The film was ok for me but it looked like a low budged production even with a respectable cast  (including Colin Firth, Stellan Skarsgård ). Especially Nicole Kidman was totally wasted in this movie. I believe "The Bridge.." and "Merry Christmas.." are better reappraisals of the torture in Japanese camps topic.

Stock Market: Don`t Sell In May, 2014 Edition

(Drivebycuriosity) - Every year around this time you can read the headline "Sell in May and go away" in the media (driveby). Since the end of April 2013 the US stock market (represented by the S&P 500) gained around 18% and it climbed around 30% since end of April 2012. But anyway the nonsense riddle is back.

Not just the gains of the recent years speak against selling now. The "sell in May" suggestion conflicts with logic. If there would be any simple rule to beat the market, everybody who do it. But the majority is the market and cannot beat the market because it would beat itself.

The slogan also is self-defeating. If many follow and sell in May, their sales would set the stock market under pressure and stocks would become significantly cheaper. When the slogan followers come back to the market - say by the autumn - their purchases would raise stock prices. Following stubbornly the "sell in May" proposal would therefore implement to sell cheap and to buy expensive.

And there are more arguments against selling in May. In the long run, stock prices go up. Since its start in the year 1896 the Dow Jones, another gauge for the U.S. stock market, rose 7% per year - and around 0.5% per month - on average. Thus the probability of a rising stock market is higher than of a falling.

I believe that the likelihood of rising stock prices in the coming months is very high. It seems that the U.S. economy entered a virtuous circle. The job market is healing, creating more income, and the falling jobless rates reduce the risk of losing ones job and raise the optimism of the consumers & investors. The European economy is on the way to recovery & China seems to master the soft-landing. And company profits are climbing thanks to growing productivity & efficiency. 

I think that the stock market will get tailwinds from a new industrial revolution which is now going on: Rapid advances in 3D-printing, robotics, nano-technology, bioengineering (new medicaments) and more industries are working together and are reducing costs, opening new markets and making our lives better. And: The number of Internet users - and hours & money spend online - is worldwide exploding thanks to cheap smartphones and other devices which give access to the worldwide net.  Thus I believe that the bull market which started in spring 2009 has many years to go.

Culture: Street Art - What`s Going On In Lower Manhattan - April 2014 Edition

(Drivebycuriosity) - There is so much going on in Manhattan. Part of it is the always changing street art. Almost any day some new mural or other images are popping up.

Since my latest street art report from March 2014 (driveby) I discovered a lot new works on the streets of Soho, East Village and Lower East Side.

As usual some are commissioned by shop owners - like the trompe l'oeil above which was ordered by the fashion store Rag & Bone at the corner of East Houston & Elizabeth Street - others seem to be more spontaneous artistic forms of expression.

Anyway, let the pictures speak for themselves. Enjoy.

Movies: Under The Skin

 

(Drivebycuriosity) - Aliens are fascinating, if they really exist. They could be very strange and different, because they might be the result of a distinct evolution chain; and if they reach the earth they must have a superior technology.  No wonder that there are many science fiction stories & movies about visiting extraterrestrials. "Under the Skin", which is now running in US cinema theaters, is the newest exemplar of this genre (imdb).

The movie is the most electrifying film I have seen for a while. Director Jonathan Glazer, with the help of co-scriptwriter Walter Campbell,  distilled Michel Faber's 2000 complex novel of the same name into an intoxicating cinematic masterpiece. As in the novel, 2 aliens are visiting earth, taking human shape and are abducting young males. 

The film version doesn`t elaborate these ideas, instead Glazer focuses on Scarlett Johansson as a sexually predatory alien camouflaged by a human skin. The camera follows "her" closely and shows how the alien tries to learn and to handle the humans. This leads to visually stunning allegories which leave room for the imagination. 

Watching Scarlett Johansson alluring her "prey" is breathtaking. The movie is almost a one-woman show - and highly erotical. The film benefits a lot from the outstanding cinematography. Jonathan Glazer, his cinematographer Daniel Landin and the post production team created pictures which are burning into the brain. Some scenes could make you fall in love with the Scottish landscape, others create surrealistic and other intoxicating optical effects Stanley Kubrick would be proud off. The hypnotic soundtrack by Mica Levi completes the masterpiece (theguardian). 

The movie goes literally "under the skin" - my film of the year so far.

Economy: The Swedish Experiment - The Future Of Labor?

(Drivebycuriosity) - Do you want to see the future of the economy? You might get a glance if you look to Sweden. The Scandinavian country dares an interesting economical experiment: "The Swedish city of Gothenburg considers a year-long trial that would divide some municipal workers into a test and control group at the same pay rate, with the test group working six-hour days and the control group working the traditional eight", writes there magazine "The Atlantic" (theatlantic). According to this report the city wants to find out whether the reduced working time lifts the productivity enough to compensate for the less hours worked.

I think this experiment could be very costly. But it is just part of an ongoing long term trend. Since the industrial revolution the average working time has been shrinking amid rising incomes - thanks to the increasing productivity (output per working hour). At the begin of the 19th century the typical work day lasted anywhere from 10-18 hours per day, six days a week - and even children had to work many hours in the factories (today). I believe that rapid automatizing and the growing use of robots could reduce the average working time further and the trend might indeed go to the 6 hours average working day.

However, I would prefer keeping the average 8 hour working day and reduce the working week to 4 days. This would save the cost and trouble for commuting.

Economy: Does Capitalism Only Enrich The Few?

 

(Drivebycuriosity) - "Capitalism enriches the few at the expense of the many", claims Washington Post writer Harold Meyerson (washingtonpost). Really?

The liberal writer bases his claim upon his review of “Capital in the Twenty-First Century” by Thomas Piketty, a Paris-based professor of economics. It seems Meyerson is not alone. This book is glorified by the the left-wing and its author is celebrated like a rock star.

At least Meyerson´s interpretation and résumé are quite nonsense. Yes, the rich are getting richer, but so do the majority of the Americans & European, thanks to the capitalism.

In the last century happened a gigantic experiment. A whole country got split in 2 parts. One part was communistic organized, the other capitalistic. After around 40 years the experiment got aborted. Guess in which part the masses (average population) got much richer and in which the average citizen stayed poor?

The experiment was the division of Germany into the capitalistic Western Germany (Bundesrepublik Deutschland) and the communistic part (Deutsche Demokratische Republik = DDR) in the  late 1940s. In the year 1990 both parts reunited. Then the Western part  (and its whole population) was much wealthier than the Eastern part. Even Western Berlin, which had been a capitalistic island in a socialistic ocean, was much richer than Eastern Berlin.

Capitalism is based on profits.They are the motivation to work, to save money, to invest and to innovate. Therefore capitalistic countries like the USA, but also Switzerland or Singapore, have been growing and their population is on average wealthier than the citizens of the rest of the world.

And: The average American - and European too - is today much wealthier than 100 years ago.  No wonder that China, still ruled by a monopolistic communist party, integrated capitalistic elements like stock markets in order to catch up to the Western and capitalistic standard of wealth.

It seems the cult around Piketty and his book is based on envy. The aversion against the extreme wealth of Mark Zuckerberg, Bill Gates, Warren Buffett and likes obstructs the vision of the wealth we all are enjoying. 

Stock Market: Happy Easter 2014

(Drivebycuriosity) - It is Easter again. New York City welcomes the Christian feast with plenty of sunshine and springlike temperatures. A lot people are on the streets, places and parks - enjoying the friendly weather and the extra holidays. Many countries in the Western world celebrate Easter in some way or another. In Germany for examples most people have 4 days off, including Good Friday (called "Karfreitag", a Catholic term) and Easter Monday. Even Wall Street was closed on Good Friday.

Easter also stands for the begin of spring. The German literature has a lot of Easter poems which are referring to the seasonal issue. The most popular German Easter riddle is "Der Osterspaziergang" (the Easter walk  ostern) by Johann Wolfgang von Goethe. It starts with the line "Vom Eise befreit sind Strom und Bäche" ("freed from the ice are rivers and creeks").

Even the stock market seems to celebrate Easter. The last week finished with a 4-days rally and the S&P 500, a gauge of the US stock market, gained 2.7% for the week - deleting the losses from the weeks before. The economic news is encouraging. The numbers signal that the winterly break of the US economy may be over.

Last week we learned that the US weekly jobless claims fell on the lowest level since 2007, March retail sales grew 1.1%, the biggest increase since September 2012 and the Philly Fed manufacturing index jumped to 16.6 in April, versus expectations of 9 (ritholtz).

The earnings season (company reports from Q1 2014) also started well. With less than one-fifth of S&P 500 companies having reported results so far, about 63% have topped earnings expectations, exceeding the 56% average over the past four quarters, reports Reuters (reuters).

Happy Easter to everyone!

Culture: Italian Futurism - Reconstructing The Universe, @ Guggenheim Museum, New York City

 

(Drivebycuriosity) - At the begin of the last century prevailed optimism, at least in Italy. There was a group of artists who created forward-looking paintings, posters, sculptures, architecture, poems and films: The Italian Futurism.

This week I enjoyed the exhibition "Italian Futurism, 1909–1944: Reconstructing the Universe", @ Guggenheim Museum, New York City (the show continues trough September 1, 2014 guggenheim). Unfortunately the place - as many museums - has a stupid no photography policy (what harm does a picture inflict when taken without flash). 

Apparently the Italian futurists, who often were left-wing and anarchists, were fascinated by factories, machines, energy & technology, contrary to the present time left-wings who seem to be afraid of the future and anti-technology. Remarkably, Mussolini´s fascists embraced Futurism and used it for their propaganda, while Hitler´s nazis abhorred and haunted abstract art, which they denounced as "entartete Kunst" (abnormal art). 

I was fascinated by the beauty, power and gaiety of the exhibited images. Many reflect the power and dynamics of technology: Cars, bicyclists and airplanes. It seems that the Italian Futurism has a great influence on contemporary art, but also on movies and advertisement.

The exhibition is a must - not just for art lovers.