Its all about jobs, dummy. Such a simple cure for so many problems

Note to politicians at all levels:  create jobs!

I wrote some time ago that jobs - people like you and me - being "employed" or in some legal fashion earning some form of reliable income - is the sure to many, many societal and economic problems. In my report, I emphasized the human nature aspect to jobs - the animal spirits within. Having a job is such an incredible part of who we are, and for good reason. But the bottom line is that by humans having a job, we gain on our ever so fragile self esteem (especially men), we provide for our families and this all leads to confidence - in spending. Spending begets company expansion, economic expansion and .... more job growth. Its no mystery. Just put policies in place to create jobs, oh dear politicians.

I keep hearing that what is holding U.S. businesses back from expanding and hiring is “uncertainty.” Exactly what new types of uncertainty businesses face in the current environment vs. past environments is rarely spelled out. But if, in fact, businesses are paralyzed due to uncertainty, I would not expect them to be stepping up their purchases of capital equipment. After all, capital equipment has a relatively long life. If businesses were unusually uncertain about the long-term outlook, they would be more reluctant to make longer-term commitments, which the purchase of capital equipment is. Rather, if businesses were unusually uncertain about the future, they might be more inclined to hire workers, who, after all, can be dismissed on short notice if conditions were to change suddenly. But just the opposite seems to be happening. Business hiring remains weak and business capital spending is robust.

I have my thoughts on this US debt crisis....and I am planning on writing about it soon ...probably gonna call it "How to deal with excessive government spending and debt...for dummies". Again, here, the solution is simple and mildly painful.

Saverio Manzo

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So whats the longer-term outlook for Oil and car gas?

A slowing economy and massive government intervention and the price of WTI oil and gas for cars is still near a 3-year high. What gives?

Unlike past bubble pricing in financial assets, crude oil futures potentially have an element of reality to them because arbitrage opportunities exist between notional and delivery pricing when spreads get too wide. Within this context, consider the long term trend. WTI futures reached a peak of $145/barrel in 2008 before plunging to $45/barrel, traded mostly above $80/barrel since June 2009, above $90/barrel since December 2010, and above $100/barrel from February through mid-June of this year. Crude oil is in the midst of a multi-year bull market based on fundamentals. Unlike past bubble pricing in financial assets, crude oil futures potentially have an element of reality to them because arbitrage opportunities exist between notional and delivery pricing when spreads get too wide. Within this context, consider the long term trend. WTI futures reached a peak of $145/barrel in 2008 before plunging to $45/barrel, traded mostly above $80/barrel since June 2009, above $90/barrel since December 2010, and above $100/barrel from February through mid-June of this year. Crude oil is in the midst of a multi-year bull market based on fundamentals.

The math:  $100 in the price of crude WTI = approximately $1.30 per liter (average across Canada)

From our seat, the regional market gears are working smoothly. The globe is still short to the tune of 1.0-1.5 million barrels per day and no new meaningful supply will be added before 2015, as we forecast it.”

Desperate times call for desperate measures.

The marketplace is implying that a price range of $95 to $130/barrel is where supply meets demand (WTI & Brent) at the current level of global base money. This implies a price of car gas of $1.30 to $1.75 per liter.

If one wants to blame financial markets for higher gas prices at the pump then one should blame high levels of overall market sponsorship, which derives directly from high levels of investor leverage, which in turn is generated directly by banks through their lending and prime brokerage divisions, which ultimately derives from easy global monetary conditions.

So we think that the global marketplace for crude oil is naturally biased to trend towards pricing that global policy makers find problematic (too high vis-à-vis wages), and that global policy makers are desperately applying short-term fixes. They will lose. The marketplace reigns supreme over time whether or not there is temporary froth in futures markets.

Excerpts and quotes from: Lee Quaintance & Paul Brodsky

Saverio Manzo