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Why Oil Really Fell Today—and Could Keep Falling
Tweet Share on Facebook August 4, 2008 Comment (37)Oil slipped below $120 at one point today and now overall is down nearly 20 percent from its July high of near $150. But I don't think the drop had much to do with the usual suspects—a weak consumer spending report, less risk that Tropical Storm Edouard will smack the Gulf Coast—which will surely be mentioned in the financial pages tomorrow.
I think the drop had everything to do with reports this weekend that MIT chemist Daniel Nocera seems to have discovered a cheap—by a factor of 1,000—and easy way to separate hydrogen from water. Scientific American puts the advance in context:
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Was that 2Q GDP Number Phony?
Tweet Share on Facebook August 4, 2008 Comment (1)There has been lots of controversy about last week's GDP report since government statistics showed inflation to be a skimpy 1.1 percent vs. a 4 or 5 percent rise in topline inflation as measured by consumer prices. Wouldn't a more realistic inflation measure have more than wiped out a reported 1.9 percent rise in GDP?
Here are two takes on the issue that show such a calculation isn't as straightforward as it might appear. First up is economist Brian Wesbury:
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Is Obama the Bizarro Clinton?
Tweet Share on Facebook August 4, 2008 Comment (8)Team Obama is finally trotting out this campaign meme: Obamanomics means a return to the booming 1990s economy. Over on CBS's Face the Nation yesterday morning, former Clinton Treasury Secretary Robert Rubin told host Bob Schieffer—who had just asked whether the economy, which grew 1.9 percent last quarter, is in a recession or headed toward a depression—that Obama would bring back the higher tax rates of the Clinton era, "which brought us the longest economic expansion of all times." And there was former Clinton administration economist Laura Tyson on CNN's Late Edition with Wolf Blitzer:
A final quick comment is that we need to understand that what Senator Obama is proposing bodily on taxes is rolling back some of the Bush tax cuts for those who make over $250,000 a year to levels you saw in the 1990s. I will only point out again the 1990s had the longest and strongest economic expansion in our history.
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Get Ready for a Trillion-Dollar Bank Bailout
Tweet Share on Facebook August 4, 2008 Comment (2)In Barron's over the weekend, economist Nouriel "The Office of Prophet of Doom of the 21st Century" Roubini said the ongoing financial crisis will lead to credit loss of at least $1 trillion and "most likely closer to $2 trillion."
Now this is a global number, and as market strategist Ed Yardeni notes, Roubini's forecast, as well as the trillion-dollar estimate of the IMF both assume all this bad debt is marked to market. Some of those losses may be eventually recouped. But if Roubini is anywhere close to being right, there will be immense pressure for governments to start buying this bad debt. But hey, every year that we in the United States do nothing about entitlement, liabilities add $2 trillion to $3 trillion to our long-term debt. So, what's another trillion?
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Obama’s Emergency Economic Plan
Tweet Share on Facebook August 1, 2008 Comment (10)Team Obama just released an "emergency economic plan" to "relieve the burden on families struggling with high gas and grocery bills, or preparing for high heating bills." At least that's the intent. Here are details:
Forcing big oil companies to take a reasonable share of their record breaking windfall profits and use it to help struggling families with direct relief worth $500 for an individual and $1,000 for a married couple.... The rebates would be fully paid for with five years of a windfall profits tax on record oil company profits.... $25 billion in a State Growth Fund to prevent state and local cuts in health, education and housing assistance or counterproductive increases in property taxes, tolls or fees. The fund will also ensure sufficient funding for home heating and weatherization assistance as we move into the fall and winter months.... $25 billion in a Jobs and Growth Fund to replenish the highway trust fund; prevent cutbacks in road and bridge maintenance and fund new, fast-tracked projects to repair schools—all to save more than 1 million jobs in danger of being cut.
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Dude, Where’s My Recession?: The Series
Tweet Share on Facebook August 1, 2008 Comment (1)OK, so nonfarm payrolls fell 51,000 in July, while revisions to May and June added 26,000 jobs. That results in a net loss of 25,000 jobs. (The consensus expected a loss of 75,000.) The guys at First Trust Advisors get it right, I think, with this piece of analysis:
The labor market is a lagging indicator of economic activity, and job declines so far this year reflect weakness in the overall economy in late 2007 and early 2008. Still, the recent decline in jobs is much smaller than has been typical of past periods of economic weakness.
Job losses so far have been between 51,000 and 88,000 with no sign of downward momentum. Back in 2001, the economy lost 30,000; 281,000; 44,000; and 128,000 as the economy weakened. And in 1990, the economy lost 42,000; 280,000; 82,000; and 161,000 as the economy tanked. Way back in 1981, jobs losses were 36,000; 87,000; 100,000; and 209,000. Now, I am certainly not saying that the economy is in great shape. It isn't. But it's not in shambles, either.
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Welcome to America's $2 Trillion Budget Deficit
Tweet Share on Facebook August 1, 2008 Comment (3)Barack Obama has already said that America's "investment deficit" will take priority over its budget deficit. And congressional Democrats have been waiting a generation to launch a full-scale infrastructure spending spree. How might this combination play out in 2009? Well, I may have glimpsed a possible financial future in a proposal for an "economic recovery program for the post-bubble economy" sent to me by the left-of-center New America Foundation and authored by businessman Bernard Schwartz and think tanker Sherle Schwenninger.
First, Schwartz and Schwenninger assume a worst-case scenario for the economy—that the housing recession and rising unemployment will suck $475 billion out of consumer spending. Moreover, rising food and gas prices will drain another $300 billion. (These calculations adopt the guesstimates of Merrill Lynch econobear David Rosenberg.)
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GOP Veep Watch: Fiorina vs. Palin vs. Whitman
Tweet Share on Facebook August 1, 2008 Comment (20)My reporting tells me that the vice presidential McCain short list—as of the morning of Aug. 1, 2008—is 1) Mitt Romney, 1A) Mitt Romney, and 2) Tim Pawlenty. But what about the veep prospects of the Three Amigas: former Hewlett-Packard CEO Carly Fiorina, Gov. Sarah Palin of Alaska, and former eBay CEO Meg Whitman. Here's the skinny on these women from campaign insiders:
1) Fiorina: Media-savvy, a good communicator, well suited to the traditional veep role of attack dog.
2) Whitman: Supersmart, a compelling communicator, just too nice and thus poorly suited to the attack-dog role.
3) Palin: Miss Congeniality but with a big, big learning curve; knows energy, though.
