EPA - Part 2

http://online.wsj.com/article/SB10001424052702303916904577375992885278230.html?mod=WSJ_hp_MIDDLENexttoWhatsNew 

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"Reflective thinking is like the crock-pot of the mind. It encourages your thoughts to simmer until they're done." (John C. Maxwell)
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It would seem that Al Armendariz (see prior post) has resigned from the EPA. It would have been nice if "Al" had paid some attention to our quote above. Or, perhaps, he just wasn't capable of that.

The EPA Attitude

http://online.wsj.com/article/SB10001424052702304723304577368292876696550.html?mod=WSJ_Opinion_AboveLEFTTop

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 "Nothing is so embarrassing as watching someone do something that you said could not be done." (Sam Ewing)
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So the EPA likes to take the approach that the Romans took when they conquered little villages in the Mediterranean...

Oklahoma Senator James Inhofe released a video of a speech by Al Armendariz, Regional Administrator of the EPA, this week. The speech basically took the position that the agency's "general philosophy" is to "crucify" oil and gas producers. Senator Inhofe released the video as part his investigation into the EPA's "now-discredited" claims of water contamination due to hydraulic fracturing, including in Parker County, Texas.

I wonder if Mr. Armendariz drives a car. If he does, would gas at $5 per gallon or $8 per gallon be something that would cause him outrage? Who would he "crucify" then?  

Florida

http://www.city-journal.org/2012/22_2_snd-florida.html


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"An optimist looks at a glass and says the glass is half full. A pessimist looks at a glass and says it is half empty. An engineer looks at a glass and says the glass is twice as big as it needs to be." (John C. Maxwell quoting an unknown source)

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So, without my knowledge, the wonderful people who supply my posting format have changed how I do it, the mechanics of the whole thing. I'm in new territory here so we'll see how this effort works.

"City Journal" has a great current article on Florida's comeback. Over the first decade of this century, one of the leading stories demographically was Florida's slump. This was obviously caused by Florida's housing bubble. What was not so obvious was the "halfback" phenomenon: new Floridians moving not all the way back to their states of origin but "halfway back:" to North and South Carolina where the cost of living was considerably lower.

But, Florida has turned it around. At the beginning of this decade (between 2009 and 2011), Florida's total population gain - which includes domestic migration, international migration and births minus deaths - was more than 500,000 people, putting the state on track to become the nation's third -largest by 2013.

What happened? Housing prices and cost-of-living returned to historical norms (not counting the Miami metropolitan area). Nevada (another bubble or sand state) has had the same thing occur with housing prices and cost-of-living but there's been no comeback. Why? The problem with Nevada is that it's joined at the hip with California. Las Vegas and Reno depend on tourist trade from California and there the economy remains depressed. Between 2000 and 2011, California lost nearly 1.7 million people to domestic migration. According to Wendall Cox, "California's high cost-of-living seems likely to discourage new residents from moving to the state, and, left unreformed, its out-of-whack finances, poor business climate and anemic job creation in the largest metropolitan areas will probably complicate any return to its former growth. The Sunshine State has ousted the Golden State as the place for optimists to watch."

And then there's Texas. Texas has been the leader in domestic migration since it took over that title (from Florida) in 2006.

A Spring Stall?

http://online.wsj.com/article/SB10001424052702303425504577353550599537484.html?mod=WSJ_hp_LEFTWhatsNewsCollection

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"Reflective thinking enables you to distance yourself from the intense emotions of particularly good or bad experiences and see them with fresh eyes." (John C. Maxwell)

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Is there an "oops" out there in the economic landscape? The four week moving average of initial jobless claims (closely watched because it tends to smooth out the weekly "blips") came back up yesterday.

There's a general consensus that this is the weakest economic recovery since WW II but there is also general agreement that the GDP growth rate will be roughly 2% for the first quarter. Consumer confidence and auto sales are up significantly while existing home sales and manufacturing production are down for March.

The weak reports in manufacturing, housing and jobs have caused some to conclude that the economy could repeat the pattern of the last two years when growth picked up early in the year only to slow sharply in the spring.

We'll see.

Pump Relief

http://online.wsj.com/article/SB10001424052702304331204577352272051744662.html?grcc=9d5b936889b917c063567670891a3e19Z10ZhpgeZ0Z237Z200Z79Z10&mod=WSJ_hps_sections_markets

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"Creativity is the joy of not knowing it all." (Ernie Zelinski)

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Gasoline futures are down 6.3% from their high for the year (March 26) as the price of crude oil that gets refined into gasoline has dropped a similar amount. I'm tired of the whole Iran thing: oil is going up or down because of the Iranian tensions - it's going up or down because of speculation. For example, the oil that Iran was selling China is still going to China...What boycott?

The average cost of a gallon of gas nationwide has fallen for two straight weeks according to the U.S. Energy Information Administration (EIA). Based on how gasoline futures work, gas prices at the pump should continue down over the next few weeks.

There are two major east-coast refineries that were scheduled to be closed (Sunoco and ConocoPhilips) which would have put pressure on prices. But, now both refineries are in discussions to be sold to new users.

The important thing here is that the hedge funds, pension funds and other money managers are reducing their bets that gasoline futures will rise.

And, demand for gasoline continues to drop. Government data released Wednesday showed a sharp drop in current gasoline inventories. But, even with that drop, there is nearly 3% more gasoline on hand at the moment than there was a year ago. According to the EIA, gasoline demand fell 3.2% last week compared to a year earlier.

Pump relief!

Housing & GDP Growth

http://online.wsj.com/article/SB10001424052702304432704577347530806018866.html?mod=WSJ_hp_LEFTWhatsNewsCollection

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"Creativity comes from trust. Trust your instincts. And never hope more than you work." (Rita Mae Brown)

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People are writing positive things about the U.S. economy because there appears to be some positive news in the spring home buying season. Reduced prices, record low mortgage rates, an improving job market and auto sales are looking like consumer spending may be coming back.

The wave of foreclosures has, as anticipated, led to people defining the housing market bottom as "now" and sales are going up (along with prices) in some key markets: Boston, Dallas and Seattle. CoreLogic, a real estate data firm, has stated that prices for homes not at risk of foreclosure (2/3 of the homes up for sale) rose .7% in February.

Earnings reports from Friday indicate that a bank like JPMorgan Chase issued 6% more mortgages from January thru March than it did a year ago and got 33% more applications. Nationwide home prices are down 34% since 2006. Maybe this is the bottom that potential buyers have been looking for.

According to the Thomson Reuters/University of Michigan survey of consumer confidence, the data indicate an upward movement in that index for a 7th straight month to its highest level in 13 months.

And, according to the Case-Chiller Home Price Index, price declines started to slow toward the end of 2011.

Today's Commerce Department report indicated that Americans spent more on home improvement, gasoline, cars and electronics in March despite mixed economic signals. Consumer spending is now up for 10 consecutive months.

All this bodes well for GDP growth.

How Green Is My Ride?

http://www.nytimes.com/2012/04/15/automobiles/how-green-are-electric-cars-depends-on-where-you-plug-in.html?_r=1&ref=business#

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"To accept good advice is but to increase one's own ability." (Johann Wolfgang von Goethe)

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According to a report to be released by the Union of Concerned Scientists this coming Monday, there is a considerable difference in the amount of greenhouse gases - primarily carbon dioxide - that result from charging a car's battery packs. The group's report titled "State of Charge: Electric Vehicles' Global Warming Emissions and Fuel Cost Savings Across the United States," uses the electric power requirements of the Nissan Leaf as a basis for comparison. The Leaf, on sale in the U.S. for more than a year and the most widely available electric model from a major automaker, sets a logical baseline (Carlos Ghosn, the CEO of Renault-Nissan would be happy to hear that!).

Comparing identical trips in distance, a California "Leaf" would significantly outperform a Colorado Leaf. The hypothetical Los Angeles Leaf would be accountable for the release of an admirably low level of greenhouse gases into the atmosphere, about the same as a gasoline car getting 79 miles per gallon. The Colorado (Denver) Leaf would cause as large a load of greenhouse gases to enter the atmosphere as some versions of the gasoline-powered Mazda 3, a compact sedan rated at 33 mpg (EPA combined).

The California car: exceptional! The regional mix of coal-dependent power plants around Denver diminish the Colorado Leaf's benefits.

The U.C.S. report, which takes into account the full cycle of energy production (called a well-to-wheels analysis), demonstrates that in areas where the electric utility relies on natural gas, nuclear, hydroelectric or other renewable sources to power its generators, the potential for electric cars and plug-in hybrids to reduce carbon dioxide emissions is great.

In supplement to this report, the N.Y. Times has added two charts, one of which displays car comparisons and the other regional comparisons. Both charts add significantly to anyone's perspective on the situation.

Now, if the Leaf could only last longer than 100 miles before recharging!

Dominique Senequier

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2976

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"No matter what you are currently able to do, creativity can make you capable of more." (John C. Maxwell)

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K@W did an interview with AXA's Dominique Senequier which was published on April 6th. She is on the Forbes list of the world's 100 most powerful women. She is the founder and CEO of Paris-based AXA Private Equity which she founded in 1996. She's currently busy buying up investment portfolios from Bank of America and Citigroup.

Her perspective on the "Eurozone" and Private Equity performance is worth noting:

Eurozone - everyone is over-focused on Greece. Greece is only 2% of the Eurozone. Even if Greece and Portugal both had problems, it wouldn't change life in the Eurozone. In Spain, the problem is not the government and not the debts of the government. The problem is the banking system and that's being cleaned up. Ultimately, the required harmony of budget and tax discipline within the Eurozone, which would have taken 20 years, has been accelerated by this crisis and will happen now. Senequier sees the U.S. as having a lot of debt but the U.S. can print money so no near term problem.

Private Equity Performance - in answer to the query by K@W about how private equity will measure up to public market performance over the next few years, Senequier said it was difficult to project. Over the last 25 years, the PE index has been at 12.6% while the Dow has been at 10.4%. If she looks at three years, it's 7.3% for PE and 3.2% for the Dow. She sees this type of performance comparison continuing in the U.S. Her perspective on her own portfolio companies is that she is first focused on the "quality of managers." When she acquires companies, she looks at the human values. That makes her special and her PE firm hard to beat.

Recovery Skeptics

http://blogs.wsj.com/economics/2012/04/06/economists-react-hitting-pothole-in-road-back-to-strong-growth/

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"Disappointment is the difference between expectations and reality." (John C. Maxwell)

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I tend to think along the same lines as Ken Goldstein at The Conference Board whose perspective on the latest jobs data is that employers spent a great deal of time reducing costs over the past few years and apparently do not see enough solid evidence to sharply reverse course on hiring.

The New York Times uses the term "permabears" to describe those economists who are not convinced of the strength of this recovery (is this a recovery?). Before I saw the latest jobs numbers (a drop to 120,000 jobs added from several months at 200,000 plus) this week, I mentioned to one of my classes that adding 200,000 plus jobs per month to the U.S. economy is nice, but, as Laura Tyson recently pointed out, studies have indicated that adding jobs to the economy at that rate would take until 2024 to return employment levels to where they were prior to the worldwide financial crisis.

There is a New York-based forecasting firm with an excellent track record (Economic Cycle Research Institute) that sees a new recession coming (are we out of the old one?). My favorite dark profit and predictor of worldwide financial crises, Nouriel Roubini ("Dr. Doom"), calls this recovery (?) anemic, subpar, below trend, and below potential.

This would be as opposed to the Federal Reserve which currently estimates that the U.S. economy will grow at 2.2 to 2.7% this year.

Mark Zandi (chief economist at Moody's Analytics) is relatively optimistic. He's worth listening to because the quality of what he produces in terms of what will "move" the economy has been very high.

Goldman Sachs, in a research note entitled "Sticking With Sluggish," argues that an "exceptionally mild" winter stole business and hiring from March and April. I have trouble basing things on the "weather."

Then, of course, there's the possibility of $5.00 per gallon gasoline!