Thursday, 22 May 2008

The game of "bad" and "good" economic news continues

The jobless claims data released today and the reaction to this information from the markets and media once again clearly show that:

(1) Nobody can and should trust the US government stats anymore;
(2) The US administration are totally desperate in trying to save the US economy from falling apart, and every single bit of non-negative news is being used to do that;
(3) Hopefully the countdown has already began on when the U.S. statistical scam becomes a loud public scandal and when everybody around the globe can see that the king and his key allies are in fact naked;
(4) Enthusiastic morons in the financial mass media are helpless (do they really believe in what they are saying every single day?); and
(5) Crowds of speculators pretend they believe the fake stories being told by the government and are trying to play according to the unofficial rules of the big game called Investing & Trading.

Monday, 19 May 2008

Gas prices keep climbing, and Canadians continue paying for it

It seems that Canadians pretty much are got used to high gas prices by now. Americans have been scared by the gas prices steadily climbing towards $4 per gallon, with the country average having passed the $3.75 mark for the regular gas lately. Meanwhile, Canadians are already paying over $4.60 per gallon, in part thanks to Canada's federal and provincial governments which have been silently robbing people with the excessively high average combined tax rate on gas.

Facing taxes on final fuel prices, gas wholesalers and retailers in Canada shamelessly (and I have to admit, quite rationally from the economic point of view) shift the total burden of those taxes to Canadian consumers who, for some strange reason, are content with the situation and have been paying whatever price they see at gas stations. I mean they complain too, but do it unofficially at home and in private conversations, and I do not see any material outcomes of these complaints. I never heard anybody publicly debating and questioning federal and provincial beaurocrats why, say here in Ontario, the federal and provincial governments have been running huge surpluses for several years in a row now, yet they continue working in a close tandem with gas producers and distributors to deliver the outragenously high prices for gas to Canadian consumers.

Again, I understand the economics of such behavior, since sellers and tax authorities would love to charge the highest economically feasible price/tax for the good with the inelastic demand to extract the total economic surplus from the average consumer. But at the same time I think this is an example of a huge hypocricy where government officials express their seemingly genuine concern about consumers (yeah, right!), yet do the opposite things that hurt the latter. I do not even comment here about gas producers, refiners, wholesalers, and retailers since this gang is one big collusive ring that cares about nobody but their own profits (and the profits of their financial Masters). Add Western governments, which are also largely a part of the big spiderweb scheme, and you get the fuel and energy markets and prices acting as one of the important links in a now almost global chain that keeps the majorty of people in long-term economic slavery. This is another story though...

Back to gasoline pirces in Ontario and Canada: Look at the comparison of gas taxes in Canada across provinces, presented at Well, according to this info, the price that the average Canadian fellow is paying for regular gas in 2008 includes 35% in combined provincial and federal taxes, in comparison with 20% in taxes that the average American dude pays. For example, the residents of Ontario pay C$0.10 per litre in the Federal Excise Tax, $0.147 per litre in the Provincial fuel tax, plus a 5% GST (the federal sales tax). What's particularly outrageous is that GST is charged on the full gas price inclusive of the excise and fuel taxes. It is a tax on a tax which effectively increases the 5% GST rate by almost 1.5 percentage points to 6+%. Nice, isn't it?

The federal excise tax on fuel has increased from 1.5 to 10 cents per litre over the last 20 years. The latest such increase from 8.5 to 10 cents per litre came more than ten years ago as a temporary deficit reduction measure, which Ottawa's fricken government amnesiacs conveniently forgot to remove despite the fact that they have been swimming in surplus money for several latest years in a row.

The proponents of such taxes argue that fuel tax revenue is spent on public infrastructure, public transit, environment, and all other public programs that one can link to the use of fuel and cars, related pollution, etc. I understand it and see some truth in this argument in principle, but do not get me even started here about how these revenue funds are spent in reality. As an economist who used to deal with Canadian government stats, I know that this revenue money was not and is not spent properly and fully on what it has been originally claimed to be allocated to.

You can say that gas taxes are even higher in Japan, UK, EU, and other countries. I do not care. I live in Canada, which is one of the world's not so numerous oil producers and exporters, largely thanks to Alberta's Oil Sands. And there are economic means and controls in an oil-producing country to make sure that provincial economies and Canadian consumers remain competitive and protected from the negative consequences of the spreading international economic crisis and a fuel price bubble. So far, I can only see empty rhetorical words from politicians who keep pumping gas-based tax revenues from Canadian firms and individuals.

The gas price was $1.248 per litre today. You can check the latest gas price trends at this page. The gas prices in Canada closely move with the price of oil. Because energy markets are quickly becoming a new bubble toy for speculators of all shapes, colours, and sizes, it looks like we are likely to see gas prices going further north for a while (despite an occasional correction here and there). And it looks like Canada's central and provincial governments will (unfortunately) be there too to enjoy increasing revenue proceeds from growing fuel prices.

Canadians are still spending...

I was shopping with my wife today at Yorkdale Mall in Toronto and, oh boy, I must tell you that Canadians are still very much into shopping, despite all economic worries and troubles with the big southern neighbor. It could be the fact that it was rainy today and there were not too many other things to do for many people, or maybe because it was the middle of the long weekend, but the big mall was literally packed with people. By the time we were were leaving around 5 pm, people were waiting in cars to get the most remote parking spots.

Also, on Saturday, I was doing grocery shopping at at one of Loblaw's Real Canadian Superstores, and it was packed too, with people buying a lot of stuff. Expensive food? No problem! Expensive gas? Who cares! The roads were packed with cars yesterday and today.

It looks like the recessionary mood has not really hit Ontario that much, at least not the GTA area. People are still driving a lot despite the outrageously inflated gas prices, and people are still shopping despite the proponents of a recession shouting every day about the gloomy econoic future from media's screens and pages.

Wednesday, 14 May 2008

Big investment powerhouses are increasing their exposure in energy commodities trading

It was an interesting news read from Reuters today about the intention of JPMorgan to increase its involvement in trading of enery commodities. The article titled "JPMorgan to start physical oil trade, eyes $200 oil" states that JPMorgan just announced that it will substantially expand its trading of energy commodities and energy derivatives:

JPMorgan will join a growing list of investment banks from Goldman Sachs to Barclays Capital seeking to boost profits on their big derivatives trading desks by gaining a foothold in physical markets.

The third-largest U.S. bank added 50 people to its commodities and energy trading and investment team last year and is on track to hire a similar number this year, taking the strength of the total team globally to 450, Masters said.

Earlier this month, it hired former Goldman Sachs banker Oral Dawe as managing director and CEO of its Asia Pacific commodities group, in addition to hiring more than a dozen traders in Asia recently to oversee its expansion in energy and metals.

And with oil prices surging more than 30 percent this year to a record near $127 this week, Masters said the bank would look at more ways to boost its presence in energy markets.

"Oil rising to $200? It could happen. This year? You could see it, although it would take a further shock to expectations," she said.

It is clear that JPMorgan is not the only investment bank which is currently looking for new innovative ways to make easy big bucks out of nowhere, after the old schemes with asset-backed securities and swaps recently stopped or nearly stopped working. For sure, there are other banks, which are currently salivating by looking at the big money flowing through the energy commodity markets. Since these creative crooks do not own physical energy commodities at source, they will try to find new ways to get the title on them through paper trading, which will almost surely involve complex energy derivatives.

What does it mean for prices of oil, natural gas, coal, and energy products? They are very likely to keep growing, boosted by speculative trading performed by big time market manipulators and insiders like JPMorgan. The recent $200+ oil announcement by Goldman Sacks was just one of the first stones thrown into the genral public pool to prepare them for the life amid skyrocketing energy prices ahead.

What does it mean for normal people? We will see multiplied volumes of speculative demand from big market players, which have received access to cheap liquidity thanks to the U.S. Fed and other Western central bankers joining the move. The new worthless money created in trillions of dollars will chase real material sources of value, which is largely represented by various commodities, including energy resources and energy products. Higher costs of energy commodities arising from increased speculation will surely result in very high general inflation rates and growing costs of food, transportation, housing and everything else. It can have pretty hard abverse effects on most people.

What are going to be the consequences for economies around the world? Not good, as prohibitively high costs of energy and fuel will effectively halt production activities of many companies and energy-intensive economic sectors. Even oil and gas producing nations will suffer through double- and maybe even triple-digit inflation rates.

The bottomline: The energy markets will soon see quickly growing levels of speculative activity, with everybody joining the party and with new derivative products being introduced to return-greedy investors. We all know how the story of mortgage-backed derivatives ended (well, not ended just yet, to be precise). In the case of energy derivatives, it will not be any different. We will see energy prices taken far away from their true fundamentals. The resulting chain reaction can surely hurt many people, organizations, and states.

Do the bankers care about possible dire consequences of their involvement in yet another market which they can screw up? I doubt it. They should have been punished hard for the subprime crisis and credit derivatives. Sicne they weren't, they will be fast in creating another bubble for their masters, and the main private bank, the Federal Reserve, will asist them in doing so by lending easy electronic and paper money in return for now wortheless securities left over on the banks's book from the preivious bubble.

Sunday, 11 May 2008

The oily bubble is getting blown

It is really disappointing to observe lately what is going on in the markets, especially commodity markets and energy commodities in particular. Over the last three-four weeks, the amounts of lies and fake news that are being released by the Talking Heads have exceeded all reasonable logical and illogical limits. I started collecting those stories, and I am sure we will hear a plenty more over the next several weeks or months of the crazy oil and gas rally.

Let's look at what is being fed to the speculator-infested commodity markets lately:

First, there are some mythical crazy rebel maniacs in Nigeria and other African countries who persistently (and conveniently when there is nothing else to feed the news-lines) blow up pipelines of Western oil companies in Africa. Show me just one hole in the pipeline. Show me just one rebel, alive or dead. Let me hear him talking about why he hates the pipelines so much, who provides him with the explosives and tells him where and when to blow the bloody thing. Please enlighten me how one pathetic pipeline in the middle of the African nowhere can disrupt the world's total supply of oil. Since when Africa became the key oil-producing region? I thought the oil comes mostly from the Middle East, Russia, and South America. Well, apparently the analysts know better.

Second, we were recently told (again) that Ugo "Evil" Chavez apparenty can't stop thinking about cutting off the U.S. from the Venezualean oil. They are trying hard to convince us that somebody somewhere uncovered a 100+ computer files that prove that this such and such $%## has "closer-than-expected" ties with the Colombian rebels. Of course, the biggest world democrasy can't just stay away from this matter, and the bad guy Ugo needs to get a good public spanking by Uncle Sam. And of course, the brilliant analytical minds on Wall Street use a sophisticated deduction method to create a smart link between a computer file and the price of oil. Ethemeral files in an ethemeral notebook of an ethemeral rebel killed in green jungle contain Ugo's name and clearly demonstrate that he is into something bad and has those bad close ties with those bad bad guys. Wow, a rebel with a notebook writing about Ugo in the middle of the jungle hell! Skip several steps in the sophisticated cause-and-effect chain and here we go - the oil should be more expensive because this bastard in Venezuela will stop sending oil to the U.S. very very soon.

Third, those bloody unions in the U.K. are disrupting the whole oil sector in the U.K. and the EU. We can do absolutely nothing about it in this situation because we are big-time democracies and we should respect the rights of our precious workers to go on strike when they think it is necessary. However, the questions arise in this regard: Are the workers severely underpaid in this sector? Who tells them to go on strike? When do they tell them to go on strike and why? Was there really a strike after all? Would it have had any material impact at all if it actually had happened?

Fourth, there are constant reminders that there is a strong and growing demand for oil and gas in India and China, which stays robust ans is expected to continue its upward trend even in the middle of the current economic turmoil. This news makes me want to go to China and India and live there happily thereafter amid the never ending economic boom and bounty. But wait, I thought that China's well-being largely depends on its exports to North America and Europe. The latest cooldown in consumer demand in these regions can't help boosting China's ability to produce and sell their "Made in China" goods. Many of India's rapidly developing industrial and serivce sectors were doing great up until recently thanks to a strong trend in outsourcing among Western companies. If there is nothing to sell in North America and Europe due to the weak local demand, then it is not going to be much to outsource either. The exponentially growing internal consumption in India and China? Maybe, but look at their inflation rates and look at their still huge income disparities. Most people there will be struggling to get by in the coming years, facing food shortages and high food prices. Then why would you need a lot of oil there? To grow rice? To ride bicycles? When Western countries are getting one economic punch after another, China, India, and other quickly growing developing countries can't just continue flourishing as if nothing happened - they will go down too because their economies are too much dependent on the Western demand for their products and the Western investment. I am not buying this story.

Fifth, every week we hear that oil and oil product inventories in the U.S. keep shrinking although in reality they exhibit the opposite behavior lately - they keep growing. Well, then we are told that, if not this time, then next week they will shrink for sure. Besides, the US economy will start its strong ecnomic recovery any day now, and then oil will be in such a huge demand and we are unfortunately unprepared for this very realistic scenario with our meager oil inventories. By the way, who can confirm that oil and gas invenories are at the levels they are reported at? George Bush? Smart Ben? Uncle Sam? Who counted every single barrel or litre or cubic meter of these intentories and can prove that they are indeed there and not on paper only? (hey, who can prove that the U.S. gold is still at Fort Knox? :-))

Sixth, every month there are never ending recurring speculations that OPEC countries will cut off their production to keep oil prices high. Well, Uncle Sam, you (in very abstract theory) are controlling Iraq's pipelines now, you have been keeping Saudis, OAE, and Kuwait on a political, military, and economic leash, why don't you still control OPEC's oil supply? I know, it is all Iran's fault. Go get them, tigers.

Seventh, for some mysterious reason, amid the apparently booming world economy and extremely strong demand for oil, poor refineries are just getting by on the brink of bankruptcy and therefore have to cut their production for several weeks in a row now. Why is that? How do they face operating losses when the price of oil skyrockets and the difference between the cost of oil extraction and the final price is widening like nothing else? Nobody cares about poor little refineries, and bad big oil-company boys are taking all the profit money? Who in fact controls the refinery business? Are they affiliated with oil companies? Why do they conveniently have multiple maintenance closures when the price of oil wants to slow down or go down? Why are deadly fires and accidents taking place in some of them when the timing is right? Hmmm.

Eighth reason is my favorite, heard forn CNBC several weeks ago when I was in NYC (hotel stays are the only time I watch TV). Apparently Saudis and other major oil producing countries are deeply concerned about a quickly approaching shrinkage of their oil reserves. The good ol' oil fields are being depleted like there is no tomorrow, and there are no new big deposits in sight. Besides, apparently, oil extraction is getting more and more difficult and more and more expensive, so the opearing costs of oil producers skyrocket. Please give me a break. I know what's been skyrocketing lately: bonuses of oil executives, profits of oil companies, the size and luxury of their headquarter offices, numerouos management perks, etc. Not a long time ago, the operating costs of extracting oil in the Middle East were around $1-3 per barrel. OK, double it now to account for inflation and still double or triple more for higher transportation costs. $40, maximum $50 per barrel is the upper limit of the economically justified price of oil. I just do not believe any of the economics behind the $125 oil. The inflation and worthless dollar stories are not doing the satisfactory explanatory job here.

Ninth, there are assholes like whose Goldman Sachs and other Big Firm analyst slaves and their masters who throw in masterfully timed and engineered statements about a $200+ oil. These are the so called energy experts whose opinion for some strange illogical reason is still valued by the markets and who are using their access to mass media to justify the incredible stories of why oil should be priced 100% more than it is today and 400% more than it was just several years ago.

Tenth, you insert your own story...

Although I was being a bit sacrastic in the overview of some of the "expensive oil" reasons, the subject is not funny at all. It is not a secret that energy commodities lately are turning into another bubble area where the speculator money inflows are very substantial and are accelerating fast. We are not talking about physical commodities here any more. These are not the same commodity futures that originally served a very useful purpose of hedging and a guarantee of future delivery at specified prices. Now, it is just another intrinsically worthless paper that is used solely for speculation. I will not be surprised if the volumes of outstanding commodity derivatives, which de jure imply the presence of physical delivery of a physical commodity, in fact exceed (multiple times) the total volume of all discovered and undiscovered oil and natural gas reserves of this planet. Look at who is trading oil now! Funds, governments, government entities, banks, companies which are completely unrelated to the energy sector, individuals... Hey, even I am there, getting my valuable experience on how commodity markets operate and how people are getting screwed there big time for big bucks.

I think that some strong regulatory action needs to be introduced into these markets. Honestly, if I were in charge, I would impose a mandatory physical delivery of energy commodities. Do you need 1,000 barrels of crude oil deliverd to your little backyard or your fancy office in a month? No? Then get out from here, silly, and let only those who need price hedging and actual product delivery be involved in these markets. I guarantee that the prices of energy inputs and products will drop drastically if the real-delivery component is introduced into the system. The oil will cost what it is supposed to cost - $30-40 - not more. Will it happen in reality? Maybe sometime in the future. Definitely not now. We have too much worthless paper money chasing only a small quantity of physical inputs and products, but huge volumes of paper which is supposed to represent current and future products, goods and services. Occasionally, these paper instruments lose credibility from the public, and the masters and their slaves design new toys and inflate a new bubble to keep the gazillions of worthless dollars and other fiat currencies circling the little blue planet and generating real wealth for just of few of players.

Meanwhile, let's continue watching the show called "who is going to be the greater fool in this pricing game."

Responding to a question on Questrade

I received the following message from Ranv about the Questrade RRSP account:

I read your blog posting review of Questrade at:

I'm currently looking to open an RRSP account with a discount brokerage. I've never opened an account with a brokerage before so this will be my first time. I will likely make less than 20 trades per year so Questrade appears to be a good choice because they have low commissions and don't have an annual fee on low trading or low account balances.

Despite the fees though, I'm curious about their service. You wrote your review of Questrade in December of 2007. How do you feel about them now? If you're not happy with them anymore, can you suggest any other discount brokers that you are satisfied with?

Response to Ranv:

I did not have any issues with them so far, except for this delay with a $50 referral credit that I mentioned earlier. They eventually paid it several weeks later, after I bugged a customer service rep a couple of times, so the issue has been cleared now.

Overall, I think this is a very good discount brokerage, which should appeal mostly to small-scale investors/traders and those investors/traders who do not have a lot of regular account activity. It is true that they not offer the same scope of sophisticated services and investor customer support that are provided by big banks and full-scale brokerages, but they are not competing with the big guys in this market niche anyway.

My other comments so far, based on a six-month experience of having an RRSP account with Questrade:
  • The trading platform was never down when I was logged in during market and off-market hours and worked OK (I use only a base WebTrader);

  • The trades were executed very quickly - market order were processed instantaneously within a second, limit and stop orders worked well too;

  • You can easily track your account-related trading and fund-movement activity online;

  • The chat customer service was fast to get a response;

  • Getting a service rep on the phone was also not a big issue - the wait times were reasonable;

  • They never responded to email inquiries - that is a minus - if you do not respond, then why would you offer the email-message form on your website?

  • The paperwork support (statements, confirmations, income tax receipts, etc.) has been timely - no complaints there;

  • Email notifications about new services and changes in services were sent promptly;

  • All financial statements and other company-related paperwork were properly forwarded to my home address.

Like you, I do not trade very often - no more than 3-8 trades a month, and I think that this account is probably the first-best choice for small investor/trader guys like us. Definitely, nobody can beat Questrade in Canada in terms of fees and some services (like USD balances on an RRSP account). On the downside, you get a plain base package with limited interface capabilities, but you can always get extra services (like real-time live quotes, more advanced platforms with advance charting, etc.) for very reasonable extra fees - you will probably end up paying much more for equivalent services to their competition.

Unfortunately, I cannot comment about the services of other Canadian brokerages. Based on info comparison though, the account and trading fee structure is definitely the best at Questrade.

A bottom line: Six month later, I can still say that I would open an account with Questrade. In fact, next year I am very likely to open a tax-free savings account (TFSA) with them, once the new program starts operating in 2009.