August 13, 2008

Global Market Comments for August 13, 2008

1) Panic buying of the dollar spilled over from the euro into the British pound, which soared overnight from $1.91 to $1.87. Britain's economic data is now looking as dire as those in the US.

2) Gasoline inventories fell a surprising 6.4 million barrels as the summer driving season draws to a close. Wholesalers are trying to keep stocks to a minimum to avoid the hit from falling prices. Crude jumped $5 to $117.50.

3) Demand destruction for gasoline is accelerating. According to the Federal Highway Administration, Americans drove 12.2 billion fewer miles in June than a year earlier, saving 635 million gallons of gasoline, which equates to 1 million barrels/day of crude oil consumption. This is 5% of our 20 million barrels/day total. High gas prices have spurred advocates to pack the November ballot with transit bills, including the long awaited funding of a BART extension from Fremont to San Jose and a $40 billion high speed bullet train from San Diego to San Francisco.

4) Honda launched the first hydrogen hybrid car, the FCX Clarity. The innovative vehicle gets 220 miles per $20 top up and recharges batteries while running on hydrogen, giving it an equivalent fuel economy of 77 miles/gallon. Only water vapor comes out of the tail pipe. The car can be leased for $600/month in California only. But you have to be a movie star to get one now.

5) July retail sales came in at -0.1%, slamming the stock market. Zero wage growth is the main problem. It is the worst time in 35 years to launch a new consumer luxury brand.

6) Yesterday's US Dept. of Agriculture report caused Corn prices to crash to a new low for the year of $4.85, down from its $7.65 peak in only June. The agency jacked up its crop forecast for 2008-2009 from 11.7 to 12.3 million bushels and goosed expected yields from 148 to 155 bushels/acre. Ethanol producer BioFuel Energy (BIOF) saw its stock plunge 60% after it announced enormous losses from over hedging of Corn around the market peak. The stock has fallen from $5 to 75 cents since June. Play with fire and you get burned. The economic rationale behind ethanol, from the start entirely politically based, was always dubious at best.