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Joan McCullough, East Shore Partners, 1-212-226-1223 Trading: 1-800-222-8723 firstname.lastname@example.org After having read quite a few articles over the weekend about the broad-based invasion of privacy and the related placement at risk of identity theft of tax-filing Americans ... which will be occasioned by the implementation of the Affordable Care Act via something called the “Federal Data Hub”, the choice this morning was simple: either write this screed ... or move to New Zealand. The myriad of dark thoughts generated over the direction of this country, brought on by the latest news headlines, having robbed me of sufficient energy to execute the latter at the moment, so here I am. At your service ... and at my keyboard. First, let’s get the pesky data outta’ the way. Though I don’t know why we bother following anything but the money these days. June Chicago FED National Activity Index. May was a slightly downwardly revised -0.30. Today, June printed -0.13. Long-term readers know this drill: look at the MAs. Okay. The 3-mo MA improved from -0.37 to -0.26. But as you can see, remains in negative territory. And has been for four months in a row. This is not a beautiful thing. Why? Because it sends the following message: economic growth continues below potential and inflation will remain in check. Which makes the FED look like an even bigger bunch of dopes than we had thought previously. And given the recent jump in borrowing rates occasioned by Bambi’s big mouth, the biggest drag on the CFNAI ... also in June ... came from the housing sector. But of course, that slap in the face is being touted as “temporary”. Is that right? Okay, then let’s look at the next piece of data, shall we? June Existing Home Sales. Expect 5.25 mil. Actual: 5.08 mil.
Revision: May down from 5.18 mil to 5.14 mil. Okay, see if you can put this one together, Sherlock: Existing Home Sales fell 1.2% m/m. The median existing-home prices is +13.5% y/y to $214,200. Check out this cut-and-paste: ... “House prices are appreciating at a dizzying pace. The 28% annualized q/q gain for singlefamily homes in the second quarter is the fastest on record, dating back to the late 1960s.” ... http://www.economy.com/dismal/pro/release.asp?r=usa_existhome While 30 year FRM contract rates moved from 4.15% to 4.68% over the course of June. Compare to June of 2012 when those rates averaged 3.87% and were flat-lining. Okay, you have 30 seconds to solve this puzzler: Home sales down. Prices flyin’. Rates on the move higher. Best answer: More proof that the FED’s policies have gummed up the works. What’s very dispiriting is the knowledge that unsuspecting folks are being crowded out; those who have enough stamina to still compete are being forced to pay up in price and in the cost of funds. This totally stinks. Now think back to the CFNAI from 8:30 this a.m. Housing was the biggest drag. But they touted that as “temporary”. Vamos a ver. Because I’m too thoroughly disgusted to belabor this any further. Next. I gotta’ take a deep breath before ploughing into this dog. Because it comes at the most inopportune moment imaginable. The FED has put the wood to our ability to value assets, for starters. The FED, in pretending to honor its dual mandates, has facilitated the opposite results: horrific unemployment and vast price instability. And after putting us at extreme risk with their wildly bloated balance sheet, has come up with bupkus in terms of economic growth. Au contraire, after they rescued the banking system from the edge, it was downhill from there as they way overstepped their bounds in an illfated experiment. I, for one, resent this immensely. And now that they’ve made a massive mess of our lives, it is finally becoming evident to them that there is no escape from what they have wrought. None. On top of this rollicking schmitthaus, we have the Administration and the diabolical “Obamacare”. I have neither the energy nor the vocabulary to describe this abomination ... on any level, whether that be from a standpoint of economics right on down to morals.
And just when you thought they couldn’t truss us any tighter like so many geese about to be cooked ... you see the price of WTI exceed that of Brent, see Gasoline prices at the pump on a levitation binge ... and hear talk again about the ethanol scam. None of this is new. It’s just that we are raw from abuse. And this, ladies and germs, takes the freakin’ cake. Inhale. Exhale. Okay, here goes. In June, the President of the United States put forth a 3-part plan to save the planet from global warming. Yeah, you got it. The arctic ice caps are melting and the oceans are aboil. And this is because of human activity. ... “I refuse to condemn your generation and future generations to a planet that is beyond fixing. And, that is why today, I am I announcing a new national climate action plan, and I’m here to enlist your generation’s help in keeping the United States of America a…global leader in the fight against climate change.” ... Note: When you see this symbol: *** throughout the next few paragraphs it means that I have either stepped outside to clear my head or have passed out altogether. I will be back as soon as physically and mentally possible. Got that? Good. Suggest you read this one while implementing the “buddy system”. Because we cannot be responsible if you keel over while alone in your cubbyhole. Here are the 3 parts from Obama: 1. cutting carbon pollution in America. (Not the US. “America” which I guess means we will jackass around with the Canadians and the Mexicans on this one further. So they should not complain that they weren’t warned.) 2. prepare the US (screw the Canadians and the Mexicans after having jackassed both around) for the impact of climate change. 3. US citizens (I use the term loosely because ya’ nevuh know who counts as a citizen these days) to assist the US government in making the US the global leader to combat climate change. Renewable energy. For those in a fog, that description includes solar, wind, biomass and geothermal. GHG: Greenhouse Gas emissions. The first place to look for these offenses is, natch, in the power-generation industry.
Currently, the individual States are responsible for keeping a handle on GHG. Some have laws, some have targets. But that ain’t enough for the Prez, no sir. So while he is busy destroying the healthcare system, removing any shred of privacy you might still be clinging to and causing jobs to be eliminated and hiring put on hold ... he found the time to drum this up, too: *Federal standards for GHG. Because, obviously, he needs to control that as well. *We are purposely avoiding developing more commentary about the upcoming federal standards for GHG. Because they don’t just address carbon dioxide, no sir. In all his sweeping wisdom, the Prez will also demand standards on hydrocarbons ... and methane. Sorry, but I just can’t go there on a Monday morning; I have always viewed cows’ slicin’ of the cheese as a natural, bovine right. And care not to tread. *** The words of Von Hayek should be climbin’ right over your cerebral cortex right about now as truly we are well on the “Road to Serfdom”. So the miscreants at the EPA are in the process of determining the federal GHG standards. So if you think your utility bill is smokin’ hot right now, just wait until the EPA starts callin’ these shots, Sunshine. Keep readin’. Of course, various agencies of the US government are busy complying with the renewable energy mandates. Most notable is the Department of Defense which will be goin’ green to the extreme at all military installations ... by 2025. Now where do we get the money to pay for this? This nation of ours which is carrying debt exceeding $16 tril against a backdrop of decelerating growth? The 2014 budget calls for a 30% increase in spending by all government agencies on this crap. And wouldn’t you know it, but the big push is on biofuels. Advanced biofuels to be precise. *** As a matter of fact, the Prez is even establishing a new “secretariat”. OMAB. Right. That, I guess, will happen around the same time he conducts the promised “Quadrennial Energy Review” in cahoots with his Domestic Policy Council and his Office of Policy for Science and Technology. Right. This new *“secretariat” will be under the aegis of the Department of Energy. I know. You’re thrilled. Sounds like another massive boondoggle. And a load of taxpayer money out the window on a buncha’ baloney because we didn’t learn our lesson with Solyndra et al. And very importantly, this is a continuing effort ... so that political favors can be repaid. Saints preserve us. ***
*secretariat. Yeah, that’s the word the WH used. I did not make that up. And I’m sure that its usage was lost on the Newbies. So let me enlighten them: creation of a secretariat has global implications. In this case, I am sure that Obama is champin’ at the bit to insert himself as World Leader of the Battle against Climate change. So “secretariat” fits just fine. Doubt that? Then here’s the dictionary definition; your call: ... “the officials or office entrusted with administrative duties, maintaining records, and overseeing or performing secretarial duties, especially for an international organization” ... All these grandiose energy efficiency hallucinations ... from the same Administration which is still refusing to complete the Keystone pipeline. *** Well, alright, now that we brought up “biofuels” you know exactly where this is goin’. To ethanol. And how the consumer is being abused. And the pertinent government agencies are in denial about ongoing, negative fall-out. And how we permit them to walk all over us without so much as a peep. The “blend wall”. I hadda’ look this one up. Maybe you already know about it. But for those who don’t, here it is: A gallon of gasoline with 10% ethanol mix is the “wall”. Which I gather means that it is the max that can be added to your car’s fuel. Unless of course, you’re lookin’ to damage your engine on purpose. We are apparently at the “blend wall” right now, by government mandate. Here’s the kick in the stick: ... “The Renewable Fuel Standard, or RFS, dates in its current form to 2007, when concerns about dependence on overseas oil and a desire to curb the use of fossil fuels induced Congress to set quotas for the use of alternatives to gasoline or diesel, such as corn-based ethanol and biodiesel.” ... http://www.bloomberg.com/news/2013-06-26/epa-says-ethanol-bounty-may-pushrefiners-over-blend-wall.html Remember that: ... “induced Congress to set quotas for use of alternatives ... such as corn-based ethanol ...” Here now is where your knickers are gonna’ get really twisted: A gallon of Gasoline with 10% ethanol mixed in. The price keeps goin’ up. Regular Gasoline is up over .20 per gallon y/y, according to AAA. Currently: $3.671. Yet the powers-that-be (and this includes the skanks at the Department of Agriculture) continue to insist that the escalating price of ethanol ... has no impact on food prices.
Excuse me, but didn’t US beef prices, for example, recently make an all-time high? Right. The drought. And foreign demand. Got it. Has nothing to do with feedin’ these babies! SOS. *** *** *** Follow along: It would be one thing if the US ordered as follows: Every gallon of Gasoline must be composed of 10% ethanol additive. It is quite another to order this: Attention US refiners: Here’s your volume-quota on ethanol. You must blend this amount into your Gasoline each year. Regardless of how many bbls of Gasoline you produce. Right. It is the latter which is what the government has ordered. It is the latter which ought to make you furious. Because whether a refiner produces a million bbls ... or half that amount as demand diminishes ... he still must use the same volume of ethanol. Does this mean that we can expect to buy Gasoline that has increasing amounts of ethanol in it which might do damage? If the EPA has its way, yes. Per the above-referenced B’berg article: ... “The EPA has cleared the use of E15, or gasoline with 15 percent ethanol, for most vehicles sold since 2001. The oil industry is fighting that determination, and argues that the higher ethanol content can harm vehicle engines. In his testimony today, Grundler [director of the office of transportation and air quality at the EPA] said that higher blends of ethanol may need to be used to meet the requirements, or “significant additional volumes of non-ethanol biofuels would be needed.” The time frame for this? 2014. But there is a way to elude going over the “blend wall”, i.e., above a 10% mix. Buy RINs instead. These are biofuel credits. *** That pause was necessitated by the fact that having weeded thru an explanation of a RIN (a biofuel credit), I almost bought the ranch. The system is inextricably complex and most
dispiriting of all, there is a massive bureaucracy that has sprung up around this crap. Along with ... what else? Trading. The biofuel mandates are set by the RFS (Renewable Fuel Standard) which we mentioned above. Here’s the deal on the biofuel credits (RINs): ... “A RIN is a 38-character numeric code that corresponds to a volume of renewable fuel produced in or
imported into the United States. RINs remain with the renewable fuel through the distribution system and ownership changes. Once the renewable fuel is blended into a motor vehicle fuel, the RIN is no longer required to remain with the renewable fuel. Instead, the RIN may then be separated from the renewable fuel and used for RFS compliance, held for future compliance, or traded. The RFS mandates are prorated down to “obligated parties”—individual gasoline and diesel producers and/or importers—based on their annual production and/or imports. Each year, obligated parties are required to meet their prorated share of the RFS mandates by accumulating RINs, either through fuel blending or by purchasing RINs from others. Understanding the RIN system and the prices for RINs when bought and sold can provide key insights into the impact of mandates on biofuel and feedstock markets.” ...
http://www.ers.usda.gov/media/138383/bio03.pdf Got that? Let me give you the most important part again: ... “Each year, obligated parties ( refiners) are required to meet their prorated share of the RFS mandates (prorated share of 13.8 bil gallons of ethanol this year; next year? 14 bil at least according to estimates) by accumulating RINs, either through fuel blending (actually blending the ethanol Gasoline which they are producing) or by purchasing RINs from others (as a means of a waiver to excuse themselves from having to overbuy ethanol which they cannot use because production is way down.)” ... The upshot is that the shareholders and the public, eat this cost. Which I would like to shove right up ... the Potomac. Care to join me? This is what makes me nuts. The government mandated the quota based on expectations for production and consumption. And since they stink at forecasting, picked a number which now makes them look totally ridiculous. And us, just as ridiculous for puttin’ up with it. The backfire: Demand for Gasoline has been on a steady decline here since 2007. We used 8.518 mil bpd. in 2012, a 14-year low. And -8.3% over 2007.
So the refiners can make a choice: Buy RINs (ethanol credits) representing ethanol that they can’t use. Or: Increase the amount of ethanol above the 10% blend “wall” and risk the product being shunned by US consumers. Fearing damage to engines. Evidently, they have opted to buy the RINs. This year, the average price of a RIN according to B’berg is $1.01. They started out at about .07 which shows the predicament/panic quite plainly. Last at $1.38. B’berg symbol: RINSET13. Purchasing the RINs at increasing prices squeezes their margins. And drives up the price of a gallon of gasoline at the pump. To you, sucker. *** Dated 6/24/13: ... “The American Petroleum Institute, the oil industry's chief lobbying group, has asked the Supreme Court to block sales of E15. The court could decide as soon as Monday whether to hear the ethanol case, which combines similar requests by groups representing refiners and car manufacturers. Putting fuel with up to 15 percent ethanol into older cars and trucks "could leave millions of consumers with broken down cars and high repair bills," said Bob Greco, a senior API official who has met with the White House on ethanol issues. The ethanol industry counters that there have been no documented cases of engine breakdowns caused by the high-ethanol blend since limited sales of E15 began last year.” ... http://www.foxnews.com/politics/2013/06/24/supreme-court-could-consider-suit-to-block-saleshigh-ethanol-gas-blend/ This could be a cash-for-clunkers redux, eh? Without the cash, that is. We could call it: Gas? Now-You’ve-Got-A-Clunker. What a way to spur consumer spending! Mandate Gasoline which kills old cars, trucks, motorcycles, tractors, lawn equipment, etc. Brilliant! In seriousness, apparently E-15 is being sold. You’re supposed to know if you’re getting it because the pump handle is bright ... green. What else?
Apparently, only 12 million of the 240 mil cars and light trucks in service right now are okayed by the manufacturers to use E-15. The following state that use of E-15 violates the warranty: BMW, Chrysler, Nissan, Toyota and Volkswagen. The following state that E-15 does not comply with the owner’s manuals and MAY void the warranty: Ford, GM, Honda, Hyundai, Mazda, Mercedes Benz and Volvo. From what I gather, the issue is of corrosion. The government says 2001 or newer is okay. The manufacturers say no. Here’s the upshot: Hell or high water, we are gonna’ pay for this bullschmitt. In short, what the FED has not done to harm us, the Administration’s healthcare ... and now environmental agenda ... is gonna’ finish the job. This is what we get with an academic in the White House, a former community activist no less. The worst possible programs are being pursued at huge cost including the mind-numbing bureaucratic nightmares to support them ... to a nation irreversibly mired in every-growing debt, a record number of us receiving “entitlements” where fraud doesn’t even make the front pages anymore ... all while we are being persecuted by asinine economic policy which has made a very bad situation, fatally doomed. Another record high. Follow the money. The End.
This report is issued for informational purposes only and is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. Any recommendation made in this report may not be suitable for all investors. This report does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it. Moreover, although the information contained herein, and the opinions, forecasts or estimates based thereon, has been obtained from sources deemed to be reliable by East Shore Partners, its accuracy and completeness cannot be guaranteed and should not be relied upon as such. Past performance is no guarantee of future results. Under no circumstances should any of the information contained herein be changed or reproduced without the express written consent of East Shore Partners, Inc. East Shore Partners, Inc. does not engage in investment banking activities, nor does it make markets in securities or trade for its own account. East Shore Partners, Inc. does not maintain any relationship with any issuer of securities. East Shore Partners, Inc., Member FINRA, SIPC. Copyright © 2013 East Shore Partners. All rights reserved.
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