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Credit - The Golden Mean
"Extreme positions are not succeeded by moderate ones, but by contrary extreme positions." - Friedrich Nietzsche
Looking at the much vaunted 288 K NFP print in conjunction with the 6.1%
and the continuation of the rally in risky asset prices, it means of
course that the "hunt for yield" will intensify in true "Cantillon Effects"
fashion. We were expecting the 5 year European CDS index for Investment
Grade, the Itraxx Main to close around 50 bps at the end of June, with
the index at 57 bps today, we were not that far off, rest assured the
"japonification" process in the credit space will continue further. For
us"Cantillon effects" describe increasing asset prices (asset bubbles)
coinciding with "exogenous" liquidity induced central bank money
supply.
When it comes to choosing this week's title, we were inspired by Gavyn
Davies' take on the diverging views between Janet Yellen at the Fed and
the BIS take in his post "Keynesian Yellen versus Wicksellian BIS" which we read with great interest:
"Let us start with a few similarities between them. There
is agreement that financial crashes that trigger “balance sheet
recessions” lead to deeper and longer recessions than occur in a normal
business cycle. There is also agreement that inflation is not
likely to re-appear any time soon, and that the current recovery should
be used to strengthen the balance sheets of the financial sector
through regulatory and macro-prudential policy. That, however, is where
the agreement ends.
The roots of disagreement can be traced back to the causes of the
GFC. The BIS views the crash as the culmination of successive economic
cycles during which the central banks adopted an asymmetric policy
stance, easing monetary policy substantially during downturns, while
tightening only modestly during recoveries (ie the Greenspan and
Bernanke “puts”).
On this view, monetary policy has been too easy on average, leading
to a long term upward trend in debt and risky financial investments. The
financial cycle, which extends over much longer periods than the usual
business cycle in output and inflation, eventually peaked in 2008. But,
even now, the BIS says that the central banks are attempting to validate
the long term rise in debt and leverage, instead of allowing it to
correct itself. Excessive debt, it
contends, is preventing the rise in capital investment needed for a
healthy recovery. Financial and household balance sheets need to be
repaired (ie debt needs to be reduced) before this can take place.
In contrast, the mainstream central bank view denies that monetary
policy has been biased towards accommodation over the long term. Ms
Yellen’s speech claims that higher interest rates in the mid 2000s
would have done little to prevent the housing and financial bubble from
developing. She certainly admits that mistakes were made, but they were
in the regulatory sphere, where there was insufficient understanding of
the new financial instruments that would eventually exacerbate the
effects of the housing crash. Higher interest rates, she
says, would have led to much worse unemployment, without doing much to
reduce leverage and dangerous financial innovation." - source FT - Gavyn Davies
Our chosen title the Golden Mean reflects the great Aristotelian philosophical difference between both the Fed and the BIS given that, in philosophy, the 'golden mean' is the desirable middle between two extremes, one of excess and the other of deficiency.
Whereas the Keynesian Fed is arguably one of excess (liquidity and ZIRP
triggering "Cantillon Effects" aka bubbles), the other, the BIS, could
be argued as one of deficiency (lack of sound financial regulation in
the first place) but we ramble again.
A good illustration of this
philosophical argument and Janet Yellen's perspective comes from Bank of
America Merrill Lynch's Thundering Word note from the 2nd of July
entitled "I'm so bullish, I'm bearish":
"Is the Fed Losing the Dot?
The Fed’s “print & regulate” mantra
has boosted Wall St not Main St (Chart 1); the longer it takes for
growth and rates to normalize, the greater the risk of speculative
credit excesses (and a policy response to curb speculation).
Our base case remains higher growth/yields/$. Bank lending & small
business confidence hint at H2 macro & rate normalization. If so,
expect an autumn correction in risk assets (hence “I’m so bullish, I’m
bearish”). Either way, volatility will rise." - source Bank of America Merrill Lynch
What is truly interesting, we think, is
the analogy that can be made from a financial markets perspective with
the Eastern philosophy's take on the "Golden Mean". Thiruvalluvar,
the celebrated Tamil poet and philosopher wrote in his Tirukkural of
the Sangnam period of Tamizhagam about the "middle state" (the Golden
Mean) which is to preserve equity. He emphasises this principle and suggests that the two ways of preserving equity is to be impartial and avoid excess.
Credit bubbles generated by ZIRP will not preserve equity, rest assured.
From our Wicksellian penchant, we would
therefore argue that when it comes to the Fed's record, the Fed has
repeatedly failed in being "impartial" and in "avoiding excesses" which
led to one the biggest equity wipe-out in 2008 the world has ever known.
We will therefore discuss in this conversation the slack in the
unemployment since the great "reflation" trade and the materialisation
of our past concerns justifying the tapering stance of the Fed.
Like the preeminent medieval Spanish, Sephardic Jewish philosopher Maimonides said:
"If a man finds that his nature tends
or is disposed to one of these extremes..., he should turn back and
improve, so as to walk in the way of good people, which is the right
way. The right way is the mean in each group of dispositions common
to humanity; namely, that disposition which is equally distant from the
two extremes in its class, not being nearer to the one than to the other."
Of course given the rising "inequalities" given the "extreme" reflating
policies followed by the Fed, no wonder that the "Golden Mean" has been
broken favoring Wall-Street in the Process versus Main Street. Using
Maimonides "philosophical take, the Fed has indeed been nearer a "class"
rather than equally distant we think, with Wall Street and the owners
of capital booming while Main Street and the workers struggling:
- source Bank of America Merrill Lynch, June 2014 - The Thundering Word.
Another illustration of the divergence
between Wall Street and Main Street and how broken the "Golden Mean" is
can be seen in the significant fall in the US Labor Participation rate
compared to previous "recoveries" following US recessions as per the
below Bloomberg graph:
We have long argued that the Fed is
continuing on a "wrong" path and ignoring basic relationship such as
Okun's law and the prolonged negative effects of ZIRP on the labor force
(capital being mis-priced, it is mis-allocated to speculative purposes
rather than productive purposes):
"In economics, Okun's law (named after Arthur Melvin Okun, who
proposed the relationship in 1962.is an empirically observed
relationship relating unemployment to losses in a country's production.
The "gap version" states that for every 1% increase in the unemployment
rate, a country's GDP will be roughly an additional 2% lower than its
potential GDP." - source Wikipedia
In our conversation "The Last refuge of a scoundrel" back in September 2013 we argued the following:
"To that effect we wanted to illustrate more clearly this week the
"Cantillon effect" of Bullard's effective way to conduct monetary
"stabilization" policy, so, we plotted on Bloomberg not only the rise of
the Fed's Balance sheet, but also the rise of the S&P 500, buybacks
and of course the fall in the US labor participation rate (inversely
plotted) - source Bloomberg (chart updated as of 7th of July 2014):
In red: the Fed's balance sheet
In dark blue: the S&P 500
In light blue: S&P 500 buybacks
In purple: NYSE Margin debt
In green: inverse US labor participation rate.
In light blue: S&P 500 buybacks
In purple: NYSE Margin debt
In green: inverse US labor participation rate.
We think this graph clearly illustrates the Fed's conundrum in the
sense that with the Fed's dual mandate of promoting "maximum employment"
since 1978, it cannot promote both employment and sustain the "wealth effect" through capital growth with ZIRP. The
Fed tried to increase jobs by lowering interest rates, weakening the
dollar in the process, boosting exports but exporting inflation on a
global scale, as well as lifting stock prices, playing on the wealth
effect game.
Something will have to give.
ZIRP, we think is the main culprit."
We also added at the time:
"If capital cannot be re-allocated to "productive" endeavors,
enabling companies to focus their resources on their core business, how
can labor thrive in such a ZIRP environment? Please feel free to explain
us how."
Of course companies have been focusing more on the wealth effect game
leading to record stock prices and record buybacks as one can see from
the performance of stock prices from companies which have boosted their
stock prices through buybacks - graph source Bloomberg:
The performance of the US stock market has been artificially "boosted"
by "de-equitization", namely the reduction of the number of shares
courtesy of buybacks thanks to increase leverage, leading the "Golden
Mean" to be even further damaged by the Fed's extreme reflating policy.
When it comes to US unemployment figure at 6.1% and the latest NFP of
288 K we would like to re-iterate what we said in our conversation "Goodhart's law" in June 2013:
"When a measure becomes a target, it ceases to be a good measure." - Charles Goodhart
Conducing monetary policy based on an unemployment target is, no doubt, an application of the aforementioned Goodhart law. Therefore, when unemployment becomes a target for the Fed, we could argue that it ceases to be a good measure. - Macronomics
In the same conversation, we argued:
"We think that QE is not the core issue but ZIRP, which is in effect
preventing creative destruction in a Schumpeter fashion and delaying
much needed adjustments such as the ones needed from the European
banking sector."
No wonder investing in European banks shares have been less profitable
than investing in financial bonds from the European sector. In the
deleveraging and credit "japonification", we expected financial credit
to outperform. While the ECB has so far delayed deploying a QE buying
spree in true Japanese fashion, no wonder investors have more skeptical
about the industry and its share prices as described by Bloomberg:
"European bank valuations show investors’ are skeptical about the industry.
Lenders in the Stoxx Europe 600 Index are trading near their lowest
valuation in a year versus banks in developed economies worldwide, as
the CHART OF THE DAY highlights. After reaching a seven-month high in
January, the European group’s price-to-earnings ratio lost 5 percent to
47.55, compared with a 2 percent increase for lenders in the MSCI World
Index.
While the European Central Bank introduced a negative deposit rate
and announced targeted loans to stimulate lending last month, it held
off on a securities-purchasing program. For European banks to rally, investors need to see the ECB buying assets, which it probably won’t do until after giving current policies more time, said Ian Richards of Exane BNP Paribas.
“It’s too early to be buying aggressively on the prospect of a
euro-zone recovery,” Richards, the head of equity strategy in London,
said by phone. “The prospect of supporting material credit growth and
better earnings revisions in the banking sector is further down the line
than the market had hoped.” U.S. regulatory probes and penalties that
have slammed some European lenders are adding to concerns. Barclays Plc
tumbled 14 percent in June, the most since May 2012, as New York’s
attorney general said the bank lied to customers and masked how much
high-frequency traders were buying and selling in its LX dark pool. BNP
Paribas SA and Credit Suisse Group AG posted their worst quarterly
performances in two years after being fined for U.S. sanctions
violations and to help Americans evade taxes, respectively. “These
one-offs in conduct issues keep on coming back and haunting the sector,”
Richards said." - source Bloomberg
For us a bank is a second derivative of an economy. No growth, no stock performance.
When it comes to our contrarian take on US yields since early January 2014 we argued the following in our conversation "Supervaluationism" back in May this year:
"We recently pointed out the strength of the performance of US long bonds as well as the "Great Rotation" from Institutional Investors to Private Clients". As posited by Cam Hui on his blog "Humble Student of the Markets",
the "great rotation" has indeed been triggered somewhat by defined
benefit pension funds locking in their profits. One of the chief reason
therefore behind this rotation has been coming from US Corporate
pensions, as indicated by Gertrude Chavez-Dreyfuss and Richard Leong in
Reuters in their article from the 24th of April entitled "US Corporate pensions bet on bonds even as prices seen falling":
"Major
U.S. companies including Clorox and Kraft are favoring more bonds in
the mix for their employees' defined benefit pension plans, even amid
signs the three-decade bull run in bonds is on its last legs.
The $2.5 trillion U.S. corporate pension market enjoyed a robust
recovery in 2013, paced by stocks, as the Standard & Poor's 500
Index rose the most since 1997. That helped pension funds close a
funding hole that opened after the global credit crisis of 2008, so that
the average corporate pension was funded at about 95 percent at the end
of 2013, compared with 75 percent at the end of 2012, Mercer
Investments data show.
Now that they're more confident that
they have the money to meet their pension obligations, corporate pension
managers are pulling back from the perceived risk of the stock market
and buying U.S. government and corporate bonds, even though many expect
bond prices to fall in coming years.
"Even if interest rates rise more than the market predicts, you do
get the income component that offsets the price loss of those bonds,"
said Gary Veerman, managing director of U.S. Client Solutions Group at
BlackRock in New York, which has $4.4 trillion under management, of
which two-thirds are retirement-related assets. Veerman's group advises
corporate treasurers how to manage their pensions.
The allocation to bonds by the top 100 publicly-listed U.S. companies
in their defined benefit pension plans increased to a median of 39.6
percent in 2013 from 35.9 percent in 2010. Stock
allocation in the plans fell to 40.9 percent in 2013 from 44.6 percent
in 2010, according to global consulting firm Milliman."
"Now they're in a position to say: 'I don't need all those equities
because my funding status is in the mid- to low-90s,'" said Dan
Tremblay, director of institutional fixed-income solutions at Fidelity
unit Pyramis in Merrimack, New Hampshire, which manages more than $200
billion.
To further illustrate the "pension fund" effect and the increase in
duration risk with the "great rotation" in 2014 from equities to bonds
please find below the iBoxx U.S. Pension Index up 11% YTD which
"validates" our previous take on the subject - graph source Bloomberg:
The chart tracks the iBoxx U.S. Pension Index, designed to mirror the performance of a typical plan with defined benefits.
What our "wealth effect" planners at the Fed should take into account is
that rising stock prices may do relatively little to bolster the
finances of corporate pension funds. Bonds matter because increases in
projected distributions put even more pressure on yield hunting leading
to an increase in duration risk exposure and high yield
exposure. Volatility in funds’ asset value and relatively low interest
rates have made managing pensions increasingly difficult for corporate
managers, one of the solution they have found is shifting into bonds and
away from stocks. Of course if the "magicians" at the Fed had respected
the "Golden Mean" and prevented past and present excesses, funding gaps
and overall pension pressures would have been avoided in the first
place, but we are ranting again...
As a reminder from our conversation "Goodhart's law" in June 2013:
As indicated by CreditSights in their 29th of May 2013 Asset Allocation Trends - 2012 Pension Review:
"Key among the prevailing market realities in the post-financial
crisis environment has been the extended period Quantitative Easing and
the continuation of the Fed's prevailing zero interest rate policy and
in the latest year's plan asset allocation data there was evidence of
the effect this was having. As noted above, historically
low interest rates have not only inflated the calculated liabilities of
pension plans via the downward pressure on interest rates, they have
also deflated assumed plan asset return rates as fixed income has
increased as a percentage of plan assets." - source CreditSights.
So much for the great rotation, given, as indicated in the same report from CreditSights:
"One of the notable observations from our data analysis was that
there was very little change in the allocation across the plans vs. the
prior year. The median allocation to equity fell only marginally (from
50.8% to 50.0%) and the allocation to fixed income, rather than
increasing, fell from 37.0% to 36.4%. This suggests that the trend
towards Liability Driven Investment has slowed. While this, at least in
part, likely reflects that the shifts made over the last seven years
have better aligned many plans with their desired allocations, it also is undoubtedly influenced by the interest rate environment. Historically
low interest rates across the full maturity spectrum make it an
inopportune time to be increasing the allocation to fixed income assets
(or to be increasing the duration of those assets in the portfolio!) " - source CreditSights.
Hence the reason of our Wicksellian stance relating to the distortion
created by ZIRP, because of the increasing duration risk which has to be
taken by players such as pension funds!
Moving on to the justification of the tapering of the Fed, we reminder ourselves of some of our previous observations:
First observation from our good credit friend in 2013 from our conversation "Simpson's paradox" as the Fed tries to re-establish somewhat the "Golden Mean":
"There have been a lot of talks recently about the FED decision to
possibly reduce its liquidity injection at the end of the summer. Some
market participants still think the FED will not taper as the economy is
not yet on a very strong footing, and because the various thresholds
announced by B. Bernanke (unemployment level, inflation,…) are still far
from being reached. These arguments are undeniably right and strong,
but one must consider other information prior to declare the “tapper”
off.
First of all, B. Bernanke has explicitly announced that the FED will
not look at economic data over the next few months, but rather at the
trend which has developed.
Second, and more importantly, the FED currently owns about 33% of the
outstanding US Federal debt. As funding needs of the US Treasury are
diminishing following the sequester, there is less issuance and the FED
ownership of bonds in percentage is rising quicker. Should the Central
Bank continue buying the same amounts of bonds, it will own 40% of the
outstanding in 2014, then north of 50% in 2015. The
subsequent volatility on the interest rate market will increase
drastically as the liquidity of the bond market disappears, and the
currency could debase very quickly, creating a new crisis.
Third, and also a cause of concern, the
bond market repo activity is facing an increasing number of failures
(fails to deliver are on the rise exponentially) due to the large FED
holding, which has ripple effect on the overall bond market activity.
Fourth, and finally, economic growth in a society based on consumption requires credit. In order for credit to grow, or in other words banks to lend, collateral must be available.
Since the 2007-2008 financial crisis, high quality collateral has
slowly but surely become less available. If Central Banks continue to
buy various government bonds (and US Treasuries are among those bonds),
the available collateral will trend lower and the economy will stall, or
worst spiral down as a credit crunch will occur at some point. So the
FED has no other choice than to slow and even stop its QE if it wants
the game to go on.
To resume, the FED may have more
incentive to tapper and even stop its QE over time than to continue it,
even if the economy slows down and some asset prices move lower.
Apparently, it is the price to pay if one wants to avoid bigger problems
in the future. The only remaining question is the following :
“Is it the right time to do the tapper, or did the CB already crossed
an invisible dangerous line?” The way asset prices will behave and
re-price in the coming weeks/months will give us the answer (nice
retreat or collapse)."
One of the most important point validating our good credit friend's take
on the tapering necessity and repo can be ascertained from Liza Capo
McCormick article in Bloomberg on the 7th of July entitled "Bond Anxiety in $1.6 Trillion Repo Market as Failures Soar":
"In the relative calm that is the market for U.S. Treasuries, a sense
of unease over a vital cog in the financial system’s plumbing is
beginning to rise.
The Federal Reserve’s bond purchases
combined with demand from banks to meet tightened regulatory
requirements is making it harder for traders to easily borrow and lend
certain desired securities in the $1.6 trillion-a-day market for
repurchase agreements. That’s causing such trades to go uncompleted at
some of the highest rates since the financial crisis.
Disruptions in so-called repos, which Wall Street’s biggest
banks rely on for their day-to-day financing needs, are another
unintended consequence of extraordinary central-bank policies that
pulled the economy out of the worst financial crisis since the Great
Depression. They also belie the stability projected by bond yields at
about record lows.
“You have a little bit of a perfect storm here,” said Stanley Sun, a
New York-based interest-rate strategist at Nomura Holdings Inc., one of
the 22 primary dealers that bid at Treasury auctions, in a telephone
interview June 30.
A smoothly functioning repo market is vital to the health of markets.
The fall of Bear Stearns Cos., which was taken over by JPMorgan Chase
& Co. in 2008 after an emergency bailout orchestrated by the Fed,
and collapse of Lehman Brothers Holdings Inc., whose bankruptcy in
September of that year plunged markets into a crisis, was hastened after
they lost access to such financing." - source Bloomberg
Remember financial crisis are always triggered by liquidity crisis. From the same article:
"Liquidity Issues
“The effect of all the collateral issues we see now is an indication
of not so much how things are, but how bad things will be when you
really need liquidity,” said Jeffrey Snider, chief investment strategist
at West Palm Beach, Florida-based Alhambra Investment Partners LLC, in a
telephone interview June 30. “That’s when you get into potentially dire
situations.”
The conditions for repo stress were on display last month. The 2.5
percent note due in May 2024 reached negative 3 percentage points in
repo in the days preceding a June 11 Treasury auction of $21 billion in
notes to finance government operations.
Dealer Constraints
Repo rates have been most prone to go negative, a situation known as specials in the market, in the days preceding an auction as traders who previously sold the debt seek to buy the securities to cover those positions.
In this week’s note and bond sales, the U.S. plans to auction $27 billion of three-year Treasuries tomorrow, $21 billion of 10-year debt on July 9 and $13 billion of 30-year securities July 10.
Signs of dysfunction are coming at a sensitive time for markets. The Fed is paring its stimulus and futures show traders expect the central bank may start raising interest rates in the middle of next year.
The concern is that dealers, which have pared inventories to meet more-stringent capital requirements required by the 2010 Dodd-Frank Act mandated by the Volcker Rule and Basel III, won’t have as much capacity to handle any surge in volumes or volatility.
Securities Industry and Financial Markets Association data show the average daily trading volume in Treasuries has fallen to $504 billion this year from $570 billion in 2007, even though the amount outstanding has risen to more than $12 trillion from $4.34 trillion.
Available Securities
Bank of America Merrill Lynch’s MOVE Index, a measure of expectations for swings in bond yields based on volatility in over-the-counter options on Treasuries maturing in two to 30 years, reached 52.7 percent on June 30, almost a record low.
The Fed is partly to blame. Through its policy of quantitative easing, it now owns about 20 percent of all Treasuries, or $2.39 trillion. Banks hold $547 billion of Treasury and agency-related debt.
In addition, the Fed’s holdings have shifted in ways that leave fewer central-bank-owned Treasuries available to be borrowed. The shifts were caused by Operation Twist during the November 2011 to December 2012 period when the Fed sold shorter-dated Treasuries and bought more bonds, plus self-imposed central-bank restrictions on holdings of specific maturities.
Stimulus Withdrawal
The Fed’s lack of certain holdings “appears to be driving the surge in fails, which has been concentrated in the on-the-run five- and 10-year notes,” Joe Abate, a money-market strategist in New York at primary dealer Barclays Plc, wrote in a note to clients on June 27. On-the-run refers to the most recently issued Treasuries of a specific maturity.
While the Fed has sought to cut risk in the repo market since the crisis, it still sees the chance that rapid sales of securities, known as fire sales, could disrupt the financial system. Fails reached a record $2.7 trillion in October 2008.
Repos are also important to the Fed because it has been testing a program in the market that is seen as a potential tool to withdraw some of its unprecedented monetary stimulus.
Eric Pajonk, a spokesman at the New York Fed, decline to comment on the Fed’s reaction to the movements in recent weeks in the repo market.
The amount of securities financed daily in the tri-party repo market has declined 18 percent an average $1.60 trillion May, from $1.96 trillion in December 2012, data compiled by the Fed show. In a tri-party agreement, one of two clearing banks functions as the agent for the transaction and holds the security as collateral. JPMorgan Chase & Co. and Bank of New York Mellon Corp. serve as the industry’s clearing banks.
Supply Falls
Another difficulty in the repo market has been the decline in Treasury bill supply, with the U.S. having sold $264 billion fewer short-term bills in the April-through-June period than those that matured, according to John Canavan, a fixed-income strategist at Stone & McCarthy Research Associates in Princeton, New Jersey.
“The repo market itself provides lubricant to the entire Treasury market,” Canavan said in a July 3 telephone interview. “Bills are a key lubricant to the repo market, and the supply of bills has fallen sharply. If this situation were to continue longer-term, it would be a more substantial problem.”" - source Bloomberg.
Second observation from our 2012 conversation "Zemblanity" (The inexorable discovery of what we don't want to know"):
"In similar fashion to the current
Japanese plight, the Fed will eventually discover soon that company debt
sales will counter its bond buying plan"
As a reminder, back in January 2012 in our conversation "Bayesian thoughts" we quoted Dr. Constantin Gurdgiev, from his post entitled "Great Moderation or Great Delusion":
"when investors "infer the persistence of low volatility from
empirical evidence" (in other words when knowledge is imperfect and
there is a probabilistic scenario under which the moderation can be
permanent, then "Bayesian learning can deliver a strong rise in asset prices by up to 80%. Moreover, the end of the low volatility period leads to a strong and sudden crash in prices."
So enjoy the final melt-up because if the Fed had indeed respected the
"Golden Mean" there would not be greater risk of overshooting mean
reversion on the way down. Of course timing is everything, but it looks
to us we are indeed in the final innings of the great reflation trade.
On a final note in our previous conversation we voiced our concerns on
the impact of the velocity of rising oil prices and their ability in
triggering recessions, seeing US gasoline in at a 6 year high on Iraq,
is, requires close monitoring we think as it is a cause for concern -
graph source Bloomberg:
"U.S. drivers will pay the most for gasoline over the July 4 holiday
weekend in six years after the conflict in Iraq boosted crude oil last
month, preventing the typical June decline in pump prices.
The CHART OF THE DAY shows how gasoline at $3.67 a gallon is the highest for this time of year since 2008.
Retail prices rose 0.3 cent in June, compared with an average drop of
20.8 cents during the month in the past three years. While prices have
slipped in the past five days, they probably won’t fall much more before
the weekend as almost 35 million people hit the road, according to AAA.
“I’m not expecting any big changes,” Michael Green, a spokesman for
Heathrow, Florida-based AAA, the biggest U.S. motoring organization,
said by telephone from Washington. “We might see a drop of a few tenths
of a cent.”
Regular gasoline in the U.S. costs 19.2 cents a gallon more than a
year ago, dragged up by oil prices that jumped last month as fighting
in Iraq threatened to cut off supplies from OPEC’s second-largest
producer. International benchmark Brent crude rose $2.95 a barrel in June, and settled at $111.24 a barrel
on the 3rd of July.
The increase came just as the most people since 2007 made plans to
travel over the July 4 holiday. About 34.8 million people will drive 50
miles or more from home during the five days ending July 6, up from 34.1
million last year, AAA estimates.
“Last year, prices peaked around March, and now they’ve peaked
basically in June,” Sean Hill, petroleum economist for the Energy
Information Administration, the Energy Department’s statistical arm,
said by telephone from Washington. “This is all a function of what crude
oil has done because of the Middle
East.”" - source Bloomberg
"The extreme limit of wisdom, that's what the public calls madness." - Jean Cocteau
Stay tuned!