U.S. home prices are their most affordable in 18 years, according to a report released Monday.
Nearly 73% of all homes sold in the United States during the first three months of 2009 were considered affordable. That was the highest percentage ever reported by the 18-year-old Housing Opportunity Index, an analysis of markets compiled quarterly by the National Association of Homebuilders and Wells Fargo Bank.
To be deemed affordable, a family making the median national income of $64,000 must be able to buy the property and devote no more than 28% of their income toward housing costs.
Plummeting home prices were primarily responsible for sending affordability soaring from just over 60% in last three months of 2008 to 72.5% in the first quarter of 2009. Sinking interest rates also contributed to affordability. A 30-year fixed mortgage averaged less than 5% during much of the quarter, according to mortgage giant Freddie Mac.
"Underlying the increase in affordability are lower home prices and record low interest rates," NAHB Chairman Joe Robson said in a prepared statement. "Combined with the $8,000 federal tax credit for first-time homebuyers, consumers are beginning to return to the marketplace."
Most affordable city
For the 15th consecutive quarter, Indianapolis led the nation's large cities (population 500,000 and up) in home affordability. The Indiana capital tops the list due to very reasonable home prices and relatively high median income: Nearly 95% of all homes sold were affordable to those earning the metro area's median income of $68,100.
On the other end of the spectrum, only 21% of the homes sold in the New York/White Plains metro area were affordable to those earning the median income of $64,800. Even there, affordability jumped seven percentage points compared with the last three months of 2008.
Rust-belt cities dominated the most affordable list, with Youngstown Ohio; Akron, Ohio; Grand Rapids, Mich.; and Syracuse, N.Y., all near the top. Joining New York at the bottom were: San Francisco; Los Angeles; Nassau-Suffolk, N.Y.; and Honolulu.
Several smaller cities were even more affordable than Indianapolis. In Sandusky, Ohio, about 98% of homes sold were affordable to those earning the local median income. Monroe, Mich., and the Ohio towns of Mansfield, Springfield and Canton all exceeded 95% affordability.
Less affordable small markets were led by Ocean City, N.J.; San Luis Obispo, Calif.; Flagstaff, Ariz.; and Hanford, Calif.
Markets still slow
Despite the record affordability, both existing and new home sales are still slow. New homes have been selling at an annualized rate of 350,000 for the past few months. Existing sales have been consistently running at an annualized pace of less than 5 million units - about two/thirds the boom-years rate.
And increased affordability is not enough to drive sales quickly upward, according to Ken Goldstein, an economist and real estate analyst for the Conference Board.
"What really hurts is that people are losing their jobs now," he said. "The unemployment rate is at 9% going to 10%. That means that 90% of people still have their jobs but everyone is looking over their shoulders wondering if they're next."
As a result, there's still a double-digit inventory of homes on the market. Plus, a large proportion of recent sales have been foreclosures, homes repossessed from defaulting borrowers and put back on the market, often at fire sale prices.
Still, homebuilders are taking some heart in the improved affordability stats and other data indicating that perhaps the worst is over. Pending home sales were up slightly last month, and new home sales have risen off their bottoms.
Those trends have buoyed industry confidence slightly. The NAHB/Wells Fargo Housing Market Index, an indicator of builder sentiment that was also released Monday, inched up two points in May to 16 after jumping five points in April.
quinta-feira, 21 de maio de 2009
quinta-feira, 30 de abril de 2009
Money under the mattress?
Next week the government is expected to reveal the results of its all-important bank stress-tests. Investors and customers alike will be scrutinizing these numbers to make sure their bank has the wherewithal to survive in this tough economic environment.
But how you can be sure that the bank where you keep your money is safe?
The Federal Reserve's stress tests will value bank assets and analyze their capital cushion. And while investors will be scouring the reports next week looking for telltale weaknesses, here's the rub: for the average consumers, this information is less than useful.
What you need to know is whether your bank is lending to people like you, whether fees are out of sight, and if the bank's credit card department is cutting credit limits.
The Fed is less concerned about all of this, and the stress test is only being applied to 19 of America's 8,500 banks: yours might not even be tested.
Consumers are better off consulting sites like bankrate.com. The Web site offers a Safe & Sound rating system that can help you get a picture of how your bank is doing.
You can also check out HSH.com for mortgage and consumer loan information divided by region.
And remember, if you think your bank might be in trouble, don't panic. As long as your bank is a member of the FDIC, your money is protected up to certain limits. Through the end of this year, individual accounts are fully protected up to $250,000, and the same goes for all retirement accounts, including IRAs.
If you're over the limit, spread out your money at different institutions, or consider joining a credit union. Credit unions are just as safe as banks. Instead of the FDIC guarantee, you have the National Credit Union Association to back up your accounts.
Source: Cnn
One of the worst moves you could make is pulling your money out of a regulated institution and holding the cash yourself.
But how you can be sure that the bank where you keep your money is safe?
The Federal Reserve's stress tests will value bank assets and analyze their capital cushion. And while investors will be scouring the reports next week looking for telltale weaknesses, here's the rub: for the average consumers, this information is less than useful.
What you need to know is whether your bank is lending to people like you, whether fees are out of sight, and if the bank's credit card department is cutting credit limits.
The Fed is less concerned about all of this, and the stress test is only being applied to 19 of America's 8,500 banks: yours might not even be tested.
Consumers are better off consulting sites like bankrate.com. The Web site offers a Safe & Sound rating system that can help you get a picture of how your bank is doing.
You can also check out HSH.com for mortgage and consumer loan information divided by region.
And remember, if you think your bank might be in trouble, don't panic. As long as your bank is a member of the FDIC, your money is protected up to certain limits. Through the end of this year, individual accounts are fully protected up to $250,000, and the same goes for all retirement accounts, including IRAs.
If you're over the limit, spread out your money at different institutions, or consider joining a credit union. Credit unions are just as safe as banks. Instead of the FDIC guarantee, you have the National Credit Union Association to back up your accounts.
Source: Cnn
One of the worst moves you could make is pulling your money out of a regulated institution and holding the cash yourself.
segunda-feira, 2 de março de 2009
U.S. takes another crack at AIG rescue
Insurance giant American International Group reported a stunning $62 billion quarterly loss on Monday, while government officials unveiled their latest efforts aimed at preventing the collapse of the firm.
Overwhelmed by ongoing deterioration in the credit markets and charges related to its restructuring, AIG's losses overwhelmed the firm during the fourth quarter. Its $61.7 billion loss amounted to $22.95 per share.
AIG's loss for the full year was even more dramatic -- $99 billion. In 2007, the company reported a profit of $9.3 billion.
To keep the company from cratering and causing broader fallout across the financial system, the government said it would overhaul its bailout, which is aimed at helping the besieged firm unwind in an orderly way.
"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," Treasury said in its announcement.
One main goal of the revamped rescue plan -- now totaling $162.5 billion -- is to help boost AIG's financial position by, among other things, reducing the interest it pays the government on its loans.
Key components of the plan included the government's decision to commit another $30 billion to the firm in exchange for cumulative preferred stock. The payment, which will come from the second half of the $700 billion rescue package enacted last fall, will not be a one-time payment but AIG will able to draw down the funds as needed to help strengthen its capital base.
At the same time, the Treasury Department, which has spearheaded efforts to keep the insurer from collapsing, will exchange its existing $40 billion preferred shares stake for shares that more closely resembles common stock. The change is expected to spare AIG from paying a large dividend to the Treasury.
The government has extended more than $150 billion to AIG since September. Regulators have feared that the bankruptcy of AIG, which does business in more than 130 countries, would have disastrous consequences.
Since then, the government has pushed the New York-based insurer to sell pieces of its business to repay its loan commitments. But a tough economic environment combined with a weakened appetite among potential buyers has hampered those efforts.
"AIG is executing one of the most extensive corporate restructuring programs in history at a time when the global economy and capital markets are in turmoil," said Edward Liddy, AIG's chairman and CEO, who was appointed to lead the firm in September after the Federal Reserve arranged financing for the insurance giant.
So far, the company has managed to shed just a few of its different divisions including the German reinsurer Munich Re, Hartford Steam Boiler Inspection, which insures equipment as well as its stake in the Brazilian bank Unibanco to Uniao de Bancos Brasileiros.
Monday's agreement, which marks the third revision to the government's rescue efforts for AIG, also included key revisions to the terms of the $60 billion credit facility that was created by the Federal Reserve Bank of New York.
That line of credit will be reduced to no less than $25 billion in exchange for giving the New York Fed a stake in two life insurance subsidiaries owned by AIG. At the same time, regulators said they would relax some of the terms of AIG's repayment by lowering the initially agreed to interest rate.
At the same time, the New York Fed said it was ready to provide up to $8.5 billion in credit to certain life insurance divisions owned by AIG. Money generated from life insurance policies are expected to be used to repay those loans, the Treasury Department said.
The government's efforts prop up AIG yet again comes just days after regulators moved to shore up Citigroup (C, Fortune 500). On Friday, the Treasury converted part of its preferred shares in the beleaguered bank, giving it control over as much as 36% of the firm's common stock, a shift that is designed to improve the embattled bank's capital base, which in turn will hopefully allow it to increase its lending.
Overwhelmed by ongoing deterioration in the credit markets and charges related to its restructuring, AIG's losses overwhelmed the firm during the fourth quarter. Its $61.7 billion loss amounted to $22.95 per share.
AIG's loss for the full year was even more dramatic -- $99 billion. In 2007, the company reported a profit of $9.3 billion.
To keep the company from cratering and causing broader fallout across the financial system, the government said it would overhaul its bailout, which is aimed at helping the besieged firm unwind in an orderly way.
"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," Treasury said in its announcement.
One main goal of the revamped rescue plan -- now totaling $162.5 billion -- is to help boost AIG's financial position by, among other things, reducing the interest it pays the government on its loans.
Key components of the plan included the government's decision to commit another $30 billion to the firm in exchange for cumulative preferred stock. The payment, which will come from the second half of the $700 billion rescue package enacted last fall, will not be a one-time payment but AIG will able to draw down the funds as needed to help strengthen its capital base.
At the same time, the Treasury Department, which has spearheaded efforts to keep the insurer from collapsing, will exchange its existing $40 billion preferred shares stake for shares that more closely resembles common stock. The change is expected to spare AIG from paying a large dividend to the Treasury.
The government has extended more than $150 billion to AIG since September. Regulators have feared that the bankruptcy of AIG, which does business in more than 130 countries, would have disastrous consequences.
Since then, the government has pushed the New York-based insurer to sell pieces of its business to repay its loan commitments. But a tough economic environment combined with a weakened appetite among potential buyers has hampered those efforts.
"AIG is executing one of the most extensive corporate restructuring programs in history at a time when the global economy and capital markets are in turmoil," said Edward Liddy, AIG's chairman and CEO, who was appointed to lead the firm in September after the Federal Reserve arranged financing for the insurance giant.
So far, the company has managed to shed just a few of its different divisions including the German reinsurer Munich Re, Hartford Steam Boiler Inspection, which insures equipment as well as its stake in the Brazilian bank Unibanco to Uniao de Bancos Brasileiros.
Monday's agreement, which marks the third revision to the government's rescue efforts for AIG, also included key revisions to the terms of the $60 billion credit facility that was created by the Federal Reserve Bank of New York.
That line of credit will be reduced to no less than $25 billion in exchange for giving the New York Fed a stake in two life insurance subsidiaries owned by AIG. At the same time, regulators said they would relax some of the terms of AIG's repayment by lowering the initially agreed to interest rate.
At the same time, the New York Fed said it was ready to provide up to $8.5 billion in credit to certain life insurance divisions owned by AIG. Money generated from life insurance policies are expected to be used to repay those loans, the Treasury Department said.
The government's efforts prop up AIG yet again comes just days after regulators moved to shore up Citigroup (C, Fortune 500). On Friday, the Treasury converted part of its preferred shares in the beleaguered bank, giving it control over as much as 36% of the firm's common stock, a shift that is designed to improve the embattled bank's capital base, which in turn will hopefully allow it to increase its lending.
sexta-feira, 12 de dezembro de 2008
Why a $1 trillion deficit is a good thing (for now)
It was already ominous enough that the U.S. budget deficit nearly tripled to $455 billion in the fiscal year that ended in September. Now, even conservative projections show that it is on course to explode into the stratosphere, exceeding the $1 trillion mark in the current fiscal year - and most likely, by a wide margin.
So, how alarmed should we be by this bleak prospect? The rational answer is that the soaring budget deficit is unavoidable and, in fact, necessary to help stabilize the economy through some extraordinarily difficult times.
Let's take a closer look at the issue - both the causes of the deficit as well as the concerns being raised by some fiscal conservatives.
The runaway deficit is the result of the convergence of three major factors:
1) The recession, which reduces tax revenues and increases certain types of spending related to higher unemployment and other welfare programs.
2) The steadily rising costs of the effort to address the financial crisis that burst onto the scene in September (takeovers of Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500), and AIG (AIG, Fortune 500), as well as capital injections into the banking system).
3) The soon-to-be announced, highly ambitious fiscal-stimulus package by the incoming Obama administration. The precise size of such a package remains unspecified, although "semi-official" hints have been given that it may be in the $600 billion to $800 billion range over several years.
All of the above forces represent an inescapable reality. Neither the recession nor the financial crisis were developments that could have been brushed aside. (The current recession is expected to continue till mid-2009, according to the consensus among economists, which would make it the longest contraction since the Great Depression.)
Although specific aspects of how the bailout funds have been used so far can be open to question, not undertaking a massive program of stabilizing the financial system in the last few months was never really an option, as it would have exposed the entire U.S. economy to a potentially catastrophic outcome.
Similarly, the Obama administration's stimulus package is not an elective development either. The need to undertake such aggressive spending is imperative, given the severely crippled state of economic activity.
The alternative, a smaller deficit based on more restrained spending, would almost certainly lead to an unthinkable outcome for the U.S economy. In a situation presenting itself so plainly, the current rumblings by some Congressional Republicans about the surging size of the deficit sound hollow and misguided, the product of rigid ideological adherence to the otherwise sound concept of fiscal discipline.
To be sure, the U.S. budget deficit is likely to approach 10% of GDP in the current fiscal year, an unprecedented rate; the previous high was 6% of GDP in fiscal year 1983 and the generally accepted rule is that a deficit should stay within 2% to 3% of the country's GDP. (By comparison, the deficits in the euro zone countries are capped at 3%, with some lenience only allowed recently as a result of the financial crisis.)
The main risks usually associated with a high deficit are:
1) The potential that the massive amount of borrowing that the government needs to undertake to finance it can squeeze the private sector out of the credit markets, therefore creating an intense competition for limited funds that can push interest rates higher.
However, such a risk is actually minimal in the current environment, where the weak economy has severely dampened the credit needs of the private sector and foreign investors seem to have, at least for now, an impressive appetite for U.S. Treasury securities that are issued to finance the deficit.
2) The risk that the deficit will cause inflation. This is true only when the Federal Reserve purchases large amounts of the newly-issued debt directly from the Treasury, a process called monetization. There is no serious evidence suggesting that the Fed is engaging in such large-scale operations and, in the past, it has consistently refrained from doing so.
The Fed has certainly not been shy about injecting massive amounts of liquidity into the banking system in the last few months, but this process is totally unrelated to the size of the budget deficit and it is meant to address a very different aspect of the current predicament for the U.S economy: unclogging the frozen credit pipelines.
3) Large budget deficits add to the national debt, causing ever-increasing interest payments and, therefore, representing a burden for future generations.
While no sane person can deny the nearly immoral aspect of that burden that is being passed on to the next generation, at the same time it's probably fair to say that the next generation would also have a keen interest in inheriting a functioning, thriving economy and not one that has been decimated by years of contraction caused by a blind adherence to the sacred principle of fiscal discipline.
Let's make no mistake: The surging budget deficits are not a pretty picture or a totally benign one either, and no argument can be made in favor of a more cavalier attitude toward fiscal discipline in normal or semi-normal times.
But these are extraordinary times and the deficits are just an unavoidable consequence - particularly considering the alternative.
So, how alarmed should we be by this bleak prospect? The rational answer is that the soaring budget deficit is unavoidable and, in fact, necessary to help stabilize the economy through some extraordinarily difficult times.
Let's take a closer look at the issue - both the causes of the deficit as well as the concerns being raised by some fiscal conservatives.
The runaway deficit is the result of the convergence of three major factors:
1) The recession, which reduces tax revenues and increases certain types of spending related to higher unemployment and other welfare programs.
2) The steadily rising costs of the effort to address the financial crisis that burst onto the scene in September (takeovers of Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500), and AIG (AIG, Fortune 500), as well as capital injections into the banking system).
3) The soon-to-be announced, highly ambitious fiscal-stimulus package by the incoming Obama administration. The precise size of such a package remains unspecified, although "semi-official" hints have been given that it may be in the $600 billion to $800 billion range over several years.
All of the above forces represent an inescapable reality. Neither the recession nor the financial crisis were developments that could have been brushed aside. (The current recession is expected to continue till mid-2009, according to the consensus among economists, which would make it the longest contraction since the Great Depression.)
Although specific aspects of how the bailout funds have been used so far can be open to question, not undertaking a massive program of stabilizing the financial system in the last few months was never really an option, as it would have exposed the entire U.S. economy to a potentially catastrophic outcome.
Similarly, the Obama administration's stimulus package is not an elective development either. The need to undertake such aggressive spending is imperative, given the severely crippled state of economic activity.
The alternative, a smaller deficit based on more restrained spending, would almost certainly lead to an unthinkable outcome for the U.S economy. In a situation presenting itself so plainly, the current rumblings by some Congressional Republicans about the surging size of the deficit sound hollow and misguided, the product of rigid ideological adherence to the otherwise sound concept of fiscal discipline.
To be sure, the U.S. budget deficit is likely to approach 10% of GDP in the current fiscal year, an unprecedented rate; the previous high was 6% of GDP in fiscal year 1983 and the generally accepted rule is that a deficit should stay within 2% to 3% of the country's GDP. (By comparison, the deficits in the euro zone countries are capped at 3%, with some lenience only allowed recently as a result of the financial crisis.)
The main risks usually associated with a high deficit are:
1) The potential that the massive amount of borrowing that the government needs to undertake to finance it can squeeze the private sector out of the credit markets, therefore creating an intense competition for limited funds that can push interest rates higher.
However, such a risk is actually minimal in the current environment, where the weak economy has severely dampened the credit needs of the private sector and foreign investors seem to have, at least for now, an impressive appetite for U.S. Treasury securities that are issued to finance the deficit.
2) The risk that the deficit will cause inflation. This is true only when the Federal Reserve purchases large amounts of the newly-issued debt directly from the Treasury, a process called monetization. There is no serious evidence suggesting that the Fed is engaging in such large-scale operations and, in the past, it has consistently refrained from doing so.
The Fed has certainly not been shy about injecting massive amounts of liquidity into the banking system in the last few months, but this process is totally unrelated to the size of the budget deficit and it is meant to address a very different aspect of the current predicament for the U.S economy: unclogging the frozen credit pipelines.
3) Large budget deficits add to the national debt, causing ever-increasing interest payments and, therefore, representing a burden for future generations.
While no sane person can deny the nearly immoral aspect of that burden that is being passed on to the next generation, at the same time it's probably fair to say that the next generation would also have a keen interest in inheriting a functioning, thriving economy and not one that has been decimated by years of contraction caused by a blind adherence to the sacred principle of fiscal discipline.
Let's make no mistake: The surging budget deficits are not a pretty picture or a totally benign one either, and no argument can be made in favor of a more cavalier attitude toward fiscal discipline in normal or semi-normal times.
But these are extraordinary times and the deficits are just an unavoidable consequence - particularly considering the alternative.
segunda-feira, 10 de novembro de 2008
Lending rates fall but challenges remain
Lending rates mostly fell Monday as banks welcomed government aid, but financial institutions remained wary as the global economy continues to struggle.
U.S. Treasury prices were lower ahead of auctions and stocks appeared headed for an upbeat opening.
The 3-month Libor rate fell to 2.24% from 2.29% Friday, according to Bloomberg.com. The overnight Libor rate edged higher to 0.35% from 0.33%.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend dollars in the U.K. and is a key barometer of liquidity in the credit market.
Both the 3-month and overnight rates have fallen significantly since hitting record highs during the height of the credit crisis.
The overnight Libor rate has been hovering near its all-time low of 0.32% after falling from a high of 6.87% on Sept. 30. The three-month Libor rate has come down 2.58 percentage points since its October high of 4.82%.
The declines came after the U.S. government launched a number of programs aimed at easing funding concerns for banks and encouraging lending between financial institutions have also helped lower Libor rates. Such initiatives include lowering interest rates, injecting capital into banks and providing insurance on all non-interest bearing accounts.
But ongoing economic challenges appear to be tempering the effects of improved lending conditions.
In a sign of the difficulties still facing the financial services industry, giant insurer American International Group got a $150 billion deal from the federal government Monday, as policymakers made significant changes to the terms of the company's original bailout.
While inter-bank lending conditions have improved, many economists say banks remain wary of lending to businesses and consumers as the outlook for global economic growth is cloudy.
Treasurys. Prices for ultra-safe U.S. government debt fell Monday as investors appeared upbeat about the restructured AIG plan and China's $586 billion economic stimulus package.
U.S. stock futures were higher about 1 hour before the opening bell. Asian markets rallied and major indexes in Europe were about 3% higher.
The benchmark 10-year note was down 14/32 to 101-7/32 and its yield rose to 3.85% from 3.78% on Friday. Bond prices and yields move in opposite directions.
The 2-year note slid 4/32 to 100-6/32 with a yield of 1.4%, up from 1.33%.
The 30-year bond fell 19/32 to 103-5/32 and yielded 4.31%, up from 4.24%.
Meanwhile, the Treasury Department is set to auction $25 billion in 3-year notes Monday. And on Wednesday, the government will auction $20 billion in 10-year notes.
U.S. Treasury prices were lower ahead of auctions and stocks appeared headed for an upbeat opening.
The 3-month Libor rate fell to 2.24% from 2.29% Friday, according to Bloomberg.com. The overnight Libor rate edged higher to 0.35% from 0.33%.
Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend dollars in the U.K. and is a key barometer of liquidity in the credit market.
Both the 3-month and overnight rates have fallen significantly since hitting record highs during the height of the credit crisis.
The overnight Libor rate has been hovering near its all-time low of 0.32% after falling from a high of 6.87% on Sept. 30. The three-month Libor rate has come down 2.58 percentage points since its October high of 4.82%.
The declines came after the U.S. government launched a number of programs aimed at easing funding concerns for banks and encouraging lending between financial institutions have also helped lower Libor rates. Such initiatives include lowering interest rates, injecting capital into banks and providing insurance on all non-interest bearing accounts.
But ongoing economic challenges appear to be tempering the effects of improved lending conditions.
In a sign of the difficulties still facing the financial services industry, giant insurer American International Group got a $150 billion deal from the federal government Monday, as policymakers made significant changes to the terms of the company's original bailout.
While inter-bank lending conditions have improved, many economists say banks remain wary of lending to businesses and consumers as the outlook for global economic growth is cloudy.
Treasurys. Prices for ultra-safe U.S. government debt fell Monday as investors appeared upbeat about the restructured AIG plan and China's $586 billion economic stimulus package.
U.S. stock futures were higher about 1 hour before the opening bell. Asian markets rallied and major indexes in Europe were about 3% higher.
The benchmark 10-year note was down 14/32 to 101-7/32 and its yield rose to 3.85% from 3.78% on Friday. Bond prices and yields move in opposite directions.
The 2-year note slid 4/32 to 100-6/32 with a yield of 1.4%, up from 1.33%.
The 30-year bond fell 19/32 to 103-5/32 and yielded 4.31%, up from 4.24%.
Meanwhile, the Treasury Department is set to auction $25 billion in 3-year notes Monday. And on Wednesday, the government will auction $20 billion in 10-year notes.
terça-feira, 4 de novembro de 2008
Oil blows past $70 as stocks rally
Oil prices rose above $70 a barrel Tuesday, propelled by a slipping dollar, a stronger equities market and OPEC production cuts, as Americans went to the polls.
U.S. crude for December delivery spiked $7.73 to $71.64 a barrel in electronic trading, as stocks turned higher and crude investors became less worried about market risk.
The equities market rebounded, sending the Dow up by as much as 300 points, as interbank lending loosened, allowing more cash to flow through the system.
"If we continue to see improvements in the credit markets, we could see oil stabilize or gain more ground," said Rachel Ziemba, energy analyst at economic research firm RGE Monitor.
Credit and rate cuts: The London interbank lending rate (Libor), a measurement of how much banks charge to lend money to each other, has been on the decline thanks to efforts by the world's governments and central banks.
The Federal Reserve cut its key lending rate last Wednesday to 1%, a low not seen since 2003. The Bank of Japan followed on Friday, cutting rates for the first time in 7 years.
The 3-month Libor rate had fallen to 2.71% from 2.86% on Monday. The lower the rate, the cheaper it is for banks to borrow cash, and the more dollars are available to the market.
Additionally, the Bank of England and the European Central Bank are expected to cut rates on Thursday, according to Ziemba.
Stocks: Stock markets rallied Tuesday on anticipation of rate cuts from Europe's central banks, and after several major companies reported better than expected earnings.
Credit card giant MasterCard (MA) reported stronger than expected earnings, not including a massive legal settlement with rival Discover Financial Services (DFS), which analysts discount when trying to determine the health of the company.
Meanwhile Illinois-based food producer Archer Daniels Midland Co. said its quarterly profit more than doubled as selling prices rose.
Markets have also been buoyed by the fact that, over the past several weeks, the financial markets have not seen any of the large bank blowups that have characterized the economic crisis since Bear Stearns crumbled in March.
"You're not getting that big heavy body blow to the market," said Tom Orr, head of research for investment brokerage Weeden & Co.
Potential collapses of global financial institutions such as UBS (UBS) and Barclays (BCS) have been averted by influxes of foreign cash, or by government action.
Stock market advances point out a "willingness by investors to take on more risk," said Ziemba.
However the bump may only be temporary, she added, since the global economy is still slow.
Over the past several months, worry about a stagnating global economy, and the corresponding decline in fuel demand, helped drive oil prices down from a record high of $147.27 a barrel in July.
Dollar: A slipping dollar also helped support crude prices.
The U.S. dollar fell compared to the 15-nation euro as investors sought the more lucrative returns of stocks and commodities. Investors often buy the dollar as a safe investment to avoid risk in other markets.
Oil, like most commodities, is traded in U.S. dollars. So when the value of the dollar falls, oil becomes more affordable to non-U.S. investors, and its dollar-denominated price goes up.
OPEC cuts: Also pushing oil higher were reports that members of the Organization of Petroleum Exporting Countries had begun implementing the cartel's planned production cuts.
Saudi Arabia cut exports by 900,000 barrels per day, according to media reports. Iran also said it was committed to cutting 199,000 barrels a day, according to reports.
While OPEC pledged in October to cut production by a total of 1.5 million barrels a day, there was real concern among investors about whether or not members would comply with the guideline, according to Ziemba.
The production cuts, along with strength in the equities markets have led many commodity investors to re-examine oil's supply and demand picture, according to Orr.
"People are starting to look a little more rationally about where commodity prices should be," said Orr.
However concerns remain that cuts may not be enough to give oil a bottom.
"Despite the production cuts, we're still in a global recession, and that's bad for oil demand," said Ziemba.
U.S. crude for December delivery spiked $7.73 to $71.64 a barrel in electronic trading, as stocks turned higher and crude investors became less worried about market risk.
The equities market rebounded, sending the Dow up by as much as 300 points, as interbank lending loosened, allowing more cash to flow through the system.
"If we continue to see improvements in the credit markets, we could see oil stabilize or gain more ground," said Rachel Ziemba, energy analyst at economic research firm RGE Monitor.
Credit and rate cuts: The London interbank lending rate (Libor), a measurement of how much banks charge to lend money to each other, has been on the decline thanks to efforts by the world's governments and central banks.
The Federal Reserve cut its key lending rate last Wednesday to 1%, a low not seen since 2003. The Bank of Japan followed on Friday, cutting rates for the first time in 7 years.
The 3-month Libor rate had fallen to 2.71% from 2.86% on Monday. The lower the rate, the cheaper it is for banks to borrow cash, and the more dollars are available to the market.
Additionally, the Bank of England and the European Central Bank are expected to cut rates on Thursday, according to Ziemba.
Stocks: Stock markets rallied Tuesday on anticipation of rate cuts from Europe's central banks, and after several major companies reported better than expected earnings.
Credit card giant MasterCard (MA) reported stronger than expected earnings, not including a massive legal settlement with rival Discover Financial Services (DFS), which analysts discount when trying to determine the health of the company.
Meanwhile Illinois-based food producer Archer Daniels Midland Co. said its quarterly profit more than doubled as selling prices rose.
Markets have also been buoyed by the fact that, over the past several weeks, the financial markets have not seen any of the large bank blowups that have characterized the economic crisis since Bear Stearns crumbled in March.
"You're not getting that big heavy body blow to the market," said Tom Orr, head of research for investment brokerage Weeden & Co.
Potential collapses of global financial institutions such as UBS (UBS) and Barclays (BCS) have been averted by influxes of foreign cash, or by government action.
Stock market advances point out a "willingness by investors to take on more risk," said Ziemba.
However the bump may only be temporary, she added, since the global economy is still slow.
Over the past several months, worry about a stagnating global economy, and the corresponding decline in fuel demand, helped drive oil prices down from a record high of $147.27 a barrel in July.
Dollar: A slipping dollar also helped support crude prices.
The U.S. dollar fell compared to the 15-nation euro as investors sought the more lucrative returns of stocks and commodities. Investors often buy the dollar as a safe investment to avoid risk in other markets.
Oil, like most commodities, is traded in U.S. dollars. So when the value of the dollar falls, oil becomes more affordable to non-U.S. investors, and its dollar-denominated price goes up.
OPEC cuts: Also pushing oil higher were reports that members of the Organization of Petroleum Exporting Countries had begun implementing the cartel's planned production cuts.
Saudi Arabia cut exports by 900,000 barrels per day, according to media reports. Iran also said it was committed to cutting 199,000 barrels a day, according to reports.
While OPEC pledged in October to cut production by a total of 1.5 million barrels a day, there was real concern among investors about whether or not members would comply with the guideline, according to Ziemba.
The production cuts, along with strength in the equities markets have led many commodity investors to re-examine oil's supply and demand picture, according to Orr.
"People are starting to look a little more rationally about where commodity prices should be," said Orr.
However concerns remain that cuts may not be enough to give oil a bottom.
"Despite the production cuts, we're still in a global recession, and that's bad for oil demand," said Ziemba.
domingo, 26 de outubro de 2008
Gas prices fall again
Gasoline prices fell again, tumbling to the lowest price in a year, according to a daily survey of credit card swipes released Sunday.
The average price of unleaded regular fell to $2.699 a gallon, down three and six-tenths of a cent, according to the Daily Fuel Gauge Report issued by motorist group AAA. Prices have fallen $1.15, or 30%, in the last 39 days.
The current national average is $1.41, or 34.3%, off the record high price of $4.11 that AAA reported July 17.
The decline comes as hurricane season winds down and oil prices drop over concerns that a prolonged economic slump would curb demand for energy.
The last time the average price for a gallon of regular unleaded gasoline was close to this price was October 18, 2007, when the price averaged $2.795.
Alaska has the most expensive gas with prices averaging $3.76. The cheapest gas is found in Oklahoma with prices averaging $2.30.
The average price of unleaded regular fell to $2.699 a gallon, down three and six-tenths of a cent, according to the Daily Fuel Gauge Report issued by motorist group AAA. Prices have fallen $1.15, or 30%, in the last 39 days.
The current national average is $1.41, or 34.3%, off the record high price of $4.11 that AAA reported July 17.
The decline comes as hurricane season winds down and oil prices drop over concerns that a prolonged economic slump would curb demand for energy.
The last time the average price for a gallon of regular unleaded gasoline was close to this price was October 18, 2007, when the price averaged $2.795.
Alaska has the most expensive gas with prices averaging $3.76. The cheapest gas is found in Oklahoma with prices averaging $2.30.
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