Lowdown Oil

The story of today is the price of oil. A month ago it looked as though it couldn’t go any lower as US wells were pegged to a production price of about $80 per barrel. Now, it’s at $60 per barrel. There are signs that many US wells will indeed keep operating as improvements in efficiency and a lower operating cost once the sunk costs once well is started leave room for more profit even at this low price. Cheap oil may be here to stay longer than we thought.

But with that, we still have the problems in Russia. The Ruble has fallen off a cliff, a problem often blamed on the price of oil. It’s deeper than that, and the flailing Russian response has in some ways made things worse. The currency has lost about 60% of its value in one year, versus about 40% for oil.

That’s not to say there aren’t threats as well as opportunities in the US beyond oil itself. Cheap oil changes a lot of games, and is worth thinking through.

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Sen. Warren, Politics Inside Out

As is so often the case today, bad news is good news. Sen. Elizabeth Warren (D-MA) had a terrible loss when an important provision of the Dodd-Frank financial reform was weakened over her very vocal objections, slipped into the critical budget deal when no one was supposed to be looking. But if you read the press, it was good for her because it increased her stature at a time when calls for her to run for President are only getting louder.

There are now two prominent calls for her to run, one by MoveOn and another independent one pushed by a group of major Obama backers. A true hero usually heeds the third call. The way the press is writing her story, that’s about to come. What does it all mean?

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Glad Tidings

If you need a dose of Christmas cheer, it’s best to look in a very unlikely place. The business and financial press is positively melting down over the most recent jobs report, which showed an impressive 321k net increase in jobs. Given that Barataria has been very positive on the US economy in 2014, you would expect us to join in the merriment.

Sure, why not. Just don’t over-do it, because this is only a make-up call. There is nothing reported this week that hasn’t been true for a year, and the noise in the data makes it look especially strong for November. The truth is that job growth has been strong all year and we are on pace for a good 2015.

There are plenty of reasons to cheer, but like the office Christmas party a good time is no reason to get crazy.

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Black Friday – Dead?

Did you hit the stores for “doorbuster” deals and a mad rush for great deals? If you did, you’re one of a smaller group every year as Black Friday and its even darker sibling on Thursday become a feature of Thanksgiving past.

The final data is not in, especially with “Cyber Monday” still in front of us. But this weekend was particularly weak and, if the past is any indication, a sign of a bleak holiday shopping season. But no one thinks this will hold as shopping patterns are changing. The forecast remains for a robust gain of 4.1% year over year.

The death of the Black Friday frenzy is a big story of the year if this pulls out.

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Crude and Junky

As oil prices remain low, the benefit for US consumers is obvious. But for oil companies? In the short run, prices running at about the cost of production mean no profits for the year, but in the longer run there is a terrible problem ahead.

That’s because the start-up of so many fracking operations across the US came at a cost, and that cost was financed primarily through junk bonds – high yield securities that demand a hefty interest payment to keep the operation going.

Zero profit means more than hard times – it means default and, in all likelihood, a shut down of many wells. That might not only spike up the price of oil, it is big enough to trigger a huge financial problem.

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Holiday Shopping, 2014

It’s just about shopping season! Last year, 19.2% of all retail sales were holiday sales – the stuff outside of food, gasoline, and other consumables that took place in the 28 days between Thanksgiving and Christmas.  That’s a total of $597B. This year, there’s one more day in that period and retailers hope for a decent increase.

Will this be a good holiday season that finally shakes off the blues that have plagued retail for the last six years? We’re about to find out.

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Crude Goin’ Down

The sign out front reads $2.899 for a gallon of gasoline. Prices haven’t been this low for at least four years. What happened? Will the price stay this low?

The short answer is that a lot of things happened, some of them mysterious. And it can’t remain this low forever, but perhaps for a few months. It’s all about the market for oil and perhaps some pernicious politics that, as always, make oil prices a geopolitical game.

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