Iran's floating oil reservoir: Less than one day of world demand

World oil demand is about 95 million barrels of oil/day.  According to Vessels Value of the UK, Iran has a floating inventory of less than one day's consumption.  It is significant on the margin, but it is not overwhelming.

The myth of declining oil demand

You all understand well, perhaps better than I, the oil supply/demand issue, but since there has been some loose talk among the attractive people with nice voices on Bloomberg and Fox Business about "collapsing" oil demand, I could not resist the urge to comment.

As the chart below shows, world demand each quarter has consistently exceeded demand in the same quarter of the previous year. Demand continues to grow along its accustomed trajectory. It's almost like a law of nature. The problem, then, is supply.

And we are not talking about a lot of excess supply. What we have is a small amount of excess supply persisting consistently over time. If, for example, one left the faucet dripping and the sink were plugged, then the drips would, in time, flood the house. So the oil market is being flooded in a sort of Chinese water torture.

In this case, however, supply will have to keep increasing to maintain an oversupply, because demand keeps growing. In the second chart below, you can see the biggest oversupply was in the second quarter of 2015. Nonetheless, demand in that quarter was still greater than supply in the corresponding quarter of the previous year.

This is an interesting and important time. For the first time since OPEC was formed in the 1960s were are seeing a free market in oil. In a free market, the high cost producers drop out as the price drops and equilibrium is maintained. In the cartel world, this was upside down. The low cost producer used to drop its production to maintain the production of higher cost producers. It will take some time to find the equilibrium price because the low cost producer is now going all out many high cost producers still have a low marginal cost, but equilibrium will eventually appear. In the meantime, the price can go anywhere.

Sanders' Medical plan would extend Medicare to cover everyone

Bernie Sanders has issued a brief "white paper" giving his plan for national medical insurance.  He would simply extend Medicare to everyone and add coverage for vision, dental, and nursing home care.  (You may click on Bernie's picture to access the white paper.)

Medical insurance costs for the average family would drop 90% to a maximum of $466/family. 

The simplicity of the program should result in some cost savings.  (He estimates $600 billion a year in savings out of the  $3000 billion currently spent annually.)  Half of the cost of the program would be paid by taxes on workers and their employers and half by soaking the rich through higher income taxes, estate taxes and taxes on investment.

We may argue about how to pay for the plan, but it has the benefits of simplicity and extending coverage to nursing homes.  This would, on the surface, appear good for seniors.  Let's hope some of the mainstream candidates picks up on the best of these ideas while eliminating the eccentricities.

Dollar bubble: Trade-weighted US dollar will peak as China devalues

When the dollar eventually turns down, capital will exit the currency.  The trigger will likely be either 1. Indication by the Fed that further tightening is unlikely; or, 2. Significant drop of the Renminbi.

US mortgage applications are up 25% year-over-year

This week one of my daughters and her husband are taking out a 30-year mortgage. I guess they are not alone:

This ought to have a positive effect on consumer spending, all other things being equal.

India issues domestic bonds denominated in gold

The government of India began issuing bonds denominated in grams of gold in November. They are currently purchasable at post offices in denominations of 1 gram to 500 grams at the equivalent of $1194.39/oz. (2600 rupees/gram at an exchange rate of 67.7 rupees/dollar). 8-year maturity and putable at par (x grams of gold) from year 5. 2.75% coupon in rupees.

Why is India doing this? They want to reduce the current account deficit attributable to gold imports. (Also, the 2.75% coupon is lower than the government's domestic borrowing cost of 7.5%.) Consumer demand accounts for about 1000 tons of gold imports a year. So far Indian consumers have bought only 1 ton worth of bonds. This is disappointing to the government but understandable. Consumers would rather pay the 30% premium for buying coins and jewelry than trust the government to hand over the promised gold in eight years. Greater demand is likely to develop over time, however, as investors are lulled into the belief that the government will deliver the promised gold at maturity.

Will such bonds be issued in other emerging countries? It makes in terms of availability of financing at a lower cost.

BCA: S&P earnings growth negative and forward PE's are high

Even in a good economy, the US stock market is pricey. With earnings growth turning negative, it is very pricey indeed.