Unions Go Global

Looks like the US & UK steelworkers unions are going to merge. The United Steelworkers' Union and Unite hope to reach a deal by July to merge the two unions. The combined union will have more than three million members in the UK, US & Canada,

Comments from Andrew Murray, Unite's spokesperson:

"We are dealing with global companies that can move capital - and employment - around the world at will in many cases."

"While big business is global and labour is national, we are going to be at a disadvantage."

Union membership in the US has been on a steady decline, although last year actually saw a growth in membership numbers. UK unions are in a similar decline, yet they still make up a larger percentage of the workforce than in America.

It make sense for unions to want to bulk up, but what is the benefit for a cross border tie-up? It seems that it will set up internal battles amongst the labor leaders from different countries.

US Union Membership as a Share of Wage and Salary Employment

Source: Congressional Budget Office, 2002

UK Union Membership as a Share of Wage and Salary Employment

Source: Department for Business Enterprise & Regulatory Reform, 2006

Source:
'UK And US Unions 'To Join Forces' , by BBC News

Not Really A Loss, Yet

Bloomberg News has a story on banks keeping some of their write-downs off their income statements. They are showing the loss as a balance-sheet adjustment, which is allowed under accounting rules. The idea is that the decline in value of the security can be marked down as an adjustment as long as it is not consider permanent.

So who determines if the loss is permanent? The banks themselves, by using in-house valuation models. The banks have also been quite on letting investors know exactly the type of securities that have been 'adjusted'. Who knows if the value of these investments will ever come back.

A good passage from the article; ``The banks that have taken advantage of this accounting approach are going to have a price to pay later,'' said Hintz, the third-highest ranked securities analyst in an Institutional Investor magazine survey. ``You don't avoid the price. Those that have taken it all in their income statements will come out with clean balance sheets and move on.''

These adjustments seem to indicate that the credit problem/crises is still in its early phases.

Below is chart from the story showing banks with hidden write-downs, along with write-downs on their income statement.

Source:
'Banks Keep $35 Billion Markdown Off Income Statements (Update1)', by Yalman Onaran, Bloomberg News

Graphic of Food Prices

Nice little interactive feature from Portfolio Magazine on the price increases for rice, wheat, corn and soy.

Interesting tid-bit, the UN's World Food Program budget is less than John Paulson's take home pay from 2007.

Source:
'Food Crisis', by Portfolio.com

More On Pickens

Found an posting on a Reuters global investment blog, which cited some research done by Birinyi Associates. Based on Birinyi's analysis you should believe what Pickens says. Below is a chart of the price of oil with data points of predictions by Pickens.

Here is the graph with a couple of data points:

1 Was surprised oil went down this much (19 month low) still thinks oil will average $70 in 2007.

8 Oil may surpass $100 on a geopolitical event and will rise to $80 within 6 months.

13 $100 oil will be routine.

17 Thinks oil wil rise to $150 by end of 2008.

Source:
'Pickens Sees Oil at $150...Here's a Look at His Track Record', by Eliis Mnynadu, Reuters News

There Goes Oil Again

Oil has broken the $129 range, with an intraday high of 129.60 (markets are still open at the time of this post). T Boone Pickens was on CNBC this morning saying that the oil producing countries are 'running out of oil'. He projected that oil will reach $150 dollars a barrel this year due to demand outstripping supply.

A couple of quotes from Pickens' interview with CNBC:

• "The Saudis claim they have more oil," Pickens told CNBC. "They don't. The President wasted his time to go to Saudi Arabia, to say, 'Give us more oil.' They can't give any more oil...they're stacking up the money as fast as they can stack it up."

• 'Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million," he said. "It's just that simple. It doesn't have anything to do with the value of the dollar."

• "We are now paying out...an estimated $600 billion a year for oil," he said. "It's four times the cost of the Iraqi war, and not one of the politicians running for president has anything to say about it. I don't know whether they don't know it, or they don't want to mention it."

Source: WSJ.com

Most recently Goldman Sachs increased it's estimate for oil to $141 dollars a barrel from $107, again citing supply constraints. Deutsche Bank, Credit Suisse and Societe Generale have also raised the oil price estimates for 2008 and 2009 based on increased demand and limited supply.

The trend for oil appears to be onward and upward. My guess is that there will be a correction in the oil market when it hits $130 dollars a barrel as traders take profits. It will continue to rise during the summer due to the risk of a hurricane. The wild card in this is at what point will demand be reduced due to price of oil?

Source:
'Oil Rises to a Record After Pickens Says Prices May Reach $150' by Mark Shenk, Bloomberg News
'Pickens: Oil Going to $150, So Move to Gas', by CNBC.com