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Global Economy Throwing Up Red Flags For Oil

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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Key Indicators Signal a Positive Shift in the Economic Landscape

Something has changed these last few weeks.

Yesterday I was struck by how many indicators have suddenly broken trend over the last few months. It appears that the economic landscape has shifted.

Last week, I mentioned that outstanding loans at U.S. commercial banks have flattened for the first time in over a year.

The value of banks' loan portfolios had been steadily falling since the financial crisis (with some interruptions caused only by statistical anomalies). Indicating a draining of credit from the economy. Not good for a nation trying to stimulate growth.

But this week outstanding loan value held steady, for the fourth week in a row. This is the longest we've gone without a pronounced drop in credit since the crisis broke late in 2008. A big positive for the U.S. economy. Although credit is not growing, at least it's stopped shrinking.

US Bank Loans & Credit

Another indicator that had been steadily declining since the onset of financial problems was American oil use. Between October 2008 and December 2009, U.S. crude oil imports fell from 10.5 million barrels daily to 7.7 million barrels. A notable 25% decrease.

But it's clear that oil use has been in an up-trend for the last three months. This could be a seasonal effect, although I doubt it. More likely, it reflects a pick-up in industrial activity (along with a slight build in crude inventories).

US Petroleum Trade

Why are things changing? It may be that money is once again being put to use by American consumers.

This is suggested by another recent change: a marked increase in yields on short-term U.S. government bills. Since the end of January, the one-month bill yield has jumped from 0.02% to 0.12%, a 500% increase. The three-month and six-month bill yields have also broken trend and moved higher.

US Treasury Yield Rates

Rising yields indicate falling bill prices, which could mean these instruments are being cashed in. Many cautious investors over the past year and a half have been using Treasury bills as temporary storage for their excess cash. The recent yield bump may mean these investors are pulling their money out, looking to cycle it into higher-yielding investments. A positive for stocks, real estate, commodities and other assets.

One major change is interesting. Two could be a coincidence. When three points like this connect, it's worth paying attention.

By. Dave Forest of Notela Resources


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  • Anonymous on March 31 2010 said:
    This pickup in economic activity is real rather than fictitious, at least for the time being. It can be detected on the basis of what is happening economically in Europe. And hopefully OPEC will get the message, and help us - and themselves - by not boosting the price of oil.

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