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Do Railcar Loadings Indicate An Oil Price Correction Is Imminent?

Tyler Durden's picture




 

A 20 year chart comparing oil with railcar loadings may have something to say about either the mispricing of the commodity or provide some insight into Buffett's thinking on his long-term interest in rail. Granted, he started buying rails at or about the market peak so it is unlikely that the Omaha recipient of governmental generosity has this particular correlation in mind, however, it is oddly striking that while in the past the two trendlines have had a very distinct pattern, ever since the pop in the commodity bubble and the collapse of America into a recession the two have converged. On the other hand, as oil prices are driven purely by speculation and reflect very little of fundamental supply/demand metrics, and thus reflect nothing but excess liquidity, this particular convergence may persist for as long as Bernanke deems it relevant.

Nonetheless, one thing that oil bulls should consider is how much oil (among other liquid assets) will Abu Dhabi be forced to sell to fund the bailout of Dubai. In addition, we are somewhat confident Ray Dalio and Bridgewater must be sweating any phone call that originates from the UAE and specifically from ADIA these days.

 

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Mon, 12/14/2009 - 17:15 | 163665 curbyourrisk
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Someday Warren will be collecting Subsidies for the government after they take over the rail system!

Mon, 12/14/2009 - 17:19 | 163669 Cursive
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Shipping tonnage, railcar loadings, truck freight, mall traffic, November retail sales, state tax reciepts, federal tax reciepts, continuing unemployement claims, any manner of capacity utilizaiton measures, XTO/XOM deal all-stock...you name, there are signs everywhere.  I doesn't matter, though, with the Bernanke Put.

Mon, 12/14/2009 - 18:00 | 163730 Anonymous
Anonymous's picture

According to the weekly Railfax report, American rails are still moving up chartwise. The Baltic indeces, on the other hand are dropping again. If I remember, the Railfax reported strong grain and corn shipments... Oh yeah.... And autos.. All those unemployed and homeless have to live somewhere. Buy a car!

Urbane_Gorilla ;=)

Mon, 12/14/2009 - 18:02 | 163731 Chopshop
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how come everyone just assumes / thinks that warren is investing genius when he's looking toward a 20+ time horizon from behind berkshire's allocationary purview and in reality, gulp, could not be anything further from an actual trader; but i digress / another day.

he's all "ALL-IN" (said so himself) and basically is admitting, NOT that he is ALL-IN on rails / america's future prospects ... but rather ... that he / BRK is effectively all-in across the board, as a whole.

what better way to play 'save the DJ' than to save the trannies themselves (DJ-20) ? 

forget the past: from here on out warren / brk only go where the indices go +/- a few hundred bps a year.  warren is one of the greatest marketers / leaders. ever.  NO disrespect toward him intended, but honestly, only half-joking: can I go back to 195x with a 'lil cash and use 10x leverage during the bull of bulls and 'see what happens' ?? 

reread the jack schwager books, the 1st actually has material instead of 98% filler like the latter two ... note how many legends (a few traders, one or two technicians, and about a half dozen or so great HF managers / true stewards of capital) either took out $2-3 K cash on their AMEX or asked daddy for a few bones to arb the crush if not just go uber long soybeans; it's actually rather interesting / funny how many 'made their initial stake / seed' from it.

Mon, 12/14/2009 - 18:14 | 163747 Green Sharts
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Why would Ray Dalio be sweating a phone call from the UAE?

Tue, 12/15/2009 - 10:20 | 164415 gmak
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Probably just an inside joke based on info that only those in close to the "biz" would get. try googling the name.

Mon, 12/14/2009 - 18:20 | 163756 Anonymous
Anonymous's picture

Are these railcar loadings just US or global? Aren't the oil bulls all about emerging market demand?

Mon, 12/14/2009 - 19:06 | 163832 Anonymous
Anonymous's picture

"Nonetheless, one thing that oil bulls should consider is how much oil (among other liquid assets) will Abu Dhabi be forced to sell to fund the bailout of Dubai."

Abu Dhabi pumps approximately 2.4 million barrels of oil per day.

The reported bailout of Dubai is $10 Billion.

At $70/barrel, a day's production is sold for $168 million.

That means about 2 months of production, pre costs, covers the Dubai bailout to date.

Mon, 12/14/2009 - 19:15 | 163849 virgilcaine
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WB invests for a long time frame with Rail, & if only Time itself could be purchased.

Mon, 12/14/2009 - 19:33 | 163882 Anonymous
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ZH, please help me. Why do investors continue to look a railcar shipments for insight into the future?

While many of you look at that chart and say 'whoa oil is oversupplied', I believe the divergence on the chart is actually a large paradigm shift in the U.S. economy and not an asset bubble.

Can we please stop using U.S. railcars as *THE* leading indicator! I understand it's historical significance, but any correlation between rail and the U.S. economy isn't as strong as it used to be. I'd rather use Chinese railcar or port loadings as a leading indicator (anyone got data?) for the price of oil.

Here is why:

1. Digital transportation. So, a few years ago, we invented this thing called the internet which can transfer some goods and services without a railcar. I know this doesn't make planes, trains,and boats obsolete, but you have to understand that a significant (growing) portion of the U.S. economy is information-based. Google doesn't ship advertisements on railcars.

2. WTI price is affected by world-wide energy demand. Railcar loadings are reflected by US manufacturer goods demand.

3. It's cheaper to ship goods from Shanghai to California then Michigan to California.

Solution: Use port data *and* railcar data.

4. Value added goods. A short ton of Semi-conductors has a helluva lot more value (market and intrinsic) then a short ton of lumber.

5. The Fed 'printing presses' don't need paper anymore!

6. Amazon.com

7. Reduced demand for newspaper and printed advertising. USPS tonnage down.

8. Growing energy pipeline infrastructure. Diversify away from coal.

10. Population growth in Urban areas vs. Rural areas (Urban areas are less likely to indulge in commerce that requires rail cars.)

11. Housing starts down.

12. Shift in U.S. consumer spending.

The 21st-century DOW theorist would use an aggregation of world-wide transportation shipments (both physical and digital). Not just U.S. bulk goods.

Mon, 12/14/2009 - 20:41 | 163972 albion402
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That is a compelling list of things to consider.  Are you publishing this somewhere else?

Mon, 12/14/2009 - 21:36 | 164030 Cursive
Cursive's picture

Thanks for a lot of blather and no data.

Mon, 12/14/2009 - 23:05 | 164107 Anonymous
Anonymous's picture

Thanks for constructive criticism.

I do apologize for the lack of data and some amateurishness, but I think the idea is clear. U.S. rail car shipments no longer have the clout they used to as an indicator. That's soooooo 20th century.

So much of the new American Centur.. economy doesn't get shipped around on standard gauge anymore. The financial meltdown was a catalyst for this. Out of crisis, comes opportunity. These charts won't ever meaningfully correlate ever again.

Not to mention, TFA is comparing a local metric (U.S. railcar shipments) to a global one (The price of oil).

As for internet traffic being a possible leading indicator for the economy ("Google doesn't advertise on railcars... yet"), the digital equivalent would be something like this:

http://www.akamai.com/html/technology/nui/retail/index.html

You could call this the "Akamai transportation index."

Unfortunately, I don't have y/y numbers available, but they might have insight.

I foresee Google and peers (oh wait, it has none) trading and profiting immensely off InfoArb strategies, etc. using it's massive set of data. Google is basically a demand engine. When I want something, I turn to Google.

hmmm.... new trading strategy: "Search Engine Arbitrage"

Here is one quick and dirty example:
http://trends.google.com/trends?q=fedex%2C+ups&ctab=0&geo=all&date=all&s...

I'm looking at this chart as just one metric for consumer spending this holiday season. We definitely had a fall off last holiday season in a strong long-term uptrend (shouldn't be a surprise).

and another:
http://trends.google.com/trends?q=walmart%2C+amazon&ctab=0&geo=all&date=...

Looks like everyone's favorite brick-and-mortar got a huge spike for Black Friday, but doesn't have the staying power that everyone's favorite internet retail jungle has.

Obviously, you wouldn't base investment decisions solely off of this data (but would base investment decisions solely off freight?).

Tue, 12/15/2009 - 23:39 | 165458 Anonymous
Anonymous's picture

Well done!

However it goes deeper than you suggest. People think Google is a "search engine", it's not. There is no money in search engines.

Google, via Adsense, and Adwords, is the most advanced system for matching buyers and selling at the moment a buyer wishes to buy. It's "search engine" component is "just" a side requirement to feed that buy/sell matching system.

All those websites you find with one "landing page" of advertising links, are backended by Google (well Yahoo, Google's only competetion, does to but obvously not as well). In effect you specified your "search" via the keywords in the domain name itself, but Google does not care about your search, in only cares about offering you a ling you'll click on so they can debit and account for that click - That's how Google makes money and is their primary focus.

If you use GMail it's the same thing. Google actually reads each of your emails when you look at them, it then uses that text as a "search" into it's advertising portfolio to try to entice you to click on a related advert.

Also note people who use Google to place adverts, on Google and the various afiliated systems and websites, also do so by defining a bid amount for a click on their advertising, as well and a maximum amount they are willing to pay for those leads on a given day, and per month, etc.

So the bid rates, and campaign scope, the conversion by website of placed advert, the geographics of what converts where, etc, etc .... Means that access to that REAL TIME data would empower anybody to invest without failure, and tremendious success.

This is also why Google so tightly guards that info in many ways. And it's why anybody with access to that info know, again in real time, exactly what the population is doing and thinking. The search terms data entered in the Google search tool are just icing on the cake, and optimization feeder data for the larger click conversion goal.

Mon, 12/14/2009 - 22:18 | 164068 Windemup
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I would suggest using Oil, Natural Gas, Coal and Hydro consumption. That is the source of energy that is the proxy for economic activity. Rail cars can move many things but that doesn't mean that they are being used. They could be in transit to be stored somewhere else. Raw energy consumption is the key.

Can anyone point to pages that have data for these things? I'd be glad to followup with a study.

 

Tue, 12/15/2009 - 02:04 | 164229 Anonymous
Anonymous's picture

I don't think there's anyone here who uses only rail as an indicator. It's one of many indicators, including ships and trucks. Rail tonnage is directly related to both of those, because rail is the intermediate link between port and warehouse in many cases.

Many of the factors you cite above have been going on for years and have had little impact on gross rail lading year over year. The reason is the population is growing, and so is the tonnage shipped to feed, clothe, and entertain them, among other things that require box cars.

Mon, 12/14/2009 - 20:25 | 163947 Anonymous
Anonymous's picture

Looks like oil already discounted the drop.

Mon, 12/14/2009 - 20:28 | 163950 digalert
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WB piled into COP at the peak last year, then recognized the blunder and shed his Conoco holdings.

Mon, 12/14/2009 - 20:47 | 163977 Bruce Krasting
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Interesting to see the drop in RC loadings in November of 08. The economy was collapsing at that point. The 08 drop was more severe that the drop in November of 01. That was after 9/11. That was a hell of a recession we just went through.

Are these numbers trending up, or are they just volitile?

Mon, 12/14/2009 - 21:06 | 164002 Hephasteus
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You should check out the air freight charts. It's just a total cliff dive as well.

Mon, 12/14/2009 - 21:53 | 164043 Anonymous
Anonymous's picture

Where might one find air freight charts? I like following $BDI and $LUMBER and rail for "real" data.

Mon, 12/14/2009 - 22:39 | 164081 delacroix
delacroix's picture

but fed-ex guidance, says

Mon, 12/14/2009 - 22:01 | 164048 Anonymous
Anonymous's picture

Sorry if double post, where might one find air freight index/charts?

Mon, 12/14/2009 - 22:05 | 164054 Anonymous
Anonymous's picture

Sanity check please:

The yearly trendline is up, but has an offset I do not understand.

Each year has a consistant spike DOWN around December/January, stabilzes, then the yearly up trend.

How can there be such a huge drop in the middle of winter?

Mosy of this oil is the seasonal stock up to carry most through winter? Thus everything stop in winter as they draw from their home / business tank supply?

Thanks!

Mon, 12/14/2009 - 22:20 | 164069 Anonymous
Anonymous's picture

Hockey stick way up
Spend what we don't have, we must
Trust me, I love you

Mon, 12/14/2009 - 23:00 | 164103 Psquared
Psquared's picture

What pisses me off is that oil has dropped by over 10% a barrel in the past few weeks, but gas at the pump has not declined at all. Stations that were selling regular unleaded for cash at $2.49 gallon have not declined at all. A few places have dropped it to $2.39, but they kept the price of medium grade and super grade the same or higher.

Gas should be at $2.24-2.26 a gallon.

 

 

Tue, 12/15/2009 - 00:28 | 164167 carbonmutant
carbonmutant's picture

Interesting map that lets you monitor shipping traffic in real time.

If you want to monitor just tankers just turn off the other choices.

http://www.marinetraffic.com/ais/

Tue, 12/15/2009 - 01:27 | 164211 Grand Supercycle
Grand Supercycle's picture

 

Crude charts have been bearish for a while now.

MORE:

http://www.zerohedge.com/forum/market-outlook-0

 

Tue, 12/15/2009 - 05:06 | 164299 Silver_Bullet
Silver_Bullet's picture

A possible take on the Buffet rail interests is that he is going to asset strip them.  Rail in the United States is obsolete and falling apart because of asset stripping.  For at least 30-40 years rail has been used for cash flow to leverage junk bonds and such, or just to extract profit.  Very little maintenance or anything else is put back into the rail networks. 

 

Even with the outsourcing of all jobs, and with the NAFTA super-highway idea a great deal of North-East Asian production will be diverted from the west coast of the US to Monterrey in Mexico.  So while production will continue to be destroyed in the US, the rail networks will still be needed to move the fruits of the sweatshops north to the slave camp landmass in between Canada and Mexico.

Tue, 12/15/2009 - 07:38 | 164320 Rick64
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My thinking was it was cheaper and easier to ship huge quantities around the U.S. vs. Semi-trucks and air freight as oil prices increase. They were showing growth and strong profits when oil was over 100.00 a barrel and escalating.

Tue, 12/15/2009 - 09:17 | 164354 Anonymous
Anonymous's picture

Tyler dude you have to stop looking at TOTAL rail carloadings. The rise you see in the 00s is almost 100% intermodal or import traffic. The rest came from a small increase in coal and grain. Economically sensitive traffic has been on the decline since 1998. The combines number is midleading.

To your thesis, it's unlikely that we'll see strong demand for oil without a return of coal shipments to prerecession levels. That's not happening. When you see BASELINE traffic move up at the Railfax website you will know something is happening. Right now it's now. Don't waste time at the AAR site. It's not detailed enough.

phoneranger

Tue, 12/15/2009 - 09:45 | 164371 phoneranger
phoneranger's picture

Tyler dude you have to stop looking at TOTAL rail carloadings.  The rise you see in the 00s is almost 100% intermodal or import traffic.  The rest came from a small increase in coal and grain.  Economically sensitive traffic has been on the decline since 1998. The combines number is midleading.

To your thesis, it's unlikely that we'll see strong demand for oil without a return of coal shipments to prerecession levels.  That's not happening.  When you see BASELINE traffic move up at the Railfax website you will know something is happening.  Right now it's now. Don't waste time at the AAR site.  It's not detailed enough.

Tue, 12/15/2009 - 12:04 | 164557 Sun Tsu
Sun Tsu's picture

good observation!  closely watched trains

Tue, 12/15/2009 - 11:14 | 164483 Anonymous
Anonymous's picture

normalized data?

Mon, 12/28/2009 - 14:32 | 176063 Windemup
Windemup's picture

I am looking for monthy or quarterly data going back 40 years or so. Anyone know of sites that that post that kind of thing? Normalized or not doesn't matter. I would prefer raw statistics.

Windemup

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