Articles by Shawkat Hammoudeh
Aug. 5, 2016
The gasoline roller-coaster
Gasoline prices in the United States have been on a roller-coaster ride since June 2014. For a while, it seemed that they were at a plateau. However, since May the roller-coaster went down again, going through the summer season which goes against the norm of prices holding steady, if not up, from the beginning May to the beginning of September. Why is that?
Jul. 22, 2016
The impacts of helicopter money today
Helicopter money has become popular among economists and policy makers as a result of the ineffectiveness of conventional monetary policy in an environment of near zero and negative interest rates. It has become more so after the unconventional Quantitative Easing policy outlived its usefulness and Brexit became a reality. This article defines helicopter money dropping and explains its significance as an unconventional monetary policy in the current economic environment that includes Brexit.
Jun. 3, 2016
The wavering status of the oil risk premium
Oil prices for Brent and West Texas Intermediate (WTI) dropped to about $26.65 a barrel in February due to a surplus caused by the accelerated production of oil shale and Saudi Arabia’s new policy of maximizing market share. There were forecasts that predicted that prices would fall to $20 and stay there. Instead, prices made a U-turn and surged, reaching $50 a barrel at the end of May this year. It was predicted that it would reach $50 a barrel in the middle of 2017 when the current 1.4 million barrel a day (mbd) surplus is eliminated and the global oil supply and demand balances. Instead, there are now sweeping forecasts that oil prices will reach $70 a barrel.
Feb. 19, 2016
OPEC has market share cancer yet refuses to address it
Let’s start with a very pessimistic metaphor and then apply it to the oil market. Most patients who suffer from cancer discover the disease in the fourth and final stages — when the disease has become fatal.
Feb. 5, 2016
Desperate measures to stimulate economy
The Japanese central bank — Bank of Japan — surprised the world by deciding to have negative interest rates on commercial banks’ excess reserves. What has motivated BOJ to choose this strategy? Three things about Japan using a negative interest rate strategy: (1) To weaken the yen further and help exports, which is a kind of beggar thy neighbor policy that makes countries engage in currency wars of competitive devaluations; (2) to push banks to make more loans and invest more to stimulate aggregate demand, spur lagging growth and increase too-low inflation, and (3) to reduce borrowing costs for companies and households, stimulating demand for loans.
Jan. 22, 2016
Devaluation and the ripple effect
Oil prices have dropped by 70 percent since June 2014. The Saudi Arabia’s foreign reserves have fallen from a peak of $746 billion in August 2014 to $635.5 billion near the end of last year, a 15 percent plunge, signaling that the Gulf kingdom is eating its foreign reserves quickly. The Saudi government’s budget witnessed a $98.5 billion deficient. The forward currency contract reached a record level and the credit default swap spreads have reached an alarming level. There is tremendous pressure on Saudi Arabia to untie its $3.75-to-$1 peg which it has held for nearly 30 years.
Jan. 8, 2016
Now trending in America: mergers and acquisitions
Companies in the U.S. and the world are striking deals to merge resources to become more focused and profitable at a time of low interest and innovations are hard to come up. Activists like Carl Icahn and Steve Loeb are also after those companies because they want them to create more values for shareholders. In 2015, the values of takeovers in the world reached $4.35 trillion, half of those are in the U.S., surpassing 2007 as the top year on record for deals.
Dec. 4, 2015
The balancing act of inflation and deflation
Overall inflation (the combined finished goods and service inflation) in the United States’ economy has been below the 2 percent target since 2008. Attempts to inflate prices through rounds of quantitative easing to avoid falling in the deflationary trap have not produced the desired results. While service inflation just started to tick up since 2008, the goods inflation has followed a bell-shaped trajectory.
Oct. 16, 2015
US lifts oil exports ban, now what?
In a vote of 261-159, the United States House of Representative passed a resolution to support lifting the 41-year old ban on U.S. oil exports. However, the U.S. Senate is still divided and the debate on removing the ban has pit the senators from states with oil production against those with refinery operations. The Obama administration also opposes lifting the ban and threatens to veto the related bill. Congress first put the ban after the 1974 oil embargo in an environment that was not favorable to the nation’s economy, inflation, and trade and energy sector. This intervention in the market mechanism immediately sent gasoline prices soaring, and now there is a fear among politicians that if the ban is lifted, fuel prices will increase and they will be blamed.
Sep. 25, 2015
Mind the gap: Bridging real and finance economics
When I was a student, most of the economics courses focused on the real economy and money and banking. Finance courses were not as developed and not as important as they are now. Now, the financial side of the economy has grown rapidly over the last three decades and has become as important as the real side.