DrumBeat: March 17, 2008

Iran allows drivers to buy gas above ration limit for holidays, but at higher prices

TEHRAN, Iran: Iran announced Monday it would ease gas rationing for the next month during major holidays, allowing people to buy gasoline above the imposed limit, but at a far higher price.

The government introduced rationing in June, trying to reduce large subsidies it spends on gas. The move has drawn widespread anger among Iranians, whose country is one of the world's biggest oil producers.

US slams Swiss-Iranian gas deal for sending 'wrong message'

'We have conveyed to the Swiss that major new oil and gas deals with Iran send precisely the wrong message at a time when Iran continues to defy UN Security Council resolutions,' the US embassy in Bern said in a statement.

Cheap Gas is Gone Forever; Can We Adjust to Reality?

American life today is structured on a foundation of cheap transportation fuel. From where we live, to how food is put on the table, even to how retailers keep their shelves stocked, everything was built on the fantasy that fuel would remain permanently cheap. We did this while exporting the American Dream and ignoring the first rule of supply and demand – when demand is greater, the price will go up.

Today, we tend to think of it as an unqualified good thing that individuals living in China and India want to live like we do. What we forgot is that this meant also sharing some of the finite resources previously made available mostly to just us.

Angola oil exports to rise slightly in May

LONDON (Reuters) - Angola is set to export 1.853 million barrels per day of crude in May, slightly up by around 1,500 bpd from the previous month, trade sources said on Monday.

Export volumes, on a preliminary basis, for Girasoll, Nemba, Hungo and Plutonio grades are likely to rise for May from April.

Oil price will shrug off U.S. woes: Goldman

LONDON (Reuters) - Oil's long-term supply constraints should make any fall in prices due to a recession in the United States only temporary, Giovanni Serio, an oil analyst at Goldman Sachs told Reuters.

..."The driver is not demand, it's supply," he said, pointing to 20 years of underinvestment in new oil production.

Cheney, visiting Iraq, will push access for oil firms

BAGHDAD: Vice President Dick Cheney made an unannounced trip Monday to Baghdad, where he plans to push Iraqi political leaders toward opening the country's vast oil fields to international companies, a senior Bush administration official said.

EnCana Passes Royal Bank as Canada's Biggest Public Company

(Bloomberg) -- EnCana Corp. overtook Royal Bank of Canada to become the country's biggest company by market value for the first time in more than two years as Canada's largest natural-gas producer gained on higher fuel prices.

Tata, BP get $78 mln more for solar venture

MUMBAI (Reuters) - Tata BP Solar, a venture of India's Tata Power Co and BP Solar, said on Monday it had signed an agreement with Calyon Bank, BNP Paribas and others to raise $78 million for expansion.

Tata BP Solar, India's largest solar photo voltaic manufacturing company, said the funds would go toward more than tripling capacity to 180 megawatts (MW).

Gulf currencies may drop dollar peg

KUWAIT CITY - Kuwait's decision to stop pegging its currency to the dollar last year hasn't completely tamed inflation, but experts say many of its oil-rich neighbors will follow, desperate to fight inflation.

Oil is priced in dollars on the world market, but many Gulf countries rely on government-subsidized imports priced in euros and other currencies that have been rising against the greenback. This relationship has pushed up the price of imports, a dilemma that could get worse as fears of a recession in the U.S. and related interest rate cuts continue to push down the dollar. Raising their interest rates would have little effect on the Gulf states' inflation rates while their currencies remain pegged to the dollar.

"Inflation is likely to stay on an increasing trend in the short term," said a Merrill Lynch report on Gulf nations published in January. With few other fiscal policies available to control inflation, the region's governments would consider de-pegging or revaluating their currencies, the report speculated.

Saudi oil output steady at 9.2 mbpd

The world's top oil exporter Saudi Arabia continues to pump around 9.2 million barrels per day (bpd) of crude, a rate the kingdom has held steady for several months, a Saudi official said on Monday.

"We are pumping around 9.2 million bpd still," the official told Reuters by telephone. He declined to say if there would be any change in Saudi output in April.

The kingdom's output is around 300,000 bpd above its formal Opec target.

Kurt Cobb: Do we have too much energy?

So much talk these days centers around whether we have will have enough energy to power the world economy. The pessimists respond, "Not this world economy at this level of activity." The optimists, on the other hand, say not to worry. We have plenty of fossil fuels for the time being and new, clever technologies will harvest all the energy we need for the future. What is almost never discussed is whether we, in fact, have too much energy and whether that abundance has been our undoing.

Sinopec raises prices to offset record crude costs

BEIJING, March 17 (Xinhua)-- Sinopec, China's largest crude refiner raised prices of some of its oil products over the last weekends to offset record international crude costs.

Prices of petroleum coke, olefin and sulphur, which are outsidegovernment control have been lifted by 100 yuan (14.08 U.S. dollars) per ton. Further hikes are expected by the end of March.

U.S. quizzes Shell in foreign corruption probe

LONDON (Reuters) - The U.S. Department of Justice has contacted Royal Dutch Shell Plc about potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) which may lead to fines, the oil major said on Monday.

Shell Relied on Canada Oil Sands to Offset Russian Reserve Loss

(Bloomberg) -- Royal Dutch Shell Plc, Europe's biggest producer, relied on the enlargement of its share of a Canadian oil sands project to offset the loss of half its oil and gas reserves in Russia's Sakhalin-2 venture.

Could high oil prices shut down suburbia?

ASTRONOMICAL oil prices are causing problems for all Americans -- from higher gas and heating-oil costs to higher food bills. Citizens in suburban locales are more likely to feel the pinch, as their very existence requires motoring. But an answer lies just down the road: cities.

If any good comes from the fossil-fuel crunch, it will appear in increased energy efficiency and a new appreciation of city-centric life. Assuming the economy continues down its current path and oil prices stay elevated, many of the amenities of modern life will become elusive. Suburban-living models could fail, leading to a new golden age for America's cities and towns.

South Africa: Cable theft hurting electricity delivery

In suburbs and industrial areas all around the city, electricity officials are battling to gain ground against a group of thieves who are fleecing the city of 3-5km of copper cables per day.

Sharing the modus operandi of these individuals, Ivan Worthington an official in the department told of a band of criminals who execute their plan with military precision. `They arrive on a street normally very early in the morning. They normally have several ladders, they hoist them up and start cutting down cables.' Worthington continued to say that in 20 minutes these culprits can take down a kilometer of cable.

In this vain the city's electricity department has taken a stand to stamp out this destruction of city property. `We are pleading with consumers to afford us some assistance with regards to this issue. We urge consumers to call Metro Police on 031 361 0000 if they suspect anything untoward,' said Allan Spence another electricity employee.

Chile seen facing electricity shortages - Fitch

LONDON (Thomson Financial) - Fitch said there is a likelihood of energy shortages in Chile and the electricity prices will remain on an upward trend for the next couple of years due to rising energy demand, high diesel prices, natural gas restrictions, and initial delay in new projects.

Chile's current water deficit, combined with further disruptions in the supply of Argentine natural gas, has raised concerns about possible power shortages beginning as soon as March, Fitch said in a report titled 'Chilean Energy Crisis: Electricity Shortages Loom in 2008'.

UAE: Gas shortage to double cost of electricity

The cost of power generation is set to shoot up by at least 100 per cent in the next two years making electricity an even more expensive commodity, industry sources told Emirates Business.

According to a senior official, the current electricity fee will soon be unjustified to the detriment of the plant operators as the price of gas – the ideal feedstock for power generation and water desalination plants – has already been increased by tenfold in less than a decade.

UAE: Paper prices to rise on import costs

The price of paper is to be increased by $25 (Dh92) per tonne by a leading UAE manufacturer because of the rising cost of imported virgin pulp and chemicals used in paper mills.

The hike, which will come into force in the next quarter, comes after Crown Paper Mills of Ajman pushed up the price by $100 per tonne last year. Other factors behind the rise include a shortage of pulp and higher fuel and freight costs.

India: Bad turbines, fuel shortage to make hot summer worse

Last year in May, the shortfall in Maharashtra was 4,200 mw which went up to 5,500 mw in the peak hour. This year it may get worse, say experts.

“Shortage of coal in India is an issue, and needs to be addressed to bridge the demand-supply gap in the power industry,” said an official spokesperson for Tata Power Company.

India:P 48-hr outage sparks unrest in Gurgaon

GURGAON: While people living in Gurgaon are getting prepared for summer sweat, electricity consumers from adjoining villages have threatened to hit the streets if their concerns were not addressed. The electricity discom already got an initial feeler when villagers from Damdama and Khedla of Sohna block stopped the traffic movement near Badshahpur on Gurgaon-Sohna road for an hour protesting against the two-day black out in their villages.

The Philippines: NGO hits Agriculture chief for failing to curb rice price hike

The President urged the El Shaddai members to continue to pray and believe in God in light of the problems in oil and rice.

Cabinet Secretary Ricardo Saludo reiterated that the rising price of oil in the world market is beyond the control of the Arroyo administration or any government for that matter.

Saludo said the administration, however, have already taken certain measures to cushion its impact through a cut in the oil tariffs and the implementation of fuel discounts and a single ticketing which would help deter any possible fare hike.

The Philippines: Oil refining no longer viable due to Supreme Court ruling?

Sources said the recent ruling of the Supreme Court on the relocation of Pandacan oil depot had disappointed oil companies. They said the Pandacan relocation might affect the operations of Shell’s 110,000 barrel-per-day refinery in Tabangao, Batangas.

The sources added that government’s decision to review the books of oil companies was another major “turnoff.”

Thailand: National biofuel strategy in the pipeline

The Energy Ministry will draft a new national biofuel plan with a significant focus on alternative energy sources as oil prices are expected to continue to increase.

Energy minister Poonpirom Liptapanlop said the strategic plan would focus on increasing the use of alternative fuels as much as possible to help mitigate the impact of soaring global oil prices.

Kenya: Concerns Mount Over Country's Food Security

Stakeholders in the industry say the country's optimum yield of agricultural produce may not be average after farmers fled from their farms for fear of being attacked by the local community during the violence.

Nyanza Provincial director of Agriculture, Mr. Otieno Owiro says the region may not produce even half of its optimum yield this year owing to lack of preparations for the field and the gig cost of farm inputs.

Preparation of fields for the planting season, which normally takes place between February and March, is yet to kick off, Nyanza Kenya federation of agricultural produce Wilfred Nyamula said that the delay has been occasioned by high cost of fuel and transport problems to most of the agricultural produce.

Rising diesel costs hurt local truckers

Trucking company executive Kevin All says he has "seven trailers not working, trucks are sitting in the yard and I have men on unemployment."

All said Friday he wished ``there was some light at the end of the tunnel, but I can't see any."

Giving superyachts a green veneer

Artist, sustainability campaigner and naval architect David Trubridge is preaching a prickly message to super yacht designers, builders, brokers and owners, but it is the audience left twitching in their seats.

Sustainable design for super yachts, one of the most expensive, materialistic and non-essential luxury purchases available to mankind, is always going to be a tricky sell.

Shenhua sees flat 2008 exports despite higher output

HONG KONG (Reuters) - China Shenhua Energy Co Ltd, the world's most valuable coal producer, said on Monday it expects exports in 2008 to be flat despite a 12 percent rise in planned production of the fuel.

Sleepily eyeing a peak in world oil output: Some analysts cite a lack of preparation for a looming economic event

Since tanks of crude are full to brimming, many traders in oil markets suspect that $110 could be the top price for now. But a growing number of oil-market analysts reckon the supply of oil to the world economy has reached a peak or is about to. The discoveries of new oil are now exceeded by the output of old oil. At some point, global oil output will start to decline, as happened in the United States in 1971.

If that is the case, before long $100-a-barrel oil will be regarded as "the good old days," says Robert Hirsch, a senior energy analyst at Management Information Services, Inc., a Washington, D.C., research and consulting firm.

Is peak oil theory only for fascists?

Which British political party has the following observations about peak oil on its website?

"One person's apocalyptic view could be interpreted as an opportunity by another. Britons are resourceful, innovative and can be pretty bloody minded in a crisis. We can knuckle down, roll up our sleeves and get on with life even without all the labour saving devices, the shopping malls and the twice-yearly trips to the Med or Florida."

The Greens? The Lib Dems? Think again. The British National Party has a pretty good grasp of peak oil. "We are the only political party making this an issue at the moment," the party boasts.

Investors bet on $100 a barrel oil until 2016

Crude oil futures prices for delivery until 2016 have surged above $100 a barrel as investors bet that oil costs will remain high in the long term even if they weaken in the short because the impact of the US economic slowdown.

Every futures contract until December 2016 finished last week above $100 a barrel for the first time after a strong rally in long-dated futures prices. The Nymex December 2016 future settled on Friday at $103.59 a barrel.

Matt Simmons: Peak Oil’s Investment Implications

The Key Investment Questions For 2008 (And Beyond?)

■ How real and imminent is Peak Oil?

■ Can world economy survive $-triple digit oil?

■ How real is “rust” in industry’s assets?

■ Can demand exceed supply?

■ How fast could supply fall?

■ Are there “winners” in the Post-Peak Oil world?

■ How well is the rest of energy?

These questions might be most serious of 21st Century

Sydney must prepare now for peak oil

Sydneysiders must take serious steps to reduce their vehicle use before future global oil shortages hit, a peak oil study group says.

The Australian Association for the Study of Peak Oil (ASPO Australia) says cities all around the country should be preparing now for the inevitable shortages as global oil production heads into decline in the coming years.

Shell CEO says no problem with oil supplies

LONDON, March 17 (Reuters) - Royal Dutch Shell Plc's Chief Executive said on Monday that there is no major problem with world oil supply, making it difficult to explain why prices have hit an all-time peak.

... "From the physical point of view there is no high alarm," Shell's Jeroen van der Veer said at a news conference. "It's difficult to understand why the oil price is where it is."

"No tankers are waiting in the Middle East, there are no queues for the retail stations here."

China wants 40% of oil/gas imports from Africa

CAPE TOWN (Reuters) - China wants up to 40 percent of its oil and gas imports to come from Africa in the next 5-10 years, a Chinese industry official said on Monday.

Big Chinese Oil Firms Squeezed By High Crude Costs

HONG KONG - China Petroleum & Chemical Corp. and PetroChina, the two largest oil firms in China, were under a cloud on Monday as U.S. crude oil futures climbed above $111 a barrel, directly endangering their profitability.

Slow dancing with 'morbidly obese' oil prices

Kloza, who's been tracking prices of this greasy stuff for three decades, believes both to be true. He says oil prices are being driven not so much by supply and demand right now as by the psychology of the markets. With stock prices dipping, he says, investors have been drawn to commodities like oil and have bid the prices up. He calls oil prices "morbidly obese."

As for gasoline prices, the average for regular could top $3.75 before long, Kloza said. Somewhere in there, he projects that oil pique (not peak oil) will set in.

In other words, miffed consumers will cut back on buying gas (and of course driving) not just to save money, but as a sort of silent protest.

When roads go bad: Clinton County considers grinding route into gravel

This year, at least three mid-Michigan counties have considered converting paved roads to gravel as a budget fix.

Shielding flag carriers 'is killing airlines'

Governments shielding their national flag carriers are "killing" the aviation industry, the head of the International Air Transport Association (Iata) has warned.

Giovanni Bisignani, chief executive of Iata, warned that protectionist attitudes towards flag carriers were exacerbating the downturn. Soaring oil prices and slowing economies are causing concern for airlines, which raised capacity by buying aircraft but now struggle to fill them.

Australia to have carbon trading scheme by 2010: minister

SYDNEY (AFP) - Australia will have a carbon emissions trading scheme in place by 2010, under a plan released Monday by the minister for climate change, Penny Wong.

Senator Wong said the national scheme would "constitute the most significant economic and structural reform undertaken in Australia since the trade liberalisation of the 1980s."

Government figures hide scale of CO2 emissions, says report

Britain's climate change emissions may be 12% higher than officially stated, according to a National Audit Office investigation which has strongly criticised the government for using two different carbon accounting systems. There is "insufficient consistency and coordination" in the government's approach, the NAO said.

India can lead world in renewable energy: Al Gore

NEW DELHI (AFP) - India, as an advanced developing nation, can help lead the world in renewable energy technologies to solve "the climate change crisis," former US vice president and Nobel Peace winner Al Gore said.

"India has proven its capability in sectors like information technology and can be a leader in the world in developing new renewable technologies to combat climate change," Gore told reporters here in New Delhi on the weekend.

Inflation or Deflation has been answered it seems.
Bear-Sterns 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion, based on the average $1,000 per- square-foot that comparable office space in the city is currently fetching. All for $250 million.

So many times lines from the Princess Bride are appropriate, such as, never get involved in a land war in Asia. But here, the line is I do not think that word means what you think it does. Inflation pops up in many forms; in the 70's, when commodity prices increased and everyone agrees we had inflation, stock prices declined, substantially. The inflation/deflation argument cannot be settled by looking at one particular asset, or asset class. The rising tide of inflation does not lift all boats equally.
When prices move in one category, they often move in an opposite direction in another category. Witness, for example, motor gasoline prices and resale values on Hummers. Likewise, some asset classes move in tandem, such as financial stocks and the real estate used to house those financial companies (one hesitates to call it an "industry"). Bear Stearns, by the way, was bought for $236 million, or less than the building is priced; one year ago, the company was worth 30 times the building, at the extravagant pricing then.
We are witnessing a repricing of assets, in response to the substantial mis-pricing of certain assets over the past few years. That does not give you inflation or deflation.
I think that the BS building is probably a good deal right now, for someone in that business. But there are going to be better deals soon.
Raise cash, invest in things that can't be easily duplicated (such as fossil fuels and downtown and farming real estate), and avoid things that can be easily duplicated (such as paper money, mortgages, etc.), and I think you can survive intact.
Inflation will eventually arrive to lift all values of all asset classes, but some will go much higher than others, and we know here which classes those are.

Somehow, the BS abbreviation for Bear Stearns seems appropriate.

Jim Rogers on Bloomberg says "...a Bear Sterns bankruptcy would have exposed huge bonus payouts to traders...The Federal Reserve is using taxpayer's money to buy a bunch of Bear Stearns' traders Maseratis"... The FED will fail."

Jim Rogers Says Fed Support of Bear Stearns `Outrageous': Video Play

I dunno...

Bear execs lack golden parachutes as stock plan crunched

Barring some unexpected boardroom generosity by JPMorgan Chase & Co, executives at Bear Stearns Cos may find that their walking away money has been crunched by the credit crisis.

Bear fire sale sparks financial rout

Staff turning up for work at Bear Stearns' Manhattan headquarters were welcomed by a two-dollar bill stuck to the revolving doors -- a spoof on the bargain-basement price of $2 per share that JPMorgan Chase is offering for the Wall Street firm. A hopeful Coldwell Banker realtor was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.

If they got Maseratis, they may have to sell them.

According to Rogers, if BS was forced into bankruptcy, "...billions in January bonuses would have to be returned."

Yes, employee staff will suffer but no crocodile tears need be shed for the traders. They are big boys who can take care of themselves.

Add Lehman Brothers to the list.

Lehman Brothers has lost a third of it's value in 2 1/2 hrs. Just like Bear Stearns on Friday. Actually down 36% right now and dropping quickly.

This thing is NOT contained.

Lehman has now lost half it's value with hours left til market close.

Looks like you fixed it - as soon as you posted this it turned around (well, a little anyway)!

Lehman rout tests Fed's resolve

Investors still don't know what lurks on Wall Street balance sheets - and the ranks of possible bailout partners are getting thin.

The article goes on to say,

"In the meantime... executives, legislators and regulators will have to work to restructure the U.S. financial system to remove the incentives for players to take irresponsible actions."

Yes, by all means, let's harness the best minds to restructure the sytstem. How about Greenspan and Rubin redux?

Glass-Steagall, where were you we we needed you?

Solar: Skilling and Fastow were no worse than any of these guys (possibly not as bad).

Skilling and Fastow were smaller fish who took the fall IMO.
Their masters and tutors are now feeling the heat. But watch how facile the real perpetrators will be in defining the problem and becoming part of the restructuring solution.

The calls will go out now for economic physicians to restructure the financial system.

“During the long period of innocence in the 50s and 60s we basked in the happy conviction that economics was a developed science, roughly equivalent to the age of sulfanilamide in medicine. We were shocked to find that the state of economic science more nearly paralleled Dr. Harvey’s discovery of the circulation of the blood. Honest practitioners no longer try to hide their dubiety; many are resorting to leeches and poultices. I have faith that our economy is sufficiently robust to survive, yet I cannot forget the infant Louis XV, who, after contracting smallpox, was saved from death only because his nurse hid him from the ministrations of the doctors whose vigorous attentions killed his father and his brother.”

George Ball (1909-1994)
Investment Banker and former Under Secretary of State in the Kennedy and Johnson administrations and foreign policy advisor to the Carter administration.

It's disturbing the version of history we get taught. We will go on believing some warped version of reality and basing our current decisions on the erroneous myths of the recent past. But that is a rant I do not have the time to address properly...

Of course, BS is only the beginning. A BS is always followed by an MS (More of the Same), and finished off with a PhD (Piled higher and Deeper)

You were supposed to do more studying than was assigned by the prof. Then you might have seen the real estate bubble and got out of mortgage backed securities more than a year ago.

"Bear" is pretty salient too.

The rising tide of inflation does not lift all boats equally.

So well said. The rising tide of inflation is actually a tsunami, and will inundate all equally. I lived in Brazil for a couple of years during their chronic hyperinflation -- but was shielded because I was paid in American Dollars which were actually worth something then. Interestingly, Brazil also once had a valuable currency -- but that was a long time ago.

It seems that under chronic hyperinflation, money ceases to have much meaning, and as much as possible things revert to barter. It certainly did not stop the growth of the population, and there wasn't mass starvation, although the bottom tiers of the economy were (and are) pretty desperate.

Of course the big difference from Brazil is that most of the US's debts are denominated in US dollars. I remember years ago some visiting American friends were very worried about America's rising debt. How would future generations pay it off? I laughed and said that if the USA ever got in real trouble it could just print money to pay its debts. "Oh no, we would never do that"...

I think the point is that we see that the govt's going to use the printing press a la Weimar. Yes, of course, there will be repricings within that.

Underlying all this is the massive devaluation of suburbia and all that depends on it (i.e. everything!) because of the increasing price of energy.

There are strong parallels with Germany in the 20s and 30s, although the order in which things are unfolding here is different. And Germany's resource problems were not because of geology, but because she lost WW1. Ditto her debt problems. But the debt and resource issues were in very broad brush the same. War and fascism were the "solution". We're already at war. The "problem" has been that the economy's been more or less ok -- til now. Will opposition to war (and wider war), timid as it has been, hold up in a depression? Or will depression supply the lacking cannon fodder?

All very true but that is not the whole story. Whom ever buys Bear Stearns must assume their expected loss for this year, estimated to be in excess of $6 billion. The stock actually has negative value even with the building thrown in. JP Morgan Chase has indicated a willingness to absorb that loss. Bear Stearns shareholders are holding out, hoping to find a buyer who is willing to accept even more loss. One gentleman on CNBC this morning said Bear Stearns is worth nowhere near $2 a share.

Ron Patterson

Whom ever buys Bear Stearns must assume their expected loss for this year

Yea, sure. Just like the losses of LTCM or Silverado were covered and none of the creditors took it in the shorts.

Ron, what you wrote may be correct, but it depends on how the deal was structured. A stock deal that leaves Bear Sterns as a subsidiary would not necessarily obligate JP Morgan to do anything else. An appearance would be created. However, unless the deal requires a huge capital injection, assumption of debts or an actual merger, only the assets of Bear Sterns are available to its creditors.

Hard to say what is happening, but to the extent that Bear Sterns is a counter party to derivatives held by JP Morgan, Morgan may have done little more than buy itself an inside seat at the liquidation as some deals get unwound and other get get settled for pennies. Preferential treatment IIRC is an "act of bankruptcy" but a rational trustee would probably view keeping the big players alive as a priority.

A stock deal that leaves Bear Sterns as a subsidiary would not necessarily obligate JP Morgan to do anything else.

Bear Stearns's Bonds Soar as JPMorgan Agrees to Buy Firm, Debt

March 17 (Bloomberg) -- Bear Stearns & Co.'s bonds soared 20 percent today after JPMorgan Chase & Co. agreed to buy the New York-based securities firm for about $2 a share and assume all outstanding debt.

As you say it all depends on how the deal was constructed, and it was constructed to assume all debts and obligations. Obviously the shareholders would never agree to keep the debt and sell the assets for pennies on the dollar. A package deal was what was negotiated. The shareholders are yet to accept even that deal but they probably will, or perhaps the price will be raised a buck or two. At least the market thinks so because Bear Stearns is currently trading for over four bucks.

The "debt" part has been all over the news, all morning. That was a major part of the deal. That is what prompted some folks on CNBC to say that the stock actually has a negative value.

Ron Patterson

Thanks Ron. I had looked for, but not seen any real facts concerning the terms.

To my still admittedly uninformed eye, there is a a lot more to this that is not clear.

"Debt" is one thing. Counter party risk related liabilities and losses that have not yet been marked to market are another.

Did the wall between the legal entities come down, or was the deal on the assumption of liabilities much narrower -- i.e. "debt" only?

A weekend is not enough time to do "due diligence" on this sort of transaction, so IMO either JP Morgan took on a boatload of risk without full knowledge; the deal was directly tied to the continuing viablity of JP Morgan; or the assumption by JP Morgan of Bear Stern's risk exposure is not absolute or some combination of these three.

[edited to add the "or some combination of these three"]

Supposedly JP Morgan has taxpayer funding on this one-30 billion?

Right - BS did not declare bankruptcy, so their liabilities remain.
It's different from when Refco went bankrupt - then the creditors had to sue for money owed.

How can 97% of the value of the a company simply go up in smoke? Isn't this what the SEC is for? How messed up must their accounting be in order to let something like this happen? If they're having trouble, shouldn't it be a gradual decline as more and more information comes out?----This is why I don't like stocks, way too unpredictable. People give me a hard time for being in commodities, but I think stocks are even more chaotic. As an example, remember when Shell had to revise their reserves several years ago? There is no way for a shareholder to know what's going on behind closed doors.

I did some more research on this and I understand it a bit better now. Bear Sterns was leveraged 30 to 1 on AAA exchange traded funds. They never expected these AAA funds to default, but they did, and that way they can lose a lot of value quickly.

There are tens of thousands of publicly traded corporations and only a handful of SEC employees to keep them honest. It is one of the sacrifices we must accept in order to pay for the so called war on terror.

this really had little to do with the value of their holdings, though that eventually would have been an issue. It became a self-fulfilling prophecy that other banks would refuse to trade with them as counterparty. Once that happens, you can't do business, you can't fund overnight, you can't do anything. They tried to do the same thing with Lehman today but doesn't look like it will work (yet). But I know at least 2 firms that have announced they won't take LEH as opposite side of trade. Wall st is vicious.
(now it will be a REALLY interesting story if it turns out the firms that decided not to do trades with Bear also happened to be short Bear stock - that would really piss off Spitzer, err. someone)

Let's say it's a little bit ago, Bear is floating around 50-60. Someone shorts them big, to 25-30. Bear drops to 2. Didn't they lose their shirt also?

No - you make even more money.
Here is monetary example.

I short 1000 shares of Bear at $60. for this I need some money in my account as margin, but only 50%. So I can have anything $30,000 or more - lets say I have the minimum. Shorting the stock generates $60,000 in proceeds which show up in my account and I earn interest on. But my acct value is still $60,000 at that moment, assuming I have no other positions but this Bear Stearns short. When the stock dumped to $30, the value of my account goes up $30 x 10000 shares= $30,000 so its now worth $60,000 plus interest. When the stock goes to $2, I've now made $58,000 so my account is now worth $88,000. If I keep holding it short the most I can make is another $2000 because then it would be worthless and I'd never half to buy it back.
But in this case, holders of record as of a certain date will have their shorts (and longs) transferred into JP MOrgan stock.

If someone shorted (sold shares he didn't own) Bear at 50-60 and covered (repurchased them) at 25-30 he made 25-30. The continued drop is only a lost opportunity.

see example

Sounds like Cleveland in the 1970s when they took each steel mill in turn and fed it to the next one down the Cuyahoga River. I think the last one was shipped to Japan or something.

I would like to see TOD maintain a score card on IEA and EIA forecasts.

The EIA forecast for gas prices in TWIP is:

In EIA’s March Short-Term Energy Outlook (STEO), the U.S. monthly average retail regular gasoline price is projected to peak near $3.50 per gallon in May and June.

Following is a graph from the TWIP with lines approximating price increases. Last year at this time gas was $2.459. Oil has doubled in price since and supplies have become less stable. It seems unlikely that this year will buck the trend of past years and peak less than $4.00.

IEA's oil forecasts have been under by 40-60% in each of the last 3 years.

The slope of the projected line for 7/1/2008 price may be less as recession cuts into US gasoline use and possibly reduces the demand for oil. But I would definitely agree with price trending up through middle of summer, then falling to around current price or less by year end.

I think you are likely to be correct. Pain is going to affect usage.

But I also think we may be approaching "Revenue Pricing". We are as addicted to oil as exporting nations are addicted to their current revenue from oil. As demand drops, if I were Mexico and Venezuela I would cut production, sell half the oil at twice the price. This will maintain their current revenues and extend the life of their oil fields.

In such a case, demand drop will actually increase price. Economist and politicians are going to have to adjust to the fact that the laws of scarcity now apply to oil.

This may not happen. But, if I were Mexico, Russia etc... I would declare such a policy and implement it over a one year period.

An interesting piece from the NSF

"Bioeconomics of Biofuels & the Shocking Science Behind Electric Cars"


I don't have an hour to listen to the whole thing, mind giving us a glimmer of their take on Bio vs. EV's ?


jokuhl – Actually it was two separate presentations.

On bio-fuels they come to all the same conclusions discussed here holding out hope for cellulosic as greater potential net energy.

Some interesting charting of inputs on corn ethanol and soy bio-diesel.

Done from the eco-econo perspective (soy bean counting?).

The electric vehicle part was done by the prez and vp of evadc and they do a quick history of evs from 1800s to now with focus on storage.

I learned that Ford and Edison were working on nickel/ iron battery that beat lead way back then but then came the electric starter and ICEs took off.

Bear Stearns - What does it mean?

If you owned Bear Stearns, or your investments were managed by them, you woke up this morning to find you've lost everything.(and of course, if you worked there, you don't.)

Other investors are scrambling to save what they can, as the spotlight turns to the other banks that have been trying to hide in the shadows. Since their vaults are empty too, expect this thing to cascade.

CNBC have pulled out all the cheerleaders. I imagine they are calling Kudlow and dragging him out of bed right now. Asian Markets were a slaughter. To say it was bad would be an understatement. Billions have evaporated overnight, tens of billions to come today.

Not true, not true-- I just checked BSC on yahoo finance, and the one year target is $94.50! Just hold on, and everything will be all right! yowza.

I flicked through the news channels this morning to see how the financial meltdown is getting reported. Practically all the "news stations" are devoting their coverage to the wind storms in California (despite the fact that no one was killed or injured, no property damage outside of a few trees). No mention of the Asian markets melting down (hey, why should Americans care what happens over there anyway?). Economic crisis? What economic crisis?

Of course, Eliot Spitzer's resignation this morning will probably dominate the news later today. Maybe Fox News will put on another "analyst" to explain why men cheat on their wives. All the other stations will treat us to a full day of sports, weather and traffic reports. Hey, it's Spring Break - can't wait to hear about the bikini contests in Daytona Beach and South Padre Island. Just another boring day here in the Apocalypse.

Well, to be fair, the average viewer probably doesn't have a clue what's going on, and doesn't care. They don't know what a hedge fund is, what Bear Stearns is, or what an emergency rate cut means.

The financial storm so many of us see is invisible to Joe Public. They might have noticed it's harder to get a mortgage. A few have had their credit card limits lowered. But for most people, it's BAU. They only thing they're worrying about is whether to go Florida or Mexico for spring break.

CNN's money page (presumably aimed at the more financially aware) has a lot of coverage:

Lehman Brothers faces a storm

How bad is the mortgage crisis going to get?

Avoid financials - analysts

This is true. I'm the only one I know in person who thinks about this stuff. But being a paycheck-to-paycheck renter who has never taken on any debt, maybe I don't have to worry as much.

Not having a clue what's going on is what helps it appear slow.

As I look out my window and see the cars driving by and see geese flying overhead, in that moment I have no clue what's going on in the markets, with wheat rust, with colony collapse disorder, with the Greenland Ice Sheet, with Iraq, and the idea of BAU seems peachy keen.

Which all still coincides with a complex collapse that appears slow on the surface, after which it picks up speed, and then halts abruptly, leaving people still attached to the system stranded, unaware, panicked, and desperate.

Not having a clue is also what helps restrain the collapse, as ignorance and a full belly are two of the few things that prevent a sh!tstorm from breaking out.

Peoples' bellies will start to empty before they figure anything out.

I bet those Joes having to fill their trucks with diesel are quite worried. I also bet a lot more starving students will car pool to their favorite Spring Break locale and camp instead of staying in a motel. I've commented before on the pompous condescension shown "everyday folks;" it really does a great disservice and IMO is no different from racism.

Racism is an unintended consequence of an inherent human ability, that of discrimination, which literally means telling two different things apart.

I am certainly being discriminatory when I think about the billions of people who don't know what's coming, because their level of unpreparedness and resultant panic is another thing to prepare for.

But there isn't anything inherently disparaging in making the distinction between aware and unaware, nor is it wrong to realize there won't be enough room for everyone without cheap energy.

Racism is an unintended consequence of an inherent human ability, that of discrimination,

(While reading this it helps to have the song 'everyone's aa little bit racist' http://www.stlyrics.com/lyrics/avenueq/everyonesalittlebitracist.htm )

Do not forget the human need to pre-sort and tag items that way humans can then 'more quickly process' (or dismiss and not waste processing time) them.

An extreme example of such was the 'liberal facists' tagging and processing shown a few days ago in a drumbeat.

Gotta agree with you on this one. "People are stupid" generally implies "I'm smarter than everyone else." At the very least it's bigoted.

Florida may be different, but I think the majority of people here are at the very least aware that we're probably in a recession. Espically people in development, construction, or architecture and engineering.

Recession and economic meltdown are two very different things.

"Recession and economic meltdown are two very different things." Sure are. And GWB, a.k.a. the Decider, is on top of it.

"One thing for certain is that we are in challenging times. Another thing for certain is that we’ve taken strong and decisive action. The Federal Reserve has moved quickly to bring order to the financial markets. Secretary Paulson is supportive of that action as am I. I would like to thank Mr. Secretary for working on the weekend. He’s shown the country and the world that the United States is on top of the situation. Secondly, he’s reaffirm the fact that our financial institutions are strong and that our capital markets are functioning efficiently and effectively. We continue to monitor the situation and when need be we’ll act decisively."

George W. Bush, 17th March 2008

Watch video at http://news.bbc.co.uk/2/hi/business/7300017.stm

American markets seem to be rebounding a little on the reassurance. Too bad the rest of the world is not as impressed, amused or comforted.

Meanwhile's here's CNN Money's current headlines

Wall Street ducks for cover

12:52pm: Investors pull back after Bear Stearns' fire sale and Fed's emergency action.

Dollar plunges on Fed move
Oil price fluctuates wildly
Bush backs Fed

* Why the Fed can't put out the fire
* JPMorgan scoops up Bear | Did they overpay?
* Bailout backlash: Saving the big banks
* It's a recession, say 3 out of 4
* Lehman rout tests Fed's resolve
* Mortgage crisis: How bad it's going to get
* Special tax rebates will begin May 2: IRS
* Homebuilder sentiment still near record low
* Bear brings down the rest of the Street
* Shares of private equity targets sink on fears
* China: Shoppers' buffer vs. weak dollar
* Ask the Expert: 401(k) tipsvideo

That's pretty bleak.

Main stream media is not going to focus on problems in the economy beyond showing camera shots of gas station signs, comment on increases in grocery prices, occasionally tell people that now is a great time to buy a vehicle, etc.

There is a certain amount of panic on Wall St but the media will try to keep it from filtering into Main St. For one thing it's a complex issue that cannot be explained in a sound bite. For another there is a lot of pressure on media to refrain from saying anything that would cause the panic to spread to citizens. If citizens think that the money in their wallets will continue to decline in purchasing power forever they will panic and rush to trade that money for anything of value.

'Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes.' Ludwig von Mises

You nailed it River,the boyo's in the news room would get their wings clipped real fast if the started to tell John Q public just how screwed he is right now.

I have decided to try my hand at beekeeping...to develop a symbiosis with a bug.The setup I am putting together will run about 3 grand...but I am also stockpiling as much gear as I can[foundation wax an such]and trying to find stuff like old-fashioned foundation plates,ect., to put as close to stand-alone as I can.It seems like a crazy time to start a business,with the world's finance busy collapsing,but I
have never been known for my timing...As a small orchard needs bees this just seems a logical extention of what I am doing now.

Buy now...today it may be the cheapest you will ever see it...

My local zen center (Green Gulch) has a bee keeping class and program that I'm thinking of attending.
What the hell at this point?

I'm starting beekeeping too, but on a much smaller scale. One doesn't need to invest that much $$ just to start up with a hive or two - a few hundred will probably do to get most people started. I'm having to invest a few hundred more for an electric fence because I'm in bear country, but still it isn't that much.

before I go off 1/2 cocked (or even fully cocked - like the time I rushed the bear yelling and screaming) - do you have a web location of a fence design that will protect the bees and keep the bears at bay?

you must be thinking along these lines:

Bear gets a criminal record for stealing honey...


I found a bunch of sites, but don't have any of that info here. The main thing is that you need to deliver at least a 0.7 joule jolt, and 1.0 would be better. Most solar-powered energizers won't do that, unfortunately. The plan I saw (part of US Forest service specs for Grizzly Bear country out west) is for seven wires starting 6" off the ground and 6" apart, alternating hot & ground with hot at the top and bottom.

-Now, what distance from the hives does a physical fence need to be due to the EM field of the fence screwing with the bees?

(I was thinking a chain link with electofence in front of the CL - that way the bear has to stop and think. )

Haven't run across anything about distance from hive to wires. Obviously, far enough to be beyond the bear's reach if it tries to work its paws between the wires. Haven't heard anything about EM field impacts on bees. As lots of beehives are protected by electric fences, it can't be too big of a problem. (And there can't be a CCD connection, because people have been using electric fences to protect hives for many decades prior to the emergence of CCD.)

Chain link with electric wire at top - yes, that will work, but more expensive. Sounds like overkill to me. A 1.0 joule jolt WILL cause a bear to head in the other direction, whether he has stopped to think or not.

Try this:

"If citizens think that the money in their wallets will continue to decline in purchasing power forever they will panic and rush to trade that money for anything of value."


If citizens think that the money in their accounts will not be accessible, they will run to the bank to get it.

400 billion in cash in the US. 15% in the vaults.

Divide the cash among 300 million people.

$1334 per person.

that is assuming that the money is spread equally.Every check I get now is turned to cash instantly.I like cash.A lot.In a sock.Not a bank.

In a bank you risk lack of access + inflation.

In a sock you risk your money being worthless as the dollar crashes.

Nice options.

Silver/gold coins anyone?

Who owns NBC? General Electric. Keep buying those appliances, and keep supporting the war which funds our jet engine production facility!
Who owns ABC? Disney! Please, go take a trip to DisneyWorld, keep spending $$ on movies and plushies!

These are the first two obvious ones that come to my mind. A news company shouldn't be allowed to be owned by a company that does anything but news, as otherwise their information will become corrupted.

Until we fundamentally change our efficient use of energy we have to borrow to fund the economy. The risks of being a debtor are becoming more obvious.

Hi, Bill. Efficiency without curtailment (i.e. a drop in overall consumption) just delays whatever consequence you happen to like least.

Efficiency would curtail usage.

I like the CSX TV ad that shows a car being loaded onto a train. They note they can move a ton 423 miles on a gallon of fuel.

If we expand on the success of Morgantown's PRT we will provide trips at about 180 miles per gallon. This is a 10 times improvement over current gas mileage in congested repetitive travel by increasing efficiency from about 4% to 70%.

Hi, Bill. When looking narrowly at the exact action being made efficient, what you say is very true.

However, in the bigger picture the energy saved often goes to something else and thus there is no energy saved at all. Most enterprising businesspeople will see the money saved and ask themselves, "how can I deploy this newly available capital to increase the size of my business?" They do this because they created their business for growth or they were hired for that purpose by the existing owners of the business.

And if they don't expand their business, the collective impact of millions of people using less energy just lowers the cost of energy — and someone else on the other side of the world will use it.

I assert that absolute reductions in energy use worldwide are mathematically the only way the planet as a whole can begin to address our energy issues. That is not an argument against making things more efficient — that makes sense on so many levels I take it virtually as self-evident. But it is a caution to expect efficiency to get the job done on its own. It can't so long as we are in an energy-abundant context with 70 million people being added to the planet each year. Not without something else (i.e. curtailment or rationing).

When we switch to an energy-scarce context (say, post peak), then efficiency will play a direct role in business continuity. Unfortunately, it will be harder to get the capital to make the efficiency improvements in that environment.


I don't see worldwide rationing ever happening. Period. I'd bet on war before that.

The global warming issue is a good example. It always boils down to developing vs. developed countries. One side will always feel cheated compared to the other. Thus continual deadlock.

So efficiency is all we've got. At least that insulates those with the higher efficiency relative to those with lower efficiency. So in my regional/local area that's what I strive for.

Hi, duffolonious

I don't see worldwide rationing ever happening. Period. I'd bet on war before that.

You may be right (in fact probably the Iraq war has already provided evidence for that).

I too fear that we won't collectively ever agree to reduce our energy use before a collapse occurs that demonstrates to most people that the end game of ever-increasing energy use is, in fact, collapse.

But the important thing to get about efficiency, in my view, is that it simply puts off the day of reckoning. It does not, in an energy-abundant context, make the end game any less inevitable.

That's why peak oil is likely the best thing to have happened from the perspective of climate change. We can't wait another decade for the successor to Kyoto so that a very weak set of goals are agreed upon by governments of which only a very few have an authentic commitment to reversing global warming.

In an energy-constrained world, the one we are about to enter ("For any one country to get more oil, another must get less." — Lester Brown), efficiency however may make a world of difference to the survival of a business, community or household.


But the important thing to get about efficiency, in my view, is that it simply puts off the day of reckoning. It does not, in an energy-abundant context, make the end game any less inevitable.

Very much agreed.

In an energy-constrained world, the one we are about to enter ("For any one country to get more oil, another must get less." — Lester Brown), efficiency however may make a world of difference to the survival of a business, community or household.

In the short term, maybe. In the long term...I wonder. It all depends on the goal. The end game, as you put it. Efficiency in order to prolong BAU is a trap. Efficiency to give us time to transition to something else might be a good thing.

Unfortunately, it's the former that most people seem to focusing on.

Hi, Leanan.

I'm not so sure even about efficiency to buy us time. What seems to happen is that the extra energy is used no matter what simply because it's available, if not by the entity saving the energy then by some other entity on the other side of the world.

There are two forces operating that make me say that.

The first is the force of all these entities (businesses, households and governments) wanting more energy to accomplish more for their own purposes. That seems to be insatiable and I can see evidence of that just by observing my own actions.

The second force is the increasing in the number of entities in absolute numbers, that is, the increase in people, businesses and governments. Adding 70 million people is roughly the equivalent of adding eight New York cities to the planet every year.

There does not seem to be a retarding force on energy use growth other than higher cost and soon shortages. What if the only 'market signal' we will pay attention to — not by volition, more by being forced to — is exogenous energy restriction? That appears to me to be the case and it is for that reason that I believe the various posters here who predict a future without collapse are missing a fundamental mathematical relationship in their thinking.

I think we are saying the same thing in the end: the cover story is efficiency but there is no authentic commitment underneath to reduce energy use. The end game is collapse.


The thing about efficiency is that it allows alternatives.

In our efforts to re-tool transportation in the niche of congested, highly repetitive transport, we have driven efficiencies high enough that 200 watt-hours moves a pallet of cargo or 4 people a mile. This is about 180 miles per gallon.

This is efficient enough that solar collectors mounted over that mile of rail gathers 2.5 million watt-hours in a typical day. That is enough power for 12,000 vehicle-miles.

Moving a ton to move a person is very wasteful. Efficiency allows alternatives.

We will have to re-tool our lifestyles to make any efficiency gains sustainable. Victory Gardens, education, women's rights and birth control are some of low cost options.

Resiliency allows alternatives. Efficiency promotes primary concentration and linear thinking.

Not to mention that many jobs do not have to move people to a location these days.

What idea is gonna work better? Some gadget-baun for corps to pay for OR telecommuting where:

1) The office space can be reduced for the firm
2) Workers commute becomes 10 paces VS for however long it take to get to the gadget-baun, then ride said thing
3) the power consumption for supporting that worker gets shited to the worker

Sudden plunge in WTI down to about $105. Starting to climb back now.

It is recession fears all triggered by the sup-prime mortgage crisis and the collapse of financial stocks. If the world drops into a deep recession then oil demand will drop, causing a drop in prices. That has a very real chance of happening.

Ron Patterson

I am not sure that recession will cause a drop in price.

Exporters like Mexico are as addicted to their current revenues as we are to oil. It may be they will slash production to keep oil revenues constant. It is better for Mexico to sell 700,000 barrels a day at $200. Their fields are depleting so volume cuts extend export potential.

Commodities are being sold to cover margin calls elsewhere in the system. People are having to raise money quickly and selling commodities is an easy solution.

Mr Margin Calling on Line One, Sir.

Given the bounceback, that seems to be the case. There was also concern about MF and BSC not being able to meet margin calls, but NYMEX released a statement saying they were meeting obligations:

"NYMEX Holdings, Inc. (NYSE: NMX - News), parent company of the New York Mercantile Exchange, Inc., today confirmed that all NYMEX clearing members, including MF Global, Inc. and Bear Stearns Securities Corp., continue to meet all of their obligations to NYMEX and remain in good standing.

NYMEX has a comprehensive and proven risk management program in place to protect and benefit its clearing members and customers, and is confident the financial safeguards it has established are effective."

I understand (from one of the TOD staff) there are rumors that there will be new rules limiting the amount of leverage organizations can use. These rules may be announced as early as this week. The prospect of leverage limits may further encourage selling, and commodity futures are easy to sell.

I posted last Wednesday that if the price of WTI went up on Thursday, March 13th (as it did), it would be a clear sell signal to many traders.

Also, there was bound to be profit taking at $110.

Also, crashes like we're seeing in the stock market, which is technically in a late 4-year cycle correction (as well as a bear market) tend to take down commodities with them.

So this is just an extremely predictable technical correction with profit taking.

The recession isn't going to bring down oil prices because the decline in demand won't beat the decline in production.

As I posted last Wednesday, March 12th, the price will consolidate here for a while, and then we'll have another leg up, probably into the $120s.

It is the across-the-board sell off that makes me suspect hedge funds unwinding positions. Overnight, gold & silver had both shot up, but then dropped sharply shortly after the market opened.

I just found a Bloomberg article that essentially says just that: Corn, Soybeans, Wheat Fall by Exchange Limits on Equity Plunge.

Corn, soybeans and wheat plummeted by the most allowed by the Chicago Board of Trade as plunging equity markets and a credit crunch prompted investors to sell commodities to raise cash.
Commodities in general will be under pressure due to de-leveraging'' as hedge funds and other investors opt for government-backed bonds, he said.

The recession isn't going to bring down oil prices because the decline in demand won't beat the decline in production.

I disagree with this, and with several other of your comments. However I agree that the commodity worm has turned.

Can you explain why the WTI going UP on Mar 13 gave a clear 'sell' signal to many traders?

Oil demand in the U.S. and OECD has weakened, but demand in the non-OECD including OPEC, Russia, China, and India has strengthened.

The United States is the nation with the huge spending habit and inability to raise revenue to fuel it. Some currencies seem to be rock solid compared to the dollar, including the Mexican peso and the Canadian dollar. The United States has the worse currency devaluation problem in North America and compared to other OECD nations.

War without proper calculations of its costs, nor the means to pay for it is evidence of lack of knowledge. The surging militancy of America is unwise.

Someone had a position in it and they were forced to unload it?

Lots of motion out there - Lehman Brothers is toast - down 55% at one point a few minutes ago, then back up - only -51.34% as I type this ...

One line in this BBC story disturbed me most:

'Markets slump on banking worries'


Any thoughts on this?? :-

..The Bank of England on Monday made an extra £5bn ($10bn) available for banks to borrow - and found that the funds were five times over-subscribed..

I applaud Matt Simmons for all the hard work he's done, but in the above presentation I think he's pushing the long-term survival angle of $100+ oil by blowing sunshine up the exhaust pipe.

Slide 13 in the PDF presents gas prices of $9/gallon in the UK, which equates to $378 per barrel. The implication is that high gas prices don't necessarily have an adverse effect on economies.

The problem is that the price of gas isn't $9/gallon in the UK, it's roughly $2.67/per gallon worldwide. The price at the pump is then either taxed (and money/energy/resources go elsewhere in the economy) or subsidized (and money/energy/resources come from elsewhere in the economy).

The $9 price at the pump in the UK includes $6.33 in taxes that end up in general revenue, and supposedly for road maintenance. In the UK, they also perhaps pay for things like subsidized healthcare or the overt maintenance of a social class system, that people in the US must pay for out of their own pockets.

Slide 14, Nyquil is $98.13 a gallon. And "all those small containers can really add up". Yes, but all those large containers add up faster than do the small ones, there being so many more large tanks of gasoline regularly emptied than bottles of Nyquil.

I go through a 13 gallon tank of gasoline every 10 to 20 days. If I used Nyquil when I was sick, I'd go through a 10 dose bottle every 18 to 24 months. Gasoline cost per day at $3.50/gallon, it's about $3 per day. If Nyquil is $8 a bottle, that's about $0.013 per day.

Slide 15 has similar gaps when discussing how high oil prices could help poor economies.

In short, despite his contributions and track record so far, his suggestions of a lack of adverse economic effects from high oil prices fall short of being plausible. It's almost as if he's grasping at straws.

Of course, being the president of an energy investment bank limits his ability to run around screaming about how screwed we are.

In the meantime, the price of oil seems to have fallen off a cliff.

By your logic, if the tax rates were the same on fuel in the UK as the US, but we made up the difference in healthcare costs through, say, extra income tax, there should be no change in driving habits as we'll have exactly the same amount of disposable income as before. Somehow I find this scenario unlikely.

I think his point with the UK price being $9/Gallon is that people still own cars and drive produce around in lorries (trucks) at that price. Personal transport is still viable, just with smaller, more efficient cars, hence the upward pressure on prices should supply reduce. We could use less, at a higher price for the same amount of money.

No, what I was saying is that the effects are not isolated and linear, they are systemic and nonlinear.

The money paid at the pump goes somewhere. The station owner, the attendant, the oil companies, the governments. The money paid at the pump comes from somewhere, the person with the lorry or the car. The person at the pump gets the money from working, and his/her total budget is spent on healthcare, entertainment, food, shelter, transportation, and lifestyle.

The gas tax in the UK which ends up in general revenue goes to pay for various social and governmental services including but not limited to healthcare. I imagine even the BBC might receive some of it. As do foreign wars.

With a lower tax on gas in the UK, there would be more money available individually to pay for healthcare, entertainment, transportation, etc., and there would be less money in the government coffers to pay for transportation maintenance, healthcare, the BBC, foreign wars, and whatever else on which the UK government spends its money.

710, I agree with what your saying.

$9 gas where nearly all the price is _oil_ is much different for the whole US economy than the current $9 gas in the UK. Most of the pump money in the UK stays in the UK. It doesn't go to the UAE or Saudi Arabia - that's the big difference; that's what the case would be if gas cost that much in the US.

At that point the US of A probably have something like a multi-billion per day trade requiring us to reduce demand or risk being owned by these countries.

Matt has to be talking from the personal standpoint of the individual US gas user - and I'm not sure if that is true. I think gas usage is much more inelastic in the US than in the UK. With the lack of transportation alternatives in many areas, it's much worse for the US on every level it seems.

"With a lower tax on gas in the UK, there would be more money available individually to pay for healthcare, entertainment, transportation, etc."

Not unless the government chose to stop spending the same amount of money on healthcare, entertainment, transportation, etc. as it does now. Otherwise, the money has to come from somewhere, i.e. some other taxes, as the revenue would no longer come from the fuel tax. Of course, they could choose to scrap the NHS and BBC, stop the war in Iraq and build less motorways, but that's a completely different argument.

My argument was that if the same total amount of taxes were raised without the fuel tax, i.e. so everyone had the same total amount of taxes as before, but the fuel price was lower, people would probably drive more on average.

Another way to look at this, is that if this were to happen tomorrow, with the flick of a magic switch, UK residents could afford to pay a lot more for fuel than a US citizen. We could go the same number of miles as the US citizen for much less money, as our car is probably much more efficient. In other words, I could drive to work for half the price of my US equvalent. If enough people could do this, prices would rise.

You also say:

"I go through a 13 gallon tank of gasoline every 10 to 20 days"

This says it all really, the obvious proof that fuel is very cheap in the US is the wanton waste in the unbelievably enormous cars everyone drives enormous distances. When you visit the US you literally feel like you are visiting the land of the giants because of the unbelievable size of even the smaller cars. I'm not saying this is good or bad, but if fuel was expensive, this enormous efficiency cushion would not exist.

I get 30 MPG, and 13 gallons every 15 days is about 9,500 miles a year, much less than most people drive in the US.

And if taxes were raised in general and lowered on petrol in the UK, individuals might drive more on average, and would spend less on entertainment, medicine, food, etc., either through choice or because of subsidies through paid taxes.

The price at the pump is only one piece in a many-splendored complex system, and Matt Simmons' take on oil prices does not integrate well with the way things really interact.

Several comments re: UK

Once upon a time… tax on petrol was supposed to go exclusively to national road infrastructure… now seems to disappear into Treasury coffers…

Furthermore, all car owners are subject to an annual “road tax” fee… typically ~ $300 towards this same goal…

The BBC was once funded exclusively by an annual licence fee from ALL TV owners… ~$280 from April 1st 2008.

However, recent trends:

Healthcare is becoming increasingly privatised… try finding a dentist willing even to do National Health Service work!!

Government is desperate to introduce a road pricing scheme for yet more "road revenue"(currently thwarted/on hold)

Many people now pay for a cable TV package as in N. America (still have to pay the TV licence though!!)

Conclusion: the Brits pay high taxation on petrol ($8.50) and a road tax and for the privilege of watching BBC and increasingly for their own healthcare…

And they still love driving everywhere!!

I just bought you a virtual drink for that summary..


I had meant to add... there's a reason they call it "rip-off" Britain... (& concurring with the comment in yesterday's Drumbeat about appalling quality of housing/outrageous prices for old property on tiny pieces of land)

Curiously, I note that all the talk is of the plummeting US$... yet the pound is falling in step... keeping to £1:$2. Not a mention anywhere in MSM though.

Anyway, one visit every 10 years is enough... I'm heading back to Canada!

Sorry to break some bad news to you, rj1122.

Curiously, I note that all the talk is of the plummeting US$... yet the pound is falling in step... keeping to £1:$2. Not a mention anywhere in MSM though.

... I'm heading back to Canada!

Looks like the Loonie is doing the same thing as the Quid. The Can$ is keeping step with the falling Greenback.


That'strange. The Canadian doller's fundimentals are a lot better than the it's US counterpart. In fact the Canadians were worried it was too strong for the non resource part of the economy. The foreign exchange markets must think Canada's part of the US. That will please them.

Goldman Sachs took over (non-hostile) the Bank of Canada recently-lots of manipulation going on (IMO).


Non-hostile take-over??

I'm presuming you mean with the appointment of Goldman Sachs golden boy, Mark Carney, as governor of the Bank of Canada in February.

The BBC is still funded exclusively by license fee

I believe that's technically incorrect (depending how you define the word "funding"), in that the BBC makes more money off merchandising, foreign sales, etc, than it spends on anything you could call "products for non-UK expenses". Of course, it's still a small fraction of the licence payer income.

710: You're right-oil is in a deep funk (the all time high was a long time ago-8 hours).

The point is that at $9 a gallon, people still drive around. Thus, if we already know that fewer people are going to drive around, ergo, the price at which that happens must be somewhere above $9 a gallon.

If you went to the UK, and gasoline was $9 a gallon, and everyone rode on bikes except a few delivery trucks and limousines converted from Priuses, then you would be able to say that, at $3.50 a gallon in the US, people drive a lot, but at $9 a gallon in the UK, they don't.

This is simplistic, but the idea is, at what price does supply match demand at say 80mb/d world production? Then, you figure out when the world will go to 80mb/d production, and you then have a price forecast for that year.

There's a question I've been meaning to ask some of the oil industry "insiders" here on TOD.

Pull up to any gas pump, and of course you'll see different octane ratings at different prices. Cheapest unleaded gas seems to be around 86 octane or so, with the high-octane stuff around 95.

The thing is that many pumps now have a sign on them saying "May contain up to 10% ethanol." My understanding is that ethanol has a very high octane rating, so adding it should boost the octane rating substantially. I'm just wondering if these octane ratings that we see on the pumps have any basis in reality. I also wonder why "low-octane" unleaded regular gas costs so much more than high-octane premium, since the only difference (if there is any) is the addition of subsidized ethanol.

Is this "low-octane" versus "high-octane" designation just a scam?

No, it's not a scam.

The octane rating is just a measure of the product's resistance to pre-ignition / detonation / pinging / pinking - whatever you want to prefer to call it. Pure ethanol may have a high detonation resistance, but that doesn't mean the detonation-resistance of the petrol/ethanol mixture at the pump is raised by including a small percentage of ethanol. The additives used in petrol also include some that are specifically intended to boost the octane rating, and the petrol/ethanol mixture will have a different additive package than pure petrol.

Bear in mind that high-octane fuels will only benefit you if your engine actually exercises the outer limits of their detonation-resistance. So if you don't have a high-compression engine, or don't push it hard and create the heavy internal stresses, high-octane gas won't deliver any benefits for the additional cost.

Regards Chris

My motorcycle demands 91 minimum, 93 is preferred. One of my cars does as well, but not because it was designed that way, but due to there being too much carbon deposits in the cylinder. ;)

I used to work at the Shell Thornton research facility (part of the massive Stanlow refinery complex in NW England) where they do product research/dev (and refine the petrol used by the Ferrari F1 team).

When I first worked there, I was amazed to see that the 38-ton articulated tankers filling up at the Stanlow tanker terminal included Total, Texaco, etc, along with cut-price and supermarket retailers. I asked the scientists if these companies were all selling the same product - "NO!" came the response - they buy the same product, then drop in their own additive package.

I was somewhat under-employed at the time, and to stave off the boredom, I started reading the research papers supplied on CD to the scientists. One thing I learned from these is that the quality of additives makes a big difference to the performance of the product - and that good-quality additives can, over a period of time, reduce the internal carbon build-up in engines, with poor-quality having the opposite effect.

Additionally, according to the academic research, additives have a significant impact on volumetric efficiency of the combustion, so cheapo gas is a bit of a false economy - it just means you put your foot down harder to compensate for the decreased efficiency.

So maybe you should try using top-quality petrol in your coked-up car, it might just reap benefits. Fuel additives are a big, complex subject, and the majors spend £millions researching them.

Regards Chris

My understanding is that the ethanol is added to a gasoline base that varies with the desired end product. This way the octane can be the same, whether or not ethanol is added.

It is my understanding that it is generally cheaper to raise octane by adding ethanol rather than by refinery approaches, which is one of the reasons ethanol is used.

I'm hearing that the Fed/SEC is going to announce some new rules regarding leverage as soon as this week. This is probably why oil was down $5 on the open this am. Look for the commodities (most of them) and swap spreads that have the most volume leaning one way to reverse if this is true. Makes sense to reduce the total amount of leverage available. Carrot didn't work now try the stick. I would suspect this would cause a dollar rally as well.

Thanks Nate. We went out on a limb, closed out financials and most other stocks, and are long $s. Our reasoning was that the Fed would have to shore up the $ at some point. If what you heard is true it would be good news for many, bad news for many.

'Tis an ill wind that blows nobody good'

Well, some nice juicy rumor must be spreading. The Dow has just about wiped out all its losses as of 10:45 AM.

A guest on Squeek Blab just mentioned that lots of shorts came in this morning early because of the BS buy out. Now the shorts are getting whip sawed. Putting the fear of the Fed into short sellers on the market and longs in commodities will get immediate results.

Bernanke should make a surprise move occasionally to 'keep em honest'.


Remember this?

Cayne formed an alliance with CITIC, the Chinese banking group, whereby the two banks would invest $US1 billion in each other.

Think the Chinese are happy now?

The Fed lowers % rates tomorrow and watch for almost immediate fuel shortages.


"Imports of oil and gas to the US may not be as reliable as it had been when America seemed to be a solvent nation. The exporters may be changing their terms of doing business with us -- and that's nearly two-thirds of all the oil we need."

Look at all the other Stock indexes, ignore the Dow:

NYSE..: 146.54 -1.70%
S&P500:. 11.54 -0.90%
NASDAQ:. 35.48 -1.60%

Of Course, investors tend to do very silly things. Consider the 417 pt rally about a week ago.

Will be interesting to see what happens next on the Asian and European markets. They took big hits yesterday as did the Canadian markets today.

If the rest of the world is bearish about US financials, then the Federal Reserve's activities on Tuesday morning may be merely spitting into the wind.

Then again, it is natural and expected that Bernanke and Paulson and others will try to salvage what they can. The US is too big and too ugly to let go down without launching at least a few life boats.

The story of the carrot and the stick are a not a metaphor for reward and punishment. The carrot was hung at the end of a stick to motivate a mule toward a reward that was unachievable solely by the mule. In this version of the story, the stick is useless without the carrot.

Is this what you really mean, that reducing the total leverage is ultimately useless?

Sorry for not interpreting the story. Yesterday I was accused of being 'overnumerate', now underliterate...;-)

Less leverage is a good thing. My point is that in stretching for returns, and competing by how much dollars one can make, with non-symmetrical risk profiles, the carrot lead to excess. Using the stick forces people to play within the rules that reduce systemic risk of the system

And I think whether the SEC actually institutes a rule like this or not, the prime brokers are defacto already doing so - after Carlyle at 32x leverage blew up, I should think primes will require larger haircuts on borrowings going forward. Say 10-1 or so.

Sorry about the label.. it's so hard to keep an illustrative term from becoming 'namecalling'.. One of the reasons I was nonplussed by 'Backwardist' in Stanifords Local Ag post recently.

I do try to keep my critiques 'Non-Ad-Hom' .. I hope I succeed as much as I fail. But I'm 'Smiley Intolerant', so I have to do it with language alone, if I can.

I was watching a Tutorial this morning about video-effects, and the host was persistently saying "we'll set this value at ABOUT ..." -and then give the figure to three decimal places. Made me think of you!
Believe me, though, that you have my real respect.


"God help us; we're in the hands of engineers." Dr. Ian Malcolm, Rock Star, Scientist

The carrot was hung at the end of a stick

That interpretation is highly controversial, and as there is no good original evidence for it, "carrot on a stick" appears to be a recent aberration. Some people have got the wrong end of the stick ;)

The whole point of the "carrot or stick" metaphor IS that is a metaphor for reward and punishment. This makes a lot more sense, it's the dictionary definition, is the way it was originally used, and is the way most people understand it.

You guys just don't get it. If you don't do what i want I'll hit you in the carrot with a stick! Simple!

teh stoopid no get
could you break this down a bit for me, is this how you force a commodity sell off?

Yes, in this case. Reducing leverage means the market will go in the opposite direction of how the speculators are positioned, which is right now long commodities (including oil). If everyone was short, then reducing leverage would cause a rally however. This will be a volatile week in any case.

so this is the moment the gold bugs are waiting for

Not to be a stick in the mud but...

TOD's financial roundup was remarkably focused on EXACTLY what is occurring now.

Perhaps a way might be found to reconnect with those contributors.
Yes... I know I can read over at "their" blog. And I do. But "discussions about energy and our future" would be well served by understanding the mess that is Wall Street.

Where is their blog, I miss stoneleigh, at least I think it was stoneleigh.

Blog is called The Automatic Earth: http://theautomaticearth.blogspot.com/



The World Food Program is preparing to ration food aid for the world's hungriest poor. Why? Primarily because we're burning food in our automobiles. The rich-country mandates for biofuels have doubled and tripled world food prices in less than three years.


Egypt army to tackle bread crisis

President Mubarak said all bread queues must be eliminated
Egypt's president has ordered the army to increase the production and distribution of bread, in an attempt to cope with serious shortages.
Rising prices and alleged corruption have sparked recent clashes at bakeries in poorer neighbourhoods, leading to several deaths.
Hosni Mubarak said eradicating bread queues was "imperative".
The army and interior ministry control numerous bakeries normally used to supply bread for troops and police.
Mr Mubarak issued his order to the army at a meeting of cabinet ministers on Sunday that was called to address the growing crisis, his spokesman said.
"Bread should be provided to the citizens and the lines should disappear," Suleiman Awwad quoted Mr Mubarak as saying.
The price of wheat has more than tripled on international markets since last summer.
Mr Mubarak has ordered the government to use some foreign reserves to buy additional wheat from the international market, the spokesman said.
Many of Egypt's 70m population, about half of whom live below the poverty line, survive on subsidised bread.
Unsubsidised bread is 10-12 times more expensive than the subsidised five-piaster loafs (less that $0.01).

"This year, at least three mid-Michigan counties have considered converting paved roads to gravel as a budget fix."

Going back to the 20s, the area that I live in consisted of a few brave souls willing to brave the winters or, in the summer, put up with a windy dirt road to the top of the canyon. Later, the road was paved, and even later, the road was "improved", widened, and straightened to make it possible for residents and tourists to travel at high speeds and not have to slow down by bypassing the town at 55 miles plus an hour.

The upshot is that we have more traffic and more residents, but actually less facilities,amenities, conveniences, and community life than we had 40 years ago but rest assured people can get down to the valley twice as fast as they could 40 years ago. We also have people that are able to commute to work 35 or even 70 miles away. This would have been unthinkable 40 years ago.

I'm not trying to generalize here, but paved and high speed roads are not necessarily all they are cracked up to be and don't necessarily lead to "progress" in the sense of leading to a better quality of life or even convenience. We were delocalized years ago and, I think, it was mainly a function of highway "improvement".

I wouldn't mind if they quit paving our road and even converted back to the windy, twisty, and slightly dangerous road we used to have. Coming up here used to be kind of an adventure. I would just as soon they brought back the sense of adventure and left our little town to the people who truly love it for what it is and what it was.

'..high speed roads are not necessarily all they are cracked up to be..'

Kind of says it all, eh?

Hello Jokuhl,

The sellers of replacement headlights, windshield glass, shock absorbers, and front end alignment parts must be cheering this trend towards gravel roads, monster potholes, and miles and miles of shudder-bumps shaking car-parts loose.

I would expect vehicle designers to go back to cheaper headlights and front turn signals vs the highly involved, very expensive, bejewelled, multiple light designs we see on current models. Move them atop the roof to reduce damage rates?

Dual-sport motorcycles, basically off-road designs street-legalized, should sell very well for fast gravel transport. Their long travel suspensions are optimal for speedy traverse over the future whoop-de-dos. Consider the long history of the off-road Baja Races--these bikes cover the brutal path the fastest.

EDIT: Think of all the young men with dirtbikes & ATVs in the US: they must be salivating as they look forward to 'roosting' to work on their daily commute. 'Backing' a bike into a dirt corner, with the resultant spray of huge amounts of dirt and gravel, will be the name of the game!

I wonder if PHEV designers can sufficiently ruggedize their vehicles' batteries to withstand all the shake, rattle, and roll?

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Mr. Totoneila Sir,

Last night I made a 28 mile journey and I must say the five miles of gravel road I take to cut four miles total off the trip was the smoothest part. A well maintained gravel will survive the ups and downs of midwest winters far better than a paved road. As long as there is a little diesel for dump trucks and maintainers pavement gone back to gravel will be tolerable.


Bob and Sacre' Moo;

I used to bike on lots of dirt 'ruds' in rural Maine, which can be as hard and smooth as asphalt.. but then there's also the three 'mud seasons' to contend with. I think we'll see some new variants on Mountain Bikes coming along. But I don't doubt that a well-graded and drained roadbed could keep even a dirt/sand road stable and durable. The bigger logging roads up here are often pretty solid affairs.

Bob Fiske

I’ve been thinking about the wisdom of rural gravel roads since it was mentioned on TOD last year.

Then, yesterday I happened to get directed to history.com and I was pleased to read there that one of the winners of their “City of the Future” competition is a design for San Francisco that “provides an underground arterial traffic network for hydrogen-fueled hover-cars"

City of the Future

So that’s all right then… we’ll be HOVERING above the gravel!! Much less damage to my shiny new HFC car.

All that asphalt is eventually going to have to be mined and replaced with gravel anyway. Asphalt roads and parking lots are America's oil sands. There really is not all that much difference between asphalt and the stuff they are mining in Canada.

Consider the Energy inputs to mine and pulverize rock into gravel. Since there is a fixed amount of equipment to produce gravel, as more towns buy gravel, the price will rise where its no longer economical. Plus loose gravel needs to be replaced every year (snow plows, heavy rains, etc)

We don't need to pulverize rock here to get gravel - just dig down a few feet anywhere near a river and there are endless supplies of it. Not all the world is so lucky, I realize, I'm just saying this isn't a universal problem.

Gravel or 'rock' can be smooth because it is tumbled pebbles from rivers, or angular because it is broken rock from terminal morraines. You can also break smooth pebbles to make then a combination of the two. Which kind of gravel you want depends on if you want sharp pieces to bond well to cement to make concrete, or whatever.
Look at what they make your local roads out of and see what they use there.

That's not all. Consider all the megabucks spent on snowplows and salt trying to keep these roads passable in the winter time. The only expenditure that local governments had a century or two ago was paying a few people to shovel snow ON TO the roads under covered bridges and bare spots, and to pay someone to hitch up a team of horses to a big heavy roller, which compacted the snow into ice. Then everyone would get out their big sleds, hitch up the horses, and do the really heavy hauling for the year -- all of the stuff that would break down the waggon axles. People would look forward to winter snowfalls, it was a transportation SOLUTION, not a transportation PROBLEM.

The attributes of gravel vs asphalt roads hinge on season, location, rock source, and underlying soil. I'd much prefer a gravel road in the winter, when black ice and snow make macadam a nightmare. Then again, a gravel road of limestone or shale in an arid climate is Jack the Ripper to tires. I've often gone thru 2 spares a trip. Northern New England is famous for it's five seasons in rural parts-mud season in April. Don't forget the way gumbo can swallow gravel during rains. Or washboards-some will keep you under 5 mph, not to mention vehicle wear and tear. Or house location- constant dust from the road forces folks to spend small fortunes oiling "their" stretch of road. There's a multitude of reasons for asphalt, and new electrics will have all that much harder a time without it.

The worst-case scenario - live
Commentary and weekly watch by Doug Noland


'We’re now clearly in the midst of a precarious systemic crisis. I concur with the characterization made on Friday by former Treasury Secretary Robert Rubin: We’re in "uncharted waters".'

'That Tuesday’s Fed announcement did not forestall a run on Bear Stearns suggests to me that this unfolding crisis has attained alarming momentum. At this point, confidence in leveraged securities finance appears to have been irreparably damaged.'

Global crisis deepening: IMF Chief

PARIS (AP) -- The collapse of a Wall Street institution over the weekend shows the global financial crisis is broader than policy makers realized and it is growing worse, the head of the International Monetary Fund said Monday.

"The financial crisis which started in the United States is more serious and more global than it was a few weeks ago," IMF Chief Dominique Strauss-Kahn said in Paris.

"The risks and dangers are very high. The economic environment is still worsening."

PARIS (AP) -- The collapse of a Wall Street institution over the weekend shows the global financial crisis is broader than policy makers realized and it is growing worse, the head of the International Monetary Fund said Monday.

What an asinine statement by the IMF. TOD and the Automatic Earth and even Kunstler's blog have been talking about this for months. Is this to say policy makers, ones who suppose to have their fingers on the pulse, have been clueless to the flutters of the economic heartbeat?

Are we that smart???

Or is this for mainstream consumption: meltdown?? Whoops! Sorry folks, nobody saw this coming. Go back to sleep.

Yes, now it's 'Real'.

"What? "Over"?
Did you say "over"?
Nothing's over until we decide it is!
Was it over when the Germans
bombed Pearl Harbor? Hell, no!

-Forget it, he's rolling.

And it ain't over now.
'Cause when the going gets tough... " John 'Bluto' Blutarsky, Animal House

Hardly surprising that doom and gloom sites predict doom and gloom.

Zadok: IMO there is a widespread misconception re Hedge fund managers, Bank CEOs, the head of the IMF, etc.etc. These are salespeople. Intellectual smarts are worth very little in the art of sales. If you gave all your money to the average hedge fund baby to watch over, he would destroy you-he is a salesperson masquerading as a money manager, and he isn't the only one. "Exotic instruments", "financial engineering", these are sales techniques that have nothing to do with financial management. Buffett said it many years ago-most of these guys just aren't very smart-but they are all great salesmen. Hank Paulson made 700 million- how many millionaire non employees of Goldman did he create? Even one? He's a salesman. Where are the customers' yachts?

The link behind the title goes to a India Times story on a blackout.

Here's a link from CNN Money for the crisis story.

Global Crisis Deepening: IMF Chief

Thanks. Fixed it.

Looks grim.Get final supplies of food ect.This is it I think.Batten hatches ect.

Make good friends - fast

Join something -

Find your people, and start building something.

IMO, just as a fever is a usually symptom of an underlying infection, the auto/housing/finance meltdown is just the symptom of the underling problem--declining net oil exports.

And to carry the analogy out a little further, treating the fever may temporarily make you feel better, but it doesn't do anything to treat the underlying infection, and in fact treating the fever may make the infection worse.

The "solution," such as it is, starts with recognizing that to a large degree our suburban way of life is largely doomed. However, our present course of action is to try to patch things together and hope for lower oil prices.

It's as you have been pointing out. The tectonic movement in all of this is net exports. (from Stuart's chart)In 2002 a US citizen's workweek potentially netted him/her 25 to 30 barrels of oil and all the attendant goodies.

Looking forward that amount will slide to maybe 2 1/2 real soon. (the current personal annual use in China) Economic growth as it is currently understood is over and relative 'success' will be measured pretty much in a person's ability to fully ultilize this allotment and/or improvise something else.

It's Springtime in Suburbia! Dig up the lawns and plant vegetables. Abandoned houses can become central storehouses with efficient restocking rather than piecework UPS type delivery. The bigger places can be turned into dairy farms; the McMansions into barns.

Finally, pedestrians and bicyclists can be safe on the currently insane roadways. I see nothing but good in the future -- after people adjust to a new reality.

plant potatoes when you start seeing dandelions bloom

Glad you are so optimistic.Its going to get way bad before the picture you paint of the future is so... adjustment can be very,very painful

Which is largely the solution practiced by the doctors and nurses on the front lines against infection, address the patient's infection through meds and isolation, and hope for no further spread in the general populace.

The fever, and the accompanying feeling of sickness, allows the body to deal with the infection. Raising the temperature helps kill the infection, while malaise causes you to conserve energy. Then the body recovers.

Treating the fever can benefit the infection, and pain killers may help you feel better and expend energy elsewhere.

This is where the analogy to our problems falls apart, literally, because allowing things to take their own unmanaged course in our financial crisis would not heal the system, but instead initiate a collapse.

And declining net oil exports is another symptom of yet a deeper underlying problem, unrestrained growth.

Dear, dear. You need to pay much better attention. The ideal "solution" and "course of action" are none of the above. Even plain old More Of The Same cannot possibly suffice. No, the only proper course is Much More Of Much More: "We should be paid for the time it takes to travel to work, say unions."

On the surface that seems fair, but the tacit underlying concept seems to be to expand commutes until, in the brave new future, everyone sets out before dawn, gets to the office or whatever around noon, walks past the gadget that scans their ID, then immediately sets out for home again, arriving after sunset. They claim four hours (round-trip) is already fairly normal.

Oh, and contrary to what sometimes seems to be received opinion around here, it's not just "us" in the USA; this is from coastal Australia.

i dont think it is the end of the world. still lots of treasury to be looted.

and on the front page of the nyt is a photo of mccain ................looking all michael dukakus.

it might be the emptying out of Skid Row - the city has long wanted to move the homeless out from that area


The BBC gets the story pretty seriously wrong in their report. The city of Ontario (not to be confused with the one in Canada), California decided to open a homeless service center on some vacant land where the homeless who previously occupied underpasses and the like could stay out of sight and get free food, bathrooms, etc. It started attracting more homeless than just the ones from the city. I don't think that this is an indication of a vast wave of housing refugees, rather its an illustration of the U.S.'s persistent housing problems.

This looks like the kind of turning-point day a lot of people have been waiting for. Finally an oil price collapse that doesn't lead to a stock market rally. Russell 2000 down almost 2% right now even though oil is down 5%. Oil down 5% even though the dollar is down several percent. Very different action from what we have been seeing over the course of the last few months. Where will the world's money supply flow to now? First it was tech, then housing, then commodities...China anyone?

Drudge headline:

'MAD MONEY' CRAMER ON MARCH 11: 'No! No! No! Bear Stearns is not in trouble... Don't move your money from Bear. . .

Which reminds me once again of Larry Kudlow's immortal advice from a few weeks ago:

Sell Oil! Buy Financials!

"Sell Oil! Buy Financials!"

Maybe he should have said, "Start taking profits on your commodities positions here and get into financials little by little over the course of the next few months." This was probably his intention. By August, who knows? Maybe he was right.

And perhaps the East Texas Field, now producing about 1% oil and 99% water, will soon start producing 99% oil.

And perhaps the East Texas Field, now producing about 1% oil and 99% water, will soon start producing 99% oil.

Geez all he said was "maybe" Kudlow was right. Hardly a fair comparison you made to counter bubbles. Eh but one bad comparison deserves another.

Gas will be 8$ a gallon on 8/8/2008 and perhaps the space aliens will visit earth in July.

Gas will be 8$ a gallon on 8/8/2008 and perhaps the space aliens will visit earth in July.


I only show some exciting research and development going on in the world, nothing more, nothing less.

umm you took that seriously eric? It was part sarcasm part poking fun.

If I recall the context of the $8 gasoline comment, someone asked me where prices are headed. I replied that they should assume, for planning purposes, that gasoline would be $8 on 8/8/08. This is basically the same ELP advice I have been offering for two years:

Assume: (1) Your income drops by at least half and (2) Gasoline (and food) prices more than double in price. The point is not to conserve for the sake of conservation; the point is to start adjusting your lifestyle in preparation for lower income and much higher food and energy prices.

The problems in the U.S. financial sector are very deep. The Fed has been able to address them to some extent, but only by drastically lowering the value of the U.S. dollar. Countries around the world whose economies are dependent on exports to the U.S., such as Japan, will be hit hard by this. A recession in the U.S. combined with a much lower value of the dollar will be too much for exporting nations to bear. The next phase in this whole process (the first phase being the U.S. slowdown/recession) will be the global slowdown. I just don't see how commodities prices, including oil, can avoid losing much of their value in the coming months. China and parts of the Middle East have been blown up into huge bubbles. Enough hotels, condos, luxury mansions, high-rise office buildings, and factories have been built in places like China and Dubai to last the world for several decades. This is the nature of the boom/bust cycle. There's a massive glut of unsold homes in the U.S., a massive glut of manufacturing capacity in China, a massive glut of condos, hotels, office space in places like Dubai. Sure, it took a lot of energy and raw materials to build all that, but we don't need anymore and we won't for a very long time. No one knows when the China bubble will burst. A tidal wave of money is flooding into China as we speak in the form of hot money and FDI. It is being used to build even more factories and high-rises, even as the ultimate consumer of Chinese products enters a recession. This will only make the end result worse.

China and India will benefit from a US slowdown. The more the US is in recession, the more goods will be made in China and India etc. Because manufacturing goods in those countries is far more inexpensive than in the US. And because the US consumers are cutting back their spendings, which kind of goods will they buy? the cheapest ones!! Hallo?

I'm sure, that a severe US recession will help the cheap producers in Asia. The only counterforce is the weakening US$. But this will not offset the comparable cost advance of the Asian economies.

And, BTW, a weakening US$ is helping commodities anyway.

IMO the biggest bubble is the US T-bill. The US dollar is being held together with duct tape-nobody knows what the non-manipulated fundamental value is, but it is a lot lower than current. Meanwhile, T-bills pay very little in a weak, drastically overvalued currency. Flight to quality? One of these days it is going to be the race for the exits, and then the emergency really begins.


I agree the US $ is greatly overvalued. For example, you can buy a Big Mac in the US for $2, but to get one in Europe it costs $6. If it were truly valued, it should cost at least $20 in Europe.

Also from Drudge. Isn't this special:

Dollars tough to sell on streets of Amsterdam
Monday March 17, 12:17 pm ET

AMSTERDAM (Reuters) - The U.S. dollar's value is dropping so fast against the euro that small currency outlets in Amsterdam are turning away tourists seeking to sell their dollars for local money while on vacation in the Netherlands. "Our dollar is worth maybe zero over here," said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. "It's hard to find a place to exchange. We have to go downtown, to the central station or post office."

That's because the smaller currency exchanges -- despite buy/sell spreads that make it easier for them to make money by exchanging small amounts of currency -- don't want to be caught holding dollars that could be worth less by the time they can sell them.

The dollar hovered near record lows on Monday, with one euro worth around $1.58 versus $1.47 a month ago.

Soft currencies have always been difficult to exchange. I guess we are a soft currency now.

In his Monday post this week, Kunstler implies a connection between the plunging value of the dollar and (soon to be showing up in USA according to him) gasoline and oil shortages. Does this sound right to anyone out there? No one has been talking about the ramifications of the financial mess. Inflation--O.K. but anything else, like shortages? What would be the mechanism for that? Other countries outbidding for the oil instead? Could that be what he means? Or is it that other countries won't take dollars....what exactly does he mean?

Does Kunstler have any expertise at all in international currency markets? He may have interesting takes on suburbiam but I wouldn't think he'd be someone you would listen to for insights into international financial and commodities markets.

Do you have any expertise at all on Kunstler's insights into international currency markets? You may have some interesting takes on whatever, but I wouldn't think you'd be someone we should listen to for insights into Kunstler's insights. :)

Or maybe we are all of the opinion that we should all keep our opinions to ourselves?


I wouldn't listen to any freemarket growth economists for insight either.


Bear Stearns is loaded with talent with world class "expertise". Nobody can match Greenspun's resume. You're right-everyone should just worship to the naked emperor, like you consistently do.

WT, we are all aware that the Fed interest rate cuts are hurting the dollar and that the KSA, among other oil exporters, probably does not want dollars right now. Which begs the question: Why is KSA still accepting dollars for oil?

The question might seem simple but perhaps it isn't. Another related question: If the US Military were not 'protecting' KSA and other oil exporters, would they still sell us oil for dollars?

One often hears now that the dollar is a strictly fiat currency backed by nothing. Would it would be closer to the truth to say that the dollar is a fiat currency backed by the US Military?

Would it be accurate, or fair, to say that a withdrawal of US Military presence in oil producing areas of the world would cause a cessation of oil flowing into the US from oil producing areas?

Which begs the question: Why is KSA still accepting dollars for oil?

Why? Because it makes no difference whatsoever. If KSA does not like the dollars they are getting for their oil, they can change them in a fraction of a second to Euros, Yen or whatever. The FOREX is the most liquid market in the world. No one need hold a currency they do not like. They can change those currencies for any other major currency in the world for about three basis points or the difference between the bid and asked price. That is three cents per hundred dollars. The currency actually fluctuates more than that every few minutes.

What matters is what currency a nation holds its liquid assets in, not what currency it pays or accepts for its imports or exports.

Ron Patterson

Yes, I have heard your position many times...but, when a currency is in danger of collapse because of poor management of an economy no one wants to be left holding the bag of plunging currency. Currency markets are every bit as forward looking as commodities.

Right, they might have to hold it two or three seconds before they could unload it. Heaven only knows how far a currency could plunge in that length of time.

It is easy to over look the fact that KSA and some other oil producers have established soverign wealth funds that do not turn over in a few micro seconds...These funds were established and given the name sWEALTHf. If they were intended to be soverign headed south funds the correct abbreviation would be SHSFs or maybe SHSFODFs, that is, soverign headed south full of dollar funds. And, guess what? Theses SWFs are full of dollars.

If the dollar (or any currency) isn't reasonably stabil, at some point no one will take accept the dollar (or any currency) in exchange for anything, including salad shooters made from oil. History is full of fiat currency failures.

If KSA's soveriegn wealth funds are holding dollar assets, it is because they chose to hold dollar assets. There is no need what-so-ever for Saudi Arabia to take payment for oil in dollars, hold dollar assets or inject them into their funds unless they want to do it.

I do expect that the funds are denominated in dollars because they intend to acquire dollar based assets, specifically in the U.S.

Ron is correct that there is no logic behind the claim that anyone would not want to take dollars. Any currency is priced at what people think it is worth. People did not think it was worth what is was one month ago, so it fell to the level that people want to take it at.

Your point is made, there are currency exchanges and right now they are working, however that does not alter the fact that if the dollar continues to fall on Fed rate cuts and psychology at some point the stability of the dollar becomes problamatic and all parties outside the US will shy from it. On this board I have already read several instances where that very inaction, not accepting dollars, is happening at the street level in many places. Why are foreign local exchanges, tourist shops, restaurants, etc, refusing the dollar? Because it becomes a pain to track a currency that is falling against a local currency and no one wants to get stuck holding dollars that might be of lesser value in a few days when a bank deposit is accomplished. Where large foreign currency exchanges have access to exchange rates, a local restaurant (as one example), might not. The simplest solution for the restaurant? Advise with a sign on the door that dollars are not accepted. The belief of stability is everything and once the belief of stability is gone, stability is gone. As von Mises stated so accurately, if faith in the currencies stability goes then all parties will rush to rid themselves of it.

In the example of SWFs, the country accepting foreign currency is depending on the counter party for currency stability. If stability goes south how long will SWFs continue to hold dollars, or accept them in trade? Another problem facing oil exporters is importation of inflation along with dollars. We saw today an example of the US jaw boning oil exporters in an attempt to stop the depegging of their currencies from the dollar. depegging would cause a new raft of problems for the US economy.

Suffice it to say that one should put ones money where ones mouth is. Given a choice would a sane entity rather hold a currency backed by gold or another commodity, a currency with a strong economy behind it, a currency of a country that has oil to sell, or the currency of the world's largest debtor nation? Powerful nations, in order to remain powerful, need 1) a strong economy 2) a strong military 3) a strong and fair foreign policy based on reality not ideology.

U.A.E. to Keep Dollar Peg After U.S. Pressure, Official Says
2008-03-17 13:47 (New York)
By Matthew Brown

March 17 (Bloomberg) -- The United Arab Emirates, conceding
to U.S. pressure and a desire to act in concert with Gulf allies,
will keep the dirham pegged to the dollar, a U.A.E. central bank
official said.

U.S. Embassy officials last week told central bank Governor
Sultan Bin Nasser al-Suwaidi of their concern about reports that
the sheikhdom may drop the peg, the official said yesterday,
speaking on condition of anonymity. Political leaders have
stopped the bank from developing any plans to move toward another
currency regime, the official said. U.S. Embassy spokesman Atalah
Hoshan in Abu Dhabi wasn't immediately available for comment.

Abandoning the link would risk further weakening the dollar
as the U.S. economy falters and the Federal Reserve battles a
crisis of confidence in financial markets. The oil-rich Gulf
states, including Saudi Arabia and the U.A.E., depend on the U.S.
for political and military backing and are unlikely to abandon
their closest ally at a time of financial turmoil, said Anoushka
Marashlian, senior Middle East analyst at Global Insight in

``The U.S. has always been the guarantor of U.A.E. military
security,'' Marashlian said. ``The U.A.E. wouldn't do anything to
compromise that relationship.''

Matt Drudge is the man. What does it say about MSM (NYT as an example) when this guy can step right in and kick their behinds consistently?

Matt Drudge is a joke -- the links to stories are more sensational than CNN and not one them have been fact checked. I think the gossip rags are better than Drudge.

'MAD MONEY' CRAMER ON MARCH 11: 'No! No! No! Bear Stearns is not in trouble... Don't move your money from Bear. . .Until I have time to sell my shares in Bear

finished it for you

Hello TODers,

Hopefully this link highlights the growing importance of Morocco and Life's Bottleneck:

Morocco to launch two fertiliser plants in 2008

...OCP is seeking to attract more foreign direct investment into Jorf Lasfar, the largest integrated phosphoric acid and fertiliser production complex in the world.

In October, OCP signed a deal to supply India's Mangalore Chemicals & Fertilisers with 100,000 t/y of phosphoric acid.

It also has deals in place to supply phosphoric acid or phosphate fertiliser to China's Sinochem, the US' Mosaic Company and India's Gujarat State Fertilisers & Chemicals.

OCP is the world's largest exporter of phosphate fertilisers.
I believe the author needs to clarify the units of measure for the last paragraph--way too low.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Hi Bob, looks like there might be a shortage of Talc causing a rise in the number of babies with rash on their butts. Talc production fell by 70% from 02-03 so the trend might have changed by now. If not new moms might be driven nearer hysteria. :)

Moroccoo is also an important producer of barites, producing 356,394 t in 2003 (487,626 in 2002), with Comabar being the largest single producer, but PMEs contributing 68% of the total output. Talc output fell by 70% to 81,225 t, smectic clays production by 65% to 14,944 t, ghassoul extraction by 50% to 927 t, fluorspar by 14.5% to 81,225 t and salt by 11.5% to 236,443 t.


Hello River,

LOL! Thxs for responding. The simple solution, especially if one includes the fast rising price of plastic diapers, is to let the toddlers run nude more often in the backyard to air-dry.

The bigger problem is all the outside workers heavily sweating in the hot climates: 'crotch-rot', and high chafing rates from talcum shortages will make these people have very short fuses! Recall that the numero uno request from the GIs in Iraq was for wet-wipes and baby powder.

I recall reading before somewhere on kilts for sale to construction workers. I wonder if there is a market for milgov camo-kilts? If you are holding a ladder for someone--don't dare look up!

That would be the Utilikilt - and they come in camo already


A strategic application of wax at the right time followed by a swift removal can permit one to exchange lots of ongoing discomfort for one brief bit of much more focused discomfort. I'm surprised given your bike riding advocacy that you were not already aware of this common practice amongst the pedaling classses.

Chamois-ButtR is a lifesaver on long rides

since I don't drive much any more and I like to do mountain biking, I have a minimum of about 18 miles to ride from the apt. to the mountains and around one of my preferred trail loops

chamois-buttR really makes those rides comfortable

Hi Bob, can you imagine what it would be like to work in a Talc plant in the middle of the Sahara Desert? How dry is it, you ask? All the workers get an IV stick and drip for their 8 hour shift plus one of those hard hats with 2 liquid containers strapped on and tube to mouth. Workers would still require extra hydration at shift end...use imagination here. :)

DOW Finished GREEN. What crisis? Cognac and Cigars all around.

Now where's a sarcastic emoticon when you need one...


My meager porfolio did not fare so well.

MSNBC Answer Desk

The honest answer is the reason oil prices keep setting records is that demand for fossil fuels is growing faster than the world’s oil producers can find new sources to satisfy that demand and replace the oilfields that are used up. A lot of readers don't like that answer, but it's the truth.

What a breath of fresh air to read something like that in the major media.

I kinda like what Catherine Austin Fitts says about this whole economic mishagas:

Greenspan Sees Many Casualties From Crisis
By Jamie McGeever & Ian Chua - Reuters (17 Mar 2008)

Catherine’s translation here:

Our efforts to centralize ownership and governance of global resources through the financial system have been successful. Now that this phase is complete, there were numerous people and institutions who were important to grow and manage the bubble, who are no longer needed. We are letting them go...

Catherine's Link.

How to beat the $3.50 a gallon gasoline worries?

Look for a 230 MPG hybrid.


"Necessity is the mother of invention." Plato c. 400 B.C.

I looked at these so called "cars". They are really glorified tricycles and have the crash protection of a motorcycle without the performance.
But they are trying to inovate and get car design moving in the right direction. Nothing really practical produced so far IMHO.

The trike style hybrids I've seen are all in the $30k range. People are not going to be spending the price of a house (post crash) on a vehicle when they can get a free SUV with every full tank. They'll pool up and limp along with whatever can stand rough roads.

That is no joke - I felt like I was riding a pogo stick coming back from Spencer the other night ... every third joint was pushed up two to four inches due to the freeze/thaw cycle.

The one car looks to be partially solar powered, so the claim at mpg might be much less on cloudy day or during night time.