DrumBeat: May 26, 2006
Posted by threadbot on May 26, 2006 - 9:35am
Now for some wise words from the readers of The Oil Drum...
“I'd put my money on solar energy… I hope we don't have to wait til oil and coal run out before we tackle that.”
—Thomas Edison, in conversation with Henry Ford and Harvey Firestone, March 1931
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http://www.breitbart.com/news/2006/05/25/D8HR4K6G0.html
http://www.fxstreet.com/nou/noticies/afx/noticia.asp?pv_noticia=1148591127-50950f08-39026
"investment demand for gold soared in the first quarter but surging prices led to significant falls is gold jewelry demand"
"jewelry demand fell 22 per cent in tonnage terms"
"two thirds of demand is from Asia/Middle East"
some countries -38% India, -43% Turkey, -25% Middle East
"investment flows into ETF's rose 23%...equivalent to 496 tonnes"
"Central bank sales fell 57 per cent to 116 tonnes. This contributed to a 15 per cent decline in total gold supply"
Anyhow, I thought you might appreciate this stuff. :-)
I'm still sticking to my dollar-might-rally concept, with the latest news about Italy's financial situation which seems to fulfill Jim Rogers 1999 idea that the Euro will eventually crack apart.
Also, the helicopters are still parked cold.
Aside from the normal hedonic (sp?) adjustments debate, the only rational argument that I remember over CPI understatement regards the fact that the economic category of "discretionary spending" keeps going up as the other categories have gone down. If inflation was really such a big problem, the argument goes, then why do we keep increasing our discretionary spending?
People will adjust to the new price and plan accordingly. Once they have adjusted the demand will slowly return. Gold is so valuable in India that banks write loans specifically for the gold lavished at Indian wedding ceremonies. That's not going to stop. It might get scaled back, but that's it.
Im not as sure in the middle east, but I will say that the great fortune of those in the oil kingdoms will start spending their massive windfall petrodollars on ever larger gold hedges against the dollars in their current reserves. Think about what happens when the gold and the oil are in a few hands because the central bankers are sellers. They want to protect the dollar, but their gold vaults will be empty and the electronic press known as M3 still "prints" cash.
I will agree it's in no countries immediate interest to abandon the dollar, but rememeber it only takes a grain of sand to start the sandpil avalanche.
Oh and we increase discretionary spending by in the US simply by leveraging.
#1 This grain of sand thing, I think, was in John Mauldin's weekly, wasn't it? And didn't I see somewhere that Mauldin's eletter goes out to over a million people? And these people would be largely in the financial business wouldn't they? So all of his musings may reflect very well the conditions that already exist in the market. It's possible. Try re-reading Andy Kessler's chapter in Mauldin's last book.
#2 I expect that the Saudi bigwigs will flee the country, gold included, once it's clear to them that their oil production is going to roll over. At that point they will not be net gold buyers. Furthermore, do you know for a fact that assets other than gold did worse during the various currency collapses in the past century? Do you have the data? If not, then you have a 1 variable analysis.
#3 Re inflation. This trend in "discretionary" spending has been going on for so long that you'd think the leverage would already be used up! Anyhow, if "food and energy" are going to experience what economists call a "supply shock" then this is not monetary inflation! It's still supply/demand and there's nothing that Bernanke can do about it other than crush the rest of the economy. I think he may know this fact. He may suggest that people look at "core" because he may know what's going on, rather than not know what's going on? It is possible.
#2 I don't get your point about gold and currency collapse. I was simply saying I think its possible that the Saudis would buy gold with their petrodollars. What other assets are we talking about? Do you want links to articles that provide the graphs that say since 1996 our currency has depreciated almost 20%? I'll go get them. Do you want the graphs and the like that talk about inflation adjusted (the real numbers) versus the nominal increases in the price of gold? I'll find those too.
#3 I agree once again. Bernanke is simply a mouthpiece to dispell all those who question. I agree if a supply shock occurs it would not be monetary inflation, however in the face of PO, do you see prices going up or down? So is your money worth less or more? Is this inflation period?
#3 Gold relative to money, say, could stay the same, as "food and energy" relative to money soar. And this is not monetary inflation, the supply of money could remain the same. Bernanke is a smart guy. I think most people are smart (conspiracy theorists exempted). You can understand a lot more about what's going on, if you take the approach that people are being smart, not stupid or mouthpieces. Bernanke may know that he cannot control the price of food and energy. So why try?
You've bought into this bizarre manipulation of the formulas used to calculate inflation. You're crazy to think that inflation that happens to energy of food doesn't affect YOU. Get down to the micro level and start thinking like an individual household. If the cost of food and energy increase, you pay it.
He knows what real inflation is. He also knows the Core inflation is not the best barometer of inflation. Have you not researched government reporting of data and how it's been changed, especially since Clinton?
Start with this website and you might get what I'm saying.
http://www.gillespieresearch.com/cgi-bin/bgn/article/id=340
Core inflation is simply a measure of short term inflation. Real inflation that you have to live with daily will matter in the end.
Back to #2....You're mixing Real's & dollars. Are you trying to interject exchange rates into this? Just want to be clear before I respond. Oh yeh about those pesky stocks being so great....
This is from http://www.itulip.com/realdow.htm
I apoligize to all for the length.
So, re "prices going up". I never indicated that the price of food and energy is not experienced by people. I am just pointing out that the recent rapid increases in those prices are not necessarily a monetary phenomenon. The price of oil over the past 5 years has risen approximately 28% per year. Do you think that is mostly money printing? I don't.
I haven't "bought into anything". As I understand it institutional investors calculate their own "inflation" guages in order to evaluation their investment needs. An example of this is retirement packages for state employees which index benefits to CPI plus X% -- because they fully understand that CPI doesn't capture the specific inflation that is experienced by retirees. This is no secret. You seem to think smart people out there don't know this already.
If the author of your quoted piece has not included dividends (which it appears he has not) then he has missed most of the gain in the DOW, and has made an enormous error in calculating the return. For comparison you could look at Jeremy Siegel's lateset book where he calculates returns in stocks and painstakingly includes all the dividends -- and shows that the indexes are much less efficient at capturing the returns from stocks than other "unmanaged" portfolios. Also, Siegel shows that the return for gold is dismal over time.
All this being said, I'll refer back to my earlier comment that "discretionary" spending is the economic category that seems to be growing as a chunk of people's income over long periods of time -- not energy, not housing, not food, etc. If "inflation" is so bad then why is it that people's houses (which have grown is size and features over the decades) are full of every imaginable geegaw and gizmo made? My closets are full, and so are everybody else's -- to the extent that the rental storage business has been one of the fastest growing businesses around!
"Stock dividend yields, which fell' to historic lows in the last few years, remain skimpy in the 1.9 percent tc 2.5 percent range, depending on which broad market average you look at."
http://www.andrewtobias.com/bkoldcolumns/980312.html
http://www.findarticles.com/p/articles/mi_m5072/is_16_25/ai_101172680
http://www.investopedia.com/articles/03/011703.asp
http://www.cross-currents.net/archives/feb05.htm
http://experts.about.com/q/Financial-Stocks-1075/Conversely-Dividends-Value.htm
I saw that gasoline inventories rose due to imports, but nothing on crude inventories.
I noticed the following :
* last week, for the first time since October 2004, the gasoline outputs from refineries matched gasoline sold with an exces of 3000 b/d (not yet the case for the 4-week average of supply)
* imports of crude were down. For the first 20 weeks of 2006, imports of crude are 3% below the imports for the first 20 weeks of 2005.
Since volume of crude refined now matches consumption, one would expect imports to raise dramatically, which will perhaps happen in the next weeks. Of course stocks are still high compared to last year, about 1 day more of crude in crude oil stocks at last week's range (actually 22 days in commercial stocks of crude, 67 days in SPR+commercial stocks), but that won't last long probably.
WestTexas getting a point here ?
So true that the poorest countries are affected first. The Ijaw tribespeople in Nigeria are using the wrong strategy against the oil companies. Blowing up pipelines only further adds to the local ongoing environmental destruction causing further people Overshoot vis-a-vis what is sustainable. I suggest they follow the energy--as Nature intended-- have people peacefully pack the topdeck and insides of every supertanker trying to leave the Guinea Gulf. This would make every importing country have to decide if the imported energy is worth more than cost of supporting the imported people.
Would the MSM gladly broadcast videos of this new non-violent combined importation and emigration strategy [blood and oil], or would they decline to show videos of soldiers gunning down unarmed people on a supertanker's deck [blood for oil]? Or best of all, would the MSM finally encourage worldwide mitigation thru Powerdown and Voluntary population control education funded by the elites' wealth?
Nature forces all Life to follow the energy-- roots seek sustenance, animals swim, crawl, fly, slime, walk to their energy sources of food and water [or die trying]. Humans are no different.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
A brief example. What would Secretary of State Rice want to do if: a video was released showing the very large Chevron supertanker "Condoleezza Rice" having thousands of gallons of fresh blood pouring off the sides into the sea?
Link to this image to help visualize:
http://www.denkfabrik-info.de/mediac/400_0/media/CRoiltanker.jpg
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Thxs for the compliment, but I am just another typical American: if I cannot exhale my thoughts, then I hope a precisely centered .50 cal curtails my ability to inhale.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
It would be interesting to correlate per capita net income, net wealth, obesity rates and overall health to the gasoline tax (I love to suggest projects for other people to do). I have actually loosely compared obesity rates to total miles driven, and as one would expect there is a pretty much a linear correlation--obesity rates go up as total miles driven goes up.
Norway is the obvious country to compare ourselves to. They have the highest gasoline taxes in the world, and I believe that they have the highest per capita income in the world. They also have abundant hydro power, but we have lots of wind power possibilities. The rate of car ownership in Norway is about half of what we have here in the states.
My fundamental question I guess is has our low gasoline tax encouraged a vast waste of capital and energy on nonessential uses, such as our vast low density suburbs? If so, what do we do about it?
I have finally added the text to several excellent graphs that Khebab did: http://www.energybulletin.net/16459.html
Following is the last paragraph from the article:
"As we stated in our previous article, in order to speed the adjustment to the realities of declining world oil production, we recommend that the United States abolish the Payroll (Social Security + Medicare) Tax and replace it with either a liquid transportation (petroleum) fuel tax or an overall (nonrenewable) energy tax. In effect we would tax energy consumption to fund Social Security and Medicare. The primary reason for implementing the proposal is that it would cause an immediate and massive across the board push for greater energy efficiency and it would unleash enormous free market forces against profligate energy use. This proposal would also find favor with those concerned about Global Warming."
IMO, we should all unite behind some form of move toward taxing energy consumption to fund Social Security and Medicare (which is certainly not an original idea that I came up with) combined with Alan's Electrification of Transportation proposal.
In effect, IMO we need to at least try to remake our society based on the Norwegian model. Will we fail? Probably. But shouldn't we at least try?
We have a lot of Casinos and they are SUPPOSED to fund education. That's how it was brought to the people decades ago. The tax revenue from casinos is suppose to add a ton of cash to our education system, yet the money goes into a GENERAL USE FUND. Guess where that money goes? It's not in schools as state spending on schooling has decreased and all the homeowners increased their property taxes to maintain the schools. What a joke.
The general use fund is more a slush fund to bring all the various gov't profit centered monies into one big pile.
Also, please consider seriously the option of a gas tax that goes up a bit every month (giving people time to adjust) balanced with a FICA/Medicare tax that is lowered annually.
A few percentage of the tax drained off to improve Medicare & fiscal soundness of reitrement/disability benefits is an option.
I think gradual is MUCH more acceptable.
I was thinking increasing gas taxes 1.5¢/month (with quarterly inflation adjustments) for 20 years. No ethanol exemption. Coupled with a SMALL carbon tax and oil import duty (currently 0%). Poeple know that it is coming (unlike Peak Oil, which they do not know is coming, yet).
Perhaps all gas taxes are rebated; carbon & oil import duties go for other purposes (Medicare, funding Urban Rail, etc.)
A sudden, one time shock has costs associated with the sudden change. These costs can be eleminated with a gradual change IMO.
Norway's population grows by about 17,000 a year, about 8,000 of which are immigrants. Almost any medium sized city in the US has more immigrants than this. Norway is a white-bread country with a homogenous population. Its a great place to visit, but like Utah, I would never want to live there.
As far as the US becoming more like Argentina.. not sure what you mean by this, and I hope that we don't become like Sweden either.
This is undoubtedly true. A while back I started a blog on the very topic of how cheap oil/ gasoline has contributed to America's obesity problem, called "fats and oils". Here's a link: http://fatsandoils.blogspot.com
But alas, with small children at home, a death in the family and a busy practice it's been months since I contributed to it. Sorry I don't have a link right now, but obesity rates do correlate very well with car ownership/ mile driven (as well as with television viewing).
Here's a dramatic visual of the obesity problem in America. It's a CDC power point presentation, but go down to slide 6 and follow it down as it's show the growing obesity rates over the last 20 years in America. You'll be stunned.
http://www.cdc.gov/nccdphp/dnpa/obesity/trend/maps/obesity_trends_2004.ppt
Perhaps it is:
http://www.sciencedaily.com/releases/2006/01/060130031548.htm
Some of this is due to the fact that our food sources are now farther away, and all the food is old. And some of it is because the costs must go down to increase profit and to compensate for the transportation costs, so we look for other things to put in there that are cheaper. At least that's how I see it.
No wonder we're fat
A little more in-depth paper (pdf) is here:
An evolutionary perspective on human physical activity: implications for health
I start on the skinny side, but if I don't exercise I end up skinny-and-flabby or skinny-with-a-gut which is no fun.
On the other hand, hiking or bike-riding, and then barbecuing, is fun. And you know, as fossil fuel becomes more dear, that's just the way we are heading.
[currrently 70% of ag land is for grazing and/or animal feed, IIRC]
And of course, when things get a little more tight, backyard chickens make a comeback ;-).
* - and my city isn't zoned for gunfire ;-)
But the "highest & best" use for much of it is grazing. Grass feed beef is not as tender, but it does have a bit more taste. "18 month old" grass fed beef is still fairly tender. And all of it is good for lean hamburger.
This was, of course, an argument against any sort of peaking, etc.
How true is this ? (This will affect my investments as well. What better time to buy NG producers than when there is a glut a couple of years before a shortage ?)
LNG has a floor price, I have heard $7 and $8. Anyone know better ?
Will the NG storage fill up in October if we have an average summer ?
It is still the cleanest fuel available, with lowest emissions of all types per unit work done.
E85: Spinning Our Wheels
I have added "Conclusions" as well as a section detailing the mathematical assumptions in greater detail.
I also had an interesting question posted to my blog:
Can the United States make enough E85 to replace the crude oil imports (ignoring the energy that it takes to create the E85)?
I realize that it ignores a whole bunch of stuff: decreasing crude oil supply from within the USA, energy used in growing corn, etc, etc.
But, that seems to be what the politicians are saying...we can use ethanol to replace the imports.
Fair question. So, I looked into it a bit. Here was my answer:
We import around 200 billion gallons of oil a year, and it contributes roughly 100 billion gallons of gasoline to the overall pool (as well as diesel, jet fuel, fuel oil, etc.). As my analysis shows, turning 100% of the corn crop into ethanol would only equate to 18.8 billion gallons of gasoline. Therefore, ethanol can't possibly enable us to stop importing oil.
RR
It spurred me to investigate E85 sites. I wanted to see how E85 boosters were addressing the mileage and cost issues. I wanted to see the EPA mileage figures for the new GM lineup.
Guess what...
We have a real communications issue. NONE OF THE SITES, even the relevant page on Sen. Obama's (Illinois) site provide honest numbers. There are weasel words everywhere. (Though you see lots of American flag pictures.)
I wish there was a way to get your earlier Taurus example out into greater blogdom. Knowing that E85 mileage is almost 30% less may be a very big consumer issue.
Good summary.
http://www.forbes.com/home/feeds/ap/2006/05/26/ap2775669.html
So you know that the real inflation we are living with right now is 3-6% (@ minimum) higher using the correct original formulas.
I read two articles this morning about two hedge fund managers who managed to pockets over A BILLION DOLLARS for their management fees. One guy got $1.5B. When you get a Long Term Capital Management like hedge fund failure it will be catastrophic.
The fundamentals don't change and the cards have to fall....such an econ thing to say.
Since you think that CPI is fake, then do you think the "personal savings rate" of -1.2% or whatever is fake also, or is that real?
Included in the proposal was-
-Peace with Israel
-Cut off assistance to terrorist groups
-"full cooperation with IAEA based on Iranian adoption of all relevant instruments (93+2 and all further IAEA protocols)."
http://www.antiwar.com/orig/porter.php?articleid=9040
IMHO, The invasion will happen no matter what Iran does, and has been policy for a long time...
I've read numerous accounts to the effect that we (the US) have operators in country, and have had for some time now.
Impossible to tell for sure, though. Just as desired?
The one thing that did bother me was the fact that the South Platte farming area is in a drought, yet people are still watering their green grass lawns in a rock and sand tumble weed landscape. Sure they look nice, but come on, think!! You live in the High Plains, the only way you get grains to grow is to pump up out of the ground, water to grow them. While there, I overheard folks comparing rain they got one night. 2-tenths of an inch to 4-tenths of an inch. If it had been daytime the rain would have gone poof back into the air. And these farmers are going to give Hillary all her E-85 yay them!!
I did notice a few signs for E-85 pumps at one station in Nebraska Yesterday afternoon.
Two interesting reports yesterday...
From EIA
ttp://tonto.eia.doe.gov/whatsnew/newwhatsnew.cfm
"U.S. total energy consumption for the first two months of 2006 was down 4 percent compared with the first two months of 2005 and down 7 percent compared with the first two months of 2004."
From the BBC
http://news.bbc.co.uk/2/hi/business/5016526.stm
"The US economy roared ahead by 5.3% in the first quarter of 2006, its fastest growth rate in two-and-a-half years, revised official data has shown."
So... big jump in GDP and a decline in energy usage. Hmmm........
This should definitely help energy intensity numbers to continue their downward trend.
see- http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_16.pdf
This comment is priceless
There was a piece in our local paper about how the price of gasoline is starting to put a crimp on pleasure boating. One owner of a 56-foot, $1.3 million custom yacht complained that he consumed $7,500 worth of fuel bringing his boat up from Ft. Lauderdale, FL to it's home marina on the Chesapeake Bay. He said that when cruising at 21 knots his boat consumes over 60 gallons per hour and that some marinas are now charging as high as $3.85 per gallon.
Many owners of large luxury boats are using them more as floating party pads rather than taking them on long cruises.
See, things are tough all over, and even the affluent have their problems too.
Or better, he could buy a sailboat.
Which brings up a good point for consideration. If a bird flu [or some other nasty virus], causes a total global pandemic powerdown and the nearly instant crash of the civilizational infrastructure: Can FEMA sail the USS Constitution, and other sailboats to distribute vaccine in a 'last chance' global gasp to avert the worst conclusion?
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
http://www.austincycling.org/art/after_the_peak.jpg
Consider this latest link to Zimbabwe:
http://planetsave.com/ps_mambo/index.php?option=com_content&task=view&id=7229&Itemid=68
Excerpt:
-----------
HARARE, Zimbabwe (AP) _ As impoverished Zimbabweans hunkered down for a biting winter, business tycoon Philip Chiyangwa unveiled his latest acquisition _ a car that rolls off the assembly line at nearly US$200,000 (euro164,000).
A blaze of publicity surrounded the car this week in a country where public utilities are collapsing and thousands of families, homeless because of a government slum clearance operation last year, face night temperatures plunging to near freezing.
-----------------
Does anyone think the first world will be any different postPeak considering how quickly the elites are gaining wealth? Human nature is universal.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
I am Mr. Rourke, your host, welcome to Sustainable Future. I'm here to help you transition. What would you like today?
Oh, thank you. How about a couple gallons of gasoline for my riding lawn mower?
I'm sorry sir, gas-powered lawn mowers have been banned - too polluting and wasteful. Most urban lawns have been converted to gardens or grazing land. Would you like some help converting your lawn?
Hmmm... ahhh, maybe later, I like long grass anyway. How about filling up my car with gas then?
Yes sir! I hope you don't mind, we had to trade in your car to one that meets code (Don't worry the government covered the costs) - it's a two-seater, a Honda Grasshopper CX model, very stylish. It only weighs 300lb and gets 145 mpg on the highway. The new tank holds 3 gallons, and a gallon of gas costs $37.539, so that'll be $112.67 to fill 'er up.
Ummmm... okay, but where do our 3 kids sit?!
Oh, no problem, we have an optional attachment carriage, a 4-seater, this first one is also on the house for all parants thanks to Uncle Sam, although it'll lower your milage to 120 mpg.
Okay, but that little thing? It doesn't look very safe - I want to protect my kids you know!
Oh no, it's very safe. It has a wide wheel base, and now that the speed limit is 25 mph on all roads, there's not been a traffic fatality in 8 years!
How do you enforce a 25mph speed limit? Don't people just speed anyway?
We've had no problem there since the law says passenger vehicles can only have up to a 15HP engine, so it takes a few minutes to accelerate to that speed. Besides the government spent so much money on converting cars, they were short on road repair funds, so there's a few potholes. Don't worry, all the seats have springs and shoulder harnesses, and the kids LOVE the bouncing - just make sure they all keep their shoulder harnesses locked.
How sustainable are disintegrating roads? We'll not be able to travel at all if this keeps up!
The government has prioritized maintenaince and has directed primary road reconstruction into the old paver brick design which takes a little longer to rebuild. We use solar powered kilns to fire the ceramic bricks so they're very strong. It's a bonded 90 year project, and roads that don't make the cut will be abandoned or converted to gravel.
Well, I'll take a nice drive with the kiddies then and explore the new city. Hmmm... hot day today, looks like this car doesn't have A/C. Maybe we'll head down to the beach and cool off. Thanks for the conversion Mr. Rourke!
You're welcome! Next please?
I am Mr. Rourke, your host, welcome to Sustainable Future. I'm here to help you transition. What would you like today?
I wrote an essay a decade ago called "How fast is enough?" contrasting speeds for personal travel and objectively concluded that 30mph was VERY FAST, comparing to renewable energy sources - sailboats, horse-drawn carriages, bicycles, even steam engines! (An unaswered question is "How far is enough?" asking ideally how much travel is ideal per day.)
I've wondered if we optimized our vehicles for lower speed, lower power what sort of fuel milage is possible, but I don't know any guesses on answers, except comparing to mo-peds and motorcycles.
Beyond "personal vehicles", I believe larger vehicles ought to be capable of more efficient higher speeds and higher cargo ratios. On the other side, it seems crazy for a single say 200lb person to be carted around in a 5000lb SUV, or maybe even a 2000lb compact Metro!? No matter how efficient the engine, efficiency "per cargo weight" is horrid when you have to carry around so much "dead weight" especially where speed can't be constant.
Anyway when people talk about "demand destruction" as fuel prices rise, my hope is that this can best be created through lower power/weight vehicles. Wish I knew more, since I'm just guessing on basic physics.
That NREL study found only a 7% drop in miles per gallon instead of the 19% lower BTU's per gallon. Their combustion efficiencies are different. Robert, how much does that affect your analysis? Not much, I'd guess. Gasoline combustion is pretty inefficient. Most of the BTU's wind up as heat in the radiator and exhaust.
In fact, still without disagreeing with the conclusion of Robert's analysis, sometimes converting energy at a poor efficiency (CTL?) may be worthwhile because the resulting product (liquid!) has unique other properties, such as safe transportability.
I agree though that engines can be optimized for E85 and Saab's 2.0 litre BioPower has 20% more power and 15% more torque when using E85 at a cost of -12.5% mpg (IIRC).
Anyone know the relative mpg for FFV vehicles in Brazil?
I infer now that they did not use E-85 all the time, and the occasional use of gasoline increased their mileage, making their 7% claim dubiously meaningful. I suspect "MPEG" is miles per equivalent gallon, whatever their standard for equivalence is.
I have seen reports of "only" a 9% drop, however, because of changes in timing to exploit the higher octane. Sorry, I don't have a better reference. This is the NREL; I'd hope for cleaner answers, but maybe it's politically forbidden to discuss how bad it is.