Saturday, August 13, 2005

Oil Combat

Well loyal readers, the shit's about the reach the fan. British Bubba, my hubby and note expert on world-wide oil production, claims that the current bubble in the prices of oil is demand driven, ie. speculation and hedge forces, and not truly a consequence of limited supply. He maintains that the market will eventually return prices to their more natural level, about $45 per barrel.

So there you are bubba, a challenge. Prove him wrong. Make us believe that your dire predictions of global gloom and doom are correct. We won't thank you, but will we end up having to kiss your ...?

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The Imminent Recession


I'm sure you have realized it, but filling up your gas tank is costing a lot more today than it did even two weeks ago, and 60% more than a year ago. Even in Houston, the energy capital of the world, prices were hitting over 3.00/gal at selective stations yesterday. Nationally the gas price news was overshadowed by the release of the 9/11 tapes, but there was an constant national murmur and low to high level bitching about the price of gas. This was accompanied with major anger directed at the oil companies, the vast majority of the public believing that the reason for the high gas prices was Exxon screwing them.

The reality, of course, is that there is a dearth of supply to match demand worldwide for oil. The price has been moving inexorably up, in the attempt to find a tipping point for demand. What is the world wide price for oil that dampens demand enough so that supply can keep up. What we are talking about is a worldwide slowdown in global economic activity - i.e. a global recession. William F. Buckley wrote about this scenario yesterday. (Buckley, one of the original Country Club Conservative commentators, actually thinks for himself rather than spewing Rove's talking points ad nauseum)

Commuters suddenly forced to pay double for a gallon of gas begin to brown-bag their lunches, inching away from restaurants and sandwich shops. Americans who can still afford a vacation go on shorter trips, putting a major dent in the tourist industry. Trucking companies hauling everything from wines and spirits to furniture to automobile parts impose a hefty surcharge on shippers, who pass it on to their customers, who then pass it further down the line to the retail buyer if they can.

The crunch forces many independent truckers to sell their rigs, playing havoc with both cross-country and local shipping. Higher fuel costs send the U.S. Postal Service deeper into the red and threaten the survival of rival package shippers FedEx and UPS. With the break-even point for airlines a distant memory at $31 a barrel and carriers already operating with skeleton staffs, sharp fare boosts are the only option. Traffic spirals into a tailspin, and one airline after another declares bankruptcy.

But of course, oil is vital to everything from plastic picnic forks to printer's ink to asphalt. Manufacturers raise prices across the board, and potholes go unfilled in city streets around the nation. At first, municipal and factory employees lose overtime, then they are laid off or fired outright.

Foodstuffs of every kind -- from beef in the butcher case to fresh fruits and vegetables in the produce aisle, to milk and cheese in the dairy section -- reflect the higher costs incurred by growers and shoppers.

Runaway prices on just about everything take the Federal Reserve Board by surprise. Determined to keep interest rates low and dulled by their own assurances that inflation is somnolent, the Federal Reserve's governors are ill-prepared for the economic crisis. The Fed belatedly boosts interest rates a full 2 percentage points.

The heretofore unheard-of move jams on the economic brakes so swiftly and so sharply that you can almost smell the stink of burning rubber. Higher mortgage rates stop would-be home buyers dead in their tracks and cast a pall over the building industry. The real-estate market crashes almost overnight, wiping out billions of dollars of paper profits and putting holders of adjustable-rate mortgages and home-equity loans in peril. Foreclosures and tax-default auctions become common, consumer spending dries up, and soon the entire world is in a recession.




All I would say to any of you all who have assets in the broader stock market (broad based mutual funds, etc.) beware of the next few days, weeks, and months. Cash is a safe option for a while.


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Thursday, August 11, 2005

Kids Today, part 2

In part one of this self-important series of posts - my magnum opus or ode to what I believe- I pontificated on the crimes of youth today - needy, entitled, seemingly immune to violence and obsessed by consumerism. In the interests of preserving peace in my own family and possibly bubba's as well, let me state for the record that not all kids today are completely spoiled brats, nor are most of them beyond redemption. Changes in how we view youth, raise children and encourage government to act in our kids behalf could alter and possibly reverse the trend, but only if we have serious national dialog about important issues and how to reach meaningful goals. Hahaha, like that is really going to happen under this administration!

Today's post concerns accountability. Taking personal responsibility when things go wrong is a key component in correcting the situation. It is a failing of this administration that no one ever admits a mistake, no one ever takes responsibility for poor decisions. They slap a smiley face and pretend nothing is wrong, or point fingers and blame anyone else for problems they can't cover up. Bush has been called a dry alcoholic because he never learned to own up to his past problems and has been enabled by his family, the religious right and the neocons to continue to act with the same kind of reckless abandon of his youth, power now taking the place of alcohol and America as a passenger in the car racing 90 to nothing towards the inevitable crash.

Bush is not to blame for all the problems of today's youth, but he exemplifies what is wrong. Born into privledge and entitlement, he has no real empathy for those who were not. Having never been asked to take responsibility for his actions or atone for his mistakes, he refuses to admit ever being wrong or learn how to correct misdeeds. He believes that his so called personal relationship with Christ gives him immunity from consequences and consequently behaves soullessly. His belief in the greatness of the American way of life is based not on the constitution and bill of rights but on the inerrancy of the free market system. Because he has never really had to work, he values consumerism over labor; because he has never had to fear being without money, he values spending over saving.

How do these attitudes affect our country? Just look around: Tax cuts for the wealthy cause a strain on programs for the underprivileged; the healthcare crisis is ignored, while the administration pushes for useless adjustments to social security; education and scientific discovery are burdened unnecessarily; a war is fought for no reason; supply-side economics reinforce the importance of spending with abandon, without thought to the consequences.

Are our children effected by these choices? Of course: the wealthy ignore the problem, mimicking the actions of their parents; the middle class buy into the enticements of advertising and try to buy their way into the world they see in magazines and movies; the poor grieve for what they feel they can never achieve and act out in anger and resentment. They all dream in terms of cell phones, pimped cars and flash cribs, while our government touts a growing economy and endless possibility. The terrible consequences of an endless war, housing bubble, rising gas prices and a jobless future are no where to be seen.

Where are parents in this equation? Trying too hard for the wrong reasons and ignoring the real problems. As I said in part one, children's needs are few. What they really want is time and attention. Even in the face of mass marketing appeal, a child will choose parental love and support every time. It is only when parents choose (or are forced by need) to abdicate their parental role that children find a surrogate. The corollary to this is when parents try so hard to relive their own childhood through their kids, that they loose the needs of the child in the process. Churches and other nonprofit organizations can help to fill the gap, but only when they put children over and above their political agendas.

I realize this has been a real downer of a post, it depresses me just to edit it. But to paint a realistic picture, we must put all our cards on the table. Part 3 will cover my pathetic attempts to address all these issues and hopefully start a plan for the future. Stay tuned.

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Tuesday, August 09, 2005

It's Official - Bubba's a Ho

But what do you reckon TEP stands for? Tries Every Position

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Sunday, August 07, 2005

Yergin Schmergin

Yeah, here I am, back from retirement. Y’all were getting used to those interesting, thoughtful and emotionally-appealing posts from my friend stc, but since my picture is on the cover of this rag, I still get to rant occasionally.

Anyway, I know y’all have been waiting for my recent thoughts about my favorite subject – OIL. (Actually I know that 99% of our 5 readers do not give a shit about oil, but hey, it’s MY blog. If ya wanna read something else, get yer own damm BLOG.

So this morning in the Houston Chronicle, Daniel Yergin published an editorial about all of the oil just waiting to come onto the market. Now if you don’t know Daniel Yergin, he is the Chairman of, Director of, or Grand PooBah of (or some such crap) the Cambridge Energy Research Associates – which happens to be the Harvard of the energy consulting firms. Not only that, but in 1990 he had the fabulous timing of publishing a tome on the history of petroleum, called “The Prize” about the same time that Bush the Elder was invading Kuwait and Iraq for the first time. Suddenly, he was all over the Sunday talk shows and the News Hour etc.

I read that tome, and found it interesting, but would never recommend it to someone who was not an oil geek.

Well to make a long story short, Danny Boy thinks there is just oodles of oil left in the world. And I have to admit that his word carries some weight with me (but not that much). After thinking about it (and after 3 glasses of Cabernet), here is what I think about his piece:

1. First of all, from the tone of the article, plus the fact that it is contrary to my own personal experience and contrary to what everybody else seems to be writing (including ChevronTexaco, Exxon, PFC Energy, etc.) I am not sure where Yergin is getting his information.
2. I would not put it past Yergin to shill for the administration, just to keep the riff raff from getting panicked about spending $50 to fill up their Suburban.
3. Danny Boy says that by 2010 the world will be producing over 100 million barrels of oil per day – a 20% increase from 2004. And where is this magic oil coming from – all over the place (except the US) including Canada, Kaskhstan, Brazil, Azerbaijan, Angola, Russian, Saudi Arabia, Nigeria, Algeria, and Libya. I don’t know about you, but that list, with the exception of Canada, is pretty scary to rely on.
4. Personally, I look at many of these countries for a living, and I don’t see what he seems to see. What I see is small volumes in very hard to get places, requiring not-yet-developed- technology to produce. I see the global oil industry trying to hit singles when they are down by 20 runs.

Some interesting connections and phenomena that I have observed are the following:

1. Major energy producing companies are valued in the marketplace (read Wall Street) at low price to earnings (P/E) multiples – indicating that investors do not think the AVALANCHE of money coming their way is long lived (ConocoPhillips and ChevronTexaco trade at P/E’s of about 9).
2. This seems justified to me because the major oil producers (Exxon, Shell, Chevron, ConocoPhillips, Total, BP etc.) seem to produce less oil every year than the previous one.
3. On the contrary, companies that have demonstrable long lived energy reserves (Canadian tar sand companies, coal companines, Comeco (uranianium mining), etc.) are trading at pretty high multiples to their earnings – meaning the investors are putting REAL MONEY down on the bet that long lived energy is going to be very valuable in the future

Am I certain that Yergin is blowing smoke? No! On the other hand, I have a large chunk of change riding on the likelihood of high oil prices for the forseeable future and well into my retirement. At least I put my money where my mouth is. Sometimes I wonder where Yergin’s mouth has been.

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