Trader's Corner 2008

threadbear · **Joined:** Sat Jan 22, 2005 1:00 am **Posts:** 7917

mkwin wrote:

threadbear wrote:

mkwin wrote:

It is trade in it's purest form.

The very word "purest" cancels your thought about free market theory being the "least ideological". It is ridiculously ideological. I would almost rather have a discussion with a hard core Leninist or a committed Nazi fascist, than try to explain the limits (not errors) of free market theory.

Ok, at the risk of getting into a pointless philosophical discussion, what is a purer or more fundamental form of trade than people exchanging good and services as and when the need arises?

In regards to limits of free market 'theory' it can be said that the market cannot be left to run society. Government needs to correct market failures.

One of the biggest market failures in my opinion is the price mechanism is reactive not proactive. This is the greatest defence for speculators. They give the market some foresight; because speculators believe the oil price is going to be higher in 2015 than now, the long dated oil price is higher than today. This allows firms to lock-in this higher price and commit to projects now.

Purity is not necessarily what a person, society, govt. or market should be striving for and free markets are reactive rather pro-active. That's my biggest beef with them. This is one of the reasons Obama is talking infrastructure projects. These should have been started decades ago, with electrical grid failure, etc...bridges collapsing (Minnesota)

We are more in agreement than anything. Markets are often decent pricing mechanism, left completely alone. But when they're not they can be brutal and actually reward the failure to PREVENT chaos and organized oppportunism, conspiracy.

I agree with you that prices can't usually be kept up for very long. However, the next round of Opec supply cuts should tell an interesting story. If they cut significantly, prices should either remain firm, or reach their target of $70 to $80. per barrel, US--and more if dollar weakens.

mkwin · **Joined:** Fri Jun 01, 2007 12:00 am **Posts:** 641

Quote:

I agree with you that prices can't usually be kept up for very long. However, the next round of Opec supply cuts should tell an interesting story. If they cut significantly, prices should either remain firm, or reach their target of $70 to $80. per barrel, US--and more if dollar weakens

It will be very interesting to see. I am not so sure it will work though; there is a lot of new Non-Opec supply coming online in 2008 (up to 3 million bbd worth). At the same time, global demand could actually decline this year. We will see a return to 2001 levels of spare capacity - the oil price was $20 to $30 then! I think we could see $45 again. I am just annoyed I did not buy the $60 PUTS I was seriously considering in July.

cube · **Joined:** Sat Mar 12, 2005 1:00 am **Posts:** 3955

threadbear wrote:

Purity is not necessarily what a person, society, govt. or market should be striving for and free markets are reactive rather pro-active. That's my biggest beef with them.

*cough*
Look at the apple iPod. Steve Jobs anticipated a future demand and introduced a new product. By definition that is being pro-active.
Every single day there are literally millions of entrepreneurs who spend countless hours asking themselves, "what's going to be the next big thing and how can I profit from it!"
The Free-market is very pro-active.
The Free-market is both pro-active and reactive.
However if I have to pick between the two I'd say the free-market is more reactive than pro-active because it punishes more severely then it rewards.
BTW that's just my observation you won't find that written in your high school econ 101 textbook.
//
*cube's explanation*
The free-market is superior to everything else NOT because resources are magically allocated perfectly.
Actually it fails plenty of times. Have you ever thought about opening up a small business? You know there's a 90% failure rate right?
There's a commercial street near my house where no joke there must be 5 shops that changes ownership every year.
Imagine all the resources that get wasted because of failed business decisions.
And of course this is not limited to small business. Even the largest of corporations can fail.
The free-market is superior NOT because decision making magically becomes perfect. It is superior because those who make bad decisions eat their own loss 100%. In a free market you never have to worry about paying for someone else's mistakes.
//
It's my observation society tends to financially engineer it's own demise without even knowing it.
When will society ever learn? --> NEVER
However I am not a bitter man. On the contrary I believe there is an opportunity for profit.
sometimes I get this feeling I should of been born as a Ferengi

threadbear · **Joined:** Sat Jan 22, 2005 1:00 am **Posts:** 7917

Can you imagine what is going to happen to Saudi and other Opec producers if the price goes down much further. Scary. This may be one of the reasons Obama is open to different forms of intervention over there.

threadbear · **Joined:** Sat Jan 22, 2005 1:00 am **Posts:** 7917

Cube, If you reread my posts you'll see I clearly delineated where markets, particularly deregulated markets fail in a rather amazing way, and that is domestic infrastructure projects--needs rather than wants.

I celebrate the free market's ability to unleash a zillion chia pets, beanie babies, pet rocks, on the world, right along with you, though. :lol:

MrBill · **Posted:** Tue Nov 11, 2008 12:45 am

[align=center]Forward Looking Markets
Reacting To Both Short-term & Long-term Price Signals[/align]

Quote:

Energy Weekly

Super-contango: Credit crunch continues to weigh on timespreads

Steepening contango suggests continuing credit constraints

Downward pressure on crude oil prices and timespreads remained strong last week, pushing the contango in the WTI and Brent forward curves to extreme levels, below the "cost of carry" which typically provides a floor to timespreads. While historically these extreme degrees of contango, often referred to as super-contango, are associated with full inventories and therefore due to constraints on available storage, this time they are likely attributable to constraints on available credit. This indicates that the impact of the credit crunch on the oil market is not waning and continues to exacerbate the pressure on prices coming from weakening economic fundamentals.

Strong policy responses support medium-term outlook but in the near term credit crunch and economic weakness continue to weigh

The announced Chinese stimulus plan adds to the list of fiscal and monetary policy measures approved globally to counter the threat of a deep recession. Aggressive policy responses may help prevent sharp deterioration of economic conditions next year and support our constructive outlook for year-end 2009.

In the near term, however, we believe that economic weakness and credit constraints will continue to put pressure on oil prices. Economic data continued to come in below expectations last week, confirming the signals of a sharp slowdown in economic activity in October coming from the commodities markets. The surge in October's US unemployment has already been weighing on the US gasoline market which is also plagued by decreasing industrial demand for naphtha from the petrochemical sector in Europe and Asia. In China after the extraordinary weak October PMI, power demand last week showed a marked fall in October reinforcing the deceleration in Chinese economic activity signaled by weak Asia commodities prices.

source: Goldman Sachs Commodities Research
November 10, 2008

Quote:

Commodity Watch

Commodity returns still likely to get worse before they get better

Near term commodity risk remains skewed to the downside

The S&P GSCITM total return index and the S&P GSCI enhanced index suffered their largest one-month declines on record in October and have continued to fall in recent days as the credit paralysis since September has substantially curtailed global economic activity, sharply reducing commodity demand. In the
near term, we maintain that credit constraints and weak economic conditions will likely keep commodity price and returns risk skewed to the downside.

Longer-term risk is skewed up, but timing uncertain

The speed and extent of the recent global economic deterioration has prompted exceptionally aggressive policy action in an effort to prevent a deep and long-lasting global recession. We continue to believe that as credit conditions ease and economic activity regains positive momentum - made more likely by the current policy activism - commodity prices and returns will increase rapidly and substantially. Driving this view remains the severity of supply constraints, which have been substantially exacerbated by recent
credit conditions and the sharp retrenchment in commodity prices. Although our returns forecast reflects these views, we emphasize that the extreme volatility in the commodities markets as well as the uncertainty surrounding the evolution of credit and economic conditions leaves these forecasts highly tentative and subject to revision.

source: Goldman Sachs Commodities Research
November 10, 2008

Quote:

Nov. 10 (Bloomberg) -- Offshore oil workers are in demand as the world's oil companies bring more rigs on line, with 180 new installations planned over the next three years to add to the current level of 640 rigs, the Wall Street Journal reported.

Although the price of oil has slumped in recent months it isn't enough to delay rig installation, as such projects take 10 years to plan and set up, and can operate for as long as 30 years; each rig requires about 200 workers on and offshore, and there's a shortage of manpower, the newspaper said.

source: Offshore Oil Rig Workers in Demand, Recruitment Grows, WSJ Says

Quote:

Nov. 6 (Bloomberg) -- ConocoPhillips has joined other U.S. oil companies in calling for more federal research funding into renewable fuels before committing to developing alternative energy sources, the Wall Street Journal reported.

The Houston-based company will remain focused on its oil and natural-gas business until the technology surrounding alternative energy improves, the Journal said, citing an interview with Chief Executive Officer James Mulva.

source: ConocoPhillips Seeks More Alternative Energy Funds, WSJ Says

Quote:

Will there really be a glut of govt guaranteed bank supply?
The Treasury market shot higher yesterday afternoon. But is was not a real move since many banks were short Treasuries going into this week’s supply. Thus the small uptick in the market that was the reaction to weakening equities quickly fed on itself in thin conditions. The upshot is that the street is now a lot less short than it was 24 hours ago. Now the Treasury supply is going to come after a big rally in the market and if there were shorts in Europe, a more moderate, but similar story could have been told here too.

Economic data today are fairly limited with only the ZEW index expected. We are expecting a slightly stronger than expected reading of -60, helped by a better functioning of markets and the rate cuts.

Non German paper has made a significant U-turn in recent days. For example 10Y spreads between Germany and Italy are around 30bp tighter than one week ago. One part of the curve that has not done quite so well has been the short end of Italy, which is suffering from the fear of government guaranteed bank debt. However, it is not a guarantee that this type of debt will flood the market since over recent weeks the pendulum has swung towards the non-government guaranteed market in terms of cost. If the market could open, banks might turn their backs on the government guaranteed market.

To give an example, for Barclays the cost of the guarantee is the median 5Y CDS in the year to October +50bp. This is roughly 129bp (plus an extra 4bp for foreign currency). They could issue 3Y guaranteed paper in the EUR+18bp area. Thus, Barclays would become indifferent between senior unsecured issuance and guaranteed issuance at around EUR+150bp. Barclays 5Y CDS is at around 123bp, so if they could issue close to this then they probably would.

Since the CDS are at levels that would favour non-guaranteed issuance, there is henceforth a stronger link between the bank CDS and the government guaranteed bank debt. Looking forward we would also expect a stronger correlation between bank CDS and Italian/Agency debt, which competes with this asset class.

source: research@calyon.com

Quote:

China’s State Council unveiled a massive fiscal package of CNY 4tn (about USD 586bn) to be spent until end-2010 to support the economy. It is very big. This makes about 8% of GDP per year (although part of these may correspond to investment plans already existing). Last time China implemented a pro-active fiscal package (1998-2002), it was more in the scope of 1.3% of GDP per year. The fact the plan is much larger now reflects its stronger vulnerability to the slump in global demand, as China’s economy is far more open international trade today (export-to-GDP ratio increased from 20% in 2000 to almost 40% currently). The level of detail of the plan is limited so far but the money will be used to support low-rent housing, infrastructure spending in rural areas and cities, purchase of investment goods (tax deductions, expected to allow the corporate sector to save CNY 120bn), farmers. In addition, the government also confirmed it scrapped loan quotas.

Given the magnitude of the plan, this will likely have a significant impact in buffering the current deceleration. However, let’s keep in mind that the global shock is quite strong and that the package is unlikely to reverse the Chinese economic deceleration – it will only slow its pace. To put it another way: given the scope of the global slowdown, without any significant monetary/fiscal measure, economic growth could slow to about 5% YoY or below. Much will depend on the implementation, but with the rather significant measures that have been announced, GDP growth could remain in the region of 7% next year. Moreover, there should be more to come in terms of monetary easing, particularly as inflation decelerates more quickly than expected (with the producer price index inflation, released this morning, down to 6.6% YoY in October, vs. 8.0% expected – the CPI, due tomorrow, may have slowed from 4.6% YoY in September to 4.2% YoY in October). The package will likely support the equity market. True, it is coming a bit late, as China’s growth has been slowing down for five quarters already. Capital inflows may be supported, particularly given the scope of the recent equity market correction (-70% since October 2007). This may favour a return of CNY appreciation pressure. However, PBOC will likely resist such appreciation pressure, as the CNY basket has already appreciated tremendously over the past few months, to a level that may threaten export competitiveness looking forward. Data due to be released this week should confirm that China is undergoing a significant deceleration. Basically we expect lower inflation, slightly weaker retail sales, a stronger slowdown in both exports and industrial production (see today’s Asia Research Daily).

source: research@uk.calyon.com

MrBill · **Posted:** Tue Nov 11, 2008 2:55 am

mkwin wrote:

Quote:

Anyway, what do you make of this? On the face of it, it contradicts my understanding of the business cycle. I would argue a high oil price is part of the business cycle. When output expands it places extra demand on supplies of all the components on economic activity and, like Real Estate, oil requires a lead in period. Therefore, as both supply and demand are inelastic, a small shortfall in notional supply causes a large increase in price.

I have mentioned it previously in Trader's Corner, but in Michael Pettis' The Volatility Machine: Emerging Economies and the Threat of Financial Collapse, he speaks at length about the cycles of virtuous circles that lead inevitably to vicious downward spirals.

High energy, metal and commodity prices were being driven specifically by strong global growth. Growth that was sustained by low inflation expectations; low, stable interest rates; and low volatility that encouraged lending and risk taking. But, of course, this cycle, like any cycle, eventually runs its course. In typical buy the rumor, sell the fact style, once all possible positive news is contained in price then that price will inevitably fall as the very last buyer purchases at the absolute top of the market. And there is no greater fool ready, willing or able to buy any higher.

That tipping point has to come at some point in any bull market. High oil prices are a wealth transfer from oil consuming nations to oil producing countries, but we would have reached the end of the growth bubble regardless. When everything is priced to perfection it does not matter much which brick causes the collapse. It could have been high oil prices; the subprime fiasco; a pick-up in inflation expectations; an act of terrorism; a currency crisis; or any other external event that causes a sudden shift in the perception of risk.

Just as OPEC supply shocks were in their day that inflection point that in turn caused a global growth slowdown and recessions. The cause is a build-up of global financial imbalances. But the catalyst can be anything. Like bailouts now in response to the credit crisis will sow the seeds of the next financial crisis.

Just reading a headline on Reuters right now as we speak. Mr Brown: "Fiscal stimulus package must be introduced in all major economies to maximise impact." So they are going to fight global financial imbalances that stemmed from excessive money supply creation and credit expansion through fiscal stimuli to keep asset prices artificially above their true-economic value. How well do you think that is going to work in the long-term? It perpetuates the boom-bust cycle. It does not change its course.

Quote:

Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is “underwater,” as it is known, by $122,000.

A visit to the area over the last couple of days shows how the nationwide housing crisis is contributing to a broad slowdown of the American economy, as families who feel burdened by high mortgages are pulling back on their spending.

Jerry Martinez, a general contractor, and his wife, Marcie, an accounts clerk, are among the struggling owners in Mountain House. Burdened with credit card debt and a house losing value by the day, they are learning the necessity of self-denial for themselves and their three children.

No more family bowling night. No more dinners at Chili’s or Applebee’s. No more going to the movies.

“We make decent money, but it takes a tremendous amount to pay the mortgage,” Mr. Martinez, 33, said.

source: A Town Drowns in Debt as Home Values Plunge

Quote:

The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time.

But these loans eventually become unmanageable. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it.

When business leaders assess how societal issues will affect shareholder value, many see operational opportunities where they once saw risks. But executives have yet to fathom the extent to which the public expects companies to address major global problems.

Quote:

Sociopolitical issues are less feared today in executive suites around the globe than they were a year ago, according to the third McKinsey Quarterly survey on business and society,1 which was conducted in mid-September as the financial crisis began to hit the global community with full force. Compared with a year ago, when executives saw environmental issues and human rights standards more as risks than opportunities,2 they now see these two issues and many others primarily as the latter.

In this survey, executives answered questions on which issues matter most to the public and which will have the greatest impact on shareholder value, as well as which issues are emerging as important, how companies try to manage social issues, and which stakeholders have the most influence on companies. Environmental issues, including climate change, catapulted to the top of executives’ sociopolitical agendas in the previous survey and continue to gain prominence. Around half of the 1,453 executives we surveyed pick the environment as one of three issues they expect will attract the greatest amount of public and political attention and most affect shareholder value. In contrast, the issue expected to generate the second-highest degree of attention—privacy and data security—is selected by less than one-third of the respondents.

Executives are in tune with other groups that we surveyed—students, executives of nongovernmental organizations (NGOs), regulators, and journalists—in ranking the environment as the most prominent issue. However, these stakeholders assign far greater importance to it. For example, almost 90 percent of regulators pick the environment and climate change as one of the three top issues. Executives and stakeholder respondents also differ strikingly in their perceptions of public expectations for companies to address big global problems in ways that go beyond standard business operations. For instance, around half of the NGO representatives and students—but little more than a quarter of the executives—say the public expects companies to help fix inadequate educational systems.

This disconnect may help explain why most executives, while increasingly viewing societal issues as opportunities, still believe their companies do a poor job of anticipating social pressures. In fact, only 12 percent believe their companies do an adequate or good job.

source: How global executives view sociopolitical issues

topcat · **Posted:** Tue Nov 11, 2008 5:21 am

Welcome back Mr B.

MrBill · **Posted:** Tue Nov 11, 2008 7:41 am

Thanks Top Cat.

Krugman wrote:

Quote:

So we need a fiscal stimulus big enough to close a 7% output gap. Remember, if the stimulus is too big, it does much less harm than if it’s too small. What’s the multiplier? Better, we hope, than on the early-2008 package. But you’d be hard pressed to argue for an overall multiplier as high as 2.

When I put all this together, I conclude that the stimulus package should be at least 4% of GDP, or $600 billion.

That’s twice what the unreliable rumor says. So if there’s any truth to the rumor, my advice to the powers that be (or more accurately will be in a couple of months) is to think hard – you really, really don’t want to lowball this.

source: Stimulus math (wonkish)

This was a measured response to Krugman's near incessent advice to Obama to go ugly early with a larger the better fiscal stimulus. I hate to argue with Nobel prize winners in the middle of a recession where some sort of fiscal stimulus is necessary, but this asymmetrical application of Keynesian supply-side economics is really distorting and causes more harm in the long-run.

Keynes himself would have argued that budgets need to be balanced over the business cycle. The US, of course, has not run surpluses, and actually paid down debt, for more than forty years. The Clinton surplus was only a technical one where cumulative national spending - federal, state and local - was still in the red, and that was at the top of the last business cycle when it was being flattered by the dot com bubble revenue. An economic illusion as it turned out. But I digress...

— Posted by Fattyk:

Quote:

C’mon…the employment vs. unemployment issue is a red herring. The real issue is whether paying a salary or contributing to the GDP through BORROWING is actually “fixing” the economy. Kicking the can down the road is all that Keynsian policy does when you are a debtor nation. You only create more debt that needs to be serviced at some point. Thinking that just the small anount of interest on that debt is the only cost for the short-term increase in “spending…not productive growth” is a joke.

Eventually you have to pay off that debt or you will be forced to default when you no longer can. The only way to get out of a debt leveraged asset bubble is through paying down the debt or defaulting on it until you revert back to a an affordable spend level…period. You can’t build a truly productive economy on debt and you can’t stimulate a productive economy through more debt. You definitely can’t offset a massive credit bubble with debt.

Until Keynsians reconize there is a difference between a debtor nation implementing Keynes and a debt-free, trade-positive country implementing Keynes, they will continue to pummel the economy with unsustainable debt-based “stimulus” that fails to work.

source: New Deal economics

Quote:

Agriculture

November WASDE suggests Ag demand slowdown only modest

WASDE demand revisions largely uneventful; weakness limited

In line with our views, November's WASDE made no material reductions in 2008/09E demand, despite increased market concerns about demand deterioration. On net, USDA's 2008E US stocks/use was increased marginally vs. October for corn (to 9.0% from 8.7%) and wheat (to 27.4% from 27.3%), with soybeans unchanged at 7.0%. We maintain that the risk of demand disappointments and investor risk aversion may limit price upside in the near term, but believe that fundamentals suggest the potential for meaningful price upside over the medium term across the major crops. Supportive fundamentals are most compelling for corn and wheat, in our view, with soybeans also poised for upside on continued strong export demand. Our 3-mo, 6-mo and 12-mo price forecasts for corn, soybeans and wheat are unchanged.

2008E US corn/soybean demand stable; yields tweaked lower

Given September's weak yr/yr soybean crush and VeraSun's October 31st Chapter 11 filing, concerns abound over near-term demand. However, USDA left unchanged 2008/09E US corn feed and fuel demand and lowered exports -50mm bu. For soybeans, estimated exports were also unchanged and est. crush was
reduced a marginal -15mm bu (trailing the -17mm est. output reduction). On the supply side, yields were lowered slightly for corn (to 153.8 bu/acre from 153.9) and soybeans (to 39.3 bu/acre from 39.5). Corn yields may have topped out with further negative revisions expected as harvest progresses, but soybean yield may have found support against any larger drop below the 39.0 bu level.

Negative revisions to So Hemisphere wheat; Russia storage limited
USDA cut 2008E Australian & Argentine wheat output a combined -2.5mm MT, although further downside risk of -3mm MT is possible. Our supply concerns are also rising over any quality degradation from forecast Australian rains and increasing uncertainty over Russian storage capacity.

source: Goldman Sachs Commodities Research
November 11, 2008

Oliver · **Joined:** Fri Oct 10, 2008 12:00 am **Posts:** 5

mkwin wrote:

Quote:

I agree with you that prices can't usually be kept up for very long. However, the next round of Opec supply cuts should tell an interesting story. If they cut significantly, prices should either remain firm, or reach their target of $70 to $80. per barrel, US--and more if dollar weakens

It will be very interesting to see. I am not so sure it will work though; there is a lot of new Non-Opec supply coming online in 2008 (up to 3 million bbd worth). At the same time, global demand could actually decline this year. We will see a return to 2001 levels of spare capacity - the oil price was $20 to $30 then! I think we could see $45 again. I am just annoyed I did not buy the $60 PUTS I was seriously considering in July.

You should have a look at that:

oversized link repaired by eastbay

Lot of new Non-Opec suplly NOT coming online...

Now the demand destruction is a near perfect match to the natural supply destruction (around 3 million bbd). This crisis is going to delay new projects for at least 1 or 2 years so assuming that this crisis won't last forever we will be short of 6 millions barrels in 2 years. We have 2 solutions : 1) let the barrel go under 50$ now and have a devastating energy crisis in 2 or 3 years with skyrocketing prices and supply disruption or 2) keep the price around 80-100$ to allow new project to come online.

mkwin · **Joined:** Fri Jun 01, 2007 12:00 am **Posts:** 641

Oliver wrote:

Lot of new Non-Opec suplly NOT coming online...

Now the demand destruction is a near perfect match to the natural supply destruction (around 3 million bbd). This crisis is going to delay new projects for at least 1 or 2 years so assuming that this crisis won't last forever we will be short of 6 millions barrels in 2 years. We have 2 solutions : 1) let the barrel go under 50$ now and have a devastating energy crisis in 2 or 3 years with skyrocketing prices and supply disruption or 2) keep the price around 80-100$ to allow new project to come online.

The 2008 new supply was planned in 2003, in many cases the physical construction began in 2004 and 2005. The capital has already been commited. In the short-term supply is going to build and along with it spare capacity. The projects likely to be cut back are the ones due to be delivered in 2011 or 2012 where there has been no allocation of capital; this, however, will add to the potential spike in oil prices in 2013-2015.

It should be noted, however, that the long-dated oil price is not $50 it is still circa $85. Many projects are still viable at this level and producers can lock in this price using the futures market.

Chief · **Joined:** Fri Oct 31, 2008 12:00 am **Posts:** 24

All I can say about supply of oil is that at least Exxon, Connoco, and Chevron did not show any growth in their last quarter output. I didn't follow all the majors but I wouldn't be surprised if their story were similar.
They're all bringing lots of projects on line and they're all seeing many existing projects decline.
Then lets add to that the decline of Cantarell and the North Sea and I'll just bet that new projects and decline from existing fields cancel each other out.
I really do hope oil goes to the $80-$100 range for a number of reasons:
1. It'll ensure existing programs aren't cut/put on hold
2. It'll make alternatives more attractive.
We're in crunch time here and anything that'll make the transition from hydrocarbons to whatever comes next less burdensome then I'm all for it. $50 oil hurts much more than it helps at this point.

threadbear · **Joined:** Sat Jan 22, 2005 1:00 am **Posts:** 7917

Mr.Bill--Totally agree with you about Keynesian policy on steroids. You have to wonder, though, the hideous near future we would face otherwise. They must be scared ****less.

MrBill · **Posted:** Wed Nov 12, 2008 12:24 am

[align=center]Be Careful What You Wish For[/align]
It is really not very useful to look at the reserve replacement ratios for multinational oil cos. when they have been blocked access to new fields by governments and national oil cos. and have even had productive fields that they developed confiscated. Resource nationalization moves that have been applauded by many posters here on Peak Oil.

A classic case of getting what you wished for. Peak oil decline whether caused by geology, mismanagement of oil fields, lack of investment or resource nationalization all look approximately the same.

Once bitten twice shy it is not hard to fathom why the majors were paying-out dividends and doing share buy-backs while prices - and profits - were high versus risking that capital in unfriendly, politically volatile investment enivronments in search of new supply.

But when you say, "We have 2 solutions : 1) let the barrel go under 50$ now and have a devastating energy crisis in 2 or 3 years with skyrocketing prices and supply disruption or 2) keep the price around 80-100$ to allow new project to come online." The obvious question is first of all who is 'we'? Secondly, high prices do not guarantee new supply where none is available. And thirdly, if governments and not oil cos. are the ones benefiting from high oil prices then it still does not guarantee either more supply or investments in capacity and infrastructure. Oil fields used as cash cows to finance social spending and other government programmes do nothing to bring new supply onto the market. It just makes those governments financially vulnerable to a fall in oil prices. De je vu.
[align=center]When Being Merely Rich Is No Guarantee[/align]

Quote:

Swiss luxury watchmaker Romain Jerome has seen sales of watches costing more than 150,000 Swiss francs ($127,400) slow as the financial crisis has forced some customers to cancel their orders, the group's head told Reuters.

Frederic Comotti, who is the manager of the jewelry shop in Geneva's Hotel Kempinski, said he had seen sales of watches in the mid-price category stagnate.

"Sales of watches costing $2,000 to $6,000 have gone down. The mid-range market is dead," Comotti said. "Sales of watches costing more than $150,000 have also fallen."

source: Swiss watchmaker sees mega rich cancel orders
[align=center]Excess global liquidity that buoyed all assets is,
umm, less excessive now[/align]

Quote:

Exclusive ski and golf community Yellowstone Club, in Montana, has filed for bankruptcy protection, a sign that the financial crisis roiling the real estate and leisure industries is not limited to the low end of the market.

The club, in the pristine mountain area around Big Sky, Montana, not far from Yellowstone National Park, is part resort and part residential community for the super-rich.

It advertises housing lots on the sides of its ski slopes and golf course at prices ranging from $2 million to more than $6 million.

source: Ski resort for super rich files for bankruptcy

UPDATE: [align=center]Pride Cometh Before The Fall[/align]
``If Steve Wynn is so smart, why isn't he richer than I am?'' Adelson said in a Bloomberg TV interview. ``I've proven it over 50 times in my life: You change the status quo, then you're going to win.''

Quote:

The son of a Lithuanian immigrant taxi driver, Adelson grew up in Boston where he shared a one-bedroom apartment with his parents, two brothers and a sister, Kaminer said. After selling newspapers and bagels as a teen, he worked as an advertising salesman, investment adviser and magazine publisher before founding Comdex in 1979. The $800 million sale of his trade-show company gave him the cash to build a casino empire.

He delighted in his run up the Forbes list of wealthiest Americans after he took Las Vegas Sands public in 2004. Ranked No. 60 in 2004, with a net worth of $3 billion, he reached No. 3 in 2006, with $20.5 billion. That year, he said he'd already figured out when he would pass Gates to top the list.

During this period, Adelson got rich faster than anyone in history, ``making just under $1 million an hour,'' said Peter W. Bernstein, co-author of ``All the Money in the World,'' a study of billionaires on the Forbes list out in paperback next month.

Losing $3.5 Million an Hour

Forbes recalculated its rich list for the Oct. 27 issue and found Adelson's fortune dropped $4 billion from Aug. 29 to Oct. 1, the steepest decline for any American who lost at least $1 billion. At his present pace, the one-year loss may rank as the largest ever for a U.S. billionaire in percentage terms, according to Bernstein.

Since Las Vegas Sands stock peaked, Adelson lost about $3.5 million an hour, counting just the value of his stake.

source: Adelson Survives Like `Cockroach' After $30 Billion-Plus Loss

[align=center]Burn, Baby, Burn[/align]

Quote:

A conflagration, of course, is anything but contained.

source: Recession Deniers Peddled the Same Lame Excuses:

MrBill · **Posted:** Wed Nov 12, 2008 2:51 am

threadbear wrote:

Mr.Bill--Totally agree with you about Keynesian policy on steroids. You have to wonder, though, the hideous near future we would face otherwise. They must be scared ****less.

If they're not scared then they are incompetent and do not know what they're doing or the implications.

The difference between currency specific hyperinflation and macro economic hyperinflation is quite clear. One is currency or country specific the other is a loss of faith in all financial assets or fiat currencies. Zimbabwe or Argentina can choose to ruin their own currency without affecting, say, the value of the US dollar or the yuan. But in a race to the bottom all currencies lose their value vis a vie hard or physical assets. Worthless paper.

If the US borrows from China by issuing USTs it is not inflationary per se if China let's its own currency appreciate. One current account deficit is offset by one current account surplus. It becomes more inflationary when money supply creation is accelerated when China, for example, sterilizes their export earnings, prints yuan for distribution in the local economy, and exports the rest of the capital back into global financial markets. It does not matter whether they buy US-dollar or euro-denominated assets. The deficit always gets covered. Either directly or indirectly. The same way that Chinese savings get recycled back into FDI into China via US treasuries. It just takes a circular route and passes through more hands.

Where it turns into macro hyperinflation and a loss in all currencies is when the USA needs to borrow, but China is not willing to lend. More specifically China is also trying to keep their own currency export competitive, and is at the same time selling US-dollar (or euro denominated) assets to stimulate their own domestic economy. Then there is a shortage of capital (savings) to go around. Then the only way for the USA to cover their budget (and current account) deficit is to print money. The Fed buys US treasuries from the government and prints the money to pay for them. They skip the step where they pretend to sell USTs to foreign investors and other central banks.

I simplified that by only using China and the USA in this example. Obviously there are other global players involved, but those are the two largest, so their behavior relativeto one another - game theory - matters a great deal.

Quote:

No one doubts China's financial resources. It has about $2 trillion of currency reserves to lavish on low-rent housing and roads, railways and airports, and tax deductions for purchases of fixed assets such as machinery. It has banks, even the publicly traded ones, at its disposal to plug any economic holes that suddenly appear.

Yet the external picture matters more. China relies heavily on exports to produce growth. Anyone who doubts that need only look at how quickly the government's focus has gone from inflation to deflation.

Data released yesterday show why. China reported the slowest export growth in four months in October, while inflation cooled to the slowest pace in 17 months.

``As the contribution of trade to China's growth dissipates, we expect further measures to be introduced aimed at stimulating consumption and investment in the domestic economy,'' says Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong.

Collision Course

The trouble is, such plans must be financed. That could prompt China to sell hundreds of billions of dollars of U.S. Treasury and agency securities, or at least slow its purchases. The result would be sharply higher U.S. rates.

``China's need for money will collide with the ramp-up of U.S. borrowing, expected to be between $1.5 trillion and $2 trillion because of the massive U.S. budget deficit,'' Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York, wrote in a note to clients.

It raises questions about whether the U.S. can really borrow its way out of this crisis, John Maynard Keynes-style. The same goes for monetary policy as the Federal Reserve joins Japan in cutting rates toward zero. Will investors stand for the U.S. passing along massive liabilities to future generations and the dollar's value dwindling?

Steady Yuan

Commodity prices are another wrinkle. By stabilizing world prices, China's stimulus plans will benefit commodity producers more than buyers. Global inflation helped precipitate the U.S.'s financial woes, and drops in the prices of oil, food and other key commodities are a plus for American households. China's pump priming may work at cross purposes with the U.S.

Also, without big upward revaluations in China's currency, stimulus efforts remain more a domestic affair than a global one. If the yuan holds near current levels, it's not clear how Asia, Europe or the U.S. will benefit. That's especially so with spending focused on infrastructure. While some multinational companies may profit from China's largess, the U.S. job market probably won't.

There are other reasons to doubt China's economic omnipotence. China's lack of a thriving secondary debt market to multiply the central bank's efforts is a problem in the best of times. It's an even bigger impediment with global credit markets effectively frozen. Rate cuts by the People's Bank of China may lack the oomph the economy needs.

source: China's Bazooka Beats Henry Paulson's Peashooter

Quote:

French Finance Minister Christine Lagarde says the world should develop an early-warning system that would alert countries to looming financial threats.

The proposal was among the ideas Lagarde discussed with Mexican Finance Secretary Agustin Carstens ahead of a summit in Washington on Saturday.

It will draw together the leaders from rich and developing nation on the international financial crisis. Lagarde gave no details on how the system would work.

In a joint news conference, Lagarde and Carstens said they agree there should be a globally co-ordinated response to the financial meltdown.

source: France calls for financial warning systems

This is completely ridiculous. The BIS, OECD, IMF, World Bank, central banks, economists, academics and others all warned about growing global financial imbalances stemming from current account and budget deficits and currency manipulation. And their cumulative effect on excessive money supply creation and rapid credit expansion. It is like appointing a government commission to figure out how a 6-year old playing with matches started a deadly fire.

Trader's Corner 2008

Who is online