Anandakos

PIMCO's Bill Gross Sees a Bleak Future

Jimbo,

I worked for ten years in the geo-stratigraphic departments of Shell and various BP antecedents (Sohio and Amoco). I wasn't a geoscientist myself; I wrote programs and databases for them.

But I got to know them and they ALL understand and recognize the difficulty of Peak Oil. The fact is that oil was sourced only in certain sedimentary environments, and must have been trapped by impervious deposition above the source rock. The necessary antecedents were fairly uncommon but frequent enough to have produced large accumulations in a few regions of the globe.

Since the oil industry was created in the United States, we spent the first sixty years of the oil age poking holes throughout the contiguous 48 states. There are over 2 million 10 digit API numbers, each of which identifies a penetration of the surface of the Earth with the intention of finding and/or producing liquid hydrocarbons.

Obviously they are clustered in the reef and dome formations that are characteristic of North American oil deposits. It makes a lot more sense to drill next to a well which is producing oil than one hundred miles away. But they are nearly EVERYwhere that granite doesn't protrude.

Certainly modern geoscience technology and enhanced recovery technologies have allowed us to extract a greater percentage of the original oil in place. Horizontal drilling has allowed us to exploit thin deposits that would not have been economic with vertical penetration.

But THERE ARE NO MORE GLORY HOLES ONSHORE in North America. Or offshore in less than 1000 feet of water. Every day there are dozens of aircraft and seismic trucks fanned out over the continent looking for that little squiggle in some electric field plot nobody has noticed before. They rarely succeed.

There are significant deposits in the deep water Gulf, but nobody is blocking development of them except possibly off the west coast of Florida. Possibly because there is no direct proof that accumulations in likely deposits have been trapped properly. There has as yet been no actual drilling in the precincts of interest that would show accumulated captured hydrocarbons.

I was in Anchorage when Sohio shut in the Mukluk well in the Beaufort Sea. The seismic results show a beautiful structure in the same sandstones that supply the Prudhoe and Kuparuk fields, at about the same mean sea level depth. Sohio was willing to bet $1 billion in the late 1970's and early 1980's that there was a lollapalooza field there. So sure they built a gravel island on which to place the exploration wells. It turned out that there was only one exploration well, because the caprock was fractured. There is clear sign that oil once inhabited the formation but that it leaked out several million years ago.

Obviously neither of us can be sure about the "agenda" you suppose, but it may be true. Certainly from a national security point of view, it's a good idea. Most of the places that have large accumulations of oil don't much like us and will be happy -- at least temporarily -- to take yuan instead of dollars for oil.

But the truth is the world MUST!!!!!!! convert to a green energy economy. ANY alternative that depends on non-renewable resources, be it "sequestered" coal, fission -- even the holy grail of fusion -- will run out one day. The resources the Earth has today can only be depleted by a technological civilization. It is far better to save them for use as chemical inputs and use the genuinely permanent sources of solar theromofusion (solar and wind) and gravitation (tides) to power our civilization.

The necessary technologies are available. The only thing stopping it is entrenched wealth.

On May 31 10:42 AM Jimbo wrote:

> I see inflation coming sooner, rather than later. I fear that we
> may have a "double dip" recession(depression?). The looming resets
> of mortgages, together with a poor employment picture,seem to combine
> for the perfect storm. The price of oil is now determined by a world
> market. If other countries increase their use, this means higher
> prices for a stressed U.S. economy and we can do nothing about it
> with an administration and Congress dead set against increasing domestic
> production. I suspect the agenda is to starve the oil based economy
> to force a "new age" of green fuels. But what if this plan fails?

GM Finally Dies - Does the U.S. Have Similar Symptoms?

Honest Trader,

Point one is true economically, but really "so what?" from a policy point of view. The demographic assumptions on which US entitlements were created turned out not to be true. People live considerably longer now because of modern medicine and it has produced a fiscal problem.

People lived their lives under what has proven to be an unsustainable assumption. Which means that we all must be poorer in the immediate future either through increased taxation or inflation. The alternative is to "kill off the old folks" Is that what you are advocating by saying that increased taxation or inflation is unacceptable? I wish you Republicans would man up and accept the gruesome results of what you call "solutions".

Point two is a clear non sequitur as well as an egregious straw-man. In the first place, a production line runs as fast as it runs. If some kid jacked up on beans wants to stuff his seat in faster than the line is moving, he just looks stupid. If the overall line moved faster either the cars would pile up in storage or plants would have to be closed. Since it makes no sense at all to pile the cars up in storage, plants would be closed and jobs eliminated. Which while good for the automaker would have ultimately led to what we have today: a recession cause by lack of consumer demand.

The biggest problem that capitalism has had since its invention by the Dutch is that it is to any individual firm's advantage to minimize labor costs, but it is to the economy's advantage to maximize employment. The way out has traditionally been innovation of new products and services but since the spread of the internet and American business practices to the third world, the gains from innovation are captured by low cost providers in those areas.

You then compound your misunderstanding of macro-economics by a painfully tortured argument that the relatively skimpy social programs here in America mean that people become have become lazy. It's true that in the catastrophes that are inner city ghettoes people have become dependent. But most Americans are still hard working achievers. The existence of the safety net such as it is makes risk-taking more likely, not less.

I sort of agree with option 3, but I expect that you've already forgotten that it was the party of "let the failures fail" that rushed to Congress a demand for the $700 billion for the TARP bailout and exploded the Federal Reserve's balance sheet from $800 billion to $3 trillion by lending to the banks based on the BANK'S selection of "troubled" assets.

But you "think that the government is providing taxpayer money in some very inefficient ways", do you? Which "taxpayer money"? Personally I'd agree that the 40% of the stimulus money that is represented by short-term tax cuts is probably stupid. They've been shown to be mostly saved in difficult times.

But you're probably thinking of the (non-existent) plan for a MagLev train to Las Vegas, aren't you?

And I strongly agree with point 4. We need to reduce both the government's deficits and our trade deficit. And there's one VERY good way to do both: a carbon tax levied both on domestic production and on imports.

Since we can't do carbon audits on foreign producers, the tax should be levied based on the assumption that on average the products from a given source country will have a carbon content proportional to the ratio of the carbon emissions of the producing country to our manufacturing and distribution network. Since we use energy in industry MUCH more efficiently than do the Chinese -- our huge GHG production is mostly a result of our sprawling low-density cities -- the carbon tax on a product made in China or Mexico would be much HIGHER than on the same product made in the US, offsetting some of the wage differentials. The tax should also of course be levied on the oil burned in the ship bringing the product.

GM's Pending Bankruptcy: How Buying a Car Is Going to Change

Car Buyer,

Most of those 789 Chrysler dealers are following our local Dodge dealer into empty storefront oblivion. They will not be competing with anyone.

And you know, your image of "pissed off, angry, highly motivated competitor dealerships" is just so much Terminator fantasy. The car salespeople I've met are largely inert "something will turn up" Wallace Beery clones. So even the ones which have a foreign co-dealership by which to survive won't be breathing fire. They'll be waiting for shoppers in the showroom, just like they are today.

On May 29 10:25 AM Car Buyer wrote:

> What about Chrysler's 789 dealers and the GM dealers that will have
> to switch to selling used cars or another car brand? Nothing like
> pissed off, angry, highly motivated competitor dealerships (cut dealers)
> for the surviving Chrysler/GM dealers to have to compete with for
> car sales. And then for GM to be bringing in China built cars to
> replace American built cars? Looks like Ford and the foriegn brands
> will be doing well in the future.

CDS Contracts and the Implosion of Eastern European Economies

Mr. Harrison,

CDS should be enforceable only when held by the lender of the insured debt and only in an amount less than or equal to its notional amount.

Any other holder is functionally the same as a purchaser of life insurance on a third party. That has been illegal for three hundred years.

Congress could and absolutely should fix this by legislation for CDS going forward. Unfortunately, it can't for the existing stuff; that would be ex post facto.

So we're in for a couple of years of such obnoxious gaming of the system of orderly bankruptcy. Perhaps we'll be fortunate enough to see CDS' written on Morgan-Stanley debt paying off. One can at least hope that such a karmic "just deserts" occurs.

Credit Default Swaps May Be Playing a Supporting Role in Chrysler Bankruptcy Filings

Woo-hoo! Tin foil hat time! So glad you stopped in; all your friends here at Seeking Alpha wish you the best as you drive your brain into the ditch.

On Apr 30 02:11 PM bigbadbeethoven wrote:

> SOBama is trampling the constitution RIGHT AND LEFT, and has from
> the start---and you're upset that they called him "Barry O"? Why
> shouldn't they call him Barry----Barry Soetoro is his legal name,
> not Barack Obama. He's not even a citizen of this country, and has
> steadfastly refused to provide any proof that he actually is. No
> Secretary of State and no ethics committee has EVER verified that
> he's actually a citizen.....it came out in court in the CA/Keyes
> suit that no SOS has ever qualified him and the CA SOS said it's
> not her job and they don't verify candidates (which is a complete
> LIE because they at least twice have removed candidates from the
> ballot after verification failed- they just wouldn't touch the MESSIAH)---the
> system is actually an honor system where Barry Soetoro signs a sworn
> affadavit that he is Barack Obama and is a citizen of this country---and
> they take his word which is only the word of a lying criminal traitor.....So
> the spoiled brat potus has gotten anything he wants even though he
> deserves NOTHING----Nothing will surprise me with this IDIOT who
> refused to stoop to prove to REAL US CITIZENS that he is even a citizen----
> And now the SOBama wants to be a hedge fund manager---and since anything
> Barry S wants, SOBama thinks he should get----so now he's playing
> hedge fund manager by nationalizing the banks, mtg houses, car companies,
> ins companies--he's firing CEO's right and left and deciding what
> companies will survive and which will fail----when he's never run
> ANYTHING and is a completely CLUELESS IDIOT without the least bit
> of sense about economics (remember his big attempt at being a market
> guru when he kept talking about P/E ratios and calling them "Profit
> and Earnings ratios" lol the guy is CLUELESS)----but in spite of
> it all, anything he wants is given to him because he has the most
> redeeming qualifications of being a lying criminal non-citizen traitor
> up to his big ears in Chicago Combine kickbacks and corruption---which
> is why he had to pass the almost $2 trillion joke-of-a-stimulus bill
> FAST---he had KICKBACKS to make and so he ditched "hope and change"
> and became Chicken Little---which actually fits the lying criminal
> non-citizen traitor much better than "Hedge fund guru" lol

Credit Default Swaps May Be Playing a Supporting Role in Chrysler Bankruptcy Filings

This was a good analysis until the snarky, egregious reference to "Barry O". And the big banks you enumerated aren't supporting the work-out because they "are doing the bidding of the administration". They're the ones who SOLD those CDS that you've rightly pointed out give the hedgies a perverse incentive to force a bankruptcy.

Given the completely unregulated nature of CDS, there may be twice or even ten times the exposure to CDS issued against Chrysler debt a couple of years ago when the automakers were riding high. Sure, the banks probably BOUGHT CDS to hedge against the ones they sold, but the circle can only go around so many times; somebody will be left without a chair.

The banks have a big incentive to get a work-out; the hedgies have the opposite incentive. This is one time that the banks are the "good guys".

Why Capping Pay Is Likely to Work

Think,

I believe you are making a fundamental mistake about what banks are and should be. Because banks drank the Wall Street Kool-Aid they abandoned their traditional role and adopted the behavior of investment banks (leverage!). The regulators were drinking too, so they allowed them to act like investment banks, even encouraging them.

This was a disastrous error, and like the last time it was allowed in the 1920's, led to exactly the same sort of excesses. The so-called "talent" you want to reward subsumed the depository function into large casino capitalist enterprises and poisoned the well for all and sundry.

Depository banks should be free from political interference -- we don't want the kind they have in China and Japan. But also they should be strictly regulated and prevented from engaging in behavior that can eviscerate their capital adequacy. Such institutions would not and should not make a gazillions of dollars in profit. So they don't need the sort of buccaneer "leadership" that unlimited compensation attracts.

Those folks have a perfectly valid place in American capitalism: as entrepreneurs, private equity managers, and venture capitalists. But they should not run depository institutions because their gambling ways put the government's insurance programs at risk. Let them reap huge gains and suffer huge losses on their own, without the taxpayer's implicit, explicit, or fantasy backing. And caveat investor when dealing with them.

Banks serve the vital function of providing credit to businesses and citizens, and obviously they need to make a profit to increase their regulatory capital allowing greater loan making capability. But they should NEVER engage in non-depository activities. They also need to be forbidden from becoming "too big to fail". The only real value I can see in Wells-Fargo and Bank of America having become truly "national" banks is that people can visit an ATM in a different state without having to pay a fee.

Thus they will not need enormously compensated CEO's. There are plenty of people running local banks and credit unions profitably for low six figure salaries who are completely capable of running larger enterprises so long as the "financial engineering" element of the mega-banks are not present. Let them.

By the way, credit unions offer the same fee-free "foreign" ATM access through their national co-op. Smaller banks could do the same thing if they wanted to offer the service to their customers.

On Feb 04 11:23 AM Think! wrote:

> Unfortunately, it is looking more and more like nationalization.
>
> Obama has opened up the gates of hell by feeding populist opinion
> in order to achieve his policy objectives.
>
> The American people are angry and "rich and fat" bankers look like
> a great place to blame, right? No realtor, mortgage broker, appraiser,
> leveraged borrower or home buyer has any responsibility for this
> mess, right? Let's sock it to those nasty bankers who have the nerve
> of getting paid part of their comp with bonuses!
>
> Capping comp in the short-term is probably ok but has risks. It
> has a lot more downside in the medium and long term.
>
> You arm-chair pundits don't have any idea what it takes to run or
> even be in the top 2 levels of management at a major financial institution.
> No, they won't be "giving you a call" because you don't even begin
> to have the skill set to get the job done. I have regular personal
> contact with the Treasurers, CFOs and CEOs of most of the top 20
> banks in the U.S. You have no idea how hard these people work and
> the pressure that they are under.
>
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
> How will you recruit, manage and motivate talent? "Be glad that
> you have a job" is a very-short term motivator. If there is no upside
> offered, there will be a brain drain from the industry.
>
> That will not be good for the institutions or the country.
>
> Try to moderate the emotion and maximize the strategic thinking.