Sober Realist

Wall Street Breakfast: Must-Know News

Backtoreality:
"trickle down economics".-- another uselss euphemism created by those at the top that actually translates into "crumbs and scraps for the teeming masses."

Wall Street Breakfast: Must-Know News

Everyone should check out the latest article by TraderMark to see how we are all being taken for a ride by the powers that be:
seekingalpha.com/artic...

Absolute power corrupts absolutely.

Wall Street Breakfast: Must-Know News

I think a new name or phrase needs to be coined to better describe the insidious corruption of our present system. "Socialism" suggests some sort of "equality for all individuals, with an egalitarian method of compensation." That doesn't really describe the wholesale transfer of wealth from America to the financial elite that is happening now. "Crony capitalsim" is more apt but still doesn't fully describe the massive expansion of government that is swallowing up the private sector economy. Fascism is too general of a term.
Statist capitalism sounds best.

"... it really doesn't matter much whether the rulers call themselves capitalist or socialist, whether they plunder by concessions and taxation through crony firms or straight-out theft from nationalized industries....
Alvaro Vargas Llosa's five "principles of oppression" are
-corporatism
-state mercantilism
-privilege
-wealth transfer
-political law.
"...the ideological professions of the ruling caste are not very relevant to the real problems. The critical factor is basic liberty for the people, not the favorite economic flavor of the rulers' intellectuals."


On May 15 08:44 AM BlueOkie wrote:

> TARP is the right word. It is the gov't blanket that is beginning
> to cover most economic activity. Banks, Autos, Mortgages, Insurers,
> Credit Cards (coming), unions., schools, health care. Sounds like
> socialism to me. Don't forget Cap and Trade to cover all use of energy.
> Our gov't is like kids in the cookie jar with parents not at home.

Watch for Yourself: 60 Minutes Oil Story Was Spot On

Oil prices expose ignorance of politicians
The Atlanta Journal-Constitution
Wednesday, January 21, 2009

No commodity elicits more conspiracy theories than oil. When it goes
up, and even when it goes down.


Last year, as the price soared toward its eventual high of $147 a
barrel, conspiracists were pitching conniption fits.


So Congress held hearings, since hearings are apparently our senators’
and representatives’ main gig when they aren’t soliciting money from
lobbyists.


Of course, the hearings — more than 40 by last count — focused on
speculators’ role in oil’s historic rise. Could be no other reason.
Certainly supply and demand couldn’t account for the price of oil.


It won’t surprise anyone that most congressmen are lawyers. But
there’s also a smattering of other professions: 16 medical doctors,
four ministers, two professional musicians and even a riverboat
captain. But none is an economist. And it shows.


The lack of basic economic understanding exhibited during the oil
hearings particularly upset Philip K. Verleger Jr. He had warned
Congress in December 2007 that oil would hit $120 a barrel in 2008 (at
the time, it was hovering around $50).


Verleger helped create the futures market for crude oil in the early
1980s, after serving in the Ford and Carter administrations. What he
warned Congress about was something far less glamorous than
speculators.


Don’t bother inviting the media to a hearing on light sweet crude oil.
You can’t get a sound bite on the subject of low-sulfur diesel or
gasoline.


Verleger’s explanation:


The U.S. in 2007 and Europe last year put in new, lower-sulfur
standards on diesel. This came on top of the U.S. move to remove
sulfur from gasoline.


It’s easier and cheaper to achieve low-sulfur standards with light
sweet crude than other types of oil. The supply of sweet crude was
disrupted by civil unrest in Nigeria, its largest producer. In August
2007, the Department of Energy further reduced the supply of sweet
crude by resuming regular additions to our Strategic Reserve.


Throw in, at the time, a weak dollar vs. the euro, and you got the
makings of $120-plus barrel of oil.


What brought it down? Supplies improved and demand lessened.


Nigeria settled down. The high price of diesel lessened European
demand just as the high price of gasoline curbed our usage.


The DOE finally came to its senses and stopped putting sweet crude in
the Strategic Reserve. Russia invaded Georgia, and the euro tanked vs.
the dollar.


The recession kicked in.


Was any of the $147 pure speculation? Perhaps, but not significantly,
according to a lengthy investigation by the Commodity Futures Trading
Commission.


But clearly, strong economic forces were at work.


Our roller-coaster ride on the oil rig should remind us how little
Congress adds to our understanding whenever it attempts to examine
anything economic — like our current crisis.

Watch for Yourself: 60 Minutes Oil Story Was Spot On

Excellent Critique on recent 60 minutes fluff piece on oil

A sloppy 60 Minutes segment on oil prices
Submitted By Tim Iacono
I happened to catch this 60 Minutes segment last night on the subject
of the role speculation played in oil prices over the last year and
kept waiting for them to tell something other than the Michael Masters
version of the story.


They never did.


In what was just an awful omission of critical elements of a major
story (including the fact that their key "expert" has a major conflict
of interest), this is just one more example of how the mainstream
media has utterly failed to provide anything of real value in their
reporting and why, increasingly, those seeking information are turning
to alternate news sources.


At The Big Picture, a dismantling of the report has already been
completed by the ever-alert Barry Ritholtz, in whose estimation, about
90 percent of the story remained untold.


Here's what was left out:


1.) Oil is priced in US Dollars. Since 2001, the Dollar fell 40% (from
120 to 72); Oil rise nearly 5 fold over the same period. And Oil’s
collapse occurred over a period when the dollar formed a short term
bottom; it has certainly had its most significant rally in years (72
to 88).


2.) Over the same period that Oil prices were rising, the US was
fighting two major wars in the Middle East, Iraq and Afghanistan.
These impact prices via psychology and risk of supply disruption —
especially at a time when producers were running flat out.


3.) Energy prices rose during an economic expansion (fueled by low
rates and cheap money); Oil fell during a period of US recession and a
global slowdown.


4.) Since 2001, Commodities of all sorts rose significantly: Steel,
aluminum, cement, foodstuffs, precious metals, etc. Were they all
driven by speculation, or was something else going on?


5.) Since the 1% Fed funds rate of 2003, inflation has had a dramatic
impact on ALL prices — from medical costs to insurance to education to
health care to housing to food and energy. That 60 Minutes failed to
even mention inflation in a piece on Oil prices is a terrible
oversight on their part.


6.) Throughout the 1990s and 2000s, cars were increasingly replaced
with SUVs and trucks. These got appreciably worse gas mileage, as the
total US miles driven rose. Hence, increased US demand for energy
accompanied increasing prices.


7.) Since gas prices hit $4 a gallon and the recession began, total US
miles driven fell significantly, by several billion miles. As
expected,t he drop in driving was followed by a fall in prices.


8.) 60 Minutes interviewed Mike Masters, a hedge fund manager who had
testified before Congress that speculation was driving prices. They
omitted to mention he was talking his book. His holdings in energy
sensitive stocks — with large positions, the vast majority in call
options, in AMR Corp (AMR), the parent of American Airlines, Delta Air
Lines (DAL), General Motors (GM), UAL Corp (UAUA) and US Airways (LCC)
— were responsible for his fund losing 35% of its value before the
Fall 2008 market collapse.


9.) China boomed, they also spent a ton of money building out the
nation leading up to the Olympics. (India boomed too). China, like the
US, also began filling its Strategic Petroleum Reserves.


10.) The rise of extremist terrorist groups like al-Quada, the
hostility of Iran towards the West, supply and political disruptions
in places like Nigeria, and overt hostility to the US by oil producers
like Venezuela President Hugo Chavez also contributed to drive prices
up. The poltiical factors were also omitted.


To this could be added the very real supply/demand picture of
early-2008 in which, every day, world-wide inventories were being
drawn down by two million barrels a day because the world was
consuming more than it could produce.


The 60 Minutes segment kept saying that there was no "fundamental"
reason for rising prices, but, until the wheels fell off the global
economy, there was a major fundamental reason.


Steve Kroft might also have consulted with the International Energy
Agency, the Paris-based energy watchdog group, that recently issued
their 2008 World Energy Outlook in which they "sounded the alarm",
characterizing current production trends as "unsustainable" and called
for action in the form of an "energy revolution" to offset the
expected declines in output.


The group predicted that the oil price will quickly "shoot back
through $100" when the world economy returns to normal, going on to
note that the "era of cheap oil" is over.


How could the 60 Minutes crew have missed all of these things?

Watch for Yourself: 60 Minutes Oil Story Was Spot On

So are we blaming speculators now for the current abnormally low price: $35 and change. Or is it the global recession that finally choked off world demand. And what is a fair price for oil these days? Let's take a look at marginal costs:
Bahrain needs to fetch $75 a barrel for its oil
Saudi Arabia needs $49 a barrel
U.A.E. just $23 a barrel
The marginal cost for oil production in Venezuela and Iran is said to
be $70 per barrel.
Russia's state budget remains balanced only when oil prices stay at or
above $70 per barrel.
Of the new extraction projects planned by state-owned companies in
deep-sea areas, the lowest break-even oil price was about $60 a barrel
and the highest about $90 per barrel.
Deep water oil drilling like in the Gulf of Mexico (where we get 25%
of domestic production) is around $95 per barrel.

Have you noticed lately that Chavez is now quietly asking Western Oil companies to come back into Venezuela to help develope new oil projects? Venezuela's heavy crude, particularly expensive to extract, was not a problem when prices were sky-high, but now shrinking profit margins from the price collapse make it harder to finance production.

Price below production cost destroys future oil projects and supply.
A price band of $75-100 would be useful to prevent the creation of a supply-demand mismatch that will result in soaring prices again once the global econpmy recovers.