The Whole Picture

6 Comments

    • ON: Mon Sep 1st 11:16 AM
      Commented on:
      How Much Longer Can Money Managers Hang in Behind Energy?
      If you are going to write an article as though you know something, you might want to research the subject a little more. You have several obvious mistakes about Governor Palin's history that clearly indicate you do not know what you are writing about. For example, she led her high school basketball team to a state championship -- not volleyball. She is hardly a star of "big oil" -- she passed an oil windfall tax in Alaska and went after the ethics of the oil industry. Just because she is for domestic drilling does not mean that Governor Palin is all about big oil. If you stop and think for a minute, the oil industry makes the most money when there is a shortage. Shortages result in $140 oil which results in big profits. Opening more drilling pushes oil prices, and subequently oil profits, down. Even repeating the "quite the high schooler" comment is considerably condescending. The fact that Governor Palin is pro-2nd amendment and pro-life isn't exactly surprising, being that they are part of the Republican platform. Why would Republicans want to nominate people who are opposite their platform just to win? And finally, your comment "not to say I disagree with those positions" is a weak attempt to stand above the issues as an independent or possibly even a Republican and is shameful. If you are going to be a Democrat, be honest and admit it. There is nothing wrong with being a Democrat, but being a deceitful reporter cannot be trusted.
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    • ON: Mon Jul 28th 09:20 AM
      Commented on:
      Wall Street Breakfast: Must-Know News
      To Pilar:

      Except for the relatively few items being traded on multiple markets, stocks don't really "move" after extended trading hours. It is simply a case of supply and demand. Let's say a stock ends the day at $10 per share. After trading stops, let's assume some very bad news is published about the company. The next morning, when trading begins, no one in their right mind would enter a bid for $10. The best bid might be for $5, so that the first trade of the day was $5. The stock did not move overnight from $10 to $5. You did not lose out on a chance to trade on the way down after the news was released. There were simply no buyers as the price dropped from $10 to $5.

      After saying that, there are some private markets (i.e., those used by larger institutions) that may be in after-market trading, but I am not sure that is the case. Regardless, the same rules apply -- the price does not move around in a linear fashion -- it jumps around based on available buyers and sellers.

      A good example of where this can hurt you is with a stop loss price. Let's say you own a stock trading at $10. You want to protect yourself from any major losses, so you put in a stop loss order for $8. However, some bad news is released such that all buyers reduce their bids to $5 or less. Unless your broker was kind enough to "guarantee" your stop loss order (highly unlikely), your stop loss would be forced to sell at $5 because there are no available buyers at $8. The price jumped from $10 to $5 instantly.

      This is one of the reasons businesses make announcements after trading stops. It allows all shareholders and potential investors equal access to information, so that the share price can adjust appropriately and the market open at a fair price given the new information.
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    • ON: Sun Jul 20th 21:22 PM
      Commented on:
      Majority of Americans Support Ethanol
      The "studies" showing ethanol takes more energy to produce than you get out of it are quite dated and obsolete. Ethanol production is continually getting more efficient. It is also becoming cost effective, even without subsidies. Within 20 miles of my house I can purchase ethanol (E85) for $2.85 while E10 is selling for $3.95 and gasoline without ethanol is $4.05. Even without the subsidies, E85 would be about $3.36. I used to own a chain of convenience stores and know several people in the industry. Right now they are earning 20 cents more margin per gallon on E85 than gasoline. The net difference is this: $4.05 - ($2.85 + $0.51 - $0.20) = $0.89 or about 22% less. I have talked to several people who use both E85 and gasoline. Their gas mileage drops by 15-20%. So, E85 is more economical if available locally. Their biggest complaint is one of convenience. They can only purchase ethanol when they are driving near a station that offers it. Of course, this is why margins are so much better for ethanol.

      Unfortunately, ethanol requires costly modifications or replacement of pumps, tanks, and fuel lines. This has prevented many gas stations from adding E85 as an option. If there is one good reason for a subsidy, it is this: the subsidy helps promote the ethanol infrastructure.

      Quite frankly, I would like to see this go further. The best way to prevent huge spikes and volatility in the price of any item is to make sure there are plenty of subsititutes. In our current state, oil obviously has very little price elasticity -- despite gasoline prices increasing by over three times in one decade, we are actually using more gasoline than we were then. Imagine what would happen if you could pull up to a gas station and have your choice of gasoline, natural gas, propane, ethanol, electricity, and compressed air. Then, imagine if every car is "flex-fuel," by which I mean every car can work on at least two different fuel types.

      When I owned convenience stores, we often discussed adding E85 capability. Our biggest concern was the government. We were afraid we would make the investment only to see the government change direction in the same way it did with CNG (compressed natural gas) and EVs (electric vehicles in California).

      Making vehicles "flex-fuel" is not expensive. In the case of ethanol, the cost is only a few dollars.

      My suggestion ... 1) stop subsidizing alternative fuels, 2) increase taxes on gas from oil by 50 cents over 10 years (5 cents / year), 3) require all vehicles sold be flex-fuel within 10 years by incrementing the amount that should be flex-fuel by 5% each year.

      One last note: let's be a little more fair about the effect of ethanol on food prices: 1) the increased demand for grains from China and India exceed the worldwide demand from ethanol by a factor of two, 2) the byproduct of ethanol production is used for feed for cattle so that only half of the food value is lost, 3) a large portion of the grain price increase is from the fall of the dollar and 4) one of the biggest reasons grain prices are up so much in third world countries is because the cost to transport the grain has skyrocketed along with the price of oil. I'm not saying that ethanol doesn't compete with food, but it is a much smaller part of the equation than many like to think.
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    • ON: Sat Jul 12th 10:32 AM
      Commented on:
      Setting the Record Straight: Taxpayers Not Funding JP Morgan's Bear Buyout
      Actually, you could argue that the "bailout" actually improved government revenues. The fed may never be required to provide a single dollar to fund the guarantee of Bear Stearns. However, the stability it created likely reduced the amount of losses investors would have incurred -- not just for Bear Stearns investors, but for many investors in the financial sectors. Reducing losses means reduced tax deductions. The result is more money for the federal government, not less. So, in some ways, this "bailout" reduced the potential taxpayer burden.
      Of course, this does not address the costs of "easy money," which has it's own problems. By flooding the economy with easy money, the Fed certainly contributed to the housing crisis / finanicial collapse in the first place. That is where the taxpayers really were hit.
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    • ON: Sat May 17th 09:29 AM
      Commented on:
      SPY: The Myth of a Decline in Corporate Earnings
      Just out of curiousity, how do appliance & furniture sales drop 240%? Sounds like most of last year's customers must have returned last year's purchases for a refund. I agree, that is "crazy" weakness.
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    • ON: Fri May 2nd 02:04 AM
      Commented on:
      Increasing Ethanol Demand and the Likely Price Implications for Corn
      While there is no doubt that increasing demand for ethanol is contributing to higher corn prices, the article does not give enough credit to other contributors to higher prices. The amount of corn used for ethanol has increased by about 2 billion bushels over the last five years. However, approximately 1/3 of the calories in corn is left-over for feedstock, so the "adjusted" amount of corn being used for ethanol has increased by about 1.3 billion bushels in the last five years. During the same time, China has switched from a corn exporter to a corn importer -- with a net difference of about 0.5 billion bushels over the same period. Other countries, such as India, have similar situations. When increase non-US demand is combined, the sum is similar to the increase we have for ethanol. If you look at the projections over the next few years, the rate of increase for other countries is accelerating, while the growth rate for ethanol is starting to subside. Last year corn use for ethanol increased by about 1 billion bushels, but this year it is expected to increase by about half that at 0.5 billion bushels. And, of course, you cannot forget the impact of the falling dollar on international commodities. In summary, ethanol is not the "big cause" of increased prices, but one of the "big 3" contributors.
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