Lesismore46

What Natural Gas Prices Say about the Domestic Economy

You are correct on some points but not on others:
marginal cost should equal marginal price, but quantity demanded must equal quantity supplied for there to be equilibrium. So as QD drops or fails to increase, QS must also drop, not increase! Prices have already plummeted because of low QD. Yet the producers have failed to reduce QS, so we have a surplus. The only way to relieve a surplus is for prices to remain low, QS to decrease, and as the economy recovers, QD will increase. The producers are definitely ignoring the economics of the market by continuing the surplus. Prices will not recover until the surplus is reduced. This is ECON 103

On Nov 23 11:35 AM ricardoRI wrote:

> For those of you who missed Econ 101 in college, here is a little
> refresher. Natural gas is a commodity, so there is no way to increase
> your margin over the market price. Natural gas extraction and delivery
> is highly capital intensive, which means high fixed costs, such as
> interest and equipment maintenance. Since the gas market is relatively
> free and competitive, there is no single monopolistic producer than
> can set prices.
>
> Any CEO who did not sleep through Econ 101 knows to maximize profit
> (e.g., his/her bonus and stock price) knows he has to generally produce
> as much as he can so long as his marginal cost is below his marginal
> selling price.
>
> There is no benefit for a CEO to reduce his company's production,
> although he would love it if all the other CEOs reduce production.
> When all the storage is full and production exceeds current demand,
> then he will reduce production because prices will crater.
>
> His only other option is to try to control prices with a cartel or
> oligopoly, which is illegal.
>
> This has nothing to do with irrational CEOs or investors. This is
> basic economics.

Oil Price Decline Bad News for Future Supplies

With the stimulus packages, the interest rate cuts, the bailout of financial institutions, and extension of tax cuts, I estimate that the recession will be short lived and not as deep as expected. However I agree that as energy companies postponed expensive projects, shut down production, and lay-off the experienced human capital, the country will be in for a new oil shock in the near future. Like a diet, conservation does help in the short term, but eventually consumers appetite return to previous levels. With renewable energy sources virtually abandoned, we will not see $40 oil, but $100 is possible in 2009.

Is a Coffee Price Breakout Imminent?

Coffee stocks are loosely correlated with the price of coffee beans. Since coffee sellers must buy the coffee beans as a production input, if the cost of coffee beans rises then the coffee sellers cost rise and profits fall. However if the coffee seller is selling more coffee to an increase in demand either locally or internationally, then the seller can pass on some of the higher costs in the form of higher ground coffee prices. The short answer is coffee sellers would rather see stable, slow rises in coffee bean prices and do not want to see a sharp breakout in coffee bean prices because they can not push the increased price on to their buyers and hence profits will fall.

Shelf Life Ground coffee - 2 years unopened, 2 weeks opened (in refrigerator)

Citadel Infuses E*Trade with Strong, Experienced Management

rl, I don't think that your assumption is naive, but is a bit backwards. Sitting on a 12.5% return in this market is as sure a thing as an investor can get. Yes Citadel has the option of selling its 90 million shares, but why would they? Until the return on the stock dramatically increases over what they are getting on the virtually risk-free debt, they will do nothing. What they are hoping is that the company does turn around, stock appreciates by 100% from where it is now, then sell its shares, which could drop the share price back down to the high single digits. Everyone makes money that way. We longs are all in this together.

Want Lower Gas Prices? OK, Let's Increase Supply

Individuals and businesses are unwilling to make the tough decisions to cut consumption (i.e. 3 day-14 hour fluctuating work weeks, telecommuting, on-premises boarding), Congress is unwilling to open "environmentally (i.e. screw the consumer instead) sensitive" exploration areas, Congress is also cutting funding on nuclear plant development and waste disposal, and we have been waiting since I first started working in the okie oil patch at NIPER for private industry (it is attractive but make sure you meet earnings expectations for shareholders!) to find an alternative energy solution. Mr Dill is right, only a supply shock will awaken the American economy to pursue a painful but long term solution.