Sunday, November 7, 2010

In Review

The elections are done, and we are now in full swing for the 2012 presidential election.

In one of my recent posts I mentioned that although the Left got its head handed to it last tuesday they still DOMINATE the Political Science and Humanities departments of most of the establishment Northeastern private universities... and I mentioned that from those positions they were able to continue all manner of mischief...

So.... I get an email from a friend from my home town... a guy I went to high school with... I emailed him back to ask him if I could quote him here on my blog, to which he replied "OK by me."


Greg, What's up brother?
I try to read a few bits of your blog when I get the chance, and you have a pretty cool view on things. Granted, I'm not any type of analyst on markets or any of that ilk, but I find it all pretty damned interesting, I'm just a regular guy trying to get the bills paid.
I've been driving a limo for the past few months because nobody has the money to do any work on their homes, and I'm tired of dealing with deadbeat assh***s.
Anyway, I end up picking up a lot of ******* College faculty, and they're a bunch of lefty liberals. It was election night, and they were so wrapped up in the losses and talking all their planning for more liberal agenda at the school (liberals in training). Listening to them in the back seat made me want to spit nails in their eyes. These are some seriously scheming pre-planners. This is a liberal arts college, and it's like they want to groom students in college to fit their agenda....God they piss me off! No wonder this country is so screwed.
Hoping for a better tomorrow...
I redacted the name of the institution to keep my friend out of the line of fire.

(Now, as you can tell, my friend is a no BS kind of guy... he comes from a very, very large (I think they were one of the few families in town that had more kids than us) working class Catholic family, served with distinction in the military, and wouldn't say "sh#!" if he had a mouthful. He does what he has to do to make a living in a crazy world. The folks in the back of that Limo can't stand people like him (and me).)

Anybody that would pay $50k per year to send their kid to a school like that for a humanities major and  a cluster-f**king indoctrination deserves the outcome.  Theses people exist and their agenda doesn't include a deep an d abiding respect for our nation's Constitution.  More importantly, the rest of us need to put on our pointy toe boots so we can stomp these f*&%#ing cockroaches into oblivion in every corner we find them.

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The Federal Reserve has clearly decided to abandon the US$ in favor of the banking industry and housing prices.  Never mind that cheaper housing is a windfall for young families and working class folks... nor that inflation helps the "haves" to keep having while keeping the "have nots" from having.

This has done wonders for the precious metals... but what nobody seems to have noticed is that Oil is closing in on $90 per barrel for winter delivery.  The more the Fed tries to inflate asset prices (housing) the more it blows other bubbles... problem is, our economy cannot withstand $100+ per barrel oil prices without imploding again  -  and I doubt China can endure $100 oil, either (though better than the U.S.).

Look, having never navigated the end of a financial system and reserve currency, I make no claim on how best to handle this.  I will say that at these prices vis a vi Oil, energy equities are the cheapest asset class on the board.  If Nat Gas catches a bid, U.S. energy equities could rise quite a bit (keep in mind that Nat Gas and winter weather are highly correlated, if I may make use of industry jargon... if winter fails to show up, Nat Gas could get even uglier... but a tough winter, given how low Nat Gas prices are compared to the past 5 years, could really push the peanut forward.... keep in mind, betting on winter weather is a lot like betting on hurricanes... well, not that bad, but you get the idea.)  Needless to say that a drop under $75 for oil would change the game somewhat... on the other hand, Oil prices need not move any higher... prices are high enough that should they just remain here, the big integrated Oil Co's will be printing money... and not Federal Reserve style.  I like the big names... and no, this is not investment advice (oil prices could fall), just an observation.  Also, in the short term, equities (including energy equities) could pull back even if Oil does not.  But I like them from here and for the next 10 years or so... unless we get another spike like 2008, at which point I would be only to happy too unload them.

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Several months ago I posted a link to Stu Staniford's excellent blog about potential Oil production in Iraq.  I forwarded Stu's piece to Jeffrey Brown, better known as Westexas, a geologist and regular commenter here and the man who developed the term and model known as the Export Land Model.  Jeffry was kind enough to email back saying that while anything is possible, nothing of the scale mentioned had ever been done before - and given Iraq's poor political structure, instability, violence, and infrastructure... Jeff doubted that they would be the first.  As it turns out, the IEA is out in print supporting Jeff's position (btw Jeff, I supported your position... but it never hurts to vet out all challenges, especially when one has real money wagered in the game).  Just over a year prior, Jeff sent me his (assisted by Sam Foucher) math and graphical projections for the world export markets.  So far, Jeff's model continues to be born out by the data.  Should that model continue to prove accurate, or as accurate as it has been so far, my bet is that a significant price shock could hit the West, and the U.S. in particular, at anytime between tomorrow and the end of 2013.  If you are reading here Jeffrey, I would very much wish for you to put in your two cents on the matter.

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Its not the number of people bullish or bearish on a market that move prices.  Its the number of "dollar votes".  The Federal Reserve has voted with one hell of a lot of "dollar votes" - far more than I had thought they would have been willing to have done.  I think we have crossed some surreal boundary.

More soon.

23 comments:

bureaucrat said...

I doubt anyone who was competent enough to get into college has had their fundamental political views changed by anyone, much less a bunch of liberal faculty members. You came to college with your political views already mostly established (I've never been a Republican since day one). In most classes, there is no time for teachers to get on the political stump during class and pontificate.

If anything, my political views started to form while watching afternoon TV (Brady Bunch, etc.) as a pre-teen. Maybe it's the TV schedule you should be attacking. :) Or maybe the UFOs from the 1970s ....

Stephen B. said...

They said it best over at The Automatic Earth:

QE2 works exactly the way it was meant to work. [Bernake, et al are] not all that dumb, and they're not making the grand mistakes some folks claim they do. They're robbing you blind in plain daylight, and, as they go along, make you believe that's in your best interest. It’s all nothing but a high-stakes game of pick-pocketing.

Just never even try to tell me again that it's not successful. And i don’t mean delivering economic growth; the US economy won’t see real growth for more years than you care to know. No, QE2 is very simply successful in fooling you.


http://theautomaticearth.blogspot.com/2010/11/november-5-2010-qe2-is-fooling-you.html

While I don't think that the Fed should have stood around and not done at least some bailing out 2 years ago, what's being done now is just downright criminal.

I wonder if it's too late to double up and go along with the Fed, that is, buying more metals, more major oil and gas companies, etc. I want a pull back, but with these guys turning the full power of their electronic printing press onto the markets, anything goes it seems now.

Stephen B. said...

This is a dialogue snipped from a friend's Facebook page. (He is a former resi. student of the center I work at. The emphasis is mine):

TG[student] i need hot sauce
4 hours ago · Comment · LikeUnlike ·
Jen Hot Sauce for?
3 hours ago · LikeUnlike
o
TG[student] pizza
3 hours ago · LikeUnlike
o
Stephen B You need better pizza then.
28 minutes ago · LikeUnlike
o
TG[student] i know, i do, first time trying this kind cus it was cheap, but honestly even ELLIOS might even taste better, but you know its good enough after having no money whatsoever and eating white rice for 5 days, i just got the hot sauce and the oven is heating up and im sure the hot sauce will be WELL worth it, i cant wait
20 minutes ago · LikeUnlike
o
TG[student] best frozen pizza is ANNIES, its expensive though, but its organic and its better than alot of actual pizza places believe it or not, it really is. runner up would have to be MYSTIC as far as frozen pizza goes, its pretty good too
19 minutes ago · Like

The high point of his day was getting a bottle of hot sauce at Walmart to spice up the nasty, frozen pizza he managed to be able to afford tonight.

And so the crisis in America continues to worsen...

Greg T. Jeffers said...

Bur:

Your assertion that young adults at college are not swayed by the local political environment does not make much sense to me...

Take abortion. The country is roughly split on the issue, and has been for over 30 years. Yet young adults are overwhelmingly pro-abrotion, and as folks age they become overwhelmingly pro-life.

College kids, while LEGALLY adults, are just that - kids. Impressionable, idealistic, immature but with great promise. Hitler did it (the Hitler Youth0, Mao did it, Stalin did it... America's Left is merely taking a page out of their book.

BTW.... when I say "Left" I am not talking about the Kindly Liberal Lady next door... the real Left in this country ain't so nice.... they have a great deal more in common with the worst of the Social (Control) Conservatives but WITHOUT the benefit of moral and ethical platform that those folks pretend to have,

Anonymous said...

And while the economics drag on, there is the political front. Obama is endorsing India for a seat on the UN Security Council. While I don't have a direct problem with that, is he courting India for invasion of Pakistan?

Regards,

Coal Guy

Anonymous said...

Or perhaps it has more to do with China and Russia..

Regards,

Coal Guy

Stephen B. said...

Colleges aim to revive the humanities - New buildings and focus combat dip in enrollment

WALTHAM — At college campuses around the world, the humanities are hurting. Students are flocking to majors more closely linked to their career ambitions. Grant money and philanthropy are flowing to the sciences. And university presidents are worried about the future of subjects once at the heart of a liberal arts education.

In response, the leaders of many prestigious universities — including Cornell, Dartmouth, and Harvard — are increasingly espousing the virtues of the humanities in speeches on campus and abroad. Some are pledging to spend more money beefing up their literature and arts departments; others have begun erecting buildings dedicated solely to the besieged disciplines.


http://www.boston.com/news/education/higher/articles/2010/11/08/college_leaders_work_to_increase_interest_in_humanities/

Wow, people are coming to their senses on spending $200K for a humanities degree and these colleges are panicking. Hmmmm.

bureaucrat said...

My dear Jeffers :),

I think you are wrong on the abortion thing. 5% of people are rabidly pro-choice, 5% are rabidly pro-life, and 90% see merit in both sides, but are glad this is one right that hasn't been taken away .. yet.

I think you need to ask your kids about their friends. Impressionable went out with the bathwater when the kids became connected with their Internet, cable TV, Ipods, Facebooks, etc. No kid wants to look naive anymore (even being labeled as "stupid" is a strategic thing) and they all seem to know WAY too much. This isn't the 1950s.

I don't know what kids you think are populating the campuses these days, but they are mostly democratic and liberal cause that works for them. It isn't until they grow old and are mad at the world for passing them by that they become ... Republicans, to get back at everyone else. :)

Donal Lang said...

Your Catholic friend has good experience of indoctrination; "Give me the boy until he is seven, and I will give you the man." But I'm not sure college students are much influenced - mine aren't (unfortunately! ;-)

Re the oil price and QE,surreal is right. I cannot get my head around the consequences of $1.75 trillion followed by $600 billion. The stock market is loving it, but is it that the share prices (and oil prices)are just adjusting to the falling value of a dollar? be interesting to take all values back to gold - I'm not sure prices have risen much in real terms.

Meanwhile the very fact that the oil price is being underpinned by RotW demand (translate to China and India?), it leaves us all nowhere to go if a real recovery comes along.

I don't agree that China can't pay more for oil; they are investing in infrastructure so almost anything they pay for that infrastructure is going to be paid back with the returns on investment, even in a high oilprice world, because the oil price is universal and raises Terms of Trade for everyone.

It is those countries buying oil to keep old oil-based infrastructure going that gets crucified by a high oil price. Think trucking, or oil-based agriculture.

Crybaby said...

Coming from someone raised as a Catholic who converted to Judaism as an adult: That adage if you get them before they're 7 you'll have them for life is wrong. Adults make up their own minds. People in their twenties often have different political and social beliefs from their families, as the twenties are still an age when ideas are being formed by life experiences. But after age 40 you generally can't sway someone who fundamentally disagrees with you. By 40 or so someone is going to be a liberal (or progressive) or conservative (or reactionary) or pro life or pro choice or whatever.

Greg T. Jeffers said...

Crybaby... "no surprises after 30", my mother used to say.... and 40 IS the new 30 (or so they say).

westexas said...

Here is a summary of our recent presentation at ASPO, and I have shown our two short term scenarios (C/P = Consumption to Production ratio):

http://www.energybulletin.net/stories/2010-10-18/peak-oil-versus-peak-exports
Peak Oil Vs. Peak Exports

Excerpt:

Two Scenarios For Global Net Oil Exports

We reviewed production, consumption, net exports and the C/P ratios for the top 33 net oil exporters, which comprise 99%+ of global net oil exports, from 2005 to 2009 (principally BP data base, with minor contributions from EIA data). Note that we have seen a slight decline in global net exports in 2007 and 2008, relative to the 2005 and 2006 levels, despite steadily rising oil prices. Also note that we have seen a steady increase in the C/P ratio for global net oil exporters, from 26.1% in 2005 to 29.1% in 2009, and we have seen a steady increase in Chindia’s net imports as a percentage of global net oil exports, from 11.3% in 2005 to 17.1% in 2009.

In our ASPO-USA presentation, we looked at some near term scenarios for global net exports, out to 2015. We constructed two scenarios. For both scenarios, we assumed a slight 2005-2015 production decline of 5% (0.5%/year) among the top 33 net oil exporters, and we assumed that Chindia’s 2005 to 2009 rate of increase in net oil imports continued out to 2015. The only variable was consumption in the top 33 net oil exporting countries.

For Scenario #1, we assumed no increase in consumption among the exporting countries, from 2009 to 2015. For Scenario #2, we assumed that the exporting countries’ 2005 to 2009 rate of increase in consumption continued out to 2015.

Under Scenario #1, global net oil exports in 2015 would be down by 9.6% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 28% from 2005 to 2015, from 40.8 mbpd (million barrels per day) to 29.5 mbpd.
Under Scenario #2, global net oil exports in 2015 would be down by 14% from the 2005 level, while the volume of “available” net oil exports, i.e., the volume of net exports not consumed by Chindia, declined by 33% from 2005 to 2015, from 40.8 mbpd to 27.4 mbpd.

To summarize Scenario #2, if we extrapolate the 2005 to 2009 rate of increase in consumption by the exporting countries out to 2015 and if we extrapolate Chindia’s 2005 to 2009 rate of increase in net oil imports out to 2015, and if we assume a slight production decline among the exporting countries (0.5%/year from 2005 to 2015), then for every three barrels of oil that non-Chindia countries (net) imported in 2005, they would have to make do with two barrels of oil in 2015.

The Chindia consumption increase is not unique. Many developing countries have shown significant increases in oil consumption, relative to their late Nineties consumption levels, despite large increase in oil prices. Our forecast for the US and for many other developed OECD countries is that we are well on our way to becoming free of our dependence on foreign sources of oil–just not in the way that many people anticipated.

Crybaby said...

The issue of why the price of higher education in the US has inflated beyond the price level of any other service/commodity is a complex one but there are a few theories which make sense.

One is the fact that the math and science professors could be making alot more money in the private sector, and the universities have to pay them competitive salaries. But that does not account for the rise in prices of liberal arts and humanities education.
Another factor is the fact that American colleges were considered the best in the world, and most Americans were too zenophobic to consider sending their kids abroad. That is no longer true with the possible exceptions of the top ten universities in the US. And, thirdly, the funding for higher education has increased as a result of grants, student loans, and scholarships, most of which have helped students who could not otherwise have attended college. So colleges kept raising the prices because they could get away with it.
That will change. Many American colleges will go out of business, as kids can get a better education abroad at half the price even with the weaker dollar. Students are not going to become indebted in the six figure range because they'll see that it basically condemns you to a live of slavery. And while most subject and studies are important - including everything, from women's studies to African American studies to the study of ancient cultures and the mating habits of rare insects, most of the information can be had for free.

Anonymous said...

The children of the oligarchs who will earn their money the old fashioned way, by inheritance, can easily afford to indulge themselves in a liberal arts education. As making money will not be an issue for them, they need the liberal arts knowledge to make it in their social class.
Note that even the extremely conservative Koch brothers are heavy donors in the New York arts scene.
The expensive Liberal Arts degree from lesser status institutions will not make it, but there will always be places for Trust Fund Baby's with well rounded education from status institutions.
Oh, I was pretty conservative until I spent three years in the US Army. At the end of that experience, I said that social welfare programs are good, the DOD is just a poor way to administer them. Cheers,
Rational Liberal

Greg T. Jeffers said...

Rational Liberal! Hysterical! And the balance was a reasonable analysis, too.

Greg T. Jeffers said...

Westexas:

If I follow you... that would put the U.S. at just under 8mm barrels of crude and product per day? Down from 10mm today and just over 12mm at the peak...

Greg T. Jeffers said...

Imports, that is.

westexas said...

Under Scenario #2 (oil exporting countries show increasing consumption and a slight production decline and Chindia's net imports keep increasing), the oil imported by countries other than China & India would fall from about 41 mbpd in 2005 to about 27 mbpd in 2015.

In regard to what our imports would be in 2015, it would be a question as to how we fare in the bidding war. But for all the reasons that we have discussed, it's hard to see the US being able to outbid too many other countries.

I think that the most interesting oil price pattern is the progression in annual year over year price declines, from $14 in 1998, to $26 in 2001, to $62 in 2008--with each successive price decline falling to a level that is about twice the level of the previous decline. If this pattern holds, the next year over year decline will bring us down to the $120 range (average annual price).

Donal Lang said...

Here's a thought; if most of this QE money gets invested abroad, say China, it helps China boom by providing it with investment money (because who'd be stupid enough to invest it in the US?). In that case, the debt fall on the US taxpayer (and their kids) while the benefit is exported. As a side effect, China demand for oil increases, increasing the worldwide prices for the US making it even less competitive.

Or is it all a cunning plan to make China explode with success??

Greg T. Jeffers said...

Donal!

That is EXACTLY what is happening, and what I have been arguing since the advent of QE.

Greg T. Jeffers said...

Westexas:

If you would... could you tell us what your sense of imports would be to the U.S. if all nations maintained the same contraction ratios?

Anonymous said...

So do you really think its reasonable to suggest that the US War-machine will sit idly by as the US loses its place at the Oil export trough? I think that's a highly unlikely scenario, the US military is the #1 consumer of oil and for 'national security' will expand its reach to keep oil imports on the table.

Maybe Bur's wet-dream of taking over Venezuela to "upgrade" its oil production--would become a reality? Mexico is on its way out (not only oil decline, but seems to be headed straight for failed state within a few years), and I still don't see any data to suggest that Shale/Tar Oil production will ever mean much, compared to more traditional oil extraction methods.
-Meiyo

westexas said...

Here is the EIA net import graph for the US:

http://tonto.eia.doe.gov/country/img/charts_png/US_petnet_img.png

Our peak net imports were 12.5 mbpd in 2005. If our net imports fall by one-third, we would be down to 8.3 mbpd in 2015, but we were already down to below 10 mbpd in 2009 (due to lower demand and an uptick in domestic production).