The End is Near - For Ford Motor Company

The only thing standing between Ford Motor Company and a Federal Bankruptcy filing is an addled 91 year old Billionaire whose brain is clearly not getting enough oxygen.

Unfortunately for the employees and pensioners of Ford, Kerkorian is a mere speed bump between here and bankruptcy court. I am curious as to who gets there first: G.M. or Ford? American Airlines or United Airlines?

That the end is in sight for some of America's most storied corporations is fairly obvious to anyone with a capacity for abstract thought and an absence of American T.V. programming. Total Vehicle Miles Traveled is declining and will continue to do so - FROM THIS POINT FORWARD. We have enough vehicles on the road RIGHT NOW to finish off the future fuel available for indivdual motorists. So why build even another car? The auto industry has to deny the future, much as a terminal cancer patient must deny the future - but car buyers do not - AND WILL NOT. It is not long before the public figures out that any car they buy today will outlive its fuel supply. Their reaction will be swift and sure. They will stop buying new cars powered by gasoline and diesel with an internal combustion engine. I know I am not going to buy a new car given the outlook. Would you buy a new car?

Ford and G.M. don't make to 2010 before filing for bankruptcy. The effects on the pension system and the debt markets will be freaky deaky (That's technical speak for severe dislocations).

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The mortgage debt market continues its slide into oblivion.

The backlog of homes in the U.S. WILL NOT CLEAR before they take the banking system down in a crisis far worse than the Savings and Loan debacle of the early '90's. No amount of sunny speeches from the Treasury or the Federal Reserve is going to change this. By next year, Oil could very well be over $200 per barrel - giving the U.S. a trade deficit of well over $1 Trillion. How very well over? Very, Very VERY well over $1 Trillion. Import inflation is going to rattle the fillings out of what is left of Wall Street's teeth when the housing market really starts to go. So don't listen to those Wall Street jerks. IT IS different this time. We have a serious energy shortage for which their are NO answers.

So here's what I am gonna do:

I am going to get rid of every American $ I have. I am going to own precious metals, Oil and Natural Gas futures, and agricultural property and commodities... Then I am going to take a vacation. Have lunch with my wife or my friends everyday. Take my toddler swimming every afternoon, and watch my older son play baseball. Enjoy good meals, and a good night's sleep. I am going to exercise, ride my horses, and work in my garden, surf when the waves are up, and go swimming when they are not.

You gotta know when to fish, and when to cut bait. This tsunami is going to come down on us like a freight train (that is not a light at the end of the tunnel, its that darn train). I have been extoling folks to get their house in order. This may be your last opportunity.

Good Luck!

Yours for a better world,

Mentatt (at) yahoo (d0t) com

What, exactly, is on the other side of the =?

This B.S. coming out of the Kingdom of Saudi Arabia just kills me.

What fundamentals are they talking about?  

1 barrel of Oil has ALWAYS equaled 1 barrel of Oil.  Pretty simple really.  We are comparing apples and apples.  OK so far?

$1 from January 1968 DOES NOT equal 1$ in January 2008.  That would be comparing apples and oranges.  

So, I ask the Saudi Oil Minister again - WHAT fundamentals?  The fundamentals of the US$?  If you are comparing Oil and $'s, and the supply of oil is stagnant, but the supply of $'s doubles... doesn't the price of Oil in $'s double (all else being equal)?  Ah... but here's where it gets tricky... Oil has never cost more in exchange for Gold.  What about Oil to Corn? Or Wheat? The point is, the analysis of the "fundamentals" on which oil trades is in serious flux at the moment, and I suspect that these different commodities and currencies are going to stretch a great deal, and in more than one direction, before an equilibrium is reached.  And the Saudi Oil Minister? He has much less of an idea as to what that is than your average workaday trader doing an honest bit of homework.

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Housing has doomed banking.

Housing ain't coming back until the backlog of unsold homes clears.  I hear numbers thrown around by the NAR... 4.4 years of inventory... 4.8 years of inventory... B.S.!  They don't have a clue what is hanging out there.  

In the formerly hot markets... Las Vegas, California, Florida, D.C., Atlanta, etc... the only deals getting done are out of foreclosure - and for prices that, if extrapolated for ALL of the homes now in arrears or held by folks with no equity, means that ALL of the equity in the banking industry is no more.  That is what you are seeing in the price action of the Banks & Brokers, which, as measured by the XLF, hit a closing and intraday low today.

The market has spoken.

Mentatt (at) yahoo (d0t) com

Stuck in Suburbia

Bloomberg news is reporting that the value of homes with the long commutes is dropping faster than homes that are closer in to town and employment.  Wow!  Ya think?

It used to be that "you drove until you qualified for a mortgage".  The folks that followed that strategy are now fatter and poorer than they might otherwise have been.  More time commuting means less exercise and steeper declines in home values.  Americans are going to get a new mantra to live by: "More square feet does not increase the quality of your life."

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Now the Saudi's are calling for an Oil Summit.  I have just one question for the Crown Prince and Aramco:

If you guys are still the swing producer, why can't you swing production and swing the price of Oil down? (and why would you want to?) Why would the swing producer need to call a meeting of Oil producers and consumers if there was plenty of Oil in the system and prices were unjustified? (ok, that's more than 1)  The ONLY reason to call in the importers is to TELL THEM to CONSERVE!  That the producers can't keep up with their demand!  What the hell else would the exporters want to talk with the importers about?

Folks, there is no shortage of $134 per barrel oil.  There is an EXTREME shortage of $80 per barrel oil at the moment.  Want to know why oil is $134? (again, that was a rhetorical question) Because that is the price necessary to balance supply and demand in the market.  Oil is not pilling up in bulk storage around the world, like houses for sale in the U.S.  The oil market is CLEARING.  That means there are enough BUYERS willing to pay that market price to enough SELLERS so that inventories are not building nor drawing down too quickly for the market to react.  Of course, this could change...

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Food prices are going much higher next year, no matter what the pathological liars might try to convince you of.  The price of corn is "price input" NUMERO UNO for eggs, meat, and dairy, and is a big component of all that nasty stuff you probably should not be eating.  

Speaking of which, I have a question for the Moe Rons in D.C.  Since those scumbag speculators are the bad guys driving up the price of Oil, are they also the bad guys driving up the price of food?  Maybe we should stop speculating in food prices.  Sure - if you want to cause mass famine.  The jerks in D.C. know this.  It is one thing to blame faceless speculators for oil prices; it is another thing altogether to try that trick with agricultural commodities.  One consequence of which would be a severe decline in supplies of wheat, corn, soy beans, rice, etc... as it will likely lead to lower oil supplies as well.  Ya see folks, if it WEREN'T for these sky high oil prices, oil production would be lower than it is - and we would likely have out right shortages.  Beware lawyers/politicians bearing practical solutions (have you seen how our court system works?).

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Lehman Brothers leads the way down.  The mortgage money pipeline coming into Manhattan from every City, small town and village in America has been shut down.  In 3 years, the last of the big investment banks will have merged into history.  RIP.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Self Serving Denial

Oil prices EXPLODED this week, and 

U.S. Energy Secretary Sam Bodman was out lecturing the world on Oil!

As George Carlin would say:  "That is what someone might call being STUNNINGLY full of sh-t!"

From the above link:

"Nations should fight rising oil prices by cutting subsidies and vastly increasing investment in energy, while oil-producing countries need to ramp up output and divulge more information about how much they produce, the U.S. energy secretary said Saturday."

Let me translate:  Oil EXPORTERS should charge their citizens world MARKET rates for Oil so that the U.S., with 4.65 % of the world's population can continue to consume 25% of the world's oil!  Look, I am a capitalist pig out to exploit the masses American... and PROUD to be one... BUT!  Earth to Secretary Bodman:  There is NOTHING you can do that is going to change the very simple fact that within a decade or so the U.S., with 5% of the world's population will be consuming only 5% of the world's oil!  That's it!  Live with it!  Now, here is what you establishment dimwits in D.C. need to do:

1. Declare an IMMEDIATE moratorium on ALL road and airport building and expansion.
   
2. Begin an IMMEDIATE work project to construct a functioning electric train system between the big cities.
3. Shut down ALL private and corporate jet and yacht use by enacting HUGE taxes on the fuel to power these things.  It is going to be very hard, politically, to explain why 50,000 poor senior citizens FROZE TO DEATH one winter soon, while others are too "important" to fly coach. Steven Spielberg's comfort is not as important as the WWII vet with 2 purple hearts living in a mobile home in Wisconsin and freezing his ass off.
4. Create tax incentives to encourage more agricultural production in the Northeast. This is where the population is.  In order to cut food miles, food will have to be grown there, or we will have to move the people out.  Take your pick.  The more food produced using organic methods, the less risk we place on our system.  We need to produce more food absent fertilizers.
5. Revamp our silly justice system.  I don't care if Eliot Spitzer got it for free or paid $5000 for it (although I love the smell of former prosecutor cooking in the morning).  For those that do care, send them the bill for the investigation, the energy the investigation consumed, and Justice Department Lawyer salaries.  We don't have a choice anymore.  We are going to have to decriminalize many distasteful things, and let the cards fall where they may.  We simply will not have the money OR the Oil to keep 2 million people in prison for non violent crimes.
6. De-regulate and SHRINK the F---king government for goodness sake!!!  Government employees are a burden on the rest of us - and we are about to be severely overburdened with other problems.  We need a budget surplus, and we have a budget deficit.  What exactly does the Department of Education do?  Not much, going by student test scores for math and science.
7. Decrease the number of slots in Law Schools by 75%!!  Why does the U.S. have the highest percentage of lawyers per capita in the WORLD?  (no offense to you lawyers, I feel the same about stock brokers and investment bankers, yours truly's chosen profession).  Stop the litigation wave, before it begins.  
8. Shrink the size of the military while you still have the money and the fuel to bring them back home.  Tell Europe and Japan to pay for their own defense.  Stop fighting over something that is going to disappear soon anyway.

Now folks, I firmly we believe that our Government will do none of the above, at least not until it is too late.  You are going to have to take care of yourselves and your family on your own.

Good luck.

Mentatt (at) yahoo (d0t) com

The Fall of the House of Saud

Saudi Arabia might soon be just plain old Arabia. When that comes to pass, $150 oil will look cheap indeed.

Influential members of the nation's political ranks are calling for cuts in oil production, not increases as the U.S. has asked for.

"The price of oil under ground is actually higher than its current market price because it will become a unique commodity by time and demand will continue to rise because of a steady growth in the world's population," Marri told Alriyadh.

"The level of oil production in Saudi Arabia must be linked to the country's actual development and financial needs not to market prices and the need of foreign consumer. It is not wise to sap this resource just to satisfy the demand of foreign markets. Therefore, we need to revise our oil production policy before it is too late. Preserving our oil reserves is better than investing our financial surpluses which could lead to inflation."

You see, some Saudi's are smart enough to prefer to hold their oil in the ground, rather than worthless paper currencies in the bank. If the Crown Prince does not handle this astutely, he might meet his own end at the wrong end of a sword. For years, no soul living in the Kingdom, or the Oil dependent West, was willing to state the obvious - "The Emporer Has No Clothes" - THERE IS NO REPLACEMENT FOR OIL. That the West's silly claim - "if Oil went too high the efficient markets would bring on alternatives to Oil" - was some EXCELLENT propaganda but when put to the test failed quickly and utterly.

(The funny thing is, I will STILL get 3 calls this week from friends and clients about something they saw on T.V. proclaiming a car that runs on water and gets 35 miles to gallon and goes from 0 to 60 in 6.3 seconds and has a chick magnet bigger than yours... and then I have to pop their bubble with: "Well, if that's true, why didn't oil fall to ZERO in the markets today?")

Sorry, I am back. Saudi Arabia, perhaps soon just Arabia, holds the world's economy in its hands. When, not if, the House of Saud falls, no one will hold what is left of the world's economy in its hands.

Mentatt (at) yahoo (d0t) com

And How Was Your Day?

Oil inventory data was provided on schedule today by the U.S. Department of Energy's EIA and the 9.7 million barrels that were, what was their word?  "Temporarily" delayed?  Have stayed that way.  Total commercial inventories were up 200k with crude having a big draw and gasoline and diesel having an offsetting build.  In any event oil sold off - it would seem the market is more concerned with product builds than crude draws.  Perhaps if this were to keep up we would have ZERO crude and huge supplies of gasoline and diesel.

This excellent analysis of Gulf Oil inventories is a must read.

While we cannot be sure that trend would continue, I am betting that it does, and that we have begun a permanent decline in imported oil into the U.S., and a permanent decline in total vehicle mile traveled averaging something on the order of 5% per year.

In a conversation earlier today with one of the partners in my fund I mentioned what the impacts this outcome might be to him personally:

1. By the end of 2010 traffic would be down 15% from 2007.
2. Gasoline prices would be high enough to force most of his employees to use public transportation by year end 2010.  
3. It was likely that he would be riding the bus too, out of necessity.
4. The bus service is so unreliable as to be almost unusable.
5. That his business relies on consumers and housing and those sectors are doomed.
6. His business, as he knows it, is doomed.  Businesses that shed their marginal people and focus on their most productive will survive.  Those that discount the probability of the new reality likely won't be around long enough to argue the point.
7. By the end of 2010, the reality that no hydrogen, ethanol, bio-diesel, tooth fairies, etc... had made up for the loss of petroleum supplies, and the STARK reality of the future would be staring us down.  The reaction in the financial markets to this is profound.
8. Electricity rates were going to explode, doing a double whammy on the South Florida McMansion Market - driving to and from them has become too costly to maintain and supply them, and cooling them sufficiently to enjoy all that extra room was going to impossible, and not just because of electricity rates.  RATIONING of electricity will make its way onto the scene sometime before 2015.
9. Airline travel will be prohibitively expensive for weekend getaways by 2012, driving the last nail in the coffin of second home markets - like South Florida - and evacuating 5 million people out of South Florida for a hurricane will not be possible.  Myanmar ring a bell?
10. The value of his dollar denominated assets would plummet.

He responded that he hates talking to me and that he "hopes" my analysis is wrong.  I respond that hope has nothing to do with it, it is all in the BTU's.  He tells me to drop dead, politely, and goes back about his business as if we had been talking about the weather.

And the beat goes on...

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Treacherous Markets

Last week the U.S. Department of Energy E.I.A. reported that total commercial inventories inventories fell by 9.7 million barrels.  The E.I.A. also took the highly unusual step of claiming to know WHY this had happened: (just read paragraph 3 in its entirety)

"The drop was due to temporary delays in crude oil tanker off-loadings on the Gulf Coast."

Really?  OK, maybe that IS the reason. If so, it seems reasonable that if the delays were "temporary" (the question then is how is "temporary" defined.  As Steven Wright says - "anywhere is walking distance if you have the time.") then the 9.7 million was simply delayed for a day or 2, and will show up the following week.  So, should we be expecting a 9.7 million barrel gain tomorrow?  It seems to me that that was what the EIA was suggesting.  Or is there going to be a permanent fog setting up shop in the Houston ship channel?  My bet is the 9.7 million does not show up tomorrow.  If it does, my hat goes off to a government agency that actually got it right.

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It has been reported that G.M. is considering dropping its Hummer line of ridiculous vehicles.  Now there's a surprise.  You mean American drivers are not going to be interested in driving 6000 lbs of steel around, at 8 miles per gallon, to pick up the kids at soccer practice?  Who'd a thunk it?  GM pays tens of millions of dollars to corporate jerk offs to come up with this kind of strategic planning?  Want to bet those strategists went to Harvard Business School?  Nobody there saw higher energy prices KILLING their franchise?  UGHUGGHGHGH!!!!!

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Speaking of the "What the F*^$! am I paying you for department"...

Standard & Poors FINALLY downgraded the big investment banks to within sight of junk status.  S & P, dripping egg from the face and suffering from foot in mouth disease likely will not be pulling any punches in the future.  Institutions holding mortgage paper are doomed.  Investors holding mortgage paper are doomed.  ANYBODY holding mortgage paper is doomed.  If you think housing is bad NOW... just consider that that market started to "sh-t the bed" (that is technical Wall Street speak for a market entering a prolonged period of significant contraction) long before oil broke $75 per barrel.  Think about it: Debtors were defaulting on their mortgages over $300, $400, maybe $500 per month too much payment.  Now throw in a $300, $400, or $500 monthly increase in total energy costs (gasoline, heating fuel, electricity) for the same homeowner...  Might as well hand them a rope, a couple of razor blades, and a bottle of sleeping pills.  As for the poor suckers left holding the mortgage paper... that paper is just dead men walking looking for their final resting place.

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What a terrible time to be old, poor, and heat your home with heating oil.  Hell, its going to be tough being young, fabulous, and rich if you heat your home with heating oil.   At $4.50 per gallon, those McMansions folks were buying during the latest housing boom look like good bets for the scrap heap.  Does anybody over the age of say, 7 really think that folks are going to pay the mortgage on a house they cannot afford to heat?  Gee, I wonder what that means for Lehman Brothers, and the rest of the mortgage complex.  Me?  I would prefer to slam my finger (or any other appendage you can think of) in a SUV door repeatedly than be long THAT sector.

So here we are:  Airlines are raising prices and cutting capacity and services,  the auto manufacturers are closing plants building SUVs and Pickups, and the white elephant oversized homes are going to blot the landscape, abandoned because their occupants could not make the heat payment, let along the mortgage payment.

Now I ask you: What else would the beginning of the FINAL energy crisis look like?

Yours for a better world,

Mentatt (at) yahoo (d0t) com