Category: Articles

If this does not give you pause…nothing will…

From East Coast Economics

Here is a chart of federal borrowing through Dec. 2007.

Now, same chart through December 2008.

Anyone still think thee are not some rough patches down the road?

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There is a real interesting discussion about the recent oil (USO), (DBO), (DXO) price activity of the past year and governments reaction to it.

I highly recommend the ASPO Newsletter

From the December 2008 Issue:

In years ahead, analysts may look back on the current crisis and identify its causes. They may conclude that oil demand had begun to outpace supply around 2005, when the production of Regular Conventional Oil passed its peak.

The shortfall was however relatively small and was partly met without undue difficulty by a modest reduction in demand. But as prices began to firm, oil traders and other speculative financial institutions began to take a position in the market, which had the effect of driving up the price. Gradually the process built momentum as huge notional profits were reaped from the appreciating asset. In a conventional market such movements would soon be countered by increased production, but in the case of oil, there was no spare capacity to release, and the speculative surge fed on itself leading to an extreme escalation in price which reached about $150 a barrel by July 2008.

However as this peak was approached, the traders began to conclude that a limit was close and began to buy future options at lower prices, which began to undermine the price in a self-fulfilling process. In parallel the high prices began to undermine many other aspects of the economy with for example airlines and motor manufacturers facing difficulties. They themselves relied heavily on debt, which itself was traded between banks without adequate genuine collateral, and were forced to unload their speculative oil positions in order to try to shore up their failing businesses. Gradually the whole edifice collapsed, and oil prices fell to around $50 a barrel, although nothing particular had changed in the actual supply/demand relationship. The flaw in the system was to treat a finite resource whose production was largely controlled by the immutable physics of the reservoir as if it were a normal commodity capable of responding to ordinary market pressures. If the price of potatoes increases, farmers can grow more and the market responds, but oil is different.

Governments responded to the crash by pouring yet more money, itself lacking genuine collateral, into the system in the mistaken belief that this would restore the position of assumed eternal growth, and quite possibly the stock market will respond positively as traders sense a new upward direction. They have no real interest in reality: their job being to try to reap rewards from short term movements. But if there is an economic recovery, that would serve to increase the demand for oil, which is in a sense the bloodstream of the modern world, and oil prices would again begin to surge. Probably, it will take several such vicious circles before governments and, more important, people at large at last come to grasp the reality of the situation, which will likely prompt radical changes in the human condition.

Here is the report:
Association for Peak Oil Dec. 2008 Newsletter

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$200 oil, Fingers, Landing

– A convincing case

– Weird

– US Air flight

–

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This is interesting…

Hyper Inflation Book

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Interview from 1/19/2009

Part: 1…. The shoe to drop in 2009 will be the doubt in investors eyes for governments to meet bulging obligations.

Part 2:….. Policy intervention will make current downturn longer..

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As he said he would…

Privately held, clean bank and done in order to allow Wilbur to participate in the FDIC acions that are anticipated..

Bloomberg:

Fox Biz:

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More evidence global oil production is being shuttered…..

ConocoPhillips (COP), the third-largest U.S. oil company, said Friday it’s cutting 4 percent of its overall work force, reducing the number of contractors it works with, cutting capital spending by 18 percent and writing off $34 billion in noncash assets because of plummeting energy prices. These are the first announced job cuts by an oil major, about 1,300 in this case. ConocoPhillips said it has approved a capital spending program of $12.5 billion for 2009, down from the $15.3 billion it projected to spend in 2008.

Just last week, Schlumberger (SLB), the world’s largest oilfield services company, said it would eliminate up to 1,000 jobs in North America, or about 5 percent of its work force, and is looking at cuts elsewhere globally. Halliburton (HAL). also said it would begin laying off workers but didn’t say how many or when.

“We are positioning ourselves in the current business environment to live within our means in order to maintain financial strength,” ConocoPhillips Chairman and Chief Executive Jim Mulva said in the statement. “We’re doing this by reducing our cost structure, addressing our balance sheet and continuing to manage the company through prudent capital discipline.” Translation, “we aren’t drilling anywhere near what we were before.”

In November, ConocoPhillips and the state-run Saudi Arabian Oil Co. postponed construction of a multibillion-dollar refinery in Saudi Arabia because of the deteriorating global economic situation, which has eaten away at energy demand.

Oppenheimer & Co. analyst Fadel Gheit has said he expects spending cuts to average 10 percent for large producers and 30 percent for smaller companies.

Chevron (CVX) spokesman Don Campbell said Friday the company had no plans to cut its work force. Exxon Mobil (XOM) hasn’t announced any work force changes either.

In addition, ConocoPhillips said it likely would replace only about 25 percent to 30 percent of its 2008 production with new reserves. Reserve replacements represent the ratio of reserves found over production for a given period. Analysts typically say a company’s reserves replacement should average more than 100 percent over a three- to five-year period to indicate growth.

This is very bullish for oil prices longer term. When demand returns (you have to believe we are in a global depression for it not to) prices will spike as excess supply dries up and this shuttered production lags the upturn.

If you want to play oil other than the individual companies, the ETF symbols are (DBO), (USO) and (DXO)

Disclosure (“none” means no position):Long DXO, none
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By Murray Rothbard, founder of the Mises Institute

America’s Great Depression – Rothbard

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Read it and weep…

GAO TARP December 2008

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This reader idea has real merit for Microsoft (MSFT)

Reader submits:

“I have avoided MSFT for some time as too expensive. If you do the math, owner’s earnings have been 2-4% even though revenues have grown since 1997 and the stock was very flat. However, since 2006, they have been buying back stock and Net Income has risen so that 2009 is forecasted to be ~$2.20. With the stock under $20shr I began looking about for information and found that Ray Ozzie wants to remake MSFT into a start-up mode.

Ozzie looks like a man on a mission. The issue will be if Ballmer lets Ozzie have his way. Will Ballmer even be there? If I were a Board member I would be seriously concerned with Ballmer’s actions re: Yahoo. Offer $40Bill then back away with what appear to be immature negotiations.”

Just who is Ray Ozzie and what is the deal?

From Wired in November 2008

At Microsoft, he says, there must be a shift from the traditional model of software to what he calls software plus services. As slogans go, it’s not particularly catchy. But the sentiment is clear: Just packaging software, collecting the money, and then producing a new version a few years later (whether people want one or not) is no longer a sustainable business plan.

The relationship with customers must be constant and continuous. Instead of discrete onetime transactions, the money—whether from subscription fees or advertising—will flow constantly. For the user, everything will happen when it’s needed, as if pulled down from a cloud. The metaphor has been around for years, along with the more recent spinoff, cloud computing. But the phenomenon is anything but ethereal. Billions of dollars are at stake.

According to Microsoft, one example of a successful service is Windows Update, which automatically installs patches and bug fixes on users’ operating systems. Hotmail, like all Web-based mail applications, is also a service. Virtual Earth? A service. Software, but not from a box. Still, Ozzie draws the line at the idea that you can do anything and everything in the cloud, that every application can become Web-based, that the desktop is dead. Some things, he says, still require local computation, offline persistence, and the control that only one’s own desktop processor offers.

This defense of the desktop dovetails nicely with Microsoft’s historic strengths. So, while Ozzie actively evangelizes for the disruptive move to services, he’s also saying that for many purposes the ideal software model is a hybrid: a heavy-duty application (known as client software) combined with an ongoing Internet service. A great example is Apple’s iTunes, which you install on your computer and use as an offline media organizer but which also serves as an Internet app that lets you buy songs, stream music, and get recommendations.

In Ozzie’s view, Microsoft must make this model the centerpiece of all its future efforts. The company must transform itself from a manufacturer that dumps out a big product every couple of years to a customer-obsessed enterprise devoted to continually producing, updating, and supporting a full panoply of services. In his speech, Ozzie puts it this way: “When packaged software ships, services go live. What was our end is now the beginning. The gold disk”—from which all retail copies of a new piece of software are made—”is now the grand opening.”

At that point, Ozzie unveils the new products that he’s been laboring over for more than two years: a top-secret set of initiatives designed to make Microsoft as dominant in the cloud era as it was in the days of the desktop. First up is a new operating system for Web-based applications, codenamed Red Dog—it’s Windows for the cloud. (See Editor’s update below.) Then comes a demonstration of Live Mesh, which will allow people to seamlessly synchronize all their information with as many people and places as they want, across as many devices (computer, phone, camera) as they want. Finally, another engineer demonstrates how Microsoft will make even its legacy apps accessible via the cloud. It’s a shocker. After years of Microsoft insisting that the desktop is the only proper place for its crown-jewel applications—the venerable Office suite—it appears that Word, Excel, and PowerPoint will levitate from the desktop and become services as well. In this demo, an Excel spreadsheet is running in the cloud with almost all its functionality intact, including features like auto-complete and auto-formatting as well as built-in collaboration and a way to link the spreadsheet results to emails and Web pages.

Now Balmer has been in charge at Microsoft for a while now and the time has come to take a real close look at things. The Yahoo (YHOO) deal was a fiasco for Yahoo but had the deal been accepted, it would have meant Microsoft paid $40 billion for a company worth $15 billion today. Not good..

The desktop software model is dying thank to Google (GOOG) and Balmer is being dragged into. Ozzie is already there, why not let him run the show?

It is a question the Board must begin to consider…

Disclosure (“none” means no position):None
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