Summer gasoline

Just what is summer gasoline? Twice a year, in the fall and in the spring, you hear about the seasonal gasoline transition. However, most people probably don’t understand what this actually means.

and

There are two key (although not the only) specifications that refiners must meet for gasoline. The gasoline needs to have the proper octane, and it needs to have the proper Reid vapor pressure (RVP). While the octane of a particular grade is constant throughout the year, the RVP spec changes with the seasons.

Even more technical from the EPA:

As gasoline evaporates, volatile organic compounds (VOC’s) enter the atmosphere and contribute to ozone formation. Gasoline’s propensity to evaporate is measured by Reid vapor pressure (RVP). In order to control VOC emissions, the Federal Clean Air Act Amendments of 1990 require that all gasoline be limited to an RVP maximum of 9.0 psi during the summer high ozone season, which the Environmental Protection Agency (EPA) established as running from June 1 to September 15. The Act also authorized the EPA to set more stringent standards for nonattainment areas. As a result, EPA limits areas designated as “high volatility non-attainment” to a maximum RVP of 7.8 psi during the high ozone season. Some States elected to require even more stringent restrictions to achieve local clean air goals, and require 7.2- and 7.0-psi gasolines.

It largely revolves around the butane content of gasoline. More butane, higher volatility. Butane is cheap; it is a marketable byproduct of refining. So cold weather formulae are cheaper, regardless of state. And the date of change for most venues is June 1.

Lots more MEGO information at the Oil Drum.

No bottom in sight

In spite of the cheery analysis from Washington and their fellow media travelers, the economy is NOT turning around. The evidence is not in the Dow Jones or stock prices in general but the nuts and bolts of the economy.

Meaning there is 20% less rail traffic from about 15 months ago. And still dropping. This is reflected in my on experiences in my travels: there are more railcars sitting idle on sidings, a common indicator of economic downturns.

Via Credit Bubble Stocks

International freight shipments are down by over 30%, idling hundreds of large cargo ships around the world. Singapore is “hosting” 735 of them! While the ships’ owners are taking a bath on the lost revenue (while still needing to make loan and lease payments), the Port of Singapore still earns docking fees on them.

This represents an incredible amount of tonnage due to the sheer size of the monsters; some of the ships have a 300,000 ton capacity. More details of shipping cost reductions and other implications at the New York Times

For an obscure but accurate longterm indicator, Titanium Oxide (TiO2) fits the need. This is the main ingredient in white paint and anything painted white uses it: appliances, cars, houses, etc.

Titanium dioxide prices fell 0.8 percent from March, the Labor Department reported Thursday, bringing the decline over the last 12 months to 5.7 percent.

Economists track titanium dioxide as a barometer of the country’s overall financial health. When people are building homes, remodeling, redecorating or even getting a house ready to sell, they buy paint. About 419 million gallons of paint were sold last year, and more than a third of it was white.

Continuing,

Zandi, Silvia and other analysts said the white paint index was consistent with their belief that the economy is still shrinking in the April-June quarter. However, they predict the rate of decline will be about 3 percent — half the pace seen in the prior two quarters, the worst six-month performance in 50 years. The expected improvement would largely come from businesses making less severe spending cuts, analysts said. (Emphasis mine)

From Yahoo! via Financial Armageddon.

A more generalized picture of the situation from Angry Bear is the industrial production drop compared to other recession since the Great Depression.

And none of these indicators are turning. Keep hanging on; the ride continues.

Wired and The Singularity

Well, not exactly. Just another apocalypse. The Geomagnetic Apocalypse:

. . . the consequences of solar flares unleashing waves of energy that could disrupt Earth’s magnetic field, overwhelming high-voltage transformers with vast electrical currents and short-circuiting energy grids. Such a catastrophe would cost the United States “$1 trillion to $2 trillion in the first year,” concluded the panel, and “full recovery could take four to 10 years.” That would, of course, be just a fraction of global damages.

Really depressing details at
Wired

Is the FDIC Lying?

This was brought to my attention via Zero Hedge.

Essentially, the Chairperson of the FDIC, Sheila Bair, has declared that the 90% valuation banks are giving “legacy assets” (toxic loans) is due to a lack of market opportunity and liquidity. In other words there is no market to set the values.

Except in the FDIC. Internal auctions of toxic assets, both performing and non-performing, are conducted by the FDIC itself! The performing loans are going for abut 50¢ on the dollar and non-performing assets are running between 25% and 8% (A company in Florida got a deal on a $10M loan!). Although in one auction, a bank in Tennessee paid 91% for one loan.

There is a market but the FDIC, the repository of this information, denies its existence! Either Bair is incompetent (not likely); thinks people are stupid; or is deliberately lying obfuscating. The only people she could lying on the behalf of would be the banks with toxic assets.

By refusing to admit to these auctions as a “market” to “mark to”, the banks’ assets can remain overvalued. If they were forced to actually mark them down, many banks would be immediately insolvent and the FDIC would have to take them over!

Senator Stevens: Guilty but unsentenced — updated I

Millions of dollars and a lot of hours of court time were tossed aside in the freaky decision of Eric Holder, the US Attorney General.

I have determined that it is in the interest of justice to dismiss [set aside] the indictment and not proceed with a new trial.

So is he a convicted felon as a jury determined or not? In any case, the judge held all three prosecutors in contempt of court for “for failing to deliver documents to former Sen. Ted Stevens’ legal team”. The DOJ will conduct an investigation into the behavior of the prosecutorial team.

This is a motion; the judge has not, to my knowledge, ruled on the motion. In all fairness, the original prosecutors were replaced with a new team who not likely enjoying their new notoriety.

The question not being asked or answered is “Why?”. Several theories abound. We’ll explore a few here.

One is that the trial was deliberately sabotaged by the Bush Administration but on the TPM Muckracker blog on the subject, one poster who says

I worked in the Bush Justice Department, along with any number of trial attorneys who, despite being trial attorneys in the DOJ when Bush was President, are not criminals who throw cases on a whim or at the behest of political leanings.

This simplistic smearing of an entire civil service is really growing tiresome.

Maybe he is; maybe he isn’t. He didn’t bother with a profile on TPM. But has a point. Then goes on in another comment.

More to the point, if you were going to throw a case, would you do it in a way that raises significant concerns about whether you are throwing the case? Come on.

The implication here is that these people were not crooks but incompetent!

Another theory is that a deal was made with the judge to drop the charges against the DOJ employees and the DOJ would forget the whole thing and hope it goes away.

Frankly, why should the judge agree?

The “He’s got the goods” theory is the most cynical theory. This one was promulgated to me by Charlie Cloud who wanted this caveat:

I am fully aware of the unique position that prosecutors and government parties hold within the system of criminal justice. But that does not excuse, and I have never seen, the government coming forward like this, unsolicited, and outside of a response to a defense argument on appeal, to undo what a jury has already done.

And he admits he has to rely on the MSM for information. Here is the exchange between him and me.

On 4/1/2009 5:25 PM, CC wrote:
I’ve never seen anything like it. There is only ONE explanation: He knows stuff. So they let him walk after 12 convictions. Yes, some people ARE above the law in these United States. No wonder some people don’t vote and don’t care. And, since there is not one legitimate, funded, investigative journalist left alive in the world, nothing will ever be done about it.

The Curmudgeon responded shortly afterward:
I actually believe the story that the prosecution so screwed up the evidence that he couldn’t be convicted. Bush strikes again and his legacy lives on!

CC:
“Couldn’t be convicted”?? He WAS convicted! The prosecution (Holder) voluntarily moved to undo the conviction. Unheard of.

TC:
He was never sentenced and the whole mess would have lost on appeal anyway. And deservedly.

This (the withdrawal) is part of the Obama philosophy of not placing blame, like he said in Europe today. No prosecution of Bush, Cheney, or any of their co-conspirators. Or of the bankers stealing the nation blind. He’s just Bush Lite.

CC:
He was convicted. That is a crucial point in criminal procedure. Sentencing is irrelevant to this travesty.

It is not the prosecutors role to come forward and undo what a jury has done.

If the prosecution failed to disclose exculpatory evidence, then it incumbent upon the defense to bring that argument on appeal, not the prosecution. The prosecution could raise it, but not in the context of dismissal and refusal to re-try. They could even stipulate to failure to disclose before conviction, or on appeal, allowing a retrial, but it should never be done after conviction. At the very most, the prosecution could refuse to respond to the appeal, but they should never take the initiative to undo what has been done by a finder of fact and concluder of law. That undermines the entire essence of our system of opposing parties. Just because there is wrong doing on the part of a cop, or a party, or an attorney, does not mean the other side is not guilty. Again, this is for the court to decide.

I know the prosecution has special obligations that the defense does not have (disclosure is one of them), but this out of sequence.

Further, the issue of double jeopardy would not arise in this case because there was a conviction. Had he been acquitted then he could not be prosecuted again for the same offense (which points up, by the way, the importance of any decision by the jury, be it conviction or acquittal; it’s a two edged sword. The way to undo it is on appeal) .

This is total bull shit and I personally think it has nothing to do with Obama’s policy. I am convinced that Stevens knows something and that is the only reason he is being allowed to walk.

TC:
If he can’t do it, how could this happen?

CC:
That’s the point: HE can do it. The question is why can he do it and no one else can? Again, he knows something and has threatened to disclose it if he doesn’t walk.

The government could surely back off, refuse to respond to the appeal, stipulate to reversal and dismissal, etc. but to voluntarily come forward of their own accord and just say: “We want the jury’s conviction reversed, his name cleared, and we are not going to re-try, and Bush’s prosecutor’s fucked up” is just totally wrong. I’ve never heard of it.

Regarding the merits of the failure to disclose, I’m not privy to them. But I’m not even sure the information was exculpatory. It sounds like it was just some witness interviews that weren’t used in trial and the defense could have interviewed any state witnesses too. I just smell a HUGE rat.

Now, I always tell people not to fall for the hype you hear on the evening news (ala the McDonalds’ coffee in the lap case; which was ENTIRELY justified and everyone would agree if there were privy to the same information the jury had), so maybe there is more to this. I’ve just never heard of the government going forward of their own volition to undo a win in front of a jury.

So Charlie Cloud thinks this was some kind of blackmail. Sen. Stevens has been in Washington a long time and could easily know something the DOJ would want keep quiet.

I haven’t a clue but do realize this is a miscarriage of justice, whatever the reason. And the handling of this travesty creates confusion, at the very least.

Update — CC adds:

As to the blackmail thing, I don’t think it was limited to DOJ dirt. It goes much deeper than that. It’s more of a Nicholas Cage “National Secrets” nation dirt thing.

What to do about the banks

Well, our gummint thinks throwing bales of money at the banks a solution. But another nation who has recently (in economic time scales) “enjoyed” a very similar experience disagrees.

Japanese policy makers from the early days of the crisis have been saying in an uncharacteristically direct manner that the top priority is resolving nonperforming assets. Recapitalizing banks without taking this step is a mere palliative.

Naked Capitalism

Well, duh. From VoxEU:

Bad debt is the root of the crisis. Fiscal stimulus may help economies for a couple of years but once the “painkilling” effect wears off, US and European economies will plunge back into crisis. The crisis won’t be over until the nonperforming assets are off the balance sheets of US and European banks.

And

Particularly striking to me has been some of the remarks I have heard from US and British think-tank researchers at recent seminars and conferences. In essence, their remarks can be summarized as follows:

* Because we USs are extremely optimistic people, we will regain our confidence and begin to increase consumption in one year’s time.
* By stimulating demand through fiscal measures, the prevailing pessimism can be dispelled and confidence in the economy will be restored.

Déjà vu of Japan in the 1990s

It was a bizarre experience. I felt as if I were hearing USs and British recite the same words Japanese politicians, bureaucrats, and bank officials had repeated so many times during the first half of the 1990s. When the finance ministers and central bank governors from the Group of Twenty (G20) major economies met in Horsham, England on March 13-14, they devoted much of their time to discussing fiscal measures. As evidenced by this fact, excessive expectations are being placed on fiscal policies. It is relatively easy to get the people’s approval for using fiscal expenditures to finance public works projects, tax breaks, employment measures, and so forth.

I am afraid that today’s US and European leaders might be adopting the same mentality as that of the Japanese leaders in the 1990s. That is, it seems to me that they are clinging to wishful thinking by hoping that all of the current global economic problems will solve themselves in due time. As this situation prolongs itself, leaders may buy time with pain-relieving fiscal measures, but by doing so they will continue to ignore the true nature of the problems before them.

But it gets worse.

The greatest lesson from Japan’s experience is not that bank recapitalization should take place quickly, but that market confidence can be restored only when progress is made on the painstaking process of disposing of nonperforming assets. In retrospect, the recapitalization of banks in 1998 and 1999 delivered only a temporary respite and did not guide the Japanese economy onto a true path of recovery.

The essence:

How to address today’s problem

Continuing to give “adrenaline shots” of fiscal expenditures would not cure a patient suffering from the “cancerous” effects of nonperforming assets unless the cancer tumour was removed by surgery. However, surgery this time around — the removal of nonperforming assets from US and European banks — is going to be far more difficult than the previous procedure that relieved Japanese banks of their bad loans.

First, the nonperforming assets from the latest crisis have been chopped up and embedded in various forms of different types of securities that have been spread among investors and financial institutions across the world. The disposition of nonperforming assets involves identifying the holders of these securities, determining the amount of losses the creditors have incurred on such securities, and then persuading them to take their share of the losses. Altogether, this process would require an enormous amount of time and effort. Negotiations on burden-sharing are, by definition, a troublesome task that no one wants to deal with. That task is even more challenging this time around because the disposition of nonperforming assets will have to proceed multilaterally with affected parties scattered around the world.

So as long as halfassed efforts at keeping zombie banks alive are the order of the day, we are doomed. And I may hang onto that money I was gonna put into Wells Fargo!

The Rest of the World

We have an idea how the US economy is going but how is the rest of the world?

Even worse off, in general. Europe is in a situation much like us but is conflicted over the process of ending/surviving this crisis. Most nations were dependent on us to buy stuff. We quit. Now their economies are failing.

How badly?

In a report delivered before the United Nations’ Food Policy conference in Bangkok Thailand on Monday, Jacques Diouf, the director general of the UN’s Food and Agricultural Organization (FAO) warned that more than one billion people across the world were now likely to go undernourished in 2009. That number is up from the 963 million, or roughly 1 in 7 people, projected by the FAO for 2008.

Diouf pointed out that while prices for essential agricultural commodities such as rice, corn and wheat have fallen from the destructive heights they reached in 2008, they remain approximately 30 percent higher than 2005 rates. Diouf told the Financial Times in an interview last week, “The food crisis is not over.”

Current prices are already placing an enormous burden on poor and working class people throughout the world. However, Diouf further warned that prices could soar once again to the highs recorded between 2007 and 2008 due to the lack of credit currently available to farmers, which has affected their production and expansion capabilities.

Commodity prices went wild when the world economies were growing. And the poor suffered. Now the economies are sinking and the poor are suffering. They just can’t win. Now the problem is both transportation and farmers’ production.

However, Diouf further warned that prices could soar once again to the highs recorded between 2007 and 2008 due to the lack of credit currently available to farmers, which has affected their production and expansion capabilities.

More information at WSWS.

And Japan is getting old. With interesting consequences.

“I had no place to stay and I wanted the police to take care of me,” said the 79-year-old Japanese woman. She had just slashed two people with a knife so the police would take her to jail.

A “gray” crime wave is sweeping Japan. According to the UK’s Independent, people over 65 years old make up 10% of Japan’s prison population, the highest rate of incarceration for pensioners in the industrialized world. Another source reported Japanese pensioners were responsible for one in seven arrests last year, up from one in 25 a decade ago.

And it’ll only get worse.

Japan has the second-lowest birth rate in the industrialized world. The birth rate to sustain a population is 2.1 per woman. In Japan, the birthrate has fallen below 1.2. Japan’s population fell for the first year in 2005. By 2050, if trends continue, Japan’s population will fall by 20%.

The other problem is life expectancy. It’s going up in Japan. So the elderly are becoming the largest segment of Japan’s population. Right now, 20% of Japan’s population is over 65 years old. By 2050, 40% of Japan’s population will be over 65 years old. In the U.S., the “65 and up” population makes up about 12% of society.

So ultimately, the elderly will bankrupt the nation since they produce no revenue for the Government.

So whose gonna bail us out? Space aliens? No one. We don’t even have anything to sell.

Full disclosure — Updated

I liquidated a lot of my mutual fund holdings in mid September after waiting long enough to lose a few thousand dollars. I held onto my small holding of gold stocks. Which continued to go down! And has only recently returned to shouting distance of what I invested!

OTOH, in late January I went back into the oil producer stocks in a limited amount and now have about the same amount of value as when I bought it two months ago.

And now I plan to invest in Wells Fargo shares. This is with a time horizon of two years in which I expect the WF stock to double in value. This is one the large banks not saddled with a bunch of toxic loans. The downturn/collapse of the economy is creating a higher than normal foreclosure rate on mortgages but it looks like they will be able to cope with it. They have cut their dividend to increase capital accumulation which made the shares cheaper!

Right now the shares are moving up and down about $2 every few days without any real reasons! I can’t see this stock going any lower than it is ($12) unless the total economy tanks in which case, it doesn’t matter where one’s money is! Besides, I bank there.

UPDATE

I am reconsidering this decision based on this blog post:
A Game of Credit Cost Smoke and Mirrors at Wells Fargo?
and other, similar ones. Maybe some stock in Family Dollar . . .

The finance industry effectively controls the US Government

A detailed analysis of the present financial crisis the US is facing is in The Atlantic written by a former IMF chief economist, Simon Johnson. Here are some excerpts:

Typically, these [emerging] countries [in economic crisis] are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

Sound kinda familiar?

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

The above is the opening of the section entitled “Becoming a Banana Republic “.

Mr. Johnson presents four pages of facts to support his observations and then reaches these depressing choices:

In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

. . . .

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

Or:

The second scenario begins more bleakly, and might end that way too. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

Sounds like the crawling out of the handbag after we’ve gotten to hell scenario!

He concludes with this admonishment:

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

The entire article is well worth the time to read; it is linked in the first paragraph. I’ve wondered what the IMF thinks of our amateurish efforts to stem the crisis. Now I have a good idea; just what I expected!

Let the People In

A great idea which seems to have appeared first on The Baseline Scenario (James Kwak) from a reader. The comment:

If Geithner’s taxpayer subsidized toxic public/private plan goes forward, I think it would be fair if the federal government allow non-institutional investors to participate via a no-fee investment vehicle. I think if Americans had the option of investing in this program (without having to pay the egregious fees to the investment advisors/PE shops), it would be much easier to swallow since they would at least get the same deal the sharks are getting. There is probably more money on the sideline with individual investors than all these institutional investors. Maybe they could set up some ETF equivalent for it. I think the willingness of the administration to do such a thing would tell us a lot about whose for whose interest they are really looking out.

Yah for (presumably) him! I got my money ready to go!

Kwak has more support in the rest of the article.

The economy and The Singularity

The economy is “circling the drain” and the policies being applied to “solve” the problem are designed to foster a return to the way things were: more lending for more indebtedness. Great plan.

How does this meltdown affect the coming Singularity? Or to put it another way, will the lack of available credit and/or investment capital slow the development of technologies? I really have no idea. Much of the development is almost self-sustaining as one development leads to the next. Many of the new technological developments will obsolete previous ones, presumably making that capital available again for the new thing.

So my guess is, the current financial crisis won’t affect the “schedule” of the Singularity much. But it is very possible that one of the changes will be in the financial realm. As the disenchantment with the present process of managing money transactions increases, the likelihood of a new system being instituted seems more probable.

A process which may make solid money obsolete, or at least of secondary importance. Money is just a way of “keeping score”, whether in transactions, loans, pay, or any exchange of value. More and more we never actually see the [presumed] cash that goes through our accounts: direct deposit, EFTs, debit/credit cards, and other means of payment take the place of making deposits and withdrawals. Or transaction processes we haven’t even seen yet.

Whether these exchanges will be handled by conventional banks or some new financial entity we don’t even associate with money, who knows. The ride has just begun!

AIG Bonuses Analogy

Great analogy for the current brouhaha over bonuses. There are bigger fish to fry!

http://xkcd.com/558/

Force AIG into bankruptcy.

How high the fraud?

We are bailing out banks and investment firms regularly, the poor b*****ds, who have suffered so much from those evil short sellers while just trying to make an honest few bucks to pay stockholders and employee incentives bonuses. Yeah,I’m being very sarcastic.

So what did happen? Fraud. Blatant fraud. The traders in the “back room” who did all this fancy manipulation of subprime mortgages: bundling and all the other neat ways of hiding bad loans, had to keep the facade up by cheating.

The problem was hiding the true value of the bundles; this is where the fraud came in. The traders needed a value to set these bundles since there really was no market for them so they either made them up estimated their value based on nothing their experience. Or if they needed something more substantial, they worked with fellow traders to do some exchanges so there were recorded values for these products.

And since managers are supposed to be monitoring these guys’ activities, where were they? Benefiting from the scam and preferring to turn a blind eye to the fraud. Maybe all the way to the top. But, until someone with some resources gets involved (fraud charges by a DA; lawsuits by damaged parties, or an investigative committee), nothing will happen and we’ll just keeping rewarding the criminals with bailout money.

Naked Capitalism has some great details and confessions on the subject.

How is the Dow? Updated

The Dow Jones Industrial Average is a group of 30 stocks chosen by the Wall Street Journal by reading chicken entrails or something. And it isn’t a real average; stock splits mess up the value so they adjust the divisor when this happens. So it actually works like magic.

And now, with all the stock movement, it is kinda crippled. Some of the stocks are valued so low, any price movement by them has no effect: Citigroup, Bank of America, General Motors, General Electric, American Express, Intel, and Alcoa fit clearly in this category. That leaves 23 active stocks. Last June, only 4 of the entire basket had gone up in the previous 12 months: Walmart, IBM, Chevron, and Caterpillar. Two in particular are doing well in sales now: Walmart and McDonalds because people are looking for lower prices. But this hasn’t shown up in their stock prices while everyone is stuffing their money in their mattresses.

My point is that the totally tanked stocks aren’t going to go up much; even if they doubled in price, the Dow won’t be affected much. But those who haven’t gotten below $20 can still cause it to move downward easily.

Everyone is nervous so any bad news pushes stocks down. But good news about one company can make the Dow go up. Temporarily.

My point here is that the broader indicators give a more accurate picture of the current market conditions.

Update 03/13/09:
Marketwatch has some comments on this same subject.

The Crash of ‘08 with Updates

This is a followup post to my October 11 post regarding where stocks might stop falling. This guy is much smarter than me and actually has numbers!

Of course, under this scenario you would do better waiting for the market to recognize the depression and wait to buy at 608 rather than now at 735. Moreover, given the historical tendency for over exuberance in upswings and excessive pessimism in downturns, you might expect the actual price to fall well below 600 in another depression, at which point there will be returns to be had well in excess of 5.5% if you time your moves just so.

But good luck with carrying out that particular scheme. After all, scenario 2 assumed we’re about to start another Great Depression, and hopefully it goes without saying that this need not necessarily happen. If it doesn’t, you may find yourself waiting for the S&P to fall below 600 until you’re both retired and dead. If the downside to investing now, even under the depression scenario, is better than a 3% average real rate of return over the next decade, I can live with that.

But your mileage may vary.

From Econobrowser.

So keep your money in the mattress a while yet! In all honesty, I have invested some of my cash in gold stocks and energy stocks (mutual funds). The gyrations are fun to watch! But most of the money is still in a dividend-paying cash account.

Update 1:

The most recent bubble peak, 2000, was by far the most extreme we have ever experienced. In 2000, the S&P 500 by prof. Shiller’s measure exceeded 40X (it had never before exceeded 30X). With the S&P 500 hitting 700 today, the PE has now fallen back to 12X.

The longterm average of the S&P is 16X (price multiples of earnings). The summary:

Using Professor Shiller’s latest earnings data, here’s where the numbers would fall out if the market just kept dropping and 10-year average earnings didn’t grow from today’s level:

P/E S&P 500 Level
10X 575
8X 460 (highest previous trough low)
7X 400 (average previous trough low)
6X 350
5X 300 (lowest previous trough low)

In short, if the S&P fell straight to the high-end of its previous trough range (8X PE, or 460), it would fall another 35% from today’s level (700)

If the S&P fell straight to the low-end of its previous trough range (5X PE, or 300), it would fall another 55+% from today’s level.

From Henry Blodgett of Huffington Post.

The Curmudgeon: Hang on the ride could get wilder!

Columbia

Remember them? Bush’s buddies? The guys who took drug money to stop drug crops execute enemies of the gummint? Well some of the new people in Washington aren’t so enthused about business as usual.

Colombia is losing the war on coca-leaf cultivation and cocaine production and export, despite the billions of dollars in US military and alternative-development assistance.

In November, a report from the US Government Accountability Office (GAO) concluded that Plan Colombia’s goal of cutting the production and distribution of illegal narcotics in half over six years “was not fully achieved” based on its finding that, in fact, coca-leaf production had increased by 15 percent between 2000 and 2006.

The report – commissioned by then-Sen. and now Vice President Joe Biden – did cite improved security in Colombia that has resulted in a significant drop in the number of kidnappings and murders.

The GAO recommended cuts in US funding, to be offset by broader Colombian responsibility for its own programs.

Oh, snap!

Defense Minister Santos equated any cut in what is now about $500 million in annual aid to “pulling the rug out” from under Colombia just as it is “winning” its decades-old fight with a drug-financed guerrilla.

Poor guys! With victory just in sight!

OTOH, now we’re doing the same stupidity in Mexico. Will we ever learn?

Massive Oil Stocks

The world is awash in crude oil, an interesting turnaround from the last few years. While many claim this “proves” speculators were at work, the fact is, demand for oil has dropped due to the tumbling economy. This quote sums things up nicely.

According to the U.S. Energy Information Administration, there are 339 million barrels of crude in commercial stocks, which is 16% more than at this time last year. The vast crude oil storage tanks at Cushing, Okla., are topped off. And operators are even storing oil in unused networks of pipelines.

Note: Cushing, Oklahoma is midway between Tulsa and Oklahoma City.

Meanwhile there is a slump in demand for crude oil and refined products in the U.S. This is forcing many domestic drillers to pull back on oil exploration and development of existing reserves. One example is Chesapeake Energy (CPK: NYSE), which was funding much of its ambitious land acquisition and drilling with credit.

In the last four months, according to figures from Baker Hughes (BHI: NYSE) over 800 drilling rigs have shut down just in the U.S., or about a third of the total rigs that were operating in the U.S. during the peak drilling period as of last September. Consider that each drilling rig employs between 50-200 workers, as well as a long supply chain for all sorts of things from fuel to food to drilling mud and welding rods. My back-of-the-envelope calculation is that 800 rigs represent about 100,000 laidoff employees. It’s going to make things tough for other oil service providers like Halliburton (HAL: NYSE) and Superior Energy Services (SPN: NYSE). Still, over the long haul, I think that the oil field service providers will stage a strong comeback. They have to. At least, if the world will still wants to use oil.

——-

According to recent reports in trade publications, there are at least 80 million barrels’ worth of oil just floating around in tankers on the world’s oceans. From the Louisiana Offshore Oil Platform (LOOP) to Scotland to the coasts of the Persian Gulf and Asia, there are loaded tankers idling at sea.

How much oil is 80 million barrels? That’s about one day’s worth of global oil consumption. But it’s more than that. There’s never a day when there is zero oil output. From day to day, the global production of crude oil is a consistent number. So a change of, say, 1 million barrels per day could dramatically alter oil pricing. Even a few hundred thousand barrels, one way or the other, can move markets. So selling off a floating inventory of 80 million barrels could alter world oil pricing for several months at least.

From Whiskey and Gunpowder on 2/19/2009.

What is needed in the collapse

And that doesn’t include banks. Or automobile manufacturers. Or more credit. For the citizens to survive they need four things: food, shelter, transportation, and security. And transportation doesn’t necessarily include cars and gasoline.

As Dmitry Orlov puts it:

They [the Washington economic stimulus team] spoke of change, but in reality they are terrified of change and want to cling with all their might to the status quo. But this game will soon be over, and they don’t have any idea what to do next.

So, what is there for them to do? Forget “growth,” forget “jobs,” forget “financial stability.” What should their realistic new objectives be? Well, here they are: food, shelter, transportation, and security. Their task is to find a way to provide all of these necessities on an emergency basis, in absence of a functioning economy, with commerce at a standstill, with little or no access to imports, and to make them available to a population that is largely penniless. If successful, society will remain largely intact, and will be able to begin a slow and painful process of cultural transition, and eventually develop a new economy, a gradually de-industrializing economy, at a much lower level of resource expenditure, characterized by a quite a lot of austerity and even poverty, but in conditions that are safe, decent, and dignified. If unsuccessful, society will be gradually destroyed in a series of convulsions that will leave a defunct nation composed of many wretched little fiefdoms. Given its largely depleted resource base, a dysfunctional, collapsing infrastructure, and its history of unresolved social conflicts, the territory of the Former United States will undergo a process of steady degeneration punctuated by natural and man-made cataclysms.

Wow! Kinda like what FEMA is supposed to do!

Mr. Orlov delves into this subject deeply, based on his experiences in the collapse of the Russian economy, and offers examples and solutions (some of which I hope are facetious) at Social Collapse Best Practices.

Four billion mobile connections reached

While my neck of the woods ( a literal description) still lacks cell service, the rest of the world is becoming totally connected. This week, the 4,000,000,000 milestone was passed of mobile devices. Cell systems began in Japan in 1979. Not bad for 30 years! Projections of 6 billion will be reached in 2013. There are presently 6.7 billion humans on Earth.

gizmag.com

In related news, one in two people now carry a cell phone. 54.9% actually. Many nations are fully wired: the European union, Russia, Ukraine, Argentina, Taiwan, and New Zealand have 100% or near that level of per capita cell phones.

Wikipedia

“It’s how we’re all connected.”

“Fighting” Inflation

Corporations are fighting inflation in their own way: by “downsizing” product sizes!

The indented bottom of a Skippy peanut butter jar got more indented, turning an 18-ounce jar into a 16.3-ounce one. Ice cream containers shrank by one-quarter of a quart. And for breakfast, a jug of Tropicana orange juice got seven ounces lighter, while that box of Froot Loops lost more than two ounces.

According to recent analysis by Nielsen Co., about 30% of all packaged goods have lost content over the past year. This at a time when U.S. grocery bills are rising — up 7.5% in October versus a year ago — at the fastest rate in 18 years.

www.whiskeyandgunpowder.com

With fewer potato chips in each bag. I noticed my new tires were — as the salesman said — redesigned “for better performance”. And they did it using less rubber!

Let us count the ways [to hide downsizing]: There are indented container bottoms, smaller or fewer sheets of paper goods, thinner garbage bags, and frothier products (add air, charge the same). Sometimes the new package is smaller (score one for full disclosure); other times it’s the same size or is actually bigger than the old package.

Like my tires, manufacturers can be imaginative in explaining these reductions.

For what it’s worth, some manufacturers gave us other reasons for lighter weights. Laurie Guzzinati, a spokeswoman for Kraft Foods, said the company downsized its 16-ounce bag of Chips Ahoy cookies to offset the cost of a new package that keeps cookies fresher longer. A Tropicana customer-service representative said the company drained 7 ounces of orange juice from its 96-ounce container to create a bottle that “poured easier with less spillage and less gurgling.” A customer-service rep attributed a half-ounce reduction in Iams canned cat food to a partnership with a firm whose machinery wouldn’t make 6-ounce cans.

A chart of some downsizing is at Consumers Reports.